Research Notes

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Research Notes

June trading activity

Aust Securities Exchange
3:27pm
July 8, 2025
ASX has recently released its monthly trading activity report for June 2025. It was a better trading month overall for ASX, in our view, with higher cash markets activity (+37% volume on pcp), an uptick in raisings (vs the softer pcp) and broadly flat average daily futures/options contracts in June. Our FY26-FY27 EPS forecasts increased by ~+0-1% factoring in the recent trading activity. Our price target is increased to A$72.20 (from A$72). Hold maintained.

Rebasing expectations to accommodate growth

Northern Star Resources
3:27pm
July 7, 2025
NST released an update regarding its operational outlook - FY25 guidance was successfully achieved following revisions earlier this year, with 1634koz sold. Additionally, FY26 guidance was outlined, with unit costs and capex materially above both Morgans and consensus forecasts. We expect a step-up in sustaining capital will be guided to align with the updated unit cost guidance. Overall, the update disappointed and reflected in the share price action (–8.6%). FY26 adjustments were poorly flagged, with the new AISC midpoint +12% above consensus along with additional growth CAPEX items. We adjust our forecasts in line with updated guidance and reduce our price target to A$21.78ps (previously A$25.32ps). Today’s sell-off reflects a rebasing of NST’s share price following a strong FY25 performance (aided by the macro). Looking ahead, operational execution and disciplined capital cost control will be key to unlocking further value.

It’s happening

Alliance Aviation Services
3:27pm
July 7, 2025
AQZ recently announced two significant aviation services transactions. Both transactions have no impact on FY25 earnings guidance. The AVIAN E190 inventory transaction was included in FY25 net debt guidance. However, the engine sale was not, given previous expectations were for completion in FY26. We have therefore reduced our FY25 net debt forecast to A$390m from A$428.5m. Our FY26 net debt forecast is unchanged at A$360m. Our FY25 NPBT forecasts are unchanged. We have reduced FY26/27F NPBT by 3.3%/0.9% due to fewer aircraft now being in the operational fleet.

More please

Tourism Holdings Rentals Limited
3:27pm
July 6, 2025
THL has issued FY25 NPAT guidance which is below consensus expectations. THL’s 2H25 has been particularly weak given political and economic uncertainty have weighed on consumer confidence and impacted RV sales and margins. THL’s FY25 net debt position was slightly better than expected. Outside of the US, THL’s FY26 outlook comments for its Rentals business were strong. The 1H26 should hopefully prove to the bottom of the cycle for RV sales and margins. FY25 guidance is somewhat overshadowed by the proposed takeover offer by BGH and the Trouchet shareholders at NZ$2.30 cash per share. While at a large premium, we note THL’s underlying asset value and its material earnings leverage over coming years to falling interest rates and improved economic conditions. In our view, a higher offer price is justified.

Model update: completion of Contract Resources

Cleanaway Waste Management
3:27pm
July 4, 2025
CWY announced today that the ACCC had approved its acquisition of Contract Resources. It plans to complete the acquisition on 31 July 2025. We update our model for the acquisition completing four months earlier than we had previously assumed. The earlier completion benefits our FY26F Revenue/EBITDA/EBIT by 3%/2%/1% but has no impact on PBT given the assumed additional interest costs from earlier funding of the acquisition. The earlier completion has no impact on forecasts beyond FY26F. Target price lifts 14 cps to $3.12/sh due to the earlier acquisition completion and six month valuation roll-forward. ACCUMULATE rating retained, given potential TSR at current prices of c.13%.

International Spotlight

Nike Inc
3:27pm
July 4, 2025
Nike, Inc. is a global leader in athletic footwear, apparel and equipment with an estimated market share in 2023 of 39% (investing.com). Nike’s iconic ‘Swoosh’ logo is one of the most recognisable consumer brands in the world. Nike sells directly through over 1,000 retail stores and ecommerce platforms, as well as through wholesale channels. It employs a contract manufacturing model.

Where to from here?

Domino's Pizza
3:27pm
July 4, 2025
We retain a BUY rating on DMP. Following yesterday’s investor Q&A call, we came away incrementally more positive on the stock. Our key concern following the departure of Mark van Dyck was that the turnaround at DMP would be pushed out another 12-18 months (3–6-month CEO search, another 3-6 months to join the business, and +6 months for revised strategy). During the call, it was made clear the pace of the turnaround will accelerate under Executive Chairman, Jack Cowin. There was a clear indication from DMP that earnings and franchisee profitability should improve next year through significant cost out initiatives. Whilst sales led earnings growth is vital for long-term value creation, CKF’s recent share price move highlights that cost-led growth is just as positive for the share price. DMP is trading on an FY26 PE of 12.8x. This is at a ~33% discount to CKF (FY26 PE of 18.7x), which we think is now a clear mispricing by the market given CKF is a lower quality business (restaurant operator vs master franchisor), albeit CKF is guiding to strong earnings growth in FY26. Whilst management and execution uncertainty does remain, we think the risk reward looks attractive from here. As DMP proves up a cost-led earnings growth profile into FY26, we expect a meaningful rerate in time.

Model update ahead of FY25 result

Polynovo
3:27pm
July 4, 2025
We have updated our PNV forecasts ahead of the FY25 result. We have made no changes to our FY25 forecasts; however, our gross margin has decreased, and regulatory and new market development costs have increased in FY26 and FY27. As a result, our DCF valuation has decreased to A$2.11 (was A$2.25), although the discount applied to the valuation has reduced to 20% from 25%, leaving our target price unchanged at $1.69. We maintain a SPECULATIVE BUY recommendation on PNV.

A Bauxite Pure Play

VBX
3:27pm
July 3, 2025
VBX Limited (VBX) wholly own the high alumina, low silica Wuudagu Bauxite project in Western Australia. VBX is a unique pure-play in a commodity typically held within integrated producers and is indicative of first-quartile costs with low CAPEX – a rare combination in the bulk commodities space. Premium product specification, low capital intensity and freight advantages drive excellent project economics. We model mining to commence in FY27 producing EBITDA margins of 36% (base case) and 57% (bull case) and a rapid payback period of 74% IRR. We initiate coverage with a SPECULATIVE BUY rating and a target price of A$1.60ps, noting that the rise of the seaborne bauxite market draws parallels to the 2000s rise of iron ore.

Earnings uncertainty remains

Monash IVF
3:27pm
July 3, 2025
Following the second incident in which a patient’s embryo was incorrectly transferred, we have updated our earnings assumptions moving forward to capture further market share loss. Despite earnings uncertainty, we think MVF’s current valuation makes it a compelling takeover candidate for acquirers seeking scale in a structurally growing sector, with it trading at roughly half the multiple of recent industry transactions. We have lowered our FY26/27 forecasts driven by greater market share loss assumptions. We have retained our SPECULATIVE BUY, with a $1.00 target price.

News & Insights

From Houthi attacks on Suez Canal shipping to Trump’s Operation Rough Rider and Iran’s nuclear facility strikes, explore how these events shape oil prices.

At the beginning of the week, I was asked to write something about Iran. When I started looking at what had been happening , I realised that what we were talking about begins with an action by a proxy of Iran back in November 2023. How  that was initially handled with the Biden regime, and how then it was dealt with  deftly by Trump this year,   in turn led to  the need for an attack on Iran's nuclear facility.

Winston Churchill noted in his first volume of his history of the Second World War that it was important to understand that the United States is primarily a naval power. Indeed, the US remains the world dominant naval power. As such, two major strategic concerns remain for the US : the control of the Suez Canal and the Panama Canal .

To the US The idea that another country might block access to either of these must be intolerable. Yet what began happening, beginning on the 19th November 2023, was that , Houthi rebels that controlled a the northern part of a small country in southwestern Arabia, began to act. These Houthi rebels were acting as a proxy for Iran. They were funded by Iran, and armed with Ship-killing rockets, by Iran.

By February 2024, they had attacked 40 ships which had been attempting to sail northwards towards the Suez Canal. By March 2024, 200 ships had been diverted away from the Suez Canal and forced to make the longer and more expensive voyage around the Cape of Good Hope of South Africa. At this point, I think The Economist magazine said that this was the most severe Suez crisis since the 1950s.

The U.S. did respond. On the 18th December 2023, the U.S. had announced an international maritime force to break the Houthi blockade. On the 10th January, the UN National Security Council adopted a resolution demanding a cessation of Houthi attacks on merchant vessels.

As of the 2nd January 2024, the Houthis had already recorded 931 American and British airstrikes against sites in Yemen. Then Trump came to power. To Trump, the idea of the proxy of Iran blockading the Suez Canal could not be tolerated.

From the 15th March 2025, Trump began "Operatation  Rough Rider". This was named for the cavalry commanded by the then-future President Theodore Roosevelt, who charged up San Juan Hill in Cuba during the Spanish-American War of 1898. The U.S. then hit the Houthis with over a thousand airstrikes. So they were bombing at ten times the rate they previously had been. The result of that was that by the 6th March 2025, Trump announced that the Houthis, these proxies of Iran, had capitulated as part of a ceasefire brokered by Oman. This directly led to the main game.

It was obvious that the decision to do the unthinkable, and block the Suez Canal, had come from Iran.
What other unthinkable things was Iran considering?

It is obvious that Trump now believed that the next unthinkable thing that Iran was considering was nuclear weapons. As Iran's other proxies collapsed, Iran's air defence collapsed. In turn, this gave Trump the room to act, and he took it. He launched a bombing raid which severely disabled Iran's nuclear capacity. Some say it completely destroyed it.

Iran retaliated by launching 14 rockets at the American base in Qatar, warning the Americans this was going to happen, and this had no other effect than allowing Iran to announce a glorious victory by themselves over the Americans. Iran had thought the unthinkable and had achieved what was, to them, as a result, an unthinkable reverse.

The ceasefire that has followed has been interpreted by markets as a relief from major risk. Now, the major effect of this on markets has been a dramatic rocketing in the oil price, followed by a fall in the oil price. So I thought I’d look at the fundamentals of the oil price, from running two of my models of the Brent price, using current fundamentals.

Now, the simplest model that I’ve got explains 63% of monthly variation of the Brent oil price. And it’s based on two things. One is the level of stocks in the U.S., which are published every week by the Energy Information Administration .  Those stocks are  down a bit in the most recent months because this is the summer driving season where oil stocks are being drawn down to provide higher demand for gasoline. So that’s a positive thing. And the other thing that I’ve been talking about this year is that I think  we’re going to see a steady fall in the U.S. dollar, and that’s going to generate the beginning of a recovery in commodities prices. So if I also put the U.S. dollar index into this model, it gives me an equilibrium model now of $78.96. And that’s about $US12  higher than the oil price was this morning.

If I strengthen that model by adding the U.S. CPI, because, you know, the cost of production cost of oil raises over time, that increases the power of the model . And that lifts the equilibrium price very considerably to $97 a barrel, which is $30 a barrel higher than it currently is. So I regard that as my medium-term model, and the first one is my short-term model.

What’s really interesting is that the U.S. dollar  has continued to fall.  That puts further upward pressure  on the oil price. So in spite of this crisis having been solved, I think we’re going to see more upward price action on the oil price by the end of the year.

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The US economy is growing strongly at 2.34% in Q2 2025 but is expected to slow to 1.4% in 2025, with falling interest rates and a weaker US dollar likely to boost commodity prices, benefiting Australian markets. Michael Knox discusses.

We think the US economy is currently experiencing solid growth, with data from the Chicago Fed  National Activity Index indicating an annual growth rate of just above  2%. This aligns with projections from other parts of the Federal Reserve System, such as the New York Fed. The New York Fed’s weekly Nowcast, updated every Friday, estimates that for the second quarter of 2025, the US economy is growing at an annualised rate of 2.34%, surpassing the 2% mark. This robust growth is consistent with our model’s view that the US economy is now performing strongly. However, we anticipate a slowdown in the second half of 2025.

On 18 June the Fed released its Summary of Economic Projections  with the Federal Reserve’s  forecasting US GDP growth to drop to 1.4% in 2025, down from their March estimate of 1.7%. Looking further ahead, growth is expected to pick up slightly to 1.6% in 2026 and 1.8% in 2027, aligning with the long-term trend growth rate of around 1.8%. We believe this recovery trend could be even  higher,  driven by reduced regulation under the second Trump administration and aggressive tax write-offs for companies building factories in the US, allowing 100% write-offs for equipment and buildings in the first year. This policy should foster stronger systemic growth.

Economic Projections of the Federal Reserve

The Fed expects that as the economy slows,  unemployment is projected to rise to 4.5% from the current level of 4.2%. Inflation, measured by the Consumer Price Index (CPI), is running at 3.5% this year, approximately 50 basis points higher than the Personal Consumption Expenditures (PCE) index of 3.0%, with 1.6% of this  inflation  attributed to tariffs. The Fed expects PCE Inflation  to ease to 2.4% in 2026 and 2.1% in 2027. The Federal Reserve anticipates cutting the effective  federal funds rate, currently at 433 basis points (according to the New York Fed), by 50 basis points by the end of 2025, followed by an additional 25 basis points in each of the next two years. This aligns with our own Fed Funds rate  model’s current equilibrium federal funds rate of  3.85% . The Fed Outlook  supports our scenario of a slowing US economy and rate cuts in the second half of 2025 and beyond. A falling US dollar is then expected to exert upward pressure on commodity prices, benefiting Australian Equity markets.

Taking questions during the Press Conference after releasing the Fed statement  ,Federal Reserve Chair Jay Powell,   addressed the certainty and uncertainty surrounding the inflationary effects of tariffs. Initially, at the start of 2025, the inflationary impact of tariff policies was unclear, but three months of favourable inflation data have provided this clarity, indicating that the inflationary effects are less severe than anticipated. Powell noted that the Feds own uncertainty on the inflationary effects of  tariffs  peaked in April 2025, and the Federal Reserve now has a clearer understanding that  the inflation effects, are lower than initially expected.

The Fed view  supports our own scenario of a slowing US economy in the second half of 2025, allowing for Fed rate cuts  . This in turn should then lead to  a falling US dollar, which we in turn  expect to drive rising commodity prices.

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The Your Wealth publication is our half yearly scrutiny into current affairs for wealth management. Our latest Issue 29 is out now.

The second half of 2025 will be an interesting time for everyone. Geopolitical uncertainty prevails. How will all of this impact the Australian investor and in particular, their wealth and retirement savings? Whether you are an accumulator, saving for short- and long-term goals, or a retiree, hoping for a comfortable retirement, the ability to manage this uncertainty will be key.

When we published the previous Your Wealth – First Half 2025, the Division 296 Bill (Div296) was also facing uncertainty. The Bill was eventually blocked in the Senate prior to the Federal Election. The Labor Party succeeded in winning so it’s Ground Hog Day for Div296. The Government doesn’t have the numbers in the Senate to pass the Bill without support from other parties. The Greens are the likely negotiating party but will undoubtably have their own agenda. Regardless, there is a high probability this legislation will be passed once Parliament resumes.

Our message to our clients is to wait until we know more details and to not act in haste.

In addition to our Feature Article which provides further insights on Div296, this edition also Spotlights the Aged Care changes due this year, with the start date pushed back to 1 November.

We hope readers enjoy this edition of Your Wealth.


Morgans clients receive exclusive insights such as access to our latest Your Wealth publication. Contact us today to begin your journey with Morgans.

      
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