In Brief: Superloop, Qantas, Jumbo, Qualitas & GQG

This story features SUPERLOOP LIMITED, and other companies. For more info SHARE ANALYSIS: SLC

Junior telcos take bite of the high speed network, Qantas flying high on luxury spending, Jumbo’s outlook improves and wealth managers to make investors wealthy.

-Telco juniors are ready to rumble
-Premium airlines taking off for growth
-Jumbo catches some upside love
-Wealth managers offer value

By Danielle Ecuyer

Quote of the week comes from Rob Almeida, MFS Investment Management Global Investment Strategist:

“In 1929, investors began to discount the Republican Congress’s plans to tariff over 25,000 goods entering the US. This mattered to investors because, while tariffs make US goods more attractive to domestic buyers, they drive up costs for US producers sourcing goods outside the country as well as consumers. While there were other catalysts heading into October 1929, the prospects of the Smoot-Hawley tariffs were a factor that changed both how investors thought about future profits and what they were willing to pay.”

Tailwinds blowing for smaller telco players

Challenging the incumbent telco operators is a favoured theme for Jarden, with the broker initiating coverage on Superloop ((SLC)) and Aussie Broadband ((ABB)).

From a macro perspective, three tailwinds are benefiting the sector:

-NBN Co’s “Fibre Connect” program underpins the upgrade of around 3.1m subscribers to higher-speed connections, while the pricing model incentivises movement to higher speed tiers.

-Growth in services-in-operation from increased building activity.

-A rising share of small businesses adopting consumer-grade plans.

These tailwinds provide potential earnings upside for Superloop and Aussie Broadband.

Superloop is the preferred stock, with Jarden pointing out potential earnings upside has not yet been reflected in the share price. The analyst believes the Origin Energy ((ORG)) contract is underappreciated and represents a significant earnings opportunity, with consensus subscriber growth expected to exceed current levels.

Origin is targeting around 600k broadband subscribers by FY26. Jarden forecasts a more conservative 295k subscribers, with wholesale market earnings filling the gap for FY26.

In the consumer segment, Jarden expects 14% compound average revenue growth from FY23 to FY33, driven by market share gains and a shift to higher-speed tiers. Average revenue per user is projected to rise to $24/month by FY33, up from $22/month. Gross margins are estimated to grow at a 13% compound annual growth rate over the same period.

The broker starts coverage with a Buy rating and a $2.50 target price.

Jarden is also positive on Aussie Broadband, starting with an Overweight rating, nearly Buy-equivalent. The broker sees the company continuing to invest in growth both organically and through M&A, with Buddy Telco being a key focus for 1H25. Management remains committed to a net leverage target of 1.75x-2.5x.

The valuation, along with attractive expected dividend growth of 18% compounding annually through to FY33, makes the stock appealing. Target price: $4.

Are airlines the new luxury stock theme?

According to Morgan Stanley, it is time for premium carriers to take the “luxury” exposure mantle from traditional luxury goods stocks.

The broker believes premium airlines offer an alternative avenue for exposure to secular luxury demand trends. Demand for premium tickets, with reduced reliance on marginal economy class, is expected to boost profitability for carriers like Qantas Airways ((QAN)) and Delta Air Lines, which are the top picks globally.

Delta has achieved around 40% of passenger revenue from premium tickets, up from 29% in 2014. Management expects premium sales to surpass the main cabin by 2027.

Similarly, Qantas reports international revenue per available seat kilometre is approximately 40% higher than pre-covid levels, driven by strong leisure and premium cabin demand.

Morgan Stanley retains an Overweight (Buy-equivalent) rating on Qantas, with a $10.50 target price.

Despite concerns over -$16bn in capex investments, the broker argues these investments are expected to generate returns above the weighted average cost of capital.

Higher lottery turnover remains on the cards

J.P. Morgan observes lottery turnover is down -4% in 1H25 compared to the previous year.

Including this week’s $100m draw, turnover could grow 2% annually across Powerball, Oz Lotto, Saturday Lotto, and Set for Life. If prize jackpots reach $150m, turnover could grow 10% year-on-year, though the broker notes jackpot sequences remain volatile.

Annual comparisons are entering a challenging period due to record jackpots in late 2023 and early 2024. Despite this, J.P. Morgan upgrades Jumbo Interactive ((JIN)) to Neutral and raises the target price by 9% to $13.30.

The decision to upgrade is based on a decline in the company’s valuation to circa 19x (from 24x) and consensus EPS forecast downgrades of -15% and -13% for FY25/FY26, respectively.

The Daily Winners programme is highlighted as having the potential to generate high-margin recurring revenue, aside from jackpots.

The pick of the wealth winners

Net inflows averaging over 15% annually in the past five years make Jarden bullish on wealth managers Qualitas ((QAL)), GQG Partners ((GQG)), and Pinnacle Investment Management ((PNI)).

Qualitas is in a strong position to attract global funds into private assets. The broker sees its guidance to double funds under administration by FY28 as achievable.

With minimal investment required for growth, significant operating leverage is expected, leading to over 20% compound annual EPS growth. The stock is trading at an -18% discount to its three-year average P/E ratio, with a 3.3% dividend yield.

Qualitas starts off with a Buy rating and a $3.75 target price.

GQG Partners has demonstrated a compound annual growth rate of 40% in funds under management and 50% in net profit over the past five years. Consensus fund inflows of 4%-6% for FY25-FY26 are seen as conservative. The stock trades at 9x 2025 forecast earnings, compared to peers Magellan Financial Group ((MFG)) and Platinum Asset Management ((PTM)) at around 14x.

GQG Partners starts with a Buy rating and a $3.30 target price.

Goldman Sachs also has GQG in focus following the precipitous fall in the company’s share price of -19% after news emerged of US prosecutors charging Adani executives with alleged bribery schemes. Management highlighted over 90% of client assets are invested in non-Adani Group assets, suggesting only around 10% of funds under management are exposed.

The analyst calculates a drop in Adani assets of -10% to -50% would result in an estimated impact to FY25 net profit of -1.3% to -6.6%, concluding the sell-off was materially overdone. At Goldman Sachs, the shares are Buy rated with a $3 target price.

Pinnacle is noted for its quality, fund outperformance, and low cost-to-income ratios. However, it is considered the “most expensive” asset manager globally among 30 public and private peers.

No surprise thus, Jarden starts coverage with a Neutral rating alongside a $24.40 target price.

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