In late morning trade the S&P/ASX 200 Index (ASX: XJO) has fought back from a sharp decline to edge higher. At the time of writing the benchmark index is up slightly to 6,145 points.

Four shares that are climbing more than most today are listed below. Here’s why they are charging higher:

The CSL Limited (ASX: CSL) share price has pushed 3% higher to $287.15. This morning analysts at Goldman Sachs reiterated their buy rating and $336.00 price target on this biotherapeutics company’s shares. This follows the announcement that CSL is taking up its option to acquire Vitaeris. The clinical-stage biotechnology company is currently focused on the phase 3 development of a treatment for rejection in solid organ kidney transplant patients.

The Harvey Norman Holdings Limited (ASX: HVN) share price has jumped 4.5% higher to $3.72 after the release of a sales update. Although its international operations have been a bit mixed due to forced closures during the pandemic, Harvey Norman’s local operations have delivered very strong growth. Another positive is that the board has declared a special dividend of 6 cents per share. This will be paid to shareholders later this month.

The IPH Ltd (ASX: IPH) share price is up 4% to $7.54 after announcing an acquisition. The company’s AJ Park subsidiary has agreed to acquire New Zealand intellectual property firm Baldwins Intellectual Property. It will be paying approximately NZ$7.9 million, including deferred consideration of NZ$0.4 million. Baldwins’ FY 2020 EBITDA after normalisation adjustments for partner salaries was approximately NZ$2 million.

The Saracen Mineral Holdings Limited (ASX: SAR) share price has surged 9% higher to $4.62. This follows a rebound in the gold price overnight ahead of the U.S. Federal Reserve’s June meeting this week. It isn’t just Saracen on the rise today. The S&P/ASX All Ordinaries Gold index is up a sizeable 2.5% at the time of writing.

More reading

• 3 companies with great intangible asset moats
• ASX winners and losers from last week’s rally
• Harvey Norman share price flat on sales update and special dividend announcement
• Why the CSL share price continues to trail the ASX 200
• ASX 200 jumps 2.4%, unloved shares keep rising

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 CSL Ltd. 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.

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Morgans Senior Technical Analyst Violeta Todorova has rated the Afterpay Ltd (ASX: APT) share price as overbought. Violeta points out that the share has risen by 571% from its March trough to its peak in intraday trading last week. She further points out the technical indicators are in overbought territory. 

Afterpay has pioneered the buy now, pay later (BNPL) sector within Australia. Accordingly its share price has largely been on a bull run since 2019 and the company posted a sales increase of ~100% for FYTD 2020 when compared with the prior corresponding period. Afterpay has become quite ubiquitous in the Aussie retail sector with its branding displayed across a plethora of retailers and ecommerce websites. 

However, the time of large-scale growth in the Afterpay share price is likely over in the analyst’s view, and I couldn’t agree more. 

Why the Afterpay share price stalled early this week

Last week’s explosion of interest in BNPL companies underscored the low barriers to entry within the sector. At the time of writing, the Zip Co Ltd (ASX: Z1P) share price is up 10% from its trading open on Friday. Zip Co also operates in the BNPL sector. However, unlike Afterpay, it offers other services such as lines of credit and the Pocketbook personal budgeting tool.  In addition, Zip Co targets a generation of older millennials, people aged around 35 years and over.

Furthermore, Zip Co has more stringent credit worthiness checks in place than Afterpay. Therefore it is less exposed to credit defaults as the global economy continues down an uncertain path.

Afterpay is starting to establish itself in the United States. Meanwhile, however, Sezzle Inc. (ASX: SZL), another BNPL player, is a native of the US$5 trillion retail economy and is headquartered there. Sezzle has built a network of 1.3 million users and 14.9 thousand merchants.

The company is laser focused on the credit card shunning generations of Gen Z and Millennials; Afterpay’s core demographic. 

The problem with large numbers

The Afterpay share price values the company at $13.9 billion. This makes it larger than Santos Ltd (ASX: STO). If Afterpay doubles its price once more, it would be valued at more than Woodside Petroleum Limited (ASX: WPL). While this could happen, I sincerely and absolutely doubt it. Afterall, in FY19, Afterpay made $236 million in sales revenue. In contrast, for Sezzle to multiply its share price 10 times would value the company at ~$2.5 billion.

Foolish takeaway

Afterpay is no longer alone in a wide blue ocean. With little barriers to entry, the BNPL marketplace is increasingly crowded. Moreover, larger entrants like the 5% Commonwealth Bank of Australia (ASX: CBA) owned Klarna are yet to really start moving.

Lastly, it has a lower creditworthiness threshold exposing it to credit defaults and is pressing into markets where other competitors are already established. If all that isn’t enough, the company is already valued at more than Santos even though its gross sales are 24 times less.

More reading

• How to be like Warren Buffett and not lose money investing in ASX 200 shares
• Why Flight Centre, Smartgroup, Woodside, & Worley shares are dropping lower
• ASX winners and losers from last week’s rally
• Why the CBA share price is lagging its big four cohorts
• These ASX shares could defy the market sell-off this morning

Daryl Mather owns shares of Sezzle Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO and ZIPCOLTD FPO. The Motley Fool Australia has recommended Sezzle Inc. 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 TPG Telecom Ltd (ASX: TPM) share price grew very strongly between 2011 and 2016 on the back of a series of acquisitions. This included the acquisitions of retail telcos AAPT and iiNet.

This significantly increased TPG’s market scale. It became the second-largest fixed broadband provider after Telstra. However, since then the TPG share price generally failed to gain momentum. This is despite solid gains over the past few months.

Is TPG a good long term buy and hold option for investors?

Let’s first take a closer look at TPG’s business model.

TPG continues to face NBN headwinds

Consumers are migrating from TPG’s legacy of fixed voice and broadband networks to the lower-margin National Broadband Network (NBN). As this continues, this is negatively impacting TPG’s earnings before interest, taxes, depreciation and amortization (EBITDA) and placing downward pressure on the business’s price for shares. In addition, there has been a recent decline in the profitability of its existing NBN customer base.

This trend is reflected in TPG’s financial results for 1H20. Total revenue only grew by a very modest 1% to $1,246.5 million. While underlying EBITDA actually declined by 6% to $399.1 million.

All retail telcos in Australia are in the same boat here. The margins that they receive by purchasing wholesale fixed broadband services from the NBN are wafer-thin and not growing. As their legacy networks shrink further, their overall profitability is also declining.

Higher margin fixed voice still contributes a very significant 29% of gross profit in TPG’s consumer segment. So, profitability will be further impacted as legacy fixed voice is transitioned over to NBN plans over the next few years.

This impact can also be seen from observing TPG’s mix of group broadband subscribers. Only 1,403 of a total of 1,940 broadband subscribers at the end of last year were on NBN plans. As the remainder transition to lower margin NBN products, this will further impact profitability.

In addition, NBN average revenue per user (ARPU) has been steadily declining. It has dropped from $67.4 million in 1H19 to $67.0 million in 2H19 and $66.4 million in 1H20.

Merger with Vodafone places TPG in a stronger position

In March, the ACCC decided not to appeal the Federal Court’s decision to approve the merger of TPG with Vodafone.

I believe that the merger will place TPG-Vodafone in a potentially stronger position to compete with its two main rivals: Telstra Corporation Ltd (ASX: TLS) and Optus. In particular, TPG-Vodafone will be well placed to roll out a competitive 5G offering, driven by Vodafone’s current network.

However, competition will remain tough in the fixed broadband sector. Vodafone currently has a very limited fixed broadband option, so the merger doesn’t provide much initial benefit in that market segment.

Are TPG shares are good long term buy?

I believe TPG’s merger with Vodafone places it in a potentially good position to grow revenues over the next few years.

However, I still have some concerns about declining margins on TPG’s fixed broadband network over the short term. I am therefore not quite convinced it is in the buy zone right now.

This view may change in the months ahead, as we gain more information about the details of the merger.

More reading

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• Not keen on Westpac? Then buy these top ASX dividend shares instead
• ASX 200 Weekly Wrap: ASX bulls crash through 6,000 points
• Want high-paying dividends? Try Wesfarmers shares and these 2 other ASX options
• These were the worst performers on the ASX 200 last week

Motley Fool contributor Phil Harpur owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra 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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