Research notes

Following a strong run over the last month, our target price range has now been reached. At the risk of going against clear share price momentum, we continue to wait for further detail on initial launch of the PromarkerD but also note our valuation only assumes commercial success in the US. Significant upside potential remains as the rollout progresses in the US and other jurisdictions, but also view the endometriosis and oesophageal cancer diagnostics will remain key and likely hold significant value with licensing opportunities. We maintain our target price of A$1.38, but our recommendation reduces to a Hold recommendation (from Speculative Buy).

Given the heavy cost-out initiatives implemented in recent periods (operating costs -28% on pcp), LVH’s 1H24 result showed an improved NPAT loss vs the pcp (-A$4.6m vs -A$7.2m) despite a lower overall revenue performance (1H24 operating revenue of A$3.5m, -11% on pcp). We make several changes to our assumptions over the forecast period (details below). Our price target is reduced to A$0.11 (from A$0.15).

CBL posted its 1H24 result which was an improvement on pcp. Management believe there are sufficient funds to drive the existing business in the core regions of US and Australia as well as move forward some new product development.

The key focus remains on reducing gearing and completing the sale of the Polish assets. Management noted that a letter of intent has been signed with binding commitments and if successful expects the sale to occur in 4Q24. Gearing sits at 44.7% and is estimated to fall to c34% post asset sales. No FY24 guidance has been provided, however CMW expects to pay a 0.75c distribution for the March quarter. The payout ratio has fallen vs historical levels (currently around 63%) so we will be looking for further clarity on the group’s longer term payout policy post asset sales and subsequent gearing reduction. We retain a Hold rating with a revised price target of $0.46. The key near term catalyst relates to the sale of the Polish assets.

ACF has added to its Industrial Services capability by acquiring Benchmark Scaffolding in North QLD for $9m (pre earn-outs). The acquisition represents an EV/EBITDA multiple of 3.8x (pre earn-outs), which is largely in line with the MI Scaffold acquisition in November (4x). In our view, the deal is complementary to MI Scaffold and will increase ACF’s scale in Industrial Services in QLD as well as nationally. Management has increased FY24 EBITDA guidance by $1m to between $73-76m as a result of the acquisition. This implies no change to guidance for the existing ACF business. We estimate the deal to be 2% EPS accretive in FY25 (first full year of ownership). Our target price rises to $1.43 (from $1.40) following updates to earnings forecasts and we maintain our Add rating. Trading on 9.3x FY25F PE and 4.7% yield with strong business momentum and leverage to growing civil infrastructure activity over the long term, ACF remains one of our key picks in the small caps space.

AUA reported its 1H24 results. Key focus around OPEX as timing of restocking and initial EU sales orders remains irregular and hard to predict. Gross margin improvement due to customer mix but likely revert as larger distributors restock. Key news here was maiden sales order from the AUA technology division to drum equipment manufacturer Avedis Zildjian for A$2.1m. Lower margin versus own branded product, but provides scale and volume without the front-ended marketing and sales expense. Deals like this have potential to be a significant part of the business although hard to predict at this stage. Positive share price moves off the back of the technology order, but continue to see higher prices achievable as the business matures. Speculative Buy.

KAR delivered a strong December half result, with strong earnings and cash flow. Management flagged a continued focus on its growth. Remaining one of our top sector preferences, we maintain an Add rating.

FDV’s FY23 NPAT of -A$8.59m (FY22 -A$10.2m) came in better than Morgans expectations (-A$10.5m), whilst statutory revenue (~A$68m, +15% on the pcp) was in-line with Morgans forecasts. While FDV Associate businesses continue to face economic headwinds, this result showed a continued improving earnings trajectory across FDV’s consolidated portfolio, in our view. We lift our FDV FY23F/FY24F EPS by >10% respectively mainly on improved group EBITDA margin assumptions. Our PT is largely unchanged at A$0.79 (previously A$0.77). We continue to be attracted to FDV’s long-term growth profile and the earnings potential of the assembled portfolio. ADD maintained. We lift our FDV FY23F/FY24F EPS by >10% respectively mainly on improved group EBITDA margin assumptions. Our PT is largely unchanged at A$0.79 (previously A$0.77).

Imricor Medical Systems (IMR) develops medical devices for the treatment of irregular heartbeats, which are safer, quicker and more effective than current treatment methods. Current approval (in Europe) for atrial flutter is being expanded into other indications (atrial fibrillation and ventricular tachycardia), which will significantly increase the market potential. According to management and our literature searches, the estimated total addressable market (TAM) is >US$8bn. IMR’s recent capital raising enables it to fund additional clinical studies, reactivate sites in Europe and commercially launch in the Middle East and Australia. We initiate coverage on IMR with a DCF based valuation and target price of A$0.96 and a Speculative Buy recommendation.

The 2H23 result was broadly as expected. No material change to EBITDA forecasts. The new free cashflow incentive signals that cashflow will remain below FY24 DPS guidance for years to come. We estimate the shortfall can be supplemented by surplus cash and another capital release, but DPS growth may not be on the horizon for at least this decade. Cash yield at current prices is c.7.3%. We estimate an intrinsic value of ALX at $4.99/sh based on DCF, or $5.63/sh if the spice of uncertain IFM takeover potential is added. HOLD retained.