February Reporting Season 2025 has kicked off. The February reporting season offers a crucial window into corporate Australia's health, with company-specific performance taking precedence over macro considerations. While earnings and share prices have shown remarkable resilience since the August reporting period, the focus shifts to companies' ability to maintain margins and drive growth amid subdued trading conditions, particularly as earnings growth moderates in FY25.
With a modest earnings outlook companies have been forced to adapt to the softer trading environment. Our focus in February is on companies and sectors that continue to see margin resilience and positive earnings trends. Large caps is another area to monitor given historically high valuations and strong performance over the past 12 months. Last August demonstrated that high expectations and in-line results might not be enough. The recent swing in the AUD will also complicate FY25 earnings and those exposed to currency fluctuation could see earnings volatility around the result.
In The Month Ahead this month, we highlight three companies from our key results to watch: Pinnacle Investment Management (PNI), Superloop (SLC) and Lovisa (LOV).
Pinnacle Investment Management (PNI)
RESULT: 5 FEBRUARY 2025
We expect outperformance driven by performance fees
We expect a strong result from PNI, driven by a combination of higher FUM through the period and strong performance fee contribution. We expect PNI can outperform consensus expectations based on higher performance fees. Key numbers include underlying 1H25 NPAT (forecast +105% on pcp to A$61.9m); and affiliate profit share (forecast +82% on pcp to A$68.1m).
Core flows and leveraging Horizon 2 spend
Current momentum and the outlook for flows is always in focus. We expect confident commentary from PNI, in part supported by new affiliates (e.g. Lifecycle). Horizon 2 spend has ramped up in recent years (primary driven by Metrics) and the market will be looking for some commentary or evidence that returns are starting to materialise.
Cashed up and ready
PNI has ample ‘dry powder’ following an equity raise in Nov-24. Commentary on the early performance of recently acquired stakes and the pipeline will be in focus.
Superloop (SLC)
RESULT: 21 FEBRUARY 2025
FY25 outlook
SLC expects FY25 underlying EBITDA of $83–88 million. We estimate $35.8 million for 1H25 (41% of full-year earnings), slightly below market consensus of $38 million (as of Jan 17, 2025). Since guidance was set in Feb 2024, there’s potential upside. One-off $5.5 million expenses in 1H25 include legal fees from ABB’s failed takeover and costs for acquiring Optus/Uecomm fibre assets (finalising by Mar 2025). A Vostronet earnout will also impact cash flow. Despite this, we expect net debt to decline slightly.
NBN subscribers (organically and Origin originated)
We forecast SLC will deliver slightly fewer NBN net adds in 1H25 (+31k yoy to 354k) vs +33k yoy in 1H24. This is due to our assumption that SLC has prioritised the material Origin migration. This assumption could prove conservative. Origin is, by our maths, the largest single EBITDA driver in FY25. We expect Origin to have ~155k NBN subscribers at year end, noting some of the Origin labelled ‘subscribers’ include voice products which SLC does not provide. We also assume organic growth in Origin is relatively slow in 1H25 due to the migration from ABB onto SLC. This should hopefully re-accelerate above its historical ~4.5k monthly net adds in early 2H25, although this is not within SLC’s control.
Business
The business segment remains challenged (NBN/macro driven price erosion), but we should still see some growth and are optimistic competition should settle in the latter half of CY25. We await clarification on the industrial logic around the Optus fibre acquisition which is likely largely back-haul cost avoidance for Smart Commmunities, and also provides SLC with the ability to more efficiently bring to market new product innovations (revenue upside).
Lovisa (LOV)
RESULT: 24 FEBRUARY 2025
Double-digit growth in earnings to continue
We see Lovisa’s half year result as an opportunity for it to remind investors of the growth in earnings it continues to deliver. We forecast a double-digit increase in revenue and income, all organic, driven by ongoing network expansion and higher gross margins. Our EBIT forecast of $93.1m is largely in line with consensus and represents 14% growth on 1H24. We forecast LFL sales of +1%. We expect the store count to have risen to 939, a net increase of 39 over the half, including 12 since the AGM trading update. This is clearly below the rate of expansion achieved in recent periods but maintains the positive long-term trend. We forecast a further increase in the gross margin to 81.5%. Lovisa’s results have seen some wild share price reactions in the recent year. We don’t expect a repeat in February, but the combination of a high P/E and high growth forecasts is always a potent mix.
The pace of expansion is due to accelerate
The key theme in the result will be the sluggishness of recent store rollout activity. The net addition of 39 stores we forecast for 1H25 falls 26% short of 1H24 and 55% below 1H23. In fact, if our number is right (and we are in line with consensus), it will be the slowest half year for network expansion since 1H21. Investors are justified in asking what’s going on. A key reason, in our view, is the need for Lovisa to consolidate after an extended period of very rapid growth in the US. The other reason is more nuanced. Lovisa has entered a large number of brand-new markets in the past two years. Its modus operandi is to spend around 24-36 months in any new market to become familiar with customers, landlords, competitors and price points before proceeding to expand. If we’re right, this is the calm before the storm and the pace of growth is about to get a whole lot faster.
We think it gets better from here
We think 2H25 will be a better (relative) period than 1H25. We forecast 63 net new store openings in the second half, with LFL sales growth picking up to +3%, despite comps getting more difficult. Earnings are always weighted to the first half (Christmas, BFCM and all that) but the 61/39 skew we forecast for FY25 tilts more to the second half than in any year since FY22.
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