Day: 26 December 2020

Determining the best shares to buy now is clearly very subjective. Every investor will have their own views on which companies provide the most attractive investment opportunities.

However, some of the most appealing stocks are likely to have a mix of solid fundamentals, sound strategies and track records that suggest they can perform well in a variety of operating conditions.

Buying such companies at fair prices could prove to be a profitable move. They may be more likely to outperform the stock market and deliver high capital returns.

The best shares to buy now may have solid track records

A solid track record of performance in a range of economic situations may differentiate the best shares to buy now from their peers. The economic outlook is currently very uncertain. Political risks are elevated, while the challenges faced in 2020 regarding coronavirus look set to continue at least in the early part of next year.

Therefore, companies that have been able to deliver impressive sales and profit growth in a variety of operating environments could be relatively attractive. They may be able to outperform their peers in the short run, which could equate to lower levels of risk. Meanwhile, they could be in a stronger position to capitalise on a likely economic recovery in the coming years that produces a higher valuation.

A sound growth strategy

The best shares to buy now may also have sound strategies that can lead to growing profitability in the coming years. The past 12 months have included major change across many industries. This could mean that companies with static business models that fail to innovate quickly become outdated.

By contrast, companies that are able to respond quickly to changing consumer tastes may be the major winners in the likely stock market recovery.

Clearly, it is difficult to assess whether a specific strategy will be successful or not. However, by analysing a company’s recent investor updates compared to those of its peers, it is possible to identify the most flexible and adaptable businesses within a specific sector. They may be able to adjust their operations to accommodate a rapidly-changing economic outlook over the long run.

Financial strength ahead of an uncertain 2021

As mentioned, the best shares to buy now are likely to have solid financial positions. While this is always the case, a solid balance sheet may be worth more than usual in the eyes of investors at the present time. Companies with low debt and strong cash flow may offer less risk during what could prove to be an uncertain period for the economy.

They may also be able to invest to a greater extent in new products and services. Over time, this could produce higher profit growth and a rising share price.

More reading

• 3 ASX shares to buy for 2021 and beyond
• Why Amazon’s stock is so expensive
• 2 great ASX growth shares that are rapidly expanding
• 2 ASX dividend shares to buy for 2021
• 2 rapidly growing ASX tech shares to buy

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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There are thousands of shares for investors to choose from on the Australian share market.

This can make it very daunting when you’re trying to construct a balanced portfolio of 10 or so shares.

To help you on your way, I have picked out three ASX shares that come highly rated. Here’s what you need to know about them:

Damstra Holdings Ltd (ASX: DTC)

The first share to look at is Damstra. It is a growing integrated workplace management solutions provider. Damstra’s cloud-based workplace management platform is used across the globe to track, manage, and protect workers and business assets.

Demand was so strong in FY 2020 from both new and existing costumers that Damstra delivered a 47% increase in revenue to $23.5 million. Pleasingly, this positive form has continued in FY 2021, with the company reporting record first quarter revenue, cash receipts, and operating cash flow.

Morgan Stanley has been impressed with its performance and has put an overweight and $2.00 price target on the company’s shares.

Goodman Group (ASX: GMG)

Another share to look at is Goodman Group. It is an integrated commercial and industrial property group which has been growing at a solid rate over the past few years. This has been driven by its focus on high-quality properties in key locations that management believes will deliver sustainable returns for investors.

These include logistics and warehouse facilities which have exposure to the growing ecommerce market through relationships with Amazon, DHL, and Walmart.

Analysts at Macquarie have been impressed with Goodman’s performance so far in FY 2021 and believe it is well placed for growth in the coming years. Its analysts have an outperform rating and $19.86 price target on its shares.

Kogan.com Ltd (ASX: KGN)

A final share to look at is Kogan. It is a growing ecommerce company and Australia’s equivalent to Amazon.

While Kogan has been performing positively in recent years, its growth went up a gear in 2020 after the pandemic accelerated the shift to online shopping. This led to a material jump in customer, sales, and earnings growth in FY 2020 and has continued into the new financial year.

But management isn’t settling for that. It undertook a capital raising earlier this year to raise funds to make value accretive acquisitions. Kogan has just acquired New Zealand based e-commerce company Mighty Ape for NZ$120 million and previously acquired furniture retailer Matt Blatt for a more modest $4.4 million.

Credit Suisse is a fan of Kogan. It recently put an outperform rating and $20.60 price target on its shares.

More reading

• 2 great ASX growth shares that are rapidly expanding
• 2 ASX growth shares to buy when the market reopens
• Got cash to invest? Here are 3 ASX shares to buy
• 2 dirt cheap ASX shares to buy in 2021
• 2 exciting small cap ASX tech shares to buy

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Damstra Holdings Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia has recommended Damstra Holdings Ltd and Kogan.com ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Trading around $3,200, Amazon‘s (NASDAQ: AMZN) stock comes with a hefty price tag. Amazon shares are on an incredible rally, even if you zoom out and look at it from a longer-term perspective. 

Why are its shares so expensive? Let’s dig a little deeper and try to answer that question. You may find the conclusion a bit surprising. 

What’s causing the surge in Amazon’s stock price? 

Since the start of the pandemic, more and more people have been relying on Amazon to deliver what they want and need to their doorstep. In the first three quarters of the year, sales are up by 34.9% from the same period in 2019. Furthermore, the company is guiding investors that its fourth-quarter revenue is likely to increase by about 33%. And since coronavirus cases are surging in many regions of the world, it would not be surprising if Amazon reports much higher results than expected.

Amazon last commented on Prime membership totals in January, when it had 150 million members. Revenue from subscription services, which includes membership fees paid by Prime members, has increased by 53% in each of the last two quarters. So in the company’s next update, Prime membership is likely to be much higher. Prime members tend to shop more often and spend more than non-members do, and their presence attracts third-party sellers to Amazon’s platform.

Finally, the Amazon Web Services cloud computing business continues to grow revenue rapidly. This is especially important because in the third quarter, even though AWS made up 12% of total revenue, it provided 57% of overall operating profits. High double-digit growth in such a profitable segment brings in cash flow that it can then direct into operations, making it an even more desirable destination for online shoppers. 

Overall, Amazon continues to give shareholders a lot to be happy about.

Is Amazon’s stock actually expensive?

You might be thinking, “Of course it’s expensive — it costs $3,200 per share!” And when looking at it from that perspective, you would be absolutely correct. However, if you consider Amazon on several key financial metrics (see chart below), you will find that it’s not as expensive as you may have initially thought. Its price ratios on three important financial metrics are below historical levels. In particular, its price-to-sales ratio isn’t too much higher than the S&P 500’s average around 2.7, and it’s right in line with the tech-heavy Nasdaq Composite Index, currently around 4.3.

What’s more, Amazon is a better company today than it was when it was trading at higher multiples. The coronavirus pandemic has attracted many people and businesses to Amazon’s products and services. Some of those customers are likely to remain even after the eventual return to normalcy.

It may still be daunting to think of paying $3,200 to buy one share of stock. You may be comforted in knowing that many brokerages now offer the ability to buy fractional shares. That puts Amazon’s stock within the budget of all those interested in becoming shareholders — whether you have $32 to invest or $3,200. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• In a record-breaking year, here are some of the world’s most popular shares
• US “mum and pop” investors leaving the pros in the dust in 2020 stock rally
• How to invest in US shares in 2021
• Better buy: Amazon vs Chewy
• Amazon has a new strategy to capture India’s e-commerce market

Parkev Tatevosian has no position in any of the stocks mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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There are some great ASX growth shares out there that could be worth considering for a spot in your portfolio.

Here are two compelling businesses that are growing really quickly:

Temple & Webster Group Ltd (ASX: TPW)

Temple & Webster is a business that sells a wide array of furniture and homewares. Indeed, it has over 180,000 products on sale from hundreds of suppliers. It operates a drop-shipping model, where products are sent directly to customers by suppliers which helps with faster delivery times and reduces the need to hold inventory, allowing a larger product range. Temple & Webster also has a private label range which is sourced from overseas suppliers.

The COVID-19 lockdown period caused a lot of growth for online retailers. But the ASX growth share increased its market share during this time – while the category grew by 57% during the months of April to July, Temple & Webster grew by 150% according to the company.

As Temple & Webster grows in size, it’s becoming a larger part of suppliers’ revenue which allows the ASX share to get better stock security, better terms and exclusive product ranges. Getting bigger also means it can invest more in technology, data, marketing and private label products. The company boasted that the bigger it gets, the stronger its customer proposition becomes, which is a helpful cycle.

In FY20 it grew full year revenue by 74% to $176.3 million and second half revenue rose 96%. Accelerated operational leverage helped grow earnings before interest, tax, depreciation and amortisation (EBITDA) by 483% compared to FY19 to $8.5 million, with the adjusted EBITDA margin growing from 2.5% to 5.3%.

It finished FY20 with $38.1 million of cash and no debt, which excludes the proceeds from its $40 million capital raising which was conducted in early FY21.

The ASX growth share continued expanding into FY21 with revenue for the period of 1 July 2020 to 19 October 2020 up 138% compared to the prior corresponding period. FY21 first quarter EBITDA generated was $8.6 million, which was more than the whole of FY20. October revenue growth was still more than 100% and the contribution margin was ahead of its 15% target.

According to Commsec projections, the Temple & Webster share price is valued at 36x FY22’s estimated earnings.

Kogan.com Ltd (ASX: KGN)

Kogan.com is another e-commerce ASX growth share. It sells a wide array of products and services such as phones, computers, furniture, insurance, credit cards and superannuation.

One part of the business is its membership program called Kogan First. Mr Kogan, the founder of the company, has spoken about the benefit to the company of its growing number of people using its loyalty scheme: “The Kogan First community of members grew exceptionally during the second half, and importantly these loyal members on average purchase and save much more often than non-members, demonstrating loyalty to the platform, and also demonstrating the significant savings and other benefits available through the loyalty program.”

The company’s margins have grown over the last few years. In FY17 the EBITDA margin was 4.3% and it had more than doubled to 9.3% by FY20.

Growth in FY21 to the end of October 2020 remained elevated, with gross sales up around 100%, gross profit was up 131.7% and adjusted EBITDA had grown by 268.8%.

Kogan.com is expanding in New Zealand with an acquisition called Mighty Ape, which is also a fast-growing e-retailer. It specialises in gaming, toys and other entertainment categories. The ASX growth share believes it can build on Mighty Ape’s offering and provide the infrastructure to grow further.

In FY21 Mighty Ape is forecast to generate revenue of $137.7 million, gross profit of $45.7 million and EBITDA of $14.3 million, which represents growth of 43.7%, 58.1% and 254.1% respectively.

According to Commsec projections, the Kogan.com share price is valued at 26x FY23’s estimated earnings.

More reading

• 2 ASX growth shares to buy when the market reopens
• Got cash to invest? Here are 3 ASX shares to buy
• 2 dirt cheap ASX shares to buy in 2021
• These ASX shares have more than doubled in 2020
• 2 exciting mid cap ASX shares to buy for the long term

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Are you looking for some dividend options for your portfolio in 2021? Then check out the two ASX shares listed below.

Here’s why these ASX dividend shares have been tipped to as buys for next year:

Charter Hall Social Infrastructure REIT (ASX: CQE)

Charter Hall Social Infrastructure REIT is an Australian ASX-listed real estate investment trust with a focus on social infrastructure properties. Management is targeting ongoing capital growth by investing in assets with specialist use, limited competition, and low substitution risk.

An example of this is its recent $122.5 million acquisition of a property that is under construction and will be the new corporate headquarters of Mater Misericordiae. This is Queensland’s largest Catholic not-for-profit health provider.

It is also thanks to this focus that the Charter Hall Social Infrastructure REIT enjoys such a high occupancy rate and long leases. At the end of FY 2020, it had a 99.5% occupancy rate for its 395 properties and a weighted average lease expiry (WALE) of 12.7 years.

Goldman Sachs is a fan of the company and has a conviction buy rating and $3.35 price target on its shares. The broker is expecting a 15 cents per share dividend in FY 2021. Based on the latest Charter Hall Social Infrastructure REIT share price, this represents a 4.5% yield.

People Infrastructure Ltd (ASX: PPE)

People Infrastructure is a leading workforce management company. It provides companies with innovative solutions to workforce challenges.

It was a strong performer in FY 2020 despite facing headings from the pandemic. For the 12 months ended 30 June, People Infrastructure reported an impressive 49.2% increase in normalised EBITDA to $26.4 million.

While no guidance has been given for FY 2021, analysts at Morgans appear very positive on its prospects. The broker recently put an add rating and $4.05 price target on its shares. In addition to this, it is forecasting a dividend of 11 cents per share this year.

Based on the latest People Infrastructure share price, this will mean a fully franked 3.2% dividend yield.

More reading

• 3 ASX shares for growth, income, and value investors
• 2 dirt cheap ASX shares to buy in 2021
• 2 ASX dividend shares offering generous yields in 2021
• Why the People Infrastructure (ASX:PPE) share price will be on watch today

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of People Infrastructure Ltd. The Motley Fool Australia has recommended People Infrastructure Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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There are a large number of growth shares for investors to choose from on the Australian share market.

Two in the tech sector that come highly rated are listed below. Here’s why they have recently been named as shares to buy:

Pushpay Holdings Ltd (ASX: PPH)

The first tech share to look at is Pushpay. It is a fast-growing donor management and community engagement provider to the church market.

Thanks to the quality of its platform, its leadership position in the market, and the shift to a cashless society, Pushpay has been growing at a very strong rate.

For example, the company recently released its half year results and revealed a 48% increase in total processing volume to US$3.2 billion. This led to Pushpay reporting a 53% increase in operating revenue to US$85.6 million and, thanks to the further widening of its margins, EBITDAF growth of 177% to US$26.7 million.

This strong form and its long runway for growth has caught the eye of analysts at Goldman Sachs. They have put a conviction buy rating and $2.59 price target on the company’s shares. Based on the current Pushpay share price of $1.68, this price target implies potential upside of over 54%.

Xero Limited (ASX: XRO)

Another tech share to look at is Xero. It is a leading New Zealand-based cloud-based business and accounting software provider.

Thanks to its successful evolution from an accounting platform into a full service small business solution over the last few years, the company has been growing its customer numbers and revenues at a rapid rate.

For example, at the last count Xero had 2.45 million subscribers and was generating half year operating revenue of NZ$409.8 million from them.

The good news is that due to the quality of its offering, the shift to the cloud, its global market opportunity, and burgeoning app ecosystem, Xero has been tipped for more of the same in the future.

Goldman Sachs is very positive on its prospects and recently put a buy rating and $157.00 price target on its shares.

More reading

• 3 reliable ASX 200 shares that keep growing
• 5 fantastic ASX shares to buy in 2021
• 3 of the best ASX shares to buy right now
• How to get the best out of the 2021 mining boom
• 2 of the best ASX 50 shares to buy today

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of PUSHPAY FPO NZX and Xero. The Motley Fool Australia has recommended PUSHPAY FPO NZX. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Last week saw a large number of broker notes hitting the wires once again. Three buy ratings that caught my eye are summarised below.

Here’s why brokers think investors ought to buy them next week:

A2 Milk Company Ltd (ASX: A2M)

According to a note out of Morgans, its analysts have retained their add rating but trimmed the price target on this infant formula company’s shares to $12.20. This follows a2 Milk Company’s earnings guidance downgrade due to weakness in the daigou channel. While the broker acknowledges that investor sentiment will be impacted by the uncertainty it is facing, it takes comfort in the company’s strong performance in mainland China. And although it has downgraded its earnings forecasts by almost a third for the coming years, the broker still sees value in its shares at the current level. The a2 Milk share price ended the week at $10.95.

Alliance Aviation Services Ltd (ASX: AQZ)

Analysts at Morgans have also retained their add rating and lifted the price target on this contract, charter and allied aviation services provider’s shares to $5.00. The broker notes that Alliance Aviation is expanding its fleet to 73 aircrafts via the acquisition of 16 Embraer E190s for $85 million. Morgans believes the deal has been done on attractive terms and expects the expansion to result in higher levels of activity across its network in the coming years. The Alliance Aviation share price last traded at $3.90.

City Chic Collective Ltd (ASX: CCX)

A note out of Goldman Sachs reveals that its analysts have retained their buy rating and lifted the price target on this fashion retailer’s shares to $4.25. This follows the announcement of the acquisition of UK-based plus sized fashion retailer Evans. It notes that this acquisition is consistent with its stated goal of building a global footprint solely focused on the plus-sized market. Goldman expects the acquisition to deliver strong strategic benefits and provide a platform for cross-selling Avenue and City Chic products. The City Chic share price ended the week at $3.96.

More reading

• These were the best performers on the ASX 200 last week
• 3 top small cap ASX shares to buy
• 2 ASX growth shares to buy when the market reopens
• ASX 200 rises on Christmas Eve
• ASX 200 up 0.5%: BHP Samarco update, A2 Milk’s acquisition, Credit Corp rockets

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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It takes a considerable amount of time to make a million from buying shares. However, that process may be shortened through investing money in top share picks. They may offer good value for money relative to other stocks, and could deliver higher returns over the coming years.

Through investing in companies benefitting from clear industry growth trends while they trade at low prices, it is possible to outperform the stock market. Over time, this could improve an investor’s financial prospects and lead them towards a seven-figure portfolio.

Buying shares to make a million

Of course, an investor can make a million by tracking the performance of the stock market. For example, indexes such as the S&P 500 Index (SP: .INX) and FTSE 100 Index (FTSE: UKX) have produced high single-digit annual returns over the past few decades on a total return basis. Investing even a modest amount of money, such as $500 per month, over a 35-year time period would be sufficient to produce a portfolio valued in excess of a million at an 8% annual return.

Clearly, this example assumes that the stock market continues to produce high single-digit annual total returns. While there is no guarantee that this will take place, taking a long-term view of the stock market allows an investor to benefit from compounding. Over time, this can have a significant impact on their portfolio valuation, since they earn returns on previous returns.

Finding today’s top share picks

Unearthing and investing in today’s top stock picks can lead to market-beating returns, as well as greater scope to make a million. Although views on the best shares to buy may differ among a group of investors, they are likely to offer stronger profit growth than their index peers. As such, seeking to identify companies that operate in industries with clear long-term growth potential could be a shrewd move. They may benefit to a great extent from rising demand for their products and services.

For example, healthcare could be a growing market over coming decades. An aging and growing world population may mean demand for a variety of drugs and orthopaedics is required. This could catalyse the sales and profitability of healthcare-related  companies. Similarly, online-focused businesses may deliver higher profit growth in future. The coronavirus pandemic has pushed many consumers online, which may now prove to be a permanent trend.

Meanwhile, buying companies with flexible business models may lead to higher returns. For example, a company with low fixed costs, low debt and a forward-thinking management team may be able to more easily adapt to changing market conditions. Not only could such companies offer higher return prospects and a better chance to make a million, they may also have less risk than their sector peers.

Buying attractive stocks at fair prices

Clearly, buying today’s top share picks does not guarantee that an investor will make a million. However, purchasing them when they offer fair value for money may lead to market-beating returns. Over time, this may increase an investor’s chances of generating a seven-figure portfolio, and of enjoying greater financial freedom in older age.

More reading

• Top brokers name 3 ASX shares to sell next week
• 3 small cap ASX dividend shares to buy
• Report: authorities rejected Facebook offer to foster competitors’ growth
• 2 ASX 200 shares to buy in January
• 3 small cap ASX shares that could have a big 2021

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Once again, a large number of broker notes hit the wires last week. Some of these notes were positive and some were bearish.

Three sell ratings that caught my eye are summarised below. Here’s why top brokers think investors ought to sell these shares next week:

Bendigo and Adelaide Bank Ltd (ASX: BEN)

According to a note out of Morgan Stanley, its analysts have retained their underweight rating but lifted the price target on this regional bank’s shares to $7.70. While the broker notes that the bank’s housing loan growth is well ahead of forecasts and that recent changes from APRA are favourable, it doesn’t believe its shares offer value for money at the current level. The broker prefers other options in the banking sector. The Bendigo and Adelaide Bank share price ended the week at $9.48.

National Storage REIT (ASX: NSR)

A note out of Goldman Sachs this week reveals that its analysts have retained their sell rating but lifted the price target on this self-storage operator’s shares slightly to $1.57. This follows the release of the company’s trading update and guidance for FY 2021. While the broker was pleased with aspects of this update, there wasn’t enough detail to allow it to change its view. In addition, Goldman Sachs has an issue with its current valuation, which it appears to believe is excessive compared to its peers. It notes that its shares are trading at a 23x estimated FY 2022 FFO. This compares to a sector average of 17x. The National Storage share price was trading at $1.96 at the end of the week.

QBE Insurance Group Ltd (ASX: QBE)

Analysts at Macquarie have retained their underperform rating and $8.00 price target on this insurance giant’s shares. This follows the release of a trading update which revealed that the company is expecting to post a huge loss in FY 2020. Unfortunately, Macquarie doesn’t appear convinced that the worst is over. Particularly given that QBE’s return on capital expectations in North America are below its cost of capital. The QBE share price ended the week at $8.86.

More reading

• These 4 ASX REITS are about to go ex-dividend
• Top brokers name 3 ASX shares to buy today
• Top broker puts sell rating on National Storage (ASX:NSR) shares
• Leading brokers name 3 ASX shares to sell today
• Why the QBE (ASX:QBE) share price has been given a conviction buy rating

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Blue chips aren’t the only businesses to pay dividends. Small cap ASX dividend shares could also be worth considering for income.

Here are three different smaller businesses to look at:

Nick Scali Limited (ASX: NCK)

Nick Scali currently has a trailing grossed-up dividend yield of 7.1%.

Fund Manager Matt Williams from Airlie Funds thinks Nick Scali is going to benefit from a lower unemployment rate and consumers could continue to benefit from the government stimulus.

The small cap ASX dividend share has a market capitalisation of around $772 million according to the ASX. It has been steadily increasing its dividend over the past several years. 

In FY20 it grew the final dividend by 12.5%, meaning the total FY20 dividend grew by 5.6% to 47.5 cents.

The furniture business said that in the first quarter of FY21 its sales orders were up 45% and this trend continued into October. There were store closures in Melbourne and Auckland during the quarter, so when excluding times when any stores were shut total comparable store sales orders grew by 59% in the FY21 first quarter.

Nick Scali was still generating large online sales growth – up 47% in the first quarter of FY21 – and management are expecting the earnings before interest and tax (EBIT) from online to be higher in FY21 than expected.

The company is now expecting net profit after tax (NPAT) in the FY21 first half to grow by 70% to 80%.

Propel Funeral Partners Ltd (ASX: PFP)

Propel currently has a trailing grossed-up dividend yield of around 5%.

The funeral business is exposed to long-term tailwinds of Australia’s ageing population. Death volumes are expected to grow by 1.4% per annum between 2016 to 2025 and then increase by 2.2% per annum from 2025 to 2050.

COVID-19 caused a lot of disruption during 2020 to the small cap ASX dividend share. Not only was funeral attendance limited, but in the first quarter of FY21 death volumes were materially below historical long term trends in key markets where Propel operates. Flu cases in Australia were down around 99% compared to the 5-year average.

In terms of financial performance, in the first quarter of FY21 operating earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 18% to around $10.5 million. Average revenue per funeral growth compared FY20 was in the company’s target range of 2% to 4%. Total funeral volumes were higher than the prior corresponding period and its “strong” cash flow conversion was maintained.

Propel is projecting growth for the rest of the year with the company expected to benefit from death volumes reverting to long term trends, given the growing and ageing population.

Pacific Current Group Ltd (ASX: PAC)

Pacific has a trailing grossed-up dividend yield of 8.1%.

FY20 was a year of growth for the company. Underlying earnings per share (EPS) went up by 40% to $0.51 cents which helped the total dividend grow by 40% to $0.35 per share.

Pacific is a business that invests in fund managers and then brings resources to help the manager grow such as using its financial capabilities or its expertise.

At the company’s annual general meeting (AGM), Pacific explained that it is focused on growing the existing business, diversifying its portfolio and seeking new revenue sources. It’s going to keep looking for compelling investments, open up new distribution channels and perhaps launch a private fund to invest alongside Pacific, where it would receive management fees revenue and co-investment rights.

The small cap ASX dividend share is expecting to make at least two investments in FY21.

Dean Fremder of Perpetual Limited (ASX: PPT) said when Pacific Current shares were approximately 10% lower: “The stock’s really cheap. It’s on nine times earnings. It’s growing earnings at double digits, so more than 10% a year. It is paying a 6.5% fully franked yield. And most excitingly, we think they can pay out a much larger portion of their earnings as dividends. We see no reason, given the surplus franking credits they have on the balance sheet, they can’t be paying a 10 or 11% fully franked yield in the next 12 months. So, really excited about that one.”

More reading

• 3 top small cap ASX shares to buy
• Got cash to invest? Here are 2 ASX shares to buy
• 3 top ASX shares to buy for 2021
• 3 little-known ASX dividend shares offering big income
• 3 small ASX dividend shares with large yields

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Propel Funeral Partners Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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