Research Notes

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Research Notes

Commodity Outlook Boosted by SPUT

Deep Yellow
3:27pm
June 17, 2025
Following a US$200 million raise by the Sprott Physical Uranium Trust (SPUT) we are increasingly optimistic regarding the growing institutional confidence in the uranium investment case and confirms SPUT now has ample funding to purchase material volumes from the spot U3O8 market. The physical uranium spot market remains shallow and thinly traded. Inflows into SPUT typically translate into immediate buying pressure, reinforcing upward momentum in spot prices with relatively small capital movements. We note the spot price is highly correlated to Uranium equity performance despite being a small portion of the traded market. In response to rising spot prices, increased buying activity, and improved macro sentiment, we have reassessed our uranium sector valuations to reflect stronger fundamentals and more durable price support, we maintain our SPECULATIVE BUY recommendation, price target A$1.92ps (previously A$1.56ps).

FY25 downgrade; new product release may have risk

Cochlear
3:27pm
June 17, 2025
FY25 guidance has been downgraded by 2-5% on slower growth in both Services and Cochlear Implant (CI) uptake in developed markets. Services revenue is expected to decline by “low double-digits”, from “single-digit” previously but is forecast to grow from FY26 off the back of the new off-the-ear (OTE) Kanso 3 Sound Processor. While FY25 CI unit growth is still expected to be c10%, growth is disparate between geographies, with lower-priced, emerging markets (EM) to exceed developed markets (DM), and with modest share loss in a few countries. Concurrently, COH flagged the imminent EU and APAC launch of the next generation Cochlear Nucleus Nexa System, followed by additional geographies pending regulatory approvals. While new CI systems tend to precede re-rates, we remain cautious, as the new OTE sound processor is being launched out-of-cycle and the Nexa system appears more about refining the user experience as opposed to offering technological advancements as seen with prior CI iterations, increasing reimbursement risk. FY25-27 net profit falls up to 3.9%, with our target price falling to A$281.36. HOLD.

ADNOC bid caps STO upside, elevates completion risk

Santos
3:27pm
June 16, 2025
Santos’ share price surged 11% on a non-binding offer from ADNOC, wiping out its recent underperformance versus Woodside (WDS). Santos is trading at a significant discount to the offer on material completion risks. Surprising early endorsement from board, a few short months in and an offer at an apparent discount to peer LNG M&A. The risk of capped upside at A$8.89 (~15%) lowers our conviction, particularly given the current upward support on oil & gas. TRIM rating (was HOLD).

Dundee to snap up Adriatic

Adriatic Metals
3:27pm
June 16, 2025
Following recent takeover speculation involving Dundee Precious Metals (DPM), Adriatic Metals (ADT) has now received a formal offer valuing the company at A$5.56 per CDI (A$1.9bn). The proposed acquisition will proceed via scheme of arrangement, under which ADT shareholders will receive 0.1590 new DPM shares and 93 pence in cash per share. The offer represents a 48% premium to ADT’s closing price prior to press speculation and an 11% premium to the last traded price. With a formal bid now in place, we have removed risk-weighting assumptions related to project extensions, jurisdiction, and ramp-up, as we believe these risks are largely reflected in the offer. However, we retain our risk weighting on the expansion case due to historical operating performance. While the most capital-intensive phase has passed, residual and key operational risk remains and will be inherited by the acquirer.

International Spotlight

Inditex
3:27pm
June 16, 2025
Founded in Spain, Inditex (ITX.MAD) began in 1963 when AmancioOrtega opened a small dressmaking workshop. Twelve years later, the first Zara store was opened in Spain, signalling Ortega’s transition from maker to retailer. In 1985, Inditex brought all its companies together under the one banner, making it an official retail conglomerate. The brand continued to grow by expanding worldwide, adding new brands to the group and going public on the Madrid Stock Exchange. Now, the group features seven brands, operating over 5,800 stores in 213 markets worldwide.

Non-dilutive funding progresses First Responder

EMvision Medical Devices
3:27pm
June 16, 2025
EMV has been awarded a A$5m grant to help fund the First Responder portable brain scanner (EMV’s second product). The device is undertaking initial feasibility and equivalence testing and is expected to be approved in the US in FY27. This funding boosts its existing cash position of A$12.6m (as at 31 March). EMV has activated five of the six sites which will undertake the pivotal (validation) trial for the emuTM bedside brain scanner. Recruitment of 300 patients should take 6 to 12 months with approval expected in 2HCY26. EMV continues its broad refresh process with the recent appointment of highly regarded Ramsay Healthcare executive Carmel Monaghan.

International Spotlight

Adobe Inc.
3:27pm
June 16, 2025
Incorporated in 1983, Adobe operates as a globally diversified software company. It operates through the following business segments: 1) Digital Media, which offers creative cloud services (including software such as Photoshop, Adobe Illustrator, Adobe Premiere Pro and Acrobat); 2) Digital Experience, which provides solutions including analytics, social marketing, media optimisation etc, and 3) Publishing and Advertising, which includes legacy products for eLearning and technical document publishing, web application development.

Strong momentum

Ventia Services Group
3:27pm
June 13, 2025
VNT has won $3.4bn of contracts since the result, meaning the record order book (FY24 $19.4bn and +6.7% YoY) will continue to rise, which is a strong indication for future growth. We had previously assumed that half of the $460mpa EMOS Defence contracts would be lost in June but the 7-month extension means we push this potential lost revenue into FY26. We are now forecasting NPATA growth of +9.4% in FY25. In FY26, we are forecasting +3.7% NPATA growth, though, if the entirety of the EMOS work is renewed, growth rises to +7.0%. Contract award momentum indicates there has been limited reputational damage for Ventia from the ACCC proceedings, at least from customers’ perspective. We therefore remove the 15% valuation discount that we had ascribed for reputational risk. This, coupled with our earnings revisions, sees our price target move to $4.90 (from $4.05). Upgrade to Hold (from Trim).

Needs time to heel

Accent Group
3:27pm
June 13, 2025
AX1 provided a softer than expected trading update, citing ongoing weakness in trading conditions in the lifestyle footwear segment, and ongoing promotional activity that continues to weigh on margins. EBIT is expected to be in the range of $108-111m, which at the midpoint implies flat growth yoy and is ~18% lower than previous consensus expectations. We have lowered our earnings estimates in line with guidance, which has resulted in a ~16% downgrade to our FY25 forecasts. We have lowered our target price to $1.85 and have a HOLD recommendation.

Investor Day wrap

Aust Securities Exchange
3:27pm
June 12, 2025
ASX has held its annual investor day. Management outlined the progress of its 5 year strategy and provided expense guidance for FY26. Key takeaways are below. Our FY26/27 EPS estimates are lowered by ~1.5% factoring in provided guidance, with the key driver being the higher D&A. Our DCF/PE blended price target increases however to A$72, with these changes offset by a valuation roll-forward and improved medium term margin assumptions given ASX commentary. We upgrade to a HOLD recommendation.

News & Insights

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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The US economy is growing strongly at 2.34% in Q2 2025 but is expected to slow to 1.4% in 2025, with falling interest rates and a weaker US dollar likely to boost commodity prices, benefiting Australian markets. Michael Knox discusses.

We think the US economy is currently experiencing solid growth, with data from the Chicago Fed  National Activity Index indicating an annual growth rate of just above  2%. This aligns with projections from other parts of the Federal Reserve System, such as the New York Fed. The New York Fed’s weekly Nowcast, updated every Friday, estimates that for the second quarter of 2025, the US economy is growing at an annualised rate of 2.34%, surpassing the 2% mark. This robust growth is consistent with our model’s view that the US economy is now performing strongly. However, we anticipate a slowdown in the second half of 2025.

On 18 June the Fed released its Summary of Economic Projections  with the Federal Reserve’s  forecasting US GDP growth to drop to 1.4% in 2025, down from their March estimate of 1.7%. Looking further ahead, growth is expected to pick up slightly to 1.6% in 2026 and 1.8% in 2027, aligning with the long-term trend growth rate of around 1.8%. We believe this recovery trend could be even  higher,  driven by reduced regulation under the second Trump administration and aggressive tax write-offs for companies building factories in the US, allowing 100% write-offs for equipment and buildings in the first year. This policy should foster stronger systemic growth.

Economic Projections of the Federal Reserve

The Fed expects that as the economy slows,  unemployment is projected to rise to 4.5% from the current level of 4.2%. Inflation, measured by the Consumer Price Index (CPI), is running at 3.5% this year, approximately 50 basis points higher than the Personal Consumption Expenditures (PCE) index of 3.0%, with 1.6% of this  inflation  attributed to tariffs. The Fed expects PCE Inflation  to ease to 2.4% in 2026 and 2.1% in 2027. The Federal Reserve anticipates cutting the effective  federal funds rate, currently at 433 basis points (according to the New York Fed), by 50 basis points by the end of 2025, followed by an additional 25 basis points in each of the next two years. This aligns with our own Fed Funds rate  model’s current equilibrium federal funds rate of  3.85% . The Fed Outlook  supports our scenario of a slowing US economy and rate cuts in the second half of 2025 and beyond. A falling US dollar is then expected to exert upward pressure on commodity prices, benefiting Australian Equity markets.

Taking questions during the Press Conference after releasing the Fed statement  ,Federal Reserve Chair Jay Powell,   addressed the certainty and uncertainty surrounding the inflationary effects of tariffs. Initially, at the start of 2025, the inflationary impact of tariff policies was unclear, but three months of favourable inflation data have provided this clarity, indicating that the inflationary effects are less severe than anticipated. Powell noted that the Feds own uncertainty on the inflationary effects of  tariffs  peaked in April 2025, and the Federal Reserve now has a clearer understanding that  the inflation effects, are lower than initially expected.

The Fed view  supports our own scenario of a slowing US economy in the second half of 2025, allowing for Fed rate cuts  . This in turn should then lead to  a falling US dollar, which we in turn  expect to drive rising commodity prices.

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The Your Wealth publication is our half yearly scrutiny into current affairs for wealth management. Our latest Issue 29 is out now.

The second half of 2025 will be an interesting time for everyone. Geopolitical uncertainty prevails. How will all of this impact the Australian investor and in particular, their wealth and retirement savings? Whether you are an accumulator, saving for short- and long-term goals, or a retiree, hoping for a comfortable retirement, the ability to manage this uncertainty will be key.

When we published the previous Your Wealth – First Half 2025, the Division 296 Bill (Div296) was also facing uncertainty. The Bill was eventually blocked in the Senate prior to the Federal Election. The Labor Party succeeded in winning so it’s Ground Hog Day for Div296. The Government doesn’t have the numbers in the Senate to pass the Bill without support from other parties. The Greens are the likely negotiating party but will undoubtably have their own agenda. Regardless, there is a high probability this legislation will be passed once Parliament resumes.

Our message to our clients is to wait until we know more details and to not act in haste.

In addition to our Feature Article which provides further insights on Div296, this edition also Spotlights the Aged Care changes due this year, with the start date pushed back to 1 November.

We hope readers enjoy this edition of Your Wealth.


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

      
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