Research notes

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.

EXP’s 1H24 result was in line with our forecasts. The 2H24 looks to have had a decent start with January trading in line with the pcp despite all the wet weather and EXP has also seen positive trading into February. EXP will likely be the last of our travel companies under coverage to fully recover from COVID given its leverage to inbound international tourists to Australia (in particular the Chinese) which continues to lag the wider travel recovery. However, material upside remains on offer for the patient investor. ADD maintained.

A bumper 1H24 earnings and dividend result from FMG. 5% EBITDA beat and in-line underlying NPAT vs consensus. Interim dividend of AUD 108 cents, also above expectations. FY24 production and cost guidance maintained. FMG now trading at a premium to BHP/RIO is indicative of a solid share price performance, but not a good endorsement of value. We maintain a Hold rating.

BXB’s 1H24 result was above expectations. Key positives: Group EBIT margin rose 160bp to 20.3% driven by growth in CHEP Americas and CHEP EMEA; ROIC increased 200bp to 21.8%; FY24 guidance for earnings and free cash flow was upgraded. Key negatives: CHEP Asia-Pacific EBIT margin fell 240bp to 34.4%; Group like-for-like (LFL) volumes fell 1%, impacted by customer destocking; Management said the contract environment has become more competitive. We increase FY24-26F underlying EBIT by 2%. Our target price rises to $15.65 (from $14.95) and we maintain our Hold rating.

PXA’s 1H24 Group NPATA (A$15m) was down -36% on the pcp, and slightly below consensus (A$17m). This result had been heavily pre-announced and headline figures were largely as expected with FY24 guidance re-affirmed (albeit PXA Exchange margins are tracking slightly above the top end of the range). The key stock catalyst here remains the launch of the 24- hour UK refinance product in the middle of 2024, which management says remains on track. We make nominal changes to our PXA FY24F/FY25F EBITDA forecasts (+1%-2%) but our NPATA forecasts fall by -22%/-4% on higher non-operating items, e.g. specified items and D&A, etc. Our valuation rises to A$12.19 on higher future operating earnings and a valuation roll-forward. HOLD maintained.