Research notes

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Research Notes

Cycle strengthens

ALS Limited
3:27pm
October 3, 2025
Exploration activity is poised to accelerate. Our proprietary raisings data indicates that geochemistry sample volumes will be trending up +20-30% in November which will be a key positive catalyst for the stock. Despite a sharp rise in volumes, we forecast FY26 Commodities revenue to grow +12% (from +10%) as price lags volume and downstream (metallurgy) lags upstream (geochemistry). In FY27, we forecast +20% revenue growth in Commodities (from +12%). This sees our FY26 NPAT forecast largely unchanged (+1-2%) but our FY27-28 forecasts rise by +7-8%. Our target price increases to $24.60 (from $20.00).

Successful playbook turns to Fertiliser opportunity

Ridley Corporation
3:27pm
October 3, 2025
RIC produces premium quality, high performance animal nutrition products. Its recent acquisition of Incitec Pivot Fertilisers (IPF) distribution business has now transformed RIC into a leading diversified Australian agricultural services provider. Similar initiatives that successfully turned around the base RIC business over the last few years can now be applied to IPF, underpinning solid earnings growth. Despite strong share price appreciation since announcing the acquisition of IPF, we are positive on the group’s future prospects and initiate coverage with an Accumulate rating and A$3.25 price target.

Offshore partnerships takes the opportunity up a gear

Eagers Automotive
3:27pm
October 3, 2025
APE has executed on two highly strategic transactions: 1) taking a majority interest (65%) in CanadaOne Auto; and 2) Mitsubishi Corporation acquiring 20% of EA132. As part of the transactions, APE is conducting an underwritten entitlement offer (to raise A$452m) and Mitsubishi is investing A$50m in APE via a placement. The combined deals are ~15% EPS accretive (on LTM financials to June-25). APE’s opportunity set has expanded, with the business having levers for a material earnings step-up over time across: domestic franchise auto (market share and margin); Canadian auto retail (significant market share opportunity); Independent used (global opportunities); and ancillary opportunities (enabled by scale).

Strength in numbers

New Hope Group
3:27pm
October 2, 2025
NHC delivered increased production through FY25, reduced its FOB costs, and maintained both a high dividend yield and a strong net cash position, reinforcing its operational discipline and financial resilience. NHC’s strengthening production profile is underpinned by low-cost, high-margin, long-life assets. We think that thermal coal pricing has found its natural floor and that NHC offers a resilient, high-quality exposure to the next coal price cycle. NHC looks cheap, but does suit patient/ value investors, particularly as catalysts for thermal coal look limited in the short term. We rate NHC an ACCUMULATE with a target price of A$4.35ps.

Big upgrade but it’s selling these businesses

Dyno Nobel
3:27pm
October 1, 2025
DNL’s trading update was materially stronger than expected for the business it no longer wants, Fertilisers. Explosives in on track to achieve previous guidance. We have made material upgrades to our FY25 and FY26 forecasts for a much higher DAP price. However, given DNL is likely to close Phosphate Hill from September 2026, we have made material downgrades to our FY27 forecasts reflecting the highly dilutive nature of this decision. In its first year with no fertilisers, DNL is trading on a full FY27 PE of 18x and EV/EBITDA of 8.6x. We prefer ORI for exposure to the Explosives industry.

EGM should clarify the opportunity

TPG Telecom Ltd
3:27pm
September 30, 2025
Following recent share price weakness, we upgrade TPG to an ACCUMULATE recommendation. Our target price remains unchanged at $5.50. Recent challenges facing Optus could benefit Vodafone’s mobile growth while TPG’s upcoming capital management initiatives could deliver share price upside.

Upside contingent on volume improvement

Wagners
3:27pm
September 30, 2025
Given the strong outlook for South East Queensland construction markets and the WGN share price, the business has taken the opportunity to raise an additional $30m via an institutional placement, while the Wagner Family has sold an additional $36m of stock to reduce their holding to c.44%. Despite 14% of share on issue being transacted in the past month (across these transactions), the stock is up c.8.2%. Despite the strong demand signals across South East Queensland (SEQ) and our expectation this can drive earnings higher in FY27/28, a stretched valuation sees us reduce our recommendation to a HOLD with a $2.90/sh price target.

All Hail the King

Ramelius Resources
3:27pm
September 27, 2025
We re-initiate coverage on Ramelius Resources (RMS) with an ACCUMULATE rating and price target of A$4.00ps. RMS is our preferred gold pick in the ASX gold producer space, underpinned by consistent cash generation, operational performance, a defined growth pipeline at Dalgaranga (acquired via ASX.SPR) and the 3.2Moz Au Rebecca-Roe project. The company’s operational track record in extracting margins, paired with SPR’s high-grade resource base and existing infrastructure, creates a platform for sustained, meaningful free cash flow - blending operating expertise with orebody quality. With a pipeline of growth, cash generation and capital management, we believe RMS holds a competitive advantage over its mid-tier peers.

Delivering margin and cash, while controlling risks

Symal Group
3:27pm
September 24, 2025
Symal Group (SYL) is a vertically integrated self-performing contractor spanning civil contracting, plant hire, and material recycling. Despite SYL continuing to deliver strong returns on capital across diversified and resilient end markets, the stock is trading at a PER half its peers, and we believe investors are over discounting the risks associated with construction contracting. For example, if we compare SYL’s contingent liabilities (bank guarantees) to revenue, its exposure (along with margins) is in line (if not above) with peers. Our conviction in SYL’s risk management is further supported by strong cash conversion and substantial insider ownership. On this basis, we rate SYL a BUY with a $2.40/sh target price.

Assessing organic vs acquisitive growth

Acrow
3:27pm
September 24, 2025
ACF’s strategy has focused on supplementing organic growth with complementary acquisitions, enhancing scale and enabling entry into new markets. We estimate that 58% of EBITDA growth between FY18-25A was driven organically, while 42% came from acquisitions. Over the past two years, ACF has strengthened its Industrial Access offering through four acquisitions. If ACF hadn’t done these deals, we estimate that FY24A-26F underlying EPS would be between 4-18% lower. We make no changes to earnings forecasts and maintain our BUY rating and $1.32 target price. Trading on 9.8x FY26F PE with a 5.3% yield, we continue to view ACF as an attractive investment with the company’s long-term growth prospects remaining strong despite some near-term uncertainty around the commencement of key projects.

News & insights

Michael Knox discusses how weakening US labour market conditions have prompted the Fed to begin easing, with expectations for further cuts to a neutral rate that could stimulate Indo-Pacific trade.


In our previous discussion on the Fed, we suggested that the deterioration in the US labour market would move the Fed toward an easing path. We have now seen the Fed cut rates by 25 basis points at the September meeting. As a result, the effective Fed funds rate has fallen from 4.35% to 4.10%.

Our model of the Fed funds rate suggests that the effective rate should move toward 3.35%. At this level, the model indicates that monetary policy would be neutral.

The Summary of Economic Projections from Federal Reserve members and Fed Presidents also suggests that the Fed funds rate will fall to a similar level of 3.4% in 2026.

We believe this will happen by the end of the first quarter of 2026. In fact, the Summary of Economic Projections expects an effective rate of 3.6% by the end of 2025.

The challenge remains the gradually weakening US labour market, with unemployment expected to rise from 4.3% now to 4.5% by the end of 2025. This is then projected to fall very slowly to 4.4% by the end of 2026 and 4.3% by the end of 2027.

These expectations would suggest one of the least eventful economic cycles in recent history. We should be so lucky!

In the short term, it is likely that the Fed will cut the effective funds rate to 3.4% by March 2026.

This move to a neutral stance will have a significant effect on the world trade cycle and on commodities. The US dollar remains the principal currency for financing trade in the Indo-Pacific. Lower US short-term rates will likely generate a recovery in the trade of manufacturing exports in the Indo-Pacific region, which in turn will increase demand for commodities.

The Fed’s move to a neutral monetary policy will generate benefits well beyond the US.

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Michael Knox discusses the RBA’s decision to hold rates in September and outlines the conditions under which a November rate cut could occur, based on trimmed mean inflation data.

Just as an introduction to what I'm going to talk about in terms of Australian interest rates today, we'll talk a little bit about the trimmed mean, which is what the RBA targets. The trimmed mean was invented by the Dallas Fed and the Cleveland Fed. What it does is knock out the 8% of crazy high numbers and the 8% of crazy low numbers.

That's the trimming at both ends. So the number you get as a result of the trimmed mean is pretty much the right way of doing it. It gets you to where the prices of most things are and where inflation is. That’s important to understand what's been happening in inflation.

With that, we've seen data published for the month of July and published in the month of August, which we'll talk about in a moment. Back in our remarks on the 14th of August, we said that the RBA would not cut in September. That was at a time when the market thought there would be a September return. But we thought they would wait until November. So with the RBA leaving the cash rate unchanged on the 30th of September, is it still possible for a cut in November?

The RBA released its statement on 30th September, and that noted that recent data, while partial and volatile, suggests that inflation in the September quarter may be higher than expected at the time of the August Statement on Monetary Policy. So what are they talking about? What are they thinking about when they say that? Well, it could be that they’re thinking about the very sharp increases in electricity prices in the July and August monthly CPIs.

In the August monthly CPI, even with electricity prices rising by a stunning 24.6% for the year to August faster than the 13.6% for the year to July; the trimmed mean still fell from 2.7% in the year to July to 2.6% in the year to August. Now, a similar decline in September would take that annual inflation down to 2.4%.

The September quarter CPI will be released on the 29th of October. Should it show a trimmed mean of 2.5% or lower, then we think that the RBA should provide a rate cut in November. This would provide cheer for homeowners as we move towards the festive season. Still, it all depends on what we learn from the quarterly CPI on the 29th of October.

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In recent days, several people have asked for my updated view on the Federal Reserve and the Fed funds rate, as well as the outlook for the Australian cash rate. I thought I’d walk through our model for the Fed funds rate and explain our approach to the RBA’s cash rate.

In recent days, several people have asked for my updated view on the Federal Reserve and the Fed funds rate, as well as the outlook for the Australian cash rate. I thought I’d walk through our model for the Fed funds rate and explain our approach to the RBA’s cash rate.

It’s fascinating to look at the history of the current tightening cycle. The Fed began from a much higher base than the RBA, and in this cycle, they reached a peak rate of 535 basis points, compared to the RBA’s peak of 435 basis points. For context, in the previous tightening cycle, the RBA reached a peak of 485 basis points.

The reason the RBA was more cautious this time around is largely due to an agreement between Treasurer Jim Chalmers and the RBA. The goal was to implement rate increases that would not undo the employment gains made in the previous cycle. As a result, the RBA was far less aggressive in its approach to rate hikes.

This divergence in peak rates is important. Because the Australian cash rate peaked lower, the total room for rate cuts and the resulting stimulus to the economy is significantly smaller than in previous cycles.

The Fed, on the other hand, peaked at 535 basis points in August last year and began cutting rates shortly after. By the end of December, they had reduced the rate to 435 basis points, where it has remained since.

Recent U.S. labour market data shows a clear slowdown. Over the past 20 years, average annual employment growth in the U.S. has been around 1.6 percent, but this fell to 1.0 percent a few months ago and dropped further to 0.9 percent in the most recent data.

This suggests that while the Fed has successfully engineered a soft landing by slowing the economy, it now risks tipping into a hard landing if rates remain unchanged.

Fed Funds Rate Model Update

Our model for the Fed funds rate is based on three key variables: inflation, unemployment, and inflation expectations. While inflation has remained relatively stable, inflation expectations have declined significantly, alongside the drop in employment growth.

As a result, our updated model now estimates the Fed funds rate should be around 338 basis points, which is 92 basis points lower than the current rate of 435. This strongly suggests we are likely to see a 25 basis point cut at the Fed’s September 17 meeting.

There are two more Fed meetings scheduled for the remainder of the year, one in October and another on December 10. However, we will need to review the minutes from the September meeting before forming a view on whether further cuts are likely.

Australian Cash Rate Outlook

Turning to the Australian cash rate, as mentioned, the peak this cycle was lower than in the past, meaning the stimulatory effect of rate cuts is more limited.

We have already seen three rate cuts, and the key question now is whether there will be another at the RBA’s 4 November meeting.

This decision hinges entirely on the September quarter inflation data, which will be released on 29 October 2025.

The RBA’s strategy is guided by the concept of the real interest rate. Over the past 20 years, the average real rate has been around 0.85 percent. Assuming the RBA reaches its 2.5 percent inflation target, this implies a terminal cash rate of around 335 basis points. Once that level is reached, we expect it will mark the final rate cut of this cycle, unless inflation falls significantly further.

So, will we see a rate cut in November?

It all depends on the trimmed mean inflation figure for the September quarter. If it comes in at 2.5 percent or lower, we expect a rate cut. The June quarter trimmed mean was 2.7 percent, and the monthly July figure was 2.8 percent. If the September figure remains the same or rises, there will be no cut. Only a drop to 2.5 percent or below will trigger another move.

We will have a much clearer picture just a few days before Melbourne Cup Day.

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