Best calls to action – Thursday, 24 August 2023
About the author:
- Author name:
- By Andrew Tang
- Job title:
- Analyst - Equity Strategy
- Date posted:
- 24 August 2023, 6:00 AM
- Sectors Covered:
- Equity Strategy and Quant
Woolworths Group Ltd (ASX:WOW) - Australian Food continues to shine
WOW's FY23 result was slightly above our expectations but in line with consensus.
Key positives: Australian Food EBIT growth was 4% above our forecast; Group EBIT margin rose 40bp to 4.8%; Group ROFE increased 120bp to 14.9%.
Key negatives: Australian B2B, NZ Food, and BIG W earnings were all weaker than anticipated; The outlook for BIG W looks challenging due to a broader slowdown in discretionary spending.
Management said sales in the first eight weeks of FY24 have shown similar trends to 4Q23 with solid growth in the Food businesses but BIG W sales were lower. We adjust FY24/25/26F underlying EBIT by +2%/+2%/+2%.
Our target price rises to (login to view) and we upgrade our rating to Add (from Hold). While WOW is not cheap, trading on 24.5x FY24F PE and 3.0% yield, we think its fundamentals remain strong with defensive characteristics, dominant market positions, and a highly-regarded management team.
Read our full reports and latest price targets on ASX:WOW here.
IDP Education Ltd (ASX:IEL) - Preparing for the market share test
IEL reported in line: FY23 adjusted NPAT of A$154.2m, +% on the pcp. IELTs volumes were softer 2H (down 10% HOH), offset by a strong AUS placement outcome.
Student Placement (SP) GP was up 64% for the year. The outlook for SP remains strong into FY24, with system growth still solid across all jurisdictions and Fastlane enabling market share gains (primarily (AUS).
We expect IELTs volume declines from the opening of Canadian visa to competition; and investment from IEL to defend market share. Heightened competition poses a risk to the rate of growth, however the earnings sensitivity is now lower after a cut in the IELTs division expectations.
We expect the SP to continue to drive strong compound growth to FY26. Not cheap on short-term multiples, however we like the long-term growth profile. Upgrade to Add.
Read our full reports and latest price targets on ASX:IEL here.
Siteminder (ASX:SDR) - Strong 2H gives us more confidence
FY23 EBITDA/NPAT was in line with MorgansF but below consensus. Subscribers, revenue, and cashflow was pre-released at recent 4Q23 trading update. SDR's strong 2H23 performance was the highlight.
We upgrade our forecasts reflecting SDR's recently upgraded FY24 guidance for positive underlying EBITDA and FCF in the 2H24 (vs previously by 4Q24).
SDR's strong 2H23 performance with better than expected property adds, transaction product uptake, gross margins and unit economics, gives us more confidence in the company's growth trajectory. We upgrade to ADD.
Read our full reports and latest price targets on ASX:SDR here.
Domino Pizza Enterpr (ASX:DMP) - FY23 earnings: Green shoots emerging
We get the sense the worst has passed for DMP. Order counts are starting to move up following the removal of delivery service fee and reset of the menu to appeal to the value-focused customer.
Having brushed uncomfortably close to its banking covenant, DMP has stated that debt is now on the way down and it is 'confident' there will be no breach (and no capital raise) in FY24. There are green shoots of recovery.
Growth swung positive in ANZ and Europe in early FY24, driven by better volumes. It will take longer in Asia, but we think DMP will achieve its 3-6% same store sales target in FY24. Our NPAT forecast is unchanged for FY24 and rises by 4% in FY25.
We retain an ADD rating and (login to view) target price.
Read our full reports and latest price targets on ASX:DMP here.
Corporate Travel Management (ASX:CTD) - On track for a full EBITDA recovery in FY24
There were few surprises in CTD's FY23 result given its recent trading update. However, cashflow was materially weaker than expected due to a timing issue. 4Q23 trends bode well for strong earnings growth in FY24.
While there is now a guidance range for FY24, we still think A$265m of EBITDA is achievable. Stock is oversold and we maintain an Add rating with a new price target of (login to view).
Read our full reports and latest price targets on ASX:CTD here.
Karoon Energy Ltd (ASX:KAR) - Boom year gets underway
FY24 is shaping up as a bumper year for KAR in terms of CF generation, with increased production, lower unit costs and much lower capex. KAR delivered a strong FY23 result ahead of expectations.
Not rushing into an acquisition demonstrates good capital discipline. KAR finished FY23 with cash of US$74.8m and next to no debt.
We maintain an Add rating, with KAR remaining a top sector preference.
Read our full reports and latest price targets on ASX:KAR here.
Qualitas limited (ASX:QAL) - FUM Commitments, FUM Deployment, Earnings
With record dry powder of $2.3Bn and no shortage of deal flow, QAL is well placed to continue its earnings growth through FY24 and beyond. The business saw Funds Under Management (FUM commitments) increase 77% to Aug-23, whilst FUM deployment increased 55% to $3.0Bn (FY23).
As expected, this is translating to earnings, with recurring funds management revenue up 34% (YoY). Invariably, the translation to earnings is lagged, given the time to deploy capital - as such the FUM growth for FY23 likely imbeds future earnings growth in FY24 and FY25.
Conversely, it is likely this lagged effect which saw FY24 guidance fall short of consensus expectations (NPBT guidance $37-41m vs VA Consensus $45.9m).
Despite FY24 guidance falling short of expectations, we see QAL as the best placed business amongst our coverage to play what could be halcyon days for apartment developers - historical under-building, limited listings for existing dwellings, increased migration, and a return to cities (post-Covid) all supporting QAL's book of senior secured loans.
As major banks reduce lending to commercial real estate (CRE), market share is for the taking, with QAL resourced to fill the gap. ADD rating reiterated, with a slightly reduced target price of (login to view).
Read our full reports and latest price targets on ASX:QAL here.
Ebos Group Ltd (ASX:EBO) - Solid as usual, now planning for life without CW
EBOS reported another year of consistent earnings growth (up 14.1%) which benefitted from acquisitions in the medical technology and consumables category. Although no specific guidance was provided, profitable growth is expected to continue (MorgansF EPS growth of 11.7%).
An update will be provided at the AGM in October. We have increased our NPAT by ~8% over the forecast period which increases our valuation and target price to (login to view). Add maintained.
Read our full reports and latest price targets on ASX:EBO 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.