Research notes

TRP posted its 1H24 result with a net loss of $2.3m, finishing the period with sufficient capital to fund its clinical program. TRP expects the Phase 3 trial for venous leg ulcers (VLU) to start recruiting in 1Q25 which is a slight delay from the last update (was 4Q24) and top-line results to be reported late CY25. The National Institute of Health estimates the cost of treating VLUs in the US at between US$2.5bn and US$3.5bn pa. The cosmetic gel product, TR Pro+, was successfully launched, with initial feedback positive. TRP will continue to drive increased awareness as well as explore potential partnership and distribution opportunities.

PWR reported NPBT -20% on the pcp, with the core business (ex-acquisition) down ~30%. Heightened operating and funding costs dragged on the half. The order book closed flat over the half, however down ~25% from the July-23 acquisition position. Orders have remained solid and broadly in-line with deliveries. PWR expects continued revenue growth, however new car margins to ‘taper’. PWR’s ROS margin dropped to 2.9% in 1H24 and we expect further compression. PWR’s balance sheet remains in a position to continue to execute on its consolidation strategy. However, the cyclical margin and structural cost impacts have been clear in this result and we expect earnings to continue to decline. Whilst we view PWR as relatively cheap (on 9x PE), we expect it will be difficult to re-rate against the negative earnings trajectory. We move to Hold.

FLT’s headline result was stronger than we expected. Adjusting for items which are now reported below the line, the result was just below our forecast but was materially below consensus given it underestimated FLT’s seasonal earnings skew. Importantly, the core business units (Corporate and Leisure) both beat our forecast and their margins are scaling nicely. FLT is well on track to deliver its FY24 guidance. We have made double digit upgrades to our NPBT forecasts given the non-cash amortisation on the convertible notes (CN) will be reported below the line (like WEB) and it has paid off ~A$250m debt and bought back A$84m of CN. For these reasons and given FLT’s margins will continue to improve, we now have more confidence in it achieving its 2% margin target. We assume this is achieved in FY26 vs FLT’s aim of FY25. We think today’s share price weakness is overdone and represents a great buying opportunity. Trading on an FY25 PE of 13.3x, we reiterate our Add rating.

A strong CY23, with underlying EBITDA/NPAT ahead of consensus by +1%/+9%. An equally strong final dividend of US60 cents (vs VA/MorgansF US/40 cents). This was supported by the recent news that WDS had agreed to sell down a 15% stake in the Scarborough field to JERA, with a Heads of Agreement for 0.4mtpa of LNG. Analyst roundtable focused on modelling and understanding the Scarborough deal. We maintain an Add rating, with a A$34.20 target price (was A$34.30).

In 1H24 AVD delivered LFL revenue and EBITDA growth of 4% and 6%, respectively. Group underlying NPATA was up 19.3% to A$3.2m. Margins held steady hoh (GM +60bps; EBITDA -60bps) and were up strongly on the pcp (GM +300bps; EBITDA margin +130bps). Integration of recent acquisitions (STA and Wilsons); cost control; operational efficiencies; and delivery of a strong pipeline of projects remains the focus. AVD’s FY24 underlying EBITDA guidance of A$20-22m (excluding STA) was last reaffirmed at its AGM (Nov-23). Annualised 1H24 group EBITDA is currently running at ~A$18.5m. AVD intends to declare a FY24 full year dividend (subject to maintaining current trajectory and cash flow conversion).

KSL’s FY23 Net Profit Before Tax (PGK 175m) was +18% on the pcp and +3.5% above MorgansE. KSL’s FY23 underlying NPAT (PGK105m) was in-line with the pcp (impacted by the lift in the tax rate on PNG banks to 45% from 30%), and ~+10% above MorgansE This was broadly a good result by KSL, in our view.  Management delivered ~+20% underlying PBT growth in a more difficult net interest margin environment, with costs and bad debts being well contained. We lift our KSL FY24F/FY25F EPS forecasts by ~4%-7% on higher non-interest income and reduced cost estimates. Our target price rises to A$1.24 (previously A$1.14). KSL continues to deliver solid underlying profit growth, and trading on ~5x FY24F EPS and a >10% dividend yield, we see the stock as too cheap. ADD. We lift our KSL FY24F/FY25F EPS forecasts by ~4%-7% on higher non-interest income and reduced cost estimates. Our target price rises to A$1.24 (previously A$1.14).

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.