Research notes

1H results were pre-released so in line, with underlying Op income falling by double-digits and margins compressing. Pathology was the main drag, negatively impacted by cycling out of covid-19 testing, combined with low volumes and cost inflation, while Lumus Imaging was “ahead of target” on strength in the hospital and community segments, and Agilex showed “positive signs” on increasing new contracts. While management is accelerating Pathology restructuring to better match volumes with costs, aiming for a “step-change” by FY26/27, uncertainty around the impact of numerous initiatives make forecasting challenging and unreliable. We lower our FY24-26 estimates, with our target price decreasing to A$1.32. Hold

1H24 underlying EBITDA/NPAT was below MorgansF and consensus. Subscribers, revenue, and cashflow were pre-released at SDR’s 2Q24 update. The highlight for us was SDR continuing to demonstrate ongoing improvement in its profitability and unit economics whilst maintaining solid growth momentum. Management said the 2H24 has started well and reiterated FY24 guidance for positive underlying EBITDA and FCF in 2H24. SDR continues to target medium-term organic revenue growth of 30%. We continue to think SDR offers an attractive long-term growth opportunity underpinned by its global underpenetrated TAM and opportunity to better monetise its A$70bn of Gross Booking Value (currently captures ~0.2%). ADD maintained.

PNV posted its 1H24 results which was in line with our forecasts. Sales momentum across all regions is continuing and we have upgraded our sales forecasts which sees average growth of 32% pa over the next three years. As a result of upgrades to forecasts our TP has increased to A$2.22, and with >10% upside to the target we upgrade our recommendation to Add (from Hold).

TYR’s 1H24 normalised gross profit (A$105m) was +~11% on the pcp and in-line with consensus (A$105m), whilst the 1H24 normalised EBITDA (A$27m, +41% on the pcp) was slightly below consensus (-3%).  While 1H24 showed good overall profitability trends, in our view, some issues with the Bendigo Alliance and a tougher core business transaction environment point to a softer top-line outlook in 2H24. We reduce our TYR FY24F/FY25F EBITDA figures by -6%-12% mainly on lower transaction value forecasts. While our EPS estimates in FY24F rise on lower share-based payments, FY25F EPS declines by -13%. Our PT is set at A$1.47 (previously A$1.61). We see recent improvements in TYR’s underlying operating performance as encouraging, and think there remains long-term value in the name. ADD.

AMX has released its 1H report in-line with our expectations. Key focus remains on Annual Recurring Revenue (ARR) growth and cost controls, both improving over the last 12 months. LiDAR growth continues to grab the headlines, but we’re getting the sense MetroMap is back on track with the worst now behind it following a number of years contending with competitive pressures and aviation constraints. We retain an Add recommendation on AMX and continue to see an attractive risk/reward profile with clearer skies ahead. Our valuation and target price increases marginally to A$0.50 p/s (from A$0.45 p/s).

IPD released its 1H24 results which were in line with expectations. The new CEO and CFO have set out a clear plan to focus on high volume US states (targeting 11 states by April) and cost control (reduction 10% to 15%). The market will appreciate this clarity. We have made no changes to forecasts, target price or recommendation.

A challenging economic environment saw PPE’s margins continue to deteriorate both qoq, hoh and yoy, resulting in EBITDA declining 38% yoy. Management called out a decline in contract rates, permanent recruitment fees and government subsidies as the primary drivers. However, not much of this is new, with management having previously flagged the challenging environment at the FY23 result (Aug-23) and at the AGM (Nov-23). What did surprise was the level of margin degradation qoq, as the business was impacted by a declining contract rate - customers filling more lower skilled, lower margin roles. To this end, management are expecting higher margin demand to start improving in FY25. Given that operating conditions are likely to remain challenging for the next twelve months and terminal margins are likely lower than first anticipated, we downgrade to a hold rating, reducing our valuation to $1.05/sh.

EDV’s 1H24 result was slightly above expectations. Key positives: Group EBIT margin was flat at 9.9% with cost out initiatives offsetting cost inflation; Cash realisation was strong at 140% (vs 99% in the pcp). Key negatives: ROFE was down 60bp to 11.6%; Full year net interest expense is now expected to be between $300-310m (vs $280-310m previously). For the first seven weeks of 2H24, Retail sales were broadly flat (+0.3%) reflecting subdued sales in January followed by an improvement in February. Hotels sales were 1% higher. We decrease FY24-26F underlying EBIT by 1% while underlying NPAT reduces by between 3-4% due to higher net interest expense. Our target price rises slightly to $5.20 (from $5.15) despite the decrease in earnings forecasts largely due to a roll-forward of our model to FY25 forecasts. Hold rating maintained. While EDV is a good business, trading on 17.1x FY25F PE and 4.3% yield we think the stock is fully valued given the subdued near-term outlook with consumers remaining cautious.

SUN’s 1H24 NPAT (A$582m) was -2% below consensus ($596m). The 1H24 dividend (A34cps) was in line with consensus. Overall we saw the general insurance result as broadly sound (outside some reserve strengthening), with it indicating a likely improving trajectory in 2H24 and FY25. Whilst the bank result was weak, this arguably highlights the reasons/benefit of exiting this business. We lower SUN FY24F/FY25 EPS by -7%/-3% on a model update for the new AASB17 accounting standards, reduced bank earnings forecasts, and an adjustment to capital return estimates post the bank sale (A$4bn vs A$4.2bn previously). Our PT is set at A$16.88 (previously A$16.42) on a valuation roll-forward. With SUN still having >10% TSR upside on a 12-month view, we maitain our ADD rating.

First half earnings were much better than feared, despite coming in well below pcp. On a 26-week basis, sales were down 10% yoy and pre-AASB 16 EBIT of $28.6m was down 19% yoy. EBIT was 19% higher than our forecast, however, which was due to better gross margins and operating cost control. The second half has started softly from a sales perspective, with a 9.6% yoy decline, though the comps get less demanding as the period goes on and we forecast positive LFLs in 2H24. We have increased our pre-AASB 16 EBIT forecasts by 9% in FY24 and 3% in FY25. Our target price increases to $2.40 (from $1.70) and we upgrade to Add. ADH is geared into a recovery in consumer sentiment, making it an interesting stock to consider adding to your portfolio at the current price.