If you believe Goldman Sachs, they just put out a $4.70 12m...

If you believe Goldman Sachs, they just put out a $4.70 12m price target.

Covid dynamics drive further downgrades; ACL the relative preference in a
challenging pathology environment

Through recent weeks both of ACL’s domestic pathology peers have
reported four-month trading updates (see SHL and HLS). In this note
we take the opportunity to mark-to-market our ACL forecasts using
these updates as an indicative guide of the recent (volatile) market
conditions.
As for many months now, the crux of the equity stories in pathology
have been the extent to which a steady recovery in base business
volumes can offset a sharp decline in Covid testing. Through 2022
so far, the net effect has been negative, with SHL and HLS reporting
4-month FY23 revenues (12)% and (32)% respectively. For an
industry characterised by high fixed cost leverage, the
underwhelming recovery in base business is driving a challenging
margin dynamic, particularly at a time when organic cost growth is
running ahead of historical levels. Through 4m23, SHL and HLS have
reported EBITDA margin contraction of (9.3)ppt and (18.3)ppt
respectively.
See details within below, overall, we revise our FY23E-FY25E sales
and NPAT forecasts by (2)-(5)% and (15)-(37)% respectively. These
forecast changes drive an (18)% decrease in our 12-month target
price from A$5.70 to A$4.70.
Recognising elevated volatility/challenges across the pathology
sector currently, we believe ACL’s valuation of 13x FY24E P/E
provides relatively more headroom/support than for both HLS
(Neutral; 19x) and SHL (Sell; 20x). Supported by signs of modest
share gains during the base business recovery, a leaner operating
structure and the highly accretive EBIT contribution from Medlab
from 1H23, ACL remains our relative preference in the space;
maintain Buy.