Best calls to action – Thursday, 19 August

About the author:

Andrew Tang
Author name:
By Andrew Tang
Job title:
Analyst - Equity Strategy
Date posted:
19 August 2021, 6:00 AM
Sectors Covered:
Equity Strategy and Quant

Corp Travel Limited - In a class of its own

CTD's FY21 result beat expectations lead by a strong 4Q recovery, particularly from its two largest regions being North America and Europe. CTD is likely the only company in the sector to be EBITDA positive in the 2H and have no debt, highlighting its greater exposure to essential services customers, domestic travel, US/Europe (>70% of EBITDA), large pipeline of new client wins and low cost base.

Importantly, FY22 is off to a solid start despite ANZ border closures. Reflecting the Board's confidence in the company's outlook and balance sheet strength, CTD intends to return to paying dividends in CY22.

In a post COVID world, CTD is well positioned to be a significantly larger business with materially higher EPS as a result of strategic acquisitions, organic growth and permanent cost reductions. CTD remains our key pick of the travel sector. We reiterate our Add rating. 

Read our full reports and latest price targets on ASX:CTD here.

Amcor PLC - Rock solid

AMC's FY21 result was broadly in line with expectations. Both divisions performed well with Flexibles EBIT (constant FX) up 9% and Rigid Plastics EBIT (constant FX) increasing 8%. FY21 underlying EPS (constant FX) grew 16%, which was slightly ahead of our 15% forecast and management's guidance for 14-15% growth.

For FY22, management has guided to underlying EPS (constant FX) growth of 7-11% (MorgansF +9%). Given AMC's track record over the past 18 months, this guidance could prove to be conservative.

We make minor adjustments to earnings forecasts with FY22F underlying EBIT rising by 1% to US$1,752m. Add rating maintained.  

Read our full reports and latest price targets on ASX:AMC here.

TABCORP Holdings Ltd - Keeping our eye on the demerger prize

TAH's FY21 result was in line with our forecasts and consensus. A record result from Lotteries & Keno (L&K) was the highlight and illustrated the resilience of the business (EBITDA +14.4%). COVID restrictions have impacted Wagering & Media (W&M) and Gaming Services (GS) trading YTD.

We expect continued strong trading from L&K and TAH plans to target a further A$20-25m in 3S cost savings. The demerger of L&K is targeting completion by June 2022. We moderate 1H22 assumptions for W&M and GS, which results in 11.2% reduction in FY22F NPAT (FY23F NPAT largely unchanged).

We continue to see the risk/reward profile as skewed to the upside. Add maintained. 

Read our full reports and latest price targets on ASX:TAH here.

CSL Limited - Structurally sound; FY22 a "transitional year"

FY21 results were solid, with better than expected top/bottom line growth and improving OCF, but GM contracted on higher plasma costs.

Seqirus was the standout, on strong demand for influenza vaccines, while Behring was more modest, as Albumin gains on transition to a direct China distribution and cost-outs were offset by Ig/Specialty/Haemophilia growth flattish to down.

Improving plasma collections are a prelude to an steepening earnings trajectory, but timing is everything, with a lengthy manufacturing cycle (9-12mos), higher costs and ongoing COVID pandemic, adding uncertainty for a quick turnaround. Add

Read our full reports and latest price targets on ASX:CSL here.

Woodside Petroleum - Woodside in the right place at the right time

Ahead of the 1H21 result, WPL/BHP Petroleum announced their agreed merger. We believe WPL has benefited from being in the right place, at the right time.

With: 1) BHP/WPL having an existing relationship, 2) BHP eager to boost its ESG profile, and 3) WPL being a quality operator (safe hands which is important for BHP).

From an economic standpoint we think WPL is clearly getting the better of the deal, with synergies not baked into deal metrics and BHP willing to accept a discount.

Meanwhile WPL posted a mixed 1H21 result, with EBITDAX inline while underlying NPAT fell short of our estimates. We maintain our ADD rating, with recent weakness pushing WPL to a discount.

Read our full reports and latest price targets on ASX:WPL here.

Coles Group - Still going strong

COL's FY21 result was slightly above our expectations but in line with Bloomberg consensus forecasts. Divisional EBIT: Supermarkets +5% (1% above Morgans); Liquor +20% (5% above Morgans); and Express +103% (30% above Morgans).

COL advised that for the first seven weeks of 1Q22, Supermarket headline sales were up ~1% (or +12% on a 2-year basis) while Liquor sales were flat (or +19% on a 2-year basis). We increase FY22F EBIT by 2% to A$1,852m while underlying NPAT rises by 4% to A$996m.

We maintain our Add rating. COL remains our key pick in the Supermarkets sector

Read our full reports and latest price targets on ASX:COL here.

Peter Warren - Cruising with tailwinds at its back

PWR upgraded its FY21 NPBT forecast by 35% (68% above the original prospectus forecast) Well known drivers include persistently strong demand, well in excess of supply. PWR should exit FY21 in a strong net cash position (MorgansF A$66m), providing ample flexibility for inorganic growth options.

We make material upgrades to FY21/FY22 forecasts, but assume current utopic conditions normalise over the course of CY22.

PWR trades on an attractive 11.6x FY22F (12.9x FY23F) - cheap even on the assumption that earnings materially re-base. Add rating maintained. 

Read our full reports and latest price targets on ASX:PWR here.

Atomos - Ready, Set, Go

AMS' FY21 result saw all metrics comfortably ahead of our expectations and recent guidance demonstrating strong demand across new and existing product suites. Alongside recording a maiden NPAT, perhaps the standout of the result was the 780bp gross profit margin swing in the pcp driven by strong operating leverage, aided lower promotional activity and higher margins attained through recent product launches.

While May product launches provided a solid bookend to the year, commentary suggests momentum is to continue into 1H22 with initial production run of these new products already being shipped and sold.

Looking further ahead, positive signs continue with further margin expansion expected with EBITDA margins trending towards 12 - 15% of sales. We roll forward our model and make a number of adjustments to our cost base assumptions. We retain our Add recommendation. We continue to be buyers in this name. 

Read our full reports and latest price targets on ASX:AMS here.

Apn Conv Retail REIT - An active year

AQR's FY21 result was in line with guidance with portfolio metrics solid (occupancy 99.6% and WALE 11.7 years).

Alongside the result, AQR announced an underwritten $45m institutional placement and SPP to raise up to $5m with funds to be used for acquisitions.

The portfolio is currently valued at $738m across 109 properties which includes two new acquisitions announced with the result. FY22 FFO and DPS guidance is set at 22.9c (implied yield 6.3%). We retain an Add rating

Read our full reports and latest price targets on ASX:AQR here.

Emeco Holdings - Finally hits the dividend inflection point

EHL comfortably met FY21 EBITDA guidance updated late April. The re-instatement of dividends is long overdue and reflects 5 years of reform.

We think EHL can sustain a 4.0-4.3% dividend yield while still slowly de-leveraging further below the 1.0x leverage target. 

EHL continues to look cheap, with earnings upside risk with the cycle, and with fundamentals now likely to appeal to a broader set of investors. 

Read our full reports and latest price targets on ASX:EHL here.

Ebos Group Ltd - Continues to be the boss

EBO posted a strong FY21 result in line with our forecasts, with the highest recorded ROCE (18.0%) reflected by double digit earnings growth.

EBO announced strategic investments/acquisitions, pet manufacturing facility and a medical device distributor with more to come.

We have made modest upgrades to forecasts and move our recommendation back to Add (from Hold) with ~10% TSR. 

Read our full reports and latest price targets on ASX:EBL here.

Find out more

You can find further detailed analysis of company results this reporting season by browsing our reporting season tag, and view a full list of upcoming results on our Reporting Season Calendar.

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Disclaimer: Analyst may own shares. 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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