Taylor Collison says Silk Australia could outperform. Picture Getty
Experts
Broker Taylor Collison has an Outperform recommendation on Silk Laser Australia (ASX:SLA), and views SLA’s current share price as an opportunity to buy into the highest quality self-care operator in a growth market.
“Due to the importance which clients place on their beauty routine, we see non-invasive medical aesthetics as less vulnerable than commonly thought during an economic downturn,” said the note from Taylor Collison.
According to the broker, upsides for SLA include the potential for expansion and growth of mature clinics, and a solid balance sheet that’s ready to support share buybacks or further clinic acquisitions.
In the not too distant future, Taylor Collison believes SLA will reach a point of saturation in its market.
At this point, SLA has multiple options with which to deploy its capital, including share buybacks or paying dividends.
The company could also elect to buy back its franchises or look to expand into new geographic markets.
“We believe it would make sense for SLA to engage in buying back shares based on valuation grounds,” said the broker.
“We also expect SLA to make EPS accretive acquisitions of franchises before re-selling them through a JV structure to incentivise and retain employees in these clinics.”
Taylor Collison has also rated Adacel Technologies (ASX:ADA) as an Outperform despite a disappointing first half.
Adacel deals in the air traffic management and air traffic control simulation in the global civil and military aerospace sector.
Its products and services include Air Traffic Control Simulators, Air Traffic Management, Voice Activated Cockpit, Speech Recognition, Support Services, ATC Environment, Airport Driver Training and Homeland Security.
According to the broker, ADA has the opportunity to double its annual revenues over the next 18 months based on the award of six tenders.
Approximately 20% of ADA’s contracted base is up for renewal over that same period, while nearly half of the revenue base is underwritten by a 12-year contract still in its first year.
“We view ADA as an asymmetric bet on tender success with limited downside risk,” said Taylor Collison.
On the current US$30m revenue base, ADA generates around US$3m in normalised net profit.
“We think incremental revenues will contribute 25% EBITDA margin without any material increase in SG&A costs.”
The broker says the full effect of ADA’s contract wins will only start to flow through into the financials in FY25 due to the implementation requirements involved.
“ADA is fairly priced based on current operations, but we see option value for tender success.
“We think ADA will succeed on at least one of the six opportunities, driving operating leverage and a material earnings improvement.
“Based on the above we maintain our Outperform,” said the broker.
Taylor Collison did not publish a target price on ADA.
Barclay Pearce has put a BUY recommendation on Emeco Holdings (ASX:EHL) with a price target of $1.46, double the current share price of $0.73.
Emeco is a $380m capped company and a provider of open cut and underground mining equipment and maintenance supporting junior, mid and tier 1 explorers.
It has operations in all key mining regions of Australia, with customers including miners and contractors across coal, gold, copper, bauxite and iron ore.
In the last half, Emeco announced revenue of $429.5m, up 15% from $372.8m in the pcp and operating EBITDA of $113.5m, down 7% in the pcp.
The company has guided the market to a full year EBITDA of $245m – $260m for the full year of FY23.
Barclays believes the company can increase its EBITDA over the next couple of years, to $276m in FY24 and $287m in FY25.
In February, credit firm Fitch Ratings upgraded Emeco’s long-term default rating to ‘BB-’ from ‘B+’, with an Stable outllook.
“The upgrade reflects the improvement in Emeco’s revenue visibility and defensibility, through diversifying its service offerings, increasing contract tenures, and improving its customer and commodity diversification,” said Fitch.
“The rating also incorporates the benefits that the reduction in the cost base and more flexible fleet and cost structure provide.”
Barclay agrees with Emeco’s assessment that the demand for open cut and underground equipment will continue to be strong.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.
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