Research notes

NWL reported 2Q24 FUA of A$78bn (+8.3% qoq; +24.6% pcp), with a ~A$3.4bn positive market move and net inflows of A$2.6bn (in-line with expectations). 2Q24 net inflows of A$2.6bn were up ~27% qoq and 25% on the pcp. Net inflows returned to more ‘normalised’ levels as gross outflows slowed. Pooled cash levels are stable (lower revenue margin) and NWL stepped up hiring (low job vacancies). We still expect some incremental margin improvement in 1H. NWL continues to execute and the opportunity runway remains long. The groups market position; earnings defensiveness; and growth outlook is strong, however, the stock is trading in-line with our valuation.

BAP’s 1H24 NPAT is expected to be down 13-15% on pcp. Whilst below our forecast (~7%), the trading update was overall in-line with expectations. Retail was weak (EBITDA -13% on pcp), however in-line. Trade divisions +4-5%. BAP reconfirmed Better-than-Before (BTB) targets for 2H24, expecting A$7-10m NPAT. The exit run rate should be greater, given timing through the half. We see the trading update as providing some increased clarity of the core earnings trajectory/base. Whilst there is still earnings risk evident (Retail), FY25 is positioned to see earnings increase (vs FY23/24 which faced downside risks). Several factors remain against the BAP investment case: negative earnings momentum; recent CFO departure; and transformation targets which look unachievable. Whilst hard to hurdle, there is now arguably lower downside earnings risk and higher prospects for earnings improvement into FY25. Coupled with a reasonable valuation (16.5x a re-based FY24), we see this as providing enough risk/reward to accumulate ahead of the firm evidence of the earnings uplift. Upgrade to ADD recommendation.

FDV has released its 4Q23 quarterly update. While 4Q23 group revenue was down -13% on the pcp, we saw the quarterly update as mirroring recent trends of a broadly robust performance from FDV’s consolidated businesses, held back by some continued headwinds in Zameen. We adjust our FDV FY23F/FY24F EPS by +2%/-1% on a broad review of our earnings assumptions. Our target price is unchanged at A$0.77. We continue to be attracted to FDV’s long-term growth profile and the earnings potential of the assembled portfolio. ADD rating maintained.

A quarter with some challenges, in particular impacted Brazil volumes following a hydrate issue and subsequent mechanical failure at one of Bauna’s wells. KAR delivered a largely in-line December quarter operational and sales result. Despite issues Bauna achieved above midpoint of guidance production. Who Dat only contributed 11 days of production at the end of the period. We expect more data (and a much larger contribution) in future periods. We maintain an Add recommendation, with an unchanged A$2.80 Target Price.

WOW’s trading update overall was weaker than anticipated. Management has guided to 1H24 group underlying EBIT of between $1,682m-1,699m, which at the mid-point was 2% below our forecast and 1% weaker than Visible Alpha (VA) consensus. While the company said Australian Food and PFD’s performance remained solid, it was a more challenging half for NZ Food and BIG W. We make minimal adjustments to FY24-26F group underlying earnings forecasts (reduction of between 0-1%), with upgrades to Australian Food and Australian B2B slightly more than offset by downgrades to NZ Food and BIG W. Our target price falls to $39.45 (from $39.90) and we maintain our Add rating. Despite the weakness in NZ Food and BIG W, our positive view on WOW remains predicated on a continued solid outlook for the core Australian Food segment.

MedAdviser (MDR) is a medication management, pharmaceutical adherence and patient-pharmacist communication application that aims to simplify the way patients manage their medication. Following a number of transformative acquisitions over the last few years, Factset consensus expects solid revenue growth of 15%/13%/7% over FY24/25/26 respectively and importantly achieving profitability in FY25. MDR posted 1Q24 revenue of A$25.4m, up 27.0% and gross profit of A$15.7m up 30.8% with available funding of A$11.6m to achieve consensus growth of ~11.0% over the next three years.

Struggling to contain costs within contingencies following multiple delays, STO increased its development capex budget for Barossa by US$200-$300m to US$4.5-$4.6bn. STO delivered an otherwise in-line 4Q23 result across production and revenue. Capex trailed following delays to Barossa. Net debt stood at US$4.3bn at the end of December. We maintain our Hold rating, viewing STO as having already been rewarded for perceived corporate appeal given current merger talks with peer WDS.

2Q results were above expectations, with double-digit top line and bottom line growth, improving operating leverage and strong cash flow. Devices grew above market (+11%), on strong demand and ex-US could-connected availability, while masks (+9%) tracked expectations, driven by resupply and new patient setups despite softer ex-US (+4% cc on a tough comp +14%). Operating margin expanded 190bp on pcp (first time in 11 quarters) and sequentially (+250bp) on improving gross profit margin and good cost control, with further gains expected. Management presented real-world data from 529k OSA patients prescribed GLP-1s showing an increased likelihood of not only starting PAP therapy, but also improving re-supply rates over time vs OSA patients not prescribed GLP-1s. We adjust FY24-26 forecasts modestly, with our target price rising to $32.82. Add.

FMG reported a healthy 2Q’FY24 operating performance in its core iron ore segment, while confirming it would not rush its green energy developments. Of some concern, FMG reported a big issue at Iron Bridge’s water pipeline necessitating replacement of a 65km section, to take 18 months. We maintain a Hold rating, viewing FMG as trading near fair value.

We upgrade our investment rating on WDS to an Add recommendation, with an upgraded 12-month Target Price of A$34.30ps (was A$33.50). WDS posted a strong finish to the year with a largely in-line 4Q’CY23, although CY24 guidance came in below our estimates/consensus. Importantly subsea work at Scarborough is back underway, with the key offshore project now 55% complete. WDS and STO continue to mutually explore a potential merger. It remains early in the process, but both sides appear motivated.