Best calls to action – Wednesday, 23 February

About the author:

Andrew Tang
Author name:
By Andrew Tang
Job title:
Analyst - Equity Strategy
Date posted:
23 February 2022, 6:00 AM
Sectors Covered:
Equity Strategy and Quant

Cochlear - 1H beat- confidence increasing in the outlook 

1H results were better than expected, underpinned by strong sales growth, expanding GPM and OPM, and solid OCF (+44%).

Services (+21%) and Acoustics (+40%) drove the results, on strong demand for sound processor upgrades and new acoustic products, respectively, while Cochlear Implants (CI) increased modestly (+7%), with sales essentially flat (+2%) impinged by varying COVID-related surgical restrictions and lockdowns.

While clinical capacity and staffing issues are near term headwinds to a strong rebound in CI, as the world opens back up and the surgical backlog addressed, management expressed increasing optimism in the medium/longer outlook.

We have adjusted our FY22-24 estimates and increased our target price to (login to view) on multiple roll forward. Move to Add

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

HUB24 Ltd - Extra Class benefits to be Xplored 

HUB reported slightly ahead of expectations: underlying EBITDA A$29.7m (+79% on pcp); and underlying NPAT of A$14.2m (+89% pcp). Exceptional FUA growth (~40% pa organically) is translating more directly to revenue (+34% HOH) as the revenue margin stabilises.

Heavy investment is still being required; however we expect HUB to deliver operating leverage (more so from FY24+) which is central to the investment case. HUB rolled its FUA target to FY24, now targeting A$83-92bn (+75% growth over 2.5 years).

Net inflows of ~A$12-14bn pa are the key driver. We retain an Add recommendation. HUB continues to show evidence their market share can increase significantly. We expect scale benefits to deliver a step-change in earnings over the next three years, with long-term growth thereafter supported by the entrenched nature of the platform within the adviser base. 

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

Coles Group - COVID experts

COL's 1H22 result was broadly in line with expectations, which was a good effort in our view given risks around higher COVID costs that could have materially impacted earnings in the half.

Divisional EBIT: Supermarkets -1% (+1% vs MorgansF), Liquor -5% (-6% vs MorgansF) and Express -63% (-50% vs MorgansF). COL did not provide sales growth rates for the first few weeks of 2H22 but noted Supermarkets sales were elevated in the early part of January due to the spread of Omicron before moderating later in the month and into February.

We decrease FY22-24F EBIT by 1% in each year. Our target price falls slightly to (login to view) and 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 - Order book strength

Excluding acquisitions, PWR reported 1H22 NPBT of A$35m; +30% on pcp; down ~28% on 2H21; +25% vs original prospectus. Guidance was A$32-34m. Lockdown impacts in NSW (~3-months impact; not quantified) were endured; and PMG will contribute strongly in 2H22 (A$1.3m NPBT in Dec-21).

PWR's order book closed up 97% on the pcp and ~50% on June-21, with supply constraints remaining a challenge in 1H22. PWR detailed revenue impacts from two OEMs moving to the agency model. Whilst revenue will be ~11% lower, PWR expects a neutral impact on NPBT.

The consolidation opportunity for PWR provides a runway for meaningful growth and balance sheet capacity remains. Trading on ~9x FY24F PE, Add maintained.

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

Superloop Limited - Eyes on the prize 

SLC's 1H22 result was broadly in-line with our forecast (we expected some lumpiness due to deal timing). FY22 guidance / year end cash were reaffirmed. SLC booked double digit YoY growth across the three core business units (Consumer, Business and Wholesale).

Growth was inflated due to a big uplift from the Exetel acquisition but the core SLC business booked a healthy ~18% organic YoY growth in the recurring revenue part of the business and 12% YoY growth in underlying EBITDA growth. Underlying EBITDA lifts 40-50% YoY/HoH based on guidance.

On face value this looks like a challenge, but as we explain below, it looks achievable to us. SLC should end FY22 with ~$50m of net cash. Layering in some debt for M&A (~1x ND/EBITDA) and this could become >$110m of spending money. If/when deployed this could lift EBITDA by as much as ~60%. Add retained. 

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

Step One Limited - 1H22 result: Comfort and support

STP has reaffirmed its guidance for FY22 after delivering a 1H22 result that met expectations. The launch of the women's line has been successful and the replenishment of stocks later in the second half will, we believe, be met with good growth in sales.

We reiterate our ADD rating, regarding STP as heavily oversold.

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

Costa Group Holdings - Back in the sweet spot

With the market positioned for a miss, CGC's result was better than feared and ahead of consensus expectations. The result was a solid outcome in far from perfect conditions, with the Produce segment delivering a materially improved 2H21 result (EBITDA +18% yoy).

Importantly, CGC has seen a positive start to FY22 across both its domestic Produce and International businesses and highlighted a number of "significant" earnings drivers to deliver a stronger FY22 result. With operational momentum improving, we maintain an Add rating

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

Jumbo Interactive - Strong foundation set to keep the run going

We viewed the market's reaction to JIN's cost investment as overdone and expect the impact to be recovered from stronger top-line performance. We continue to believe JIN has laid a strong foundation for FY23 and we remain attracted to the company's long-term growth potential, structural tailwinds and strong cash generation.

ADD rating maintained.

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

SomnoMed Limited - Bridging the feedback loop to CPAP

SOM has formally introduced its new technology piece called "Rest Assure" which aims to bridge a major gap in mild to moderate COAT therapy and CPAP by enabling its devices to measure a number of efficacy and compliance measures.

By encapsulating several sensors within the device, SOM's algorithm can effectively monitor compliance, efficacy, sleep statistics, respiratory rates, and provide a sleep score, similar to ResMed's AirView platform.

While commercial readiness is likely in 2H23 (pending regulatory approval in 1H23), we view the device as a potential game-changer in the field which further emphasises our view that SOM may be an attractive takeover target upon evidence of successful market traction.

With patient study validation, final design, regulatory approvals, and indicative pricing ahead, we reserve the opportunity as further upside potential. Rolling slightly higher OPEX through our model, our valuation decreases to (login to view) although we upgrade to an Add recommendation (from Hold).

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

Veem Ltd - Rome wasn't built in a day

VEE's 1H22 result was largely in line with our expectations and guidance provided at the AGM in November. As previously announced, the result was negatively impacted by one-off production issues, higher raw material costs, and labour and capacity constraints.

Gyro sales remain lumpy reflecting the product being in the early stages of its life cycle. VEE expects gyro sales to increase in 2H22 and escalating into FY23. We decrease FY22-24F EBITDA by between 6-8% with the potential for ongoing cost pressures to impact margins in 2H22.

Our target price decreases to (login to view) and we maintain our Add rating. Despite recent challenges, we remain confident in the underlying demand environment for VEE's key markets with the global gyro market estimated to be worth ~US$14.6bn. While the key will be execution, if the company gets it right, we believe there is strong growth potential over the long term.

Read our full reports and latest price targets on ASX:VEE 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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