Research notes

SIQ reported FY23 NPATA +3% to A$63.2m, in-line with expectations. 2H23 reflects the commencement of EV-policy led demand flowing through – revenue +15.7% and NPATA +14.7% hoh. Lease demand accelerated hoh and SIQ is scaling up operating capacity to execute (~17% hoh cost growth; margins down 80bps hoh). Near-term earnings growth is highly visible, with a material contract to also contribute from FY25. There remains a material opportunity to drive lease uptake and earnings under the current EV policy (expected review date of 2027). However, we view SIQ’s valuation currently captures the near-term (FY24) expectations and we retain a Hold. The main risk is any unplanned early removal of the current EV policy (election risk), post a period of operational expansion.

While WOW’s 1H24 result was in line with expectations following the company’s trading update in January, commentary on sales for the first seven weeks and divisional guidance for 2H24 was softer-than-anticipated. Key positives: WooliesX earnings jumped 132% reflecting increased demand for convenience and productivity improvements; Operating cash flow increased 20% with ND/EBITDA improving to 2.5x (FY23: 2.6x). Key negatives: Inflation continued to moderate and consumers are becoming more cautious; Customers continued to reduce discretionary spending and Woolworths Supermarkets was losing market share in discretionary everyday needs categories such as pets, baby care and home essentials. CEO Brad Banducci has announced his retirement with Amanda Bardwell (current Managing Director of WooliesX) to take over in September. We adjust FY24/25/26F group underlying EBIT by -2%/-3%/-3%. Our target price decreases to $34.70 (from $39.45) and we downgrade our rating to Hold (from Add). With NZ Food and BIG W already facing tough operating conditions, the soft start to 2H24 for Australian Food and loss of market share in non-food is a concern. WOW is now trading on 22.2x FY25F PE and 3.3% yield. With an increasingly uncertain outlook, we have become more cautious on the stock with downside risk if the trading environment continues to deteriorate.

STO posted a CY23 earnings result that on balance was on the softer side, although materially beat on its dividend. CY23 cash dividend will total US26.2ps, well above our estimate of US20cps. All growth projects remain on track, with Barossa first gas in 2025, Pikka Phase 1 first oil in 2026, and Moomba CCS first injection in mid-CY24. No changes to CY24 production or cost guidance. Strategic review process is ongoing, with no updates ready to include with the CY23 result. Further volatility could yield a better entry opportunity, maintain Hold rating.

HLO reported a strong 1H24 result which beat our forecast. The strength of its EBITDA margin and strong cashflow were the highlights. HLO reiterated its FY24 EBITDA guidance. We think its 1H24 result implies it is at least tracking towards the top end and also highlight management’s track record of providing conservative guidance. We wouldn’t be surprised if HLO upgrades guidance at its 3Q trading update in April. Assuming a full recovery from COVID and reflecting recent acquisitions, we value HLO at A$4.26 per share (50% upside from here). ADD maintained.

NAB reported Q1 cash earnings (-3% on 2H23 quarterly avg.) would have been broadly flat except for a higher effective tax rate, stable asset quality, and a strong regulatory capital position. Forecast pre-tax earnings upgraded but offset by the higher tax rate. 12 month target price lifted to $30.91. HOLD retained at current prices.

The bad news about Domino’s Pizza Enterprises’ (DMP) 1H24 performance was disclosed last month when the company warns that a decline in sales in Asia had driven materially lower profits. The result today saw PBT come in within the January guidance range. As expected, it was Asia that weighed most heavily on group EBIT. Europe increased its contribution, though much of this related to the elimination of losses from Denmark. France remains a problem. ANZ outperformed at the top line but margins unexpectedly reduced. DMP has a strategy to rebuild positive volume trends based on getting the value equation right – good product at an attractive price. There’s a lot to do and it will take time, but we believe it’s on the right road. For now, we retain a Hold rating with a reduced target price of $45.00 (was $50.00).

1H result sees metrics relatively stable with the focus on new acquisitions and developments. Portfolio valued at $4.6bn with the weighted average cap rate stable at 5.90%. Occupancy was slightly lower (-0.7%) however rate/sqm was +1.3% vs Jun-23. Newer centres saw good occupancy growth of +6% to 55.4% which is positive. FY24 guidance reiterated. Underlying EPS to be a minimum of 11.3c (vs 11.5c in the pcp). Underlying profit >$154m. Distribution payout ratio will be 90-100%. We retain a Hold rating with a revised price target of $2.31.

VNT incrementally beat both guidance and consensus expectations for CY23, seeing NPATA grow 12.5% (yoy). Combined with forward guidance for another 7-10% NPATA growth in CY24, along with cash conversion of 80-95% and conservative gearing (ND/EBITDA) of 1.2x, VNT continues to see its PE multiple (CY24 PER 14.2x) converge toward that of the wider market (ASX 300 c.16.7x). We believe VNT can continue to grow earnings across its active sectors, building on its $18bn of work in hand across a suite of predominately Government contracts (75% of CY23 revenue from Government). It is on this basis that we reiterate our Add rating and increase our target price from $3.35/sh to $4.05/sh, a function increased earnings expectations and updated peer/index multiples.

EBO reported a solid 1H24 result, with underlying NPAT up 7.6% on the pcp. Cost out initiatives, higher margin diversified earnings and M&A will largely bridge the gap in earnings from the loss of Chemist Warehouse contract from FY25. We have adjusted our depreciation and interest expense reflecting higher cap spend and as a result our TP has been revised down to $39.20. Add maintained.

The CY23 dividend fell short of expectations on 2H free cash outflows. CY24 guidance looks supportive (6% higher production, 10% lower mining costs) but we think it is viewed with skepticism. Recent drivers of sales deferrals/losses and lower realisations continue to concern. CRN’s appeal for leverage to upside risks in met coal pricing looks challenged by tepid steel markets and execution under-delivery. CRN looks far too cheap, but we think the market will wait for tangible production/ cost and physical market improvement before narrowing this discount.