Brambles, WiseTech, Life360 among Morningstar's 'big winners'
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The news: Morningstar has said Brambles, WiseTech and Life360 were the "big winners" of the FY24 reporting season, while Corporate Travel Management and Audinate were among the "biggest disappointments".
The numbers: Logistics group Brambles, which posted a rosier outlook for capital expenditure and margins, saw a 16% fair value upgrade from Morningstar.
Morningstar also made big upgrades to its fair value estimates for tech stocks WiseTech (15%) and Life360 (13%) as both companies reported record annual revenue for the 2024 financial year.
Corporate Travel Management (CTM) and Audinate both saw their fair values cut by 20%, as CTM lowered its outlook due to the completion of non-recurring projects and Audinate signalled a "dramatic, unexpected" slowdown in FY25. Morningstar also reduced its fair value estimate on Megaport by 17% after FY25 guidance missed market expectations and triggered a 30% selloff last month.
Morningstar said it changed its fair value estimates for roughly 40% of its coverage during the month of August, similar to the same time last year.
Morningstar market strategist Lochlan Halloway noted that the average upgrade of around 1% implies reporting season was "relatively benign".
The context: Halloway outlined three themes for investors to consider following earnings season. He flagged that China's weak economy could mark a "sea change" for iron ore. While FY24 saw Australia's major miners supported by elevated commodity prices, concerns are mounting around the global growth outlook, and in particular, China's demand for resource exports.
Halloway also said that the health of Australian borrowers was a "positive surprise". He noted that while stress on bank loan books is rising, arrear rates remain in line with long-term averages despite cost-of-living pressures and rapid rate rises since mid-2022. However, he flagged that most major banks look overpriced, with ANZ the only one of the big four lenders trading close to fair value.
Meanwhile, he noted that sales were beginning to pick up for major retailers after real household consumption recorded its slowest annual growth rate since lockdown-affected March 2021 in the June quarter. Halloway said he expects discretionary retail to recover in FY25, with forecast industry growth of 3% following a year of zero growth in FY24.
What they said: "Taking a look at the bigger picture, on an unweighted basis, the market seems fairly valued post reporting season," Halloway said.
"Shares we cover trade at a slim 1% premium to fair value, on average," he said. "But we see pockets of value across the market, and still a relatively elevated number of four- and five-star rated stocks."
The source: Morningstar research
