Research notes

FY25 earnings risk has been mostly removed with firm guidance provided for EBITDA, D&A and net interest. Focus of the August result will be on FY26 guidance - we target c.15% EBITDA growth and c.44% EPS growth. Expect FY27 growth to be far more benign. The stock faces negative narrative on its underperforming Bulk and Containerised Freight investments, but we also see heightened pressures in its Coal segment. Short-term valuation metrics look attractive but our revised DCF-based target price of $2.94/sh is weighed down by updates to our medium term forecasts (especially Coal). Downgrade to HOLD.

XRO will acquire North American Digital Payments business, Melio, for US$2.5bn. The acquisition is short-term dilutive as XRO is acquiring a loss-making business. However, medium term this should help XRO fast track its American expansion. The acquisition brings product innovation and makes XRO’s NAM product more compelling due to combining digital payments and accounting. It also brings additional scale which should, with additional sales and marketing investments, move XRO closer to a scale player with critical mass in North America. We maintain our Accumulate recommendation and $215 Target Price.

TWE has released its new divisional operating model (Penfolds, Treasury Americas and Treasury Collective) and a further update on its business performance. FY25 guidance was reiterated. In FY26, TWE is targeting further earnings growth, albeit more modest than its previous targets, particularly for Treasury Americas. An up to 5% share buyback was also announced. We have revised our forecasts. While not without risk given industry and macro headwinds, TWE’s trading multiples look far too cheap (FY25/26 PE of only 13.6/12.6x) and we maintain a BUY rating. However, we recognise the stock is lacking near-term catalysts and therefore patience is required given a material rerating may take time to eventuate.

CKF’s FY25 result was materially better than expected with underlying NPAT 15% ahead of consensus mainly driven by stronger than guided margins. After a challenging 1H25, profitability materially improved in the 2H25 reflecting stronger SSS growth, cost deflation and operational efficiencies. Despite a weaker than expected trading update, CKF provided FY26 underlying NPAT guidance for low to mid-teens growth which was in line with consensus. Importantly, guidance does not account for much of a recovery in SSS growth from the 1H26 trading update and is driven by continued cost deflation and operational efficiencies (self-help). In our view, CKF providing specific NPAT guidance this early in the year (for the first time) is a strong positive endorsement from management in the outlook. CKF’s track record will likely mean guidance will prove to be conservative. It also includes Taco Bell losses (planned exit in FY26). The solid 2H25 result indicates to us that 1H25 will prove to be the bottom of the cycle for margins and SSS growth. Importantly, CKF has executed well in a challenging environment, setting the company up to benefit strongly from a recovery in operating conditions which is now starting to take place. Maintain BUY.

Wrkr (WKR) is a leading platform solution targeting the complex markets of staff on-boarding and payments for employers and superannuation funds. In FY24 WKR achieved key financial milestones of becoming EBITDA and Operating Cash Flow positive. Full implementation of WKR’s contract with REST should not only drive significant revenue growth but also provide a key credibility proof point assisting future contract wins.

A solid underlying performance in 3Q24, close to MorgansF/consensus estimates. BMG is now 80% complete, but also expected toward the upper end of guidance range, due to weather and equipment failure causing a week delay. Debottlenecking and upgrading work continues at Orbost, with COE preparing to deploy new nozzles, snowflake packing material, sulphur offtake testing, and the next round of in situ clean trials. The work on BMG is due to be completed by late May, at which point COE transitions into an impressive FCF generator. We maintain an ADD rating, with an unchanged A$0.30ps Target Price.

LGI’s Investor Day included another encouraging update, as the company reaffirmed its FY24 EBITDA guidance; clearly articulated the short-to-medium term development pipeline; set out its growth strategy; and demonstrated its battery energy storage system capabilities. We increase our FY24-26 EPS forecasts by 5%/12%/7%, reflecting increased battery cycling and LGI’s new Bingo contract. We move to a pure DCF valuation and our 12 month price target increase to A$3.12ps. Upgrade to ADD rec. We have confidence in LGI’s ability to execute on its meaningful development pipeline and are encouraged by the highly attractive unit economics of its battery storage capabilities and the viability of a broader battery rollout. In addition to LGI’s compelling medium term growth opportunity, the business provides investors with exposure to the increasingly important decarbonisation thematic.

In line with its strategy to expand and grow beyond blasting, ORI has announced acquisitions in both Mining Chemicals and Digital Solutions. While we agree with the strategic rationale, both acquisitions were purchased off private equity and ORI has paid relatively full multiples. We have incorporated the acquisitions and capital raising (A$465m) into our forecasts. With a number of businesses to integrate, it will all come down to execution, which to date, ORI has excelled at under a new management team. Hold maintained.

Adriatic Metals (ADT) is now ramping up production from its world-class Vares underground polymetallic mine in Bosnia, Central Europe. Rich grades and low capital and operating costs drive excellent project economics, >60% EBITDA margins, rapid payback and compelling cash generation. ADT is protected from potential teething issues by supportive off-takers, debt and equity investors who understand Vares’ compelling returns once optimised. We initiate coverage with an Add rating and a A$5.80/ CDI price target and note ADT looks compelling to both equity and strategic investors alike.