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Reporting Season road map: 18 February 2019

Andrew Tang

Following our assessment of results and market announcements, here are our five top picks for today (Monday 18 February 2019):

Whitehaven Coal (WHC) – Oversold on short term factors

Coal price volatility helped take the shine off what was otherwise a record 1H result for WHC which was largely in line with expectations. Ongoing issues at Narrabri are concerning, and margins have clearly peaked, but we think that a forecast 12-month Total Shareholder Return of 31% is compelling, and more than accounts for these risks. We also think that market interest in the capital management upside story will rebuild into the 2H dividend.

Higher cost assumptions have seen us revise down our share price target, but we retain our Add recommendation. Morgans clients can login to view our share price target and detailed research note.

Baby Bunting Group (BBN) – More strong growth to come

BBN reported a solid 1H result, in line with our forecasts. The well flagged opex 'catch-up' came through, while the Gross Margin was higher than we had forecast. Excluding set-up costs for 3 new stores opened late in 1H19, EBITDA would have slightly exceeded our forecast. FY19 EBITDA guidance (A$25-27m; +34-45%) was reiterated. We forecast another substantial year of growth in FY20, underpinned by:

  • continued market share gains (c3.5% LFLs);
  • 5 new stores;
  • Gross Margin in line with 2H19); and
  • a return to operating cost leverage (70bp)

This translates to an 8% EBITDA margin, still below the 8.27% achieved in FY17.

It's difficult to get anything even close to the quantum and duration of BBN's growth profile in the retail sector. We retain our Add rating. Morgans clients can login to view our share price target and detailed research note.

Healius (HLS) – 1H soft, but it's always darkest before dawn

1H results were soft, but battled against weak underlying market conditions and numerous growth initiatives conspiring to pressure margins and cash flow. Imaging bucked the trend, putting up solid growth, while Medical Centres continued its slow grind to profitability and Pathology was hit with multiple well-flagged issues (eg soft flu season, a national bowel contract loss, higher VIC labour costs). While a 2H turnaround is predicated on improving market conditions and normalising long-term averages (where we have little visibility), signs of traction are beginning to appear. Coupled with projected cost savings, we should see the earnings trajectory improve beyond FY19. Not to mention a suitor (potential takeover offer) awaits in the wings. We lift our FY19-21 NPAT by up to 6.5%.

We retain our Add rating. Morgans clients can login to view our share price target and detailed research note.

People Infrastructure (PPE) – Ticking along nicely

PPE has again reported a solid set of numbers with good top-line growth and margin expansion translating to a beat against our forecasts. PPE operates in a number of sectors with attractive industry tailwinds which we expect to drive solid organic growth over the forecast period. The company's balance sheet remains strong and there is scope for further debt funded acquisitions which the company said it was currently reviewing.

We increase our share price target and retain our Add recommendation. Morgans clients can login to view our share price target and detailed research note.

Jumbo Interactive (JIN) – Continuing to deliver

We had anticipated a strong result from JIN, but it exceeded our expectations with the strong jackpot activity driving a significant increase in TTV. The company's operating leverage was also clearly evident with EBITDA growth of 112% strongly outstripping the very impressive 58% growth in revenue. The Charity Lottery segment saw TTV growth of 23% to A$3.6m and JIN expects to sign new agreements for the Powered by Jumbo product in the future. No special dividend was announced, but with significant surplus cash we anticipate shareholders will be rewarded over the balance of FY19.

We increase our share price target and retain our Add recommendation. Morgans clients can login to view our share price target and detailed research note.

More information

Morgans clients can access our further analysis in our latest reports on Whitehaven Coal, Baby Bunting, Healius, People Infrastructure and Jumbo Interactive. 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.