Research notes

1H24 was broadly in line with our forecast but was below consensus estimates. Due to 2Q macro issues and the UK Bridging contract materially underperforming expectations, CTD has revised its FY24 EBITDA guidance by 15.4% at the mid-point. Off this new base, CTD has a five-year strategy to double profits by FY29. The quantum of the earnings downgrade is clearly disappointing. Given the aggressive pivot in earnings guidance from the AGM last year, the market may take time to rebuild its confidence in the outlook. However, if CTD delivers even close to its five-year strategy, the share price will be materially higher in time. We maintain an Add rating with a new price target of A$20.65.

ACF’s 1H24 result was comfortably above our expectations. Key positives: EBITDA margin increased 570bp to 34.8%; Annualised return on investment (ROI) on growth capex of 58% was well above management’s target of >40%; Bad debt expense fell to 1% of sales vs 1.8% of sales in FY23. Key negative: ND/EBITDA increased slightly to 1.2x (vs 1.0x at FY23), although this was largely due to the MI Scaffold acquisition with the business only contributing two-months to earnings in the half. Management has maintained guidance for FY24 EBITDA of between $72-75m. As a result, we make minimal changes to FY24-26 earnings forecasts. Our target price rises to $1.40 (from $1.22) largely due to a roll-forward of our model to FY25 forecasts and we maintain our Add rating. Trading on 8.6x FY25F PE and 5% yield with strong business momentum and leverage to growing civil infrastructure activity over the long term, ACF remains one of our key picks in the small caps space.

SIQ reported FY23 NPATA +3% to A$63.2m, in-line with expectations. 2H23 reflects the commencement of EV-policy led demand flowing through – revenue +15.7% and NPATA +14.7% hoh. Lease demand accelerated hoh and SIQ is scaling up operating capacity to execute (~17% hoh cost growth; margins down 80bps hoh). Near-term earnings growth is highly visible, with a material contract to also contribute from FY25. There remains a material opportunity to drive lease uptake and earnings under the current EV policy (expected review date of 2027). However, we view SIQ’s valuation currently captures the near-term (FY24) expectations and we retain a Hold. The main risk is any unplanned early removal of the current EV policy (election risk), post a period of operational expansion.

While WOW’s 1H24 result was in line with expectations following the company’s trading update in January, commentary on sales for the first seven weeks and divisional guidance for 2H24 was softer-than-anticipated. Key positives: WooliesX earnings jumped 132% reflecting increased demand for convenience and productivity improvements; Operating cash flow increased 20% with ND/EBITDA improving to 2.5x (FY23: 2.6x). Key negatives: Inflation continued to moderate and consumers are becoming more cautious; Customers continued to reduce discretionary spending and Woolworths Supermarkets was losing market share in discretionary everyday needs categories such as pets, baby care and home essentials. CEO Brad Banducci has announced his retirement with Amanda Bardwell (current Managing Director of WooliesX) to take over in September. We adjust FY24/25/26F group underlying EBIT by -2%/-3%/-3%. Our target price decreases to $34.70 (from $39.45) and we downgrade our rating to Hold (from Add). With NZ Food and BIG W already facing tough operating conditions, the soft start to 2H24 for Australian Food and loss of market share in non-food is a concern. WOW is now trading on 22.2x FY25F PE and 3.3% yield. With an increasingly uncertain outlook, we have become more cautious on the stock with downside risk if the trading environment continues to deteriorate.

STO posted a CY23 earnings result that on balance was on the softer side, although materially beat on its dividend. CY23 cash dividend will total US26.2ps, well above our estimate of US20cps. All growth projects remain on track, with Barossa first gas in 2025, Pikka Phase 1 first oil in 2026, and Moomba CCS first injection in mid-CY24. No changes to CY24 production or cost guidance. Strategic review process is ongoing, with no updates ready to include with the CY23 result. Further volatility could yield a better entry opportunity, maintain Hold rating.

HLO reported a strong 1H24 result which beat our forecast. The strength of its EBITDA margin and strong cashflow were the highlights. HLO reiterated its FY24 EBITDA guidance. We think its 1H24 result implies it is at least tracking towards the top end and also highlight management’s track record of providing conservative guidance. We wouldn’t be surprised if HLO upgrades guidance at its 3Q trading update in April. Assuming a full recovery from COVID and reflecting recent acquisitions, we value HLO at A$4.26 per share (50% upside from here). ADD maintained.

NAB reported Q1 cash earnings (-3% on 2H23 quarterly avg.) would have been broadly flat except for a higher effective tax rate, stable asset quality, and a strong regulatory capital position. Forecast pre-tax earnings upgraded but offset by the higher tax rate. 12 month target price lifted to $30.91. HOLD retained at current prices.

The bad news about Domino’s Pizza Enterprises’ (DMP) 1H24 performance was disclosed last month when the company warns that a decline in sales in Asia had driven materially lower profits. The result today saw PBT come in within the January guidance range. As expected, it was Asia that weighed most heavily on group EBIT. Europe increased its contribution, though much of this related to the elimination of losses from Denmark. France remains a problem. ANZ outperformed at the top line but margins unexpectedly reduced. DMP has a strategy to rebuild positive volume trends based on getting the value equation right – good product at an attractive price. There’s a lot to do and it will take time, but we believe it’s on the right road. For now, we retain a Hold rating with a reduced target price of $45.00 (was $50.00).

1H result sees metrics relatively stable with the focus on new acquisitions and developments. Portfolio valued at $4.6bn with the weighted average cap rate stable at 5.90%. Occupancy was slightly lower (-0.7%) however rate/sqm was +1.3% vs Jun-23. Newer centres saw good occupancy growth of +6% to 55.4% which is positive. FY24 guidance reiterated. Underlying EPS to be a minimum of 11.3c (vs 11.5c in the pcp). Underlying profit >$154m. Distribution payout ratio will be 90-100%. We retain a Hold rating with a revised price target of $2.31.

VNT incrementally beat both guidance and consensus expectations for CY23, seeing NPATA grow 12.5% (yoy). Combined with forward guidance for another 7-10% NPATA growth in CY24, along with cash conversion of 80-95% and conservative gearing (ND/EBITDA) of 1.2x, VNT continues to see its PE multiple (CY24 PER 14.2x) converge toward that of the wider market (ASX 300 c.16.7x). We believe VNT can continue to grow earnings across its active sectors, building on its $18bn of work in hand across a suite of predominately Government contracts (75% of CY23 revenue from Government). It is on this basis that we reiterate our Add rating and increase our target price from $3.35/sh to $4.05/sh, a function increased earnings expectations and updated peer/index multiples.