Author: therawinformant

Just one day after the share market was forced to close for most of Monday, ASX Ltd (ASX: ASX)’s fitness to operate has been questioned again.

While the main market successfully reopened at 10am on Tuesday and survived a whole day’s trading, troubles arose in other ASX systems.

Late in the afternoon, the Australian Investments and Securities Commission tore into the market operator for data issues with the Centre Point matching system.

That system normally takes in bids and offers from both ASX and alternative market Chi-X to give buyers and sellers the best price possible.

But the data failures meant ASX decided to ignore the Chi-X feed from 11.17am onwards.

ASIC warned that this exclusion could mean a violation of market integrity rules.

As of Wednesday morning, ASX had decided to suspend Centre Point “until further notice”.

“ASX believes it is prudent to suspend the Centre Point service for today, following the issues experienced yesterday creating a national best bid and offer,” an ASX spokesperson told The Motley Fool.

“This will allow ASX to implement a fix to the service, and ensure a safe and stable market environment.”

Is ASX fit to run the market?

Just like Monday, ASIC expressed its concern about ASX’s infrastructure and the company’s fitness to operate the market.

“ASIC is actively assessing ASX’s compliance with its market licence obligations and is considering further actions to ensure the adequacy of ASX’s human, financial and technological resources to operate its markets in an orderly manner,” stated ASIC.

ASX’s share price fell more than 2% on Tuesday, falling from $82.91 at 10am AEDT to close at $81.19.

ASX’s CHESS system also failed Tuesday

The ageing CHESS system, which settles trades, also failed Tuesday afternoon.

The delay in batch processing was not connected to Monday’s market outage.

The CHESS system processes trades 3 business days after they took place, meaning the Tuesday problems would have affected Friday’s transactions.

As of Tuesday night, ASX’s system status page showed the delayed batch run was completed.

More reading

• What caused the ASX outage on Monday trading?
• ASIC to investigate if ASX is fit to hold market licence
• ASX trading halt to remain in place for the rest of the day
• Update: Trading on ASX remains in ‘enquire’ state after market data error
• ASX trading has been frozen this morning in IT glitch

Motley Fool contributor Tony Yoo 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.

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The ALS Ltd (ASX: ALQ) share price has come under pressure on Wednesday following the release of its half year results.

In early trade the testing services company’s shares were down as much as 4% to $9.40.

The ALS share price has recovered since then and is now down 1% to $9.69.

How did ALS perform in the first half?

For the six months ended 30 September, ALS reported an 8.7% decline in revenue from continuing operations to $838.8 million.

This was driven largely by the negative impacts of COVID-19 pandemic on its first quarter performance which led to a 9.7% decline in quarterly revenue. Pleasingly, the company’s revenues are improving, with second quarter revenue down 7.8% over the prior corresponding period.

The company’s Life Sciences business was resilient and only posted a 3.5% decline in revenue. Whereas the Commodities business reported a 13% decline in revenue and the Industrials business posted a 17.1% decline.

On the bottom line, ALS posted a statutory net profit after tax of $70.3 million. This was down 48.1% on the prior corresponding period due to one-off gains from the sale of its China business a year earlier.

On an underlying basis, the company’s net profit after tax from continuing operations was down 17.9% to $80.6 million. This excludes government subsidies and related direct costs.

The ALS board has declared an interim dividend of 8.5 cents per share fully franked. This is down from 11.5 cents per share a year earlier. Management notes that this reflects its prudent capital management strategy and demonstrates its strong liquidity position.

Outlook.

No guidance has been given for the full year, but management has provided an update on current trading.

It commented: “The first quarter of FY21 is expected to be the most challenging for the Group in this financial year due to economic shutdowns related to the COVID-19 pandemic. The sustained increase in global economic activity during the second quarter resulted in a significant improvement in performance across the Group. This trend has continued into early Q3.”

More reading

• The Perpetual (ASX:PPT) share price is moving after strategic acquisition
• Plenti (ASX:PLT) share price soars 5% after solid first half results
• Serko (ASX:SKO) share price drops lower after half year results
• Here’s the ASX bank share rated as a conviction buy
• 2 food-based ASX dividend shares to feed your income needs

Motley Fool contributor James Mickleboro 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.

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Financial services company Perpetual Limited (ASX: PPT) has today announced its successful 75% acquisition of investment management business Barrow, Hanley, Mewhinney & Strauss. At a price of US$293 million (A$403 million), the purchase will instantly triple Perpetual’s asset under management (AUM) to more than $87 billion.

At the opening bell today, the Perpetual share price has dipped slightly by 0.2% to $30.38.

More details of the acquisition

An initial consideration of $403 million was paid to BrightSphere Investment Group Inc. (BSIG), the owner of Barrow Hanley. A potential additional payment may be paid to reflect final consents received, but will not exceed $439 million.

Barrow Hanley has around US$41 billion in assets under management across global equities and fixed income investments. It has a team of roughly 100 employees, head-quartered in Dallas. It also has international presence in London and Hong Kong. Perpetual says that Barrow Hanley will retain its brand and continue to operate independently with no change to its investment process or key personnel.

This acquisition is consistent with Perpetual’s stated strategy to build world-class investment capability and a global distribution footprint. Following the purchase, the company confirms it is on-track to achieve more than 20% underlying earnings per share (EPS) accretion on an annualised basis .

Perpetual chief executive and managing director Rob Adams says:

This is a transformational deal for Perpetual. We now have a broad range of world class investment capabilities; we have significantly diversified our AUM by client type, client location and by asset sector and; we now have multiple opportunities to drive strong future growth in AUM, with substantial capacity across those strategies. 

The successful early build-out of our US distribution team is now greatly accelerated, with 31 distribution professionals joining us through the acquisition of Barrow Hanley. The Barrow Hanley investment teams are truly world class, and we are delighted to partner with them to forge a strong growth path into the future.

Perpetual’s other recent purchase

Today’s announcement came on the back of another recent acquisition by Perpetual. In July, the company purchased another US-based investment advisory firm Trillium. Trillium focuses exclusively on environmental, social and governance (ESG) investments. That deal was inked at $36 million and added $3.3 billion to Perpetual’s AUM. 

Perpetual plans to introduce new business division Perpetual Asset Management International in the first-half of FY21. This will include the operations of Trillium and Barrow Hanley, and any future international asset management functions.

Quick take on Perpetual

Perpetual was founded in 1885 by Australia’s first prime minister Edmund Barton, and is a company steeped in history. Today, the diversified financial services company comprises four main businesses. These include Perpetual Investment, Perpetual Private, Corporate Trusts and Group Support Services.

How has the Perpetual share price performed in 2020?

The Perpetual share price has lost around 25% this year. The share price opened the year at $41.12, before COVID-19 disrupted its business. The Perpetual share price is currently trading at $30.38, giving the company a market cap of $1.72 billion.

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Motley Fool contributor Eddy Sunarto 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.

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The Plenti Group Ltd (ASX: PLT) share price has shot out of the gates this morning after the lender announced its half year FY21 results for the 6 months ended 30 September 2020. 

Plenti listed on the ASX on 23 September 2020 at an offer price of $1.66, but prior to today its shares had sunk more than 30% from the offer price. However, the company’s results reveal it has exceeded its prospectus forecasts, and the Plenti share price is up 5.7% to $1.20 per share at the time of writing.

About Plenti 

Plenti is a fast-growing technology-led consumer lending and investment business. It seeks to provide borrowers with efficient and competitive loans, delivered via simple digital experiences. 

Plenti has funded approximately $870 million in loans to over 55,000 borrowers since its launch in 2014. Its target sectors include automotive, renewable energy and personal lending verticals. 

What did Plenti report in its first half results?

Plenti delivered ahead of prospectus forecasts on all key financial metrics. The company reported revenue of $26.0 million, representing growth of 41% on the prior corresponding period and 2% ahead of prospectus forecast, driven by continued strong origination and loan portfolio growth.

It achieved record loan originations of $167.0 million for the half, 33% above the first half of FY20 and 7% ahead of its prospectus forecast. Loan origination growth resumed in the second quarter, with record monthly volumes achieved in July, August and September.

Growth was led by automotive lending, coinciding with the launch of Plenti’s warehouse-funded car loan offering in early 2020. Automotive loan originations were $81.1 million for the half, up 323% on the prior corresponding period. Its renewable energy loan originations were at $28.5 million for the half, up 47% on the prior corresponding period. 

The average interest rate paid by customers decreased to 12.1% from 13.3%, reflective of the company’s shift towards automotive and renewable energy loans, which are lower-risk and longer term in nature compared to personal loans. 

Funding rates continued to decrease, down to 6.3% from 7.1% in the prior corresponding period. This flows on into Plenti’s cost-to-income ratio, which reduced to 48.5% from 61.6% in the first half of FY20, reflecting the benefits of increased operating efficiency. 

The results delivered a more favourable loss for the half, with pro forma net loss after tax of $3.4 million compared to the $7.9 million in the pcp. 

Plenti reports that it has continued to experience strong trading momentum in the second half of its financial year, which ends 31 March 2021. Loan originations were $37.2 million in October, representing a fourth consecutive record month of originations. 

More reading

• Serko (ASX:SKO) share price drops lower after half year results
• Here’s the ASX bank share rated as a conviction buy
• 2 food-based ASX dividend shares to feed your income needs
• Virgin Money (ASX:VUK) share price on watch following CFO appointment
• Aristocrat Leisure (ASX:ALL) share price in focus after FY 2020 results

Motley Fool contributor Lina Lim 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.

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The Serko Ltd (ASX: SKO) share price is dropping lower this morning following the release of its half year results.

At the time of writing, the travel and expense technology solution provider’s shares are down 3% to $5.11.

How did Serko perform in the first half?

Given its exposure to the travel market, Serko unsurprisingly had a very tough first half of FY 2021.

For the six months ended 30 September, the company reported a 66% decline in total operating revenue to NZ$5.1 million.

The company’s recurring product revenue was also impacted by the COVID-19 pandemic travel disruptions. It was down 65% on the prior corresponding period to NZ$4.6 million.

During the half, total travel booking volumes were down 77% on the prior corresponding period. However, booking trends are now improving. Volumes have lifted from 23% of last year’s levels to 35% during October.

On the bottom line, Serko recorded a sizeable loss after tax of NZ$10.1 million. This compares to a net loss of NZ$0.9 million in the first half of FY 2020.

This loss was driven by the tough trading conditions and also its investments in growth opportunities. Serko has been investing in its expansion into the Northern Hemisphere markets ahead of an anticipated travel market recovery.

This led to a net cash burn average of NZ$1.8 million per month for the six-month period, which is within the NZ$2 million COVID-19 cost saving cap set by the company.

Despite this cash burn, the company finished the period with a cash balance of NZ$31.5 million. However, since then Serko has completed a capital raising, which leaves it with over NZ$90 million of cash on hand. Management believes this positions Serko well for an anticipated travel market recovery.

Outlook.

Serko’s Chief Executive, Darrin Grafton, remains very positive on the company’s prospects on the other side of the pandemic.

He said: “We consider that Serko’s prospects within the travel industry remain significant over the medium to long-term, notwithstanding the currently known impacts of the COVID-19 pandemic, and we remain confident in the recovery of travel over time. We are committed to supporting our partners through this period of change and accelerating our drive to transform business travel and expense management globally.”

However, at this stage, it is unable to provide any guidance for FY 2021 due to the uncertain timing of the travel market recovery.

Though, the company’s Chair, Claudia Batten, has provided investors with an idea of how Serko expects travel volumes to trend in the coming months.

She said: “Serko continues to assume in its forecasts that travel volumes will be in the range of 40-70% of pre-COVID levels by March 2021. The extent of travel restrictions in place within Australia and New Zealand will be determinative of where, within this range, actual travel volumes fall.”

Ms Batten also commented on the company’s cash burn expectations.

She added: “Serko continues to target an average monthly cash consumption of between $2 million and $4 million during the remainder of FY21 and through to FY22. We continue to invest in growing our global footprint, managing investment based on travel resumption and achievement of key performance metrics (including the Booking.com opportunity and NORAM customer onboarding).”

More reading

• Wilson Asset Management thinks these 2 small cap ASX shares are a buy

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 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.

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With the worst now seemingly behind the banks, one leading broker believes that investors will be shifting their focus to dividend yields again.

According to a note out of Goldman Sachs, its analysts believe dividend yields will be one of the key drivers of the next leg of sector performance.

Goldman commented: “We believe the next leg of sector performance will rely on i) a recovery in sector earnings, with the peak in bad debts appearing to have occurred in FY20, ii) the expiry of APRA’s 50% payout ceiling at the end of CY20, and iii) the continued re-rating of the sector’s yield in light of low interest rates.”

Based on its current forecasts, the broker estimates that the sector is currently trading on an attractive 6% nominal dividend yield in FY22/23E. This compares to the 5.5% long-run average.

Furthermore, this means an even more attractive 8% gap to the ten-year bond yield, well above the 3.5% long-run average. Something which Goldman Sachs sees scope to narrow over the next 12 months.

Which bank is Goldman Sachs’ top pick?

At present, the broker believes the National Australia Bank Ltd (ASX: NAB) share price offers the best risk/reward. This is followed by Westpac Banking Corp (ASX: WBC) and then Bank of Queensland Limited (ASX: BOQ).

One of the reasons Goldman prefers NAB is due to its view that it will deliver better than peer revenue growth. This is expected to be supported by its superior management of the volume/margin trade-off.

Another reason it is positive on the bank is its investment spend, which it believes is further progressed relative to peers. This should allow NAB to be more selective towards where resources are directed, which supports its broadly flat FY 2021 costs growth target.

Ultimately, the broker believes the combination of the two will help NAB deliver top of peer Pre-Provision Operating Profit (PPOP) per share growth over the next three years.

Goldman Sachs has a conviction buy rating and $22.96 price target on NAB’s shares.

And in respect to the other banks it is positive on, the broker has a buy rating and $20.34 price target on Westpac shares and a buy rating and $7.67 price target on Bank of Queensland shares.

More reading

• Leading brokers name 3 ASX shares to sell today
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• ASX 200 up 0.35%: Moderna vaccine success, Afterpay update, Westpac upgraded
• Macquarie (ASX:MQG) picks best ASX stocks to buy for 2021 post-COVID recovery
• Aussie companies blast ‘knee-jerk’ COVID-19 border closures

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. 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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Fact: we all need food to live. I’m sure this revelation will come as no surprise for any reader out there. But this makes for useful knowledge when it comes to investing, because the companies that sell us what we need need have an intrinsic advantage. They never have to worry about their products becoming redundant or outdated. And that’s a great thing from a dividend perspective.

With that in mind, here are 2 ASX dividend shares in the food space that have been rated as buys by analysts.

Collins Foods Ltd (ASX: CKF)

You might not have heard of Collins Foods – it’s hardly a household name in Australia, to be fair. But the restaurant brands that it has a license to own or franchise in Australia certainly are. They are Kentucky Fried Chicken (KFC), Taco Bell and Sizzler.

Collins recently announced that the Sizzler brand would be discontinued in Australia due to the coronavirus pandemic, and it only has 13 Taco bells in Australia (most of which are in Queensland). However, the 243 KFC restaurants throughout the country are Collins’ real crown jewel. In its FY2020 earnings report, Collins told investors that Australians couldn’t get enough of the Colonel, with KFC same-store sales up 3.5% over the year. That helped the company post an annual underlying earnings growth rate of 6.3%.

But Collins also pays a strong dividend. Its total payout in 2020 came in at 20 cents a share, which gives Collins a trailing dividend yield of 1.98% (2.83% grossed-up) on current prices. Collins Foods has recently been rated as a ‘buy’ by analysts at Morgans, who expect Collins’ restaurants will benefit from a return to normality following the release of an effective COVID-19 vaccine.

Coles Group Ltd (ASX: COL)

Coles is the second-largest grocer in Australia, behind Woolworths Group Ltd (ASX: WOW) and in front of Aldi and Metcash Ltd (ASX: MTS)’s IGA. The company reported revenue growth of 6.9% in its FY2020 earnings report, as well as a 7.1% increase in net profits after tax.

But dividend investors had something to smile about as well. Coles announced a fully franked, final dividend of 27.5 cents per share, which was an increase of 14.6% on 2019’s final dividend. That means Coles has paid out 57.5 cents per share in dividends in 2020, giving the Coles share price a trailing dividend yield of 3.24% (4.63% grossed-up).

The Motley Fool’s Everlasting Income service currently rates Coles as a ‘buy’. The team at Everlasting Income like Coles’ defensive revenue stream, as well as the company’s strong brand and market position.

More reading

• Aussie companies blast ‘knee-jerk’ COVID-19 border closures
• What can you do when the ASX is down?
• ASX 200 Weekly Wrap: ASX continues to hit post-COVID highs
• Here are the 10 most shorted shares on the ASX
• These ASX dividend shares offer income investors attractive yields

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. The Motley Fool Australia has recommended Collins Foods 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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The Virgin Money UK (ASX: VUK) share price will be on watch today following the announcement of a new group CFO appointment. The Virgin Money share price finished the day yesterday at $2.50. It will be interesting to see where its shares head today.

New CFO appointment

According to the release, Virgin Money announced that it has appointed Mr Clifford Abrahams to the role of executive director and CFO. It’s expected that Mr Abrahams will join the group in March next year, succeeding interim CFO Mr Enda Johnson.

Subject to regulatory approval, a handover of responsibilities will take place to allow a smooth transition between the two heads.

Mr Abrahams is currently in another CFO role for ABN AMRO Bank, having been in the role since 2017. Prior to that, he was group CFO at the Dutch insurer Delta Lloyd, holding several positions at Aviva. Mr Abrahams spent the early part of his career in investment banking with the financial institutions group at Morgan Stanley.

Management commentary

Commenting on the appointment, Virgin Money CEO Mr David Duffy said:

Clifford has a proven track record as a CFO of publicly listed financial services companies and will be a strong addition to our leadership team. Clifford’s deep experience and financial services knowledge will be of great benefit as we navigate an uncertain economic environment and ultimately deliver on our ambition to disrupt the status quo in UK banking. I would also like to thank Enda Johnson for his strong stewardship as our Interim Group CFO during what is a uniquely challenging time.

Mr Abrahams added:

I am delighted to have been appointed as CFO of Virgin Money UK. It is an exciting company with strong foundations and unique opportunities to disrupt the UK banking industry, and I very much look forward to getting started next year.

About the Virgin Money share price

The Virgin Money share price has been storming higher since it hit a low of $1.06 in April. Investors who bravely held on as its airline division delisted have since seen gains of up to 135%.

However, the Virgin share price is still a long way off its 52-week high of $4.15 reached in December 2019.

More reading

• ASX 200 Weekly Wrap: ASX continues to hit post-COVID highs
• These were the best performing ASX 200 shares last week
• ASX 200 surges again on Wednesday
• Why the Virgin Money (ASX:VUK) share price surged 15% today
• ASX 200 up 1.3%: CBA Q1 update, tech shares rebound, JB Hi-Fi sinks

Motley Fool contributor Aaron Teboneras 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.

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The Aristocrat Leisure Limited (ASX: ALL) share price will be on watch on Wednesday after the release of its full year results for FY 2020.

How did Aristocrat Leisure perform in FY 2020?

As was widely expected, the COVID-19 pandemic weighed heavily on the gaming technology company’s performance and led to declines in both sales and profits.

For the 12 months ended 30 September, Aristocrat reported a 5.9% decline in operating revenue to $4,139.1 million and a 31.8% reduction in earnings before interest, tax, depreciation and amortisation (EBITDA) to $1,089.4 million.

This reflects a 32% decrease in Aristocrat Gaming (Land-based) revenue, driven by the impact of COVID-19 customer venue closures and social distancing restrictions, which was almost offset by 29% growth in Aristocrat Digital revenue.

On the bottom line, the company posted a 78.2% increase in reported net profit after tax before amortisation (NPATA) to $1,497.2 million. However, this was due to the recognition of a $1.1 billion deferred tax asset following company structure changes.

On a normalised basis, NPATA fell a sizeable 46.7% to $476.6 million. However, this was a touch ahead of expectations, with analysts at Goldman Sachs forecasting NPATA of $471 million.

Due to the Aristocrat board’s confidence in its strengthening performance, it has declared a final fully franked dividend of 10 cents per share.

Segment performance.

The Aristocrat Gaming segment may have posted a sharp decline in revenue, but it has continued to perform strongly in respect to its installed base and average fees.

The company’s Class III premium and Class II installed bases grew 5.9% and 0.3% respectively, thanks to continued penetration of leading hardware configurations and high-performing game titles.

Its market-leading average adjusted fee per day increased 1.1% to US$51 (normalised to exclude the number of days machines were not operating due to COVID-19 impacts).

The company’s Aristocrat Digital segment delivered double-digit growth in bookings, revenue, and profit during FY 2020. It notes that its RAID: Shadow Legends game continued its impressive growth trajectory, generating US$368 million in bookings.

Its aggressive investment in User Acquisition (UA) was maintained to support growth, with total UA spend increasing 1.7 percentage points to 28% of Digital revenue.

The Average Bookings Per Daily Active User (ABPDAU) grew almost 44% to US$0.59. This was due to the successful focus on DAU quality, the scaling of RAID: Shadow Legends, and strong performance across the Social Casino portfolio, supported by COVID-19 related tailwinds.

FY 2021 outlook.

No guidance has been provided for FY 2021.

However, management advised that it expects to maintain or enhance its market-leading positions in Gaming Operations, measured by the number of machines that are operating and game performance.

It also expects further growth in Digital bookings, with its UA spend expected to remain between 25% and 28% of overall Digital revenues.

An increase in selling, general and administrative expense is expected across the business. This is due to the company continuing to scale and deliver its growth strategy. This includes continuing to identify adjacencies that expand its capabilities to create new business and growth through product, distribution, and investment.

Aristocrat’s Chief Executive Officer and Managing Director, Trevor Croker, commented: “A strong balance sheet, ample liquidity and robust cash flows provide us with full optionality to continue to invest behind our refined growth strategy and take advantage of acceleration opportunities in the period ahead.”

More reading

• 5 things to watch on the ASX 200 on Wednesday
• ASX 200 Weekly Wrap: ASX continues to hit post-COVID highs
• 5 things to watch on the ASX 200 next week
• What to expect from the Aristocrat Leisure (ASX:ALL) FY 2020 results
• Why the Aristocrat (ASX:ALL) share price could jump next week

Motley Fool contributor James Mickleboro 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.

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The A2 Milk Company Ltd (ASX: A2M) share price will be in focus today after the release of its annual general meeting presentation.

What was in a2 Milk Company’s presentation?

A2 Milk Company’s presentation provided investors with a summary on its performance in FY 2020, its future plans, and a trading update for the new financial year.

In respect to FY 2020, in case you missed it, a2 Milk Company was a very strong performer during the last financial year.

It delivered a 32.8% increase in total revenue to NZ$1.73 billion and a 32.9% lift in earnings before interest, tax, depreciation and amortisation (EBITDA) of NZ$549.7 million.

This strong result was underpinned by its infant nutrition sales, which were up 33.8% to NZ$1.42 billion. During the 12 months, its China label infant nutrition sales more than doubled to NZ$337.7 million after its distribution expanded to ~19,100 stores in the country.

Mataura Valley Milk (MVM) acquisition update.

In August, a2 Milk Company announced that it had made a non-binding indicative offer to acquire 75% of MVM for approximately NZ$270 million, based on an enterprise value of $385 million.

Management notes that this will allow the company to participate in the manufacturing of nutritional products that complements its existing supply arrangements and creates supplier and geographic diversification.

The due diligence process is almost complete and continues to support the strategic rationale for the investment. Management is currently reviewing the final aspects of the potential transaction and supporting strategic relationships. It expects to provide an update in coming months.

FY 2021 guidance.

The company has reaffirmed the guidance for FY 2021 it provided to the market in September.

It continues to expect first half revenue of NZ$725 million to NZ$775 million and full year revenue of NZ$1.80 billion to NZ$1.90 billion.

The company’s EBITDA margin is expected to be approximately 31% for the full year. Which implies EBITDA of NZ$558 million to NZ$589 million.

However, it notes that due to the volatility arising from COVID-19, there is uncertainty to this forecast. It also acknowledges that its guidance provides for a significant increase in revenue in the second half. It warned that this is dependent on a number of key assumptions, including an improvement in the daigou channel and continued growth in its China label business.

Management concluded: “We continue to observe strong underlying brand health metrics, in particular in China, including market share expansion, and growth of brand awareness and loyalty measures. This gives us confidence that, notwithstanding the current headwinds, the fundamentals of the business over the medium term remain sound.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. 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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