Research notes

AMX has released its 1H report in-line with our expectations. Key focus remains on Annual Recurring Revenue (ARR) growth and cost controls, both improving over the last 12 months. LiDAR growth continues to grab the headlines, but we’re getting the sense MetroMap is back on track with the worst now behind it following a number of years contending with competitive pressures and aviation constraints. We retain an Add recommendation on AMX and continue to see an attractive risk/reward profile with clearer skies ahead. Our valuation and target price increases marginally to A$0.50 p/s (from A$0.45 p/s).

IPD released its 1H24 results which were in line with expectations. The new CEO and CFO have set out a clear plan to focus on high volume US states (targeting 11 states by April) and cost control (reduction 10% to 15%). The market will appreciate this clarity. We have made no changes to forecasts, target price or recommendation.

A challenging economic environment saw PPE’s margins continue to deteriorate both qoq, hoh and yoy, resulting in EBITDA declining 38% yoy. Management called out a decline in contract rates, permanent recruitment fees and government subsidies as the primary drivers. However, not much of this is new, with management having previously flagged the challenging environment at the FY23 result (Aug-23) and at the AGM (Nov-23). What did surprise was the level of margin degradation qoq, as the business was impacted by a declining contract rate - customers filling more lower skilled, lower margin roles. To this end, management are expecting higher margin demand to start improving in FY25. Given that operating conditions are likely to remain challenging for the next twelve months and terminal margins are likely lower than first anticipated, we downgrade to a hold rating, reducing our valuation to $1.05/sh.

EDV’s 1H24 result was slightly above expectations. Key positives: Group EBIT margin was flat at 9.9% with cost out initiatives offsetting cost inflation; Cash realisation was strong at 140% (vs 99% in the pcp). Key negatives: ROFE was down 60bp to 11.6%; Full year net interest expense is now expected to be between $300-310m (vs $280-310m previously). For the first seven weeks of 2H24, Retail sales were broadly flat (+0.3%) reflecting subdued sales in January followed by an improvement in February. Hotels sales were 1% higher. We decrease FY24-26F underlying EBIT by 1% while underlying NPAT reduces by between 3-4% due to higher net interest expense. Our target price rises slightly to $5.20 (from $5.15) despite the decrease in earnings forecasts largely due to a roll-forward of our model to FY25 forecasts. Hold rating maintained. While EDV is a good business, trading on 17.1x FY25F PE and 4.3% yield we think the stock is fully valued given the subdued near-term outlook with consumers remaining cautious.

SUN’s 1H24 NPAT (A$582m) was -2% below consensus ($596m). The 1H24 dividend (A34cps) was in line with consensus. Overall we saw the general insurance result as broadly sound (outside some reserve strengthening), with it indicating a likely improving trajectory in 2H24 and FY25. Whilst the bank result was weak, this arguably highlights the reasons/benefit of exiting this business. We lower SUN FY24F/FY25 EPS by -7%/-3% on a model update for the new AASB17 accounting standards, reduced bank earnings forecasts, and an adjustment to capital return estimates post the bank sale (A$4bn vs A$4.2bn previously). Our PT is set at A$16.88 (previously A$16.42) on a valuation roll-forward. With SUN still having >10% TSR upside on a 12-month view, we maitain our ADD rating.

First half earnings were much better than feared, despite coming in well below pcp. On a 26-week basis, sales were down 10% yoy and pre-AASB 16 EBIT of $28.6m was down 19% yoy. EBIT was 19% higher than our forecast, however, which was due to better gross margins and operating cost control. The second half has started softly from a sales perspective, with a 9.6% yoy decline, though the comps get less demanding as the period goes on and we forecast positive LFLs in 2H24. We have increased our pre-AASB 16 EBIT forecasts by 9% in FY24 and 3% in FY25. Our target price increases to $2.40 (from $1.70) and we upgrade to Add. ADH is geared into a recovery in consumer sentiment, making it an interesting stock to consider adding to your portfolio at the current price.

Nothing materially different to expectations caught our attention in the FY23 result. EBITDA growth was supported by the TIC revenue growth, which underwrote the DPS growth. Boring = beautiful. ADD retained. Target price lifted 7% to $3.03 with forecast changes and valuation roll-forward. 12 month potential TSR 16% (incl. 7.7% cash yield).

The 8.4 US cps dividend was the biggest surprise amongst SMR’s CY23 result. SMR now has a busy organic growth pipeline to evaluate after executing 3 asset transactions in 4 months, all with synergies around existing operations. We make several adjustments, lowering our valuation to $4.15ps (from $4.20). Value now looks interesting again at a (15-20% discount to NPV. The recent confirmation of sustainable dividends strongly builds SMR’s appeal to a wider investor base in our view.

WPR’s CY23 result was in line with guidance with distributable EPS flat on the pcp. CY24 guidance has been provided comprising distributable EPS of 16.32-16.c with the bottom end of guidance assuming $80m in non-core assets sales and the top end assuming no asset sales are undertaken (in line with pcp). Management noted that transactional markets are showing tentative signs of improvement. Following the result we move to a Hold rating with a revised $2.57 price target. WPR remains suited to income investors.

There were no major surprises in NAN’s 1H24 result, but it’s clear the hospital budgetary strain are unlikely to subside for at least another half. Nevertheless, NAN have some levers to pull on the cost base side to soften the delayed capital sales impact to profitability. Results and commentary fail to entice a stampede back into the stock, but we continue to see this as a solid underlying business with a dominant market position, high margin recurring revenue base, and ample opportunity to deepen the market penetration over time into smaller practices and other jurisdictions. Changes to our model sees our target price reduce to A$3.50 (from A$3.88) although we retain an Add recommendation. While long term value remains for patient holders, we don’t see any immediate need to rush back in just yet.