Weekly Reports | Mar 08 2024
Broker Rating Changes (Post Thursday Last Week)
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ADAIRS LIMITED ((ADH)) Upgrade to Market Weight from Underweight by Wilsons.B/H/S: 0/0/0
First half results from Adairs were mixed with sales in line and net profit ahead amid a strong rebound in gross margins and cost control. Wilsons notes gross margins recovered despite value-seeking consumers, while the top line was held back by limited stock.
The issues with the margin for Mocka appear resolved although the broker notes the core customer remains value-oriented and volatile.
Execution on costs and the ability to show pricing power results in Wilsons upgrading to Market Weight from Underweight. Target is raised to $2.00 from $1.10.
ALTIUM ((ALU)) Upgrade to Neutral from Underweight by Jarden.B/H/S: 0/0/0
The first half result from Altium missed Jarden's forecasts with the focus now on the Renesas takeover. Revenue grew 16% and EBITDA 3%.
The company has suspended guidance but the broker notes, in order to achieve the lower end of the prior guidance range, revenue growth in the second half would need to accelerate to 25% and the EBITDA margin expanded to at least 37%.
The broker raises the target to the offer price of $68.50, from $42.00, and upgrades the rating to Neutral from Underweight.
AUSTRALIAN UNITY OFFICE FUND ((AOF)) Upgrade to Buy from Hold by Moelis.B/H/S: 0/0/0
With Australian Unity Office Fund's portfolio contracting from eight assets to five in the last year, and one of its largest assets remained vacant, Moelis was left surprised by the company's reported 4 cents per share funds from operations first half result.
While ahead of the broker's forecast, the result was down -46% year-on-year.
The company has now announced the divestment of the York St asset for $29.7m, having been purchased in December 2021 for $33.5m. Australian Unity Office Fund should be in a position to start leasing the Valentine Avenue asset in FY25.
The rating is upgraded to Buy from Hold and the target price increases to $1.47 from $1.43.
COOPER ENERGY LIMITED ((COE)) Upgrade to Overweight from Neutral by Jarden.B/H/S: 0/0/0
First half underlying earnings were ahead of estimates and Cooper Energy is seen making progress on its cost reduction program while Orbost is performing well.
The main risk, in Jarden's view, is a successful execution of the BMG abandonment within the targeted budget and by early May.
There are signs of a sustained performance at Orbost, as average production rates since the start of 2024 are 55.2 TJ/d compared with the 47.4 TJ/d average in the first half.
The broker upgrades to Overweight from Neutral and raises the target to $0.19 from $0.15.
DOMINO'S PIZZA ENTERPRISES LIMITED ((DMP)) Upgrade to Overweight from Neutral by Jarden.B/H/S: 0/0/0
As Domino's Pizza Enterprises downgraded guidance in January, the first half report held few surprises for Jarden. The broker was seeking signs of improved same-store sales growth in Japan and the EU, and this was delivered.
Japan accelerated to 6.7% in the first seven weeks of the second half and Europe, while edging down -0.6%, revealed Germany was up 6.1%, the key growth market.
Risks remain yet the broker envisages the weight is to the upside and takes comfort in the momentum that has continued in Australasia. Rating is upgraded to Overweight from Neutral. Target edges down to $49 from $50.
FLIGHT CENTRE TRAVEL GROUP LIMITED ((FLT)) Upgrade to Buy from Overweight by Jarden.B/H/S: 0/0/0
First half results missed expectations yet Jarden assesses this was overshadowed by market share gains, with FY24 guidance being reiterated along with a FY25 pre-tax profit aspirational margin of 2%.
The broker updates forecasts to allow for disclosure changes, with the net impact being a 5-6% increase in net profit estimates out to FY27.
The business is larger and leaner, with higher returns on investments compared with pre-pandemic levels and Jarden believes this warrants a premium relative to the 16x FY25 EPS currently implied.
Rating is upgraded to Buy from Overweight and the target lifted to $23.50 from $22.00.
KOGAN.COM LIMITED ((KGN)) Upgrade to Neutral from Underweight by Jarden.B/H/S: 0/0/0
Despite concerns regarding the threat of Amazon and Temu in the longer term, Jarden upgrades Kogan.com to Neutral from Underweight. The company is currently managing the business for cash/profit with the increased profitability largely stemming from Kogan First members.
The broker does not believe the stock represents value on a PE of 46x FY24 estimates but expects ongoing growth in Kogan First subscriber numbers will lead to an upgrade cycle.
To become more positive regarding the sustainability of the company's business, Jarden would like stabilisation in the overall number of active members and evidence of sustained stability in customer acquisition costs. Target is raised to $7.50 from $4.90.
MAYNE PHARMA GROUP LIMITED ((MYX)) Upgrade to Buy from Hold by Canaccord Genuity and Upgrade to Overweight from Market Weight by Wilsons.B/H/S: 0/0/0
Canaccord Genuity observes positive trends across all segments are occurring for Mayne Pharma, with the business enjoying a "healthy and deserved re-rate over the last few months". New systems are in place to create structural growth.
A strong pipeline of product additions, combined with the disintermediation story, mitigates the risks in specialty and generics, the broker adds.
Rating is upgraded to Buy from Hold and the target lifted to $6.69 from $3.80. Expansion of the buyback also signals an improved stance.
Wilsons is finally satisfied that changes in accounting policies, data tracking and market approach by the new management team at Mayne Pharma are becoming sticky and the first half results have revealed tangible evidence of their efforts.
The positive view on the stock is being driven by Nextstellis, which for the first time since launch beat forecasts. This is a catalyst to upgrade to Overweight from Market Weight.
The broker assesses the material turnaround of the business is only getting started and it is time to buy. Target is raised to $7.38 from $5.50.
NANOSONICS LIMITED ((NAN)) Upgrade to Overweight from Market Weight by Wilsons.B/H/S: 0/0/0
Wilsons upgrades to Overweight from Market Weight despite reducing the Nanosonics EBIT estimates by -45% for FY25-26 as, with major Coris applications imminent and the fundamentals solid, its faith is unshaken.
The broker assesses the stock was sold off because the company announced concessions to enhance both the installed base additions and upgrade sales.
Wilsons believes the move was a long overdue stimulus for consumables and services earnings. Target is reduced to $3.45 from $3.95.
POLYNOVO LIMITED ((PNV)) Upgrade to Overweight from Market Weight by Wilsons.B/H/S: 0/0/0
Wilsons upgrades its rating for PolyNovo to Overweight from Market Weight and raises its target to $2.44 from $1.79 following a 19% revenue beat in the 1H.
The broker feels the company's position within the US surgeon base has been solidified, particularly for large, difficult to treat burns.
In a rare feat relative to med-tech peers, note the analysts, PolyNovo's expansion outside of the US has progressed to the extent 25% of revenue is now derived from rest-of-the-world (ROW) markets. At the same time, gross margins have held at 95%.
PRAEMIUM LIMITED ((PPS)) Upgrade to Overweight from Market Weight by Wilsons.B/H/S: 0/0/0
First half results from Praemium slightly beat estimates. Wilsons was pleased with the result, having been initially sceptical of whether the company should participate in the OneVue sale process.
The coming year is expected to produce a rebound in trading volumes and improving market sentiment. The broker remains cognisant of adviser churn at key client, Escala, but believes this is factored in.
Rating is upgraded to Overweight from Market Weight and the target is lifted to $0.54 from $0.40.
PACIFIC SMILES GROUP LIMITED ((PSQ)) Upgrade to Market Weight from Underweight by Wilsons.B/H/S: 0/0/0
Wilsons upgrades its rating for Pacific Smiles to Market Weight from Underweight having set a target of $1.40, up from 88c, to align with the indicative offer for the company by Genesis Capital.
The broker suggests investors resist and demand a higher price given 1H results demonstrated consistent growth, belying the recent discount applied by the analyst. It's felt the ‘self-funded expansion’ business model has been proven by the result.
Genesis Capital is promising a broadening of focus beyond shopping centres, improving the service mix and even citing potential M&A.
RESIMAC GROUP LIMITED ((RMC)) Upgrade to Neutral from Underweight by Jarden.B/H/S: 0/0/0
The first half result from Resimac Group was weaker than Jarden expected as volume recovery was more than offset by eroding margins. The mortgage spread was worse than expected and margins are expected to reduce further.
No material earnings growth is anticipated until FY25. As the share price is down -19% recently, the broker upgrades to Neutral from Underweight with the target edging down to $1.02 from $1.03.
The broker reduces FY24 estimates for EPS by -20% mainly because of non-cash fair value losses.
SUPER RETAIL GROUP LIMITED ((SUL)) Upgrade to Neutral from Underweight by Jarden.B/H/S: 0/0/0
First half results provided few surprises for Jarden, being largely pre-announced, although EBIT was ahead of estimates. The trading update signalled softer sales, down -2%, but not too bad in the broker's opinion.
Comparisons are likely to get easier moving through the half year, the broker asserts.
Early signs from the re-launch of loyalty programs are positive with promotional effectiveness improving. Jarden suspects this could provide some material top-line and margin benefits from FY25, albeit this is not included in forecasts.
Rating is upgraded to Neutral from Underweight. Target is $15.40, raised from $14.50.
TYRO PAYMENTS LIMITED ((TYR)) Upgrade to Overweight from Market Weight by Wilsons.B/H/S: 0/0/0
As 1H results for Tyro Payments were better than Wilsons forecast, the broker's rating is upgraded to Overweight from Market Weight and the target increased to $1.30 from $1.08.
Despite some near-term total transaction value (TTV) pressures, the broker highlights ongoing improvements in pricing, and a turnaround in profitability in Bendigo Powered by Tyro, a payments solution with Bendigo & Adelaide Bank ((BEN)).
The analysts also note strong cost controls during the half and the benefits of higher interest income.
Management raised FY24 earnings (EBITDA) guidance by 4% to $54-$58m to reflect cost-out benefits and a better gross profit outcome.
FY24 guidance for TTV was reduced by -6% due to both competitive pressures and underlying consumer spending reductions on TTV
churn, explains Wilsons.
WOODSIDE ENERGY GROUP LIMITED ((WDS)) Upgrade to Neutral from Underweight by Jarden.B/H/S: 0/0/0
Woodside Energy's 2023 results were ahead of estimates, including the final dividend, with an 80% payout ratio retained. Jarden envisages upside risk from a possible early start at Sangomar, while anticipating lower spot LNG prices will drag down net profit in 2024.
Sangomar was 93% complete at the end of 2023 with the FPSO now moored on location and connected to subsea equipment. Rating is upgraded to Neutral from Underweight and the target edges up to $29.00 from $28.75.
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