Research notes

Adairs reported a softer than expected result, with group EBIT down 10% yoy. This was driven by ongoing weakness in Focus, excessive clearance activity in Adairs in the 1Q, which offset strong performance in Mocka. We forecast significant improvement in 2H gross margins for Adairs, which should drive earnings in 2H and into FY27 if sales can be sustained at current levels. We have lowered our EBIT by 8% respectively in FY26/27 driven by Focus and Adairs, offsetting higher earnings in Mocka. Our valuation lowers to $2.40 (from $2.60). BUY maintained.

The SYL share price fell 24% following the release of their 1H26 results, a reflection of margin decline across the P&L, as lower EBITDA margins were compounded by higher D&A and interest expenses. The share price response largely runs counter to management’s narrative, whereby FY26 has seen the business investing for growth (expanding into QLD and SA), as SYL doubles down on the target EBITDA range of 10-12%. We fully acknowledge the slightly lower margins and higher D&A/interest, but believe the share price response is excessive. Given this we have lowered our assumed EBITDA to 10% through FY26/27, increasing to 11% in FY28, while factoring in higher D&A/ interest charges. Despite this conservatism, we continue to see ample valuation support, and potential to outperform as earnings (and margin) benefit from the FY26 investment. On this basis, we reiterate our Buy recommendation, with a $3.35/sh price target.

REH’s 1H26 result was better than expected. The outperformance was driven by the ANZ division, while the US was softer than anticipated. Management noted early signs of a gradual recovery in ANZ, albeit uneven. Importantly, competitive pressures in the US waterworks segment have eased, with operations now stabilising. We increase FY26/27/28F group EBIT by 5%/6%/7%. Our target price rises to $17.70 (from $11.25), reflecting changes to earnings forecasts and a roll-forward of our valuation to FY27 estimates. We are also increasingly confident that the housing cycle in ANZ and the US is at or near its trough, with REH well-placed to benefit when conditions improve. We therefore upgrade our rating to ACCUMULATE (from HOLD). The on-market buyback should also provide share price support in the near-term.

IMD delivered a strong result. 2Q revenue, which would typically reflect seasonal softness, was in line with 1Q and increased +23% YoY despite a challenging fluids comparison, with comps set to ease from 2H. More importantly, the result reinforces our confidence in the base business’s ability to deliver meaningful operating leverage. EBITDA margins expanded to 31.6% (+142bps YoY). While margins are likely to moderate as broadly earnings-neutral acquisitions are consolidated, we are now comfortable that core margins will continue to expand alongside volume growth. We lift our EBITDA forecasts by +7-8% across our forecast period and NPATA by +10-12% in each year. Our target price rises to $4.70 (from $3.70), and we upgrade to Buy (from Accumulate).

1H26 EBITDA and underlying NPAT beat consensus with Onslow, Mining Services and lithium delivering a clear step change in profitability. MIN is firmly on track to achieve <2x ND/EBITDA within 6 months supported by strong earnings and POSCO proceeds. Move to a BUY recommendation (previously HOLD) with embedded growth from Onslow moving to 38Mtpa and additional lithium capacity underpinning medium-term upside.

AQZ closed 1H26 with ~$433m in net debt, materially above the previously guided FY26 year end level of $392m. With debt facilities now fully drawn, 2H26 cash generation becomes critical. Liquidity has tightened, with available cash falling to ~$58m from ~$96m at FY25 year end. AQZ delivered a weak result, following $164.8m impairment charge, that delivered a statutory loss of $105.8m for 1H26. Underlying Revenue (~$369m) up ~8% on pcp, however operating cost inflation running ahead of CPI is having a detrimental impact on AQZ's earnings outlook. We maintain our HOLD rating and lower our target price to A$0.75 (previously A$1.50). We have made material changes to our earnings estimates.

DGT continues to trade at a c.50% discount to NAV of A$4.62/security, yet that NAV does not yet reflect the full value of the 88MW SYD1 expansion, which management estimates will deliver a further c.A$1.50/security of NAV uplift at a targeted 15% yield on cost. The core thesis rests on three pillars. First, SYD1 is a genuinely scarce asset, a Tier 1 CBD carrier hotel with secured power and full planning approval operating in a structurally undersupplied market with a 200MW+ qualified demand pipeline. Second, the business has demonstrated operating momentum, yet cash earnings are yet to materialise. Third, Australian capital partnering at or above book value would be a significant valuation catalyst. Acknowledging the share price weakness, we continue to see the opportunity in DGT, retaining our Buy rating with a $4.15/sh price target.

1H26 result was solid with no material surprises, FY26 continues to focus on the integration of Dalgaranga (acquired via ASX SPR) into the RMS asset portfolio. Key positive: Introduction of new capital management framework and the spartan deal; A$84.9m (net) tax losses remain. Key negative: Operating cash flow (-3% pcp), free cash flow (-15% pcp) and cash/bullion on hand (-14% pcp) reflect the anticipated grade decline across the RMS Magnet Hub assets. This was well flagged and should begin to reverse as Dalgaranga ore is introduced into the Magnet operations and ramps through the system, marking the transition to the next phase of higher-grade feed – we forecast Dalgaranga alone to contribute +A$700m per annum from FY28 onwards. We maintain our BUY rating, price target A$5.75ps (previously A$5.76).

1H26 underlying PBT of A$12.5m (+A$5.4m vs 1H25; and +A$0.8m vs MorgansF). The result comprised minor revenue growth (+3.2%), with broadly stable gross margins (+10bps) and solid underlying overhead control (opex/sales -10bps). Industry margins appear to have passed the trough, however, the outlook for expansion across new/used remains relatively limited in the near-term as supply/demand environment appears to be operating at a more normalised level. In light of a subdued margin outlook, we expect PWR to continue to closely manage its cost base and execute on its M&A strategy (A$500m pa acquired turnover to settle in 2H FY26). While the stock remains cheap with strong asset backing, (NTA of ~A$1.44ps), we view the stock as more cyclically exposed than peers and see limited structural earnings drivers to bring margins ahead of industry levels. HOLD.

MME’s 1H26 was broadly per expectations, achieving gross revenue of ~A$117m, on a gross loan book of ~A$1.75bn. Momentum seen in originations growth (+18% to A$536m) continues to augur well for 2H26, and we expect MME to maintain a balance between profitability and growth as it seeks to benefit from scale. Our price target remains unchanged at A$0.21 and we maintain our Speculative Buy recommendation.