The diversified industrial company SGH Ltd (ASX: SGH) held an investor day this week, which gave analysts the opportunity to get a good handle on how the company is travelling.
Macquarie has issued a research note to its clients following the ASX 200 company's presentations, and it's fair to say they liked what they saw.
Macquarie said the company reiterated its full-year EBIT growth guidance of low to mid-single digits.
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Disciplined growth
The Macquarie analyst team added:
SGH's drive toward continuous improvement across its businesses remains a core tenet, seeking incremental gains at scale across businesses. For Boral, it means EBIT margins >15%, Coates seeks to drive further gains in time utilisation from the current 62% and WesTrac to extract further aftermarket service productivity. AI is seen as a key enabler of execution.
Macquarie said SGH had been successful over time in acquiring and improving assets, then deleveraging and acquiring again.
They said it was clear that "SGH seeks to continue this formula, with an emphasis on Australia, even if it is open to offshore opportunities too – this is a shift in intent, without any specifics''.
They added:
The group seeks EBIT growth of 10% through the cycle, balancing organic and inorganic growth roughly equally, on average. SGH sees identified growth opportunities in Property development, Crux, data centre build-out and exposure to growth thematics in infrastructure (and residential building when the cycle improves), mining production and energy.
Macquarie said while macroeconomic conditions remained complex, SGH's execution remains strong, "and Boral likely continues to support the majority of near-term growth''.
They also said they remained focused on the company's M&A strategy.
Macquarie increased its price target on SGH marginally from $50.35 to $50.40, compared with the current share price of $41.90.
Gas focus
Fellow broker RBC Capital Markets also recently released a report on SGH, with a price target of $47.
RBC argued that a key to the stock's rerating would be the company's interest in the Crux project in Western Australia, a joint venture with global giant Shell.
As RBC says in a report published this week:
We believe SGH is likely to make an announcement on Crux, a gas project that it has a 15.5% stake in (Shell owns the balance) that will begin backfilling volumes in the Prelude Floating LNG terminal, which we believe will act as a positive catalyst for the stock. We conservatively expect the project to start producing gas in late (2H28), and have taken the view that it will hit full production in FY30.
RBC estimates that Crux would generate $350 to $375 million in EBITDA to SGH each year, "yet consensus forecasts show no step-change in group earnings through the ramp period".
SGH is valued at $16.74 billion.
