Research notes

EBO reported a solid 1H24 result, with underlying NPAT up 7.6% on the pcp. Cost out initiatives, higher margin diversified earnings and M&A will largely bridge the gap in earnings from the loss of Chemist Warehouse contract from FY25. We have adjusted our depreciation and interest expense reflecting higher cap spend and as a result our TP has been revised down to $39.20. Add maintained.

The CY23 dividend fell short of expectations on 2H free cash outflows. CY24 guidance looks supportive (6% higher production, 10% lower mining costs) but we think it is viewed with skepticism. Recent drivers of sales deferrals/losses and lower realisations continue to concern. CRN’s appeal for leverage to upside risks in met coal pricing looks challenged by tepid steel markets and execution under-delivery. CRN looks far too cheap, but we think the market will wait for tangible production/ cost and physical market improvement before narrowing this discount.

AHC has announced a conditional binding term sheet to acquire QLD-based Amentco which is a certified reseller and servicer of AHC products. Amentco's services include the sale and maintenance of nurse call systems, real-time locating systems, security, CCTV, and access control. Proposed deal metrics are in line with another recent acquisition of another Australian based reseller completed in 2023. AHC shares are trading 10% higher following the announcement.

A largely in-line 1H24 result, and strong set of underlying numbers, leaving the market to focus on outlook commentary on BHP’s copper and nickel businesses. Observing inflation of 6.3% during the period, BHP only saw a ~2% increase in its unit costs on average. Strong iron ore earnings remain a key support, we maintain a Hold rating.

MLG’s 1H result strongly beat expectations with rebounding margins the highlight. The near term outlook looks strong on growing volume demand, upward rates momentum, signs of labour relief and further scope for portfolio optimisation. Hence we think MLG’s inferences about temporarily flat revenue and margins in the 2H leaves scope for upside surprise at the FY. We upgrade forecasts materials, lift our blended/SOTP valuation to $1.05ps (from $0.98) and rate MLG a Speculative Buy.

1H results were mixed, as elevated costs impacted margins and the bottom line, while revenue and underlying results were broadly in line. The base business (ex-Covid-19 testing) continues to perform well, with growth across all key geographies, while Radiology also showed strong, but Clinical Services remains soft on lower Covid-19-related services. Uniquely, right-sizing for rapidly declining Covid-19 testing revenues (-90%) has combined with recent acquisition costs, pressuring margins and profitability. However, management remains confident in a turnaround, outlining numerous near/medium term drivers supporting underlying profitability and reflected in guidance, which we view as achievable. FY24-26 estimates move lower, with our target price decreasing to A$34.05. Add.

In line with expectations, the 1H was messy and down on the proforma pcp due to the merger and acquisition accounting. The 1H is northern hemisphere skewed but it had a weak USA result due to a challenged vehicle sales performance. The 2H24 will benefit from a strong ANZ high season (THL’s biggest market) given high rental yields and a larger fleet. Synergies are also more 2H weighted. Due to higher debt and interest, THL’s has revised its FY24 NPAT guidance to ~NZ$75m from >NZ$77.1m previously. It reconfirmed its NZ$100m NPAT target in FY26. We have revised our FY24/25 forecasts and left FY26 unchanged. While THL’s valuation metrics look undemanding (FY25 PE of 8.7x) for a global, market leader, it is lacking share price catalysts in the near term. Add retained.

NWL reported 1H24 underlying EBITDA +27% on pcp (to A$58.8m) and underlying NPAT +28% (A$39.3m). The result was in-line with expectations. NWL expressed confidence in improving net inflows, with the higher gross outflow trend improving and several ‘important’ new licensees transitioning. Ongoing product and revenue stream development continues. We expect in-house international trading capability to deliver incremental revenue growth. NWL’s opportunity and growth runway remains long. However, we see the stock trading at fair value. Hold maintained.

ARB’s strong margin outcome led to a bottom-line beat on 1H24 expectations, delivering $51.3m in NPAT (+8.2% pcp; +25% on 2H23). Sales were flat on 1H23. GM of ~57.5% was ahead of the recent 1Q24 update (~55-56%); well above the pcp (~53%); and was driven by price rises coinciding with normalising input costs. ARB noted it expects to maintain current (elevated) margins through 2H24; are seeing signs of rebounding Export trade (growth in Jan-24); reiterated ongoing order book strength; focusing on network growth (domestic and offshore); and further product development (three new significant products set for CY24). However, despite the otherwise strong result, we view ARB as fully valued at current levels (~28x FY25 PE; ~2.5% FCF yield) and are conscious on the potential operating deleverage impact to earnings given the limited top-line growth and (near) peak GM levels. Hold maintained.

Step One (STP) performed exceptionally well in the first half of FY24, delivering strong growth in all markets and across both men’s and women’s products. In our opinion, the strategy of focusing on profitable growth is paying dividends, allowing investors to once again think about just how big this business could become over time. The launch of new partnerships with SLSA in Australia and John Lewis in the UK offer a glimpse at the potential diversification of routes to market. There is also potential to add more product adjacencies to further expand the TAM. Sales in 1H24 were up 26%, including 44% growth in the sale of women’s products. Gross margins were up 50 bps, which, together with higher sales, increased EBITDA by 36% to a record $10.1m, 84% of the EBITDA from the whole of FY23. We have made no major changes to estimates. We believe STP is capable of delivering further significant growth in earnings in the year ahead. We reiterate our Add rating and increase our target price from $1.20 to $1.65.