Weekly Reports | Aug 16 2024
This story features PRO MEDICUS LIMITED, and other companies. For more info SHARE ANALYSIS: PME
Reporting season rumbles on with the winners taking a victory lap; Pro Medicus flexes its reliable muscles; Temple & Webster delivers margins and market share; Ai PCs, the potential growth driver for JB HiFi.
-Pro Medicus’ Visage leads global SaaS margins
-Temple & Webster executes yet again
-PC sales turning the corner?
By Danielle Ecuyer
Quote of the week comes from Morgan Housel. It seems terribly aposite in light of the last two weeks and is dripping in irony.
“Be grateful that you lack the intelligence and sophistication needed to blow yourself up in a leveraged yen carry trade during a bull market”
Reporting season is throwing up a few anomalies (again) where analysts scratch their heads trying to align share prices against fundamental prospects and valuations.
This week’s results proved to be no different, with three examples including Pro Medicus ((PME)), Temple & Webster ((TPW)) and JB HiFi ((JBH))),
Some share prices trade far and beyond targets, with analysts left to either stand by their conviction on fundamental analysis versus those who audibly sigh with a mea culpa.
Pro Medicus squashes the naysayers (again)
Wilsons describes Pro Medicus as a company which defies “valuation rules”.
When searching for reasons the analyst’s summary says it all – a “market enamored by the quality, defensibility and growth rate of their US Visage business”.
The market adoration is “not unfair”, Wilsons believes. The latest FY24 results are a salient reminder to the non-believers of what durable earnings growth looks like.
Management’s ability to gain market share in a cost-efficient manner stands out, with volume growth supporting margin expansion a key part of the Visage model.
Notably, the US client base diversification continues which improves the earnings quality with a macro backdrop of longer-term growth in the medical diagnostic market.
Goldman Sachs is not so lyrical about Pro Medicus but is happy to affirm the contract pipeline for FY25 as “strong” and reinforces market share gains forecast to rise to over 13% in FY30 from some 7% currently.
This broker envisages 32% revenue growth in FY25 against 29% in FY24 from record contract wins, organic growth in the existing customer base, price growth and additional contract wins.
Just for the record books, Pro Medicus sports the best-in-class SaaS margins globally, states Goldman Sachs, along with a $149 target price and Buy rating.
Yes, the valuation is challenged, Wilsons’ analyst stresses, but with an increased forward-looking approach it seems investors are content with paying up for some five years of earnings growth certainty, with further upside potential if some of the new products come to market. Wilsons’ target price is $145, the rating Buy.
Among FNArena’s daily monitored brokers, Macquarie is the most bullish with a $152 target price (Outperform rating).
Morgans has decided to join “the dance party”, highlighting multiple tailwinds including increasing cloud transactions, an improved government stance on cloud security, organic growth and higher sales.
Even an upgrade in the target price to $139 from $85 (not a typo) hasn’t matched the post share price rally. (Hold)
While ackonwledging the 34% compound growth rate in EPS over the past five years, and forecasting 32% growth in FY25, Evans and Partners believes a lot of future earnings growth is priced into the shares ($141). The analyst admits the upside potential to increase market share from 7% currently, factoring in a 25% share in 2030 into the $154.34 valuation.
Arguably, the broker highlights, the pace of contract wins will need to move higher to sustain earnings growth off an ever higher base. With so much priced in, E&P downgrades to Neutral from Positive.
Temple & Webster and the true believers
Jarden won best report title: “Temple of boom”. The analyst is enthused by management’s successful capture of market share which is coming at a faster rate than expected.
The Temple & Webster story divides the brokers with some firmly supping at the longer-term growth narrative against those who want to see more evidence.
Jarden is clearly sipping the cool aid with the latest FY24 results providing more evidence to the analyst the company can scale to be the winning online furniture and home retailing company.
The latest EBITDA margins for FY24 came in some 500 basis points above consensus of 2.1%, making the 15% long-term target achievable, according to Jarden.
Temple & Webster has a FYF26-FY28 revenue goal of $1bn, against $497.8bn in FY24. Jarden takes a more conservative assumption of $1bn by FY29 and looking into the crystal ball, $2bn of revenue in 11 years.
The broker believes at a 15% EBITDA margin versus what is currently priced in at 8%-9%, there is 43% upside to the share price from current levels ($11.71).
Jarden’s thesis is predicated on Temple & Webster managing macro headwinds with market share gains or enjoying at some point a reversal to macro tailwinds.
In the analyst’s mind it is a win-win scenario. With a $14.10 target price and a Buy rating, Jarden stands above the average target price from daily monitored brokers of $12.09. In that list Morgan Stanley is the highest at $13.15 (Overweight rating).
Petra Capital is also upbeat, pointing, like Jarden, to the market share gains alongside EBITDA margins at the upper end of guidance.
This analyst notes the Ai benefits are already coming home to roost. When combined with increased brand marketing, Ai has the potential to provide “ammo” to generate sales growth in FY25.
With customer service costs down -30%, Canaccord Genuity highlights the Ai enabled solutions including website conversion from the live chatbot up 10% and Ai created content driving product recommendations.
The $1bn revenue target is on track, Petra believes, because of the retailer’s strong position across financials, a flexible business model and robust support from suppliers. Net cash ended the year at $116.4m (including a $12.1m share buyback payment) against $105.1m at the end of FY23. (Buy rated, $13.10 target price).
Canaccord Genuity emphasises Temple & Webster’s market share gains against a soft macroeconomic backdrop. The company grew revenues by 26% compared to a -4% market decline in homewares and furniture. As one of the only online commerce companies to accelerate sales post covid, its market share remains at 2.4% compared to a total addressable market of $20bn.
Canaccord calculates a valuation between $11.26 and $20.75, using a long-term growth range of 20%-36% and margin targets. Current target price $13. (Buy rating).
Are Ai PC’s the next big thing?
Gen.Ai, you’ve heard all the hype, is it time to show you the money?
According to Citi, that is what Australia’s major PC retailers might be thinking when it comes to Ai PCs.
Citi highlighted in a special PC Market report that 2Q24 data revealed a turnaround in sales. PC units rose 7% year-on-year in the first half of the calendar year.
Consumer and the commercial markets expanded in the first six months by 8% and 5%, respectively, over the previous corresponding period.
Ai PCs are understood to be stealing the PC fashion parade. Citi recounts the industry feedback is upbeat on the forward-looking momentum.
In 2Q Ai PCs increased to 29% of PCs sold versus 18% in the previous quarter.
Given the average selling price for an Ai PC is around 75% higher in the consumer market and circa 36% higher in the commercial market, this provides a positive backdrop for PC revenue growth.
Citi highlights JB HiFi ((JBH)) is the leader in the Australian PC market with an estimated 15%-20% of sales generated in this category. The analyst highlights the value of total PC consumer sales is some 40% higher in 2Q than in Q2 2019.
JB HiFi, Harvey Norman ((HVN)) and Wesfarmers’ ((WES)) Officeworks are the three listed companies exposed to the consumer PC Ai market.
Dicker Data ((DDR)) lost the Autodesk contract, estimated at circa $60m of revenue in 1H23 and Citi points to increased focus on the extent to which those foregone revenues can be offset by the addition of Adobe.
For the latest update on JB HiFi’s FY24 results and outlook, some recently published stories:
https://fnarena.com/index.php/2024/08/13/jb-hi-fi-does-it-again/
https://fnarena.com/index.php/2024/07/23/treasure-chest-jb-hi-fi/
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CHARTS
For more info SHARE ANALYSIS: DDR - DICKER DATA LIMITED
For more info SHARE ANALYSIS: HVN - HARVEY NORMAN HOLDINGS LIMITED
For more info SHARE ANALYSIS: JBH - JB HI-FI LIMITED
For more info SHARE ANALYSIS: PME - PRO MEDICUS LIMITED
For more info SHARE ANALYSIS: TPW - TEMPLE & WEBSTER GROUP LIMITED
For more info SHARE ANALYSIS: WES - WESFARMERS LIMITED