Weekly Reports | 10:00 AM
Post FY26 results this week's In Brief taps into three companies with contrasting investment stories across consumer resilience, technology-led growth and renewed momentum in the gold sector.
- KWB drives earnings and cash flow growth for Joyce
- DUG Technology's revenue mix points to higher-quality growth
- Gold price strengthens the dividend outlook for Kingsgate Consolidated
By Danielle Ecuyer
This week’s quote comes from UBS strategists Richard Schellbach and Lily Huang:
"Earnings revisions, trading updates and share price falls confirmed through August results season that higher interest rates and tax policy changes are increasingly proving headwinds to the Aussie housing wealth dynamic.
"At the same time, the intensifying AI/data centre capex cycle is showing itself broadening out, and the potential for it to prolong."
Scope to grow earnings from a fragmented market
Against the backdrop of negative headwinds from higher interest rates, a slowing property market and falling house prices, arguably Joyce Corp ((JYC)) has stood out from the consumer/housing-facing businesses, registering 32% y/y growth in net profit after tax attributable to shareholders in FY26.
As outlined by Canaccord Genuity, growth was above consensus, alongside beats on operating cash flow and the final dividend.
KWB Group (51%-owned), which operates Kitchen Connection and Wallspan (wardrobes), saw earnings (EBIT) rise 30% y/y and come in 4% better than the analyst’s forecast due to better work/sales conversion to revenue, underpinning a lift in gross margin.
Bedshed (franchises and operates six company-owned stores) generated a 9% y/y lift in earnings (EBIT) but missed the broker’s expectations by -6%, resulting from lower written sales orders.
Operating cash flow advanced 44% on the prior year, 8% above forecasts and 19% higher than consensus.
Over 4Q26, the order environment for KWB weakened, with early FY27 trading reflecting a softer macro backdrop.
July orders of $11.1m were down -9.8% y/y, which in turn was 21% higher than July 2024. Canaccord believes conversion and average transaction values are likely to remain “resilient”.
Further growth opportunities are highlighted across network growth, including flagship showrooms at Fyshwick (ACT), due to open in 2Q27, and Fortitude Valley (QLD), due to open late FY27.
Canaccord considers the KWB results “strong” and believes a highly fragmented market offers scope for long-term consolidation.
The outsourced manufacturing and installation model is appealing and allows KWB to operate with robust margins, gross margins over 50% and EBIT margins over 20%. The customer payment schedule allows for high cash conversion.
The KWB business offers the long-term attraction for the broker, with the target price raised to $7.39 from $6.67 and DPS forecasts raised to equate to a payout ratio of 80%-83%.
Buy rating retained.
August punishment ignores management's confidence
DUG Technology’s ((DUG)) FY26 results, which entailed a decline in the company’s order book of -35% y/y to US$33.6m, were enough to send the stock down sharply (by up to -21.1% on the day).
They have since started to recover.
As observed by Shaw and Partners, FY26 revenue rose 38% y/y and was better than consensus expectations and the broker's own forecast.
Normalised EBITDA advanced 78% y/y and met Shaw's forecast, implying a margin of 32%.
Gross free cash flow of -US$4.3m was better than the -US$6m forecast and net debt of US$13m was apparent at year-end.
Despite the fall in the order book, Shaw is confident the growth outlook for FY27 is “stronger” and the share price decline fails to capture the underlying momentum.
Management emphasised that, compared with prior periods when the order book slipped, there is considerably more “optimism” in this instance.
With projects still in the pipeline, the issue seems to be one of timing rather than projects being lost. Projects deferred, not denied. Equally, there remains considerable seismic data still flowing through to processing.
The current cycle was compared by management to the late FY24/early FY25 cycle, with Services revenue expected to grow in FY27.
Shaw forecasts 3% growth to around US$65m, with near-term contract wins seen as key catalysts.
Another positive for DUG is the changing nature of the business, with a second major Software/HPC (high-performance computing) contract announced with a national oil company for US$9.3m over two years.
This new contract comes after the Petronas contract, described as a “landmark” win in FY26.
Software/HPC generated 26% of revenue in FY26, up from 17% in FY25, and is forecast to rise to around 33% in FY27.
Alongside growth in the Multi-Client business, the changing revenue mix supports more stable revenue streams and higher-quality, less volatile earnings.
The FY26 results showcased operating leverage as the normalised EBITDA margin rose to 32% from 25%. Operating leverage is considered one of the key positives for DUG, and Shaw forecasts margins to move to the high-30% range over the longer term.
The stock is trading around 12.8x FY28 EV/cash EBITDA, which is viewed as too low relative to the operating leverage upside.
The target price, set at $3, implies a valuation of 24x FY28 EV/cash EBITDA. The stock remains Buy rated and is ascribed High Risk.
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