Best calls to action – Thursday, 18 February

About the author:

Andrew Tang
Author name:
By Andrew Tang
Job title:
Analyst - Equity Strategy
Date posted:
18 February 2021, 9:00 AM
Sectors Covered:
Equity Strategy and Quant

Happy to Buy today

Westpac Banking Corp

Westpac Banking Corp's (ASX:WBC) unaudited cash earnings of $1.971bn for 1Q21, on a run-rate basis, are 23% better than our expectation and ~43% better than FactSet consensus. We had been pointing out the upside risk of potential provision releases and this has crystallised in the case of WBC.

We expect positive revisions to consensus on the credit impairment charge front and net interest margin front. We see strong capital management potential for WBC particularly given that WBC had the highest surplus franking credits balance of the major banks as at end-FY20.

WBC remains our preferred major bank, and we particularly expect the outperformance against Commonwealth Bank of Australia (ASX:CBA) to continue. Add rating retained. Login to view the target price and full analysis.

Corporate Travel Limited

In our view, Corporate Travel Limited (ASX:CTD) posted a commendable 1H21 in light of COVID-19 travel restrictions. Importantly, the balance sheet is strong with no debt and is by far the strongest in the sector.

CTD hasn't wasted a crisis. When travel activity fully returns, CTD will be a materially more profitable company given it has won a lot of new business, it has the benefit of the T&T acquisition (+ associated synergies) and it has structurally lowered its cost base.

CTD remains our key pick in the travel sector. We maintain an Add rating with a new price target. Login to view the target price and full analysis.

Coles Group

Coles Group (ASX:COL) reported 1H21 earnings growth that was comfortably ahead of our forecast.

However, LFL sales growth in Supermarkets (+7.2% vs Morgans +8.1%) and Liquor (+15.1% vs Morgans +17.4%) was a bit softer with management noting that growth may moderate significantly or even decline in 2H21 and into FY22 as the business starts to cycle a very strong pcp.

COL advised that for the first 6 weeks of 3Q21, Supermarket LFL sales increased 3.3% while Liquor was up 12.5%. We increase FY21F underlying EBIT by 2% to A$1,890m and our target price rises from A$19.40 (login to view). Add rating maintained. Login to view the target price and full analysis.

Domino Pizza Enterprise

Domino Pizza Enterprise's (ASX:DMP) 1H21 NPAT result was 14% above MorgsE, with 23% revenue growth converting to 33% NPAT growth. The material increase in global franchisee profitability (akin to DMP's growth) is important and should re-ignite strong rollout growth across all markets - DMP's key growth driver.

2H openings are expected to accelerate further. A very strong balance sheet position will likely see the group accelerate its growth plans in all markets (both organically and via acquisition) - providing further growth optionality vs our forecasts.

We see the potential for a period of synchronised global growth from DMP, something we haven't seen in some time. Add rating maintained. Login to view the target price and full analysis.

Homeco Daily Needs

Homeco Daily Needs' (ASX:HDN) maiden result provided a solid trading update (cash collection at 99%) with new detail provided on near term brownfield development opportunities.

FY21 FFO guidance is tracking +9% above PDS forecasts at A$20.5m. DPS guidance has been reiterated with a maiden distribution of 2.4c declared. NTA moves to A$1.34 vs A$1.33 at IPO.

 The portfolio is valued at A$978m across 19 assets with A$104m in acquisitions during the half. Management continues to target AUM of A$3bn over the medium term via organic growth, development projects and acquisitions.

HDN's portfolio remains well positioned given its stable portfolio metrics; low site ratio; sustainable rents; and exposure to the convenience retail and services sectors. We retain an Add rating with a revised price target. Login to view the target price and full analysis.

The Reject Shop

TRS' 1H21 result was a beat versus our forecasts, assisted by slightly lower costs but mostly lower D&A. The turnaround progresses however this was partially offset by COVID-19 (sales performance and inventory supply/freight cost pressures).

As expected, TRS did not provide FY21 guidance however noted it expects to generate an EBITDA/EBIT loss in the 2H (given business seasonality).

While COVID-19 is expected to cause some short-term disruptions, we believe new management's turnaround remains firmly on track. Maintain Add. Login to view the target price and full analysis.

Apn Industria REIT

ADI reported a strong uplift in 1H21 FFO driven by new acquisitions during the period. Rent collections remain strong at 99.3%.

FY21 guidance has been reiterated comprising FFO of 19.7-19.9c (c2-3% growth on the pcp). DPS guidance is 17.3 cps which equates to a distribution yield of around 6%.

We retain an Add rating with a revised price target. Login to view the target price and full analysis.

Whitehaven Coal

Soft 1H financials were a function of lower coal pricing and should not have surprised. A far stronger than expected coal price environment now supports a far stronger 2H outlook and an acceleration in WHC's focused de-leveraging.

We maintain our add rating, with higher coal prices supporting an uplift in our valuation. WHC's share price appears to have dislocated from the surging A$ coal price, with +40% upside to our valuation again looking compelling. Login to view the target price and full analysis.

Ebos Group Ltd

EBO posted a solid 1HFY21 result up 14.2% and beating our forecasts. All divisions improved except for consumer products. Two acquisitions were made and pipeline is encouraging according to management.

We have increased our forecasts by ~6% over the period reflecting both volume growth and minor margin improvement. We maintain our Add recommendation. Login to view the target price and full analysis.

Trim/Funding Source

Rio Tinto Limited

A solid 2H20 result from Rio Tinto (ASX:RIO), with underlying EBITDA 1.4% ahead of consensus and underlying NPAT a more meaningful 6% ahead of expectations.

With a strong balance sheet and undemanding capex profile, RIO is paying out all of its FCF generated in 2020 in ordinary and special dividends. Significant cost headwind with a stronger AUD pushing Pilbara unit costs from US$15.4/wmt in 2020 to an expected range of US$16.7-$17.7/wmt.

A difficult outlook for RIO's flagship iron ore business, with risks to 2021 reserve replacement from the new Heritage Act, and dynamics around Simandou. Our target price is revised and we maintain our Hold rating. Login to view the target price and full analysis.

Fortescue Metals Group

Fortescue Metals Group (ASX:FMG) will update on the Iron Bridge magnetite development project at its 1H21 result on 18 February, but has moved decisively cutting key management.

Comments so far from CEO only refer to value, culture and communication issues, giving the impression bad news may not have made its way up the chain. We continue to fear diverging strategies in mining and energy could lead to poor performance over the long term.

Fortescue's short-term fundamentals remain dominated by strong iron ore prices.

We have assumed a 20% capex blowout, maintain our hold rating and lowering our blended target price by just A$0.10ps, highlighting that iron ore price remains the bigger value lever. Login to view the target price and full analysis.

Pro Medicus Limited

Pro Medicus Limited (ASX:PME) produced another strong result as volumes start to recover from COVID-19 issues and new client contracts come online. No guidance provided however with volumes back to pre-COVID-19 levels and new contracts coming online, expectations for a strong 2H and beyond have been set.

Given the current valuation, investor focus is likely to remain on whether the recent contract wins was just a concentrated event or whether this is a longer-term step change as the network effect compels hospitals to adopt the technology.

We have made a number of changes to forecasts to account for the scale of the most recent contract wins, although hold back extrapolating these win rates as the new normal in FY22 and beyond.

Our price target increases and due to the recent strength in share price we move to a Hold recommendation. Login to view the target price and full analysis.

Bapcor Limited

Bapcor Limited's (ASX:BAP) 1H21 result (NPAT +54%) was slightly above December guidance and Morgans estimates. Strong sales trends continued into January, however recent Melbourne lockdowns have seen this momentum slow.

BAP is comfortable with FY21 consensus pro-forma NPAT of A$122m (with the usual economic/COVID-19 caveats). We now forecast A$128m (+44%; 2H21 +32%). The dynamics buoying aftermarket demand look set to continue (albeit perhaps at a lower cadence of growth vs 1H21).

We are mindful that the EV conversation will continue to get louder which has implications for the aftermarket channel in time. Higher capex assumptions see our PT fall modestly. With the stock trading within 10% of this, we shift our rating to Hold. Login to view the target price and full analysis.

Company Initiation

Ansarada Group Ltd

Ansarada (ASX:AND) merged with thedocyard (TDY) in late 2020 to bring TDY's document/ workflow management software into the fold and create a holistic solution. The merged entity (AND) is a SaaS based information governance platform.

Its rebranded portfolio consists of: Deals (virtual data rooms for M&A, capital raisings etc); Governance (compliance and audits); Board (secure digital board management); and Tenders (governance and probity for high value events).

Ansarada was founded in 2005 and has an impressive win rate/customer advocacy in a large and rapidly growing market. The global governance, risk and compliance software market relevant to AND is estimated at ~A$10bn and growing at ~14% CAGR (MarketsandMarkets).

Despite being highly rated, AND's market share is <1% which leaves ample runway for long-term growth. We initiate coverage with an Add rating. Login to view the target price and full analysis.

Widely held stocks - worth a read

Treasury Wine Estate

Treasury Wine Estate (ASX:TWE) delivered a better than feared 1H21 result due to stronger than expected performances across ANZ and Asia, cashflow and gearing metrics.

2H21 EBITS is expected to be below 1H21 due to minimal earnings from China. Good progress is being made on its China mitigation strategy and US restructure.

We upgrade our forecasts over FY21-23 and expect TWE to return to NPAT growth from FY22 onwards. We retain a Hold for now but would be buyers of the stock on any material share price weakness. Login to view the target price and full analysis.

Carsales.Com Ltd

Carsales.com (ASX:CAR) has produced a quality 1H21 result in a difficult, but ultimately reasonably buoyant environment for the car market. Dealer revenue growth of 10% on pcp was pleasing given we had been worried about dealer propensity to spend on the site in a strong used car market where selling stock becomes easier.

Strong margins seen in the 1H do not appear sustainable and costs will increase into 2H. Indeed, we do not envisage margins ever reaching their 1H21 peak again in our forecasts.

CAR has flagged an intention to become more involved in the wider car buying transaction, we take a preliminary look at what this could look like.

Despite a strong 1H, we have slightly lowered near term forecasts and target price by 3%. Based on limited valuation support we maintain the Hold. Login to view the target price and full analysis.

Super Retail Group Ltd

1H21 result in line with expectations given guidance (revenue +23%/EBIT +120%). Like most other retailers, strong trading has continued into early 2H21 with LFL sales +30.5%.

We upgrade our revenue forecasts given the strong 2H trading update, however assume that a portion of these wins are invested into opex/growth projects. We are encouraged by Super Retail Group's (ASX:SUL) confidence in being able to retain a portion of its recent GM wins and increased BCF sales.

SUL's brands offer direct exposure to the strong domestic consumption tailwinds currently at play. While timing is uncertain, demand/earnings will normalise from current elevated levels (but likely at a higher base than prior to COVID-19).

Based on our FY22 forecasts, SUL is trading on 13.4x. Hold rating. Login to view the target price and full analysis.

TABCORP Holdings Ltd

Tabcorp's (ASX:TAH) 1H21 result was better than expected on top-line growth and a strong focus on costs. The outlook for the company remains constructive although we expect the market to focus on the unsolicited approaches received by the company.

Forecast changes have lifted our DCF based valuation and target price and we retain a Hold rating on the stock, particularly in the face of ongoing corporate interest in the company. Login to view the target price and full analysis.

Evolution Mining Ltd

Evolution Mining (ASX:EVN) released first half results for FY21, with record NPAT (+57% pop) and declaring a 7cps fully franked dividend. Guidance for FY21 was restated and EVN is on track to meet mid-point production (700koz) and come out below guidance on costs (<A$1,240/oz).

Substantial increase in group Ore Reserves to 9.9Moz (+% yoy) with Red Lake's first JORC Ore Reserve of 2.9Moz from an 11Moz Resource. Growth in Cowal underground Reserves as drilling continues while development approvals are progressed.

We maintain a Hold rating on a revised target price, with the change driven by updated long term forecasts for Red Lake production. Login to view the target price and full analysis.

Netwealth Group

Netwealth Group (ASX:NWL) reported 1H21 NPAT of A$27.6m, up 34.3% on the pcp and ahead of expectations. 1H21 half on half NPAT growth was 18.7%.

Outlook statements highlighted 2H21 revenue headwinds from the impact of new pricing and lower margin on cash. We see these impacts as largely transitory. FY21 net inflow guidance remains at A$8.5-9bn.

Inflows to starting FUA represent ~28% annualised FUA growth. NWL stated the pipeline of new business is strong. Despite subdued 2H21 revenue growth expectations, NWL's opportunity to deliver consistently strong long-term earnings growth remains in-tact.

We maintain a Hold recommendation with NWL trading in range of our valuation. Login to view the target price and full analysis.

Cedar Woods Properties

Cedar Woods Properties (ASX:CWP) reported 1H21 NPAT of A$22.4m, up 120% on the (subdued) pcp. FY21 NPAT guidance was provided for ~A$29m, up ~39% on the pcp however still materially below peak earnings of A$.6m.

Pre-sales stand at A$380m, up ~12% on pcp. The pre-sales level (~A$265m for FY22/23) secures solid visibility for earnings recovery to continue into FY22/23. CWP has a strong balance sheet to take advantage of pipeline acquisitions to support ongoing growth from a reset base in FY20.

Whilst we see earnings recovering strongly into FY23/24, we view the stock as fair value at current prices (~12x previous peak earnings; ~15x FY22F EPS; and a ~47% premium to NTA).

We view CWP's consistent and growing DPS profile as attractive. Hold rating. Login to view the target price and full analysis.

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: 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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