Research notes

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.

BAP reported 1H24 EBITDA -2% and NPAT -13% (pre-released). At the divisional level, Retail dragged (-12%) with the Trade divisions showing resilience (+4.5%). Short-term transformation benefit targets were maintained (A$7-10m incremental NPAT in 2H24). The wider BTB program to be re-assessed under the new CEO. There is clearly some ‘reset risk’ with a new incoming CEO/CFO. Part of our case for the recent recommendation upgrade was the improved prospect for earnings improvement into FY25. Despite the uncertainty tied to an inevitable strategy review, we continue to see higher earnings in FY25 as realistic. We acknowledge the BAP investment case is tricky until the new CEO provides some strategy clarity. However, despite incurring mgmt and strategy change and a difficult cost environment, the business has been resilient. We think the valuation point continues to provide value on a medium-term view.

There were no surprises in SFR’s 1H24 financials and unchanged FY24 guidance offers comfort. The Motheo ramp-up has been a stand-out success to date, countering underwhelming cash returns from MATSA. SFR has re-shaped into a resilient global business providing a strong option over metals price upside and a longer-dated option over mine life extension/expansion. However we maintain our Hold with SFR traded at a slight premium to NPV.

This reporting season has seen improved commentary around the residential housing sector and a nascent housing recovery. CWP report the highest enquiry and sales levels in two years for 2Q24, with price increases across its key markets, most notably WA where prices were up 5% to 13% in 1H24. CWP is a volume business and the demand for lots looks to be improving, with margins to invariably follow. CWP’s exposure to lower priced stock in higher growth markets sees further potential to drive earnings. On this basis, we see every reason for CWP to trade at NTA and potentially at a premium, were the housing cycle to gain steam through FY25/26. On this basis, we upgrade CWP to an ADD, with a price target of $5.60/sh.

EXP’s 1H24 result was in line with our forecasts. The 2H24 looks to have had a decent start with January trading in line with the pcp despite all the wet weather and EXP has also seen positive trading into February. EXP will likely be the last of our travel companies under coverage to fully recover from COVID given its leverage to inbound international tourists to Australia (in particular the Chinese) which continues to lag the wider travel recovery. However, material upside remains on offer for the patient investor. ADD maintained.

A bumper 1H24 earnings and dividend result from FMG. 5% EBITDA beat and in-line underlying NPAT vs consensus. Interim dividend of AUD 108 cents, also above expectations. FY24 production and cost guidance maintained. FMG now trading at a premium to BHP/RIO is indicative of a solid share price performance, but not a good endorsement of value. We maintain a Hold rating.

BXB’s 1H24 result was above expectations. Key positives: Group EBIT margin rose 160bp to 20.3% driven by growth in CHEP Americas and CHEP EMEA; ROIC increased 200bp to 21.8%; FY24 guidance for earnings and free cash flow was upgraded. Key negatives: CHEP Asia-Pacific EBIT margin fell 240bp to 34.4%; Group like-for-like (LFL) volumes fell 1%, impacted by customer destocking; Management said the contract environment has become more competitive. We increase FY24-26F underlying EBIT by 2%. Our target price rises to $15.65 (from $14.95) and we maintain our Hold rating.

PXA’s 1H24 Group NPATA (A$15m) was down -36% on the pcp, and slightly below consensus (A$17m). This result had been heavily pre-announced and headline figures were largely as expected with FY24 guidance re-affirmed (albeit PXA Exchange margins are tracking slightly above the top end of the range). The key stock catalyst here remains the launch of the 24- hour UK refinance product in the middle of 2024, which management says remains on track. We make nominal changes to our PXA FY24F/FY25F EBITDA forecasts (+1%-2%) but our NPATA forecasts fall by -22%/-4% on higher non-operating items, e.g. specified items and D&A, etc. Our valuation rises to A$12.19 on higher future operating earnings and a valuation roll-forward. HOLD maintained.

EBIT was 4% lower than forecast and down 11% on a pro forma basis. AX1 said it does not believe consumer demand has changed “fundamentally”, but there is a “little bit of softness” at present. AX1 has performed best where its brands are “hot” (such as HOKA). Against elevated comps, LFLs were resilient at (0.6)% in the first half and have started 2H24 at a similar pace. The comps get less demanding as the half goes on and we expect positive LFLs in 2H24 as a whole. This resilience is a function of the portfolio effect and strong market position. We have lowered our EBIT estimates by 2% in FY24 and FY25 due to higher D&A and retain an Add rating and $2.30 target price.

1H was mixed, with an inline double-digit earnings decline, but on softer revenue and underlying profit. OPM expanded in Industrial on manufacturing efficiencies and carryover pricing, but was more than offset by contracting margins in Healthcare on continued inventory destocking and slowing of production to address inflated inventories. While a 2H recovery appears reasonable, as a proportion of earnings is driven by cost-outs/efficiencies, we remain cautious on the end of this multi-year “market dislocation” especially as gains are reliant on exogenous factors (eg supportive macros and limited customer destocking), while APIP unfolds over time. While FY24-26 estimates move lower, we roll forward valuation multiples with our DCF/SOTP PT increasing to A$22.53. Hold.