Bapcor provided a trading update with detail on the sales growth for the nine months to 31 March 2024 and guided to FY24e proforma NPAT of $93-97 million. Sales trends for the nine months were mostly lower than the 1H24 sales trends. The fundamental debate remains the outlook for the cost saving program (Better Than Before). Management instability makes it difficult to see the cost savings being delivered anytime soon and the net benefits may be far smaller than the gross $100 million savings.

Treasury Wines has announced the acquisition of DAOU Vineyards. This deal highlights a dramatic shift over the past four years by Treasury from a commercial to luxury wine player in the US market. The deal is returns dilutive initially and slightly EPS accretive. The cost synergies look very plausible and additional distribution reach highly likely, making the deal slightly value accretive over three years.

Inghams provided a trading update for 1H24 suggesting EBITDA pre AASB-16 is on track to rise 67% for the half. The company has seen improved volumes and some cost pressures have eased. Given prices are trending up 10% for its poultry, Inghams is seeing meaningful margin recovery. The company is on track to return to 8%+ EBITDA margins this year, which is just below pre COVID-19 levels of 8.5%. We lift our EBITDA forecasts by 23% in FY24e and 10% in FY25e. The unknown is where margins peak. Past investments have been made to improve operational efficiency, but the magnitude of price rises may mean EBITDA dollars are much higher than pre COVID-19 but percentage margins less so.

Harvey Norman reported a large drop in 2H23 earnings with EBITDA down 29%. The fall reflected lower sales and significant operating leverage.  An increase in its licence fees for offshore masked a larger fall in Franchise segment margins. Given declining sales likely in 1H24e, we expect EBITDA to drop further. With a declining sales and earnings backdrop, combined with devaluations of its property book, we remain cautious.

Inghams reported FY23 EBITDA growth of 36% on a pre AASB-16 basis. For the second-half, the EBITDA margin improved 260bp. Strong sales growth is price-driven and will support FY24e earnings. Production issues from FY22 are now resolved and volume growth should resume. Inghams is at the start of a multi-year recovery in EBITDA margins and it should achieve double-digit earnings growth.

Bapcor reported strong FY23 revenue growth of 10% with EBITDA rising 3% for the full year. In the second-half sales grew 8% with EBITDA down 2%. Risks to Bapcor are focused on the impact of higher wages, plus increasing rent and overheads. The cost out program announced in November 2022 will help to mitigate these cost pressures. Bapcor enters FY24e with an improved inventory position after reporting a strong cash realisation in FY23. The sales growth trajectory is likely to soften from here as same store sales start to normalise.

Ingham’s earnings recovery is dependent on the path of feed costs and its ability to raise prices. There is a high degree of uncertainty on both parts but enough upside potential for us. We reduce our EBITDA forecasts by 4%-5% over the next two years given higher feed costs. However, price rises look like they are flowing through and any normalisation in commodity prices would lead to a meaningful profit margin rebound for the company.

Inghams had a difficult FY22 with EBITDA pre AASB-16 of $135 million, down 35%. The worst of its disruptions are likely in the past. However, both higher feed costs and increasing operating costs are likely to still weigh on earnings in 1H23e. We expect 1H23e EBITDA to fall 9% and there is a good chance that its net debt to EBITDA rises to above 2.0x.