Looking to top up your share portfolio? I think ASX tech shares provide plenty of choices.

Australia’s tech sector is growing rapidly, despite being quite small compared to the US market.

Here are two of my top picks right now: Carsales.com Ltd (ASX: CAR) and Bravura Solutions Ltd (ASX: BVS).

Carsales

Carsales has grown strongly over the past few years. In Carsales FY20 half-year report, it showed that between H1 FY16 and H1 FY20, the company managed to grow revenues at an impressive compound annual growth rate (CAGR) of 12%. Earnings before interest, tax, depreciation and amortisation (EBITDA) also grew strongly. EBITDA increased at a CAGR of 9% over the same period.

In its most recent trading update, it revealed that during mid-March to mid-April, car lead volumes were down 25% on normal levels. However, with lockdown restrictions easing, it is more than likely that lead volumes are now picking up.

This tech share has successfully built on its entrenched and dominant position in Australia over the past decade. This has helped to create a protective moat against market competition. This is despite slowing growth in the maturing online auto classifieds market locally.

Most of Carsales’ new growth is now coming from its overseas operations. These divisions now represent 23% of look-through revenue and 18% of look-through EBITDA. I believe that its overseas operations will fuel further strong growth over the next 5–10years. This positions the ASX tech share well for above-average share price growth during that time.

Another ASX tech share to consider: Bravura

Another ASX tech share worth considering is fintech operator, Bravura. It provides mission-critical enterprise software solutions. It services both the wealth management and funds administration industries.

The company provides software solutions for a range of financial products. These span from wrap platforms, superannuation and pension products to life insurance and portfolio administration offerings.

The company’s main operating markets are Australia, New Zealand, the United Kingdom, and South Africa. An impressive blue-chip client list includes the likes of Mercer, JPMorgan, Prudential, and Citi.

What really attracts me to this tech share is that it is a capital-light business model. It is also underpinned by a strong balance sheet.

The company’s flagship offering in Sonata is a next-generation wealth management administration platform. Its market appeal is that it enables users to interact with their clients through a range of devices. Demand for this flagship product continues to grow strongly.

Bravura has not seen a significant decline in demand during the coronavirus pandemic. In addition, the company recently reaffirmed its earnings guidance for FY 2020.

I believe that Bravura is well positioned for strong growth over the next 5–10 years.

More reading

• The top ASX growth shares I would buy for the 2020s
• Is the SEEK share price a buy right now?
• 2 outstanding ASX shares to buy after the market crash
• 3 ASX 200 shares to protect your portfolio from recession
• Why I’d buy Appen and these ASX growth shares for the 2020s

Phil Harpur owns shares of carsales.com Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Bravura Solutions Ltd. The Motley Fool Australia has recommended Bravura Solutions Ltd and carsales.com 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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Consumer stocks have fared better during the COVID-19 crisis than many feared. But some ASX retail stocks are better placed in the post-coronavirus world.

The ASX retailers that have performed better than expected are those that have capitalised on changes to consumer behaviour during the shutdown.

These include those that can readily ramp up their online presence and sells products that are in demand from stay-at-home consumers.

ASX retail winners and losers

UBS points to another important trend. The increasing importance of customer data, which the broker believes will become the most important currency.

Mind you, not all retail companies have been able to ride these trends and the gap between the haves and have-nots are only set to widen.

“The gap between winners and losers looks set to expand over the next 3+ years,” said UBS.

“What is less clear is how P&Ls [profit and loss] will change for those that capitalise on accelerated structural change.”

3 things to watch for

The broker identified three potential changes to the P&Ls of retailers going forward. The first is the levers for sales growth, which can come from market share gains, utilising data to get shoppers to buy and expansion into new verticals.

The second is margin. There is an opportunity for the better retailers to increase profitability through more targeted promotions, cost-fractionization and more profitable verticals.

Finally, is the ability to lift return on invested capital (ROIC). This is related to expanding profit margins, but also reflects a lower capex in the longer run with the increased move to online and a lower rental bill.

Retailers are actively renegotiating with shopping centre landlords to cut rents and/or reduce the number of shops.

As I wrote last month, mega malls are losing their strategic advantage as the growth of online sales accelerate.

Best retail stocks to buy now

Perhaps the more important question for ASX investors is which retail stocks are best placed to report improvements across all three areas?

While there are a number on the S&P/ASX 200 Index (Index:^AXJO) that fall into this category, including online retailer Kogan.com Ltd (ASX: KGN) and fast food chain Domino’s Pizza Enterprises Ltd. (ASX: DMP), not all are trading on attractive valuations.

If you added this as an extra filter, three consumer-facing stocks stand out, according to UBS.

These are supermarket giant Woolworths Group Ltd (ASX: WOW), stationery and apparel group Premier Investments Limited (ASX: PMV) and KFC franchisee Collins Foods Ltd (ASX: CKF).

More reading

• 3 fantastic ASX 200 shares to buy right now
• Leading brokers name 3 ASX 200 shares to sell today
• ASX 200 jumps 3%: CBA rebounds, Afterpay hits a new record high
• Why AusCann, Phoslock, Kogan, & Village Roadshow are dropping lower
• Investing $1,000 into these ASX 200 shares could be a smart move

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd and Premier Investments Limited. The Motley Fool Australia owns shares of Woolworths Limited. The Motley Fool Australia has recommended Collins Foods Limited and Domino’s Pizza Enterprises 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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