If you’re interested in small cap shares, then you might want to take a look at the one talked about below.

It is a firm favourite of the Ellerston Australian Micro Cap Fund and it certainly can pay to listen to what this fund manager says.

Over the last 12 months the fund has provided investors with a 15.3% return after fees, which compares to a 2.9% decline by the benchmark S&P/ASX Small Ordinaries Accumulation Index.

This outperformance doesn’t appear to be a fluke either, with the fund returning an average of 16.5% per annum over the last three years. As a comparison, the benchmark index has provided a 7.5% per annum return over the same period.

Which shares does the Ellerston Australian Micro Cap Fund like?

In a recent update, portfolio managers David Keelan and Alexandra Clarke revealed that its portfolio remains skewed towards high-quality shares which they believe can endure a challenging macro environment.

This includes the technology sector and particularly companies with sustainable competitive advantages and structural tailwinds.

One of those is wagering service business Betmakers Technology Group Ltd (ASX: BET). It uses its proprietary technology to provide risk management systems, odds management, and content across a number of sports.

The portfolio managers commented: “The company boasts an exclusive 10- year agreement to manage fixed odds horse racing in New Jersey, and this was recently expanded to include a 5-year agreement to manage fixed odds terminals and kiosks at Monmouth Park racetrack.”

And although the Betmakers share price is up over 200% in 2020, the fund managers still see meaningful upside in the future.

“Fixed odds racing should benefit from a structural migration away from tote betting, a similar narrative to that which has already played out in Australia, and BET is well placed to capitalise on this. The company is on the verge of EBITDA profitability, has an extensive pipeline of opportunities, and we see meaningful upside to the current price,” they concluded.

More reading

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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. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Why one top fund manager sees meaningful upside for the Betmakers Technology share price appeared first on Motley Fool Australia.

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Is the Macquarie Group Ltd (ASX: MQG) share price a buy?

Macquarie shares have been on a rollercoaster since the COVID-19 share market selloff began. Between 21 February 2020 and 23 March 2020, the global investment bank’s share price dropped 52.5%. But since that low on 23 March 2020 it has risen 68.8%.

Despite that strong recovery the Macquarie share price is still down 20% from the pre-coronavirus high.

What’s going on for Macquarie?

As a global investment bank, Macquarie is obviously quite dependent on a decent global economy to maintain good performance.

In its FY20 result Macquarie was impacted by higher credit charges and impairments relating to the potential economic impacts of the coronavirus pandemic. In the second half of FY20 it recognised credit and impairment charges of $901 million, up from $139 million in the first half of FY20 and up from $476 million in the second half of FY19.

The COVID-19 provisions were a large reason why the second half profit of FY20 came in at $1.275 billion, down 13% from the first half of FY20 and down 24% on the second half of FY19.

However, Macquarie remains in a strong financial position. At 31 March 2020 it had record surplus capital of $7.1 billion, up from $6.1 billion at 31 March 2019. Its common equity tier 1 (CET1) capital ratio was 12.2% at 31 March 2020, up from 11.4% at 31 March 2019.

Macquarie deliberately strengthened the balance sheet during FY2020. It raised $1.7 billion in a capital raising from institutional investors and retail investors. It also increased its proportion of term funding and deposits. Total customer deposits increased 20% to $67.1 billion at 31 March 2020.

Macquarie outlook?

I think that Macquarie still has a very promising future. Each Macquarie has a different outlook in the current circumstances. Combined, the results of the below four divisions will impact where the Macquarie share price will go. 

Macquarie Asset Management (MAM) is one of the biggest infrastructure asset managers in the world. Thankfully, base management fees are expected to be ‘broadly’ in line with last year. However, MAM’s other operating income is expected to be significantly down due to expected delays in the timing of asset sales.

Macquarie’s banking and financial services is expecting to keep growing deposit and loan volumes, but there is a lot of competition in the sector which could hurt margins.

The commodities and global markets (CGM) division is anticipating lower customer activity, particularly in commodities – however volatility could create opportunities. The product and client sector diversity is expected to provide some support through the uncertain economic conditions in the first half of FY21.

Macquarie Capital expects the challenging market conditions to reduce the number of successful transactions and increase the time to completion. Investment-related income is expected to be lower from lower asset realisations, but it should benefit with the market recovery.

Time to buy Macquarie shares at this price?

It’s very difficult to estimate what FY21 will be like for Macquarie. It’s hard to say where the Macquarie share price will go in the short-term. There is so much uncertainty for the global economy. Macquarie earns around two thirds of its profit overseas, which is where most of the COVID-19 damage is currently taking place.

Macquarie itself wasn’t able to provide FY21 profit guidance.

I think Macquarie is one of the best blue chips on the ASX. It ended up cutting its final FY20 dividend, partially due to APRA guidance, but I believe it will be a solid dividend share for the long-term.

Macquarie has high-quality management and a long-term focus. I like that the business can allocate money to any part of the business across the world where the growth potential might be. I’d prefer to invest in Macquarie compared to an ASX bank like Westpac Banking Corp (ASX: WBC). I do think it’s a long-term opportunity, but there may also be more volatility later this year, particularly around the US election. There are plenty of ASX shares I’d rather buy over Macquarie at this share price. 

More reading

• Macquarie and 2 other ASX shares you’re missing out on
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Instead of putting your money into term deposits which provide only paltry interest rates, I would suggest you look at some of the quality dividend shares the ASX has to offer.

Three which I think would be great alternatives to term deposits are listed below. Here’s why I like them:

Commonwealth Bank of Australia (ASX: CBA)

I think this banking giant is a top dividend share to consider buying. Although Commonwealth Bank will almost certainly cut its dividend materially in FY 2021, I believe it will still offer an above-average yield. At present I believe a fully franked dividend of $3.70 per share is possible next year, which equates to an attractive fully franked 5.35% yield. This estimate could prove to be conservative if the economic damage from the pandemic isn’t as bad as first feared.

Rio Tinto Limited (ASX: RIO)

If you’re not averse to buying mining shares, then Rio Tinto could be a top option for income investors. This is because the high prices that iron ore is commanding at present, thanks to strong demand and supply constraints, means the mining giant is well-placed to deliver strong profits in FY 2020 and FY 2021. And given the strength of its balance sheet, I suspect the company will return the majority of its free cash flow to investors through dividends. In light of this, I estimate that its shares offer a forward fully franked dividend yield of at least 5%.

Transurban Group (ASX: TCL)

Another dividend share to look at buying is Transurban. I think the toll road operator could be a great option for income investors due to the quality of its portfolio and its positive long term outlook. In a recent update, Transurban revealed that its traffic volumes are improving greatly. I believe this bodes well for FY 2021 and could mean a distribution close to normal levels again. At present I estimate a dividend of 49 cents per unit next year, which equates to a 3.3% distribution yield.

More reading

• Should you buy ANZ, CBA, NAB, or Westpac? Here’s what this broker thinks
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• 5 things to watch on the ASX 200 on Tuesday
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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