Top Stock in Australia Is a Winner From Nation’s Housing Boom

(Bloomberg) -- Australia’s hot property market and a proposed hike in wholesale broadband internet prices are supporting the nation’s best-performing stock this year.

Shares of residential internet provider Uniti Group Ltd. have surged 95% so far in 2021, beating other members of the S&P/ASX 200 Index. The gains have come as Australian home sales continue to outpace listings and the government’s National Broadband Network eyes higher prices on its network. The Adelaide-based company was added to Australia’s benchmark this month.

“We like Uniti’s leverage to the Australian domestic housing market,” JPMorgan Chase & Co. analysts led by Mark Busuttil wrote in a June 18 note. The possible increase in wholesale costs could also bolster Uniti’s revenues, since the firm sets its rates according to NBN pricing, they added.

Australian housing construction activity is likely to climb further over the next 12 months as soaring home prices support demand, Bloomberg Intelligence analyst Mohsen Crofts wrote in a June 21 note. ​Buyers have been snapping up properties amid low interest rates, government incentives and limited supply.

Uniti’s pipeline of contracts is rapidly building as it targets areas that are earmarked for new development, Goldman Sachs Inc. analysts led by Kane Hannan wrote in a June 11 note. Its share of internet-ready greenfield properties, as a proportion of NBN’s share, stood at about 20% as of the end of 2020, Uniti said in its half-year results in February.

In addition, wholesale broadband prices could rise by at least 13% by mid-2023 under the proposal released by NBN this month, according to JPMorgan. The broker’s long-term earnings estimates for Uniti could be 20% to 35% higher based on the steeper NBN costs, the analysts wrote.

However, elevated rates could prompt retail service providers like Uniti to invest in technologies like 5G fixed wireless, which would hurt their profits, JPMorgan added.

©2021 Bloomberg L.P.