Research notes

Sonic Healthcare (SHL) is acquiring Switzerland-based Dr Risch laboratory group (Dr Risch) for CHF117m (A$202m), including CHF30m (A$52m) in scrip, with the balance funded via existing CHF cash and debt. Dr Risch employs c650 staff across 13 laboratories and has a lab in Liechtenstein, with a full-range offering of routine and specialty laboratory testing and combined annual turnover of cCHF102m (cA$176m). The deal is expected to close by 31 Mar-24, with the transaction EPS accretive from CY25 and ROIC positive once synergies from multiple areas of infrastructure and operations are achieved. We have adjusted FY24-26 estimates, with our target price increasing to A$34.94 (from A$34.05). Add rating maintained.

Another typically solid 1H result from NHC with few surprises outside of the dividend which beat our cautious estimate. All guidance was re-affirmed, with higher volumes to support 2H cost reduction. NHC’s defensive attributes – cash margins, balance sheet, steady dividends – appear to support lower volatility relative to more leveraged peers. Maintain Hold as NHC trades within 10% of fair value. A forecast 7-8% yield offers solid compensation as investors await the next upswing.

Myer Holdings (ASX: MYR) operates the largest chain of premium and mid-range department stores in Australia. The business was founded 124 years ago, but even after the emergence of the suburban shopping centre and the rise of multicategory ecommerce sites, Myer has managed not just to remain relevant but is performing strongly on an active program of reinvention. Sales last year were the highest since 2005, underpinned by over 20% online penetration and more than 4m active members in its loyalty program. The balance sheet is in good shape with over $200m in net cash (excluding leases) and Myer is back to paying dividends. A new CEO, Olivia Wirth, takes the reins in June, looking to replicate with MYER one her success with the Qantas Frequent Flyer loyalty program.

The CCP mining study details a value accretive project offering material positive cash flows from late 2024. The mining re-start will now mobilise. Execution of the CCP re-start to plan is company-defining in 2024 as TNC has an opportunity to achieve self-funding status and allay market fear of liquidity risk. We think the current share price ascribes no value to the CCP’s 4.6 year reserves, projected cash flows or mine life upside. Upside leverage to execution success is significant. Mt Oxide’s true blue-sky potential also appears overlooked. Potential returns from 8cps are substantial although we think investors do require greater risk tolerance. Demonstrating commerciality late 2024 is key.

We update our modelling for Q1 performance, inclusion of Suncorp Bank acquisition (given completion looks increasingly likely), and sale of 16.5% AmBank. Meaningful forecast upgrades because of incremental earnings from the SB acquisition now included in our modelling. We forecast earnings decline in FY24F while assumed full year inclusion of SB helps alleviate further declines in FY25F. 12 month target price lifts 9% to $26.83/sh. HOLD retained at current prices.

CUV have announced an on-market buy back of approximately 3% of the shares on issue. We had been calling out for capital management and viewed this was necessary given the significant cash stockpile whilst sitting on multi-year lows. While several issues continue to present an overhang for the stock in our view, we view this as a step in the right direction. We make no changes to our valuation at this stage however given the weakness following our last note, we move back to an Add recommendation.

AVG saw a material improvement in profitability during the 1H24 with underlying EBITS up 59.9% on the pcp and 41% ahead of our forecast. FY24 guidance was reiterated with AVG expecting underlying EBITDAS to be directionally aligned with FY22 reflecting easing inflation and its cost out program. We recently upgraded our recommendation for AVG to an ADD on the view that it would deliver a material earnings recovery through FY24/25. Pleasingly, AVG’s 1H24 performance demonstrates that our investment thesis remains intact and if management continues to execute there is material upside potential on offer. A decision on the China wine tariffs and any corporate activity (e.g. recently confirmed in early talks with Accolade to merge), are key near-term share price catalysts.

Following a strong run over the last month, our target price range has now been reached. At the risk of going against clear share price momentum, we continue to wait for further detail on initial launch of the PromarkerD but also note our valuation only assumes commercial success in the US. Significant upside potential remains as the rollout progresses in the US and other jurisdictions, but also view the endometriosis and oesophageal cancer diagnostics will remain key and likely hold significant value with licensing opportunities. We maintain our target price of A$1.38, but our recommendation reduces to a Hold recommendation (from Speculative Buy).

Given the heavy cost-out initiatives implemented in recent periods (operating costs -28% on pcp), LVH’s 1H24 result showed an improved NPAT loss vs the pcp (-A$4.6m vs -A$7.2m) despite a lower overall revenue performance (1H24 operating revenue of A$3.5m, -11% on pcp). We make several changes to our assumptions over the forecast period (details below). Our price target is reduced to A$0.11 (from A$0.15).

CBL posted its 1H24 result which was an improvement on pcp. Management believe there are sufficient funds to drive the existing business in the core regions of US and Australia as well as move forward some new product development.