In Brief: WiseTech, Xero, Treasury Wine, Superloop & More

This story features WISETECH GLOBAL LIMITED, and other companies. For more info SHARE ANALYSIS: WTC

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.

The broker likes those REITs with earnings growth, including Goodman Group ((GMG)), National Storage ((NSR)), Ingenia Communities ((INA)) and Scentre Group ((SCG)), with upside “surprise” from Charter Hall ((CHC)).

In the case of Charter Hall, even a flat earnings result could be deemed positive due to the negative disposition of investors, suggests the broker.

Goodman Group is anticipated to continue to highlight the demand for data centres with stronger sales growth assisting Scentre.

JPMorgan observes investors have been buying REITs, lifting portfolio weightings for a third consecutive month, while the average fund is positioned around -240 basis points underweight.

REITs have generated a 6.8% return on average in July, above the ASX200 at 4.2%.

Interestingly, the shorts in Dexus ((DXS)) have been increasing and decreasing in Goodman post its inclusion in the EPRA/NAREIT Global Real Estate Index in mid-March.

After Dexus, Charter Hall and Centuria Industrial ((CIP)) are the most shorted.

Goodman is the top pick for funds with the 50 tracked by JPMorgan holding the REIT either in the top 5 or top 10 positions, a rise of 4% in July on the previous month.

The top three REITS in the ASX200 REIT index are Goodman at 40% (down from 43% in June), Scentre Group and Stockland ((SGP)) which represent 57.6%, above the historical average at 47.3%.

Citi believes the downside surprises this reporting season will be coming from Dexus, Growthpoint Properties ((GOZ)), GPT Group ((GPT)) and Mirvac Group ((MGR)).

Mirvac reported FY24 earnings which were in line with Citi’s expectation, but management offered lower than expected FY25 guidance. The stock traded down -8% on the day.

Staying connected: Origin assists Superloop’s growth

Wilsons takes on the meaty subject of Origin Energy‘s ((ORG)) white label NBN offering for providers Aussie Broadband ((ABB) and Superloop ((SLC)).

The Origin white labeling of the Aussie Broadband NBN service started in April 2021, and users expanded to 125k by the end of May this year from circa 25k when Origin started marketing the white label product.

In March, Origin announced the contract with Aussie Broadband had been terminated and Superloop was signed up instead for an exclusive six-year contract.

The migration of existing customers started on July 1 and is expected to finish by the end of October with new Superloop network sales commencing July 2.

Wilsons explores the impact of Origin on the network providers. Over the previous three half-years the broker emphasises Aussie Broadband would have added less customers than Superloop once the Origin contribution was backed out.

Looking ahead, Origin is targeting 600k accounts versus the 150k at May end by FY26. This would require a circa 100% growth rate for the next two years, compared to the 70% growth rate since June 2021. Wilsons flatly contests the aim as “unachievable”; but Origin is still forecast to generate robust growth which will boost Superloop.

The Superloop package also has advantageous pricing which is expected to facilitate more competitive price plans and/or marketing spend from Origin.

Aussie Broadband has in turn announced the new offering Buddy Telco to compete in the digital first/value segment of the market.

Wilsons observes the set-up timing and costs for Buddy are likely to prove more onerous for Aussie Broadband which detracts from the near-term attractiveness of the stock.

The broker likes it for the longer term and poses the question of when, not if the story will become compelling?

Regarding Superloop, Wilsons acknowledges the higher valuation compared to sector peers, but the analyst believes the premium is justified and doesn’t reflect the potential 38% compound growth rate in EBITDA over the next three years. This exceeds the average 4% growth rate from sector peers.

As of July 4, Wilsons had an Overweight rating and $1.61 target price on Superloop with a Market weight and $3.32 target price on Aussie Broadband.

A potential hidden gem for the golden punters

EastCoast Research came sprinting out of the gates with a positive outlook on Horizon Minerals ((HRZ)) – market cap less than $47m.

The broker initiated coverage with a 10c target price, compared to the 3.9c share price.

Horizon owns several gold projects in the Goldfields area of Western Australia with an estimated resource of 1.8Moz at 1.84g/t.

The company’s long-term goal is for the development of its two major assets Boorara and Burbanks.

In the interim, the broker states management will generate cash from gold deposit ore sales and has an agreement with Paddington Gold to treat 1.4mt of Horizon ore from the Boorara open pit, starting September.

Horizon also has a toll milling agreement with FMR Investments to treat 200kt of ore from Cannon or another deposit starting in December.

The plan is to minimise dilutive equity raisings by generating cashflow from these agreements to develop the assets and become a mid-tier WA gold producer over time.

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