Research Notes

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Research Notes

Non-dilutive funding progresses First Responder

EMvision Medical Devices
3:27pm
June 16, 2025
EMV has been awarded a A$5m grant to help fund the First Responder portable brain scanner (EMV’s second product). The device is undertaking initial feasibility and equivalence testing and is expected to be approved in the US in FY27. This funding boosts its existing cash position of A$12.6m (as at 31 March). EMV has activated five of the six sites which will undertake the pivotal (validation) trial for the emuTM bedside brain scanner. Recruitment of 300 patients should take 6 to 12 months with approval expected in 2HCY26. EMV continues its broad refresh process with the recent appointment of highly regarded Ramsay Healthcare executive Carmel Monaghan.

International Spotlight

Adobe Inc.
3:27pm
June 16, 2025
Incorporated in 1983, Adobe operates as a globally diversified software company. It operates through the following business segments: 1) Digital Media, which offers creative cloud services (including software such as Photoshop, Adobe Illustrator, Adobe Premiere Pro and Acrobat); 2) Digital Experience, which provides solutions including analytics, social marketing, media optimisation etc, and 3) Publishing and Advertising, which includes legacy products for eLearning and technical document publishing, web application development.

Strong momentum

Ventia Services Group
3:27pm
June 13, 2025
VNT has won $3.4bn of contracts since the result, meaning the record order book (FY24 $19.4bn and +6.7% YoY) will continue to rise, which is a strong indication for future growth. We had previously assumed that half of the $460mpa EMOS Defence contracts would be lost in June but the 7-month extension means we push this potential lost revenue into FY26. We are now forecasting NPATA growth of +9.4% in FY25. In FY26, we are forecasting +3.7% NPATA growth, though, if the entirety of the EMOS work is renewed, growth rises to +7.0%. Contract award momentum indicates there has been limited reputational damage for Ventia from the ACCC proceedings, at least from customers’ perspective. We therefore remove the 15% valuation discount that we had ascribed for reputational risk. This, coupled with our earnings revisions, sees our price target move to $4.90 (from $4.05). Upgrade to Hold (from Trim).

Needs time to heel

Accent Group
3:27pm
June 13, 2025
AX1 provided a softer than expected trading update, citing ongoing weakness in trading conditions in the lifestyle footwear segment, and ongoing promotional activity that continues to weigh on margins. EBIT is expected to be in the range of $108-111m, which at the midpoint implies flat growth yoy and is ~18% lower than previous consensus expectations. We have lowered our earnings estimates in line with guidance, which has resulted in a ~16% downgrade to our FY25 forecasts. We have lowered our target price to $1.85 and have a HOLD recommendation.

Investor Day wrap

Aust Securities Exchange
3:27pm
June 12, 2025
ASX has held its annual investor day. Management outlined the progress of its 5 year strategy and provided expense guidance for FY26. Key takeaways are below. Our FY26/27 EPS estimates are lowered by ~1.5% factoring in provided guidance, with the key driver being the higher D&A. Our DCF/PE blended price target increases however to A$72, with these changes offset by a valuation roll-forward and improved medium term margin assumptions given ASX commentary. We upgrade to a HOLD recommendation.

Wet weather to incrementally impact 2H25 earnings

Wagners
3:27pm
June 12, 2025
Heavy rain across South East Queensland in late 3Q25 has moderated our expectations for full year FY25 earnings. Whilst our earnings have modestly declined, our valuation increases slightly as we remain focused on the volume of potential work to come from future Olympics related infrastructure spend. On this basis, we upgrade to ACCUMULATE with a $2.10/sh price target (previously $2.00/sh).

Keeping us all Lyngering!

Johns Lyng Group
3:27pm
June 11, 2025
JLG announced that it has received a non-binding indicative proposal from PEP to acquire 100% of shares in JLG, with both parties entering into an exclusivity period to undertake due diligence. In light of JLG’s share price de-rating over the last 12 months, this approach does not come as a huge surprise. Whilst we see potential upside vs. JLG’s current share price should a deal be formalised, this process remains very early stage, and the range of outcomes is wide and uncertain. We move to a HOLD rating pending further progress of PEP’s proposal, with a revised price target of $3.20/sh.

Jetstar Asia departs

Qantas Airways
3:27pm
June 11, 2025
QAN announced the closure of Jetstar Asia and provided a brief 2H25 trading update. The lack of formal earnings guidance this late in the year to us implies QAN is largely comfortable with consensus estimates. We think a lower fuel cost largely offsets the impacts of Cyclone Alfred and lower than expected International capacity, with a slight downgrade driven by the deterioration in Jetstar Asia. Our forecasts are largely unchanged for FY25. We upgrade FY26/27 on lower fuel costs. We think travel demand should remain fairly resilient. If we modelled current spot fuel prices, this would see a further 5-10% upside to our new forecasts. Trading on ~9.0x FY26 P/E, which is in line with its long-run average, we continue to see QAN as fully valued, but note upside is on offer if current conditions (demand strength and low fuel prices) persist. HOLD.

Waitsia a bit longer

Beach Energy
3:27pm
June 11, 2025
Ahead of the June quarter result we downgrade our rating on Beach to HOLD (from ACCUMULATE). With consensus downgrades likely and sentiment already weak, the share price appears vulnerable to further near-term disappointment. Short-term catalysts remain headwinds, but easing Waitsia and weather-related pressures could set the stage for valuation recovery post execution. Beach retains a robust earnings platform and healthy balance sheet, with cycle timing supportive of portfolio expansion through acquisition and organic growth.

International Spotlight

PayPal
3:27pm
June 11, 2025
PayPal Holdings, Inc. operates a technology platform that enables digital payments on behalf of merchants and consumers worldwide. The company provides payment solutions under the PayPal, PayPal Credit, Braintree, Venmo, Xoom, PayPal Zettle, Hyperwallet, PayPal Honey, and Paidy names.

News & Insights

Michael Knox, Chief Economist, reveals how the OECD and RBA’s outdated assumptions about global trade fail to account for China’s Marxist-Leninist economic strategies.

This morning, I was asked to discuss Sarah Hunter’s presentation from yesterday. Sarah, the Assistant Governor and Chief Economist at the Reserve Bank of Australia (RBA), delivered a detailed and competent discussion on the conventional view of tariffs’ impact on the international economy. She highlighted that tariffs typically increase inflation and reduce economic output, a perspective echoed by the OECD in a similar presentation overnight. Sarah’s analysis focused on the potential shocks tariffs could cause, particularly their effects on GDP and inflation.

Drawing on my experience as an Australian trade commissioner and my work in Australian embassies, I found her presentation particularly interesting. My background allowed me to bring specialist knowledge to the conversation, which I believe gave me an edge. Notably, I observed that the RBA seems to lack analysts closely tracking individual policymakers in the Trump administration, such as Scott Bessent, whose views on tariffs and competition differ from the general assumptions. The conventional view assumes a world of perfectly competitive countries adhering to international trade rules and unlikely to engage in conflict—a scenario that doesn’t align with the current global trade environment, especially between China and the United States.

China, operating as a Marxist-Leninist economy, aims to dominate global markets by building monopolies in areas like rare earths, nickel, copper, and other base metals. It maintains a managed exchange rate, despite promises to the International Monetary Fund for a freely floating currency. If China allowed its currency, the RMB, to float, it would likely appreciate significantly, increasing imports and reducing its trade surplus. This would create a more balanced international trade environment, potentially reducing the need for other countries to impose tariffs. However, major institutions like the OECD and RBA seem to misjudge the nature of this trade shock, relying on outdated assumptions about global trade dynamics.

The international community also appears to overlook specific U.S. policy intentions, such as those articulated by figures like Peter Navarro and Scott Bessent. The U.S. aims to use tariffs selectively to bolster industries like pharmaceuticals, precision manufacturing, and motor vehicles. This misunderstanding leads public institutions to perceive unspecified risks, as reflected in Sarah’s otherwise able presentation. Because the RBA and similar institutions view the world as fraught with undefined risks, they are inclined to keep interest rates low, responding to perceived threats rather than an equilibrium model.

Interestingly, data from the U.S. economy contradicts the expected negative impacts of tariffs. The Chicago Fed National Activity Indicator, a reliable gauge of economic growth since the 2008 financial crisis, shows U.S. growth above the long-term trend for the first four months of this year. This suggests resilience despite tariff-related shocks. Ideally, growth will slow later this year, prompting the Federal Reserve to cut rates, facilitating a soft landing and a decline in the U.S. dollar to boost global commodity prices. However, this nuanced outlook wasn’t evident in yesterday’s presentation.

Moreover, the anticipated rise in U.S. inflation due to tariffs isn’t materialising. Scott Bessent recently noted that U.S. CPI inflation is lower than expected, with core inflation shown as the (16% trimmed mean) at 3% for the past two months . Core inflation  excluding  food and energy CPI  is only at 2.8%. This suggests that Chinese suppliers are absorbing tariff costs to maintain market share, rather than passing them on as higher prices. Recent Chinese data supports this, showing a slight decline in manufacturing confidence and coal consumption, indicating reduced factory output and electricity use. This points to a modest slowdown in China’s economy. So far the expected negative effects on U.S. prices and output are not occurring.

In summary, the fears expressed by institutions like the RBA and OECD about the Trump administration’s trade policies appear overstated. The U.S. economy is not experiencing the predicted declines in output or increases in inflation. While these effects may emerge later, the current data suggests that the risks are not as severe as anticipated, highlighting a disconnect between theoretical models and real-world outcomes.

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Michael Knox outlines the economic outlook for growth and inflation in the U.S., the Euro area, China, India, and Australia, drawing data from the International Monetary Fund, the Congressional Budget Office, European sources, and his own analysis for Australia.

Today, I’m presenting the first page of my updated presentation, which focuses on GDP growth and inflation expectations for major economies. Before diving into that, I want to clarify a point about U.S. trade negotiations that has confused some media outlets.

In the previous Trump Administration ,there was single trade negotiator, Robert Lighthizer, held a cabinet position with the rank of Ambassador. This time, to expedite negotiations and give them more weight, Trump has appointed two additional cabinet-level officials to handle trade talks with different regions. For Asian economies, Scott Bessent and Ambassador Jamison Greer, who succeeded Lighthizer and previously served on the White House staff, are managing negotiations, including those with China. For Europe, Howard Lutnick, the Commerce Secretary, and Ambassador Greer are negotiating with the European Trade Representative. When the EU representative visits Washington, D.C., they meet with Lutnick and Greer, while Chinese or Japanese representatives engage with Bessent and Greer.

In my presentation today, I’m outlining the economic outlook for growth and inflation in the U.S., the Euro area, China, India, and Australia, drawing data from the International Monetary Fund, the Congressional Budget Office, European sources, and my own analysis for Australia.

For the U.S., the best-case scenario is a soft landing, with growth slowing but remaining positive at 1.3% this year and rising to 1.7% next year. This slowdown allows the Federal Reserve to continue cutting interest rates, leading to a decline in the U.S. dollar. This in turn ,triggers a recovery in commodity prices. These prices have stabilized and are now trending upward, with an expected acceleration as the dollar weakens.

U.S. headline inflation is projected to be just below 3% next year, with higher figures this year driven by tariff effects.



Global Economic Perspective

In the Euro area, growth is accelerating slightly, from just under 1% this year to 1.2% next year, with inflation expected to hit the 2% target this year and dip to 1.9% next year.

China’s GDP growth is forecast  at 4% for both this year and next, a step down from previous 5% rates, reflecting a significant slump in domestic demand and very low inflation  Chinese Inflation is only  :   0.2% last year, 0.4% this year, and 0.9% next year.  Despite a massive fiscal push, with a budget deficit around 8% of GDP, China’s debt-to-GDP ratio is rising faster than the U.S.. Yet this is  yielding more modest  domestic growth.

India, on the other hand, continues to outperform, with 6.5% GDP growth last year, 6.2% this year, and  6.3%  next year, surpassing earlier projections.

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In our International Reporting Season Review, we provide an overview of the March 2025 quarterly results season for companies in the Americas, Europe and Asia.

Positive earnings surprise

In our International Reporting Season Review, we provide an overview of the March 2025 quarterly results season for companies in the Americas, Europe and Asia. For all the volatility in markets caused by US trade policy, the results were positive. For all the 187 high profile and blue-chip companies in our International Watchlist, the median EPS beat vs consensus was 3.2%, nearly twice that recorded in the December quarter (1.8%). 37% of companies exceeded consensus EPS expectations by more than 5% and only 9% missed by more than 5%. Communication Services was the most positive sector, led by Magnificent 7 companies Alphabet and Meta Platforms. The median EPS beat in that sector was 13%. Consumer Discretionary was the biggest disappointment (though only a mild one) with EPS falling 0.6% short of analyst estimates on a median basis.

Alphabet and Meta among the best performers

Across our Watchlist, some of the best performing stocks in terms of EPS beats were Alphabet, Boeing, Uniqlo-owner Fast Retailing, Meta Platforms, Newmont and The Walt Disney Company. Notable misses came from insurance broker Aon, BP, PepsiCo, Starbucks, Tesla and UnitedHealth. The latter saw by far the worst share price performance over reporting season, its earnings weakness compounded by the resignation of its CEO and the launch of a fraud investigation by the Department of Justice. British luxury fashion label Burberry had the best performing share price as it gains traction in its turnaround plan.

Tariffs were the main talking point (of course)

The timing of President Trump’s ‘Liberation Day’ on 2 April, just before the March quarter results started rolling in, guaranteed that US tariffs would be the main talking point throughout reporting season. Most companies took the line that higher tariffs presented a material risk to global growth and inflation. The rapidly shifting sands of US trade policy mean the impact of tariffs is highly uncertain. This didn’t stop many companies from trying to estimate the impact on their profits. This ranged from the very precise ($850m said RTX) to the extremely vague (‘a few hundred million dollars’ hazarded Abbott Laboratories). The rehabilitation of AI as a systemic driver of long-term value was a key theme of reporting season, with many companies reporting what Palantir Technologies described as an ‘unstoppable whirlwind of demand’ and others indicating an increase in planned AI investment. The deterioration in consumer confidence was another key talking point, though most companies could only express concern about a possible future softening in demand rather than any actual evidence of a hit to sales.

Our International Focus List continues to outperform

In this report, we also report on the performance of the Morgans International Focus List, which is now up 25.3% since inception last year, outperforming the benchmark S&P 500 by 20.4%.


Morgans clients receive exclusive insights such as access to our latest International Reporting Season article.

Contact us today to begin your journey with Morgans.

      
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