A Westpac Banking Corp (ASX: WBC) economic release reported improved consumer sentiment up 16.4% in May. We examine the release and its implications for the  S&P/ASX 200 Index (ASX: XJO).  

The 10 June economic release, penned by Westpac’s Chief Economist Bill Evans, reported improved consumer confidence to be back “around pre-COVID levels”, having “recovered all of the extreme 20% drop seen when the pandemic exploded in March-April.” 

The Westpac-Melbourne Institute Index of Consumer Sentiment recorded the 16.4% gain in May. A rise to 88.1 from the “extremely weak” 75.6 in April.

Evans reported that the Index is now only 2% below the average established in the September-February period. 

However, the release did warn that given the difficult recovery ahead, “it would be surprising if the recent upward momentum continues.” 

Further, the release pointed out that while the monthly gain was impressive, the index is still “relatively weak by historical standards — in pessimistic territory overall and down 7% on a year ago.” 

COVID recession and 1990s recession: better times ahead

While the release found that the data still suggests families are financially constricted and concerned about the near-term economic outlook, there is “firming optimism around prospects for finances in the year ahead.” 

Further, the release found that respondents are “confident that they can see eventual better times ahead whereas in the early 1990s there was a pervasive mood of despair for years.” 

ASX 200 and improved consumer sentiment 

Importantly for ASX 200 stocks reliant on discretionary spending, the Westpac release indicated that the largest gains were around views on the economic outlook and “time to buy a major item”. 

The ‘time to buy a major item’ sub-index posted a  strong 10.1% gain in June, on the back of a 26.7% May increase. 

That said, the buyer sentiment is still well below the long-run average. 

Consumer expectations for house prices

Evans reported that consumer expectations for house prices improved. The Westpac-Melbourne Institute House Price Expectations Index rose 10.5%. 

However, the index is still 43% below the cheery readings just before the COVID-19 lockdown. Further, Evans reported that survey results continue to “point to a sharp deterioration… compared to a few months ago.”

Finally, the proportion favouring real estate as the answer to ‘wisest place for savings’ dropped to 4% in March. Evans stated that this suggests “investors look likely to stay away from Australia’s housing market near term.” 

ASX 200 analysis

Evans concluded the release by noting that “unusually, more respondents nominated shares (11.4%) than real estate as preferred investment options.”

Can the currently reported investment preference for shares over real estate, coupled with improved consumer sentiment lift the ASX 200? Will the improved sentiment percolate across the economy? 

The sentiment can certainly impact the discretionary spending sector, at least in the near-term. 

For instance, the S&P/ASX 200 Consumer Discretionary (ASX: XDJ) is up 7% from this time last month. It’s also up 4% from this time 3 months ago. 

Additionally, Wesfarmers Ltd (ASX: WES) — a stock that certainly benefits from improved consumer sentiment — is up 12.4% from this time last month. JB Hi-Fi Limited (ASX: JBH) is also enjoying gains — up 11.3% from last month. 

More reading

• Why Jumbo, Santos, Westpac, & Zip Co shares are crashing lower
• 3 ASX 200 shares to buy and hold for decades
• Is ‘sell’ really a dirty word? How to know when to let go of your ASX shares
• Why the AFIC share price could be cheap today
• Woolworths facing fresh threat from Amazon.com

Motley Fool contributor Kiryll Prakapenka has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers 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 ASX 200: improved consumer sentiment to near pre COVID-19 levels appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/30G1Gpc

The Zip Co Ltd (ASX: Z1P) share price has rebounded off its lows but is still trading notably lower on Friday.

At the time of writing the payments company’s shares are down over 7.5% to $6.03. This is despite the release of another positive announcement this morning.

What did Zip announce?

This morning Zip released an update which revealed that its strong performance continued during the month of May.

In May, Zip recorded monthly transaction volume of $189.3 million and revenue of $15.6 million. This was a 63% and 78% increase, respectively, over the same period last year.

And while this growth is a touch slower than in April, when transaction volume lifted 86% and revenue rose 81% growth, it is still a very impressive rate of growth in such a challenging economic environment.

Zip added 65,000 new customers during the month, lifting its total to 2.1 million. This represents a total increase of 63% since this time last year.

Also growing strongly was its merchant numbers. They are up 46% year on year to 23,600.

Net bad debts low but rising.

At the end of May, Zip’s net bad debts stood at 2.16%. This compares to 1.99% at the end of April.

Management notes that this is in-line with expectations and significantly outperforming the market average.

Positively, monthly arrears, which is a forward indicator of future losses, reduced from 1.57% in April to 1.47% in May. In addition to this, there was no material change to the number of hardship assistance requests.

Zip’s Managing Director and CEO, Larry Diamond, commented: “May was another strong month for Zip – the performance of the business, both in terms of the continued strong transaction volume, and in particular the outstanding repayment performance, demonstrates the resilience of the Zip business model.”

The chief executive notes that the company is benefiting from the shift away from cash to digital, contactless payments, and ecommerce. Pleasingly, he expects this trend to continue in the future even after the pandemic ends.

Mr Diamond explained: “We also anticipate ecommerce penetration to remain at elevated levels post COVID-19 as consumers gain familiarity shopping online, and retailers invest significantly in this space.”

The chief executive also revealed that Zip is on course to achieve its guidance in FY 2020. “We remain on track to hit our FY20 target of $2.2b in annualised transaction volume set at the beginning of the year,” he concluded.

More reading

• S&P quarterly rebalance: A2 Milk added to ASX 50 & NEXTDC in the ASX 100
• ASX growth companies including Zip Co cash in on the rise of e-commerce
• A $10,000 investment in the Zip Co IPO would be worth $350,000 today
• My share investing journey during the pandemic
• 3 ASX shares to buy now with $10,000

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 ZIPCOLTD FPO. 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 Zip Co share price tumbles lower despite delivering more stellar growth in May appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/37p6cK4

The Qantas Airways Limited (ASX: QAN) share price has shot up over 100% from its trough on 23 March. The company has gradually started to recommence regional flights. Meanwhile, both national and international borders remain closed. You have to wonder if investors are taking a very large gamble, or if Qantas really is a good investment right now. 

Not the same old Qantas

It appears likely that Qantas will be a transformed company following the COVID-19 pandemic lockdowns. Reduced demand is likely to force down costs for employees and marketing, in particular. This will presumably drive the company to mould itself into a leaner outfit that is better equipped to face its new ‘normal’. Analyst Anthony Mulder from the investment bank Jeffries has forecast staff costs at Qantas to reduce to $2 billion in the 2021 financial year, down from $4.2 billion in 2019.

Qantas will, however, take a short term hit on fuel. The hedging they would have had in place to control costs will see them paying higher prices following the oil price’s sudden crash. Nonetheless, over the medium term, the company will see fuel costs fall. There is also talk of Qantas winding up or selling off its minority stake in Vietnamese offshoot Jetstar Pacific. 

What happens next?

It is hard to miss the growing crescendo calling for borders to reopen. The moment open borders are announced, I believe the Qantas share price will start to climb again. In addition, the company is well placed to return to a level of profitability.

It has been well supported by the government subsidising essential flights and its balance sheet remains very strong. Furthermore, Qantas retains a 19.9% stake in Alliance Aviation Services Ltd (ASX: AQZ). This provided the Aussie airliner with at least one air flight revenue stream throughout the lockdown period. Qantas’ stake in Alliance, however, is currently under review by the ACCC.

Is there value in today’s Qantas share price?

Notwithstanding all the factors above, I believe Qantas has the financial track record of a well managed company. Moreover, it has a strong balance sheet and high liquidity (cash) levels. As an indication of good management, Qantas has a 10-year average return on equity of 17.5%. This is also known as its return on net assets. I believe that for a capital intensive company, this is a good result.

Lastly, in his upgrade of Qantas, analyst Anthony Mulder gave it a target price of $6.20. Merrill Lynch Bank of America analyst Melinda Baxter also upgraded her recommendation, valuing the Qantas share price at $5.25. It is currently trading at $4.29, at the time of writing.

Foolish takeaway

During the pandemic, Qantas has demonstrated why it is one of Australia’s most widely held shares. It is reshaping itself for the future and has worked hard to be battle ready. With two prominent analysts recommending a higher target price, I believe the Qantas share price will start to climb once there is a hint that borders will reopen. 

More reading

• The smartest ASX shares to invest $10,000 in right now
• Flight Centre share price and other ASX 200 travel shares look set to continue rising
• ASX 200 Weekly Wrap: ASX bulls crash through 6,000 points
• Top brokers name 3 ASX 200 shares to buy next week
• Will the Qantas share price crash back to Earth?

Motley Fool contributor Daryl Mather 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 Is the Qantas share price a buy today? appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/37lmDqW