In Brief: Pro Medicus, Superloop, Clarity & More

This story features PRO MEDICUS LIMITED, and other companies. For more info SHARE ANALYSIS: PME

In Brief has filled the Christmas stocking with great stock snacks for investors, Pro Medicus, Superloop, Motorcycle Holdings, Clarity Pharmaceutical and Jarden’s cyber retailing update.

-Pro Medicus’ ongoing growth prospects
-Superloop’s strategic acquisition
-Motorcycle Holdings surprises to the upside
-Clarity Pharmaceuticals retains a bright future
-Cyber week augurs well for December retailers

By Danielle Ecuyer

Quote of the week comes from…..drumroll…Andrew Hauser, Deputy Governor of the Reserve Bank of Australia, from his speech at the Australian Business Economists’ Annual Dinner.

“The chances of being propelled into another global Depression are low. Our direct exposure to US tariffs is likely to be small. We have strong comparative advantages in raw materials and services that other countries need, both to power traditional industries and the industries of the future.”

Pro Medicus: A Quality Long-Term Growth Story

Goldman Sachs’ positive proposition on Pro Medicus ((PME)) centers around the ongoing adoption of Visage by many US healthcare institutions as a case of “when, not if.”

The latest and largest contract to date with Trinity Health has underpinned an increase in forecast earnings by the broker of 8% and places the analyst’s FY27 earnings 5% above consensus.

As per the broker’s explanation, large, outsized contracts, such as Trinity, provide less visibility to the investor but represent sizable upside to the value proposition. Trinity is a top-five integrated delivery network provider, jargon for a large healthcare organisation that provides a range of healthcare services, including hospitals, outpatient facilities, and specialised care centers, all under one umbrella.

Pro Medicus’ relationship with Trinity is expected to underwrite a network effect across these organizations, which represent over 40% of the total addressable market for the company.

Within the existing products, Goldman Sachs envisages significant opportunities to grow current customer spend, like cardiology, AI, and transfer to the cloud, as well as new white-label products in other “ologies.”

Pro Medicus’ competitive advantage lays with the partnerships with key industry opinion leaders and the launch of four new solutions at the Radiological Society of North America (RSNA) 2024 conference, which highlights the innovative approach and strong industry connections.

The broker’s research also highlights management has a robust track record of achieving profitable growth with “best in class margins,” which are believed to be sustainable through the cycle. The broker acknowledges the stock valuation is far from cheap but states the revenue/margin outlook and unique cloud offering provide a long-term opportunity for investors. Med-tech is also highlighted as a potential safe haven from impending policy uncertainty.

Pro Medicus is “Stay Buy” rated with a $278 target price, up 26% in the latest upward revision.

Superloop Soups Up Connectivity

Canaccord Genuity casts an eye over the latest acquisition by Superloop ((SLC)) to purchase Uecomm from Optus for -$17.5m.

Uecomm has over 2000km of high-capacity fiber assets across Sydney, Melbourne, and Brisbane/Gold Coast, with a network across 1,900 buildings and around 50 data centers. The broker estimates the assets have a further useful life of 20 years.

Assessing the purchase price based on the previous investment spend and life of the assets, the broker believes -$17.5m looks very attractive, and the asset had become superfluous to the needs of Optus.

Canaccord explains Uecomm adds to Superloop’s smart communities’ initiative to provide high-speed wireless and wired technologies for superfast internet connectivity to buildings. This is a growth area for the business with longer-dated earnings, higher margins, and improved return on investment.

The company’s capital efficiency is anticipated to lift as Uecomm reduces the need for increased capital investment. Superloop is estimated to possess balance sheet capacity for more acquisitions with a forecast net cash position of $23m at the end of FY25.

Uecomm is expected to be earnings neutral for its new owner in the first year. The broker lifts the business segment forecasts in the long term for Superloop and now has a compound earnings growth rate of 26% p.a. between FY23-FY29.

The target price is raised to $2.52 from $2.27 with an unchanged Buy rating.

Operating Leverage Rises for Motorcycle Holdings

Rev your engines as Motorcycle Holdings ((MTO)) delivered a stronger-than-expected trading update for October year-to-date for FY25, with revenues up 8% on the previous year.

Against a flat industry backdrop, new bike retail units advanced 3% and used bike retail units 13% over the period. All the key segments for the company experienced growth while margins were maintained, despite a rise in operating expenses of 5%.

Management pointed to an improvement in sentiment and signs of recovery towards the end of FY24, despite the cost of living pressures. Expectations are for an improvement in growth into 2025.

The new CEO, Matthew Wiesner, commenced on December 2 from a motor distribution background across multiple original equipment organizations.

Moelis highlights the motorcycle retailing business is trading at cyclically low levels and when conditions improve, operating leverage will kick in. The broker upgrades the EPS estimates for improved operating leverage off the back of the latest higher revenues; EPS forecasts lift by 20%-30% for FY25-FY27.

Buy rating retained with a $2.60 target price.

Clarity Painted with the Wrong Perception

There is no budging Wilsons from the upbeat assessment of Clarity Pharmaceuticals ((CU6)), with the analyst pointing to the perception that changes in the pricing regime will reinforce incumbent players in the PSMA PET market (Prostate-Specific Membrane Antigen Positron Emission Tomography), including Telix Pharmaceuticals ((TLX)) and Lantheus Holdings.

In the case of Clarity, which offers significant clinical benefits, the analyst does not believe this is an issue, but success will be dependent on an evidence-based campaign for the company. Wilsons points to the high efficacy rate of detection for Clarity’s 64Cu-SAR-bis PSMA, but the diagnostic performance remains to be confirmed by Phase III trials.

The company’s recent AMPLIFY study could deliver such confirmation. The broker also explains the Co-PSMA study, launched at St. Vincent’s in Sydney, will be important to test 64Cu-SAR-bis PSMA’s ability to detect smaller lesions and point patients to salvage radiotherapy post-prostatectomy.

Wilsons delays the timing assumption on revenues to FY27 from FY26 and retains peak sales estimates of US$950m, with Clarity’s 64Cu-SAR-bis PSMA assuming up to 30% of the market.

Buy-equivalent rating maintained with an $8.40 target price.

Cyber week is cyber strong for retailers

Jarden’s 46th retailing case study looks at Cyber Week, highlighting this period has surpassed Christmas in terms of size and de-risks the December trading period.

Web traffic this year indicates more positive sales than stores, rising 17% year on year against store traffic, up 4%. Household goods, electronics, department stores, and soft goods were the most robust categories.

Across brands, the broker notes Kathmandu ((KMD)) up 43%, Temple and Webster Group ((TPW)) up 25%, Coles Group ((COL)) up 13%, Bunnings ((WES)) up 31%, Harvey Norman ((HVN)) up 31%, Hype DC ((AX1)) up 53%, Big W ((WOW)) up 42%, BCF ((SUL)) up 25%.

Brands in decline included City Chic ((CCX)) down -14%, Catch down -22%, Home Hardware ((MTS)) down -39%, Footlocker down -9%, and Target flat. Catch and Target are both part of Wesfarmers.

Over the second week of the Black Friday period, gross margins seem to have improved by around 30bps. Jarden believes the Christmas outlook is improving, with aggregate data pointing to over 6% annual growth in discretionary goods revenue for the Cyber period.

The analyst views potential upside risks to earnings for Harvey Norman and JB HiFi ((JBH)). Rising competition from Amazon, Temu, Shein, and direct-to-consumer means incumbent operators will need to invest more in supply chains and marketplaces to grow the total addressable market, eyeballs, and profits.

Jarden favors what it refers to as companies with “global expansion, travel, and category killers,” which includes Flight Centre Travel Group ((FLT)), Webjet Group ((WJL)), Universal Stores ((UNI)), Temple & Webster, Harvey Norman, Woolworths Group, and Treasury Wine Estates ((TWE)). The broker is more “cautious” on mature businesses facing increased competition.

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