Research notes

EDV’s 1H24 result was slightly above expectations. Key positives: Group EBIT margin was flat at 9.9% with cost out initiatives offsetting cost inflation; Cash realisation was strong at 140% (vs 99% in the pcp). Key negatives: ROFE was down 60bp to 11.6%; Full year net interest expense is now expected to be between $300-310m (vs $280-310m previously). For the first seven weeks of 2H24, Retail sales were broadly flat (+0.3%) reflecting subdued sales in January followed by an improvement in February. Hotels sales were 1% higher. We decrease FY24-26F underlying EBIT by 1% while underlying NPAT reduces by between 3-4% due to higher net interest expense. Our target price rises slightly to $5.20 (from $5.15) despite the decrease in earnings forecasts largely due to a roll-forward of our model to FY25 forecasts. Hold rating maintained. While EDV is a good business, trading on 17.1x FY25F PE and 4.3% yield we think the stock is fully valued given the subdued near-term outlook with consumers remaining cautious.

SUN’s 1H24 NPAT (A$582m) was -2% below consensus ($596m). The 1H24 dividend (A34cps) was in line with consensus. Overall we saw the general insurance result as broadly sound (outside some reserve strengthening), with it indicating a likely improving trajectory in 2H24 and FY25. Whilst the bank result was weak, this arguably highlights the reasons/benefit of exiting this business. We lower SUN FY24F/FY25 EPS by -7%/-3% on a model update for the new AASB17 accounting standards, reduced bank earnings forecasts, and an adjustment to capital return estimates post the bank sale (A$4bn vs A$4.2bn previously). Our PT is set at A$16.88 (previously A$16.42) on a valuation roll-forward. With SUN still having >10% TSR upside on a 12-month view, we maitain our ADD rating.

First half earnings were much better than feared, despite coming in well below pcp. On a 26-week basis, sales were down 10% yoy and pre-AASB 16 EBIT of $28.6m was down 19% yoy. EBIT was 19% higher than our forecast, however, which was due to better gross margins and operating cost control. The second half has started softly from a sales perspective, with a 9.6% yoy decline, though the comps get less demanding as the period goes on and we forecast positive LFLs in 2H24. We have increased our pre-AASB 16 EBIT forecasts by 9% in FY24 and 3% in FY25. Our target price increases to $2.40 (from $1.70) and we upgrade to Add. ADH is geared into a recovery in consumer sentiment, making it an interesting stock to consider adding to your portfolio at the current price.

Nothing materially different to expectations caught our attention in the FY23 result. EBITDA growth was supported by the TIC revenue growth, which underwrote the DPS growth. Boring = beautiful. ADD retained. Target price lifted 7% to $3.03 with forecast changes and valuation roll-forward. 12 month potential TSR 16% (incl. 7.7% cash yield).

The 8.4 US cps dividend was the biggest surprise amongst SMR’s CY23 result. SMR now has a busy organic growth pipeline to evaluate after executing 3 asset transactions in 4 months, all with synergies around existing operations. We make several adjustments, lowering our valuation to $4.15ps (from $4.20). Value now looks interesting again at a (15-20% discount to NPV. The recent confirmation of sustainable dividends strongly builds SMR’s appeal to a wider investor base in our view.

WPR’s CY23 result was in line with guidance with distributable EPS flat on the pcp. CY24 guidance has been provided comprising distributable EPS of 16.32-16.c with the bottom end of guidance assuming $80m in non-core assets sales and the top end assuming no asset sales are undertaken (in line with pcp). Management noted that transactional markets are showing tentative signs of improvement. Following the result we move to a Hold rating with a revised $2.57 price target. WPR remains suited to income investors.

There were no major surprises in NAN’s 1H24 result, but it’s clear the hospital budgetary strain are unlikely to subside for at least another half. Nevertheless, NAN have some levers to pull on the cost base side to soften the delayed capital sales impact to profitability. Results and commentary fail to entice a stampede back into the stock, but we continue to see this as a solid underlying business with a dominant market position, high margin recurring revenue base, and ample opportunity to deepen the market penetration over time into smaller practices and other jurisdictions. Changes to our model sees our target price reduce to A$3.50 (from A$3.88) although we retain an Add recommendation. While long term value remains for patient holders, we don’t see any immediate need to rush back in just yet.

BAP reported 1H24 EBITDA -2% and NPAT -13% (pre-released). At the divisional level, Retail dragged (-12%) with the Trade divisions showing resilience (+4.5%). Short-term transformation benefit targets were maintained (A$7-10m incremental NPAT in 2H24). The wider BTB program to be re-assessed under the new CEO. There is clearly some ‘reset risk’ with a new incoming CEO/CFO. Part of our case for the recent recommendation upgrade was the improved prospect for earnings improvement into FY25. Despite the uncertainty tied to an inevitable strategy review, we continue to see higher earnings in FY25 as realistic. We acknowledge the BAP investment case is tricky until the new CEO provides some strategy clarity. However, despite incurring mgmt and strategy change and a difficult cost environment, the business has been resilient. We think the valuation point continues to provide value on a medium-term view.

There were no surprises in SFR’s 1H24 financials and unchanged FY24 guidance offers comfort. The Motheo ramp-up has been a stand-out success to date, countering underwhelming cash returns from MATSA. SFR has re-shaped into a resilient global business providing a strong option over metals price upside and a longer-dated option over mine life extension/expansion. However we maintain our Hold with SFR traded at a slight premium to NPV.

This reporting season has seen improved commentary around the residential housing sector and a nascent housing recovery. CWP report the highest enquiry and sales levels in two years for 2Q24, with price increases across its key markets, most notably WA where prices were up 5% to 13% in 1H24. CWP is a volume business and the demand for lots looks to be improving, with margins to invariably follow. CWP’s exposure to lower priced stock in higher growth markets sees further potential to drive earnings. On this basis, we see every reason for CWP to trade at NTA and potentially at a premium, were the housing cycle to gain steam through FY25/26. On this basis, we upgrade CWP to an ADD, with a price target of $5.60/sh.