18 Share Tips – 25th November 2024

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John Athanasiou, Red Leaf Securities

BUY RECOMMENDATIONS

BUY – Catapult Group International (CAT)  

This sports technology solutions company impressed the market by growing annualised contract value to $A143 million in the first half of fiscal year 2025. It represented an increase of 20 per cent on the prior corresponding period on a constant currency basis. Revenue of $A85 million was up 19 per cent. The company posted free cash flow of $7 million and reduced debt. Given strong revenue momentum, CAT is well positioned to continue its upward trajectory, in our view. The shares have risen from $1.40 on February 14 to trade at $3.56 on November 21.

BUY – Sigma Healthcare (SIG)  

The Australian Competition and Consumer Commission will not oppose a proposed merger between Sigma Healthcare and Chemist Warehouse after accepting a court-enforceable undertaking from Sigma. The transaction is, in effect, a reverse acquisition of Sigma by Chemist Warehouse. A successful merger would leave Chemist Warehouse shareholders holding 85.75 per cent of the merged entity, with 14.25 per cent taken up by Sigma shareholders. Investors reacted positively to the proposed merger. This proposed transaction is expected to drive earnings growth, as operations become more streamlined. We retain a buy recommendation on Sigma following this positive development.

HOLD RECOMMENDATIONS

HOLD – IDP Education (IEL)  

The company provides international student placements. It co-owns the world’s most popular English language tests. The company posted record revenue of $1.037 billion in fiscal year 2024, up 6 per cent on the prior corresponding period. However, the company has announced that it 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. While IEL offers strong long term potential, short term challenges, such as resistance to international student flows, make it less compelling for immediate gains. We regard IEL as a patient investment.

HOLD – Wesfarmers (WES) 

This diversified industrial conglomerate operates quality businesses. Wesfarmers generated revenue of $44.189 billion in fiscal year 2024, up 1.5 per cent on the prior corresponding period. Hardware giant Bunnings Group grew sales by 2.3 per cent. Officeworks sales were up 2.3 per cent and Kmart Group were up 4.1 per cent. Revenue in the chemicals, energy and fertilisers business fell 16.9 per cent in response to lower global commodity prices. Wesfarmers is a reliable performer and a worthy stock in any balanced portfolio.

SELL RECOMMENDATIONS

SELL – Audinate Group (AD8)  

AD8 develops and supplies digital audio visual networking solutions to the professional audio visual industry. The company faced challenges in the first quarter of fiscal year 2025, some including increased inventory across the industry and slower than expected demand from end users. It expects headwinds to continue in the second quarter of fiscal year 2025. Cost growth is expected to range between 7 per cent and 9 per cent in fiscal year 2025. The shares have fallen from $23.31 on March 15 to trade at $8.90 on November 21. We would prefer to sit on the sidelines until signs of a turnaround emerge.

SELL – Paladin Energy (PDN)  

This uranium producer owns 75 per cent of the Langer Heinrich mine in Namibia. The share price recently plunged after the company downgraded production guidance for fiscal year 2025 from 4 million to 4.5 million pounds to 3 million to 3.6 million pounds. It withdrew all other guidance in relation to fiscal year 2025. The downgrade followed lower than expected production results in October and ongoing challenges in ramping up production at the Langer Heinrich mine. We prefer others until Paladin can demonstrate reliable operational performance.

Peter Day, Sequoia Wealth Management 

BUY RECOMMENDATIONS

BUY – Flight Centre Travel Group (FLT)

The company’s trading update at its recent annual general meeting was well received, with confirmation of a turnaround in October when compared to a weaker September quarter. This serves to remind that trading conditions have been inconsistent during the past six months. A possibly more stable macro and political environment in 2025 will be key to boosting confidence in FLT’s earnings outlook amid potential for a share price re-rating. We retain an overweight recommendation and forecast a 28 per cent total shareholder return at our price target of $22.04.

BUY – Superloop (SLC)  

The internet service provider increased group customer numbers by 182,000 for the four months to October 31. Customers now exceed 637,000. The consumer segment continues to grow, with the addition of 19,300 new customers. We’re forecasting the consumer segment to add a total of 32,000 new customers in the first half of fiscal year 2025. Superloop recently re-affirmed underlying EBITDA guidance of between $83 million and $88 million in fiscal year 2025, an increase of between 53 per cent and 62 per cent on fiscal year 2024.

HOLD RECOMMENDATIONS

HOLD – Xero (XRO)

This cloud-based accounting software provider delivered a strong first half result in fiscal year 2025. The company lifted subscriber numbers by 6 per cent to 4.186 million when compared to the prior corresponding period. Operating revenue was up 25 per cent to $NZ996 million. Average revenue per user rose 15 per cent. Price increases in the past have sustained overall revenue growth. We retain our hold recommendation in anticipation of a more favourable entry point.

HOLD – GrainCorp (GNC)

GrainCorp is an agribusiness and processing company. Although its latest earnings were significantly down, GNC delivered a resilient result in fiscal year 2024 in the context of lower grain volumes and further margin contraction. Earnings growth is likely to return in full year 2025, in our view. Significant surplus cash on its balance sheet presents ample funding to pursue growth opportunities, or enabling it to continue its capital management initiatives. We view the share price as broadly representing fair value.

SELL RECOMMENDATIONS

SELL – Lynas Rare Earths (LYC)

Gross sales revenue of $120.5 million in the first quarter of fiscal year 2025 was down on the $136.6 million generated in the previous quarter. Lynas reported rare earths prices continued at low levels during the first quarter, with a small improvement in the NdPr (neodymium praseodymium) price towards the end of the quarter. Total rare earth oxide production of 2722 tonnes in the first quarter was up on the previous quarter. Production levels were managed in line with market demand, as LYC focuses on its margin over volume strategy given the current pricing environment. The shares have fallen from $8.09 on November 8 to trade at $6.89 on November 21. In our view, the share price appears stretched compared to our price target of $5.50.

SELL – Liontown Resources (LTR)

The company has revised plans for its flagship Kathleen Valley lithium project in response to a supply glut slashing lithium prices since 2023. The plan now includes a production rate of 2.8 million tonnes per annum from the end of fiscal year 2027. This spodumene concentrate producer expects up to $100 million in cost reductions and deferrals as part of its business optimisation program. The company reported a statutory net loss after tax of $64.918 million in fiscal year 2024. The shares have fallen from $1.69 on January 2 to trade at 79.5 cents on November 21. Low lithium prices clouds the outlook for producers.

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BUY RECOMMENDATIONS

BUY – Macquarie Group (MQG)

First half results in fiscal year 2025 were marginally disappointing with net profit after tax of $1.612 billion declining 23 per cent on the second half of fiscal year 2024. We believe recent political developments in the US will promote higher asset transaction volumes alongside a steepening yield curve and stronger US dollar, which are all fundamentally positive for this investment bank. We see upside to the conservative outlook emerging into calendar year 2025.

BUY – Amcor PLC (AMC)

Delays in expected volume growth in the first quarter of fiscal year 2025 have weighed on the packaging giant’s share price in recent weeks. In our view, it creates an attractive opportunity to add this high quality US focused leader to portfolios at an appealing discount to fair value. The stock’s expected dividend yield of 4.9 per cent should afford investors time to wait for an eventual recovery in healthcare and North American beverage volumes.

HOLD RECOMMENDATIONS

HOLD – James Hardie Industries PLC (JHX)

Strength in the Asia Pacific region has helped offset continued weakness in the US for this building products maker. As a result, the firm is growing more confident it will achieve full year guidance. While the recent uptick in long dated US interest rates may slow an expected cyclical recovery in this key market, we see improving sentiment and potential trade restrictions as margin supportive in fiscal year 2025.

HOLD – Life360 Inc. (360)

This information technology company provides a mobile networking safety app for families. Despite minor disappointment around the company’s recent third quarter result, we believe Life360’s path to monetising its dominant position through advertising and continuing expansion into multiple adjacent services remains attractive. Management execution has been impressive and market dynamics appear favourable.

SELL RECOMMENDATIONS

SELL – Fletcher Building (FBU)

Fletcher is a building products manufacturer. It’s also a home builder. The company operates in New Zealand and Australia. The company’s $NZ700 million capital raising will strengthen its balance sheet, but the downside is stock dilution. The company reported a group net loss after tax of $NZ227 million in fiscal year 2024 compared to a net profit after tax of $NZ235 million in fiscal year 2023. The shares have fallen from $4.35 on January 2 to trade at $2.735 on November 21. We suggest avoiding FBU until new management delivers on its remaining core strategy.

SELL – Jumbo Interactive (JIN)

Jumbo is a digital lotteries retailer. It’s also a lottery software provider. Unaudited group revenue was down 8.1 per cent in the four months to October 31, 2024, when compared to the same period last year. Unaudited group total transaction value (TTV) was down 4.9 per cent and lottery retailing TTV was down 11.8 per cent. The subdued jackpot environment contributed to the weaker numbers. The shares have fallen from $15.99 on August 22 to trade at $13.45 on November 21. In our view, efforts to leverage its Australian operations and expand into new markets have proven more challenging than expected. Other stocks appeal more at this time.

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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.