Research Notes

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Research Notes

1H soft; Behring solid, Seqirus soft, Vifor strength

CSL Ltd
3:27pm
February 11, 2025
1H results were a bit soft, with FX denting bottom line growth and vaccine sales pulling down top line gains, although constant currency (cc) margins held and OCF was strong. Divisional sales were mixed, with continued strong plasma collections propelling Behring sales (+10%) and Vifor showing surprising strength (+6%), while Seqirus failed to overcome weak immunisations in the US. Notably, Behring GPM expanded above expectations (+170bp, 51.7%), owing to lower cost/litre and numerous other initiatives, with the return to pre-COVID margins (c58%) still targeting FY27/28. FY24 guidance (cc NPATA +10-13%) was reaffirmed, implying a very strong 2H (+19% at mid-point), which looks achievable given Vifor’s growth and pandemic avian influenza contracts for Seqirus, with overall double-digit earnings growth continuing to be expected over the medium term. Our PT moves to A$329.26 on modest earnings changes and FX. Add.

Phase 3 clinical trial begins and coverage ceases

Tissue Repair
3:27pm
February 11, 2025
TRP has recruited the first patient into its US Phase 3 trial for chronic venous leg ulcers. TRP is also pursuing a medical device application in addition to the traditional drug path which according to management may see an earlier approval. TRP finished with cash of A$14.4m at 2Q25. We are continually reviewing our Healthcare coverage list. At this time we will remove TRP from our Keeping Stock coverage.

3Q25 update

Macquarie Group
3:27pm
February 11, 2025
MQG’s 3Q25 update disclosed that NPAT for the first nine months (FY25 YTD) was broadly in-line with the pcp. We note MQG’s short-term outlook commentary has not changed from its last update, but the market before today was factoring in 8% FY25 NPAT growth. This implies the company needs a relatively strong Q4 to get near market expectations. We lower our MQG FY25F EPS by 6%, with nominal changes to our future year forecasts. Our PT (~A$218) is largely unchanged with our earnings changes offset by a valuation roll-forward. MQG is a quality franchise, but we think the recent strength in its share price is arguably unjustified, and we see the stock as fair value trading on ~23x FY25F earnings. We maintain a HOLD rating.

Hitting positive cashflow

Clever Culture Systems
3:27pm
February 11, 2025
Clever Culture Systems (CC5) has achieved cash flow break-even for operating activities in 2Q25 in line with previous guidance. Further to this, management has guided to the next two quarters being operating cashflow positive. CC5’s strategy is to target large pharmaceutical companies and build on the success so far with AstraZeneca and Bristol Myers. The current installed base is 22 units. Key catalysts include announcements around expansion of additional orders within the customer base and orders from new customers.

Sticker shock offers an opportunity

Car Group
3:27pm
February 10, 2025
CAR 1H25 result was resilient, with pro forma revenue growth of 9-30% across its key markets. However, it was the slight miss vs consensus at EBITDA and the deferral in putting through a price rise in the US business that saw the stock trade lower on the day, in our view. We make minor changes to our FY25-FY27F EBITDA (-1%/-+1%) on the result and guidance update. Our price target increases to A$41.40 on the above changes, an uplift to our longer-term margin assumptions and a DCF valuation roll-forward. Given ~10% TSR upside to our price target, we move to an Add recommendation.

1H beat- looks like a growth stock . . . but it’s not

Ansell
3:27pm
February 10, 2025
1H was better than expected, with strong, double-digit top and bottom line growth, but was mainly supported by acquisition gains, cost outs and one off items. Industrial sales and margins both improved on new product introductions and higher pricing, while Healthcare jumped on normalistion from channel inventory destocking and slowed production. While stocking/restocking appear “neutral” and guidance upgraded c4% at the mid-point, we remain cautious, given Healthcare’s easy gains are now limited, KBU is entering a transition period with risk of sales leakage and customer disruptions, and price increases and cost outs need to offset higher input costs and tariffs. FY25-27 EPS increases 5%, with our DCF/SOTP PT increasing to A$33.38. Hold.

1H25 Earnings: Sales perks

JB Hi-Fi
3:27pm
February 10, 2025
JBH has produced another solid result for the first half, and was ahead of consensus expectations. Sales momentum accelerated in the 2Q driven by demand for tech and consumer electronic products, and has continued into the start of the 2H. Margins were managed better than we expected given the highly promotional and competitive environment, and ongoing cost pressures. We have increased our revenue forecast as a result of strong sales momentum, which has flowed through to 3.5%/4% increase in NPAT in FY25/FY26. We have increased our TP to $92 from $87, but see the current valuation of ~23x FY26 P/E as too expensive, given its 10 year average is ~14x. We retain our HOLD recommendation. With this note, lead coverage of JB Hi-Fi passes to Emily Porter.

Strategic review is key

MedAdvisor
3:27pm
February 10, 2025
Last November, MDR announced a strategic review to help restore value to the business which has seen the market capitalisation fall over 65% since June 2024. The outcome of the review is expected to be announced in 3Q25. The 2Q25 cashflow reported lower revenue and margins than the previous corresponding period. Reflecting the lower than expected US flu vaccination rates. Management has guided to a positive EBITDA for FY25 (consensus A$2.0m). The consensus mean target price is A$0.25.

Close to putting BMG in the rearview mirror

Cooper Energy
3:27pm
April 16, 2024
A solid underlying performance in 3Q24, close to MorgansF/consensus estimates. BMG is now 80% complete, but also expected toward the upper end of guidance range, due to weather and equipment failure causing a week delay. Debottlenecking and upgrading work continues at Orbost, with COE preparing to deploy new nozzles, snowflake packing material, sulphur offtake testing, and the next round of in situ clean trials. The work on BMG is due to be completed by late May, at which point COE transitions into an impressive FCF generator. We maintain an ADD rating, with an unchanged A$0.30ps Target Price.

Charging up the pipeline

LGI
3:27pm
April 16, 2024
LGI’s Investor Day included another encouraging update, as the company reaffirmed its FY24 EBITDA guidance; clearly articulated the short-to-medium term development pipeline; set out its growth strategy; and demonstrated its battery energy storage system capabilities. We increase our FY24-26 EPS forecasts by 5%/12%/7%, reflecting increased battery cycling and LGI’s new Bingo contract. We move to a pure DCF valuation and our 12 month price target increase to A$3.12ps. Upgrade to ADD rec. We have confidence in LGI’s ability to execute on its meaningful development pipeline and are encouraged by the highly attractive unit economics of its battery storage capabilities and the viability of a broader battery rollout. In addition to LGI’s compelling medium term growth opportunity, the business provides investors with exposure to the increasingly important decarbonisation thematic.

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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