Best calls to action – Monday, 21 August
About the author:
- Author name:
- By Andrew Tang
- Job title:
- Analyst - Equity Strategy
- Date posted:
- 21 August 2023, 6:00 AM
- Sectors Covered:
- Equity Strategy and Quant
Goodman Group (ASX:GMG) - Higher and better use for portfolio assets protect value
GMG delivered another solid result with Operating EPS (OEPS) continuing to grow at a healthy rate (+16%), more than offsetting any impact on cap rates from the higher interest rates. Management remain laser focused on infill sites across gateway markets, avoiding commodity industrial assets.
GMG’s strategy has seen them avoid much of the interest rate pain, with the portfolio benefiting from market rental growth, low vacancy and the continued demand for under-developed industrial sites suitable for higher and better use (multi-level industrial | data centres | multi-unit residential).
At an FY24f PER of c.20x, GMG is certainly not cheap, but quality companies rarely are. GMG is arguably an industry leader, focused on what remains the most contested real estate sub-sector – industrial. To this end, GMG’s pipeline of development sites across Tier 1 cities should benefit from increased demand for densification and proximity to end customers.
Read our full reports and latest price targets on ASX:GMG here.
Sonic Healthcare (ASX:SHL) - Transitioning out of Covid-19
FY23 results were mixed, as Covid-19-related costs remained elevated, impacting profitability, while revenue was broadly in-line. Notably, organic base testing (ex-Covid-19) was solid, up 7% in cc with good momentum (2H +9%; 1H +6%), while Radiology also showed strength, but Clinical Services was subdued, on lower Covid-19-related services.
While a rapid decline in 2H Covid-19 testing revenue (-72% h/h) mis-matched opex (+3 h/h) pressuring OPM (-320bp h/h to 19.3%), management is accelerating the reduction in legacy pandemic costs.
We believe this focus, along with numerous other near/medium term growth initiatives, supports a recovery in underlying profitability, reflected in guidance, although full bottom line improvement will take a bit longer.
We have adjusted FY24-25 estimates, with our target price decreasing to (login to view). Add.
Read our full reports and latest price targets on ASX:SHL here.
Pwr Holdings Limited (ASX:PWH) - Setting the business up for the long term
PWH's FY23 result overall was largely in line with expectations. Divisional revenue growth: Motorsports +16%, Aftermarket +15%, Emerging Technologies +14%, OEM +22%.
Key positives: Aerospace & Defence revenue jumped % with a stronger pipeline compared to the prior year; Balance sheet remains healthy with net cash (ex-leases) of $17.6m.
Key negatives: Normalised EBITDA margin was down 160bp to 33.8% due mainly to higher labour costs; ROE fell 270bp to 24.6%. We make minor adjustments to earnings forecasts with FY24-26F normalised EBITDA increasing by 2-3%.
However, normalised NPAT reduces by 1-2% due largely to higher D&A expense. Our target price falls to (login to view) and we maintain our Add rating.
Read our full reports and latest price targets on ASX:PWH here.
Mitchell Services (ASX:MSV) - Dividend surprise
MSV delivered breakout operational and financial performance in late FY23, with investors finally seeing what the fleet is capable of with an un-interrupted run. The market's muted response to the arrival of dividends looks far too apprehensive, as they appear sustainable in the absence of growth.
At only (2.2x FY24F EBITDA MSV looks disregarded by the market. MSV trades at a sharp discount to direct peers and recent drilling M&A.
We forecast payment of 5cps via half-yearly dividends in the coming (13 months ~13% yield) and explain how this looks conservative versus debt comfort levels.
Read our full reports and latest price targets on ASX:MSV 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.