18 Share Tips – 23rd September 2024

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Tony Paterno, Ord Minnett

BUY RECOMMENDATIONS

BUY – Aristocrat Leisure (ALL)

Our latest analysis has led us to raise our expected valuation ratio relative to the market for this gaming content creation company. The acquisition of social gaming companies Big Fish Games and Plarium were successful business moves, but the market clearly viewed them as a negative for the company’s overall valuation multiple. We expect this multiple to revert to its historical levels as the company returns to its core operations and possibly exits its non-core businesses once the strategic review is completed.

BUY – Rio Tinto (RIO)

The 2024 interim result met expectations. Underlying earnings and consolidated sales revenue were both up 1 per cent on the prior corresponding period. The global miner is retaining its dual listing company structure on the ASX and London Stock Exchange. The business is stable and has the capacity to engage in merger and acquisition activity. Volume growth is now returning to the portfolio.

HOLD RECOMMENDATIONS

HOLD – Ramsay Health Care (RHC)

RHC is Australia’s biggest private hospital operator. It also operates in the UK and Europe. The second half of fiscal year 2024 revealed a significant improvement in cash conversion, leading to a final fully franked dividend of 40 cents a share that exceeded our forecast. However, this positive outcome was overshadowed by the outlook in fiscal year 2025, warning of a slowdown in patient activity growth and a forecast net interest expense of between $590 million and $620 million. We incorporate flat Australian margins and flat UK profitability. For France, we forecast revenue growth of about 7 per cent and an improving earnings before interest and tax margin due to better tariffs.

HOLD – Coles Group (COL)

The supermarket giant posted group earnings before interest and tax of $2.057 billion from continuing operations in fiscal year 2024, a normalised increase of 5.7 per cent on the prior corresponding period. Cash generation at COL is robust and we expect the strong margin performance to continue in fiscal year 2025. Given current valuation levels, we retain our hold recommendation.

SELL RECOMMENDATIONS

SELL – Sonic Healthcare (SHL)

Sonic is one of the largest providers of pathology and clinical laboratory services in the world. Statutory net profit of $511 million in fiscal year 2024 was down 25 per cent on the prior corresponding period. Options for organic growth appear constrained given SHL generated $655 million in new annual revenue from acquisitions plus additional revenue from new contract wins in fiscal year 2024.

SELL – ASX Limited (ASX)

In August 2024, the Australian Securities and Investments Commission filed civil proceedings against the ASX in the Federal Court of Australia. The proceedings relate to ASX statements made in February 2022 concerning the previous CHESS replacement project. The ASX is reviewing and considering the allegations. The financial markets operator posted a statutory net profit after tax of $474.2 million in fiscal year 2024, an increase of 49.4 per cent on the prior corresponding period. The shares have risen from $56.45 on June 14 to trade at $62.76 on September 19. In our view, the shares are trading at a premium, so investors may want to consider cashing in some gains.

Damien Nguyen, Morgans

BUY RECOMMENDATIONS

BUY – GQG Partners Inc. (GQG)

The share price of this fund manager declined recently despite reporting a solid performance in its half year 2024 results. Total funds under management of $US160.8 billion at August 31, 2024, were up from $US156.3 billion at July 31, 2024. We view the current share price as an attractive entry point, particularly as the stock was recently trading on an appealing annual dividend yield.

BUY –  NextDC (NXT)

The company recently raised $550 million from institutional investors to fund its ambitious data centre expansion across Asia. We believe demand for data centres represents a long term growth trend, and NXT is well positioned to capitalise. At current levels, we recommend investors consider taking a position. Company revenue of $404.3 million in fiscal year 2024 was up 12 per cent on the prior corresponding period.

HOLD RECOMMENDATIONS

HOLD – Mineral Resources (MIN)

Mineral Resources has faced significant selling pressure due to a weaker-than-expected outlook driven by declining commodity prices, elevated debt and upcoming capital expenditure commitments. However, the company’s recent market update highlighted substantial cost-cutting and capital savings initiatives. We remain confident in management’s ability to navigate the commodity downturn, which is behind our hold recommendation.

HOLD – Wesfarmers (WES)

The industrial conglomerate delivered solid fiscal year 2024 results, with strong earnings growth from its Kmart Group division. While we continue to view the company’s retail brands, such as Kmart and the Bunnings hardware chain as industry leaders, the current WES valuation appears full. The final fully franked dividend was $1.07 a share. Keep an eye on the news flow.

SELL RECOMMENDATIONS

SELL – Reece (REH)

This plumbing supplies company posted a solid set of fiscal year 2024 results, with its US business showing encouraging momentum. Sales revenue of $9.105 billion was up 3 per cent on the prior corresponding period. However, with the stock recently trading on a price-earnings ratio above 40 times amid a relatively subdued near-term outlook, we believe the current valuation is over-extended. We recommend investors consider taking profits at this stage.

SELL – ResMed Inc (RMD)

ResMed makes medical devices to treat sleep apnoea. We were buyers of ResMed during its sell-off in the second half of 2023, driven by investor concerns about the impact of diabetes and weight loss drugs on its sleep apnoea business. However, the stock has since rebounded strongly and is now trading above our target price. The shares have risen from $21.72 on September 21, 2023, to trade at $35.16 on September 19, 2024. Investors may want to consider cashing in some gains.

Elio D’Amato, Stockopedia

BUY RECOMMENDATIONS

BUY – Endeavour Group (EDV)

Endeavour operates liquor outlets, hotels and gaming facilities. We were pleasantly surprised with its fiscal year 2024 result. Group sales of $12.3 billion were up 3.6 per cent on the prior corresponding period. Group earnings before interest and tax of $1.1 billion were up 3.1 per cent. The full year dividend of 21.8 cents per share represents a full year payout ratio above 75 per cent. After a challenging two years, we see potential value in a business that was able to improve on all our measures.

BUY – Nuix (NXL)

NXL provides investigative analytics and intelligence software. The company has changed its board and management since listing in December 2020. The company’s Neo artificial intelligence enabled platform is a profitable service and generates positive cash flow. NXL expects to be underlying cash flow positive for the entire fiscal 2025 year, and revenue growth should exceed operating growth. There’s only a few pure AI enabled plays on the ASX, so the Neo offering is positioned to capitalise on growing demand.

HOLD RECOMMENDATIONS

HOLD – Pro Medicus (PME)

The company provides medical imaging software and services to hospitals and health care groups across the world. The stock has risen from $96.30 on January 2 to trade at $170.33 on September 19. According to our calculations, PME was recently the most expensive stock on the ASX. It was more expensive than Nvidia in the US. While valuation metrics would put a line through the business, PME is highly profitable and supported by strong contract wins, sticky radiology clients and exposure to an emerging global AI theme.

HOLD – Brambles (BXB)

Brambles is an integrated supply chain logistics giant. Sales revenue of $US6.545 billion in fiscal year 2024 was up 8 per cent on an actual foreign exchange basis compared to the prior corresponding year. Free cash flow before dividends of US$882.8 million was up from $US384.7 million. Further, its dividend payout ratio has increased to 60 per cent of profit. Announcing a $US500 million share buy-back continues its recent history of reducing shares on issue. The outlook appears solid.

SELL RECOMMENDATIONS

SELL – Domino’s Pizza Enterprises (DMP)

In our view, it’s not ideal to shrink your way to growth. Earlier this year, the company announced it would close low volume stores in Japan and France. Group network sales in fiscal year 2024 were up 4.6 per cent on the prior corresponding period, but net profit after tax fell 1.9 per cent. In our view, the risk to current estimates is potentially to the downside. The shares have fallen from $59.28 on January 2 to trade at $32.28 on September 19. The shares are trading at a premium, in our view.

SELL – IDP Education (IEL)

The company provides international student placements. The company expects the total number of new international students commencing study in IDP’s six key destination markets to decline between 20 per cent and 25 per cent in fiscal year 2025 relative to the volumes experienced in fiscal year 2024. The company posted a net profit after tax of $133.5 million in fiscal year 2024, down 10 per cent on the prior corresponding period.

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The above recommendations are general advice and don’t take into account any individual’s objectives, financial situation or needs. Investors are advised to seek their own professional advice before investing. Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.