Research notes

IAG’s 1H23 NPAT (A$407m) was down -13% on the pcp, and ~-7% below Visible Alpha consensus. While IAG’s headline result numbers were a bit softer than expected, full year guidance was re-affirmed, and IAG does enter 2H24 with its underlying insurance margin (UIM) seemingly already tracking around 15%. We downgrade IAG FY24F/FY25F EPS by -6%/-2% on slightly softer UIM forecasts and higher interest expense. Our PT is set at A$6.17 (previously A$6.32). We believe IAG is now generally tracking in the right direction operationally after a difficult few years, however, with <10% upside to our valuation we maintain our HOLD call.

ING reported the strongest 1H result in its listed life. However, it was the materially softer than expected volume growth in Australia which disappointed following weakness in the ‘out of home’ channels. Management’s outlook commentary was vague as usual and slightly cautious. However, its commentary around the 1H/2H skew is unchanged. Our EBITDA forecasts are therefore unchanged while NPAT falls slightly due to higher tax. Given expectations were high leading into this result following strong share price performance in recent months, the stock was sold off given there was no beat and outlook commentary was mixed. However, we think the stock has been severely oversold. Trading on an FY25F PE of 11.1x and an attractive dividend yield of 6.1% fully franked, we maintain an Add rating.

Despite revenue growth of 2.4% on pcp to ~A$512m, ASX’s 1H24 result was a miss versus market consensus at NPAT (~A$231m, -8% on pcp and ~6% under consensus) on higher total costs than expected (~A$221m, +27% on pcp). We alter our FY24F-FY26F EPS by ~-2-+2% on higher operating expenses near term with an improved margin profile (cost rationalisation) medium-term. Our price target increases to A$62.70 (from A$60.20). Trading on ~26.5x MorgE FY24F PE, slightly above its 10-year average, we still see the elevated expense profile as weighing on the stock near-term. Hold maintained.

Portfolio fundamentals remain solid and properties continue to re-weight towards higher growth Daily Needs assets vs Large Format Retail. One acquisition and four divestments to settle in 2H24. LFL income grew 4% which is in line with guidance and the active development pipeline remains on track to complete in 2H24 which will assist in valuation uplifts. Planning on new developments valued at +$530m is underway. NTA $1.44. FY24 guidance reaffirmed comprising FFO of 8.6c and DPS of 8.3c. We retain an Add rating with a price target of $1.37.

GQG reported a strong and in-line FY23 result: mgmt fees +16.8%; operating profit +15.7%; NPAT +18.7%. 2H23 earnings were up 19.7% half on half. Investment performance has been solid/strong across all strategies. This supports flows, which have commenced strongly (US$2.9bn CY to-date vs US$2.2bn pcp). Recent FUM growth provides near-term earnings growth visibility. Starting FUM is +18% on avg FY23; current FUM ~30% above. GQG still has meaningful growth based on the current fund offerings; with the longer-term requiring effective management of the eventual CIO transition and adding new growth avenues to the business. We view the recent re-rate as warranted and valuation still attractive (~11.5x FY24 PE). Add maintained.

CU6 has released initial findings from its Phase 1/2 diagnostic trial in detection prostate cancer (PC) lesions in patients with biochemical recurrence (BCR). The results showed the treatment was broadly safe with only one treatment-related adverse event which resolved, and detected significantly more potential lesions than standard of care imaging. The results have given CU6 confidence to push for a Phase 3 trial, although likely requiring a change in design needed to more accurately validate the volume of positive lesions detected over standard of care.

BHP has flagged two large impairments ahead of its upcoming 1H24 result to be released on the 20th February. A US$2.5bn (post-tax) impairment against its Western Australia Nickel carrying-value (Nickel West and West Musgrave) and a US$3.2bn (post-tax) impairment for an increase in the Samarco Dam Failure provision. These impairments will be recognised as exceptional items in the 1H24 result and will not impact BHP’s underlying results, although could still add to BHP’s interim dividend considerations. We maintain our Hold rating with an unchanged Target Price of A$ps.

A largely in-line 1H24 result, while the surprise came in the form of updated numbers for the Hermosa Project with S32 reaching FID on the Taylor’s Deposit. 1H24 underlying EBITDA of US$708m (+5%/+2% vs MorgansF/consensus). Despite assuming a zinc price 28% above consensus, S32 still estimates an expected IRR on Hermosa of just 12%. Not leaving much margin for error. We expect S32 will be able to self-fund the Hermosa development out of operating cash flow and debt, although weighing on FCF until FY28. Hermosa looks difficult from a value perspective, but could help S32 gain earnings power. Further expansion through Clark/Peak/Flux could unlock better value. We maintain an Add rating, with a reduced valuation-based 12-month Target Price of A$4.00ps (was A$4.75ps).

MGH delivered a good 1H24 result, beating VA consensus expectations and reiterating full year guidance for EBITDA of $190m-$210m. Furthermore, the business announced the acquisition of a further $80m of construction material assets in Victoria and additional industrial land purchases in NSW. So while these assets lay the foundation of future earnings growth, it has seen net debt remain broadly unchanged and gearing at 2.3x Net Debt to EBITDA (excluding leases). With MGH trading on an FY25 PER of 12.6x, the business offers more growth and a lower multiple than many of its peers, with the discount likely attributable to the continued contribution of acquisitions in driving EBITDA growth and the expectation that the business will remain geared at 2-3x EBITDA (excluding leases) over the near term. On this basis, we retain our Add rating, upgrading our target price to $4.35/sh (previously: $4.05/sh).

As we expected, TWE reported a weak 1H result, particularly from Treasury Americas (TA). Full year guidance for the base business was revised marginally however the DAOU acquisition remains on track. We have made minor revisions to our forecasts. With greater US Luxury supply, the addition of the DAOU acquisition and the potential removal of China’s tariffs, earnings growth should accelerate in FY25. Trading on a FY25 PE of 17.4x, TWE is trading at a material discount to its 5-year average of 25x and we maintain an Add rating. The key near term catalyst is China removing the tariffs on Australian wine imports.