Best calls to action – Monday, 28 August 2023
About the author:
- Author name:
- By Andrew Tang
- Job title:
- Analyst - Equity Strategy
- Date posted:
- 28 August 2023, 6:00 AM
- Sectors Covered:
- Equity Strategy and Quant
Wesfarmers Limited (ASX:WES) - Lithium is about to come online
WES's FY23 result was marginally above our forecasts and in line with Bloomberg consensus.
Key positives: Kmart Group and Officeworks earnings were ahead of our forecasts; Operating cash flow was up 82%; FY23 DPS of 191cps was comfortably above our forecast (179cps) and Bloomberg consensus (184.5cps).
Key negatives: Catch losses accelerated to -$163m vs -$88m in the prior year; Group EBIT margin fell 100bps to 8.9%. Management's outlook for the retail businesses was generally positive while WesCEF earnings (ex-lithium) are expected to fall significantly in FY24 due to lower ammonia prices and higher input gas costs.
We adjust FY24-25F group EBIT by between -2% and +3%, and underlying NPAT by between -3% and 2%. Our target price falls slightly to (login to view) and we maintain our Add rating.
Read our full reports and latest price targets on ASX:WES here.
Accent Group Ltd (ASX:AX1) - FY23 earnings: Well heeled
In our opinion, AX1 reported an excellent FY23 result. Earnings were ahead of our forecasts, driven by strong sales growth and better than forecast cost management.
We have increased our NPAT forecasts by 7% in FY24 and 6% in FY25.
We have upgraded to ADD with an increased target price of (login to view).
Read our full reports and latest price targets on ASX:AX1 here.
Pilbara Min Ltd (ASX:PLS) - Spending money to make money
PLS reported a record $2.4bn profit (+326% YoY) and production guidance for FY24 was largely in-line with consensus. Nevertheless the share price fell 8% with guidance for capital expenditure ~40% more than expectations.
We think this reaction is overblown given that ~$180m of the guided growth capital will support the next expansion to 1Mtpa capacity. The company's ROIC is expected to remain well above its WACC for the foreseeable future.
We maintain our ADD rating but with a reduced target price of (login to view) after incorporating higher capital expenditure and rolling forward our model by 6 months.
Read our full reports and latest price targets on ASX:PLS here.
Ventia services group (ASX:VNT) - Delivering sustainable growth
VNT delivered a solid HY23 result, slightly exceeding our expectations, whilst being broadly in line with Visible Alpha (VA) consensus. More notably, the company flagged it was on target to deliver the top end of guidance for CY23 (ie NPATA growth of 10%), beating consensus' prior expectations for c.7% growth.
Whilst margins were consistent between divisions, there was some variability between segment growth, albeit all segments showed revenue and EBITDA improvement. This HY23 result demonstrates the earnings consistency of VNT and its cash generating capacity.
In many respects, it reinforces our thesis that a company with c.75% Government revenue, average contract tenure of five years (seven years with contract extensions), generating high single digit NPATA growth, along with cash conversion of 80-95% warrants a multiple >12x.
We retain our ADD rating with a (login to view) target price.
Read our full reports and latest price targets on ASX:VNT here.
Probiotec Limited (ASX:PBP) - Soldier on!
PBP has delivered a stand-out FY23 result (in line with our forecasts and guidance), exhibiting strong organic revenue growth and early signs of margin recovery as contracted price increases offset input cost rises.
Further manufacturing capacity is expected to come online through PBP's Laverton facility in 1H24 which should support incremental new business wins and provide the group with further headroom for growth in FY24.
Our earnings forecasts remain unchanged. With double digit EPS growth expected during FY24-26F respectively, we continue to see value in PBP.
We reiterate our Add rating, with a revised price target of (login to view).
Read our full reports and latest price targets on ASX:PBP here.
Step One Limited (ASX:STP) - FY23 earnings: Packing a dividend
In October last year, STP said that it was prioritising profit over growth in the short-term. The results of this strategic pivot were evident in the FY23 result, which saw EBITDA increase by 33% to $12.0m, exceeding our estimate by 5%.
We have increased our EBITDA estimates by 18% in FY24 and by 21% in FY25. We assume a 100% dividend payout ratio, putting STP on an 11% dividend yield.
We retain an ADD rating with an increased target price of (login to view).
Read our full reports and latest price targets on ASX:STP 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.