Reporting Season Road Map: 21 August 2019

About the author:

Andrew Tang
Author name:
By Andrew Tang
Job title:
Analyst - Equity Strategy
Date posted:
21 August 2019, 1:13 PM
Sectors Covered:
Equity Strategy and Quant

Following our assessment of results and market announcements, here are our two top picks for today (Wednesday, 21 August 2019):

Sonic Healthcare (SHL) – FY19 in line – Strong, stable and healthy

FY19 underlying results were solid, with op income in line with expectations and guidance, while net profit came in ahead on a divestment and lower tax.

Lab ops in Oz, US, UK and Switzerland put up solid organic revenue growth and domestic Imaging was strong, offsetting continued softness in Clinical Services, albeit 2H strengthened, GP recruitment was strong and optimisation continues.

An inline FY20 outlook (6-8% cc EBITDA) points to growing underlying momentum (4-6% ex- Aurora, +US fee cuts), which may prove conservative in light of strong organic lab growth, a fairly benign near-term regulatory backdrop and a pipeline of acquisitions/JVs, with more than adequate B/S capacity (cA$1bn headroom).

Our FY20-22 EBITDA estimates increase up to 3%, with our DCF/SOTP based target price rising on rolled forward multiples and FX changes.

We recommend an ADD rating. Morgans clients can login to view our share price target and detailed research note.

Beacon Lighting Group (BLX) – 50 year old business with rebound form

BLX's FY19 result was in line with our forecasts with 2H19 representing a particularly difficult trading environment for the group.

We think LFL sales growth turned positive in August while FY20 should see GP growth outpace revenue growth and a return of opex leverage (providing positive comp sales growth continues cycling a weak base).

2H19 saw the perfect storm of headwinds for BLX and we think it's likely that these headwinds ease (potentially meaningfully) in FY20.

BLX has a strong track record of bouncing back strongly following subdued trading periods and we think FY20 will be no different.

We therefore see upside to BLX's trading multiple (11.4x FY20/4.8% yield); upgrade to Add.

We note today's intra-day 5% share price fall (reflected in the multiples on our page 3 financial summary). 

Morgans clients can login to view our share price target and detailed research note.

Seek (SEK) – Pedal to the metal (Part IV)

SEEK managing director Andrew Bassat is thumbing his nose at global slowdown chatter – he is doubling down on growth opportunities.

The company yesterday committed to invest more aggressively in new technologies and early stage ventures, a move that will see lower near-term reported earnings. Following roll forward to a new base year for valuation, our DCF valuation increases.

The valuation drives our share price target. We upgrade to an ADD recommendation (from HOLD). Morgans clients can login to view our share price target and detailed research note.

Senex Energy (SXY) – Earnings growth on the way

SXY reported underlying NPAT of A$7.2m, up significantly on FY18 underlying earnings of A$2.0m.

Stable operating costs and a % improvement in cash flow generation was supported by rising production volumes and oil prices.

Having commenced its significant ~110 well drilling campaign in the Surat Basin, across project Atlas and Roma North, SXY is well on its way to emerging as a material east coast gas producer.

We maintain our Add rating; we expect emerging gas production will give SXY a solid earnings profile starting in FY21.

Morgans clients can login to view our share price target and detailed research note.

APN Convenience Retail REIT (AQR) – On track

AQR's FY19 result was in line with guidance with FFO of 21.5c (+6.4% on the pcp).

FY20 FFO guidance comprises FFO of 22.3-22.5c (+4.0-4.8% on the pcp and in line with Morgans' expectations).

FY20 DPS guidance has been set at 21.8c which equates to an implied distribution yield of approximately 6.5%. We retain our Add rating with a revised price target.

Morgans clients can login to view our share price target and detailed research note.

Kelly Partners Group (KPG) – Counting on execution 

KPG reported FY19 NPATA of A$3.2m, down 26% on the pcp (in-line with May-19 downgraded guidance).

2H19 NPATA of A$1.9m was up 46% on 1H19. 2H19 earnings provided some evidence that the issues experienced in the 1H have been contained.

Four small acquisitions were made in FY19, which are expected to deliver ~A$3.5m annualised revenue (an incremental A$1m in FY20).

Further 'tuck in' acquisitions are likely in FY20. KPG has set a five year growth strategy which, if executed, will deliver meaningful earnings growth pa.

Execution risk is evident (after a weak performance in FY19), however we view the existing revenue base as relatively defensive.

We upgrade to Add. KPG is paying a solid dividend yield and trading on ~9.6x FY20F PE the risk/reward is favourable taking a longer-term view.

Morgans clients can login to view our share price target and detailed research note.

Zip Co (Z1P) – Going global

Z1P has announced that it has entered into an agreement to acquire global technology platform 'PartPay Limited'.

Z1P will also concurrently increase its stake in Quadpay. The acquisition gives Z1P exposure to 4 attractive global retail markets and immediate scale in NZ.

Execution risks exist, however, with Partpay's business/investments outside NZ all in their infancy.

We will review our numbers/price target at the upcoming Z1P FY19 result (Aug 22nd), noting the PartPay transaction still requires Z1P shareholder approval at the AGM.

Overall, Z1P management have executed very well domestically and a successful global expansion strategy could add significant value. We maintain our Add recommendation.

Morgans clients can login to view our share price target and detailed research note.

More information

Morgans clients can access further analysis in our latest reports on Sonic Healthcare, Beacon Lighting, Seek, Senex Energy, APN Convenience Retail REIT, Kelly Partners Group and Zip Co. Alternatively, please contact your nearest Morgans office for access.

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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