MoneyTalks: Broker sees turnaround for Maggie Beer; Big River to ride on the coattails of housing shortage
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Broker Taylor Collison has a Speculative Buy recommendation on Maggie Beer (ASX:MBH), without a target price.
MBH produces a range of premium food products under the “Maggie Beer” brand, both through its own manufacturing capabilities and third-party contract manufacturers.
MBH’s stock price has slid by over 55% in the last 12 months, and Taylor Collison believes this may limit any further downside and provide a buying opportunity.
The share price has tanked as a lack of commercial aspiration and failed strategies resulted in $53m of impairments across $107m of acquired assets.
“As a result, MBH trades on a market cap of circa $50m with material underutilisation in its manufacturing capacity,” said the note from Taylor.
To turn this around, management has recently set an ambitious five-year sales target for MBP of $125m, up from $32.5m in FY23.
“Ambitious revenue targets and another re-imaging of the overall business may sound like a broken record to long-standing shareholders,” said the broker.
“To the contrary, we are pleasantly surprised with the high-level five-year plan outlined by new CEO, Kinda Grange.
“Whilst we accept 5x greater revenue CAGR than current is unsustainable longer term, we welcome management’s aspiration to improve capability and increase capacity in the group’s under-utilised resources.”
“Within Maggie Beer products portfolio, we believe there is a tangible opportunity to shift into categories with materially larger commercial offerings without compromising the existing portfolio or the premium quality philosophy.
“Cognisant of the risks associated with an unproven board and management team, on 6x our FY24 EPS estimate we move to a Speculative Buy on renewed optimism of a turnaround against heavily depressed valuations,” concluded Taylor Collision.
Ord Minnett meanwhile has a Buy recommendation on Big River Industries (ASX:BRI), with a target price of $2.77 (versus current market of $2.56).
Big River manufactures veneer, plywood and formply, as well as distributing building supplies.
The broker says short and long-term trends within the construction industry appear to be delivering significantly divergent signals.
Current housing approvals are experiencing a sharp reversal following the RBA’s most aggressive tightening cycle since 1989.
In contrast, the medium-to-longer term outlook continues to strengthen, driven by a chronic under-build in housing, a surge in immigration and growth in the nascent Build-to-Rent (‘BTR’) sector.
“In our view, a combination of a housing under-build and strong net overseas migration continues to strengthen the medium-to-longer term outlook,” said the note from Ord Minnett.
The BIS estimates that housing stock deficiency will be in excess of 81,000 dwellings by FY25.
“We expect the burgeoning BTR pipeline to further bolster the outlook, with BIS forecasting the number of active BTR units to reach 100k by the end of 2030,” said the broker.
“We believe Big River will be able to deliver more resilient results in the short-term relative to expectations, driven primarily by its diverse end-market exposure, whilst remaining well-placed to take advantage of longer-term opportunities,” said the note from Ord Minnett.
“On that basis, we maintain our Buy rating and lower our price target to $2.77 from $2.97, based on reductions to our near-term earnings profile.”
Broker Ord Minnett also has a Buy recommendation on telco stock and national carrier Aussie Broadband (ASX:ABB), with a target price of $3.58 (versus current price of $2.99).
The broker says that Aussie Broadband has continued its strong market share momentum in residential broadband.
Customer numbers rose by a net c25,000 during the March quarter, out of the c27,200 net growth in the broadband market.
Including customers on third-party networks, Ord Minnett believes the company remains on track to meet its FY23 new customer growth forecasts of c100K.
Aussie has recently acquired the customer base of Harbour ISP and Fuzenet from Uniti Group, which will provide the telco with up to 15,000 new customers.
On the NBN network, Aussie Broadband added 24,697 net subscribers during the March quarter, taking its market share to 7.19%.
Another tailwind for ABB, according to Ord Minnett, is the NBN Co’s revised Special Access Undertaking (SAU) proposal into wholesale pricing lodged in November 2022, which is currently being looked at by competition watchdog ACCC.
The industry consultation process is progressing, with likely implementation of a revised SAU late this year, or early 2024.
“We believe that the proposed pricing models, combined with a lower return hurdle for the NBN are supportive of visibility into ABB’s cost outlook and terminal value calculations,” said the note from Ord Minnett.
Meanwhile, Ord Minnet believes ABB’s enterprise and government segment is likely to show steadier growth in FY24 than FY23, and ultimately improves the quality and consistency of group earnings.
“We maintain our BUY rating, with an upgraded target price of $3.58,” says the broker.