At a high level, the tech and telecom sectors are currently trading at premium valuations, while the gaming sector is priced more attractively. Notably, earnings increased by 5% for FY25, and share prices also rose by 5% over the past month. Although these trends are aligned, a deeper analysis reveals significant disparities between earnings growth and share price movements.
This article provides a deeper look at some of the key picks emerging from the reporting season. Gain valuable insights into market trends and investment prospects that could shape their strategies and decisions moving forward. Keep reading to uncover which stocks are poised for growth and why they might be worth your attention.
Tech
NEXT DC (NXT)
The stock increased by approximately 4% over the month and recently secured additional capital, positioning the company with strong funding to scale its business internationally. Future share price performance will likely hinge on securing significant new contracts. While major contract wins are anticipated, it's important to note that contracts secured in the past year or two typically take 2-3 years to fully ramp up, suggesting that EBITDA could double based on these existing agreements.
Outlook commentary:
- Given the size of NXT’s order book it appears there are more costs associated with scaling up in FY25 than anticipated by the market but the size of the opportunity remains substantial and the opportunity and outlook bright.
- NXT is well positioned to capitalise on significant and ongoing structural growth driving increased demand for data centres, which is fuelled by business digitisation (colocation), cloud computing, and Generative Artificial Intelligence (Gen AI).
- Existing facilities are contracted and gradually filling up over the next five years, with new ones coming online.
- NXT is expected to substantially expand its footprint and continue winning new business.
AI Media (AIM)
This was the top-performing tech stock, rising 81% for the month and 140% over the past 12 months. The company has shifted from facing major headwinds to enjoying substantial tailwinds by leveraging AI in its captioning business. Over the past three years, they disrupted their own business model and are now capturing significant market share. Management is optimistic about achieving their aspirational targets, including a goal to increase EBITDA from $4.5 million to $60 million over the next five years. If they meet this target, the stock could potentially increase fivefold from current levels, offering a 60% IRR. Though it remains on the higher-risk end of the spectrum, the risk/reward equation looks compelling.
Outlook commentary:
- Management accelerated AIM's adoption of technology, including AI and proprietary hardware/software.
- The business has largely completed the transition and has returned to revenue, profit, and free cash flow growth in the past twelve months.
- AIM is considered substantially undervalued, presenting value for investors in a small, profitable, and fast-growing technology company.
- Management remain committed to driving further growth and profitability and targeting >80% Tech by Dec 2025.
Media/Classifieds
Seek (SEK)
SEK’s FY24 results were below expectations and complicated by the effect of the recent sale of its Latam businesses. On an adjusted and continuing operations basis, total revenue and EBITDA were approximately 2-5% below Visible Alpha consensus, but it was the softer-than-expected guidance that pushed the share price down on the day of results. The base case for FY25 was for revenue only in line with FY24. Seek has maintained its FY28 aspirational target of $2 billion in revenue.
Outlook commentary:
- FY25 revenue guidance: Expected to match FY24, in the range A$1.02-1.14bn.
- FY25 EBITDA guidance: A$430 – A$500m, about 12% below consensus at the midpoint.
- FY25 adjusted NPAT guidance: A$130 – A$180m.
- ANZ: Anticipated softer volumes in absolute terms over FY25.
- Asia: Forecasted softer volumes in 1H25 with a partial recovery in 2H25.
Camplify Holdings (CHL)
Camplify’s FY24 result was broadly in line with expectations. Gross transaction volumes (GTV) increased by 13% to A$165m (less than we’d forecast) but a higher-than-expected group take-rate saw revenue broadly in line with our estimate. Whilst the PaulCamper integration impacted bookings/revenue in the period, this is largely completed, with Camplify expecting a return to a more normalised performance in FY25.
Outlook commentary:
- Camplify sees FY25 as a ‘key deliverable year’ along its 3-5-year roadmap. It anticipates growing core revenue and customers.
- Camplify will focus on reducing the ratio of operational costs to revenue to optimise its EBIT performance.
Airtasker (ART)
Airtasker’s results were in line with its quarterly update released in July. Its marketplace experienced a slight 3.5% decline in GMV yoy, totaling A$190.6 million, but there was a small improvement of 1.1% in the second half of FY24. Revenue grew by 6% to A$46.6 million, driven by better monetisation rates and a 6.6% increase in gross profit to A$44.5 million. Revenue from Airtasker Marketplaces rose 9.8% to A$38.1 million, thanks to a higher monetisation rate and reduced cancellations. Offshore markets are growing, with the UK showing strong results after a brand campaign, with GMV up 35% in Q4 and annual revenue up 41%. The US market, with a cautious marketing strategy, saw a 9.4% increase in GMV and a 74% rise in revenue. Airtasker also announced two more media partnerships (following Ch4 in the UK as well as oOh!Media and ARN Media domestically), these being in the US to assist its ramp of brand awareness and initial platform scaling.
Outlook commentary:
- Post achieving its aim of being FCF positive for FY24, Airtasker intends to operate on positive free cash flow basis on balance sheet.
- Airtasker intends to target consolidated double digit revenue growth from its various marketplaces and geographic regions.
- Airtasker has flagged an increase in its investment in marketing activities to drive the top line (via cash investment and media partnerships)
Telco
Superloop (SLC)
SLC's FY24 results exceeded expectations, with underlying EBITDA up 45% year-over-year to $54 million and strong free cash flow of $27 million, a 22% increase. Net debt dropped significantly by 65% to $8.7 million, and without lease liabilities, SLC has no net debt. It remains attractively valued with strong organic growth and an ungeared balance sheet, allowing for potential acquisitions up to $200 million.
Outlook commentary:
- Guidance for underlying EBITDA growth has been refined to $83-88 million, consistent with earlier expectations, and shows potential for further upside due to strong business momentum.
- FY25 capex is slightly higher than anticipated at $28-30 million, up from initial estimates, due to new contract wins. This increase, flagged as a possibility, is considered high-returning growth capex.
- As of June 30, 2024, Origin had 4.7 million customers (up 132k YoY) and 152k NBN subscribers (up from 130k at the deal announcement). They are adding about 4.5k net NBN subs per month and aim for ~600k by FY26. FY25 EBITDA guidance for Origin is around $14 million, but with current trends, it could be closer to $20 million, pending conditions and migration by October 2024.
Gaming
Light & Wonder (LNW)
LNW delivered an impressive 2Q24, with revenue reaching $818 million, up 12% from the previous year and 3% above forecasts. Adjusted EBITDA grew 17% to $330 million, surpassing consensus expectations by 7% and our estimates by 2% at a margin of 40.3%. This margin improvement was largely driven by strong performance in land-based gaming and a continued shift towards premiumisation. Notably, North America remains a key growth driver, making sixteen consecutive quarters of growth in Gaming Operations. The company generated $141 million in operating cash, a significant improvement on the prior comparative period. Net debt to EBITDA ratio remained stable at 3x, within the company’s target range of 2.5-3.5x.
Outlook commentary:
- Matt Wilson, CEO: “We saw strong progress in the Gaming business as the expansion of units in the North American installed base reached an inflection point. Our global presence enables further product refinement and market penetration with our suite of games and casino solutions. We continue to develop our catalogue of proven, evergreen franchises to bring the most engaging experiences to our players, leveraging the power of our portfolio across land-based, social and iGaming platforms”
- LNW reiterated its US$1.4bn Consolidated Adjusted EBITDA target by 2025.
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