Research notes

KAR delivered a strong December half result, with strong earnings and cash flow. Management flagged a continued focus on its growth. Remaining one of our top sector preferences, we maintain an Add rating.

FDV’s FY23 NPAT of -A$8.59m (FY22 -A$10.2m) came in better than Morgans expectations (-A$10.5m), whilst statutory revenue (~A$68m, +15% on the pcp) was in-line with Morgans forecasts. While FDV Associate businesses continue to face economic headwinds, this result showed a continued improving earnings trajectory across FDV’s consolidated portfolio, in our view. We lift our FDV FY23F/FY24F EPS by >10% respectively mainly on improved group EBITDA margin assumptions. Our PT is largely unchanged at A$0.79 (previously A$0.77). We continue to be attracted to FDV’s long-term growth profile and the earnings potential of the assembled portfolio. ADD maintained. We lift our FDV FY23F/FY24F EPS by >10% respectively mainly on improved group EBITDA margin assumptions. Our PT is largely unchanged at A$0.79 (previously A$0.77).

Imricor Medical Systems (IMR) develops medical devices for the treatment of irregular heartbeats, which are safer, quicker and more effective than current treatment methods. Current approval (in Europe) for atrial flutter is being expanded into other indications (atrial fibrillation and ventricular tachycardia), which will significantly increase the market potential. According to management and our literature searches, the estimated total addressable market (TAM) is >US$8bn. IMR’s recent capital raising enables it to fund additional clinical studies, reactivate sites in Europe and commercially launch in the Middle East and Australia. We initiate coverage on IMR with a DCF based valuation and target price of A$0.96 and a Speculative Buy recommendation.

The 2H23 result was broadly as expected. No material change to EBITDA forecasts. The new free cashflow incentive signals that cashflow will remain below FY24 DPS guidance for years to come. We estimate the shortfall can be supplemented by surplus cash and another capital release, but DPS growth may not be on the horizon for at least this decade. Cash yield at current prices is c.7.3%. We estimate an intrinsic value of ALX at $4.99/sh based on DCF, or $5.63/sh if the spice of uncertain IFM takeover potential is added. HOLD retained.

Airtasker’s (ART) 1H24 result (whilst largely pre-released) was a solid performance in what has been a challenging consumer environment (booked tasks -~5% on pcp). Positives include the group seeing revenue growth (+~7% on pcp to ~A$23m) on an improved take-rate and the business achieving positive free cash flow in the period. We make minor adjustments to our estimates over FY24-FY26 (details below). Our price target remains unchanged at A$0.54. We maintain an Add recommendation.

Deep Yellow’s portfolio contains an attributable resource base of 420Mlb of U3O8, to support the aspirational goal of production of +10Mlb per year of U3O8, from the stable jurisdictions of Namibia and Australia, with Tumas, in Namibia, the more advanced, and the fully-permitted Mulga Rock, Western Australia. A final investment decision (FID) for Tumas is anticipated in the September 2024 Quarter for this US$360M development with production projected up to 3.6 Mlbpy of uranium yellow cake (U3O8), at a projected All-in sustaining cost (AISC) of US$38.80/lb U3O8 after a vanadium by-product credit of sub-US$3.00/lb U3O8. The DYL management team has successful experience in developing and operating uranium production, in particular at nearby Langer Heinrich, operated by Paladin Energy (ASX:PDN – 75%), and which provides a template for Tumas.

1HFY24 results were above expectations, driven by mid-to-high single digit admissions growth across key geographies, tariff and indexation gains, as well as lower tax and minority interest. Earnings improved in Australia and UK, with a turnaround in Elysium, but were offset by ongoing inflationary pressures in the EU. While wage pressures have “stablised”, digital/data investments and higher funding costs remain a drag on full margin recovery, but growing volumes and numerous productivity initiatives portend an improving earnings profile. We adjust FY24-26 earnings modestly, with our price target increasing to A$60.76. Add.

IME released its FY23 result, which was in-line with our topline expectations, although EBITDA came in lower than expectations with the services division creating a margin drag across the business. FY24 looks to be a more positive year with an enhanced software value proposition expected to accelerate software market traction in LATAM, whilst the services division focuses on generating margin expansion through a review of its customer profile and profitability. Expecting a turnaround here. We have made a number of changes to our forecasts and currently sit at the bottom end of the updated consensus range. Our target prices reduces marginally to A$1.50 p/s (from A$1.80 p/s) and retain a Speculative Buy recommendation.

We revise our coverage approach for NTD, continuing to monitor and provide updates (we will cease providing a rating, valuation, and forecasts). Our previous forecasts, target price and recommendation should no longer be relied upon for investment decisions. For 1H24, NTD reported: Sales down -10.5% on the pcp (-7.5% hoh); EBITDA up 25.5% (-15% hoh); and NPATA up +64% (-65% hoh). NTD is undertaking a meaningful business transformation (brand rationalisation; business reorganisation; and warehouse consolidation); in order to reposition and refocus the business for the long term. However, given the significant operating leverage in the business, this disruption has created short-term earnings volatility. Despite improving margins through the half, the lower revenue outcome resulted in lower underlying EBITDA of A$19.7m (+25.5% pcp; -15% hoh) and underlying NPATA of A$2.3m (+64% pcp; -65% hoh). NTD closed 1H24 with net debt of A$63.1m and leverage (net debt / annualised 1H24 EBITDA) of 1.6x (excl. leases) and ~3.5x (incl. leases). Operating cash flow A$9.9m (-A$1.4m pcp) and inventory was +2% on Jun-23 (closing at A$132.7m).

GDG’s 1H24 Group underlying NPAT (A$4.9m, +67% on the pcp) was +2% above both MorgansE and consensus (A$4.8m).  While the 1H24 Investment Bond business result was a bit below our expectations, this was overshadowed by a stand-out performance from Lonsec. We lift our GDG FY24F/FY25F EPS by ~4%-8% driven mainly by higher Investment Bond sales forecasts and improved Lonsec earnings. Our target price rises to A$2.30 (from A$2.01). We continue to believe GDG is well positioned to execute a compound earnings growth story over time. ADD maintained.