The S&P/ASX 200 Index (ASX: XJO) jumped almost 3% today to 5,780 points, it is now out of the bear market territory we’ve been in since March 2020.

The ASX 200 is now down by just 19% from the 21 February 2020 level. Since 23 March 2020 the ASX 200 has risen by 27% in an extraordinary turnaround.

ASX banks boost the index

The big four ASX banks don’t quite make up as much of the index as they used to, but their combined movements can still have a big impact on the share market. They all rose strongly today. 

Looking at those movements:

The Commonwealth Bank of Australia (ASX: CBA) share price rose by almost 4%.

The Westpac Banking Corp (ASX: WBC) share price went up 6.1%.

Australia and New Zealand Banking Group (ASX: ANZ) saw its share price increase by 6%.

The National Australia Bank Ltd (ASX: NAB) share price went up 5.6%.

Investors appear to be much more hopeful about the Australian economy’s trajectory.

ASX 200 travel shares continue to soar

After yesterday’s comments from Treasurer Josh Frydenberg about prolonging support, the travel industry has continued to fly today with investors seeing a return of travel on the horizon.

Some of the ASX 200 travel shares that experienced another large gain today were:

The Flight Centre Travel Group Ltd (ASX: FLT) share price went up 9.5%.

The Webjet Limited (ASX: WEB) share price rose 5.8%.

Infrastructure giant Sydney Airport Holdings Pty Ltd (ASX: SYD) saw its share price fly higher by 4.2%.

The Qantas Airways Limited (ASX: QAN) share price went up 5.4%.

Coca-Cola Amatil Ltd (ASX: CCL) is hurting

The Coca Cola share price fell 1.6% today after the food and beverage business said that its volumes were down heavily whilst also suffering earnings before interest and tax (EBIT) margin pain.

COVID-19 struck at a particularly difficult point with Easter and Ramadan falling during the heaviest restrictions.

The business also withdrew its dividend payout ratio guidance.

More reading

• Why ASX 200 travel shares are soaring higher today
• Latest spending data could drive the ASX retail sector higher
• Why ANZ, CBA, NAB, and Westpac shares are storming higher today
• Up another 5%: Is the Webjet share price a buy?
• The latest ASX shares that brokers have just upgraded to “buy”

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel 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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The Palla Pharma Ltd (ASX: PAL) share price was an impressive performer on the ASX today. Despite a number of gains across the board, Palla Pharma stood out with a big 27.46% share price rise in intra-day trading. As the day went on, Palla Pharma shares pulled back from these levels and closed 12.68% higher at 80 cents per share.

About Palla Pharma

Palla Pharma is a growing global supplier of opiate-based pain relief medicines. It is a fully-integrated opiate manufacturer, involved in a number of activities from poppy straw growing through to tableting production. 

The company is one of three licensed poppy processors in Australia, and the only Australian-owned company. Additionally, it is one of six licensed opiate producers globally.

The company was founded in 2004 as TPI and rebranded in 2019. ASX investment house Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) is a major shareholder and its CEO, Todd Barlow, sits on the Palla Pharma board.

What caused the Palla Pharma share price to spike?

This morning, Palla Pharma announced it would not be going ahead with the acquisition of a major UK customer – ending almost a year’s worth of negotiations.

Since July 2019, Palla Pharma has been in discussions with its largest UK customer, a manufacturer of finished dosage codeine phosphate, regarding the potential acquisition of the customer’s UK operations. This was part of Palla Pharma’s strategy to continue to move down the value chain.

According to Palla Pharma, the customer’s manufacturing site has the capacity to tablet over 120 tonnes of codeine phosphate. This equates to revenue of approximately US$120 million.

Acquisition discussions intensified earlier this year after the UK regulator imposed a 3-month suspension of the customer’s operating license. The suspension resulted in a need for working capital and management support, which was provided by Palla Pharma. To address the customer’s working capital needs, Palla Pharma acquired 4 of the customer’s marketing authorisations for the supply of codeine-based products into the UK.

In return for its management assistance and investment of resources in the due diligence process, Palla Pharma noted it had been given an “option to acquire the business at an attractive valuation”.

Fast forward to April and Palla Pharma announced it had acquired further marketing authorisations from the customer. Despite electing not to exercise the option, Palla Pharma stated it was in advanced negotiations with the owners and senior creditors in regard to the potential acquisition. However, there remained “material differences between the parties with respect to valuation”.

All of this takes us to today’s announcement, in which Palla Pharma revealed it had ceased negotiations with the customer as it became evident a commercial agreement could not be reached.

What now?

The UK customer has been recapitalised by a new minority shareholder and Palla Pharma stated it will be seeking to have its current outstanding invoices for codeine phosphate supply in 2019 paid in full.

While exploring the possible acquisition, Palla Pharma acquired 7 marketing authorisations from the customer, which accounted for approximately 70% of the customer’s revenue. The ownership of these authorisations has been transferred to Palla Pharma and manufacturing is in the process of being transferred to the company’s Norway site.

Looking forward, Palla Pharma expects earnings in the second half of FY20 to be “significantly stronger” than the first half. This comes as the company finalises the transition of its sales profile from volume-based commodities to higher-value products. As a result, Palla Pharma anticipates a material uplift in full-year earnings.

Palla Pharma is set to hold its AGM on Thursday, 28 May, where it will provide a more detailed trading update and outlook.

More reading

• 2 ASX shares perfect for dollar-cost averaging
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Motley Fool contributor Cathryn Goh owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company 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.

The post Why this small-cap ASX pharmaceutical share rocketed 27% higher today appeared first on Motley Fool Australia.

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Earnings reliability in this environment is very tricky with the coronavirus.

Interest rates are so low it has made the earnings/interest certainty of bonds look very expensive. Would you rather invest in Vanguard Australian Government Bond Index ETF (ASX: VGB) for a tiny return or go for shares?

I’d rather go for shares. But share prices are always going to be volatile, however earnings from some shares could be much more stable. But how much should investors pay for those earnings to be mostly stable?

Some defensive shares like APA Group (ASX: APA) and Ausnet Services Ltd (ASX: AST) offer potentially reliable earnings. But they’re priced highly for that safety. 

Shares like EML Payments Ltd (ASX: EML) and Pushpay Holdings Ltd (ASX: PPH) have the potential to generate strong returns over the future. But there are a broader range of potential outcomes for those riskier shares.

But it’s up to you decide how much risk you’re willing to take with your investing. Can you stomach earnings volatility, or perhaps earnings unpredictability? Getting the best results in investing will require taking on more risk.

Is there a way to reduce risk and still get good returns?

It’s okay if you don’t like taking on as much risk. Diversification can help reduce the risk of an individual holding. It’s why investments like Vanguard Australian Shares Index ETF (ASX: VAS) are so popular. It takes out some of the guesswork so that it becomes more about your mindset to hold through tough periods.

Obviously if you end up owning more than 30 individual shares yourself then you’re probably losing the advantage of investing in shares with your own portfolio. Is that smallest holding as good as your tenth (or better) idea? It might be a good idea to just focus on your best ideas. 

More reading

• Why Fortescue, Freedom Foods, Pushpay, & QBE shares are dropping lower
• Where to invest $10,000 into ASX shares immediately
• Got $2,500? I’d buy these 2 ASX shares in a heartbeat
• High yield dividend shares could be the answer for income
• The smartest shares to buy if you have $2,000

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Emerchants Limited. The Motley Fool Australia owns shares of and has recommended PUSHPAY FPO NZX. The Motley Fool Australia owns shares of APA Group. The Motley Fool Australia has recommended Emerchants 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.

The post How much should you pay for earnings reliability from shares? appeared first on Motley Fool Australia.

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