Kelsian Group stock price target raised to AUD5.50 from AUD4.80 at UBS

UBS has raised its price target on Kelsian Group Ltd (ASX:KLS) to AUD5.50 from AUD4.80, maintaining a Buy rating, following the company's FY25 results which met guidance. The upgrade reflects strong second-half EBITDA growth in Kelsian's US AAAHI business and outperformance in Marine & Tourism, which are expected to offset inefficiencies in the Australian Bus segment in FY26. UBS forecasts $45 million in free cash flow before dividends for FY26, projecting gearing to improve significantly to the top end of its 2.0-2.5x target range, signaling robust operational momentum and financial deleveraging.

Analysis

UBS has upgraded its price target for Kelsian Group Ltd (ASX:KLS) to AUD5.50 from AUD4.80 and maintained a Buy rating, following FY25 results that met the low end of guidance. This positive revision is driven by strong operational momentum, highlighted by approximately 15% year-over-year EBITDA growth in its US AAAHI business during the second half of FY25. The company's Marine & Tourism division also outperformed expectations, demonstrating resilience against challenging weather conditions. Although the Australian Bus segment's margins were impacted by inefficiencies, Kelsian has guided for improvement throughout FY26. This expected recovery, coupled with the full run-rate earnings from existing and two new LNG contracts, is projected to offset the bus segment's temporary weakness and supports an FY26 EBITDA guidance aligned with consensus. A key element of the bullish thesis is the forecast for $45 million in free cash flow for FY26, which is expected to drive significant deleveraging and bring the company's gearing down from 3.2x to within its 2.0-2.5x target range.

Key Decisions for Investors

• Investors could interpret the price target upgrade and strong performance in the US and Marine divisions as a signal to consider or increase long positions, given the positive operational outlook.
• It is crucial to monitor the Australian Bus segment's margins throughout FY26 for evidence of the guided operational improvements, as this remains the key area of relative underperformance.
• Focus on Kelsian's progress towards its 2.0-2.5x gearing target, as successful deleveraging driven by strong free cash flow would significantly de-risk the investment profile and improve balance sheet health.