Research notes

GDF‘s focus remains on capital recycling initiatives and executing on the current development pipeline. During 1H24, GDF has executed on asset sales totalling +$100m which will be used to pay down debt and recycle into industrial developments, particularly North Lakes. Post settlement of the Botanicca 7 and 9 office assets in February, we estimate GDF’s portfolio will be valued at +$460m and will be 80% weighted towards industrial (SE QLD) with the sole office asset the Cairns Corporate Tower (BV $82m). At the upcoming result on 8 February we expect FY24 DPS guidance of 6.3c to be reiterated however likely with a higher payout ratio and FFO guidance to be lower given the timing between asset sales and new industrial developments completing. GDF usually revalues assets around April/May so updates will likely fall after the 1H result however the Richlands industrial development may be revalued prior to this (10 year lease commences 2024). We retain an Add rating with a revised price target of $1.65.

PIQ have released its quarterly report in concert to an institutional placement and founder sell-down however key update around US rollout disappoints, now expected in Q2CY24 (3-6 month delay). We worked under the assumption that PIQ and SHUSA remained on track for initial launch to shortly follow with the effective date for Medicare/Medicaid reimbursement, but as we’ve highlighted in the past – dealing with these larger institutions can come at cost to timelines often being less nimble and incentivised to condense timelines. We have adjusted expectations on our US commercialisation and associated risks to market penetration and roll through new share issuance. Our target price reduces to A$1.38 (from A$2.42) and we retain our Speculative Buy recommendation.

PNV has provided a positive trading update for 1H24, highlighting a positive EBITDA which was a pleasant surprise and ahead of our expectations. We have increased our forecasts by ~2.0% for FY25/26. As a result our valuation and target price has increased to A$1.95 (was A$1.88). The share price has rallied over 30% in the last month and now sits within 10% of our target price and as a result we move our recommendation to Hold (from Add).

Price competition is intense across all categories of retail at present. This presents a particular challenge for Baby Bunting as many of its products are big ticket, infrequent purchases. Price competition cost the company around $6m in lost sales in 1H24 and the operating leverage effect of this, together with the cost of investing in marketing, has weighed on earnings. We believe Baby Bunting is following the appropriate strategy to strengthen its market position, but it will take time. We have cut estimates, but we’re staying on an ADD rating with a $2.00 target price.

We have further updated our assumptions post RIO’s 4Q’CY23 operational result, and ahead of its CY23 earnings result on 21 February. The key changes bring us closer to consensus on H2’CY23 EBITDA after reviewing our second half unit cost assumptions for RIO’s Pilbara, bauxite and aluminium operations. Our target price remains A$128ps and our recommendation remains Hold.

WGN has released a HY24 trading update and FY24 guidance, ahead of their result on 21-Feb. HY24 EBIT of $20.0m was ahead of our expectations of $15.0m, with the full year FY24 guidance of $31.0m-$34.0m beating our expectations of $30m (c.78% EBIT growth on the pcp). WGN’s 1H skew (1H24 $20.0m vs 2HFY $11m-$14m) is principally due to the completion of production of precast concrete tunnel segments for the Sydney Metro project. That said, the forecast 2HFY24 guidance is ahead of the pcp on a like-for-like basis. Given WGN’s return to growth and the strength of the underlying construction markets, we remain on a Speculative Buy, increasing our target price to $1.15/sh.

S32 reported a mixed 2Q24 operational and sales result, trimming FY24 production guidance for Alumar, Mozal and molybdenum (Sierra Gorda). Second half skew on production and lower metal prices have combined for subdued 1H earnings estimates. Importantly, S32 has kept a lid on opex, reaffirming FY24 guidance. Low growth and cratering earnings, but S32 is positioned as an early potential winner from an eventual turnaround in global/China growth. We maintain an Add recommendation with an updated A$4.75ps target price.

Mixed 2Q production has a reasonably neutral impact to our overall views. Slight downgrades to FY24-25 EBITDA reflect trimmed ST NEWC assumptions Acquisition of the BMA assets is progressing strongly, but we’re cautious about dislocations in the ST met coal market and possible implications for dividends. We downgrade to Hold as WHC now trades within 10% of our revised target.

BHP delivered a result that was largely in line with expectations, albeit with BMA trailing while NSWEC surprised on the upside. We expect BHP’s interim dividend to remain at healthier levels than previously feared, with BHP guiding to lower net debt than we had expected for the half of US$12.5-$13.0bn. In great shape but trading near fair value we maintain our Hold recommendation.

We adjust our model ahead of the 1H24 result in February. The adjustments include the debt raisings, capital releases and Distribution Reinvestment Plan during 1H24, as well as updates to macro assumptions (inflation, interest rates, FX). On aggregate, the impacts are minimal save for the timing and size of capital releases vs previous assumptions. 12 month target price lifts 28 cps to $12.66, in line with our DCF-based sum-of-the-parts valuation. The largest driver here is lower assumed forward interest rates (as per market expectations implied in the swap curve) that impact medium-long-term new debt costs upon refinancings and/or drawdown for capex funding. HOLD retained, given c.2% potential TSR (incl. c.4.9% cash yield) at current prices. On a five year investment holding period we estimate an internal rate of return of 6.4% pa.