Best calls to action – Friday, 26 August

About the author:

Andrew Tang
Author name:
By Andrew Tang
Job title:
Analyst - Equity Strategy
Date posted:
26 August 2022, 6:30 AM
Sectors Covered:
Equity Strategy and Quant

South32 Limited (ASX:S32) - Costs fail to take shine off

A strong result from S32, very close to consensus expectations, including a bumper final dividend that included a US3 cent special dividend. S32's final dividend impressed, announcing a US14 cent ordinary and US3 cent special dividend. With S32 returning 10% of its market cap in FY22.

Despite material increases in unit costs, S32 still reported operating margin growth across all segments (ex-Cannington). Earnings multiples are regularly inconsistent value indicators in resources, but in S32's case we believe it shows the market is misjudging how much residual earnings power will remain in the business post cycle peak.

Boasting strong cash flow, dividend profile and balance sheet. We maintain an Add rating with a (login to view) target price.

Read our full reports and latest price targets on ASX:S32 here.

Eagers Automotive (ASX:APE) - Stalled supply sees order book accelerate

APE's underlying NPBT of A$195.1m (-10% on pcp) was in-line with guidance. Conditions have remained consistent: no deterioration in demand to-date; and supply still relatively constrained.

The order book outcome is +32% over 1H22. We estimate APE's order book represents ~6-mths of typical deliveries. The strong embedded margin within orders; and an expectation of restricted supply persisting supports the near to medium-term earnings outlook.

Vehicle supply is the swing factor to near-term (FY22) earnings. Cycle aside, APE is working on building sustainably higher earnings via further consolidation, EA123 strategy execution, ongoing efficiency, and new OEM strategies (BYD).

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

IDP Education Ltd (ASX:IEL) - Placements shift into the Fastlane

IEL's FY22 adjusted NPAT of A$106.6m was up 137% on the pcp (in-line), a combination of recovery, growth and the BC IELTs acquisition. IELTs volumes were strong over the year (+67%), although relatively flat HOH. We expect volume, price and GP margin improvement in FY23.

IEL expect Australian student placements to recover to at least pre-Covid levels (~30% of our FY23F GP uplift). The outlook for MD student placement is strong with leads (+36% on pcp) and applications (+54% on pcp) providing visibility.

Upside to our valuation has reduced, however we view the long-term growth profile (strong underlying system demand; capturing market share via technology-led differentiation in SP; acquisition potential) as attractive.

Add maintained. Medium-term (FY24+), execution of IEL's technology driven industry change is required to meet expectations. However, we also see potential for acquisitions which aren't factored in (SP footprint; digital leads; and IELTs consolidation).

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

Whitehaven Coal (ASX:WHC) - Supercharged returns

Key FY22 financials were in line, but the dividend, as well as FY23 production/ cost/ capex guidance, were all slightly worse than expected.

Much stronger than expected NEWC thermal prices overwhelmed these impacts, driving material EPS/valuation upgrades.

Our upgraded (login to view) price target is now set at a blend of our base/bull case valuations to reflect ongoing upside to our coal price deck. We think WHC can continue to re-rate as an option over an extended energy market dislocation sustaining windfall earnings and dividends.

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

Karoon Energy Ltd (ASX:KAR) - Why was the market surprised?

We are at odds to explain the size of the share price rise on the positive FY22 result, but then again that could be because we were already bullish and viewed the stock as unsustainably cheap.

At peak capex we expect KAR to remain FCF positive, like it did in FY22. A strong FY22 earnings result, while FY23 production guidance and the intervention/Patola budgets experienced some slippage.

KAR again provided impressive detail in its guidance and consistency in its reporting while being candid on bad news. Normally pretty good indicators. A catalyst-heavy earnings and growth stock, we maintain an Add rating with an unchanged (login to view) target price.

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

Homeco Limited (ASX:HMC) - New opportunities in play

HMC's FY22 result was strong on the back of growth in AUM which currently stands at $5.8bn vs $1.4bn in the pcp and trading profits. Key transactions were the establishment of HCW; a FY contribution from HDN and the merger with AVN.

Post asset sales, HMC is currently in a net cash position providing liquidity for future opportunities with two new funds launched (daily needs/healthcare focus). FY23 DPS guidance has been set at 12c (flat on FY22).

No FFO guidance has been provided given uncertainty around the timing of transactions. However, management remains confident it will reach its AUM target of $10bn by end of 2024 and says it is currently tracking 6-12 months ahead of this timing. We retain an Add rating and revised (login to view) price target.

Read our full reports and latest price targets on ASX:HMC 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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