Research notes

PWH’s 1H24 result was comfortably above our expectations with growth in Emerging Technologies the key highlight. Divisional revenue growth: Motorsports (ex-Emerging Tech) +5%, Aftermarket +7%, Emerging Technologies +88%, OEM +12%. Key positives: Aerospace & Defence revenue jumped 124% with a stronger pipeline compared to six months ago; EBITDA margin increased 110bp to 28.6% mainly due to an improved sales mix and increased operating efficiency; Balance sheet remains healthy with net cash (ex-leases) of $15.6m. Key negative: ROE fell 100bp to 26.7%. We make minor adjustments to FY24-26 earnings forecasts with EBITDA increasing by between 1-2% and underlying NPAT also rising by 1-2% Our target price increases to $14.25 (from $11.90) reflecting changes to earnings forecasts and a roll-forward of our model to FY25 forecasts. Add rating maintained. While the stock is not cheap (38.4x FY25F PE), we believe PWH is a high-quality business with a strong track record of growth. With a healthy pipeline of opportunities across all key segments (particularly Aerospace & Defence), we expect this growth trend to continue over the long term.

First the good news. TRS outperformed most companies in our coverage universe with +2.3% LFL sales growth in 1H24 (although this was a little less than we had expected). The offering of well-priced every day essentials seems to have resonated with its customers, seeing both transaction and units growth over the period. This has resulted in a shift in sales mix away from general merchandising to the lower margin consumables. Sales momentum continued into the first 7 weeks of 2H24. Then the bad news. There was substantial shrinkage (shoplifting) over the course of the half, impacting EBIT by $4m, which was down 16% yoy. Without this impact, EBIT would have been flat. We maintain our ADD rating on TRS but reduce our target price to $5.40 (was $6.25) due to reduced earnings estimates in the current year.

The 1H result was in-line with quarterly reporting, with few surprises. The 2cps interim div reflects a 100% NPAT payout in excess of policy and complimenting accretion from the on-market buyback. The current ex-growth phase looks set to continue, supporting compelling forecast free cash flow yield (22-30%) and dividend yield (9-11%). At only (2.0x FY24F EV/EBITDA MSV still looks disregarded by the market. MSV trades at a sharp discount to direct peers and recent drilling M&A.

FY24 underlying profit has been downgraded by double digits, given lower 2H expectations for Pathology volumes and benefits. While 1Q saw high single -digit Pathology volumes and double-digit benefit growth, momentum faded in 2Q, with both metrics tracking in the low single-digit range. It appears soft GP attendances, coupled with labour shortages and inflationary pressures, continue to conspire in holding back volumes. While management is aiming to accelerate Pathology restructuring to better match volumes with costs, activity to date seems to have done little to move the dial, putting greater uncertainty around a solution and complete near-term turnaround. We lower our FY24-26 estimates, with our target price decreasing to A$1.37. Hold.

CUV’s posted a weaker than expected 1H24 result, with negligible top-line growth combined with a significant increase in the cost base (clinical activity, staff retention incentives and an increase in service roles) to meet future demand. While the top-line growth was disappointing, paired with large cost base increases and Board turnover it failed to inspire much confidence. Investors remain in the dark on US vs EU performance outside of cursory commentary. There was no discussion around capital management plans outside of stockpiling cash, now ~25% of the market cap. We downgrade our target price to A$16 p/s (from A$22 p/s) and recommendation moves to Hold, noting increased risk around board and disclosure. Traders may find an opportunity down here, but equally prepared to wait until a number of investor concerns are addressed.

An in-line CY23 result, although RIO hasn’t been immune to weakening metal prices (ex-iron ore) and global inflation pressures. Looks can be deceiving, but RIO commentary continues to run contrary to a popular view that the big miner might be an aggressive acquirer pursuing M&A. Despite the challenges, and capex in OTUG, RIO still generated FCF of US$7.7bn in CY23. We maintain a Hold rating on RIO, with a A$127ps Target Price.

IRE reported FY23 in-line with guidance: revenue of A$625.7m (+1.6%); and underlying EBITDA of A$128.3m (top-end of previous guidance). Whilst FY24 and exit run-rate ‘underlying’ EBITDA guidance was upgraded, IRE somewhat shifted the goal posts. ‘Adjusted’ EBITDA expectations now include ongoing project related costs of ~A$20m previously expected to be non-recurring. Positives included all divisions, excluding Super, showing hoh EBITDA growth; and confidence in two divestments. We expect significant de-leverage in 2H24. We can see an ongoing path for improvement for IRE and a material divestment (Mortgages) is a relatively near-term catalyst. However, after a solid re-rate and lower clarity on ‘base’ free cash flow generation post this result, we move to Hold.

Camplify’s (CHL) 1H24 result beat our GTV/revenue forecasts (+4-8%) showing robust pcp growth (+~95%). Excl. ~A$0.9m of one-off MyWay setup and platform integration costs, normalised EBITDA was -A$1.4m (vs -A$1.8m in the pcp). The stock closed down ~17% on result day, which we largely attribute to some seasonality in CHL’s key headline metrics (future bookings, gross margins, etc). We make several cost and margin assumption changes over the forecast period (details below). Our price target remains unchanged at A$2.85 and we maintain an Add recommendation on the stock.

1H24 was broadly in line with our forecast but was below consensus estimates. Due to 2Q macro issues and the UK Bridging contract materially underperforming expectations, CTD has revised its FY24 EBITDA guidance by 15.4% at the mid-point. Off this new base, CTD has a five-year strategy to double profits by FY29. The quantum of the earnings downgrade is clearly disappointing. Given the aggressive pivot in earnings guidance from the AGM last year, the market may take time to rebuild its confidence in the outlook. However, if CTD delivers even close to its five-year strategy, the share price will be materially higher in time. We maintain an Add rating with a new price target of A$20.65.

ACF’s 1H24 result was comfortably above our expectations. Key positives: EBITDA margin increased 570bp to 34.8%; Annualised return on investment (ROI) on growth capex of 58% was well above management’s target of >40%; Bad debt expense fell to 1% of sales vs 1.8% of sales in FY23. Key negative: ND/EBITDA increased slightly to 1.2x (vs 1.0x at FY23), although this was largely due to the MI Scaffold acquisition with the business only contributing two-months to earnings in the half. Management has maintained guidance for FY24 EBITDA of between $72-75m. As a result, we make minimal changes to FY24-26 earnings forecasts. Our target price rises to $1.40 (from $1.22) largely due to a roll-forward of our model to FY25 forecasts and we maintain our Add rating. Trading on 8.6x FY25F PE and 5% 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.