Research notes

REH’s 1H24 result was above expectations with earnings growth delivered in both ANZ and the US despite subdued macroeconomic conditions. Key positives: Group EBITDA margin increased 60bp to 11.6% with margins higher in both regions; ROCE rose 80bp to 16.1%; Balance sheet remains healthy with ND/EBITDA falling to 0.7x (FY23: 0.9x). Key negative: Demand remains subdued with management expecting a softening environment in ANZ in 2H24. We increase FY24-26F EBITDA by between 10-12%. Our target price increases to $22.10 (from $15.50) on the back of updates to earnings forecasts and a roll-forward of our model to FY25 forecasts. With a 12-month forecast TSR of -22%, we retain our Reduce rating. We continue to see REH as a good business with a strong brand and a long-term track record of investment for growth. However, trading on 41.9x FY25F PE and 1.0% yield, we think the stock is overvalued in the short term, especially relative to our growth forecast (3-year EPS CAGR of 5%).

COL’s 1H24 results was above expectations driven mainly by the core Supermarkets segment. Key positives: Supermarkets Own Brand sales increased 7.6% with eCom sales jumping 29.2%; Investments to reduce total loss saw an improvement in loss through 2Q24 with expectations for further benefits in 2H24; Supermarkets sales growth of 4.9% in early 2H24 was well above Woolworths’ (WOW) Australian Food growth of ~1.5%. Key negatives: Liquor earnings were below our forecast; Group EBIT margin fell 30bp to 4.8%. Following the better-than-expected 1H24 result and solid start to 2H24, we increase FY24-26F underlying EBIT by between 3-4%. This reflects upgrades to Supermarkets earnings forecasts, partially offset by downgrades to Liquor. Our target price rises by $18.70 (from $16.60) on the back of updates to earnings forecasts and a roll-forward of our model to FY25 forecasts. We maintain our Add rating with COL being our preference in the Consumer Staples sector.

Articore Group’s (ATG) 1H24 marketplace revenue (MPR) was ~5% under consensus at ~A$260m (-13% on pcp on a constant currency basis) but broadly in line with consensus at GPAPA (~A$64m, +19% on pcp). Whilst management initiatives around improving the margin profile of the business appear on track, we note ATG expects the softer consumer environment to persist into the 2H and hence topline growth eludes at this juncture. We make several adjustments to our medium-term forecasts, predominantly related to: 1) the lower marketplace revenue environment; and 2) the narrowed FY24 margin guidance (details below). Our price target is altered marginally to A$0.70 from (A$0.71). Hold maintained.

1H results were pre-released so in line, with underlying Op income falling by double-digits and margins compressing. Pathology was the main drag, negatively impacted by cycling out of covid-19 testing, combined with low volumes and cost inflation, while Lumus Imaging was “ahead of target” on strength in the hospital and community segments, and Agilex showed “positive signs” on increasing new contracts. While management is accelerating Pathology restructuring to better match volumes with costs, aiming for a “step-change” by FY26/27, uncertainty around the impact of numerous initiatives make forecasting challenging and unreliable. We lower our FY24-26 estimates, with our target price decreasing to A$1.32. Hold

1H24 underlying EBITDA/NPAT was below MorgansF and consensus. Subscribers, revenue, and cashflow were pre-released at SDR’s 2Q24 update. The highlight for us was SDR continuing to demonstrate ongoing improvement in its profitability and unit economics whilst maintaining solid growth momentum. Management said the 2H24 has started well and reiterated FY24 guidance for positive underlying EBITDA and FCF in 2H24. SDR continues to target medium-term organic revenue growth of 30%. We continue to think SDR offers an attractive long-term growth opportunity underpinned by its global underpenetrated TAM and opportunity to better monetise its A$70bn of Gross Booking Value (currently captures ~0.2%). ADD maintained.

PNV posted its 1H24 results which was in line with our forecasts. Sales momentum across all regions is continuing and we have upgraded our sales forecasts which sees average growth of 32% pa over the next three years. As a result of upgrades to forecasts our TP has increased to A$2.22, and with >10% upside to the target we upgrade our recommendation to Add (from Hold).

TYR’s 1H24 normalised gross profit (A$105m) was +~11% on the pcp and in-line with consensus (A$105m), whilst the 1H24 normalised EBITDA (A$27m, +41% on the pcp) was slightly below consensus (-3%).  While 1H24 showed good overall profitability trends, in our view, some issues with the Bendigo Alliance and a tougher core business transaction environment point to a softer top-line outlook in 2H24. We reduce our TYR FY24F/FY25F EBITDA figures by -6%-12% mainly on lower transaction value forecasts. While our EPS estimates in FY24F rise on lower share-based payments, FY25F EPS declines by -13%. Our PT is set at A$1.47 (previously A$1.61). We see recent improvements in TYR’s underlying operating performance as encouraging, and think there remains long-term value in the name. ADD.

AMX has released its 1H report in-line with our expectations. Key focus remains on Annual Recurring Revenue (ARR) growth and cost controls, both improving over the last 12 months. LiDAR growth continues to grab the headlines, but we’re getting the sense MetroMap is back on track with the worst now behind it following a number of years contending with competitive pressures and aviation constraints. We retain an Add recommendation on AMX and continue to see an attractive risk/reward profile with clearer skies ahead. Our valuation and target price increases marginally to A$0.50 p/s (from A$0.45 p/s).

IPD released its 1H24 results which were in line with expectations. The new CEO and CFO have set out a clear plan to focus on high volume US states (targeting 11 states by April) and cost control (reduction 10% to 15%). The market will appreciate this clarity. We have made no changes to forecasts, target price or recommendation.

A challenging economic environment saw PPE’s margins continue to deteriorate both qoq, hoh and yoy, resulting in EBITDA declining 38% yoy. Management called out a decline in contract rates, permanent recruitment fees and government subsidies as the primary drivers. However, not much of this is new, with management having previously flagged the challenging environment at the FY23 result (Aug-23) and at the AGM (Nov-23). What did surprise was the level of margin degradation qoq, as the business was impacted by a declining contract rate - customers filling more lower skilled, lower margin roles. To this end, management are expecting higher margin demand to start improving in FY25. Given that operating conditions are likely to remain challenging for the next twelve months and terminal margins are likely lower than first anticipated, we downgrade to a hold rating, reducing our valuation to $1.05/sh.