Best calls to action – Wednesday, 16 February
About the author:
- Author name:
- By Andrew Tang
- Job title:
- Analyst - Equity Strategy
- Date posted:
- 16 February 2022, 6:00 AM
- Sectors Covered:
- Equity Strategy and Quant
GWA Group Ltd - Cycle still has a way to go
GWA's 1H22 result was slightly above expectations. Key positives: EBIT margin grew 140bp to 17.7%; ROFE rose 240bp to 17.5%; Balance sheet remains healthy with ND/EBITDA improving to 1.3x (1H21: 1.7x).
Key negatives: Operating cash flow fell 12% due to negative working capital movements; NZ sales -15% and International -5% due to shutdowns and restrictions. FY22F/FY23F/FY24F underlying EBIT changes by 0%/0%/-5%.
Our target price declines to (login to view) and we maintain our Add rating. While expected interest rate rises will have a dampening effect on housing demand, we believe this is some time away with conditions to remain favourable in the short term underpinned by solid R&R and detached housing activity.
Read our full reports and latest price targets on ASX:GWA here.
Atomos - Supply constraints removed, stronger 2H ahead
AMS' 1H22 result saw a beat on EBITDA (A$3.2m vs A$2.5m MorgansE) although further upside was impacted by higher variable freight costs and supply chain disruptions - no surprise there given the global operating environment.
Stronger gross product margins were the driver of the small beat, with a greater skew toward higher priced items (higher margin) than we had expected. However, for us and paired with the reiteration of guidance, the major takeaway from the result was confirmation of a significantly improved inventory position.
Security of high-volume products and long-lead time componentry to support new product releases, normalised sales volumes, and a pull-through from unmet (out of stock) 1H21 demand is a major tick for us.
While it appears the market continues to question AMS' ability to hit FY22 guidance, we look to a period of lower promotional activity, pull-through of demand from out-of-stock devices in 1H, higher contribution from 100% margin software sales, and the release of Series 2 (S2) products (higher margin) within the period, off a largely fixed cost base.
We are comfortable with guidance at the lower end. We have made only marginal changes to forecasts and remain comfortable with our forecasts. Target price moves to (login to view), Add recommendation retained.
Read our full reports and latest price targets on ASX:AMS here.
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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.