Weekly Reports | 10:00 AM
Weekly Broker Wrap: Latest updates on Superloop, Ampol and supermarket operators Coles and Woolworths.
-Origin marketing continues to underpin Superloop's growth outlook
-Lots of noise, but positive tailwinds for supermarket operators
-Ampol plugs the illicit tobacco hole with an asset sale
Quote of the week from Carl Ang, MFS Investment Management, May 15
"Expectations are strongly pointing towards a further 25bps cut at next week's RBA meeting.
Economic data so far has ranged from broadly neutral to slightly soft in tone, like the flat real retail sales growth over the first quarter.
Moreover, downside risks and uncertainty around Australia's economic outlook have increased substantially, factoring in Liberation Day, global tariff movements since then, as well as the Australian Federal Election.
Overall, global developments likely increase the scope for a more tangibly dovish pivot from the RBA.
For this RBA cutting cycle, we expect further 25bps cuts each quarter and a terminal rate of 3.1% in early 2026."
Superloop continues to tick many positive boxes
Last time Superloop ((SLC)) featured in In Brief --in November 2024-- brokers were pretty upbeat on the stock. See https://fnarena.com/index.php/2024/11/29/in-brief-superloop-qantas-jumbo-qualitas-gqg/
General optimism has been vindicated since with the share price this week trading around $2.55 compared to around $2 back then. The latest updates from Canaccord Genuity, Jarden and Wilsons retain a positive outlook.
The telco challenger announced it had achieved 200k new subscribers through its whitelabeling marketing agreement with Origin Energy ((ORG)) as of May 13, noted as the achievement of Milestone #3 by Wilsons. This was better than the 195k forecast due to heavy price discounting by Origin.
Superloop signed the six-year contract a year ago involving the transfer of 130k Origin broadband customers at that stage, with any further Origin broadband customers going to Superloop. The agreement proposes several milestones including incremental growth of 50k subscribers.
With Milestone #3 achieved, Milestone #8 is 450k subscribers.
Jarden highlights Superloop will issue another 2.5m shares to Origin under the agreement.
Origin is entitled to up to $30m worth of Superloop shares if further customer growth milestones are met, such as expanding its broadband customer base to 600,000 by FY26.
The current subscriber growth rate suggests to Jarden Origin is on pace to achieve 210k in 2H25, which would add an incremental $10m in earnings (EBITDA) to Superloop.
Once adjusting for new shares on issue, the broker makes some minor upgrades to EPS estimates for FY25-FY27. Jarden retains an Overweight, Buy-equivalent rating with a $2.60 target price.
Canaccord Genuity believes Superloop has multiple longer-term earnings drivers, including the domestic trend of subscribers transitioning to higher internet speeds, where the company is securing 15%-20% of new subscribers, or three times its current market share.
The company's branding as a "challenger" wholesaler is also viewed as a positive aspect, while the Origin contract, with another five years to run, has delivered over 50% growth in subscribers over the last 14 months.
Canaccord has a Buy rating with an upgraded target price of $2.78, up from $2.58.
FNArena daily monitored brokers have a consensus target price of $2.61 with four Buy-equivalent ratings.
Rising tide improves the outlook for supermarkets
The eleventh Fast Moving Consumer Goods (FMCG) survey by Jarden and the Australian Food & Grocery Council (AFGC) includes 54 participants surveyed between May 6-11, with expectations of growth rising to around 1.7% from 1.3% in January.
The responses indicated Aldi continues to gain market share, with Coles Group ((COL)) expected to "outpace" Woolworths Group ((WOW)), and IGA, supplied by Metcash Group ((MTS)), expected to lose share.
The analyst explains part of the loss relates to growth in online grocery sales.
Jarden has six main takeaways:
-54% of respondents are planning to lift prices in the next six months.
-Growth, as highlighted, is guided higher by suppliers.
-Coles is expected to continue to outperform Woolworths over the next six months.
-Regulation via the grocery inquiry impact is fading.
-Consumers are behaving in a less loyal fashion, with larger baskets for promotions and cross-shopping more stores, as well as trading down to private labels.
-The question remains whether supply chains are "moderating".
The latest price cut announcements from Woolworths on May 12 and Coles on May 13, highlighting cuts already in place, create more "noise", the broker states, against what had seemingly moved to a more rational market since January.
Sector risks are seen fading and giving way to more positive tailwinds for both Coles and Woolworths into FY26.
Woolworths is preferred, although there are opportunities for both large supermarkets to benefit from consumers trading up.
Jarden details upside potential for Woolworths due to low market expectations and a -$450m cost-out being banked versus reinvestment, as well as cycling of weaker comps into FY26, with rising return on invested capital as peak capex is worked through.
Woolworths carries an Overweight rating, Buy-equivalent, with a $36.30 target price.
FNArena daily monitored brokers have a consensus target price of $33.036, with four Hold-equivalent ratings and three Buy-equivalent ratings.
The full story is for FNArena subscribers only. To read the full story plus enjoy a free two-week trial to our service SIGN UP HERE
If you already had your free trial, why not join as a paying subscriber? CLICK HERE