Research notes

We issue this report to correct our earnings forecasts for FY24-26, which previously did not properly adjust for the impact of AASB16 on underlying EBITDA. These adjustments see FY24-26F underlying EBITDA rise by between 28-30% and underlying NPAT increase by 42-50%. Despite these changes, our base assumptions for FY24 remain unchanged. We continue to forecast FY24 revenue growth of 6% and underlying EBITDA to be up 7%. This is compared to management’s guidance for FY24 revenue and pro forma EBITDA growth of between 5-8%. Our equally-blended (SOTP, PE, DCF) target price lifts to $1.45 (from $1.30) and we maintain our Add rating.

M7T released its 1H24 results. No surprises here, with a recent trading update providing expectations and updated guidance following a marked shift to recurring revenues in new contracts. It’s clear to us that the company continues to see this trend play out in its contract pipeline, and a trend which we view will result in a more sustainable and investor friendly business model. No changes to our forecasts and we continue to see significant upside potential in the name. M7T remains one of our key picks within the space.

PER has reported its 1H24 results. No surprises here given quarterly updates. Cash balance remains the major key metric, which is sufficient to fund PER until the Ph2b topline outcome at the end of the year. Focus remains solely on near-term catalysts including recruitment milestones, toxicology study, and Ph2b top-line results due to read out by the end of the year. No changes to our valuation which remains A$0.23 p/s. We view PER as having one of the best risk/return profiles in the space with clear near-term catalysts, strong board and management team, and scientific support for success.

MDR reported its 1H24 result which was in line with pre-released update, with revenue up 18% and EBITDA up 21%. Management is guiding to profitability for FY24. The investment into the UK is completed and the transition to a SaaS platform is complete. In addition MDR will invest A$10m to A$15m to build out a shared service structure, looking to optimise a cloud native platform with the aim of reducing operating costs over time.

TRP posted its 1H24 result with a net loss of $2.3m, finishing the period with sufficient capital to fund its clinical program. TRP expects the Phase 3 trial for venous leg ulcers (VLU) to start recruiting in 1Q25 which is a slight delay from the last update (was 4Q24) and top-line results to be reported late CY25. The National Institute of Health estimates the cost of treating VLUs in the US at between US$2.5bn and US$3.5bn pa. The cosmetic gel product, TR Pro+, was successfully launched, with initial feedback positive. TRP will continue to drive increased awareness as well as explore potential partnership and distribution opportunities.

PWR reported NPBT -20% on the pcp, with the core business (ex-acquisition) down ~30%. Heightened operating and funding costs dragged on the half. The order book closed flat over the half, however down ~25% from the July-23 acquisition position. Orders have remained solid and broadly in-line with deliveries. PWR expects continued revenue growth, however new car margins to ‘taper’. PWR’s ROS margin dropped to 2.9% in 1H24 and we expect further compression. PWR’s balance sheet remains in a position to continue to execute on its consolidation strategy. However, the cyclical margin and structural cost impacts have been clear in this result and we expect earnings to continue to decline. Whilst we view PWR as relatively cheap (on 9x PE), we expect it will be difficult to re-rate against the negative earnings trajectory. We move to Hold.

FLT’s headline result was stronger than we expected. Adjusting for items which are now reported below the line, the result was just below our forecast but was materially below consensus given it underestimated FLT’s seasonal earnings skew. Importantly, the core business units (Corporate and Leisure) both beat our forecast and their margins are scaling nicely. FLT is well on track to deliver its FY24 guidance. We have made double digit upgrades to our NPBT forecasts given the non-cash amortisation on the convertible notes (CN) will be reported below the line (like WEB) and it has paid off ~A$250m debt and bought back A$84m of CN. For these reasons and given FLT’s margins will continue to improve, we now have more confidence in it achieving its 2% margin target. We assume this is achieved in FY26 vs FLT’s aim of FY25. We think today’s share price weakness is overdone and represents a great buying opportunity. Trading on an FY25 PE of 13.3x, we reiterate our Add rating.

A strong CY23, with underlying EBITDA/NPAT ahead of consensus by +1%/+9%. An equally strong final dividend of US60 cents (vs VA/MorgansF US/40 cents). This was supported by the recent news that WDS had agreed to sell down a 15% stake in the Scarborough field to JERA, with a Heads of Agreement for 0.4mtpa of LNG. Analyst roundtable focused on modelling and understanding the Scarborough deal. We maintain an Add rating, with a A$34.20 target price (was A$34.30).

In 1H24 AVD delivered LFL revenue and EBITDA growth of 4% and 6%, respectively. Group underlying NPATA was up 19.3% to A$3.2m. Margins held steady hoh (GM +60bps; EBITDA -60bps) and were up strongly on the pcp (GM +300bps; EBITDA margin +130bps). Integration of recent acquisitions (STA and Wilsons); cost control; operational efficiencies; and delivery of a strong pipeline of projects remains the focus. AVD’s FY24 underlying EBITDA guidance of A$20-22m (excluding STA) was last reaffirmed at its AGM (Nov-23). Annualised 1H24 group EBITDA is currently running at ~A$18.5m. AVD intends to declare a FY24 full year dividend (subject to maintaining current trajectory and cash flow conversion).

KSL’s FY23 Net Profit Before Tax (PGK 175m) was +18% on the pcp and +3.5% above MorgansE. KSL’s FY23 underlying NPAT (PGK105m) was in-line with the pcp (impacted by the lift in the tax rate on PNG banks to 45% from 30%), and ~+10% above MorgansE This was broadly a good result by KSL, in our view.  Management delivered ~+20% underlying PBT growth in a more difficult net interest margin environment, with costs and bad debts being well contained. We lift our KSL FY24F/FY25F EPS forecasts by ~4%-7% on higher non-interest income and reduced cost estimates. Our target price rises to A$1.24 (previously A$1.14). KSL continues to deliver solid underlying profit growth, and trading on ~5x FY24F EPS and a >10% dividend yield, we see the stock as too cheap. ADD. We lift our KSL FY24F/FY25F EPS forecasts by ~4%-7% on higher non-interest income and reduced cost estimates. Our target price rises to A$1.24 (previously A$1.14).