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  • 3 cheap ASX manufacturing shares for the supply chain boom

    Manufacturing symbols overlaid on a manufacturing worker's profile

    In the wake of COVID-19, supply chains are already moving to become more local. For instance, there were acute shortages in healthcare, car parts and construction. In South Korea, Hyundai closed its plants due to a lack of car parts. Moreover, we all felt the impacts of a lack of hand sanitiser and face masks in the early days. 

    When we talk about Australian manufacturers, thoughts go immediately to PPE manufacturer Ansell Limited (ASX: ANN) or shipbuilder Austal Limited (ASX: ASB). Yet there are several smaller companies selling at share prices I believe are below their intrinsic value.

    Local supply chain manufacturing

    Reliance Worldwide Corporation Ltd (ASX: RWC) manufactures and sells plumbing accessories – a core product in the residential and commercial supply chains. Over the past 4 years since its initial public offering (IPO), the company has grown its sales by an average of 46.5%. At the same time, it is continually improving its net profits.

    Reliance has been acquiring companies to provide a comprehensive product offering. In addition, it operates in Australia, the UK and the US, providing exposure to the US housing market. The Reliance share price is selling at a price-to-earnings ratio of 20.51. This is well below the company’s 10 year P/E average and I believe Reliance is currently selling at a discount to its intrinsic value.

    Orora Ltd (ASX: ORA) manufactures packaging products. This includes bottles, boxes, cartons and aluminium cans. It operates in Australia and the US. Over the 6 years since its IPO, Orora has an average return on capital employed (ROCE) of 11%. This is a measure of how well the company can transform available capital into earnings. As companies move to localise supply chains, Orora is likely to see increased sales. 

    This share has a one-off payment this year after the sale of one of its business. When combined with the dividend payment, this share pays a 18.8% yield (based on last Friday’s share price). However, it must be purchased before the ex-dividend date of 19 June. 

    High tech manufacturing

    Of the 3 companies, Electro Optic Systems Hldg Ltd (ASX: EOS) is the smallest. It manufactures components for the defence and space sectors. Sales for this company have doubled for the past 2 years. It has recently completed the acquisition of Audacy Corporation, a US satellite communications company, which will provide the manufacturer with greater product diversity. Electro Optic provides high technology solutions, including the space situational awareness network in conjunction with the United States.

    The SpaceX launch over the weekend, combined with the recent Space Force announcement in the US and increases in defence spending, will likely see an increase in sales for this ASX mid cap. These are considered security critical areas. In my opinion, it would be a mistake to leave these areas in any concentrated and offshore manner, given the lessons from COVID-19. 

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    Daryl Mather owns shares of Austal Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Austal Limited and Reliance Worldwide Limited. The Motley Fool Australia owns shares of and has recommended Electro Optic Systems Holdings Limited. The Motley Fool Australia has recommended Ansell Ltd. and Reliance Worldwide 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 3 cheap ASX manufacturing shares for the supply chain boom appeared first on Motley Fool Australia.

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  • The Energy Transition Is an Oil Refinery Making Renewable Diesel

    The Energy Transition Is an Oil Refinery Making Renewable Diesel(Bloomberg) — In a sign of changing times, a U.S. oil refining company is converting one of its plants into a producer of clean fuel.HollyFrontier Corp.’s Cheyenne refinery will stop using crude oil and be repurposed to pump out renewable diesel, which is typically made from soybean oil, recycled cooking oil and animal fats. That’s after processing margins plummeted on the collapse in fuel demand due to Covid-19-related lockdowns. Besides, the old facility’s maintenance costs were “uncompetitive,” and the government is promoting cleaner fuel production.It’s the latest example of how the traditional fossil fuel industry is changing amid rising calls for the protection of the environment and increased demand for green sources of energy. Cheaper renewable energy projects have already led to decreasing coal output across the U.S., and now — in the wake of oil’s historic crash — some fuel producers are grappling with diminished returns from turning crude into fuel.“Demand for renewable diesel, as well as other lower carbon fuels, is growing and taking market share based on both consumer preferences and support from substantial federal and state government incentive programs,” Mike Jennings, chief executive officer of HollyFrontier, said in a statement Monday.The company expects to spend $125 million to $175 million to re-purpose Cheyenne to produce about 90 million gallons per year of renewable diesel by the first quarter of 2022. The plant will stop consuming crude oil at the end of July this year, and 200 workers will be laid off, according to HollyFrontier.The conversion plan comes as dozens of small refineries nationwide brace for a big spike in costs to comply with the Renewable Fuel Standard, which mandates they blend biofuel into gasoline or buy tradable credits to comply. For years, many small refineries have won exemptions from the mandate, but under a federal appeals court ruling in January, only refineries that have continually been granted waivers can count on getting them in the future.HollyFrontier is effectively shedding the Cheyenne refinery’s biofuel-blending obligation under the RFS and transforming it into a plant that stands to benefit from the program.Using the converted plant, HollyFrontier will be able to produce not just renewable diesel encouraged by the RFS but also compliance credits that can be sold separately. However the transition comes with other costs, as fewer workers will be necessary to run the converted plant. The RFS is effectively forcing the closure of a plant that generated tax revenue and jobs for Wyoming and mandating its replacement be a smaller plant that employs far fewer people to sell fuel to California, said a refining industry official who asked not to be named discussing industry strategy.Senator John Barrasso, a Republican from Wyoming, called the job cuts at the Cheyenne refinery “devastating.” Although the Covid-19 pandemic has hurt oil refineries, Barrasso also pinned blame on the Environmental Protection Agency’s handling of the Renewable Fuel Standard.“EPA has failed to protect small refineries from unreasonable compliance costs under the Renewable Fuel Standard,” Barrasso said in an emailed statement. “Congress mandated the agency protect refineries under the Clean Air Act” and “relief from the RFS is critical to small refineries.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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  • Where to invest $5,000 into ASX 200 shares immediately

    asx growth shares to buy,

    This afternoon the Reserve Bank will make a decision on the cash rate. While there is speculation that rates could go to zero today, I’m not overly convinced this will be the case.

    However, what I am convinced about, is that rates will remain at ultra low levels for a long time to come.

    In light of this, if I had $5,000 in a savings account and no immediate use for it, I would invest it into the share market.

    Three top ASX 200 shares I would buy right now with these funds are named below:

    Appen Ltd (ASX: APX)

    Appen is a leading developer of high-quality, human annotated datasets for machine learning and artificial intelligence (AI). It has a team of over one million crowd-sourced experts preparing the data for the models of some of the world’s biggest tech companies. This is a vital part of the process and demand for its services is growing very strongly. And given the importance of AI and machine learning for big business, I expect this to be the case for a long time to come. In light of this, I believe Appen is well-placed to deliver strong earnings growth over the next decade.

    Aristocrat Leisure Limited (ASX: ALL)

    The Aristocrat Leisure share price has fallen heavily this year because of the pandemic. While its performance has inevitably been impacted by the crisis, I believe the selloff has been overdone. Especially given how I expect the gaming technology company to bounce back strongly when the crisis passes. This is due to its industry-leading poker machines and its growing digital business. The latter is experiencing very favourable tailwinds right now and is generating material recurring revenues.

    Bravura Solutions Ltd (ASX: BVS)

    Bravura Solutions is a growing financial technology company which offers a range of solutions to the wealth management and funds administration industries. While the company has a number of products in its portfolio, I’m most positive on the Sonata wealth management platform. This next generation wealth management platform has been a key driver of Bravura Solutions’ growth over the last few years. The good news is that I expect more of the same in the future thanks to it sizeable market opportunity.

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    One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

    Another is a diversified conglomerate trading over 40% off its high, all while offering a fully franked dividend yield over 3%…

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    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 Bravura Solutions Ltd. The Motley Fool Australia owns shares of Appen Ltd. The Motley Fool Australia has recommended Bravura Solutions 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 Where to invest $5,000 into ASX 200 shares immediately appeared first on Motley Fool Australia.

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