SGH 1H25 Earnings Call Highlights

SGH (ASX: SGH), formerly Seven Group, delivered a strong 1H25 result, surpassing net profit and dividend expectations.

1H25 Earnings Summary

• Revenue up 2% to $5.5 billion, slight 0.5% miss against $5.54 billion consensus

• EBIT up 10% to $843 million or 6% ahead of $795 million consensus

• Adjusted EBITDA up 8% to $1.09 billion or 5.7% ahead of $1.04 billion consensus

• Interim dividend of 30 cents per share, around 10% ahead of consensus

• Reaffirmed FY guidance of high single-digit EBIT growth

Earnings Call Highlights

The below topics have been answered by CEO Ryan Stokes and CFO Richard Richards.

WesTrac pricing issues: “WesTrac EBIT growth was achieved despite the EBIT headwinds from a parts price decrease, indicating strong demand for new equipment and services.”

Boral performance: "Boral delivered a strong earnings and margin result. Total revenue of $1.8 billion was down 2%, supported by pricing traction and resilient infrastructure activity offset by softer residential construction. EBIT margin of 14.3% was significantly up, supported by operating discipline, performance improvement initiatives, cost variablisation and pricing traction."

Boral volumes: “Volumes are expected to remain under pressure at Boral in FY25, while cost discipline, operating efficiencies, and improved customer service support the outlook.”

Coates performance: "Coates revenue of $546 million was down 4% normalised for the sale of Indonesia in the prior period. The modest revenue decline reflects resilient customer activity in the east, west and north and lower activity in Victoria."

Seasonality: “Trading conditions remain challenging for the south region for Coates, while infrastructure activity in other regions, ongoing cost-out, and the fleet profile support the outlook.”

Energy demand growth: "In energy, strong demand and tightening supply are expected in the domestic gas market from FY26 onwards. In LNG, demand growth remains strong with supply risk skewed to the downside."

Infrastructure trends and government spending: "In infrastructure and construction, the outlook remains strong, with $1.8 trillion investment expected over the next seven years."

Capital initiatives: "Our incremental capital allocation is focused on Australia and guided by the thematic exposures of industrials and energy, where we target high-quality businesses that benefit from long-term structural demand tailwinds."

Analyst Q&A Highlights

Given a strong first half, is Coates holding back guidance: “There’s a few, I think visibility is a question mark for us in second half... we do have the dollar margin impact in second half that they are probably some of the factors playing into it.”

On WesTrac's inventory and cash dynamics: “Overall parts availability is improving. That’s enabling us to get back to more traditional working capital to sales level... We would over time expect that to trend back to that high 20% level versus where it's at kind of 30% of sales.”

Operating Leverage: “We do see further operating leverage as volumes grow absolutely coming through … Our focus is on how do we get this to be sustained through the cycle, not just having that EBIT margin and then a drop away.”

Coates Exposure to Victoria: “We see things relatively stable across New South Wales and Queensland, but Victoria is in a recession in terms of infrastructure and construction activity ... The relocation of fleet, the rationalisation of our presence and cost, that's all underway at the moment.”

Residential Market Recovery: “We haven't expected it to come through in FY25 … We know the demand is there, we know there's a gap in supply, and there's a lot of political will to solve it ... We are hopeful that towards the end of calendar year 2025, we’ll see a shift.”

This article was generated with the support of AI and reviewed by an editor.