Best calls to action – Monday, 29 August

About the author:

Author name:

By Andrew Tang

Job title:

Analyst - Equity Strategy

Date posted:

29 August 2022, 6:30 AM

Sectors Covered:

Equity Strategy and Quant

Wesfarmers Limited (ASX:WES) - Second half bounce back

WES's FY22 result was comfortably above expectations.

Key positive(s): Kmart Group earnings recovered strongly in 2H22 after being heavily impacted by lockdowns in 1H22; FY22 DPS of 180cps was above our 164.8cps forecast and Bloomberg consensus (169.5cps); Group ROE rose 330bp to 29.4%.

Key negative(s): Group EBIT margin dropped 120bp to 9.3%; Health division EBIT for the 3-months of ownership in FY22 was -$24m; Operating cash flow was down 32% due to higher working capital (predominantly inventory).

Management said retail trading conditions have remained robust through the first seven weeks of FY23. FY23-25F group underlying EBIT changes by between -1% and +3%. Our target price falls to (login to view) and we maintain our Add rating. We continue to view WES as a core portfolio holding for long-term investors.

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

Ramsay Health Care (ASX:RHC) - Conditions remain challenging; KKR revises bid

FY22 results continue to be materially impacted by COVID and higher costs, with margins contracting to multi-year lows and profit falling by double-digits.

While COVID-related headwinds are slowly subsiding, supporting the eventual return of more normalised activity, we view inflationary pressures and work force issues as impediments to a full recovery in productivity.

Despite lingering volatility and FY24 a "normal" trading year, it takes a back seat to KKR's now revised offer, which we believe is likely to get up in some form. We have adjusted our FY23-24 earnings, rolled forward our valuation multiples, and maintained a takeout premium with a (login to view) price target. Move to Add.

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

Universal Store (ASX:UNI) - FY22 Earnings: The Kids are All Right

We believe UNI will deliver double-digit growth in sales and earnings in FY23 as an expanded store network plays into the resilience of demand for fashion apparel from a young customer cohort experiencing high levels of employment, higher wages and more and more opportunities to go out and socialise.

FY22 earnings were slightly better than expectations. We have increased our EPS estimates by 5% in FY23 and by 1% in FY26.

The FY24F P/E is 10x, which we believe is far too low for a business with the quality and growth potential of UNI. We reiterate our ADD rating with an increased target price of (login to view).

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

Peter Warren (ASX:PWR) - Plenty of torque in the margins

PWR's FY22 underlying NPAT of A$61.7m was up 18% on the pcp, beating expectations. With the inclusion of PMG, 2H22 NPAT (A$36.3m) was up 43% HOH. Strong gross margin was again a driver. PWR's 2H22 GM of 20.8% (+170bp HOH) was partly the Mercedes shift to Agency (+70bps) and cyclical strength (+100bps).

PWR's order book closed +55% HOH, with demand continuing to outstrip supply (continuing into 1H23). We expect this is ~5mths of embedded new vehicle orders. Demand/supply imbalance continues to drive strong margin outcomes for the sector.

We are conscious of the operating deleverage impact when GM 'normalises', however more constrained supply is likely to persist for some time.

PWR is trading on ~7x FY23 PE and ~10x our assumed 'more normalised' conditions (FY24/25). Industry consolidation will continue - we expect PWR to be a participant (primary growth driver), or even a potential target in time.

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

Jumbo Interactive (ASX:JIN) - FY22 Earnings: SaaSy

FY22 was a year of solid growth in revenue and earnings for JIN. The business continued to diversify its earnings base, with SaaS now making up nearly half of group EBITDA.

There were few surprises in the numbers, given JIN pre-announced headline earnings in July. We have made no material changes to our earnings estimates. Our NPAT estimates are effectively unchanged in both FY23 and FY24, although we raise our EPS forecasts by 1% in each year as a result of the proposed $25m buyback.

We reiterate our ADD rating. We expect JIN to continue to achieve steady growth in the years ahead through a combination of organic contract wins, M&A and diversification.

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

Monash IVF Group Ltd (ASX:MVF) - New fertility specialists set runway for growth

MVF posted a solid FY22 result which was in line with expectations and sustained the high level of stimulated cycles on the bumper FY21 year. Strong industry fundamentals remain in play, and MVF continues to gain market share and attract new fertility specialists.

We maintain our Add recommendation. Rolling forward our model our new target price is (login to view).

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