Research notes

The 1H24 result was mixed, with EBITDA growth broadly as expected and cashflow growth messy and arguably below expectations. FY24 DPS guidance unchanged. We make c.3-4% forecast downgrades (traffic, costs), which result in a c.3% decline to our price target to $12.32/share. HOLD retained. At current prices, we estimate a 12 month TSR of c.-2% (incl. 4.8% cash yield) and a five year investment period IRR of 5.7% pa.

REA’s 1H24 result was a small beat versus Visible Alpha (VA) consensus, and in our view, a broadly solid performance overall. Key takeaways being: 1) the robust Australia Residential growth (+19% on pcp), driven both by yield and volume; 2) REA India revenue growing 21% on pcp and; 3) Group operating cost growth now expected to be in the mid-to-high teens, including some investment spend phasing. We raise our FY24F-FY26F EPS by ~2-2.5% (details below). Our DCF-derived valuation and price target is increased to A$165 (from A$155). Hold maintained.

AQZ reported a strong 1H24 result which slightly beat consensus estimates. Its guidance for a stronger 2H remains on track and it is comfortable with FY24 consensus. The result was overshadowed by vague outlook commentary in the release and uncertainty around its future capital requirements. We remain confident in management’s ability to execute from here. ADD maintained.

FY24 guidance has been reiterated and portfolio metrics resilient with occupancy slightly higher vs Jun-23. Asset sales during 1H24 resulted in lower debt levels which offset impacts from higher finance costs. The balance sheet remains solid with pro-forma look-through gearing 26.2% ensuring there is capacity to complete the $42m committed development pipeline (returns +6%). DXI also recently confirmed the appointment of Gordon Korkie as new Fund Manager effective 1 February. We retain an Add rating with a $3.18 price target.

Following approval of the scheme of arrangement for Paine Schwartz Partners to purchase all ordinary shares in Costa Group Holdings (CGC), we cease coverage of CGC. We expect trading in CGC shares will be suspended from close of trading today, Thursday 8 February 2024. Our forecasts, target price and recommendation should no longer be relied upon for investment decisions.

We place our recommendation, target price and forecasts for STA under review pending the outcome of the operations and funding review. We await increased clarity on the revised production/earnings outlook and possible capital re-structure. At present there is no guarantee of any particular outcome.

AMC’s 1H24 result was below expectations at the underlying EBIT line but broadly in line at the underlying EPS line. Key positives: Cost out performance was strong with underlying EBIT margin falling only 20bp to 10.6% despite volumes declining 9%; 2Q24 should be the low point in earnings with an improvement expected from 3Q24 onwards. Key negatives: 2Q24 volumes (-10%) were weaker than management’s expectations for a decline of ~8% at the beginning of the quarter; AMC expects customer destocking in global healthcare and North America beverages to continue in 3Q24 and possibly into 4Q24. While 2H24 underlying EPS guidance was slightly softer than prior guidance, management has reaffirmed FY24 expectations for underlying EPS of between US67-71cps and underlying free cash flow of between US$850-950m. Our FY24-26F underlying EPS falls by 2%, although our target price rises to $15.65 (from $15.20) largely due a model roll-forward to FY25 forecasts. Add retained.

Whilst the announced settlement timetable for Stage 3 at Horsley Park (industrial estate) has little impact on our valuation, given our Property division is valued on an NPV of future cashflows, it does suggest the business could be delivering c.60% EBIT margins at West Schofields and Badgerys Creek as they are developed in coming years. The recent announcement does however give cause to reassess our valuation, given the stock is up 18% since Nov-23. To that end CSR is now trading at a PE ratio of c.16x, one standard deviation above its long run average and with the business unlikely to grow earnings over the next two years, we see the stock as fully priced, hence our decision to downgrade to a Hold rating, despite incrementally increasing our target price to $6.90/sh.

Following a successful A$2.7m rights issue, CBL is now funded into 2024 with new products (DROVE and NeuroStrip) adding to the improving sales position. Australia delivered solid revenue growth in 1H24 (despite NDIS delays) and momentum is expected to continue in 2H. However, sales in North America in 1H24 were flat although management expects an improvement in 2H. We are moving a number of our early stage development companies to the new ‘Keeping Stock’ format which enables us to continue to provide regular and timely updates. We will cease providing a rating, valuation and forecasts. Therefore, our previous forecasts, target price and recommendation should no longer be relied upon for investment decisions.

DXC’s 1H24 result delivered stable portfolio metrics with the focus during the half on maintaining balance sheet resilience. Gearing at c32%. Dec-23 revaluations saw cap rates expand 20bps (-1.7% portfolio impact). NTA stands at $3.63 vs $3.75 at Jun-23. FY24 guidance has been tightened slightly and now comprises FFO and DPS of 20.8-21.1c (was 20.7-21.1c). This equates to a distribution yield of approx. 8%. DXC remains an Add with a revised price target of $3.23.