Best calls to action – Thursday, 26 August

About the author:

Andrew Tang
Author name:
By Andrew Tang
Job title:
Analyst - Equity Strategy
Date posted:
26 August 2021, 6:00 AM
Sectors Covered:
Equity Strategy and Quant

Lovisa - Time for a big recovery and return to material store growth

LOV navigated a COVID-impacted FY21 and reported a strong FY21 result slightly ahead of market expectations (EBIT +39%). Trading continues to be impacted by lockdowns in Aust/NZ while the northern hemisphere is emerging strongly as restrictions ease.

LFL sales growth +38% on total sales +56% in the first 8 weeks. Essentially, the recovery is playing out as hoped. Store rollout momentum continued with 87 acquired Beeline stores and 22 net new stores opened. While 1H22 will remain curtailed by the constrained availability of materials and labour, we think the group can still do +60 stores in FY22. LOV is a business that comfortably looks better placed on the flip side of COVID.

The substantial global rollout potential is unchanged and we expect a strong recovery in sales/margins over the coming +12months. FY23 LTI EBIT targets paint strong growth ambitions and alignment. Add maintained

Read our full reports and latest price targets on ASX:LOV here.

Zip Co Ltd. - Investment spend ramp-up to fuel growth

Z1P reported a FY21 NPAT loss of ~A$653m, impacted by a number of one-off non-cash items (e.g. a -A$306m net adjustment related to Quadpay and higher share-based payments expense related to performance hurdles being met). Z1P's investment spend to drive growth was elevated in FY21 (e.g. marketing expense of A$71m, up ~6x on FY20), however, we believe the underlying business momentum remains strong and warrants the acceleration in spend, particularly in the U.S. We lower our Z1P FY22F EPS by ~12% on higher costs but lift our FY23F EPS >10% (off a low base) on the benefits of higher growth. We continue to see longer term upside if Z1P can execute on its ambitions of becoming a global payments player and maintain our ADD recommendation.    

Read our full reports and latest price targets on ASX:Z1P here.

Oil Search Ltd - Increasing confidence in PNG

An inline 1H21 result from OSH has kept our focus on the merger with STO and progress of growth projects in PNG. Amendments to Oil & Gas Act in PNG increase our confidence in political risk, with the government more supportive of investment.

Little new news on STO merger with mutual due diligence process progressing. EBITDAX US$9m (vs MorgansF US$3m), NPAT US$139m (vs MorgansF US$137m). Maintain ADD rating.     

Read our full reports and latest price targets on ASX:OSH here.

Idp Education Ltd - Time to move from recovery back to growth

IEL's FY21 result was in-line with expectations, down 36% on the pcp, but largely a result to look past given Covid impacts across all divisions. IELTS volumes have moved from recovery to growth. Momentum, pent-up demand and the addition of the BC India volume (acquired) leads to a big FY22F uplift.

UK/Canada student placement is seeing strong demand. Australian SP faces a hopeful recovery from 2H22, supporting a FY23F earnings step-up.

Add maintained. We are attracted to the market share opportunity in student placement; the proven compounding ability of IELTS; and the potential for further consolidation of the IELTS distribution network (via acquisition). We note there could be meaningful short-term share price volatility post the impending Education Australia 15% sell-down.  

Read our full reports and latest price targets on ASX:IEL here.

Dalrymple Bay - Rock solid

1H21 earnings were slightly up, highlighting defensive earnings in the context of 10% throughput decline. Cost savings on new interest rate swaps will contribute to earnings growth. ADD retained. Potential TSR of 20%, incl. 8% cash yield. 

Read our full reports and latest price targets on ASX:DBI here.

Universal Store - A 'young' retailer with plenty of growth ahead

UNI's FY21 result met the market's expectations with a strong recovery year post peak COVID (EBIT +86%). While COVID lockdowns on the East Coast have impacted trading short-term as expected (and for all retailers), history tells us how quickly demand recovers in this category and for UNI in particular.

Having recently factored in an estimated lockdown impact, we lower FY22 forecasts by 2% with all other forecasts unchanged. Longer term, UNI looks set to secure double-digit footprint growth p.a. and has a long history of averaging >12% LFL sales growth.

This, coupled with a GM expansion trajectory and scale benefits/leverage, makes for a strong growth story. Add rating maintained.  

Read our full reports and latest price targets on ASX:UNI here.

Acrow Formwork - Plenty of growth to come

ACF's FY21 result was in line with expectations at the revenue and underlying EBITDA line but below at the underlying NPAT line due to a higher tax rate. Key positives: Formwork and Industrial Services revenue was strong with growth of 19% and 114%, respectively; Underlying EBITDA margin rose 60bp to 23.0%; Outlook remains healthy with management guiding to FY22 EBITDA growth of >20% and underlying NPAT to be up >40%.

Key negatives: FY21 underlying NPAT and reported NPAT were below our expectations; Commercial Scaffold remains weak with revenue down 10%. We increase FY22F/FY23F/FY24F underlying EBITDA by 3%/5%/19%.

We maintain our Add rating. Trading on 8.6x FY22F PE and 4.7% yield we continue to see the valuation as attractive with ACF offering leverage to growing infrastructure activity over the longer term.

Read our full reports and latest price targets on ASX:ACF here.

Wagners Hld Company - Doubling down on the NewGen opportunity

WGN's FY21 result highlighted its clear earnings recovery, with strong cash generation and continued de-leveraging key highlights. Further growth in CMS is targeted in FY22. WGN will accelerate its EFC investment and progress the ramp-up of its US CFT manufacturing facility. While this will limit the extent of FY22 earnings growth, these remain important long-term growth drivers for the business. We continue to view the external EFC investment process as an important catalyst for the stock, which could unlock further valuation upside to our A$2.30 PT.   

Read our full reports and latest price targets on ASX:WGN here.

Frontier Digital Ltd - Re-emergence 

FDV continues to exhibit positive momentum with the majority of businesses now seeing a sustained rebound out of COVID induced lows. 1H portfolio (PF) revenue growth of 46% on a constant PF basis (+86% incl acquisitions) included +132% in Q2 (on a materially impacted pcp).

July trading shows improving momentum with PF rev +9% on June and +13% on the Q2 average. Larger businesses Infocasas (+23% mom in June) and Zameen (first time >A$5m rev in month) were specifically called out as performing well. FDV continues to target increasing involvement in the transactional ecosystem, disclosing transactional revenue at % of 1H PF rev.

With the Adevinta acquired assets ostensibly having no exposure to this revenue stream, this remains a large opportunity to improve topline growth. We retain our Add rating.   

Read our full reports and latest price targets on ASX:FDV here.

Apollo Tourism - Darkest before the dawn

ATL's FY21 EBIT loss was in line with expectations - an environment that was about as tough as it gets for a global tourism operator. ATL's liquidity position looks set to see the company through to other side of COVID (assuming conditions don't deteriorate further given where vaccination rates are).

We now have evidence of how the Australian business can perform without the burden of domestic lockdowns/restrictions. The path to vastly higher earnings is becoming clearer, but clearly relies on a world returning to some form of domestic normality. Despite ST headwinds, particularly in A/NZ, we upgrade to Add.

Read our full reports and latest price targets on ASX:ATL here.

Mydeal.Com.Au - FY21 result: Light the blue touchpaper

On almost every measure of activity, MYD achieved positive growth in FY22. Gross sales more than doubled. The number of active customers rose by 83%.

There were more repeat visits. Customers transacted more often. Operating expenses increased too and, as a result, there was a $4m EBITDA loss, in line with our forecast. MYD had $42.7m of cash and is well able to absorb such an investment.

We think there's a lot of opportunity for MYD to drive its advantage further in FY22. With a broader range of private label products, a recently launched mobile app and the introduction of a number of well-recognised brands to attract people to the site, we expect topline growth to continue strongly in the year ahead. With this note, coverage of MYD transfers to Alexander Mees.  

Read our full reports and latest price targets on ASX:MYD here.

ImpediMed Limited - The waiting game is almost over

IPD posted its FY21 results which were behind our forecast, main differences were higher amortisation charges and share-based payments. Pleasingly the net cash outflow was materially lower than last year.

We have moderated our FY22/23 forecast to reflect a lower installed base growth assumption. However, the main game relates to the near-term a catalyst being the publication of the PREVENT data which is expected within 60 days.

We expect positive data and this will encourage private payor adoption and potential treatment guideline inclusion. The share price wants to move higher and a successful publication of data will likely see our TP achieved. Speculative buy recommendation maintained.

Read our full reports and latest price targets on ASX:IPD here.

Find out more

You can find further detailed analysis of company results this reporting season by browsing our reporting season tag, and view a full list of upcoming results on our Reporting Season Calendar.

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Disclaimer: Analyst may own shares. The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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