Research notes

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.

The key focus remains on reducing gearing and completing the sale of the Polish assets. Management noted that a letter of intent has been signed with binding commitments and if successful expects the sale to occur in 4Q24. Gearing sits at 44.7% and is estimated to fall to c34% post asset sales. No FY24 guidance has been provided, however CMW expects to pay a 0.75c distribution for the March quarter. The payout ratio has fallen vs historical levels (currently around 63%) so we will be looking for further clarity on the group’s longer term payout policy post asset sales and subsequent gearing reduction. We retain a Hold rating with a revised price target of $0.46. The key near term catalyst relates to the sale of the Polish assets.

ACF has added to its Industrial Services capability by acquiring Benchmark Scaffolding in North QLD for $9m (pre earn-outs). The acquisition represents an EV/EBITDA multiple of 3.8x (pre earn-outs), which is largely in line with the MI Scaffold acquisition in November (4x). In our view, the deal is complementary to MI Scaffold and will increase ACF’s scale in Industrial Services in QLD as well as nationally. Management has increased FY24 EBITDA guidance by $1m to between $73-76m as a result of the acquisition. This implies no change to guidance for the existing ACF business. We estimate the deal to be 2% EPS accretive in FY25 (first full year of ownership). Our target price rises to $1.43 (from $1.40) following updates to earnings forecasts and we maintain our Add rating. Trading on 9.3x FY25F PE and 4.7% yield with strong business momentum and leverage to growing civil infrastructure activity over the long term, ACF remains one of our key picks in the small caps space.

AUA reported its 1H24 results. Key focus around OPEX as timing of restocking and initial EU sales orders remains irregular and hard to predict. Gross margin improvement due to customer mix but likely revert as larger distributors restock. Key news here was maiden sales order from the AUA technology division to drum equipment manufacturer Avedis Zildjian for A$2.1m. Lower margin versus own branded product, but provides scale and volume without the front-ended marketing and sales expense. Deals like this have potential to be a significant part of the business although hard to predict at this stage. Positive share price moves off the back of the technology order, but continue to see higher prices achievable as the business matures. Speculative Buy.