Research notes

MTO delivered 1H24 EBITDA (pre-AASB) of A$14.2m (guidance A$14-16m); and NPAT of A$6.6m (-37% on the pcp; and -47% hoh; and -6% vs MorgansF). LFL comps vs pcp: sales -7%; GP -11%; Opex -2%; EBITDA (post-AASB) -30%; and Underlying EBITDA (pre-AASB) -%. Encouragingly, MTO pointed to improving trade through Jan-Feb; continued to grow its market share of new motorcycles (~15% in 1H24); expand its product range (CFMOTO); and will benefit from a seasonally stronger 2H within Mojo. We recently moved to a Hold recommendation given limited earnings visibility and lower confidence in the near-term outlook. While we expect improved operating performance in 2H24, we prefer to wait for greater evidence of earnings certainty before considering a more positive view.

MoneyMe’s (MME) 1H24 result was largely per expectations as key headline operating metrics were pre-released. Total revenue of A$108m (-~11% on pcp) was achieved on a gross loan book of ~A$1.2bn (flat on the sequential half). The key positive in the result, in our view, was the continued uptick of asset quality of the book, with MME focusing on originating higher credit quality loans in recent periods. Our FY24F-FY26F EBITDA is altered by ~-19%-+6% on adjustments to our book yield estimates as secured assets become a higher proportion of the gross loan book as well as some changes to our operating costs assumptions. Our DCF/PB blended valuation (equal-weighted) and price target is lowered marginally to A$0.23 (from A$0.25) on the above changes and a valuation roll-forward. We maintain our Speculative Buy recommendation.

AHL’s 1H24 revenue and pro forma EBITDA was in line with expectations but underlying NPAT was weaker due to higher D&A. Both segments delivered solid revenue growth with Distribution (formerly Aftermarket) up 7% and Heat Transfer Solutions (HTS) rising 8%. Key positives: Balance sheet remains healthy with net cash (ex-leases) of $15.6m; Group pro forma EBITDA margin increased 20bp to 13.5%; Operating cash flow jumped to $11.1m (vs $3.8m in the pcp) due to improved inventory management. Key negative: HTS earnings and margins were impacted by warranty issues. Management has maintained FY24 guidance for revenue and pro forma EBITDA growth of between 5-8%. Our target price decreases to $1.30 (from $1.40) and we maintain our Add rating. We expect benefits from investments in facilities, staff and rationalisation of the manufacturing footprint to deliver benefits over the long term. Trading on 8.7x FY25F PE and 4.0% yield with a strong balance sheet, we think the stock remains an attractive long-term investment opportunity.

EPY reported Underlying NPAT of A$2.2m and pro-forma NPAT of A$2.9m. FY24 guidance is >A$4.8m pro-forma (implied 2H24 >A$1.9m). Recent mgmt focus has been on improving risk controls and the funding structure. The recent warehouse refinance removes operational complexity and improves the cost of funds (~1%) and capital efficiency (~A$10m of capital released). Funds-in-use has lowered through 1H24, with mgmt removing areas of client risk and taking a cautious volume approach (SME credit environment weakening). We expect this leads to lower 2H24 earnings but also a lower-risk earnings base. Dividends are expected to resume in 2H24. A buy-back and/or acquisitions will also be considered. Medium term, corporate appeal exists (COGs at ~19.5% of shares). Whilst earnings have re-based and the return to growth has pushed out, EPY’s quality of earnings and balance sheet position has strengthened. The group now needs to prove that sustainable volume and earnings growth can be delivered. We have an Add recommendation but note EPY should be considered higher risk.

MAP released its 1H results which are tracking in-line with our expectations. The imminent national launch of the MetaPanel test through Sonic Healthcare remains a key focus. We anticipate this increased awareness to spark greater interest in microbiome-related services and products underlining the growing acknowledgment of its impact on overall health across diverse medical fields. We continue to see significant upside here as the testing and services deliver scale, and the therapeutics continues to de-risk. Speculative Buy maintained.

Apart from the R&D incentive not being recognised as a receivable and the timing of project income, the 1H24 result was broadly in line with expectations. Argus sales remain the key focus and near-term catalyst. We have adjusted R&D forecasts resulting in a lower target price of A$0.25. Speculative Buy maintained.

CY22 results were broadly in line, with opex up modestly and higher interest expense. The final Premarket Approval (PMA) module remains on track, with management confident in achieving FDA filing in 3QCY24 and approval in 1QCY25. We have made no changes to our estimates or A$1. target price. Speculative Buy recommendation maintained.

NHF’s 1H24 underlying operating profit (A$144m) was +13% above consensus, but was a low quality beat driven by a Covid-19 provision release in the Australia Residents Health insurance business (ARHI). Excluding this release, the result was a bit softer than expected, particularly in the adjacent businesses (IIHI, NZ, Travel) which all came in below consensus. We lower NHF FY24F/FY25F NPAT forecasts by ~-3% on slightly softer earnings estimates in all key divisions. Our target price is set at A$8.00 (previously A$8.47). With upside to our valuation reduced, we move NHF back to our a Hold call.

The real highlight in the 1H24 result was the progress reported at Orbost. With COE flagging continued results from debottlenecking would mitigate the need for a third absorber (which would save ~A$40m capex and deliver higher production). COE reported an impressive 1H24 result, finishing with an underlying NPAT of A$5.4m (vs Visible Alpha consensus/MorgansF -A$1.0/$4.7m). We maintain an Add rating on COE with an upgraded A$0.28ps Target Price.

DGL delivered a weak 1H24, with NPAT declining 41% on the pcp, well below both our expectations and consensus. Whilst an element of the performance is cyclical, company guidance sees only modest improvement in 2H24, with the company forecasting FY24 NPAT to decline on the pcp. In discussing the result, management talked about investing for growth, expensing costs where possible, to allow the company to grow organically in years to come – something that comes at the cost of current P&L earnings. Whilst the narrative resonates, it isn’t lost on us that the predictability of DGL’s earnings continues to decline – DGL is likely to grow slower than we expected, with earnings more cyclical. It is on this basis that we apply a lower multiple to lower earnings, whilst retaining our Add recommendation on a lower target price of $0.77/sh.