Goldman Sachs hosted its 14th Annual Emerging Leaders Conference – which included presentations from 19 ASX-listed small-to-mid cap companies.
The sessions observed some key themes including peaking goods inflation, sticky services/wages inflation, selective M&A opportunities and Australia holding up better-than-expected relative to other developed economies.
In this piece, we’ll take a look at Goldman’s fundamental outlook, price target and ratings for the 10 Emerging Leaders under its coverage – 8 of which are buy rated.
Accent Group (ASX: AX1)
Shares in the footwear retailer have powered almost 50% year-to-date, bolstered by positive trading updates and a better-than-expected half-year FY23 result.
“We are BUY rated on AX1 and believe the market is underestimating the full earnings potential of the business with upside from new stores and distributed brand share gains.”
“The business has a strong store roll-out opportunity, with incremental store opportunities to come from key footwear banners (Skechers, Platypus) and growth in apparel banners (Nude Lucy, Glue, Stylerunner).”
“AX1 continues to perform well with sales up 16% on pcp for the first 7 weeks of the year.”
BUY rated with a $3.10 target price
APM Human Services International (ASX: APM)
APM shares are down almost 20% year-to-date, with a notable 9.0% selloff taking place on the day of its half-year result on 27 February 2023.
“We believe the market is under-appreciating APM’s ability to generate sustainable earnings growth, with our 15% EPS CAGR (FY22-25E).”
APM operates via long-term government programs with a strong track record of re-winning work versus other contractor models which are “widely considered to have low quality earnings” via short-term, cyclical projects
BUY rated with a $4.10 target price
#Data3 (ASX: DTL)
A backlog of Covid-related work has kept #Data3 on a pretty consistent growth trajectory in the past two years. Interestingly, a January trading update noted that “the overall backlog has not changed materially due to an increased volume of business.” The stock has been steadily grinding higher, up 15% year-to-date and trading around all-time highs.
Data#3 results have observed some softening in IT demand within small-medium customers and retail verticals but says its exposure to these markets is relatively low (less than 5%)
“Data#3’s revenue mix has shifted to large integration projects delayed during COVID, providing DTL strong visibility into its pipeline while also supporting margins.”
“Data#3 expects to be FCF positive for FY23, and is considering options for its excess cash as working capital unwinds (such as a special dividend).”
BUY rated with a $9.20 target price
Johns Lyng Group (ASX: JLG)
Johns Lyng shares ran almost 500% between March 2020 lows and April 2022 highs. The run came to an abrupt end after CEO Scott Didier and COO Lindsay Barber both sold 1,000,000 shares in the company on 20 May 2022. The stock’s been on a pretty wild ride ever since.
“We view JLG as a defensive growth business with optionality to further build its annuity-style earnings streams. We forecast a +21% EBITDA CAGR (FY22-25E).”
JLG estimates it has a 7-8% share of the Australian insurance building and restoration services market, with an opportunity to win a growing share of insurance work
Management has “set the blueprint to replicate the Australian growth strategy” in the US, where “organic growth will be supplemented by M&A.”
BUY rated with a $9.25 target price
Lifestyle Communities (ASX: LIC)
Lifestyle Communities experienced a post-earnings fallout – the half-year result was released on 14 February and the stock derated -17.6% by 23 March.
“The long-term outlook for LIC is very positive — we believe outperformance of the stock will be driven by: (1) a step up in the pace of land acquisitions … (2) structural growth in demand for land lease as the sector increases its penetration among retirees; (3) fundamental valuation support for cap rates.”
“LIC’s affordable price point (less than 80% of the median house price) continues to facilitate a compelling equity release opportunity for new residents despite a softer housing market.”
“Management reiterated demand is still strong, especially for finished stock, with no need to lower pricing, or offer incentives”
BUY rated with a $27.15 target price
Objective Corporation (ASX: OCL)
Objective Corp provides specialised software solutions and digital implementation services to government and public sector organisations. The stock has been in a steady downtrend since its November 2021 high, down around 41%.
“OCL is transitioning its business model from one-off perpetual licences and services revenue to recurring subscription revenue over time and now derives ~3/4 of revenue from subscriptions (FY22).”
“OCL noted that activity has been strong since January, notwithstanding some softness in federal government procurement.”
Management flagged short-term headwinds to margins following decisions to reduce perpetual right-to-use revenue and ramping up travel expenditure. A turnaround is expected in FY24 as costs ease and OCL raises prices (without gouging customers)
BUY rated with $14.80 target price
Qualitas (ASX: QAL)
Qualitas is viewed as a beneficiary of the “continuing shift to non-bank lenders in Australia.” The company has a less than 1% market share of the $400bn Australian Commercial Real Estate debt market, where non-banks hold an approximately 10% market share compared to the 50% in the US and Europe.
“We believe Australia will continue to converge to these levels as a more sophisticated non-bank market develops in Australia.”
“We view QAL as well-positioned in the context of elevated interest rates and economic uncertainty given the de-risked nature of senior debt versus equity, and the floating rate exposure from QAL’s loans.”
"Higher base rates and widening credit spreads (~50-100bps) are seeing nominal returns improve across QAL’s private credit platform.”
BUY rated with $3.80 target price
Siteminder (ASX: SDR)
Siteminder provides technology solutions for hotels and listed in November 2021 – Which was around the turning point for booming tech valuations. The stock is down around 51% from its debut close of $7.01.
“The recovery of global hotel bookings has also continued, with SiteMinder’s World Hotel Index remaining above pre-covid levels, with upside expected from the reopening of China offset by strong 2022 comps.”
“SiteMinder sees a considerable opportunity in the coming years to extend its core channel manager product into adjacent verticals,” such as revenue management and business intelligence
NEUTRAL rated with a $4.30 target price
Steadfast Group (ASX: SDF)
Steadfast is the largest general insurance broker network in Australia with a focus towards commercial insurance solutions for SME clients. The stock is up 11.5% year-to-date, in-line with the strength behind the broader insurance sector and names like QBE Insurance, IAG Insurance and PSC Insurance Group.
“SDF has a pipeline of $326m worth of acquisitions so could well exceed their $220m budget for FY23. In the coming year, SDF expects a further $300m in pipeline acquisitions.”
“SDF flagged that they continue to review the potential for international expansion which includes their SCTP software.”
NEUTRAL rated with a $5.74 target price
Temple & Webster (ASX: TPW)
Temple & Webster shares copped a 27% haircut on the day of its half-year results on 14 February. In summary, revenue was down 12%, profits tumbled 46.7% and sales for the first five weeks of 2H23 were down 7%. Still, Goldman thinks there’ll be better days ahead.
“We believe the market is too cautious on the medium term revenue outlook, and expect the business to return to double digit revenue growth in FY24.”
“We think TPW is well positioned to continue to grow market share, particularly given a long tail of small online retailers.”
“We think TPW is best placed to be a winner in a category that favours scale players, requires a specialist approach to e-commerce and logistics, and has high barriers to entry vs. other categories.”
BUY rated with a $6.50 target price
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