Research notes

On the face of it the 1H24 result (EBITDA +26%, NPAT +40%) was a solid beat of expectations. However, there are a number of reversing items that result in forecast earnings and valuation not lifting as much as the beat would suggest. FY24F NPAT upgraded by c.7% and downgraded by a similar amount in FY26F. Target price effectively unchanged at $3.75 (+1 cps). HOLD retained.

In our opinion, the first half performance was a masterclass in the consolidation of a market-leading position, while maintaining iron-clad discipline over costs. Despite the downturn in the Australian consumer sector, sales were down only 2% yoy, and margins held up better than expected in the face of intense inflationary pressures. We had called JB Hi-Fi as a positive surprise candidate and so were pleased to see NPAT come in 6% above our forecast (and the consensus estimate). In the first few weeks of 2H24, the sales trajectory has improved further, with the comps getting less demanding, we believe there is room for some cautious optimism about the shape of future earnings. We have increased FY24F NPAT by 7%. The balance sheet is in great shape, raising the prospect of possible capital management or even inorganic investment. That being said, the share price has moved ahead of all this cautious enthusiasm, rising 27% since the start of December (including a 7% jump today). At a forward P/E of 16x, we’re not inclined to chase it and have maintained a Hold recommendation, but with an increased target price of $61.

Asset sales have been a key focus in 1H24 with GDF now completely exiting all its Melbourne office properties. Proceeds have been applied to debt reduction and to provide balance sheet capacity for Brisbane industrial development projects. The $5m portfolio is now +80% weighted to SE QLD industrial with the sole office asset the Cairns Corporate Tower (BV $82m). Post asset sales, NTA stands at $1.73 and pro-forma gearing is 30.1%. Leasing risk on established assets remains minimal in the near term with the key focus on leasing up developments underway (particularly North Lakes). FY24 DPS guidance remains 6.3c. Given the loss of income from recent asset sales, the estimated payout ratio is now ~105%. We retain an Add rating on GDF with a price target of $1.65.

COH upgraded FY24 underlying NPAT targeting A$385-400m (+26-31%), an 8% increase from the mid-point of prior guidance. The gain is underpinned via 1H strength in cochlear implants (+14%), along with strong global growth across key geographies and customer segments. While bottom line leverage is promising, we view near term reversion to pre-COVID levels as challenging, given little GPM expansion and ongoing investments in SG&A and R&D. We have adjusted our underlying FY24-26 earnings 7.9% higher, with our target price increasing to A$290.45. Move to HOLD on valuation.

The 1H24 result was mixed, with EBITDA growth broadly as expected and cashflow growth messy and arguably below expectations. FY24 DPS guidance unchanged. We make c.3-4% forecast downgrades (traffic, costs), which result in a c.3% decline to our price target to $12.32/share. HOLD retained. At current prices, we estimate a 12 month TSR of c.-2% (incl. 4.8% cash yield) and a five year investment period IRR of 5.7% pa.

REA’s 1H24 result was a small beat versus Visible Alpha (VA) consensus, and in our view, a broadly solid performance overall. Key takeaways being: 1) the robust Australia Residential growth (+19% on pcp), driven both by yield and volume; 2) REA India revenue growing 21% on pcp and; 3) Group operating cost growth now expected to be in the mid-to-high teens, including some investment spend phasing. We raise our FY24F-FY26F EPS by ~2-2.5% (details below). Our DCF-derived valuation and price target is increased to A$165 (from A$155). Hold maintained.

AQZ reported a strong 1H24 result which slightly beat consensus estimates. Its guidance for a stronger 2H remains on track and it is comfortable with FY24 consensus. The result was overshadowed by vague outlook commentary in the release and uncertainty around its future capital requirements. We remain confident in management’s ability to execute from here. ADD maintained.

FY24 guidance has been reiterated and portfolio metrics resilient with occupancy slightly higher vs Jun-23. Asset sales during 1H24 resulted in lower debt levels which offset impacts from higher finance costs. The balance sheet remains solid with pro-forma look-through gearing 26.2% ensuring there is capacity to complete the $42m committed development pipeline (returns +6%). DXI also recently confirmed the appointment of Gordon Korkie as new Fund Manager effective 1 February. We retain an Add rating with a $3.18 price target.

Following approval of the scheme of arrangement for Paine Schwartz Partners to purchase all ordinary shares in Costa Group Holdings (CGC), we cease coverage of CGC. We expect trading in CGC shares will be suspended from close of trading today, Thursday 8 February 2024. Our forecasts, target price and recommendation should no longer be relied upon for investment decisions.

We place our recommendation, target price and forecasts for STA under review pending the outcome of the operations and funding review. We await increased clarity on the revised production/earnings outlook and possible capital re-structure. At present there is no guarantee of any particular outcome.