Research notes

The strength of Super Retail Group’s (SUL) portfolio was apparent in a strong 1H24 result in which sales increased 3% despite cycling strong comps. In our opinion, the business is outperforming the competition across most of its retail operations as it leverages its brand equity, strong omnichannel credentials, well subscribed loyalty programmes and extensive network of stores. PBT was down only (5)% compared, for example, with JB Hi-Fi’s (20)% decline. Although there is some work to do at rebel, in particular, we believe SUL will continue to deliver strong returns and remains likely to declare a special dividend in August. We have increased our earnings estimates slightly in both FY24 and FY25. We upgrade to an Add rating with an unchanged target price of $17.50.

Post revaluations at Dec-23, gearing has moved up to ~40% with further asset sales on the agenda. ICR sits at 2.9x vs covenant at 2.0x. FY24 guidance reiterated comprising FFO of 13.8c and DPS of 12c which equates to a distribution yield of ~10% (payout ratio 87%). Although interest rate headwinds appear to be abating, the focus remains on managing the balance sheet via asset sales and maintaining occupancy levels which remain under pressure. We acknowledge the office sector continues to face challenges and expect cap rates will see some further expansion in the near term; however, with COF trading at a +40% discount to NTA on an implied cap rate of ~7.9% (+160bps above Dec-23 book values), we expect this uncertainty is largely being captured into the current security price.

VEE’s 1H24 result was comfortably above expectations with EBITDA at the top end of management’s guidance range provided in November. Gyro sales increased to $5m (1H23: $1.7m), Propulsion rose 41%, Defence was up 8% and Hollow Bar grew 38%. Management said the order book remains strong with 2H24 revenue and earnings expected to be similar to 1H24. We lift FY24-26F EBITDA by between 1-6% and underlying NPAT by 7-20% mainly due to lower D&A. Our target price increases to $1.50 (from $1.00) due to changes in earnings forecasts and a roll-forward of our model to FY25 forecasts. Add rating maintained. In our view, the strong 1H24 result shows the business is performing well and we expect the recent deals with Strategic Marine (gyros) and Sharrow Engineering (propellers) will underpin a solid outlook for earnings over the long-term.

APE delivered FY23 (vs pcp): revenue +15% to A$9.9bn; underlying NPBT +7% to A$433m; DPS +4% to 74cps. The result was in-line with expectations. Cost management was again a highlight, with APE able to absorb a significant step up in funding costs. ROS at 4.4% (-35bps due to acquisitions/mix) is sector leading. Revenue growth guidance of ~A$1bn (+10%) was provided, anchored by ~A$0.8bn from acquisitions. Whilst the order book has declined, it continues to give support to the near-term gross margin outlook. Plenty of med-term structural growth initiatives are in play across: consolidation; strategic industry alliances; leading the EV transition; sales channel optimisation; used vehicles; and new markets (offshore). There will be periods of cyclicality experienced through time, however APE is executing on building a sustainably higher earnings base. Add maintained.

UNI’s focus on offering high quality, fashionable apparel in a well presented store environment with high levels of service is paying off. Despite the challenges facing the consumer discretionary market, especially among the younger demographic, the 1H24 performance was highly resilient. Costs were well controlled and margins outperformed expectations, resulting in EBIT coming in 6% above forecast. The core youth consumer appears to be picking up. We have increased our FY24 EBIT estimate by 4% and reiterate our Add rating with an increased target price of $5.65.

HMC delivered a strong 1H result driven by growth in the platform (particularly unlisted/private equity funds which have delivered >20% ROE). FY24 pre-tax EPS guidance was provided which includes performance fees and investment gains. The new detail in the result was focussed around future growth areas which was outlined in tandem with a new divisional structure for HMC given the ongoing growth in the platform via the addition of Energy Transition, Capital Solutions and Digital Infrastructure. Areas under development also include global healthcare and private credit. HMC has also attracted high calibre, experienced people to lead. HMC has been a top performer within the sector with the share price +45% over the past year as the strategy continues to bear fruit. We acknowledge the FUM trajectory towards $20bn is becoming clearer with several new initiatives underway and management to execute. However given recent strong performance we move to a Hold rating post result with a revised PT of $7.25 and note there will be a detailed update on new funds with an investor day to be held in 2H24.

MAF’s FY23 NPAT (~A$42m) was -32% on the pcp and ~-12% below consensus (A$47m). Headline result figures disappointed due mainly to higher costs than consensus. Broadly, the build of MA’s underlying business appears to be going ok. However, a difficult cyclical environment and the higher FY23 investment spend repeating in FY24, means upside here is more an FY25 story, in our view. We lower our MAF FY24F/FY25F EPS by -17%/-21% mainly on higher cost assumptions. Our PT is set at A$6.07 (previously A$6.25) on lower earnings estimates offset by a valuation roll-forward. We still see solid medium term value, and maintain our ADD call.

PWH’s 1H24 result was comfortably above our expectations with growth in Emerging Technologies the key highlight. Divisional revenue growth: Motorsports (ex-Emerging Tech) +5%, Aftermarket +7%, Emerging Technologies +88%, OEM +12%. Key positives: Aerospace & Defence revenue jumped 124% with a stronger pipeline compared to six months ago; EBITDA margin increased 110bp to 28.6% mainly due to an improved sales mix and increased operating efficiency; Balance sheet remains healthy with net cash (ex-leases) of $15.6m. Key negative: ROE fell 100bp to 26.7%. We make minor adjustments to FY24-26 earnings forecasts with EBITDA increasing by between 1-2% and underlying NPAT also rising by 1-2% Our target price increases to $14.25 (from $11.90) reflecting changes to earnings forecasts and a roll-forward of our model to FY25 forecasts. Add rating maintained. While the stock is not cheap (38.4x FY25F PE), we believe PWH is a high-quality business with a strong track record of growth. With a healthy pipeline of opportunities across all key segments (particularly Aerospace & Defence), we expect this growth trend to continue over the long term.

First the good news. TRS outperformed most companies in our coverage universe with +2.3% LFL sales growth in 1H24 (although this was a little less than we had expected). The offering of well-priced every day essentials seems to have resonated with its customers, seeing both transaction and units growth over the period. This has resulted in a shift in sales mix away from general merchandising to the lower margin consumables. Sales momentum continued into the first 7 weeks of 2H24. Then the bad news. There was substantial shrinkage (shoplifting) over the course of the half, impacting EBIT by $4m, which was down 16% yoy. Without this impact, EBIT would have been flat. We maintain our ADD rating on TRS but reduce our target price to $5.40 (was $6.25) due to reduced earnings estimates in the current year.

The 1H result was in-line with quarterly reporting, with few surprises. The 2cps interim div reflects a 100% NPAT payout in excess of policy and complimenting accretion from the on-market buyback. The current ex-growth phase looks set to continue, supporting compelling forecast free cash flow yield (22-30%) and dividend yield (9-11%). At only (2.0x FY24F EV/EBITDA MSV still looks disregarded by the market. MSV trades at a sharp discount to direct peers and recent drilling M&A.