Research notes

The key focus remains on reducing gearing and completing the sale of the Polish assets. Management noted that a letter of intent has been signed with binding commitments and if successful expects the sale to occur in 4Q24. Gearing sits at 44.7% and is estimated to fall to c34% post asset sales. No FY24 guidance has been provided, however CMW expects to pay a 0.75c distribution for the March quarter. The payout ratio has fallen vs historical levels (currently around 63%) so we will be looking for further clarity on the group’s longer term payout policy post asset sales and subsequent gearing reduction. We retain a Hold rating with a revised price target of $0.46. The key near term catalyst relates to the sale of the Polish assets.

ACF has added to its Industrial Services capability by acquiring Benchmark Scaffolding in North QLD for $9m (pre earn-outs). The acquisition represents an EV/EBITDA multiple of 3.8x (pre earn-outs), which is largely in line with the MI Scaffold acquisition in November (4x). In our view, the deal is complementary to MI Scaffold and will increase ACF’s scale in Industrial Services in QLD as well as nationally. Management has increased FY24 EBITDA guidance by $1m to between $73-76m as a result of the acquisition. This implies no change to guidance for the existing ACF business. We estimate the deal to be 2% EPS accretive in FY25 (first full year of ownership). Our target price rises to $1.43 (from $1.40) following updates to earnings forecasts and we maintain our Add rating. Trading on 9.3x FY25F PE and 4.7% yield with strong business momentum and leverage to growing civil infrastructure activity over the long term, ACF remains one of our key picks in the small caps space.

AUA reported its 1H24 results. Key focus around OPEX as timing of restocking and initial EU sales orders remains irregular and hard to predict. Gross margin improvement due to customer mix but likely revert as larger distributors restock. Key news here was maiden sales order from the AUA technology division to drum equipment manufacturer Avedis Zildjian for A$2.1m. Lower margin versus own branded product, but provides scale and volume without the front-ended marketing and sales expense. Deals like this have potential to be a significant part of the business although hard to predict at this stage. Positive share price moves off the back of the technology order, but continue to see higher prices achievable as the business matures. Speculative Buy.

KAR delivered a strong December half result, with strong earnings and cash flow. Management flagged a continued focus on its growth. Remaining one of our top sector preferences, we maintain an Add rating.

FDV’s FY23 NPAT of -A$8.59m (FY22 -A$10.2m) came in better than Morgans expectations (-A$10.5m), whilst statutory revenue (~A$68m, +15% on the pcp) was in-line with Morgans forecasts. While FDV Associate businesses continue to face economic headwinds, this result showed a continued improving earnings trajectory across FDV’s consolidated portfolio, in our view. We lift our FDV FY23F/FY24F EPS by >10% respectively mainly on improved group EBITDA margin assumptions. Our PT is largely unchanged at A$0.79 (previously A$0.77). We continue to be attracted to FDV’s long-term growth profile and the earnings potential of the assembled portfolio. ADD maintained. We lift our FDV FY23F/FY24F EPS by >10% respectively mainly on improved group EBITDA margin assumptions. Our PT is largely unchanged at A$0.79 (previously A$0.77).

Imricor Medical Systems (IMR) develops medical devices for the treatment of irregular heartbeats, which are safer, quicker and more effective than current treatment methods. Current approval (in Europe) for atrial flutter is being expanded into other indications (atrial fibrillation and ventricular tachycardia), which will significantly increase the market potential. According to management and our literature searches, the estimated total addressable market (TAM) is >US$8bn. IMR’s recent capital raising enables it to fund additional clinical studies, reactivate sites in Europe and commercially launch in the Middle East and Australia. We initiate coverage on IMR with a DCF based valuation and target price of A$0.96 and a Speculative Buy recommendation.

The 2H23 result was broadly as expected. No material change to EBITDA forecasts. The new free cashflow incentive signals that cashflow will remain below FY24 DPS guidance for years to come. We estimate the shortfall can be supplemented by surplus cash and another capital release, but DPS growth may not be on the horizon for at least this decade. Cash yield at current prices is c.7.3%. We estimate an intrinsic value of ALX at $4.99/sh based on DCF, or $5.63/sh if the spice of uncertain IFM takeover potential is added. HOLD retained.

Airtasker’s (ART) 1H24 result (whilst largely pre-released) was a solid performance in what has been a challenging consumer environment (booked tasks -~5% on pcp). Positives include the group seeing revenue growth (+~7% on pcp to ~A$23m) on an improved take-rate and the business achieving positive free cash flow in the period. We make minor adjustments to our estimates over FY24-FY26 (details below). Our price target remains unchanged at A$0.54. We maintain an Add recommendation.

Deep Yellow’s portfolio contains an attributable resource base of 420Mlb of U3O8, to support the aspirational goal of production of +10Mlb per year of U3O8, from the stable jurisdictions of Namibia and Australia, with Tumas, in Namibia, the more advanced, and the fully-permitted Mulga Rock, Western Australia. A final investment decision (FID) for Tumas is anticipated in the September 2024 Quarter for this US$360M development with production projected up to 3.6 Mlbpy of uranium yellow cake (U3O8), at a projected All-in sustaining cost (AISC) of US$38.80/lb U3O8 after a vanadium by-product credit of sub-US$3.00/lb U3O8. The DYL management team has successful experience in developing and operating uranium production, in particular at nearby Langer Heinrich, operated by Paladin Energy (ASX:PDN – 75%), and which provides a template for Tumas.

1HFY24 results were above expectations, driven by mid-to-high single digit admissions growth across key geographies, tariff and indexation gains, as well as lower tax and minority interest. Earnings improved in Australia and UK, with a turnaround in Elysium, but were offset by ongoing inflationary pressures in the EU. While wage pressures have “stablised”, digital/data investments and higher funding costs remain a drag on full margin recovery, but growing volumes and numerous productivity initiatives portend an improving earnings profile. We adjust FY24-26 earnings modestly, with our price target increasing to A$60.76. Add.