The SGH Ltd (ASX: SGH) share price is in the green in Wednesday afternoon trading. At the time of writing, the share price is 0.11% higher at $47.50 a piece. It's also up 29.39% for the year.
This follows a sharp share price drop at the close of the ASX yesterday when SGH shares fell 8.5% over the course of the day.
Investors were rattled after the company released its full-year investment results, reporting a 1% increase in revenue and 9% lift in net profit after tax.
Boral was a standout, reporting 26% EBIT growth and good margin gains. Meanwhile, WesTrac reported higher earnings (up 4%) despite currency headwinds.
Looking ahead to FY26, management said overall it expects "low to mid single-digit EBIT growth".
Clearly, the FY25 result fell short of investor expectations.
In a recent note to investors, Macquarie Group Ltd (ASX: MQG) revealed what it thinks of SGH shares following the announcement.
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Is there upside or downside ahead for SGH shares?
The broker has confirmed its outperform rating on the stock but lowered its target price to $53.20, down from $59.20 previously.
At the time of writing, this represents a potential 12% increase for investors over the next 12 months.
"TP to $53.20 (from $59.20) on earnings changes – we have not revised multiples in SOTP. TP implies a FY27E EV/EBIT of 15.3x vs a 10-yr average of 12.7x, supported by portfolio mix and macro shifts," the broker said in its note.
"Maintain Outperform. While we have reassessed WesTrac Capital sales growth, Support services remain firm, while Boral and Coates are supported by pending resi recovery. Growth in FY26E is soft, but acceleration still lies ahead, supported by improving macro conditions."
Macquarie also revised its earnings expectations for FY26E/FY27E/FY28E down -12%/-16%/-15% respectively.
"We have materially lowered WesTrac on reversion in Capital sales and Support revenue deferral. Coates estimates also meaningfully cut on soft market outlook," the broker said.
The outlook for SGH shares
Macquarie admits that the company's results missed expectations, and notes that the outlook for FY26 is softer than expected.
"The group guided for low- to midsingle-digit EBIT growth in FY26. This was well below our expectation, while the forward guide for WesTrac was materially weaker. Having said this, SGH is not factoring in much macro support in any of its businesses in FY26," Macquarie said.
But the broker explains that the stock's recovery can be driven by monetary policy support.
"We believe residential activity recovery (Boral and Coates), easing mining R&M deferral, and parts price outcomes (WesTrac Support revenues) are potential sources of incremental support."
