Best calls to action – Friday, 25 August 2023

About the author:

Andrew Tang
Author name:
By Andrew Tang
Job title:
Analyst - Equity Strategy
Date posted:
25 August 2023, 6:00 AM
Sectors Covered:
Equity Strategy and Quant

Lovisa Holdings Ltd (ASX:LOV) - FY23 earnings: Launch of a global brand

LOV grew substantially in FY23 to finish the year with an 801-store network in 39 countries. We believe it plans to enter mainland China in FY24, paving the way for significant longer-term growth.

We have increased our target price accordingly form (login to view) and reiterate our ADD rating. LOV achieved 30% growth in sales and 17% growth in NPAT. Sales were in line with expectations, though higher finance costs meant NPAT was slightly below.

We have increased our finance cost estimates in FY24 and FY25, leading to 7% and 3% lower forecast NPAT. We have increased our long-run earnings estimates.

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

Qantas Airways (ASX:QAN) - The market still doesn't believe this isn't the top

QAN's FY23 result was a record and all in line with recent guidance provided at its May trading update. The company continues to show confidence in its outlook and balance sheet (despite record upcoming capex spend) with it announcing another A$500m on-market share buyback (above MorgansF of A$400m).

Whilst we were hoping for a stronger message from QAN around earnings growth being delivered in FY24, outlook commentary was upbeat nonetheless. QAN reiterated its FY24 EBIT margin targets and also said that travel demand remains very strong and that it is seeing solid trading into the 1H24.

From here, 1H24 guidance likely provided in Oct/Nov will be the key share price catalyst. With QAN trading on its lowest P/E multiple in years (FY24F of 5.4x post buybacks), risk remains materially skewed to the upside. ADD maintained.

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

HealthCo REIT (ASX:HCW) - Scaling up

HCW’s result was in line with guidance with the integration of the Healthscope portfolio transaction dominating the year. The near term focus is on third party fund raising for UHF as well as asset sales.

The unlisted fund is on track to reach first close in Sep-23 and is integral to unlocking HCW’s $1bn development pipeline over the medium-long term. Portfolio metrics remain stable (cash collection 100%; occupancy 99%; and WALE 12 years).

Asset recycling has been a focus with further asset sales targeted in FY24. HCW is also a potential candidate to enter the ASX300 index in the Sep-23 re-balance. FY24 guidance comprises FFO and DPS of 8cps. Retain Add.

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

TPG Telecom Limited (ASX:TPG) - Returning to growth

TPG’s underlying result was slightly better than expected and guidance was marginally raised. So too was capex, but because largely the transformation is going well. Returns still sit below cost of capital but are trending higher as pricing rationality remains.

We expect this trend to remain positive and supportive. We retain our Add and upgrade our target price to (login to view).

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

Smartgrp Corporation (ASX:SIQ) - Upside from EV's, just with a bit less spark

SIQ reported in-line. Versus 2H22: revenue +5% to A$116.6m; EBITDA +7.2% to A$47m; NPATA +2% to A$29.4m. Strong settlements offset cost growth. Forward novated demand indicators were strong, as expected: 1H leads (vs 2H22 excl. contract loss) +20%; quotes +19%; and orders +12%.

Two areas disappointed: SIQ stated that yield on new EV leases is expected to be in-line it's typical yield; and only A$1m of incremental 'excess revenue' was generated (none in Q), implying a further order uplift is required to drive growth.

Whilst we would prefer to buy with more meaningful upside to our valuation, we retain the Add given SIQ's high cash flow generation; overall industry tailwinds; upside earnings risk with execution; some embedded profitability to flow through from forward orders; and the outside chance of a large contract win.

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

Eagers Automotive (ASX:APE) - Structural growth under the bonnet

APE delivered 1H23 (vs pcp): revenue +14% to A$4.8bn; underlying NPBT +6.3% to A$207.4m; DPS +9% to 24cps. The result was in-line with expectations. Whilst group ROS fell 30bps (diluted by acquisitions); focused cost management was a highlight. Like for like costs were +4.9% against the high inflationary period.

APE expects to deliver FY23 revenue of A$9.5-10bn, with a stronger 2H23 margin outcome. Plenty of med-term structural growth initiatives are in play across: consolidation; strategic industry alliances; leading the EV transition; sales channel optimisation; used vehicles; and new markets (offshore).

There will be periods of cyclicality experienced through time, however APE is executing on building a sustainably higher earnings base. Add maintained.

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

Regis Resources (ASX:RRL) - FY23 Result: Patience warranted

RRL posted EBITDA of $371m (+10.4% on pcp), EBITDA margin of 35% (-12.5% on pcp), and Statutory Net Loss of -$24m.

Accelerated depreciation of $385m, primarily due to Duketon North operation led to the statutory net loss. Hedge book reduced by 100koz to 120koz and on track to be closed out by the end of FY24.

Management remains confident re. McPhillamys timely approval and deferral of $300m debt facility due in Q4FY24. As part of progressing the funding strategy for McPhillamys, no final dividend declared for FY23. Our DCF-based target price moves to (login to view), and we transition to an ADD rating.

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

Universal Store (ASX:UNI) - FY23 earnings: Dress appropriately

On an underlying basis, UNI’s FY23 EBIT was 2% above our forecast and in line with guidance. Group LFLs were better than expected. LFL sales in the first few weeks of FY24 were weak, but were against strong comps.

We have lowered our EBIT estimates by 9% in FY24 and 3% in FY25 as we take a more cautious view on sales and margins. We note these changes bring us closer in line with consensus. UNI’s attractive array of medium-term growth prospects is undervalued at a single digit FY25 P/E.

We reiterate our ADD rating and increase our target price to (login to view).

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

Veem Ltd (ASX:VEE) - Coming back bigger and better

VEE’s FY23 result was comfortably above our expectations with strong margin improvement the key highlight as the business cycled a number of issues in the prior year. As previously reported, gyro sales were $5m (FY22: $5.5m) with orders on hand of $11m.

Propulsion sales increased 17%, Defence was up 19%, and Hollow Bar grew 11%. Management said FY24 has started very well and FY23 investments, particularly in propellers, were contributing strongly to revenue and earnings.

We adjust FY24/25/26F EBITDA by +8%/0%/+9% and underlying NPAT by +7%/-7%/+7%. Our target price increases to (login to view) and we maintain our Add rating.

We continue to see VEE as a good business with a heavy focus on R&D creating a unique set of products that will drive future growth, particularly gyros.

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

Sierra Rutile (ASX:SRX) - 1H’CY23 Result: Opportunity calling!

SRX’s 1H CY23 results came above our expectations. Gross profit of $30.5m (-8.1% pcp) vs. 22.2m MorgE, and underlying NPAT of $28.2m (-6% pcp) vs. 9.2m MorgE.

SRX sits on healthy inventories of Ore and HMC stockpiles ($20m), which is set to unwind as rutile demand normalises further lowering net unit cost of production. We continue to view SRX as an undervalued opportunity with cash component representing ~56% of the current market cap.

We retain our (login to view) target price and maintain our Add rating.

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

If you would like access or more information, please contact your adviser or nearest Morgans office.

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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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