Weekly Reports | 10:22 AM
Weekly Broker Wrap: Wisetech versus Xero; Treasury Wine marches more up-market; REITs in the earnings spotlight; an 'Origin'al boost for Superloop plus a golden nugget in waiting.
-Is a WiseTech hiccup on the cards?
-Premium Penfolds powers earnings
-Hits and misses in REIT land
-Superloop goes super growth
-Horizon Minerals an emerging mid-tier goldie
By Danielle Ecuyer
Quote of the week from Stephen Koukoulas.
"And I've seen it before. And I'll see it again."
"Yes, I've seen it before. Just little bits of history repeating."
These are the lyrics from the iconic Shirley Bassey song, History Repeating.
Take your own personal pick of which part of financial markets this may apply to!
The short and the long of Wisetech and Xero
JPMorgan has an interesting take on comparable risks going into reporting season on two technology favourites, Wisetech Global ((WTC)) and Xero ((XRO)).
The broker has placed Wisetech on a "negative catalyst watch" in advance of its earnings report on August 21, believing the market's expectations are far too high.
Industry investigations suggest Wisetech has put through price increases in the mid-single digit range, the analyst highlights.
In combination with a lack of transparency on new product launches plus a slowdown in Cargowise revenue growth to 19% the stock could be setting up for disappointment on realised FY24 revenue growth and the FY25 outlook.
JPMorgan views consensus revenue expansion of 30%-plus in FY24 and 24%-plus in FY25 as potentially too high, with its estimates at 28% and 23%, respectively.
Last year, Wisetech's lower than expected FY24 guidance at the FY23 results sent the stock price lower by -20%, which is a scenario envisaged yet again as a real risk for shareholders given the premium valuation which investors ascribe to the stock.
Depending on where you sit in the Wisetch debate, you could be afforded a lower entry point. One extra factor to take into account: the share price was well above $90 when that report was released.
Other brokers, including Bell Potter and UBS from the FNArena daily monitor, propose the transition to new markets via Landslide logistics and Customers and compliance are under-appreciated and have the potential to supersede the existing earnings engine of freight forwarding.
JPMorgan adopts a Neutral rating and stresses despite the short-term risks, it believes there is a "strong long-term growth" outlook from new customers in logistics and additional products in supply chain management software systems.
Conversely, Xero is in the driver's seat or not as the case will be as it reports out of cycle (March year-end), which equates to no earnings announcement in August.
The analyst also views the FY25 consensus revenue estimate of 21% is a low benchmark to achieve given the company ended FY24 with average monthly recurring revenue growth at 26%-plus.
Adjusting for the recent price tier changes, conservative revenue growth and subscriber additions, the analyst swiftly concludes there are upside risks to Xero's FY25 revenue growth.
JPMorgan retains an Overweight rating and $145 target price.
Goldman Sach recently upgraded the target price to $180 from $164 with a very upbeat view of the company's refreshed strategy and positive feedback from Xerocon.
Morgan Stanley, one of the daily monitored brokers, believes consensus forecasts are too conservative, and recent price rises and new plans underpin the broker's earnings forecasts. Overweight with a $180 target price.
Treasury Wine: The only way is UP!
Evans and Partners delves into the ongoing "premiumisation" strategy at Treasury Wine Estates ((TWE)).
The company announced its aim to sell off the commercial brand portfolio which will result in a -$290m post tax asset impairment within the Treasury Premium Brands division.
Divestment will lift luxury and premium wines to over 90% of revenues in FY25 from 69% currently. The broker estimates poor demand for commercial wines will result in the division being ascribed an inventory valuation of some $100m.
Management also served up FY24 earnings before interest and tax guidance at $658m which was in line with the Evans and Partner's forecast.
The analyst retains a "Positive" rating on the company with a valuation of $14.79, as no price target is offered. The company is considered offering a robust EPS outlook, driven by Penfolds and the US luxury business.
FNArena daily monitored brokers have an average target price of $13.763.
Goodman Group the king of the REIT castle
Daily monitored broker Citi and JPMorgan homed in on the A-REIT sector for an earnings season preview.
Citi sees the macro-outlook in an improving trend with rate cuts priced in the US and Australia, but earnings are expected to remain fundamentally challenged from high debt costs.
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