Best calls to action – Tuesday, 30 August

About the author:

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

Lovisa Holdings Ltd (ASX:LOV) - FY22 Earnings: Goldmine

What was clear to us from LOV's FY22 result was that this is a global growth story that is really only just getting started. FY22 earnings were certainly impressive, with sales beating our forecasts rising 59% and statutory EBIT before LTI more than double that of the prior year. Even the dividend, at 74c for the year, was a very positive surprise.

But all this could be just a taste of things to come. What was even more remarkable than the result itself was the phenomenal scale of LOV's ambition. In its own words, LOV is 'building a global brand', which will involve the development of a global presence that we believe will far out scale the 651 stores in the portfolio today.

The momentum of growth is expected to increase in FY23 and the addition of further new markets, perhaps including Italy and Mexico, appears more than likely. In our opinion, it won't stop there.

Expansion in Hong Kong seems to us to be a precursor to a move into mainland China in due course. And if LOV can prove itself in Italy, the European fashion capital, why not Japan, its counterpart in Asia, further down the track? We have increased our post-AASB 16 EBIT estimates by 13% in FY23 and by 15% in FY24.

Our sales estimates increase by 9% and 8% respectively. We reiterate an ADD recommendation and increase our target price from (login to view).

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

Nextdc Limited (ASX:NXT) - Finely tuned and waiting for the green light

FY22 underlying EBITDA was up 26% yoy, 1% ahead of guidance and 2% ahead of consensus. FY23 underlying EBITDA guidance is for ~15% yoy growth which is in line with consensus. Overall it was a strong result and outlook which shows NXT's resilience to both pandemics and inflationary pressures.

With new facilities online in FY23 (S3 live, M3 coming soon) and strong customer demand, the key challenge which is beyond management's control is customers' ability to buy DC equipment. Supply chain is a major customer challenge that will get resolved.

We hope this is an FY23 story (for big contract wins) but it could take a bit longer. New chip manufacturing plants go live in USA/Japan in CY24. We upgrade our FY23 EBITDA forecast by ~7% and retain our Add rating.

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

InvoCare Limited (ASX:IVC) - Bouncing back

IVC's 1H22 result (Dec year-end) was slightly below our expectation at the operating EBITDA line but slightly above Visible Alpha consensus. Operating NPAT was stronger than expected.

Key positive(s): Revenue grew in all regions with both funeral case volumes and case average higher; ROCE (rolling 12m) increased 120bp to 11.9%.

Key negative(s): Mark-to-market revaluation loss of $46.0m on pre-paid FUM assets due to weaker equity markets; Pet Cremations EBITDA dropped 29%; Operating cash flow was down 23% due mainly to higher working capital.

Management said momentum has been maintained with a positive start to 2H22. FY22F/FY23F/FY24F operating EBITDA changes by -1%/-1%/-1%. Our target price decreases to (login to view) and with a 12-month forecast TSR of 19%, we upgrade our rating to Add (from Hold).

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

Objective Corp (ASX:OCL) - Building blocks are falling into place

OCL's FY22 result was in-line with pre-reported figures and our expectations. FY23 Outlook remains robust, positive early traction of new products is evident. SaaS transition a focus with PRTU licensing of Objective ECM to end by Jun'23.

We make little changes to our forecast following our recent initiation of coverage. Our target price increases to (login to view), reflective of changes in traded peer multiples and our DCF Valuation methodology. We retain our Add rating.

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

Dalrymple Bay (ASX:DBI) - Steady and resilient while we wait

The 1H22 result showed stable and resilient performance, with 100% take-or-pay contracts mitigating against weak throughput.

Also expected, there was no new detail on the key customer tariff negotiations. ADD, (login to view) target price, 8.5% cash yield.

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

Peoplein Limited (ASX:PPE) - FY23 guidance increases confidence

FY22 results and FY23 guidance exceeded both our expectations and those of consensus. PPE delivered normalised EBITDA (equity) of $47.2m, an increase of 23.9% vs pcp, of which organic growth contributed 10.5%.

The FY23 ROE-A of 24.9% demonstrates the business' continued capacity to deliver accretive acquisition growth. Looking forward, management reaffirmed their commitment to delivering c.10% pa organic growth, complemented by continued accretive acquisitions and industry leading EBITDA margins of +7%.

We retain our ADD, increasing our target price to (login to view), reflecting an FY23 PER-A of 12.5x, a level we believe as reasonable given the pathway to future earnings growth.

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

Motorcycle Holdings (ASX:MTO) - Order book to steer through consumer caution

MTO's FY22 underlying NPAT of A$23.1m, was down 4.4% on the pcp (-16.1% on hoh), and slightly ahead of our expectations (A$21.7m).

The result was driven by strong growth in MC retail sales, with Used Bike GP (+9% on pcp); and New Bike GP (+6%), offsetting a challenging year in parts and accessories (-5%) (lockdown impacted).

MTO have commenced FY23 with a large order book; a bolstered inventory position; and a small bolt-on acquisition that is expected to contribute to FY23 earnings. However, while positive for FY23, MTO are preparing for likely subdued trading conditions against a softer consumer backdrop.

Trading on ~7.5x FY24 PE; a solid balance sheet (~0.3x ND/EBITDA); ongoing favourable margin conditions (robust margin dynamic); a strong order book (near-term earnings support) and clear intent to continue to scale via acquisition, we consider MTO as offering solid value and maintain an Add rating.

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

Mach7 Tech Limited (ASX:M7T) - Story becoming more compelling

M7T posted a strong FY22 result, with another year of record revenue up 42% on pcp, as well as a strong sales order pipeline which will drive growth in FY23 and beyond.

Over the year, the business mix has trended towards more SaaS based deals (60/40 split) with customers increasingly open to transitioning from capital to subscription contracts.

We view this as a positive trend with the market valuing SaaS contracts more highly. We have rolled forward our model, made no changes to our forecasts, and our DCF valuation remains unchanged at (login to view). Add maintained.

Read our full reports and latest price targets on ASX:M7T 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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