Research notes

HUB reported 2Q24 Platform FUA of A$72.4bn (+11% qoq; and +30% pcp), with a ~A$2.9bn positive market move and net inflows of A$4.5bn. 2Q24 core flows of A$2.7bn were relatively flat on pcp and 1Q24 (A$2.8bn), with an additional ~A$1.8bn large transition finalised. The FY25 FUA target is on track. HUB alluded to short term factors which we expect will soften 1H24 growth; in particular FTE growth skewed to early 1H and FUA growth late in the half. HUB’s product offering continues to lead the market (along with NWL); the runway to secure additional adviser market share remains material; scale benefits should drive margin expansion med-term; and HUB is delivering ‘cleaner’ financials. We continue to see long-term upside in the stock, however retain a Hold on valuation.

We make model adjustments to inflation, interest rate, FX, and DPS assumptions ahead of the Q4 traffic/toll revenue and FY23 result releases in late January and February respectively. HOLD retained. 12-month target price lifted 22 cps to $5.58, mainly driven by an increase in our assumed valuation weighting to an IFM takeover event.

We have updated our assumptions for Bauna and Brent/WTI post calendar year end. A hydrate issue at one of Bauna’s smaller wells has seen Brazil crude production marginally trail our estimates based on ANP data. Stripping this well out, we are not seeing signs of accelerating decline at Bauna. We maintain an Add rating on KAR, with an adjusted A$2.95 TP (was A$3.00).

Super Retail Group performed really well across most of its brands in 1H24. Today’s trading update was a positive surprise, particularly around margins. Profit before tax (PBT) of $200-203m was 14-16% above our forecast, which itself was 1% above consensus. Our expectations for second half earnings haven’t changed materially, but we have taken the first half outperformance into account and increased our full year PBT forecast by 8%. Super Retail has been a key pick of ours for a while but, after a strong run, we think it’s now appropriately valued and we downgrade to HOLD accordingly. We continue to think this business is moving in the right direction and has the right portfolio of brands to succeed, but at 15x FY25F PE, we think it’s now in the price. Our target price increases from $17.00 to $17.50, but there isn’t enough implied TSR to keep us on an Add.

Austco Healthcare (AHC) develops a range of hardware and software products focused on enhancing communication between patients and primary carers within the hospital. Its key products are master call points (nurse call) and real-time location systems (RTLS) along with a growing high margin recurring model for its software packages. AHC generates 80% of revenue through hardware sales and 20% through software sales. Management is transitioning the business to a 50/50 split between hardware and software revenue which should result in higher margins. AHC expects strong organic growth to continue, while augmenting its offering and accelerating its growth strategy through acquiring technologies complementary to its current offering.

ASX has recently released its monthly trading activity report for December 2023. It was a better trading month overall for ASX, in our view, with higher cash markets activity (+13%), an uptick in capital raisings (vs the softer pcp) and stronger Futures volumes. However, for the half, it was more of a mixed outcome. Our FY24-FY26 EPS forecasts are lowered by ~1% factoring in the recent trading activity. Our price target is lowered to A$60.20 (from A$60.70) largely on changes to our 1H24 assumptions post the recent release. Hold maintained.

Tissue Repair (TRP) expects the Phase 3 trial for venous leg ulcers (VLU) to start recruiting in 4Q24 and top-line results to be reported late CY25. The National Institute of Health estimates the cost of treating VLUs at between US$2.5bn and US$3.5bn in the US. Following a review of our research universe, we revise our coverage approach for TRP. While we will continue to monitor and provide updates, we will cease providing a rating, valuation and forecasts. Thus, our forecasts, target price and recommendation should no longer be relied upon for investment decisions.

CBL has completed a capital raising that will provide funds for new product commercialisation and approvals together with working capital to drive sales of the current products. Cashflow has been an ongoing issue with CBL and the capital raising provides some runway to deliver on the strategy set by new CEO Jeremy Steele, although it will be tight. After diluting for the capital raising our valuation has reduced to A$0.058 (from A$0.09). We maintain our Hold recommendation and will closely monitor the quarterly cashflow reports for signs of sales growth and cost control.

We expect GQG to close FY23 (Dec-23) with ~US$118bn in FUM, +13.4% in 2H23. Flows momentum has been solid in recent months, which we expect continued in Dec-23. We estimate ~US$1.2bn net inflows for Dec-23 (US$10.2bn for CY23). GQG commences FY24 with group FUM ~8.7% above average 2H23 levels and ~16% above average FY23 FUM. We mark-to-market earnings on recent FUM moves leading to EPS upgrades. We continue to view GQG’s valuation as attractive (~10.7x FY24 PE); with executing on the broader diversification strategy likely required for a further and sustained valuation re-rating. Add maintained.

MTO have guided to 1H24 underlying EBITDA (pre-AAS16) of A$14-16m, down ~17% on the pcp (A$18.1m); and 36% below 2H23 (A$23.3m). The lower-than-expected guidance has been attributed to slowing sales demand within its wholesale new vehicle segment (Mojo) and increasing competitive pressures impacting margins. While we remain positive on the MTO business and broader strategy, Mojo’s diversified earnings base in mitigating a softer consumer backdrop had been a key element to our investment case. Given the guidance commentary and sharp deterioration in recent trade, the near-term outlook for the division is less certain. We lower our recommendation to a Hold, as we look for improved confidence and greater stability in the near-term earnings outlook of the combined business.