Best calls to action – Friday, 18 February

About the author:

Andrew Tang
Author name:
By Andrew Tang
Job title:
Analyst - Equity Strategy
Date posted:
18 February 2022, 6:00 AM
Sectors Covered:
Equity Strategy and Quant

Wesfarmers Limited - Rolling with the punches

WES's 1H22 result was largely in line at the underlying NPAT line (+1% vs MorgansF), which was not a surprise with guidance provided in January. However, the result was weaker (-5% vs MorgansF) at the underlying EBIT line.

Key positives: ROE (rolling 12m) was up 10bp to 24.8%; 1H22 DPS of 80cps was above our 74cps forecast. Key negatives: Weaker than expected earnings from most divisions; Operating cash flow fell 30% due mainly to higher inventory; Supply chain disruptions, higher transport costs and labour constraints are expected to persist in 2H22. We decrease FY22-24F underlying EBIT by 2% in each year.

Our target price decreases to (login to view) and we maintain our Add rating. Despite ongoing uncertainty in the operating environment, we think WES is well-placed to benefit when conditions improve and continue to view the stock as a core portfolio holding for long-term investors.

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

Woodside Petroleum - Merger late but worth the wait

Underlying NPAT beat consensus by +18%, while +3% above Morgans estimates. BHP merger expected to be completed in early June, after a 19 May vote. There is some uncertainty around whether WPL will pullback the payout ratio to 50% from 80% during its next capex phase.

WPL would FID Sangomar even without a selldown. Share price starting to gain ground after trading sideways for 12 months, we still see further upside to our (login to view) target price and maintain our Add rating

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

Telstra Corporation. - Under the hood it's looking good 

TLS's 1H22 result showed the second consecutive half of underlying growth, with underlying EBITDA up 5%, underlying EPS up substantially and the DPS flat yoy. Reported numbers dipped yoy due to lower NBN revenue and other one-off gains (which boosted 1H21 reported numbers).

Mobile was the star performer. Performance is tracking in the right direction and FY22 guidance was re-iterated. We make minor EPS upgrades on lower D&A; retain Add and (login to view) TP. 

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

Transurban Group - Waiting for the recovery to gain momentum

There was no surprise the 1H22 result was weak, but it was better than expected. We retain an ADD rating, viewing TCL as a high quality toll road portfolio that provides long-dated resilient cashflows with leverage to a COVID recovery. 12 month target price decreases (login to view) per share. 

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

South32 Limited - Digging the cycle

The diversified miner is enjoying robust prices across its basket of metals, allowing it to increase its dividend, upsize its buyback and strengthen its balance sheet. 1H22 FCF of US$840m for a healthy FCF yield of 11%. S32's well timed copper acquisition in Sierra Gorda is due to complete this month.

Working capital jumped US$333m on rising prices and supply chain issues.

Guidance tweaks with Illawarra/GEMCO cut and Cannington upgraded. We see S32 as a key ex-iron ore / ex-WA mining exposure in Australia, offering investors diversified base metals exposure at an attractive multiple.

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

Newcrest - Strong H2 predicted as Cadia ramp up continues

H1 financial results confirmed what the market already knew - lower production (released in January) leads to lower earnings, with free cash flow further reduced by NCM's investment in the business.

Financials were broadly inline with consensus estimates. NCM declared a fully franked US 7.5cps first half dividend (-50% from PcP) despite negative free cash flow - supported by its full year minimum US 15cps target. We retain an add rating for NCM, with a price target of (login to view). 

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

Challenger Limited - Tracking well versus FY22 guidance

CGF's 1H22 normalised NPAT (A$166m) was 2% above Bloomberg consensus (A$162m), with the 1H22 dividend also slightly above market expectations (A11.5cps vs A11cps). 

We saw this as a solid result highlighted by good asset growth in both Life and Funds Management, and a broadly stable Life COE margin at an underlying level. CGF appears to be tracking towards the top end of FY22 NPBT guidance (A$430m-A$0m), arguably with conservative 2H22 Life COE margin expectations (<2.5%).

We lift our CGF FY22F/FY23F EPS by 4%-5% on higher asset growth and Life business margin estimates than previously. Our target price rises to (login to view). Maintain ADD call. We see CGF as having solid earnings momentum heading into FY23, with the stock trading at an undemanding PE multiple (FY23F = 14.5x).

We saw this as a solid result highlighted by good asset growth in both Life and Funds Management, and a broadly stable Life COE margin at an underlying level. CGF appears to be tracking towards the top end of FY22 NPBT guidance (A$430m-A$0m), arguably with 2H22 Life COE margin expectations (<2.5%) conservative.  

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

TABCORP Holdings Ltd - Lotteries continuing to shine

TAH's interim result was ahead of consensus expectations, with another record result from Lotteries & Keno (L&K) the clear highlight. As expected, Wagering & Media (W&M) and Gaming Services (GS) were impacted by venue closures; however, the businesses should benefit from an easing in COVID restrictions from the 2H22 onwards.

Cash generation remained very strong and continues to see leverage at the bottom-end of the Board's target range. This should ensure both L&K and Wagering & GamingCo are adequately funded to pursue their respective growth strategies post demerger. We upgrade our forecasts following a stronger than expected interim result.

We continue to view the risk/reward profile of TAH as attractive as its demerger is progressed. Add rating maintained.   

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

Beacon Lighting Grp - 1H22 result: We're fans

BLX indicated last month that its 1H22 sales and earnings would be 'very much in line' with the record performance in 1H21. The full result confirmed that sales were flat yoy and EBITDA up 4%.

Resilience in retail demand for BLX's lighting and ceiling fans in the face of lockdowns in NSW and Victoria was complemented by strong growth in Trade and International. BLX has had an 'encouraging' start to 2H22. We have increased our NPAT estimates by 0.5% in both FY22 and FY23.   

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

Data#3 Limited - Shaping up for another record result 

In Jan 2022 DTL upgraded 1H22 PBT guidance from $15-18m to $18.1m (+30% yoy). Today's result was a slight beat on this with PBT of $18.5m growing 33% YoY (and 100% organically). EPS growth was nearly double revenue growth and this result shows the positive fixed cost leverage in the DTL business model.

The Board declared in interim dividend of 7.25cps, ff and up 32% YoY. As expected, no formal guidance was provided. The overall outlook remains positive and, absent a black swan event, we see upside risk to our forecasts.  

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

Whitehaven Coal - A strong sign of returns to come

1H22 cemented WHC's turnaround, although EBITDA/cashflow were slightly below our forecasts. Current coal prices versus forecasts support strong upside risks to WHC's 2H dividend (FY22F FCF yield (35%).

Our base case valuation ticks up to $3.38ps, while our target of (login to view) includes a premium to reflect upside risk linked to further coal price strength. Physical market feedback suggests ongoing coal price strength well above consensus forecasts. Our valuation in a bullish pricing scenario is (login to view) 

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