18 Share Tips – 11th September 2023

Stuart Bromley, Medallion Financial Group

BUY RECOMMENDATIONS

BUY – XRF Scientific (XRF) 

XRF makes equipment and chemicals used in preparing samples for analysis for the mining industry. The company reported sales revenue of $55.2 million in fiscal year 2023, up 38 per cent on the prior corresponding period. The capital equipment division lifted sales revenue by 75 per cent, which we expect to supercharge the recurring revenue consumables arm in the future. The business continues to deliver increasing dividends.

BUY – Boss Energy (BOE) 

In a world focusing on reducing emissions, the nuclear energy theme is building momentum. As stockpiles deplete against a backdrop of growing demand, the uranium price is increasing, making it viable for uranium miners to resume operations. Boss is well capitalised to move its long-life South Australian Honeymoon project into production within six months, making it our favoured uranium play.

HOLD RECOMMENDATIONS

HOLD – Johns Lyng Group (JLG) 

This building services group operates in the restoration space in Australia and the US. The company posted a net profit after tax of $62.8 million in fiscal year 2023, up 64.3 per cent on the prior corresponding period. JLG is somewhat cushioned from the direct impact of higher inflation as it’s mostly incurred by insurance companies.

HOLD – Audinate Group (AD8) 

This technology business enables audio and video equipment to transition from analogue to digital networking. The company delivered revenue of $US46.7 million in fiscal year 2023, up 40 per cent on the prior corresponding period. The business delivered positive free cash flow in the second half of fiscal year 2023. We’re positive about the company’s outlook given a rapidly growing customer base and minimal competition.

SELL RECOMMENDATIONS

SELL – Qantas Airways (QAN)

Qantas posted an underlying profit before tax of $2.47 billion in fiscal year 2023. However, the Australian Competition and Consumer Commission has launched legal proceedings against Qantas, alleging it engaged in false, misleading or deceptive conduct by advertising tickets for more than 8000 flights it had already cancelled, but not removed from sale. The flights were scheduled between May 2022 and July 2022. Qantas may face substantial financial penalties depending on the outcome.

SELL – Mesoblast (MSB)

The share price of this stem cell biotechnology company plunged in August after the US Food and Drug Administration requested more data on its flagship product remestemcel-L before possible approval. To obtain the data required, MSB announced it would conduct a targeted, controlled study in the highest risk adults with the greatest mortality. MSB reported a net loss of $US81.9 million in fiscal year 2023.

Peter Day, Sequoia Wealth Management

BUY RECOMMENDATIONS

BUY – Santos (STO)

Energy giant STO has executed a $US576 million binding sale agreement with Kumul Petroleum Holdings. In return, STO will deliver Kumul a 2.6 per cent participating interest in its Papua New Guinea LNG (PNG LNG) venture. Also, STO has agreed to grant Kumul a call option to acquire a further 2.4 per cent participating interest in PNG LNG for $US524 million, plus a proportionate share of project finance debt. The call option must be exercised on or before June 30, 2024. We expect STO to outperform moving forward.

BUY – Tyro Payments (TYR)  

Tyro is a technology-focused provider of payment solutions and business banking products. The company generated EBITDA of $42.3 million in fiscal year 2023, up 297 per cent year-on-year. Transaction value of $42.6 billion was up 25 per cent. The increased focus on profitability has continued to drive upgrades. We’re mindful of potential macro-economic headwinds, but the risks appear skewed to the upside based on the recent performance across TYR’s core verticals.

HOLD RECOMMENDATIONS

HOLD – City Chic Collective (CCX)

City Chic is a fashion retailer, specialising in women’s apparel, footwear and accessories. The company posted a net loss of $45 million from continuing operations in fiscal year 2023. Group sales revenue of $268.4 million was down 15.8 per cent on the prior corresponding period. A completed strategic review has identified a pathway to profitability in second half of fiscal year 2024. In our view, cutting costs is the key.

HOLD – DDH1 (DDH) 

DDH1 is a mineral drilling contractor, with 195 rigs. The company posted revenue of $550.4 million in fiscal year 2023, an increase of 8.6 per cent on the prior corresponding period. Net profit after tax of $42.5 million was up 18.4 per cent. It was a solid result given challenging industry conditions in the second half. We expect the company to generate growth after forecasting operating EBITDA of between $123 million and $130 million in fiscal year 2024.

SELL RECOMMENDATIONS

SELL – Appen (APX) 

This artificial intelligence data provider generated total revenue of $US138.9 million in its first half result, a decrease of 24 per cent on the prior corresponding period. The decrease reflected a lower contribution from the global services business. The company posted a statutory net loss after tax of $US43.3 million. Challenges remain while customers examine their artificial intelligence strategies.

SELL – Adbri (ABC)

Adbri produces construction materials and lime. Statutory net profit after tax of $49.8 million in the first half of fiscal year 2023 was up 3.5 per cent on the prior corresponding period. The company didn’t declare an interim dividend.  The result fell short of our expectations on volume performance. In our view, the company is up against increasing competition in South Australia. The shares have fallen from $2.80 on August 16 to trade at $2.15 on September 7.

Tony Langford, Seneca Financial Solutions

BUY RECOMMENDATIONS

BUY –  APA Group (APA)

APA is an energy infrastructure business. It owns and operates a portfolio of gas, electricity, solar and wind assets around Australia. The company reported net profit after tax of $287 million, excluding significant items, in fiscal year 2023, up 19.6 per cent on the prior corresponding period. Annual distribution per security was 55 cents, up 3.8 per cent. It recently completed a $675 million institutional placement to partly fund the proposed acquisition of Alinta Energy Pilbara. APA offers a brighter outlook.

BUY – Endeavour Group (EDV)

The company operates liquor outlets, hotels and gaming facilities. Group sales of $11.9 billion in fiscal year 2023 were up 2.5 per cent on the prior corresponding period. Group net profit after tax up of $529 million was up 6.9 per cent. The full year dividend of 21.8 cents a share was up 7.9 per cent. The operator of liquor outlets Dan Murphy’s and BWS provides resilient and defensive earnings in an increasingly challenging consumer environment. The hotels business has recovered from disruptions caused by the pandemic.

HOLD RECOMMENDATIONS

HOLD – Woolworths Group (WOW) 

The supermarket group generated sales, before significant items, of $64.294 billion in fiscal year 2023, up 5.7 per cent on the prior year. Group net profit after tax from continuing operations and after significant items was $1.618 billion, up 4.6 per cent. The final dividend of 58 cents a share was up 9.4 per cent. Slowing second half earnings before interest and tax at The BIG W retail chain reflects cautious household spending, in our view.

HOLD – Telstra Group (TLS) 

The telecommunications giant posted total income of $23.2 billion in fiscal year 2023, an increase of 5.4 per cent on the prior corresponding period. Reported EBITDA of $7.9 billion was up 8.4 per cent. The company performed strongly in the mobile and international roaming businesses. The company has benefited from price increases and a migration of customers following the cyber attack on Optus.

SELL RECOMMENDATIONS

SELL – Fortescue Metals Group (FMG) 

The iron producer shipped 192 million tonnes in fiscal year 2023, leading to revenue of $US16.9 billion, statutory net profit after tax of $US4.8 billion and a final fully franked dividend of $A1. Cash costs of US$17.54 a wet metric tonne were in line with peers. Concerns about Chinese growth levels and its property crisis can cloud the outlook and may impact FMG moving forward.

SELL – Adairs (ADH) 

Total group sales of $621.3 million in fiscal year 2023 for this furniture and homewares maker were up 10.1 per cent on the prior year. However, underlying group net profit after tax of $40.2 million was down 22.2 per cent. The cost of doing business rose 15 per cent. ADH didn’t declare a final dividend. ADH is up against households dealing with increasing mortgage repayments and soaring cost of living expenses.

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.