Stock Pick

  • Serko share price slumps after reporting FY20 loss

    graph of paper plane trending down

    The Serko Ltd (ASX: SKO) share price is tumbling this morning after the ASX small-cap reported its full-year results for the year ending 31 March 2020.

    At the time of writing, Serko shares have fallen 3.96% to $2.91. This drop takes the company’s year-to-date share price loss to around 40%.

    About Serko

    Serko is an Auckland-based online travel and expense management technology provider. The company’s core software, Zeno, addresses two main functions: corporate travel and expense management.

    Zeno Travel is an online travel platform that delivers AI-powered end-to-end travel itineraries, cost control and travel policy compliance to corporate customers.

    Meanwhile, Zeno Expense provides finance teams with intelligent technology to automate and streamline the expense administration function, identify out-of-policy expense claims and prevent fraud.

    What the numbers say

    Starting at the top line, total operating revenue came in at NZ$25.9 million. While this result represented 11% growth over the prior corresponding period (pcp), it was substantially lower than Serko’s initial guidance range of 20% to 40%.

    In light of COVID-19, Serko revised its revenue expectations in late February and then withdrew guidance completely in mid-March.

    Turning to expenses, operating costs increased 59% to NZ$37.1 million. This reflected a full-year of InterplX operating costs, an expense management software provider Serko acquired in late 2018, and the scale-up of the company’s international presence.

    This increase in operating costs led to Serko reporting a full-year net loss after tax of NZ$9.4 million, compared to an FY19 profit of NZ$1.6 million.

    Serko capitalised NZ$11 million of development costs in FY20 compared to NZ$6.7 million in FY19. Total research and development amounted to NZ$13.6 million, representing 53% of net operating income compared to 39% in the pcp.

    Following the company’s NZ$45 million capital raising in November 2019, Serko remains well-funded with NZ$39.9 million cash on its books as at 31 May 2020. Serko’s net cash burn for the year, including capital development, was NZ$16.5 million.

    Moving forward, Serko is targeting a maximum cash burn average of no more than NZ$2 million per month.

    Bookings growth

    Serko achieved year-on-year bookings growth each month through to February 2020. The Australian and New Zealand markets generated most of Serko’s total bookings, the majority of which were domestic.

    With this, the number of corporates transacting through Serko’s platforms continued to grow, increasing by more than 700 compared to the prior year.

    In February, a peak of over 24,000 bookings were processed in a single day. This compares to a peak of 21,000 bookings in the same month in the prior year.

    However, as detailed in previous trading updates, Serko noted that a gradual decline in bookings became evident in mid-February, which was followed a rapid decline in March.

    As a result, total bookings for FY20 were up only 2% over the pcp.

    What next?

    Looking forward, Serko believes that the Australian and New Zealand domestic and trans-Tasman travel markets, which represents most of its revenue, are poised to recover more quickly than international routes outside of Australasia.

    Serko noted that travel volumes gradually started to recover in May in light of the easing of domestic travel restrictions in New Zealand. However, it is yet to see any material increase in domestic travel in Australia.

    Despite the uncertain outlook, the company anticipates that its core Australasian markets will be operating at 40% to 70% of their pre-COVID-19 activity levels by March 2021.

    Commenting on the results, acting chair Claudia Batten said:

    “The first three quarters of the financial year ended 31 March 2020 were characterised by monthly revenue growth and the achievement of a number of key milestones.”

    “However, Serko’s performance was impacted in the fourth quarter of the financial year as the Covid-19 pandemic became widespread, significantly affecting booking volumes. This resulted in an adverse impact on the full-year result.”

    Unconvinced about the outlook for the travel sector? Then check out the top ASX growth shares in the free report below.

    3 “Double Down” Stocks To Ride The Bull Market

    Motley Fool resident tech stock expert Dr. Anirban Mahanti has stumbled upon three under-the-radar stock picks he believes could be some of the greatest discoveries of his investing career.

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    Cathryn Goh has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Serko Ltd. The Motley Fool Australia has recommended Serko Ltd. 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 Serko share price slumps after reporting FY20 loss appeared first on Motley Fool Australia.

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  • My 3 high-yield ASX dividend shares to buy now

    word dividends on blue stylised background, dividend shares

    The ASX dividend share game has changed in 2020 – markedly so. This time last year, we were likely discussing which ASX banks had the largest dividend yield, or how safe Transurban Group‘s (ASX: TCL) payouts are.

    Fast forward to 2020 and we’re now asking which ASX bank will pay a dividend this year, or how low Transurban’s payouts will be.

    So here are 3 ASX shares that I think are great choices for strong dividend income within this new paradigm.

    The resources dividend giant

    BHP Group Ltd (ASX: BHP) is an ASX mining behemoth. It would be our largest ASX company if it wasn’t for its multiple listings across London and New York. BHP has massive global operations across 4 key commodities: copper, oil, iron ore and coal. It’s this diverse earnings base that I think lends strength to BHP by enabling it to balance commodity pricing swings in any one area.

    On current prices, BHP is offering a trailing dividend yield of 5.97% – or 8.53% grossed-up with full franking. I think this dividend is well funded today, and could even increase if iron ore prices stay above US$100 a tonne for an extended time. Either way, I think BHP is a top contender for a strong dividend in 2020.

    The listed investment company

    WAM Capital Limited (ASX: WAM) is a listed investment company (LIC) that has been around since 1999. Since that time, it has handily delivered investors outperforming returns, which stand at an average of 15.7% per annum. WAM’s focus is normally on growth-orientated, mid-cap ASX shares, which are bought when the company identifies a ‘growth catalyst’.

    On current prices, WAM shares are offering a dividend yield of 8.42%, 12.03% grossed up with full franking. However, this LIC’s profit reserves are looking a little bare. It’s possible this dividend won’t be maintained at its current level moving forward.

    The dark horse ASX bank

    Commonwealth Bank of Australia (ASX: CBA) is our final dividend pick – and a long-shot. I, for one, don’t have massive expectations on the bank’s final dividend for 2020, due to be paid in September. However, I also don’t think CBA will follow its banking compatriots Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking GrpLtd (ASX: ANZ) and ditch the dividend entirely.

    Although the ASX banking sector is facing a number of headwinds as a whole, CommBank is unquestionably our strongest bank and therefore the most likely to return to its former glory as a dividend kingpin, in my view. Thus, I think on current pricing, you could be picking up a great deal for a long-term dividend share winner.

    For some more ASX shares you might to check out, take a look at the report below!

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    Motley Fool resident tech stock expert Dr. Anirban Mahanti has stumbled upon three under-the-radar stock picks he believes could be some of the greatest discoveries of his investing career.

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    Motley Fool contributor Sebastian Bowen 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.

    The post My 3 high-yield ASX dividend shares to buy now appeared first on Motley Fool Australia.

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  • Dell Plots $50 BIllion More of Financial Finessing

    Dell Plots $50 BIllion More of Financial Finessing(Bloomberg Opinion) — Dell Technologies Inc.’s magical merry-go-round of financial engineering is spinning once again.The corporate computing giant is examining options for its majority stake in software-company VMware Inc. that include a spinoff of the holdings, the Wall Street Journal reported late Tuesday. VMware shares soared roughly 10% on the news in after-market trading, valuing Dell’s 81% stake at around $55 billion. To understand why Dell would contemplate a transaction like this, you only have to look at Dell’s own market value, which despite a rise of its own on the news of the possible spinoff amounted to only about $40 billion. Put another way, Dell isn’t getting full value for either its ownership of VMware or its own computing and data-storage business that took in around $80 billion of revenue in the most recent fiscal year. And it wants to remedy that. But for all of shareholders’ early enthusiasm, a spinoff of the VMware stake would appear to be just a superficial fix for the complexity that’s long weighed on the value of Dell’s various businesses. Dell acquired its stake in VMware through the $67 billion buyout of EMC Corp. in 2016. As part of that transaction, the company created a tracking stock that was meant to mirror the value of VMware, which remained independent and publicly traded. It didn’t work very well. The tracking stock lagged substantially behind the price of VMware shares. Meanwhile, Dell’s massive debt load and complicated capital structure made a traditional IPO process difficult when founder Michael Dell and private-equity firm Silver Lake wanted to try to reintroduce the company to the public markets following a 2013 buyout. So in 2018, Dell decided to simplify things by buying out the tracking stock. A protracted battle ensued with shareholders of the tracking stock — including P. Schoenfeld Asset Management and Carl Icahn — who felt they were being low-balled, but eventually a deal got done. In hindsight, owners of the tracking stock were right to push for more cash and a complicated equity-collar mechanism, seeing as the Class C stock that made up the remainder of the takeover bid hasn’t fared as well on the public market as Dell might have hoped. Which brings us back to the present. If you kept up through that long, winding tale of financial engineering, you might be wondering why Dell went through the process of unraveling the VMware tracking stock if it was just going to recreate the general idea several years later, as this latest spinoff plan would seem to suggest. The exact structure of a spinoff of the VMware stake is unclear and the Journal reports that talks are at a very early stage and may not go anywhere. Potentially, a spinoff would confer more direct ownership of the VMware business to shareholders than the tracking stock previously did, helping to simplify the valuation process. But it’s hard not to shake the feeling that we’ve been here before.An alternative option that Dell is considering is a buyout of the VMware shares it doesn’t already own, the Journal reported. But that would add to its still mammoth debt load and doesn’t really do much on its own to address the fact that Dell shareholders aren’t inclined to give the company credit for the VMware stake it already holds. Ultimately, a buyout of the rest of VMware, followed by a spinoff of the whole thing, makes the most sense but would take a long time and is easier said than done. Recall that Dell initially tried to bring VMware further into the fold as part of the negotiations that ultimately led to the tracking stock deal, but both management and shareholders of the target company balked.Is this latest finessing going to make Dell a better-run company? Doubtful. Is it going to boost the company’s stock price over the long run? Maybe. But if after years and years of financial engineering, you’re still not seeing the kind of equity valuation you want, perhaps its the financial engineering that’s the problem.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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