Weekly Reports | Aug 30 2024
Broker Rating Changes (Post Thursday Last Week)
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ADACEL TECHNOLOGIES LIMITED ((ADA)) Upgrade to Speculative Buy by Taylor Collison.B/H/S: 0/0/0
Despite Adacel Technologies' disappointing FY24 result, Taylor Collison retains the faith, positing the company offers an asymmetric opportunity for investors related to the re-submission decision by the Federal Aviation Authority for Training Simulator Software, which the broker believes will be re-awarded to Adacel.
The broker considers the company to be heavily undervalued by the market and observes any new contract wins will scale sharply on the company's stable cost base.
Highlights from the FY24 result included the write down of -$1.9m of intangibles, which triggered a -$1.4m EBITDA loss versus the broker's forecast $1m profit.
Cash flow in the June half also disappointed due to the increase in inventory arising from the initial award of the contract, but the broker expects the build to unwind through FY25.
The big negative was downgraded FY25 guidance to $4m to $5m from $6m to $8m at the December half result as customers opted not to take up extra work.
Rating is upgraded to Speculative Buy from Outperform/Accumulate.
CODAN LIMITED ((CDA)) Upgrade to Buy from Hold by Moelis.B/H/S: 0/0/0
Codan reported "solid" FY24 results across the group, Moelis comments. Communications grew with an expanded orderbook of 21% year-on-year and tactical communications reported robust growth in unmanned systems and broadcast markets.
The broker points to ongoing outperformance from Zetron from FY24 into FY25.
Moelis upgrades EPS forecasts by 6% and 9.7% for FY25/FY26, boosted by margin improvements for radio communications and revenue growth for metal detection/radio communications.
The stock is upgraded to Buy from Neutral. Target price moves to $16.85 with a transfer of analyst coverage.
UNIVERSAL STORE HOLDINGS LIMITED ((UNI)) Buy by Jarden.B/H/S: 0/0/0
Universal Store's FY24 results were better than the already upbeat expectations from Jarden. The company continues to perform well in challenging market conditions and relative to competitors, observes the broker.
Gross margin came in 60 basis points above Jarden's forecast and 40 basis above consensus.
Notably, the trading update was strong with like-for-like sales growing by brand. US total sales advanced 15.3% in the first two weeks of FY25.
Jarden revises earnings forecasts by 3.2% for FY25 and 1.2% for FY26. Buy rating unchanged. Target price moves to $7.88 from $6.47.
VIVA ENERGY GROUP LIMITED ((VEA)) Upgrade to Buy from Neutral by Goldman Sachs.B/H/S: 0/0/0
The 1H24 earnings from Viva Energy were broadly in line with forecasts from Goldman Sachs. The interim dividend was 4% above estimate.
The analyst continues to focus on-the-run store transition after the =$1.2bn acquisition in March. Management flagged the rollout will take longer than originally suggested, due to planning and landlord consent delays.
Around 30 transitions are expected over the next 12-months. Goldman Sachs remains cautious on the 500-store transition, the 85 additions and a -$60m cost out program from synergies.
The stock is upgraded to Buy from Neutral. Target price falls -4% to $3.60. Earnings forecasts are tweaked by the broker.
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EAGERS AUTOMOTIVE LIMITED ((APE)) Downgrade to Hold from Buy by Moelis.B/H/S: 0/0/0
Eagers Automotive's June-half result nosed out guidance but Moelis observes gross profit margins disappointed, falling to 17.8% from 18.8% at December 31due to pressure on new car margins and excess BYD stock (cleared through discounting).
A jump in interest costs and inventory also hit profit before tax margins. Moelis spies little relief for margins over the next few years but suspects the company does have levers it can pull on the revenue and productivity front that could mitigate some of the impact.
Net operating cash flow fell -35% to $228m and the company closed the year with a strong balance sheet and net debt of $494.1m, observed Moelis.
On the upside, management retained FY24 guidance, forecasting more than $1bn topline growth advising demand remained robust.
EPS forecasts are downgraded -5% to -10% over FY24 and FY25 to reflect the margin-compression outlook.
Rating downgraded to Hold from Buy. Target price falls to $11.51 (it was $12.41 in June).
AUTOSPORTS GROUP LIMITED ((ASG)) Downgrade to Hold from Buy by Moelis.B/H/S: 0/0/0
Autosports Group's FY24 result missed consensus' forecasts by -7% and Moelis' forecasts by -14% (on a pre-AASB16 basis) as revenue fell and gross profit margins slumped to 19.5% from 20.1% with margin weakness skewed to the second half, observes the broker.
No FY25 guidance was provided but management expects the new car market will be subject to strong competition for some time.
Moelis attributes the margin fall to discounting arising from excess new car inventory. Operating cash flow fell -28% on the previous corresponding year, to $119.5m.
The broker expects the Stillwell Motor Group acquisition will be single-digit EPS accretive, funded from cash, and observes the company's balance sheet should rule out further M&A for a year.
EPS forecasts fall -10% in FY25 and FY26 to reflect margin pressures.
Rating is downgraded to Hold from Buy. Target price falls to $2.30.
BIG RIVER INDUSTRIES LIMITED ((BRI)) Downgrade to Hold from Buy by Moelis.B/H/S: 0/0/0
Despite modest gearing, continued cash generation, and sound opex management, residential exposure continues to weigh on the Big River Industries with a partial offset via commercial activity, notes Moelis.
Broadly in-line FY24 results showed the earnings (EBITDA) margin compressed to 7.9% driven by lower volumes in frame and truss manufacturing, explains the broker.
Management's shorter-term outlook commentary suggests to the analysts consumer confidence around residential will remain subdued, while the medium-term outlook is brighter based on demand, low vacancy rates, and expected interest rate falls.
A final fully franked 2 cent dividend represents a 78% payout on FY24 earnings.
The broker's target falls to $1.68 from $2.00 and the rating is downgraded to Hold from Buy.
CLEANAWAY WASTE MANAGEMENT LIMITED ((CWY)) Downgrade to Neutral from Overweight by Jarden.B/H/S: 0/0/0
Jarden observes Cleanaway Waste Management continues to generate positive earnings before interest and tax with negative EPS revisions as higher net interest charges bite.
The broker cuts EPS forecasts by -4% for FY25. FY26 EPS estimate unchanged.
Operationally, competition in solid waste services continues; liquid waste and health services continued to improve, but Jarden questions its sustainability in FY25.
Target price moves to $3.05 from $3. Rating downgraded to Neutral from Overweight, with a "less appealing" proposition for FY25.
EBOS GROUP LIMITED ((EBO)) Downgrade to Neutral from Overweight by Jarden.B/H/S: 0/0/0
Ebos Group posted a solid result in line with Jarden's expectations of underlying earnings up 7% year on year. The dividend was up 9% on a 70% payout ratio.
FY25 maiden earnings guidance of $575-600m compares to Jarden's forecast of $601m, the decline mostly reflecting the impact of non-renewal of the Chemist Warehouse contract, which generated revenues of $2.2bn.
Key drivers include base business growth across both divisions, Community Pharmacy revenue and share growth and cost initiatives.
With Ebos' share price now better capturing earnings prospects and potential bolt-on M&A activity, Jarden downgrades to Neutral from Overweight on more limited valuation upside. Target unchanged at NZ$38.
EMECO HOLDINGS LIMITED ((EHL)) Downgrade to Neutral from Overweight by Jarden.B/H/S: 0/0/0
FY24 EBITDA from Emeco Holdings was largely in line although Jarden notes the negative response from the market was driven by the increased uncertainty in the outlook.
This is particularly apparent in guidance for higher depreciation and the increased growth required from rental to replace underground earnings.
The company has fleshed out a three-year plan to improve its return on capital to a target of 20% by FY26, from 15% in FY24. In the near term priorities, remain with generating greater returns from capital already invested in the core fleet.
While remaining positive, Jarden believes the benefits from initiatives must be demonstrated over FY25 to provide upside to its current investment view and the rating is downgraded to Neutral from Overweight. Target is reduced to $0.85 from $0.90.
INGENIA COMMUNITIES GROUP ((INA)) Downgrade to Sell from Hold by Moelis.B/H/S: 0/0/0
Ingenia Communities' FY24 EPS outpaced guidance but strong development settlements paired with a fall in gross margins to 45% from 48% in FY23.
The broker says the company provided maiden disclosure on its development economics on a per unit basis and pointed out "underlying profit excludes a negative fair value movement on land needed to secure above-ground profit".
The broker cuts its target price to $4.07 from $4.93 to reflect lower net profitability in the development business. Rating is downgraded to Sell from Hold.
QUBE HOLDINGS LIMITED ((QUB)) Downgrade to Neutral from Overweight by Jarden.B/H/S: 0/0/0
Qube Holdings delivered FY24 underlying profit growth of 13%, within its targeted 10-15% upgraded guidance range from its Strategy Day in May. Consistent with prior years, Qube has not provided quantitative earnings guidance for the FY25 outlook.
Jarden admits to being far too optimistic about the pace and impact of Patricks' market share reversion to historical levels. Similarly, the broker's forecast of a further 10% profit growth from strong FY24 levels appears too lofty at this stage, despite it being well below Qube's long-run average.
Jarden now sees the stock as fairly valued at current levels and balancing the outlook for earnings growth in FY25. As a result, the broker lowers its rating to Neutral from Overweight, with its target cut to $3.85 from $4.00.
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