Weekly Reports | Sep 06 2024
Broker Rating Changes (Post Thursday Last Week)
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ACCENT GROUP LIMITED ((AX1)) Upgrade to Buy from Overweight by Jarden.B/H/S: 0/0/0
Accent Group's FY24 Gross Profit Margins missing consensus by only -34bps is more than offset by a 1.2% cost of doing busines
beat, further cost-out in FY25-27, and a strong trading update for the first seven weeks of FY25, Jarden suggests.
The broker considers the sell-off an overreaction, particularly given Accent has multiple significant growth drivers in the medium
term as it buys back Athlete's Foot franchisees, closes unprofitable stores, annualises FY24 cost-outs, and continues to expand its network.
Jarden upgrades to Buy from Overweight to Buy, with Accent presenting further upside through improving potentially conservative store guidance, potential FX gross margin tailwinds and clarity regarding the extent of FY25-27 cost-out at the next update.
Target rises to $2.29 from $2.28.
DICKER DATA LIMITED ((DDR)) Buy by Jarden.B/H/S: 0/0/0
After adjusting for bad debts, Dicker Data's 1H profit (PBT) met the consensus forecast but opex was higher-than-expected due to an increased headcount needed to support new vendor additions, explains Jarden.
The broker's target falls to $10.60 from $11.38 largely due to forecast downgrades for the adjusted PBT margin on the back of increased FY24-FY26 opex forecasts.
The Buy rating is unchanged, with the analysts reiterating Dicker Data is a 2H/FY25 story partly due to benefits from the refresh cycle and the tailwind from AI PC's.
ELECTRO OPTIC SYSTEMS HOLDINGS LIMITED ((EOS)) Upgrade to Speculative Buy from Hold by Petra Capital.B/H/S: 0/0/0
As was the case in 2H23, Electro Optic Systems' 1H24 results demonstrate the companys ability to operate at scale and deliver a net profit margin of 5% excluding current debt servicing costs, Petra Capital notes.
But for the company to sustain this level of underlying profitability, further contract wins are required. Petra thinks Electro can do this,
and accordingly upgrades to a Speculative Buy rating from Hold.
Target falls to $1.85 from $1.89.
HANSEN TECHNOLOGIES LIMITED ((HSN)) Upgrade to Buy from Neutral by Goldman Sachs.B/H/S: 0/0/0
Goldman Sachs raises its target for Hansen Technologies to $5.10 from $4.95 on higher earnings forecasts across FY25-27 and upgrades to Buy from Neutral.
The broker has increased confidence in the organic growth outlook and management's ability to extract synergies from Powercloud.
Further analysis of FY25 guidance by Goldman suggests sales in the core business (ex Powercloud) are accelerating to circa 8% year-on-year, largely driven by the structural tailwinds for digital transformation in the Energy vertical.
The broker expects healthy earnings in FY26 from Powercloud, noting a key re-rate catalyst would be further evidence on cost synergies.
INTEGRAL DIAGNOSTICS LIMITED ((IDX)) Upgrade to Overweight from Market Weight by Wilsons and Upgrade to Overweight from Neutral by Jarden.B/H/S: 0/0/0
Integral Diagnostics is upgraded to Overweight from Market Weight with a revised target price of $2.88.
Wilsons like the merger with Capitol Health ((CAJ)) and view it is a win for all shareholders.
FY24 revenue was a slight miss on Wilsons' forecast, due to an uptake in market share and cost-out initiatives. The broker sees an improved pathway to 21%-22% margins after $1m in savings.
Overweight. Target $2.88.
Integral Diagnostics reported FY24 underlying profit 1.5% ahead of Jarden. The company delivered on guidance, achieving
a material improvement in earnings margin in the second half.
With FY24 now a solid base for both Integral Diagnostics and Capitol Health ((CAJ)) to build on, the upside potential of a combined group would be attractive, the broker suggests.
Target rises to $2.83 from $2.59 and the broker upgrades its rating to Overweight from Neutral given the earnings profile and upside potential from the proposed Capitol Health merger.
JUMBO INTERACTIVE LIMITED ((JIN)) Upgrade to Overweight from Underweight by Jarden.B/H/S: 0/0/0
Jumbo Interactive delivered on guidance in FY24, with underlying EBITDA of $79.3m in line with Jarden. The broker lowers estimates for FY25 by -3.6%, largely driven by the smallest managed services segment of the business.
The broker notes the company has made efforts to reset and strengthen its offshore base before pursuing future growth. Guidance takes into consideration a normalisation of jackpots which appears conservative.
The share price response to the results, down -16%, appears overdone and Jarden increases the rating to Overweight from Underweight. Target is reduced to $14.70 from $15.20.
LYNAS RARE EARTHS LIMITED ((LYC)) Upgrade to Buy from Hold by Canaccord Genuity.B/H/S: 0/0/0
Canaccord Genuity continues to believe neodymium (Nd) and praseodymium (Pr) pricing is at a cycle bottom and is more constructive on price increases into the end-2024 and 2025. However, shorter-term forecasts are marked-to-market and lowered.
The broker's long-term pricing remains anchored to "incentive" levels of US$120/kg NdPr, and US$430/kg and US$1,600/kg, respectively, for dysprosium (Dy) and terbium (Tb).
For Lynas Rare Earths, the broker's target rises to $7.15 from $6.25. The rating is upgraded to Buy from Hold to reflect updated reserves, inclusion of separated Dy/Tb, minor increases in NdPr production in FY25 and revisions to modelled production costs.
MINERAL RESOURCES LIMITED ((MIN)) Upgrade to Neutral from Sell by Goldman Sachs.B/H/S: 0/0/0
Goldman Sachs observes FY24 results for Mineral Resources were broadly in line excluding the substantial increase in gearing with around a $3bn rise in net debt.
A recent decline in both the iron ore and lithium price is also noted with management cutting lithium volumes at Mt Marion and deferring the Wodgina lithium Train 3 and Ashburton iron ore stage 2.
Capex is still expected to advance around $2bn in FY25, well above the broker's estimate.
Goldman Sachs adjusts EPS forecasts by 125% and -35% for FY25/FY26, respectively.
Target price falls to $43, down -9%. Upgrade to Neutral from Sell.
SOUTHERN CROSS MEDIA GROUP LIMITED ((SXL)) Upgrade to Buy from Hold by Canaccord Genuity.B/H/S: 0/0/0
Canaccord Genuity highlights Southern Cross Media's core audio business is returning to revenue growth, a FY25 dividend yield of 10.5% is forecast, and there is potential for a near-term divestment of the company's Regional TV asset.
Following broadly in-line FY24 results, showing gathering momentum in the 2H which continued into early-FY25, the broker raises its target to 96c from 90c and upgrades to Buy from Hold.
According to management, digital audio should be cash flow positive in FY25. The focus is upon paying down debt, explain the analysts, so no final dividend was declared.
VITURA HEALTH LIMITED ((VIT)) Upgrade to Speculative Buy from Hold by Petra Capital.B/H/S: 0/0/0
Following in-line FY24 results and improved FY25 margin guidance, Petra Capital raises its target for Vitura Health to 12c from 9c and upgrades to Speculative Buy from Hold.
Management noted the lower margin in FY24 (27.6%, down from 34.5% in FY23) was due to intensified competitive pressures within the medicinal cannabis sector. Despite this, unit sales increased by 7% in FY24 via the Canview platform, observes the analyst.
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LOVISA HOLDINGS LIMITED ((LOV)) Downgrade to Neutral from Buy by Jarden.B/H/S: 0/0/0
Lovisa Holdings' FY24 profit beat Jarden's estimate by 2%. The 2H24 gross profit margin beat the broker and cost of doing business was below.
The FY25-to-date trading update nevertheless disappointed relative to estimates, with sales growth of only 2% year on year despite cycling a comparable of -6% and estimated price increases of 3-5% that were not in the comparable.
The store rollout update (up 8 net) is weak on top of the number of stores at the end of FY24 being -14 below consensus, although this was expected.
The impending exit of Lovisa's CEO is likely to raise execution and sentiment risk in the short term and as a result Jarden downgrades to Neutral from Buy, highlighting a preference in the sector for Universal Store ((UNI)) and Accent Group ((AX1)).
Target falls to $30.59 from $33.08.
MCMILLAN SHAKESPEARE LIMITED ((MMS)) Downgrade to Hold from Buy by Canaccord Genuity.B/H/S: 0/0/0
While McMillan Shakespeare revealed a "strong" (in-line with consensus) FY24 result, in Canaccord Genuity's view, the broker's rating is downgraded to Hold from Buy.
Key positives, according to the analyst, were strong cashflows leading to an increased net corporate cash position of $86.8m, along with
the Group Remuneration Services (GRS) EBITDA margin holding at around 45%.
The broker lacks some conviction around the short-term earnings outlook and slightly reduces novated lease yields forecasts, and, by extension, margins within GRS for FY25.
The target falls to $18.50 from $21.80.
NICKEL INDUSTRIES LIMITED ((NIC)) Downgrade to Hold from Buy by Canaccord Genuity.B/H/S: 0/0/0
Nickel Industries' first half earnings missed Canaccord Genuity's forecast due to higher expenses and lower than previously reported earnings from its HPAL operations.
The broker has adjusted its price target for the result, cash position, and lower enterprise multiple resulting in a target cut to 85c from 95c.
Nickel Industries is approaching a period of investment, and Canaccord believes low cash flow with elevated debt, hence a downgrade to Hold from Buy.
TOURISM HOLDINGS LIMITED ((THL)) Downgrade to Market Weight from Overweight by Wilsons.B/H/S: 0/0/0
With revised guidance the -33% fall in FY24 net profit for Tourism Holdings Rentals was broadly in line with Wilsons' expectations.
NZ reported a record EBIT result which was offset by weakness in other parts of the business, including a writedown of goodwill for the UK.
The RV sector remains challenged the broker highlights. When combined with lower capex, slower fleet growth is likely.
Wilsons lowers earnings forecasts by -5% to -10% for FY25 to FY27.
Downgrade to Market Weight from Overweight. Target price falls -10% to $1.90.
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