Research notes

BGA’s 1H24 result was materially stronger than guidance following a much better than expected result from Bulk, despite it being loss making due to the material fall in global dairy prices and Australian processors overpaid for milk. Branded had a strong result. While seasonally 1H cashflow is weak, it was stronger than expected and so was BGA’s gearing metrics. Despite the result beat, FY24 guidance remains unchanged given the 1H benefited from some pull forward of sales across both businesses and in the 2H BGA is taking a conservative view on ‘out of home’ channels given the pressure the consumer is under. Albeit off a low base, we have made material upgrades to our NPAT forecast due to lower D&A and tax. After strong share price appreciation, we retain a Hold rating however we note there is material upside taking a medium-term view if BGA delivers its FY28 targets.

LOV is democratising jewellery. Its fashionable and attractively priced products are reaching and appealing to a larger and larger global audience. LOV has operations in over 40 markets and substantial white space to expand in almost all of them. The 1H24 result surpassed expectations, mainly due to strong gross margins, which were supported by favourable changes to the price architecture. We have increased our EBIT estimate for the current year by 4%, but, for us, it’s not about the near-term. The investor should focus on what this business could develop into in the years ahead. We reiterate our Add rating and increase our target price from $27.50 to $30.00.

IPH reported slightly below expectations: underlying NPAT +4.5% including acquisitions and currency. LFL revenue +2%; -2% EBITDA. Asia was expected to be weak, however came through weaker than expected at a -6.4% EBITDA. Australia showed some improvement with EBITDA growth of 1% on pcp and 4.5% hoh. Cashflow generation improved which was the highlight. A return of organic growth (which remains very subdued) is the key catalyst for IPH. Some early improvement has been seen in Australia, however Asia is now lagging. There is valuation support near-term and longer-term upside from acquisitions an strategy execution.

The strength of Super Retail Group’s (SUL) portfolio was apparent in a strong 1H24 result in which sales increased 3% despite cycling strong comps. In our opinion, the business is outperforming the competition across most of its retail operations as it leverages its brand equity, strong omnichannel credentials, well subscribed loyalty programmes and extensive network of stores. PBT was down only (5)% compared, for example, with JB Hi-Fi’s (20)% decline. Although there is some work to do at rebel, in particular, we believe SUL will continue to deliver strong returns and remains likely to declare a special dividend in August. We have increased our earnings estimates slightly in both FY24 and FY25. We upgrade to an Add rating with an unchanged target price of $17.50.

Post revaluations at Dec-23, gearing has moved up to ~40% with further asset sales on the agenda. ICR sits at 2.9x vs covenant at 2.0x. FY24 guidance reiterated comprising FFO of 13.8c and DPS of 12c which equates to a distribution yield of ~10% (payout ratio 87%). Although interest rate headwinds appear to be abating, the focus remains on managing the balance sheet via asset sales and maintaining occupancy levels which remain under pressure. We acknowledge the office sector continues to face challenges and expect cap rates will see some further expansion in the near term; however, with COF trading at a +40% discount to NTA on an implied cap rate of ~7.9% (+160bps above Dec-23 book values), we expect this uncertainty is largely being captured into the current security price.

VEE’s 1H24 result was comfortably above expectations with EBITDA at the top end of management’s guidance range provided in November. Gyro sales increased to $5m (1H23: $1.7m), Propulsion rose 41%, Defence was up 8% and Hollow Bar grew 38%. Management said the order book remains strong with 2H24 revenue and earnings expected to be similar to 1H24. We lift FY24-26F EBITDA by between 1-6% and underlying NPAT by 7-20% mainly due to lower D&A. Our target price increases to $1.50 (from $1.00) due to changes in earnings forecasts and a roll-forward of our model to FY25 forecasts. Add rating maintained. In our view, the strong 1H24 result shows the business is performing well and we expect the recent deals with Strategic Marine (gyros) and Sharrow Engineering (propellers) will underpin a solid outlook for earnings over the long-term.

APE delivered FY23 (vs pcp): revenue +15% to A$9.9bn; underlying NPBT +7% to A$433m; DPS +4% to 74cps. The result was in-line with expectations. Cost management was again a highlight, with APE able to absorb a significant step up in funding costs. ROS at 4.4% (-35bps due to acquisitions/mix) is sector leading. Revenue growth guidance of ~A$1bn (+10%) was provided, anchored by ~A$0.8bn from acquisitions. Whilst the order book has declined, it continues to give support to the near-term gross margin outlook. Plenty of med-term structural growth initiatives are in play across: consolidation; strategic industry alliances; leading the EV transition; sales channel optimisation; used vehicles; and new markets (offshore). There will be periods of cyclicality experienced through time, however APE is executing on building a sustainably higher earnings base. Add maintained.

UNI’s focus on offering high quality, fashionable apparel in a well presented store environment with high levels of service is paying off. Despite the challenges facing the consumer discretionary market, especially among the younger demographic, the 1H24 performance was highly resilient. Costs were well controlled and margins outperformed expectations, resulting in EBIT coming in 6% above forecast. The core youth consumer appears to be picking up. We have increased our FY24 EBIT estimate by 4% and reiterate our Add rating with an increased target price of $5.65.

HMC delivered a strong 1H result driven by growth in the platform (particularly unlisted/private equity funds which have delivered >20% ROE). FY24 pre-tax EPS guidance was provided which includes performance fees and investment gains. The new detail in the result was focussed around future growth areas which was outlined in tandem with a new divisional structure for HMC given the ongoing growth in the platform via the addition of Energy Transition, Capital Solutions and Digital Infrastructure. Areas under development also include global healthcare and private credit. HMC has also attracted high calibre, experienced people to lead. HMC has been a top performer within the sector with the share price +45% over the past year as the strategy continues to bear fruit. We acknowledge the FUM trajectory towards $20bn is becoming clearer with several new initiatives underway and management to execute. However given recent strong performance we move to a Hold rating post result with a revised PT of $7.25 and note there will be a detailed update on new funds with an investor day to be held in 2H24.

MAF’s FY23 NPAT (~A$42m) was -32% on the pcp and ~-12% below consensus (A$47m). Headline result figures disappointed due mainly to higher costs than consensus. Broadly, the build of MA’s underlying business appears to be going ok. However, a difficult cyclical environment and the higher FY23 investment spend repeating in FY24, means upside here is more an FY25 story, in our view. We lower our MAF FY24F/FY25F EPS by -17%/-21% mainly on higher cost assumptions. Our PT is set at A$6.07 (previously A$6.25) on lower earnings estimates offset by a valuation roll-forward. We still see solid medium term value, and maintain our ADD call.