Research Notes

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Research Notes

Positioned well for continued growth into 2H

Airtasker
3:27pm
February 29, 2024
Airtasker’s (ART) 1H24 result (whilst largely pre-released) was a solid performance in what has been a challenging consumer environment (booked tasks -~5% on pcp). Positives include the group seeing revenue growth (+~7% on pcp to ~A$23m) on an improved take-rate and the business achieving positive free cash flow in the period. We make minor adjustments to our estimates over FY24-FY26 (details below). Our price target remains unchanged at A$0.54. We maintain an Add recommendation.

First step to 10Mlb uranium per year

Deep Yellow
3:27pm
February 29, 2024
Deep Yellow’s portfolio contains an attributable resource base of 420Mlb of U3O8, to support the aspirational goal of production of +10Mlb per year of U3O8, from the stable jurisdictions of Namibia and Australia, with Tumas, in Namibia, the more advanced, and the fully-permitted Mulga Rock, Western Australia. A final investment decision (FID) for Tumas is anticipated in the September 2024 Quarter for this US$360M development with production projected up to 3.6 Mlbpy of uranium yellow cake (U3O8), at a projected All-in sustaining cost (AISC) of US$38.80/lb U3O8 after a vanadium by-product credit of sub-US$3.00/lb U3O8. The DYL management team has successful experience in developing and operating uranium production, in particular at nearby Langer Heinrich, operated by Paladin Energy (ASX:PDN – 75%), and which provides a template for Tumas.

1H beat- "the worst is past us"

Ramsay Health Care
3:27pm
February 29, 2024
1HFY24 results were above expectations, driven by mid-to-high single digit admissions growth across key geographies, tariff and indexation gains, as well as lower tax and minority interest. Earnings improved in Australia and UK, with a turnaround in Elysium, but were offset by ongoing inflationary pressures in the EU. While wage pressures have “stablised”, digital/data investments and higher funding costs remain a drag on full margin recovery, but growing volumes and numerous productivity initiatives portend an improving earnings profile. We adjust FY24-26 earnings modestly, with our price target increasing to A$60.76. Add.

Services drag on an otherwise decent result

ImexHS
3:27pm
February 29, 2024
IME released its FY23 result, which was in-line with our topline expectations, although EBITDA came in lower than expectations with the services division creating a margin drag across the business. FY24 looks to be a more positive year with an enhanced software value proposition expected to accelerate software market traction in LATAM, whilst the services division focuses on generating margin expansion through a review of its customer profile and profitability. Expecting a turnaround here. We have made a number of changes to our forecasts and currently sit at the bottom end of the updated consensus range. Our target prices reduces marginally to A$1.50 p/s (from A$1.80 p/s) and retain a Speculative Buy recommendation.

1H24 result: Building for the long-term

NTAW Holdings
3:27pm
February 29, 2024
We revise our coverage approach for NTD, continuing to monitor and provide updates (we will cease providing a rating, valuation, and forecasts). Our previous forecasts, target price and recommendation should no longer be relied upon for investment decisions. For 1H24, NTD reported: Sales down -10.5% on the pcp (-7.5% hoh); EBITDA up 25.5% (-15% hoh); and NPATA up +64% (-65% hoh). NTD is undertaking a meaningful business transformation (brand rationalisation; business reorganisation; and warehouse consolidation); in order to reposition and refocus the business for the long term. However, given the significant operating leverage in the business, this disruption has created short-term earnings volatility. Despite improving margins through the half, the lower revenue outcome resulted in lower underlying EBITDA of A$19.7m (+25.5% pcp; -15% hoh) and underlying NPATA of A$2.3m (+64% pcp; -65% hoh). NTD closed 1H24 with net debt of A$63.1m and leverage (net debt / annualised 1H24 EBITDA) of 1.6x (excl. leases) and ~3.5x (incl. leases). Operating cash flow A$9.9m (-A$1.4m pcp) and inventory was +2% on Jun-23 (closing at A$132.7m).

Lonsec to the fore

Generation Development Group
3:27pm
February 29, 2024
GDG’s 1H24 Group underlying NPAT (A$4.9m, +67% on the pcp) was +2% above both MorgansE and consensus (A$4.8m).  While the 1H24 Investment Bond business result was a bit below our expectations, this was overshadowed by a stand-out performance from Lonsec. We lift our GDG FY24F/FY25F EPS by ~4%-8% driven mainly by higher Investment Bond sales forecasts and improved Lonsec earnings. Our target price rises to A$2.30 (from A$2.01). We continue to believe GDG is well positioned to execute a compound earnings growth story over time. ADD maintained.

Correction to earnings forecasts

Adrad Holdings
3:27pm
February 29, 2024
We issue this report to correct our earnings forecasts for FY24-26, which previously did not properly adjust for the impact of AASB16 on underlying EBITDA. These adjustments see FY24-26F underlying EBITDA rise by between 28-30% and underlying NPAT increase by 42-50%. Despite these changes, our base assumptions for FY24 remain unchanged. We continue to forecast FY24 revenue growth of 6% and underlying EBITDA to be up 7%. This is compared to management’s guidance for FY24 revenue and pro forma EBITDA growth of between 5-8%. Our equally-blended (SOTP, PE, DCF) target price lifts to $1.45 (from $1.30) and we maintain our Add rating.

Subscribing in for the long term

Mach7 Technologies
3:27pm
February 29, 2024
M7T released its 1H24 results. No surprises here, with a recent trading update providing expectations and updated guidance following a marked shift to recurring revenues in new contracts. It’s clear to us that the company continues to see this trend play out in its contract pipeline, and a trend which we view will result in a more sustainable and investor friendly business model. No changes to our forecasts and we continue to see significant upside potential in the name. M7T remains one of our key picks within the space.

1H24 result: Giddy up

Percheron Therapeutics
3:27pm
February 29, 2024
PER has reported its 1H24 results. No surprises here given quarterly updates. Cash balance remains the major key metric, which is sufficient to fund PER until the Ph2b topline outcome at the end of the year. Focus remains solely on near-term catalysts including recruitment milestones, toxicology study, and Ph2b top-line results due to read out by the end of the year. No changes to our valuation which remains A$0.23 p/s. We view PER as having one of the best risk/return profiles in the space with clear near-term catalysts, strong board and management team, and scientific support for success.

Profitable growth expected for FY24

MedAdvisor
3:27pm
February 29, 2024
MDR reported its 1H24 result which was in line with pre-released update, with revenue up 18% and EBITDA up 21%. Management is guiding to profitability for FY24. The investment into the UK is completed and the transition to a SaaS platform is complete. In addition MDR will invest A$10m to A$15m to build out a shared service structure, looking to optimise a cloud native platform with the aim of reducing operating costs over time.

News & Insights

On 7 July the AFR published a list of 37 Economists who had answered a poll on when the RBA would next cut rates. 32 of them thought that the RBA would cut on 8 July. Only 5 of them did not believe the RBA would cut, Michael Knox being one of them.

On 7 July the AFR published a list of 37 Economists who had answered a poll on when the RBA would next cut rates. 32 of them thought that the RBA would cut on 8 July. Only 5 of them did not believe the RBA would cut on 8 July. I was one of them. The RBA did not cut.

So today I will talk about how I came to that decision. First, lets look at our model of official interest rates. Back in January 2015 I went to a presentation in San Franciso by Stan Fishcer . Stan was a celebrated economist who at that time was Ben Bernanke's deputy at the Federal Reserve. Stan gave a talk about how the Fed thought about interest rates.

Stan presented a model of R*. This is the real short rate of the Fed Funds Rate at which monetary policy is at equilibrium. Unemployment was shown as a most important variable. So was inflationary expectations.

This then logically lead to a model where the nominal level of the Fed funds rate was driven by Inflation, Inflationary expectations and unemployment. Unemployment was important because of its effect on future inflation. The lower the level of unemployment the higher the level of future inflation and the higher the level of the Fed funds rate. I tried the model and it worked. It worked not just for the Fed funds rate. It also worked in Australia for Australian cash rate.

Recently though I have found that while the model has continued to work to work for the Fed funds rate It has been not quite as good in modelling that Australian Cash Rate. I found the answer to this in a model of Australian inflation published by the RBA. The model showed Australian Inflation was not just caused by low unemployment, It was also caused by high import price rises. Import price inflation was more important in Australia because imports were a higher level of Australian GDP than was the case in the US.

This was important in Australia than in the US because Australian import price inflation was close to zero for the 2 years up to the end of 2024. Import prices rose sharply in the first quarter of 2025. What would happen in the second quarter of 2025 and how would it effect inflation I could not tell. The only thing I could do is wait for the Q2 inflation numbers to come out for Australia.

I thought that for this reason and other reasons the RBA would also wait for the Q2 inflation numbers to come out. There were other reasons as well. The Quarterly CPI was a more reliable measure of the CPI and was a better measure of services inflation than the monthly CPI. The result was that RBA did not move and voiced a preference for quarterly measure of inflation over monthly version.

Lets look again at R* or the real level of the Cash rate for Australia .When we look at the average real Cash rate since January 2000 we find an average number of 0.85%. At an inflation target of 2.5 % this suggests this suggest an equilibrium Cash rate of 3.35%

Model of the Australian Cash Rate


What will happen next? We think that the after the RBA meeting of 11 and 12 August the RBA will cut the Cash rate to 3.6%

We think that after the RBA meeting of 8 and 9 December the RBA will cut the Cash rate to 3.35%

Unless Quarterly inflation falls below 2.5% , the Cash rate will remain at 3.35% .

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Investment Watch is a quarterly publication for insights in equity and economic strategy. Recent months have been marked by sharp swings in market sentiment, driven by shifting global trade dynamics, geopolitical tensions, and policy uncertainty.

Investment Watch is a quarterly publication produced by Morgans that delves into key insights for equity and economic strategy.

This publication covers

Economics - 'The challenge of Australian productivity' and 'Iran, from the Suez blockade to the 12 day war'
Asset Allocation
- 'Prioritise portfolio resilience amidst the prevailing uncertainty'
Equity Strategy
- 'Rethinking sector preferences and portfolio balance'
Fixed Interest
- 'Market volatility analysis: Low beta investment opportunities'
Banks
- 'Outperformance driving the broader market index'
Industrials
- 'New opportunities will arise'
Resources and Energy
- 'Getting paid to wait in the majors'
Technology
- 'Buy the dips'
Consumer discretionary
- 'Support remains in place'
Telco
- 'A cautious eye on competitive intensity'
Travel
- 'Demand trends still solid'
Property
- 'An improving Cycle'

Recent months have been marked by sharp swings in market sentiment, driven by shifting global trade dynamics, geopolitical tensions, and policy uncertainty. The rapid pace of US policy announcements, coupled with reversals, has made it difficult for investors to form strong convictions or accurately assess the impact on growth and earnings. While trade tariffs are still a concern, recent progress in US bilateral negotiations and signs of greater policy stability have reduced immediate headline risks.

We expect that more stable policies, potential tax cuts, and continued innovation - particularly in AI - will support a gradual pickup in investment activity. In this environment, we recommend prioritising portfolio resilience. This means maintaining diversification, focusing on quality, and being prepared to adjust exposures as new risks or opportunities emerge. This quarter, we update our outlook for interest rates and also explore the implications of the conflict in the Middle East on portfolios. As usual, we provide an outlook for the key sectors of the Australian market and where we see the best tactical opportunities.


Morgans clients receive exclusive insights such as access to our latest Investment Watch publication. Contact us today to begin your journey with Morgans.

      
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From Houthi attacks on Suez Canal shipping to Trump’s Operation Rough Rider and Iran’s nuclear facility strikes, explore how these events shape oil prices.

At the beginning of the week, I was asked to write something about Iran. When I started looking at what had been happening , I realised that what we were talking about begins with an action by a proxy of Iran back in November 2023. How  that was initially handled with the Biden regime, and how then it was dealt with  deftly by Trump this year,   in turn led to  the need for an attack on Iran's nuclear facility.

Winston Churchill noted in his first volume of his history of the Second World War that it was important to understand that the United States is primarily a naval power. Indeed, the US remains the world dominant naval power. As such, two major strategic concerns remain for the US : the control of the Suez Canal and the Panama Canal .

To the US The idea that another country might block access to either of these must be intolerable. Yet what began happening, beginning on the 19th November 2023, was that , Houthi rebels that controlled a the northern part of a small country in southwestern Arabia, began to act. These Houthi rebels were acting as a proxy for Iran. They were funded by Iran, and armed with Ship-killing rockets, by Iran.

By February 2024, they had attacked 40 ships which had been attempting to sail northwards towards the Suez Canal. By March 2024, 200 ships had been diverted away from the Suez Canal and forced to make the longer and more expensive voyage around the Cape of Good Hope of South Africa. At this point, I think The Economist magazine said that this was the most severe Suez crisis since the 1950s.

The U.S. did respond. On the 18th December 2023, the U.S. had announced an international maritime force to break the Houthi blockade. On the 10th January, the UN National Security Council adopted a resolution demanding a cessation of Houthi attacks on merchant vessels.

As of the 2nd January 2024, the Houthis had already recorded 931 American and British airstrikes against sites in Yemen. Then Trump came to power. To Trump, the idea of the proxy of Iran blockading the Suez Canal could not be tolerated.

From the 15th March 2025, Trump began "Operatation  Rough Rider". This was named for the cavalry commanded by the then-future President Theodore Roosevelt, who charged up San Juan Hill in Cuba during the Spanish-American War of 1898. The U.S. then hit the Houthis with over a thousand airstrikes. So they were bombing at ten times the rate they previously had been. The result of that was that by the 6th March 2025, Trump announced that the Houthis, these proxies of Iran, had capitulated as part of a ceasefire brokered by Oman. This directly led to the main game.

It was obvious that the decision to do the unthinkable, and block the Suez Canal, had come from Iran.
What other unthinkable things was Iran considering?

It is obvious that Trump now believed that the next unthinkable thing that Iran was considering was nuclear weapons. As Iran's other proxies collapsed, Iran's air defence collapsed. In turn, this gave Trump the room to act, and he took it. He launched a bombing raid which severely disabled Iran's nuclear capacity. Some say it completely destroyed it.

Iran retaliated by launching 14 rockets at the American base in Qatar, warning the Americans this was going to happen, and this had no other effect than allowing Iran to announce a glorious victory by themselves over the Americans. Iran had thought the unthinkable and had achieved what was, to them, as a result, an unthinkable reverse.

The ceasefire that has followed has been interpreted by markets as a relief from major risk. Now, the major effect of this on markets has been a dramatic rocketing in the oil price, followed by a fall in the oil price. So I thought I’d look at the fundamentals of the oil price, from running two of my models of the Brent price, using current fundamentals.

Now, the simplest model that I’ve got explains 63% of monthly variation of the Brent oil price. And it’s based on two things. One is the level of stocks in the U.S., which are published every week by the Energy Information Administration .  Those stocks are  down a bit in the most recent months because this is the summer driving season where oil stocks are being drawn down to provide higher demand for gasoline. So that’s a positive thing. And the other thing that I’ve been talking about this year is that I think  we’re going to see a steady fall in the U.S. dollar, and that’s going to generate the beginning of a recovery in commodities prices. So if I also put the U.S. dollar index into this model, it gives me an equilibrium model now of $78.96. And that’s about $US12  higher than the oil price was this morning.

If I strengthen that model by adding the U.S. CPI, because, you know, the cost of production cost of oil raises over time, that increases the power of the model . And that lifts the equilibrium price very considerably to $97 a barrel, which is $30 a barrel higher than it currently is. So I regard that as my medium-term model, and the first one is my short-term model.

What’s really interesting is that the U.S. dollar  has continued to fall.  That puts further upward pressure  on the oil price. So in spite of this crisis having been solved, I think we’re going to see more upward price action on the oil price by the end of the year.

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