Bell Potter upgrades Seven Group as WesTrac boosts outlook
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The news: Bell Potter upgraded its price target on investment conglomerate Seven Group, encouraged by the outlook of its construction equipment subsidiary WesTrac.
The numbers: Bell Potter kept its 'buy' rating on Seven and hiked its price target from $46 to $48.50.
The context: Bell Potter reiterated its view that Seven's EBIT growth outlook of "high single digit" is "conservative", with an upgrade catalyst likely at the 2024 annual general meeting or interim FY25 result.
Bell Potter analyst Joseph House highlighted the ability of Seven's construction equipment dealer WesTrac to deliver "strong revenue growth" to drive a guidance upgrade.
House said that given the substantial investment in inventory by WesTrac in FY24 for parts and orders placed for upcoming equipment deliveries, Bell Potter has an upward bias to its upgraded FY25 revenue growth estimate of 14% for the subsidiary.
WesTrac could deliver more than 80% of Seven's FY25 EBIT growth, House said.
He also noted that Seven will deliver "one of the strongest capital sales pipelines in over a decade", with its orderbook reinforced by the high proportion of resource machine inventory that was pre-committed by August 2024.
What they said: "[Seven]'s businesses and investments are market leaders in their respective industries, with scale, brand and industry expertise underpinning commercial advantages that are hard to replicate by competitors," House said.
"We remain positive on the near-term outlook for mining production, engineering construction and transitional energy markets."
The source: Bell Potter research
