Top 5 Stocks To Buy Report

Here is the Top 5 Stocks Report we promised!

These five carefully selected ASX stocks are backed by research from Goldman Sachs, highlighting their strong potential for upside over the next 12 months and are all rated as a BUY.

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Collins Food Ltd. (ASX:CKF)

1H25 Results: Key Highlights

Solid Performance in Challenging Times

• Ebitda margins came in at 14.6%, slightly above the top-end of August guidance (14.2%-14.5%), supported by a favourable sales mix.
• This was the first set of results under the new CEO, Xavier Simonet, who was appointed in October.
• KFC Australia showed improving sales trends with a focus on affordability, brand health, and maintaining market share.
• Digital platforms such as apps, aggregators, and kiosks continue to drive growth by increasing order size and frequency. Over 50% of KFC stores are expected to have kiosks by the end of FY25.
• The Taco Bell rollout remains under review, with Collins Foods working alongside Taco Bell International to evaluate pathways for profitable growth.
• The balance sheet is strong, with net debt reduced to A$158.9 million, down by A$14.1 million. Strong cash conversion of 108% brought leverage down to 1.09x (pre-AASB16), creating capacity for future M&A activities.

FY25 Outlook: Key Takeaways

Improving Margins and Cost Outlook

• Guidance for FY25 Ebitda margins is between 14.2% and 14.7%, which implies potential margin contraction in 2H25. However, this appears conservative given the strong 1H25 results, anticipated food cost deflation of 1-2%, and an improving sales trajectory.

KFC Australia Growth Momentum

• KFC Australia reported SSSG of +0.8% for the first seven weeks of 2H25, reflecting a sequential improvement.
• Growth is volume-driven, with no price increases during the period.
• The second half is expected to benefit from a less demanding comparable period in 2H24.

Cost Dynamics

• Food costs are expected to deflate by 1-2% in 2025, while labour cost growth is moderating. Electricity costs remain a key headwind for the business.

Expansion and M&A Potential

• M&A remains a strategic focus, with opportunities to enter new markets under consideration.
• Germany is highlighted as a potential market for organic European growth if Collins Foods secures more direct control over its store expansion agreements.

Conclusion

Collins Foods is positioned for strong performance in FY25, supported by improving margins, digital growth initiatives, and favourable cost dynamics. With a solid balance sheet and clear expansion opportunities, the company has the capacity to pursue both organic and inorganic growth. Investors should keep an eye on sales trends in KFC Australia and any developments around M&A or international expansion.

Web Travel Group (ASX:WEB)

Webjet (WEB) 1H25 Results: Key Highlights and Analysis

Webjet announced its 1H25 results, which came in ahead of Goldman Sachs’ expectations. The Group reported total transaction value (TTV) of A$2.6 billion (+25% YoY, -1% vs GS estimates), revenue of A$170 million (+1% YoY, +2% vs GS estimates), and EBITDA of A$70 million (-8% YoY, +12% vs GS estimates). Management addressed the significant decline in WebBeds’ revenue margin while providing clear guidance for FY25/26, delivering a cautiously optimistic outlook.

Key Takeaways from 1H25

1. Revenue Margin Outlook for the Next 18 Months

• Management targets a revenue margin of approximately 6.5% in 2H25 and FY26.
• Drivers include:
  • Continued customer overrides following a detailed review by management.
  • A geographic shift in booking volumes, with APAC now the largest region.
  • Reduced discounting in Europe and an improved supplier mix, with a focus on direct rather than third-party relationships.
• CEO John Gusic has taken a more hands-on role following the departure of WebBeds’ previous CEO, strengthening operational oversight.

2. Scalability of WebBeds and EBITDA Margin Growth

• Management highlighted that WebBeds is a highly scalable business:
  • The cost base is 75% fixed, ~10% semi-variable, and ~15% truly variable.
  • Stable expenses in 2H25 are expected to support improved margins.
• Targeted WebBeds EBITDA margin of 50% by FY26, revised upward from Goldman Sachs’ previous estimate of 46%.

Updated Forecasts and Outlook

FY25 Revisions

• Goldman Sachs increased its FY25 EBITDA forecast from A$115 million to A$121 million, aligning with the guidance range of A$117-122 million.
• EBITDA margin for WebBeds is revised upward to 43%.
• Corporate costs are adjusted downward to A$19 million from the previous estimate of A$22 million.

FY26 and Beyond

• EBITDA margin estimates for FY26/27 have been raised to 48% (from 46%) due to better cost leverage.
• The company’s scalability and ability to optimise its cost structure remain central to these projections.

Conclusion

Webjet’s 1H25 results reflect solid performance despite challenges in revenue margins, with management providing clear plans for growth and profitability improvements. The focus on geographic shifts, cost optimisation, and leveraging WebBeds’ scalability positions the company for continued success into FY25 and beyond. Investors can expect strong returns, supported by improved margins and a favourable valuation outlook.

Supply Network Ltd. (ASX:SNL)

Supply Network (SNL) 1H25 Guidance and Investor Session: Key Highlights

Supply Network has provided 1H25 guidance that exceeds both Goldman Sachs estimates (GSe) and FactSet consensus expectations. Margins remain strong, and sales growth continues to outperform historical levels. The company is set to maintain its position as a leader in the aftermarket heavy vehicle industry, supported by strategic branch expansions, an expanding parts catalog, and consistent customer engagement.

1H25 Guidance Overview

• Revenue Guidance: A$170 million, reflecting +17% YoY growth (prior guidance was >14%).
• NPAT Guidance: A$19.5-20 million, an impressive +29% YoY growth, excluding a A$400k gain from a property sale.
• Strong Margins: Gross margins have normalized following the COVID period and are expected to remain slightly above long-term averages.

Key Drivers of Revenue and Growth

1. Fleet Customer Engagement

• SNL has successfully captured medium- and large-fleet customers shifting work from OEMs to aftermarket providers.
• Management estimates the market split at 40/60 (Aftermarket/OEM), with SNL commanding 10-15% market share.

2. Branch Expansion and Productivity

• New branches in North Perth (Wangara), Adelaide, and Illawarra, along with the Truganina Distribution Centre (DC) expansion, are expected to enhance market depth and operational capacity.
• These expansions will support incremental revenue but bring associated rent and employee cost increases.

3. Consistent Customer Satisfaction

• Repeat business continues to highlight strong customer satisfaction, with SNL leveraging its established relationships and high-quality service to grow organically.

4. Dynamic Network Planning

• The company maintains a flexible approach to network planning with a shortlist of potential branch locations and modular DC structures, allowing for incremental expansion.

Financial Adjustments and Outlook

Upgrades to Forecasts

• FY25/26/27E NPAT expectations adjusted upward by +2%/+5%/+6% due to higher revenue and gross margin expansion.

Operating Expense Growth

• Incremental costs from new branches and increased software expenses will slow NPAT growth in 2H25.
• Management remains confident in managing these expenses to align with long-term growth goals.

Employee Incentives

• Incentive programs tied to sales and profit contributions motivate employees and drive retention. FY25 incentive levels may be lower following FY24’s significant outperformance.

Industry Challenges and Opportunities

Technology Uncertainty

• The long-term role of electric vehicles (EVs) in the heavy vehicle industry remains uncertain due to infrastructure and adoption challenges.
• The market is increasingly favoring direct hydrogen injection (DHI) as a more practical alternative for heavy vehicles.

Conclusion

Supply Network continues to demonstrate strong performance, with above-industry growth driven by branch expansions, fleet customer engagement, and a dynamic approach to network planning. Despite some cost pressures in 2H25, the company’s ability to maintain gross margins, capitalize on fleet opportunities, and expand strategically ensures it remains a standout player in the aftermarket heavy vehicle space.

Pro Medicus Ltd. (ASX:PME)

Pro Medicus (PME): 10-Year Contract with Trinity Health Highlights Growth Potential

Pro Medicus (PME) has announced a landmark 10-year contract with Trinity Health, valued at A$330 million. This contract is PME’s largest to date and highlights its continued dominance in the radiology software market. Trinity Health is one of the largest not-for-profit healthcare systems in the United States, operating in 26 states with 93 hospitals and over 9,000 physicians, including approximately 650 radiologists.

The deal marks PME’s first new customer win in FY25 and significantly outpaces previous contract sizes, with an annualised value of A$33 million per year, more than 13 times the historical average of A$2.5 million per year. This contract also surpasses PME’s second-largest deal with Baylor Scott & White Health (A$14 million per year), reflecting the growing scale of opportunities.

Key Observations

Trinity Health’s Scale

• Trinity is a major integrated delivery network (IDN) with more than 90 hospitals and is ranked among the top 25 healthcare systems in the U.S. by net patient revenue.

Revenue Impact

• The minimum annualised value of A$33 million/year significantly exceeds PME’s historical contract sizes, solidifying its market position. PME now holds an estimated 8-9% share of U.S. radiology volumes post-Trinity contract.

Complete Cloud Deployment

• Trinity will adopt PME’s entire technology stack, including Archive, Viewer, and Workflow, fully deployed in the cloud.
• Visage 7 will replace Trinity’s current legacy PACS infrastructure, which spans nine vendors. PME’s fully cloud-native solution remains a key differentiator in an industry shifting toward cloud PACS at scale.

Pricing Strength

• The contract is likely priced above PME’s legacy contracts, reflecting growing ROI for customers and demonstrating PME’s ability to secure higher rates for both renewals and new agreements.

Optionality in AI and Cardiology

• While the Trinity contract does not directly include components for AI or Cardiology, PME retains significant optionality in these growth areas, which could drive upside over the medium term.

PME’s Strategic Advantages

PME’s Visage 7 solution continues to lead the market due to its unmatched speed and cloud-native capabilities, which are increasingly influencing hospitals to upgrade their PACS systems. PME’s ability to secure high-profile contracts and consistently renew existing customers on favourable terms underscores its position as a market leader.

The company also benefits from a growing industry network effect as more hospitals adopt modern systems, further entrenching its position. Expanding into adjacent solutions like AI and Cardiology presents significant growth opportunities, positioning PME as a strong player in these markets.

Investment Outlook

PME trades at a premium valuation but consistently justifies this through its ability to win large contracts, secure renewals, and position itself for long-term growth in adjacent markets. The full-year benefit of recent contracts, combined with the accelerating frequency and size of new wins, reinforces PME’s strong market position heading into FY25.

With its leadership validated by a robust customer list and strong market share growth, PME remains well-positioned to benefit from ongoing industry trends. The 12-month target price remains at A$221, and the Buy recommendation is reiterated.

Conclusion

Pro Medicus continues to solidify its market-leading position with strategic wins like the Trinity Health contract. Its industry-leading cloud capabilities and expanding solutions portfolio provide confidence in long-term growth. PME is well-positioned to capture market share in radiology and adjacent verticals, making it a compelling investment for FY25 and beyond.

WiseTech Global (ASX:WTC)

WiseTech Global (WTC): Key Takeaways from Investor Day

WiseTech Global (WTC) hosted its investor day, providing insights into its product roadmap and ambitions to become the operating system for global logistics. The event also showcased the depth of its executive team and its strategy for long-term growth.

Key Takeaways

Product Roadmap Highlights

• WiseTech presented its vision for delivering significant long-term growth through innovations such as the Container Transport Optimizer (CTO), which is projected to reduce customer costs by 40-50%. WTC will share in these cost savings, making this a potentially transformative product with strong adoption potential.
• Smaller products within CargoWise Next, such as Electronic Bills of Lading, also present substantial opportunities. The global cost of physical Bills of Lading is estimated at $6.5 billion annually, with nine major global carriers committed to full digitization by 2030.

Operating Momentum

• WTC believes it has passed the tipping point for customer adoption in Asia, a key growth market.
• Although hiring volumes have slowed, the company is focusing on higher-quality senior hires to drive greater impact.
• WTC’s updated guidance reflects broader challenges beyond the delayed CTO product launch, aligning with prior expectations.

Leadership Transition

• Richard White, transitioning from CEO, plans to dedicate up to 95% of his time to product development and strategy, compared to 20% previously. This new structure is expected to enhance innovation and execution.

Other Highlights

Customs and Regulation

• WTC now covers 75% of global customs requirements and is positioned to benefit from increasing regulatory complexity, particularly with the upcoming EU Customs Code in 2028.

Matchbox Exchange

• Charging $70 per container at a 5% penetration rate, with a long-term goal of 80%. Matchbox Exchange currently addresses one-quarter of potential links, suggesting significant upside as penetration increases.

Warehousing Solutions

• WiseTech holds a competitive edge in warehousing, offering five modules compared to competitors’ average of one. Deployment is also significantly faster, taking three months versus 1-2 years for competitors. Warehousing represents a total addressable market (TAM) larger than Freight Forwarding or Customs.

Investment Thesis

WiseTech Global is a leading provider of logistics software for the freight forwarding industry, operating in over 165 countries. Its strong competitive position drives efficiency gains for logistics companies, which underpins its long-term growth potential.

Near-term earnings growth is expected to benefit from the launch of new products such as the Container Transport Optimizer and increased penetration of its core business. Over the longer term, WiseTech’s commitment to product development is likely to support margin expansion and sustained earnings growth.

Key Risks

1. Adoption of new products may be slower than anticipated.
2. Global trade volumes could weaken, impacting demand.
3. Increasing competition in the logistics software market.
4. Challenges in integrating and executing acquired businesses.
5. Regulatory changes and compliance requirements.
6. Data and security concerns.
7. Potential dilution from M&A activity.
8. Foreign currency fluctuations.

Conclusion

WiseTech’s strategic focus on product innovation, coupled with its expanding market presence, positions it for robust growth in the global logistics software industry. With a risk/reward profile skewed to the upside, WiseTech remains a compelling investment opportunity.