In Brief: Newmont, Xero, Temple & Webster And Kelsian

This story features NEWMONT CORPORATION REGISTERED, and other companies. For more info SHARE ANALYSIS: NEM

Dipping into the hits and misses this quarterly/AGM season with four diverse companies. 

-Newmont Corp lobs an earnings bomb
-Xero’s positive outlook 
-Temple & Webster retains growth
-Kelsian back in the groove

By Danielle Ecuyer

Quote of the week from E&P report “AI – a hot topic that will get hotter”.

“We believe a lot of Generative AI doubters have misunderstood what to look for. A lot of internet and software companies are facing existential threats from competition if they don’t invest, so return on capital is declining across certain pockets of the technology world as a platform shift occurs.”

Newcrest acquisition, at what cost?

Newmont Corp ((NEM)), which late last year acquired Newcrest Mining, has delivered one of the eye-catching disappointments thus far in October. In the words of Barrenjoey, the stock price experienced a “severe” reaction, tumbling down by over -20%.

The broker points toward the acquired Newcrest assets, Lihir and Brucejack, as the key culprits, going as far as to query the “merits” of the acquisition.

Dissecting the production math, Barrenjoey points to the lack of perceived derived synergies with pre-takeover Newmont operations producing 6moz p.a. versus Newcrest at 2moz p.a. with -1.5moz p.a. of non-core assets being divested. 

The result is a streamlined business producing 6.5moz p.a. for a cost of -US$19.2bn pre divestments.

The latest 1H25 downgraded outlook is for 5.6moz p.a. with a return to 6moz envisaged.

Although Barrenjoey is positive on Newmont’s asset quality, the good locality of assets with the price of gold at an all-time high which boosts the saleability of assets, the analyst is circumspect around the loss of momentum, and the extent of the multi-year downgrade in production outlook. Barrenjoey explains concerns that management has yet to obtain a handle on Lihir’s problems.

Nevada (a joint venture with Barrick Gold) is also stressed as a smoking gun with the possibility of another downgrade when Barrick, the managing partner, presents at its strategy day on Nov 18. Barrenjoey believes there has been a lack of clarity about the size and duration of problems at Nevada.

Target price is lowered to $80 from $90 with a downgrade to Neutral from Overweight. This broker remains concerned over a potential de-rating of the stock if there is a loss of confidence in management and/or the operations.

Thriving despite macro headwinds

New Zealand-born accountancy cloud software services provider Xero ((XRO)) is due to report 1H25 earnings results on Nov 14 with Jarden looking under the hood for what investors can expect from the company.

The broker believes the company could surprise on subscriber growth and operating costs. Excluding 150k “idle” subscribers, Jarden expects growth of 202k subscribers, which is below consensus.

Operating costs are forecast at -$758m which is derived from the company’s definition of 20% year-on-year growth and 76.2% of revenue. With two XeroCon events the company hosted, 1H25 costs will be impacted. 

The analyst notes with the caveat around hiring, if Xero does not recruit as quickly, the opex guidance may be reduced. 

Jarden updates earnings estimates for forex changes and the proposed Swft acquisition with 2%-to-4%-point increases in EPS forecasts for FY25/FY26, respectively, Including changes to the risk-free rate.

Target price moves to $151 from $144.

Sales momentum positive but moderates

Temple & Webster ((TPW)) updated investors with year-to-date trading results ending Oct 24. Sales growth slowed to 21% year-on-year from 28% in the first eight weeks of FY25. This implies growth of 18% on the previous year for weeks seven to seventeen, Petra Capital points out.

Most retail companies can only dream of such robust growth, but it is all about context and valuation. 

The company is cycling robust growth in 1H23 which will make annual growth rates more challenging. From Oct 1 to Nov 27, 2023, sales advanced 42% annually with a heavier weighting to November.

The broker believes Temple & Webster is on the right pathway to the targeted $1bn in annual sales within 3-5 years from FY23, representing a compound average growth rate of 20% to 36% per annum.

Changes to the uplift in margins have led to more conservative assumptions. Petra Capital lowers FY26 EPS estimate by -15% and moves the target price to $13 from $13.10.

Jarden has also made some downward revisions post the AGM update with around a decline of -4% to circa -7% for EBITDA forecasts from FY25 to FY27. Target price clipped to $14.01 from $14.30. Both brokers have a Buy rating on the stock.

When no news is good news

Canaccord Genuity breathed a sigh of relief regarding Kelsian Group‘s (( KLS)) AGM update stating “commentary pleasingly had little new information to discern.”

The Chairman’s statement expressed a level of “contrition”, known as humble pie in layperson’s parlance, on the capital management plans to meet the group’s strategic goals. There is also portfolio review to establish pathways to improved returns, i.e. sale and lease back of depots in Western Australia.

Management highlighted the Bankstown rail replacement project in Sydney has commenced and is on budget. The US Bustang & Pegasus service contracts in Colorado have been executed, the analyst states, with the industrial construction project ramping up.

Marine & Tourism infrastructure and vessel construction are on track with the Fraser Island, K’gari Illumina light show launched.

The broker highlights FY25 guidance was maintained, with Kelsian noting the pipeline of organic growth opportunities across public transport in A&NZ, the US and UK offer attractive opportunities. Contract wins in US and UK have potential to redeem sunk operational cost overheads in the International Bus business. The analyst believes better labour management will assist the Australian Bus business.

Canaccord forecasts a mid-to-high single-digit EBITDA growth profile for Kelsian in the medium term at estimated 9% growth in FY25 and FY26. The stock is buy rated with a $4.10 target price.

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