Research notes

We update for the Nuvisan, York and Wessling acquisitions and for the slightly softer trading update. We agree with ALQ’s strategic rationale for the acquisitions, we like their complimentary portfolio fit and think they set ALQ up well in the medium term. However they are skewed toward business turnarounds short-term, diluting group margins and bringing integration risk which may take time to digest. We lift our blended valuation/ target to $13.70ps (from $13.35). We rate ALQ very highly but move to Hold as price strength has narrowed capital beneath 10%.

HPI has announced four divestments for $.6m to its major tenant Australian Venue Co. The assets have been sold in line with Dec-23 book values with proceeds to be recycled into development on existing assets within the portfolio (rentalised at 7.5%). HPI has previously successfully undertaken capex programs with AVC (22/61 assets refurbished since 2020) so we expect this next phase to deliver positive benefits to the overall portfolio as well as enhanced rental income. FY24 DPS guidance of 19cps has been reiterated which equates to a distribution yield of 5.8%. We retain an Add rating with a revised price target of $3.71.

SOL released its 1H24 result, which in our view, highlighted a broadly resilient performance of the investment portfolio. Management were active in the period, with ~A$2.4bn worth of transactions being conducted and net investing activity across SOL’s portfolio’s seeing net cash decline by ~A$658m. Key contributions from its core strategic holdings and the Credit portfolio helped grow SOL’s net cash from investments 7% on pcp to ~A$263m. A 40cps fully-franked interim dividend was declared (24 consecutive years of dividend increases). Our DDM/SOTP-derived price target is A$35.60 (from A$34.75). Our changes to forecasts are overleaf. We continue to like the SOL story, particularly its track record of growing distributions and history of uncorrelated and above market returns. We maintain our Add recommendation.

ARX’s US marketing partner TelaBio reported an in line CY23 result and provided CY24 revenue growth guidance of ~30% which was in line with consensus. This is a positive read through for ARX and gives us confidence that average revenue growth of 20% pa can be achieved for the next three years. No changes to forecast or valuation. Add maintained.

The key takeaway from the WebBeds Strategy Day is that management is confident of delivering A$10bn of TTV by FY30 via organic means. Importantly, this will be achieved while delivering an industry leading EBITDA margin of 50% and strong cashflow conversion of 90-110%. Whilst we have only made slight upgrades to our forecasts reflecting WEB’s FY30 targets, the potential upgrades for consensus will be much more material. The next update from WEB is likely at its FY24 result on 22 May when we expect it to release its capital management policy given its strong balance sheet. With a double-digit earnings growth profile out to FY30, we maintain an Add rating.

BKW continues to paint a relatively sanguine picture, with building products expected to see some short-term weakness. The property portfolio has declined in value as a result of a 100bps increase in cap rates to 5.1%, despite continued strength across the underlying operating markets. Longer term, management remains firmly of the opinion that Australia is on the cusp of a property boom, with record immigration levels and population growth exacerbating an already chronic housing undersupply issue. The industrial portfolio is expected to continue growing rental income, with the business outlining a path to double rent through continued development and passing rental growth. Our view remains largely unchanged, with the short to medium outlook remaining relatively soft, which will see the group strategy shifting from investment to cashflow generation. This sees modest earnings growth through FY25, hence our Hold recommendation.

SIG posted its FY24 result which came in at the top end of EBIT guidance (pre-merger costs of $8.2m). As we expected there was limited commentary around the ACCC process, with SIG making its submission in February and public consultation starting from 8 March. We don’t expect a decision until the end of CY24. Given our view on the timing of the ACCC announcement we have delayed the incorporation of the CWG business into our model by six months. After rolling our model forward and including CWG from 31 January 2025 our target price has increased to $1.14 (was $1.07). As the share price is within 10% of the new target we move to a Hold (previously Add) recommendation.

Sonic Healthcare (SHL) is acquiring Switzerland-based Dr Risch laboratory group (Dr Risch) for CHF117m (A$202m), including CHF30m (A$52m) in scrip, with the balance funded via existing CHF cash and debt. Dr Risch employs c650 staff across 13 laboratories and has a lab in Liechtenstein, with a full-range offering of routine and specialty laboratory testing and combined annual turnover of cCHF102m (cA$176m). The deal is expected to close by 31 Mar-24, with the transaction EPS accretive from CY25 and ROIC positive once synergies from multiple areas of infrastructure and operations are achieved. We have adjusted FY24-26 estimates, with our target price increasing to A$34.94 (from A$34.05). Add rating maintained.

Another typically solid 1H result from NHC with few surprises outside of the dividend which beat our cautious estimate. All guidance was re-affirmed, with higher volumes to support 2H cost reduction. NHC’s defensive attributes – cash margins, balance sheet, steady dividends – appear to support lower volatility relative to more leveraged peers. Maintain Hold as NHC trades within 10% of fair value. A forecast 7-8% yield offers solid compensation as investors await the next upswing.

Myer Holdings (ASX: MYR) operates the largest chain of premium and mid-range department stores in Australia. The business was founded 124 years ago, but even after the emergence of the suburban shopping centre and the rise of multicategory ecommerce sites, Myer has managed not just to remain relevant but is performing strongly on an active program of reinvention. Sales last year were the highest since 2005, underpinned by over 20% online penetration and more than 4m active members in its loyalty program. The balance sheet is in good shape with over $200m in net cash (excluding leases) and Myer is back to paying dividends. A new CEO, Olivia Wirth, takes the reins in June, looking to replicate with MYER one her success with the Qantas Frequent Flyer loyalty program.