In Brief: NRW Holdings, Aroa Biosurgery, Online Retail Winners

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This story features NRW HOLDINGS LIMITED, and other companies.
For more info SHARE ANALYSIS: NWH
The company is included in ASX200, ASX300 and ALL-ORDS

This week's harvest ranges from winning online retailers to a contractor catching secular tailwinds and a biotech in the US regulatory slipstream.

-NRW Holdinds expands with Fredon Industries as a new growth pillar
-US CMS reforms reshape the skin substitutes market, with Aroa poised as a winner
–Jarden tracks shifting online retail trends as "category killers" move ahead

By Danielle Ecuyer

This week’s quote comes from Ed Yardeni, Yardeni Research

“We are raising our year-end S&P 500 target from 6600 to 6800. That’s our base-case scenario with a subjective probability of 55%.

“We currently assign a 25% subjective probability to a melt up that lifts the S&P 500 to 7000 by year-end 2025 and 20% odds to a correction in the index by the end of this year.

“If the Fed lowers the federal funds rate on September 17 and signals more rate cuts ahead, we will increase our odds of a melt up and decrease our odds of a correction.”

Driving growth by acquiring exposure to secular trends

The acquisition of Fredon Industries for -$200m, composed of -$122m in cash and -$60m in earn outs by NRW Holdings ((NWH)), is positively viewed by Canaccord Genuity in establishing a platform with exposure to the energy transition, data storage, and electrification, three major trends.

Fredon employs 2,500 staff across Electrical, Mechanical (HVAC), Infrastructure, Technology and Maintenance Services (EMIT), with the deal valued at around 5x FY26 EV/EBIT.

Equivalent businesses on the ASX trade at around double the valuation, although they are considered to generally have higher growth and margins.

Canaccord sees Fredon as the basis for a fourth pillar for NRW, and EMIT will align well with its existing Civil, Mining and Metallurgical and Engineering Technology (MET) division, with the added benefit of moving the contractor away from its historical cyclical exposure by lifting its exposure to sectors with secular tailwinds, notably energy transition, data storage, electrification, and automation.

EPS estimates are increased by 9% for FY26 and 12% for FY27. On a pro forma basis the acquisition is expected to be 15% accretive in FY26.

Buy rating maintained with a lift in target price to $4.77 from $3.99.

Outlining the impacts of changes to US regulations on skin substitutes

Wilsons casts an eye over the changing US regulation regarding the ‘skin substitutes’ market.

In July the Centres for Medicare and Medicaid Services (CMS) in the US published proposed rule changes relating to ‘skin substitutes’ reimbursement.

Recent CMS directives meant reimbursements for skin subs were linked to average selling prices, with physician offices inclined to use higher-priced products as doctors would be reimbursed higher amounts.

While hospital outpatient departments were only reimbursed at a fixed bundled rate, this had a twofold impact: patients moved away from the service, and hospitals had less financial incentive to use expensive products.

As Wilsons highlights, a “perverse” outcome occurred whereby more expensive products were favoured no matter the efficacy, resulting in fraudulent activity and overcharging of CMS.

From 2026, CMS will pay the same amount for all skin substitutes, with no differentiation of where the patient is treated, at a flat rate of US$125/cm2.

Over time, CMS wants to transition to a tiered pricing system based on how much clinical evidence in terms of efficacy a product has, which aligns with FDA standards.

The highest payments will be for products with full FDA approval and backed up with robust human clinical trials.

Mid-level payments will be for products cleared under the FDA’s 510(k) pathway, meaning products showing similar outcomes to an already approved product.

Lowest payments will be for the many products sold without FDA approval, the result of a regulatory loophole.

Aroa Biosurgery’s ((ARX)) Symphony product is considered a potential winner. The biotech has refrained from launching Symphony to the physician offices’ market because it couldn’t “win” under the prior CMS reimbursement system. It currently has a small presence in the hospital outpatients sector.

Wilsons envisages Aroa will seek to increase evidence around Symphony’s quality for treatment of diabetic foot ulcers versus standard care, with strategies being considered to reposition Symphony. There is also the possibility of potential losers from the CMS changes seeking to partner with Aroa.

The stock is rated Overweight with a target of 82c.

PolyNovo ((PNV)) is not going to be impacted by the CMS changes for its Novosorb BTM and MTX products, as they are mostly used for inpatients in hospitals for surgical procedures, not the outpatient market.

Ironically, the biotech pulled SynPath for FDA approval, which was a precursor of Novosorb MTX but available in smaller sizes and suitable for treating the outpatient chronic wound segment, after its diabetic foot ulcer trial failed.

PolyNovo is rated Overweight with a $1.62 target.

Avita Medical’s ((AVH)) Recell is a spray-on skin technology and not a skin substitute in the chronic wound care sense. The biotech’s Permaderm and Cophealyx (wound dressing) products are marketed with Recell and both are in the evidence development phase.

Any impact is viewed as immaterial, and the stock continues to be rated Underweight with a $1.25 target.

Jarden’s eyes are focused on eyeballs

The latest online tracker results for August show an 8.5% annual rise in online traffic across the 52 brands that Jarden monitors, which aligns with trends seen from Westpac’s card data, revealing an acceleration in online spending over the month.

In contrast, in-store sales decelerated, but overall, the recovery in consumer spending, evidenced in recent earnings reports, continued. The analyst cautions, however, a step-up in growth has yet to occur.

The author ponders: maybe it was the torrential rain across the east coast?

From strongest to weakest: other category rose 44% on the prior year, meal kits up 16% and grocery 15%, while footwear fell -15%, hardware down -5% and sales of household goods were flat.

In terms of brands, the standouts were Mocka up 78% (owned by Adairs), Nick Scali ((NCK)) up 54%, Adairs ((ADH)) up 36%, IGA (serviced by Metcash ((MTS))) up 35%, Kathmandu up 30% (owned by KMD Brands ((KMD))), Big W ((WOW)) up 24%, The Reject Shop up 24% and Webjet ((WJL)) up 15%.

The author is now convinced it’s the weather, with everyone booking sunshine escapes.

The losers were Foot Locker, down -29%, Just Jeans off -27% (owned by Myer ((MYR)), Beacon Lighting ((BLX)) down -22%, Boating, Camping and Fishing -17% (Super Retail), JD Sports off -18%, Mitre 10, owned by Metcash, down -10% to -12%, and Rebel Sports, owned by Super Retail ((SUL)), down -11%.

Jarden views the discretionary retailers with scale and leading innovation as creating winning “category killers” to boost online engagement. Webjet, JB HiFi ((JBH)), Harvey Norman ((HVN)), Bunnings ((WES)), Temu, and Mocka are attracting most of the “eyeball” market share.

Notably, JB HiFi and Bunnings have continued to attract eyeballs despite increased competition, while a brand refresh has boosted Webjet, Temu, Mocka, and Big W, which experienced the largest gains due to marketing and new ranges/offers.

Interestingly, Amazon has started to lose market share for the first time in a long time, down -338bps on the prior year, with Temu extracting the largest gain.

The analyst proposes the Walmart model as one both Wesfarmers and Woolworths Group could look to in terms of boosting market share.

Jarden remains positive on Harvey Norman, Overweight rated with a target of $6.70, Temple & Webster ((TPW)), Buy rated with target set at $32.79, Adairs, Buy rated with a $1.46 target, and Sigma Healthcare ((SIG)), Overweight rated with a $3.40 target.

Jarden is least positive on Kogan ((KGN)), Underweight rated with a $4.25 target, Endeavour Group ((EDV)), Underweight rated with a $3.90 target, and Domino’s Pizza Enterprises ((DMP)), Neutral rated with an $18 target.

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