Research Notes

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Research Notes

2Q25 Result: Consistency and Cash Generation

Catalyst Metals
3:27pm
January 16, 2025
2Q25 delivered 28.3koz of gold production, with 28.5koz aligning with expectations. Guidance remains unchanged. The legacy debt position has been fully repaid, and CYL is now both debt-free and hedge-free. Unit costs continue to systematically decrease, supporting the company’s 3-year growth strategy to achieve production of over 200koz by FY27. We maintain our Speculative Buy recommendation and have raised our price target to A$4.04 per share (previously A$4.01 per share), reflecting adjustments to Morgans’ AUD:USD FX assumptions.

Cessation of coverage

Hotel Property Investments
3:27pm
January 16, 2025
Following a review of our research universe, we discontinue coverage of Hotel Property Investments (HPI AU). Our forecasts, target price and recommendation should no longer be relied upon for investment decisions.

Strolling ahead

Baby Bunting Group
3:27pm
January 15, 2025
BBN has provided a trading update for 1H25 performance, with unaudited pro-forma NPAT of $4.8m up 37% on 1H24 and has re-affirmed FY25 guidance. Pleasingly, LFL sales accelerated to +4.5% in the 2Q, from the 0.6% increase reported at the AGM YTD to October. This reflects a strong trading period in November and December, likely driven by the refined go-to-market strategy. We have made no changes to our forecasts and valuation and as such retained our HOLD recommendation.

Risk still outweighs reward

The Star Entertainment Group
3:27pm
January 14, 2025
Last week, SGR released a market update on its liquidity position prompting us to revise our model to reflect this, alongside insights post its AGM. Despite some incremental updates, we view the risk-reward payoff as unfavorable due to: a) Lack of near-term funding options, b) Limited support from state bodies, c) Uneven playing field in the domestic venue-based gaming sector, d) Risk of further dilutive equity raises, and e) Persistent weakness in player behavior, driven by mandatory carded play (MCP), cost-of-living and competitive pressures. We maintain our Reduce recommendation, lowering our 12-month target price to $0.12 (from $0.22). This is reflective of our view around further potential downside risk due to funding challenges and SGR’s ability to remain a going concern. We expect a quarterly update in late January and interim result on the 28th of February.

Follow the Yellowcake Road

Deep Yellow
3:27pm
December 20, 2024
Coverage of Deep Yellow (DYL) transferred to Resources Analyst, Ross Bennett. December reserve update increased Tumas reserves 18% to 79.3Mlb U3O8 underpinning +30-year operation potential. Tumas DFS indicates production of 3.6Mlb U3O8 pa, project finance is underway with experienced uranium financier Nedbank appointed, with FID due March 2025. Generational production potential across two operations, Tumas and the permitted Mulga Rock project where a revised DFS is ongoing. World class uranium province Alligator River provides high grade discovery upside within an existing resource base of 32.9mlbs 1.09% U3O8.

Ravensthorpe-Forrestania Growth Opportunity

Medallion Metals
3:27pm
December 19, 2024
The Ravensthorpe-Forrestania scoping study (RFS) demonstrates a strategic, low CAPEX operation with peak annual production of +80koz AuEq. Study metrics are broadly in-line or beat Morgans forecasts with total gold sales of 336koz over an initial 5.5-year mine life at an AISC of A$1,845/oz. The study represents a value accretive base case with further upside through unlocking a region of stranded assets. Our revised price target of A$0.32ps (previously A$0.27ps) reflects adjustments to mined inventory and process schedule. We remain positive on MM8 noting that the successful acquisition of Forrestania processing infrastructure will be transformative for the existing asset base and potentially unlock several stranded assets across the Ravensthorpe-Forrestania region.

Micro-soft is making the Macro-hard

Data#3
3:27pm
December 18, 2024
Earlier this week DTL advised that one of its key suppliers Microsoft had made changes to its incentive program. This happens on a regular basis so changes shouldn’t surprise anyone. However, the magnitude of the changes and the speed at which they are being implemented is larger and quicker than normal. We lower our incentives / gross profit in line with details provided by DTL. We also lower our opex forecast, albeit to a lower magnitude, and our EPS forecasts are reduced by ~6-7% in FY25-27. We assume management reduces operating costs, where possible, to partially offset lower gross profit. However, we also think DTL may choose to invest a small amount of extra opex to grow its existing SMC business. SMC is partially where Microsoft margins are getting shifted to (at the expense of enterprise margins). So investing where the returns are makes sense. We retain our Hold rating and reduce our target price to A$6.90.

Expanded, locked and loaded for first gold

Meeka Metals
3:27pm
December 17, 2024
Meeka Metals’ Feasibility 2.0 (FS 2.0) outlines the upside of increased processing capacity, delivering 38% average annual EPS growth, A$1bn in pre-tax free cash flow, 31% increase in ore reserves, 40% production growth and projected total gold sales of 544koz. Site activity continues to ramp up as open pit mining is on track to commence in March 2025 before first gold mid-2025. Our revised target price of A$0.23ps (previously A$0.19ps) reflects significant growth in production, processing, and reserves. We remain positive about the business, viewing MEK as the best-positioned single-asset gold development company on the ASX to capitalise on prevailing gold prices.

International Spotlight

Inditex
3:27pm
December 15, 2024
Founded in Spain, Inditex (ITX.MAD) began in 1963 when AmancioOrtega opened a small dressmaking workshop. Twelve years later, the first Zara store was opened in Spain, signalling Ortega’s transition from maker to retailer. In 1985, Inditex brought all its companies together under the one banner, making it an official retail conglomerate. The brand continued to grow by expanding worldwide, adding new brands to the group and going public on the Madrid Stock Exchange. Now, the group features seven brands, operating over 5,800 stores in 213 markets worldwide.

A more defendable earnings base

IRESS
3:27pm
December 15, 2024
IRE reaffirmed FY24 earnings guidance, expecting to deliver towards the top-end. We expect IRE can deliver growth into FY25, led by further efficiency gains and a de-leveraged balance sheet. Proving up top-line growth initiatives through FY25 will be key to a more sustained/continued re-rate for the stock. Further divestments of non-core and/or underperforming assets are possible in FY25. If executed, this would see gearing <1x EBIT and provide further flexibility. IRE’s near-term growth profile (cost-led) is relatively subdued, however we view the earnings base as more defendable and the strengthening balance sheet starts to provide longer-term optionality. IRE’s share price has retreated since the 1H result and we now see sufficient value and upside to valuation. Upgrade to Add.

News & Insights

The federal government has recommended a number of changes to the cost of residential aged care, which will commence from the beginning of 2025. Read more about the main measures to be introduced.

Following the release of the Aged Care Taskforce report earlier this year, the federal government has recommended a number of changes to the cost of residential aged care, some will commence from the beginning of 2025 and the remainder expected to commence from 1 July 2025.

Over the next 40 years, the number of people over 65 is expected to at least double and the number of people over 85 expected to triple. A significant amount needs to be invested in the Aged Care sector, by both government and private sector, to be able to manage the growing numbers of older people needing care and support in their later years.

From 1 January 2025:

  • Increasing the refundable accommodation deposit (RAD) maximum amount without approval from $550,000 to $750,000. This amount will be indexed annually.

From 1 July 2025:

  • Introduce a RAD retention amount of 2% pa to a maximum of 10% over 5 years.
  • Removing the annual fee caps and increasing the lifetime fee caps to $130,000 or 4 years, whichever occurs first.
  • Introducing a means-tested hotelling supplement of $12.55 per day which is to be indexed.
  • Removing the means tested fee and replacing it with a means tested non-clinical care contribution (NCCC). The daily maximum is $101.16 which is to be indexed.

From 2029/30:

  • The government is looking to commence a phase out RAD altogether by 2035. A commission will be established to independently review the sector in readiness.

Grandfathering arrangements will protect anyone who enters care prior to 1 July 2025 under the “no worse off” principle to ensure they do not pay more for their care.

Comparison of current and new aged care costs

Current aged care fees

The Basic Daily fee continues to be paid by all residents without change.

The Hotelling Supplement is paid by residents as a contribution towards their living costs. It is a means tested payment calculated at 7.8% of assets greater than $238k or 50% of income over $95,400 (or a combination of both). The Hotelling Supplement is capped at $12.55 per day (indexed).

The Non-Clinical Care Contribution (NCCC) replaces the current means tested fee. The NCCC is a contribution towards the cost of non-clinical care services which will be capped at $101.16 per day (indexed). It is a means tested fee calculated at 7.8% of assets over $501,981 or 50% of income over $131,279 (or a combination of both).

The lifetime cap for the NCCC is increasing to $130,000 or 4 years, whichever occurs first, indexed twice per year. There is no longer an annual cap.

Any contributions made under the home support program prior to entering residential aged care will count towards the NCCC cap.

Who will likely pay more from 1 July 2025?

It is expected that at least 50% of people entering care will pay more for their care each year.

The below chart illustrates the expected changes for regular care costs (excluding accommodation costs and retention amounts) for individuals based on specific asset levels:

Should you enter residential aged care before 1 July 2025?

It depends. For some people, if they have an ACAT assessment and are eligible to enter residential aged care, then it would be best to seek advice from your Morgans Adviser on both the current and future cost as well as cash flow and cost funding advice.


Contact your Morgans adviser today to schedule an aged care advice appointment. Our expert team will be able to simplify the aged care system, guide you through Government subsidies, analyse payment options, create 5-year cash flow projections, and model the benefits of home concessions and future asset values for your beneficiaries.

      
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According to the ABS, 710,000 people intend to retire in the next 5 years. Will you be one of those people? If so, are you confident your retirement plans will be enough to support you?

Australian’s life expectancies are increasing over time. We can now expect to live longer - on average 5 to 7 years longer - than our parents or grandparents did.

The problem is that as we live longer, we also need to support ourselves for longer in retirement. This is compounded by the fact that, according to the Australian Bureau of Statistics (ABS), we are retiring earlier these days with the average age of retirement reported to be 56.9 years. Interestingly, the average age people intend to retire is 65.4 years.

According to the ABS’s May 2024 report:

  • There were 4.2 million retirees
  • The average age at retirement (of all retirees) was 56.9 years
  • 130,000 people retired in 2022, with an average age of 64.8 years
  • The average age people intend to retire is 65.4 years
  • Pension was the main source of income for most retirees

In their Media Release supporting their 2024 retirement report, ABS’s head of labour statistics, Bjorn Jarvis, said: “While the average age people intend to retire has risen over time, it hasn’t changed much in the last 10 years. This average has been between 65.0 and 65.6 years for close to a decade, since 2014-15. On average, men intend to retire slightly later than women, but this gap is closing. In 2022-23, there was around half a year difference between men and women, compared to a year difference a decade ago.”

Average ages workers aged 45 years and over intended to retire.
Source: ABS

Income at retirement

According to the ABS retirement report, a government pension or allowance was still the main source of personal income at retirement for 43% of retirees. This was followed by Superannuation, an annuity or private pension at 27%.

The relationship between the proportion of retirees and their sources of personal income.
Source: ABS

Factors influencing retirement

In 2022-23, the most common factors influencing older workers’ decision to retire was still financial security (36%) and personal health or physical abilities (22%). Around one in eight retirees (14%) said reaching the eligibility age for an age (or service) pension was a key factor.

Retirement planning

According to the ABS, 710,000 people intend to retire in the next 5 years, with 226,000 in the next 2 years. Will you be one of these people? If so, do you have the confidence your retirement plans will be enough to support you in retirement? Your Morgans adviser can review your retirement position and recommend strategies that will help you stay on track so that your retirement, when it happens, is an enjoyable stage of life. Already retired? We can help there too.


Contact your Morgans adviser today to schedule an appointment to discuss your retirement plans.

      
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The Your Wealth publication is our half yearly scrutiny into current affairs for wealth management. Our latest Issue 28 is out now.

The year 2024 will arguably be known as the ‘cost of living crisis’ year. So many Australians are feeling the pain of this high inflation environment, particularly with everyday consumer items and mortgage stress. Unfortunately, our Chief Economist, Michael Knox, is not expecting an interest rate cut by the Reserve Bank of Australia until mid-2025.

As we enter production of this edition of Your Wealth, the proposed $3 million super tax – or Div 296 as it is known - faces an uncertain future. Will it be tabled in February when Parliament resumes? If an early election is called, it could effectively be off the table until after the election.

We hope it gets shelved completely. We have always viewed this as bad policy; in fact, the worst policy that has ever been proposed for superannuation.

This latest publication will cover Australian retirement intentions, the new Aged Care Act 2024, Trump's trade negotiations policy, expected to reduce tariffs, contribution strategies for older generations, and understanding the benefits of the Legacy Pension Amnesty which is now law.


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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