Day: January 13, 2021

Why this broker likes ANZ (ASX:ANZ), NAB (ASX:NAB), and Westpac (ASX:WBC)

asx brokers

In afternoon trade the S&P/ASX 200 Index (ASX: XJO) is back on form and on course to record a solid gain. At the time of writing the benchmark index is up 0.5% to 6,721.3 points.

One area of the market that has been doing a lot of the heavy lifting today has been the banking sector. At the time of writing, all the big four banks are trading higher and are underpinning the ASX 200’s gains.

Why are bank shares climbing higher today?

Today’s gains appear to have been driven by a positive broker note out of Morgan Stanley.

According to the note, the broker believes the banking sector’s outlook is improving and expects the market to begin to price in a recovery in earnings and dividends as the year progresses.

After which, it suspects that next year the banks could be looking at capital management initiatives given the excess capital they built up during the pandemic.

In light of this and the fact that their valuations are still below their pre-COVID-19 levels, the broker sees upside for the big four banks’ shares in 2021.

How does it rate the big four banks?

In alphabetical order, here’s how Morgan Stanley currently rates the big four:

The broker has an outperform rating and $28.00 price target on Australia and New Zealand Banking GrpLtd (ASX: ANZ) shares. It is expecting a 98 cents per share dividend in FY 2021 and then a $1.27 dividend in FY 2022.

Morgan Stanley is less positive on Commonwealth Bank of Australia (ASX: CBA) and has a neutral rating and $82.00 price target on the shares of Australia’s largest bank. It is forecasting a $2.50 per share dividend this year and then a $2.88 per share dividend year next year.

Its analysts see value in the current National Australia Bank Ltd (ASX: NAB) share price and have an outperform rating and $26.00 price target. The broker is forecasting an 88 cents per share dividend in FY 2021 and a $1.06 per share dividend next year.

Finally, the broker also thinks that the Westpac Banking Corp (ASX: WBC) share price is in the buy zone. It has an outperform rating and $22.50 price target on its shares. Morgan Stanley is forecasting an 86 cents per share dividend in FY 2021 and then a $1.08 per share dividend in FY 2021.

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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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What’s next for WAAAX shares in 2021? 

man jumping from 2020 cliff to 2021 cliff representing asx outlook 2021

WAAAX shares have been the favourites of ASX investors in recent years. Consisting of Wisetech Global Ltd (ASX: WTC), Afterpay Ltd (ASX: APT), Altium Limited (ASX: ALU), Appen Ltd (ASX: APX), and Xero Limited (ASX: XRO), WAAX shares are Australia’s equivalent to the United States’ FAANG stocks.

The coronavirus pandemic has had a mixed impact on WAAAX shares. While some benefitted from the social changes spurred by the pandemic, others faced headwinds. So what’s next for WAAAX shares? 

Logistics technology gaining momentum 

Wisetech is in the logistics business, supplying a software platform to manage supply chains. More than 17,000 logistics organisations use Wisetech’s solutions for freight forwarding, customer clearance, warehousing, tracking, and tracing.

Despite the disruptions to the industry caused by COVID-19, Wisetech’s revenue increased 23% in FY20.

Due to the complexity of the global logistics market, integrated software takes time and expertise to develop. Logistics service providers are moving away from in-house systems and towards commercial software that provides economies of scale with development, upgrade, and maintenance costs spread across many customers. 

Wisetech has worked to standardise global variations in freight forwarding into a single modular product that consolidates data and automates workflow. Since listing on the ASX in 2016 Wisetech has completed over 40 acquisitions, providing it with a unique footprint in the global market.

Although Wisetech boasts all 25 of the world’s largest global freight forwarders as customers, it says it is still in the early stages of market penetration. Wisetech has been gaining momentum and says it is well positioned to transform the US$9 trillion global logistics market. 

Buy now, pay later booms

Afterpay was the star performer of the WAAAX shares in 2020 with the Afterpay share price increasing a staggering 289%. The buy now, pay later (BNPL) provider now boasts a market capitalisation of more than $33 billion. The company has benefitted from the shift to online shopping and digital payment methods as well as an increased focus on budgeting in the wake of the pandemic. 

In November 2020, Afterpay exceeded $2 billion of global sales, more than double that of November 2019. 

Afterpay boasted 11.2 million active customers at the end of the first quarter of FY21, a 98% increase on the prior corresponding period. This included 6.5 million customers in the United States, a key growth market for the company.

Underlying sales in the US overtook those in the ANZ region for the first time in November 2020 at $1 billion versus $0.9 billion for ANZ.

The UK is another key market that Afterpay is seeking to grow as the BNPL sector matures. A $786 million capital raising conducted in July 2020 provided the company with funds to accelerate investment in existing regions and expedite expansion into new markets in 2021. 

Momentum returning for Altium 

Altium provides printed circuit board (PCB) design software. PCBs are a key component of electrical devices, used in everything from mobile phones to cars. Altium is seeking to leverage society’s increasing reliance on electronic devices via domination of the PCB design industry.

Altium’s revenue grew by an impressive 10% in 2020, however, this was below the rate of growth seen in previous years. Nonetheless, Altium has recorded 9 consecutive years of double digit growth and expanding margins.

The macro environment remains challenging, with the first half of FY21 impacted by COVID. Altium says signs of momentum are coming back for the second half and has confirmed guidance of US$200 million to US$212 million in revenue in FY21.  

Long-term AI trends remain positive 

Appen is due to report its financial results for the year ended 31 December 2020 next month. The artificial intelligence (AI) company reported strong growth in 1H20 despite the impacts of COVID on new business development and renewals.

Third quarter revenue was lower than expected, however Appen’s major customers released strong third quarter results and online advertising bounced back. While the fourth quarter improved on the third, Appen’s usual ramp up seen towards the tail end of the year failed to eventuate.

COVID has disrupted the priorities and activities of Appen’s customers, with the result that Appen has revised its full year earnings before interest, tax, depreciation and amortisation (EBITDA) guidance to $106 million—$109 million. Appen says long-term trends for the business remain positive, as spending on artificial intelligence is growing at 28% annually and is expected to accelerate in a post-pandemic environment. The company expects these structural tailwinds to support a return to strong growth rates in 2021.

Cloud accounting continues to grow 

Xero reported a strong performance in the six months to 30 September 2020. Despite challenging market conditions, operating revenue increased 21% year-on-year, while net profit after tax was up by $33.2 million.

Xero provides a software-as-a-service accounting system for small and medium businesses. The company has been focused on helping customers navigate through COVD-19 by enhancing its platform in response to government initiatives and stimulus benefits.

Going forward, Xero is looking to drive the uptake of cloud-based accounting and scale globally. Xero estimates cloud accounting has been adopted by more than 50% of its addressable market in Australia and New Zealand, but less than 20% across the rest of the world.

With liquid resources of $723 million, Xero is well positioned to fund future growth. The continued uncertainty created by COVID has prevented Xero from providing further commentary on its expected full year performance. 

What’s next for WAAAX? 

WAAAX shares reported mixed performances in 2020, but are anticipating positive results in 2021. Afterpay has shone recently but Wisetech, Altium, Appen, and Xero also have plans for growth in place. As the global economy recovers from the ravages of the pandemic, investors will be watching WAAAX shares with interest.  

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Kate O’Brien owns shares of Altium and Appen Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Appen Ltd and Xero. The Motley Fool Australia owns shares of AFTERPAY T FPO and WiseTech Global. 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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ASX stock of the day: AVA Risk Group (ASX:AVA) share price rockets 30%

ASX shares rise

The Ava Risk Group Ltd (ASX: AVA) share price is rocketing today, up 25.4% at the time of writing to 63 cents a share. The Ava share price closed at just 50 cents each yesterday, the same pricing level it opened at this morning. But shortly before lunchtime, the shares spiked all the way up to 65 cents a share before settling to the current share price.

It’s a welcome move for Ava Risk shareholders to be sure. The company’s shares saw a massive spike in 2020, rising from around 16 cents at the start of the year to a high of 78 cents in December. Until today, Ava Risk was down almost 6% from those highs.

So what does Ava Risk Group do? And why is the Ava share price rocketing back up today?

Ava Risk: An intro

Ava Risk Group describes itself as “a market leader of risk management services and technologies, trusted by some of the most security-conscious commercial, industrial, military and government clients in the world”.

The company offers “a range of comprehensive solutions” for its clients. These include intrusion detection and location for perimeters, pipelines and data networks, biometrics, card access control and locking as well as secure international logistics, storage of high-value assets and risk consultancy services.

Ava Risk was founded in 1994 and listed on the ASX before the turn of the century. Today, the company has offices or operations across 6 continents. It has also, however, been unable to reach the heights that we saw back in 2015 (when the company was trading at almost $1.20 a share).

However, the company was still making waves in 2020. Back in July, Ava Risk rocketed more than 45% in one day on an earnings report. In this report, Ava told investors that its cash balance had rocketed by $4.1 million to $7.88 million for the quarter ending 30 June 2020. It also reported that it had received a loan from the US government of $333,000 as part of the US government’s COVID-19 stimulus packages. The company also reported that it expects this loan to be forgiven (which I’m sure its shareholders appreciated).

Why is Ava Risk rocketing again today?

Once again, Ava Risk appears to be shooting higher today due to the results of another favourable earnings report. This, the company disclosed to the markets this morning just before lunchtime. The report covered the first half of FY2021.

In this earnings report, Ava Risk told investors that revenues had increased by approximately 70% compared with the prior corresponding period to “be in excess of $35 million for the period”. This enabled earnings before interest, tax, depreciation and amortisation (EBITDA) to explode by 450% to more than $12 million.

It also reported that “all business units” were profitable over the 6-month period, which helped Ava increase its cash holdings to $13.4 million.

Pleasingly for investors, the company also reported that it expects its gross margins to be around 24% in its services sector, which Ava notes is “considerably above” the 25% margin that FY2020 saw.

The company also noted that a new services contract in the “wholesale banknote sector” has been awarded, which is set to commence this month. This contract is expected to bring in more than $1 million in revenues per annum.

Ava Risk Group CEO, Rob Broomfield, had this to say on these numbers:

Our record H1 FY2021 results have demonstrated that our streamlined and highly scalable cost structure, along with our diverse customer base and revenue streams, are able to show continued growth even in times as disruptive as the current global pandemic period.

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When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

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Motley Fool contributor Sebastian Bowen 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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Here’s why the Sayona (ASX:SYA) share price has surged 235% higher this week

Tesla vehicles parked in front of Tesla building

It has been another positive day of trade for the Sayona Mining Ltd (ASX: SYA) share price on Thursday.

At one stage today, the emerging lithium miner’s shares were up 30% to a new high of 4.7 cents.

When the Sayona share price hit that level, it meant they were up an incredible 235% this week.

Why is the Sayona share price on fire this week?

The catalyst for this strong share price gain was an announcement on Monday which revealed that it has signed a deal with US-based lithium miner Piedmont Lithium Ltd (ASX: PLL).

Piedmont Lithium has been a strong performer itself in recent months thanks to its offtake agreement with electric car giant Tesla.

According to Monday’s announcement, the two companies have signed a strategic partnership that will accelerate the development of Sayona’s lithium projects in Québec, Canada.

The agreement sees Piedmont Lithium acquire an initial 9.9% equity interest in Sayona and two unsecured convertible notes (worth a further 10% on conversion) for a total of US$7 million.

Furthermore, Piedmont Lithium has agreed to invest approximately US$5 million in cash for a 25% stake in the Sayona Québec operation.

Sayona’s management advised that this funding will allow the company to advance its growth plans. This includes advancing its flagship Authier Lithium Project, the emerging Tansim Lithium Project, and the creation of a lithium hub in Québec’s Abitibi region.

In addition to this, Piedmont Lithium has signed a binding offtake arrangement with Sayona under which it will acquire the greater of 50% or 60,000 tonnes per annum of spodumene concentrate from Sayona Québec’s production.

While Piedmont Lithium has agreed to pay the market price for this spodumene concentrate, it comes with a minimum price guarantee of US$500 per tonne and a maximum price guarantee of US$900 per tonne. This is on a delivered basis to Piedmont’s planned lithium hydroxide plant in North Carolina.

Piedmont Lithium’s President and CEO, Keith D. Phillips, commented: “Piedmont is building a world‐class spodumene‐to‐hydroxide business in North Carolina, and we are now very pleased to be partnering with Sayona to advance a similar business in Québec.”

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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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