Reporting Season Road Map: 28 February 2020

About the author:

Andrew Tang
Author name:
By Andrew Tang
Job title:
Analyst - Equity Strategy
Date posted:
28 February 2020, 3:20 PM
Sectors Covered:
Equity Strategy and Quant

Healius - 1H mixed- can't teach an old dog new tricks

1H results were mixed, with solid revenue growth impinged by higher overhead costs and poor Medical Centre performance, not to mentioned significant non-recurring items. Pathology and Imaging posted double-digit profit growth, while Medical Centres went backwards, hit by new services/systems pushing older docs to retire, slowing productivity and higher fee pressure, all which appear temporary. While guidance calls for an improving 2H (where we have little visibility), right-sizing Medical Centres (or its sale) and projected cost savings should improve the earnings outlook, not to mention a suitor awaits in the wings limiting downside risk. We lower our FY20-22 NPAT by up to 9.6% (ex-AASB-16), which sees our DCF/SOTP target price decline. Add retained. 

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Kina Securities Ltd - Set for a strong FY20

KSL's FY19 NPAT of PGK61m was 6% ahead of our forecasts (PGK57.5m). The key driver of the result beat was revenue being 7% higher than we expected, with outperformance at both the net-interest income and non-interest income lines. Overall, we see this as a very solid result in a year when KSL also successfully bedded down the transformational ANZ PNG acquisition. We make minor downgrades to KSL's FY20F/FY21F EPS (5%/2%) mainly reflecting higher cost-to-income ratio forecasts in all years. Our PT is largely unchanged. Trading on 7x FY20F PE, with our forecasts for ~25% EPS growth this year, we continue to see KSL as undervalued. Add maintained. 

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Motorcycle Hldg - Retail gain, wholesale pain

An in line 1H20 result saw MTO revenue +3% and EBITDA -5% to A$9.9m. We interpret that a strong recovery in dealership earnings has offset weakness in Cassons Wholesales and a flat MCA result (used bikes offsetting underlying softness due to competition). National new MC sales may remain volatile (note recent bushfire risk in Jan), however just a stabilisation is powerful in itself given the reduced cost base. We forecast a return to strong growth in FY21 as the group should benefit from the Indian agreement, Finance JV contribution, acquisition contributions and a continued recovery in dealership volumes/margins. With c20% upside to our new PT; we upgrade to Add

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Acrow Formwork - Strategy is working

ACF's 1H20 underlying EBITDA was in line with our forecast and management's guidance. However, underlying NPAT was below our expectation due to higher D&A, net interest and tax. Importantly, management reiterated previous guidance for 2H20 underlying earnings to be significantly higher than 1H20 and remains comfortable with current broker forecast range for FY20 EBITDA of between A$15.5-15.9m. We make no changes to FY20F underlying EBITDA of A$15.9m but reduce underlying NPAT by 12% to A$8.6m due to higher D&A, net interest and tax. Maintain Add rating on a slightly lower target price.  

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Cardno Limited - The Americas to the rescue

CDD's 1H20 result benefited from a very strong performance in the Americas division, which came in ahead of our forecasts. This is the company's first result post the demerger of Intega Group and it is now a pure-play consulting business. Guidance was provided for FY20 EBITDA to be at the same level or potentially stronger than the prior year ($38.0m). While the APAC division is taking longer to turn around than initially expected, we see upside potential for investors from improved margins and acquisitions over time. With +50% upside to our revised target price, we retain an Add rating. 

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Mitchell Services - Free cash flow lift-off in the 2H

The 1.1cps special dividend was the only surprise in MSV's 1H result, with high gross debt to benefit from a forecast acceleration in 2H free cash flows. MSV's outlook commentary remains strong, re-confirming our forecast assumptions. We make only slight adjustments. We roll forward our blended valuation methodology into 1H21, which lifts our valuation/target price. MSV remains too cheap, in our view, and we look to strong 3Q and 4Q results as key catalysts. We think the market will also warm to the stock as it approaches net cash (FY22) offering further growth and capital management options

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.


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