Author: therawinformant

There were three big events I, and most Aussies, had a close eye on yesterday.

We’re still awaiting the definitive outcome of the United States elections. Both the White House and the Senate can potentially go to Joe Biden and the Democrats, or Donald Trump and the Republicans.

We do know that Twilight Payment, ridden by Jye McNeil, took first place at the Melbourne Cup.

And, of far more significance to Australia’s savers, we know that the Reserve Bank of Australia (RBA) cut the official cash rate, as was widely expected. The cash rate was dropped from the already historic low 0.25% to a new razor thin 0.10%

Debtors, rejoice.

Savers, not so much.

The RBA also announced an unprecedented (for Australia) level of new quantitative easing (QE). The RBA will now buy $100 billion of government bonds over the next 6 months, vowing “to do more if necessary”.

So when can Australia’s savers, reliant on the income of their term deposits to keep ahead of the bills, expect to see interest rates head comfortably higher?

Don’t hold your breath.

The central bank stated the cash rate won’t go up until inflation “is sustainably within the 2 to 3 per cent target range”.

And how long, pray tell, is that?

According to the RBA, “Given the outlook, the Board is not expecting to increase the cash rate for at least three years.”

RBA governor acknowledges low deposit rate “difficulties”

Even with inflation running below 2%, the returns from term deposits are effectively negative. Meaning each year, after you add in the dwindling interest earned on your cash deposit, your savings are worth less than you started with.

Conundrum?

You bet.

And one that RBA Governor Philip Lowe openly acknowledged, saying:

The Board recognises that low rates can encourage some additional risk-taking as investors search for yield. It also recognises that low deposit rates can create difficulties for some people. These issues will need to be closely watched over the months ahead. But the Board judged that the bigger risk at the moment was the threat to our economy and to balance sheets from an extended period of high unemployment. Today’s decision will lessen that risk.

What’s a diligent saver to do?

With negligible to negative real returns on term deposits, the spotlight is on the income potential of ASX dividend shares. These are companies that pay out (regularly, you hope) some of their profits to shareholders.

You also hope that the share price of these ASX dividend shares goes up in time, as any capital losses can offset the dividend payments, potentially leaving you worse off.

Which is why the RBA acknowledged that searching for yield does involve “some additional risk-taking”.

That’s because term deposits – especially with banks covered by the Australian government’s deposit guarantee – are, well, as safe as money in the bank. Which is not 100% safe, mind you. But about as close as you can get.

2 stand-out ASX dividend shares to consider

With that said let’s look at 2 high-performing income shares, both of which are part of the S&P/ASX 200 Index (ASX: XJO).

First up is Sonic Healthcare Limited (ASX: SHL), the world’s third largest pathology medicine company with operations in 8 countries. Sonic pays a 2.4% trailing dividend yield, 26% franked.

It also has a lengthy proven track record of increasing share prices, dating back to 1999. Not that there weren’t some down periods in that time. But the trend has been steadily higher, with Sonic’s share price up 1,204% since January 1999.

The Motley Fool’s own Edward Vesely first recommended Sonic in his investment advisory, Dividend Investor, on 16 July 2019. He noted the company’s solid cash flows and defensive earnings, its growth opportunities in highly fragmented overseas markets, and a consistent and growing dividend as reasons to buy.

On 20 October, Edward wrote that Sonic, “has seen revenue surge to start the new financial year. So far the company has conducted more than 9 million Covid-19 tests globally”, while adding the caveat that, “this level of growth will not continue indefinitely.”

Atop the dividend payments, Sonic’s share price is up 33% since Edward first tipped the stock to his members. Over that same time the ASX 200 is down 10%.

The second ASX dividend paying share in the spotlight today is Amcor CDI (ASX: AMC). Amcor was also recommended by Edward in Dividend Investor. He tipped the global packaging company on 19 November 2019.

Edward cited the anticipated benefits from Amcor’s merger with Bemis, its shareholder-friendly management, and 4.6% trailing dividend yield (unfranked) as reasons to buy.

Atop the regular dividends, Amcor’s share price is up 9.4% since 19 November last year, while the ASX 200 is down 11.9%.

At the current share price, both Sonic Healthcare and Amcor retain a buy rating over at Dividend Investor.

More reading

• ASX copper miners brush off latest Chinese tariff threat
• Quantitative Easing (QE) is here. What does it means for ASX shares?
• 5 things to watch on the ASX 200 on Wednesday
• ASX 200 finished 2% higher on Tuesday
• Here’s what an interest rate of 0.1% means for ASX shares

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Amcor Limited. The Motley Fool Australia has recommended Sonic Healthcare 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 MyDeal.com.au Ltd (ASX: MYD) share price has pushed higher following the company’s release of a Q1 trading update and investor presentation.

About MyDeal.com.au

The MyDeal.com.au share price had an initial public offering price (IPO) of $1.00 with an indicative market capitalisation of $258.8 million at the offer price. It is an online retail marketplace operating within the Australian e-commerce market for household goods such as furniture and homewares. The platform connects merchants with consumers via its scalable proprietary marketplace technology and capital-lite business model. 

According to the company, MyDeal.com.au sees significant growth in Australia over the next 5 years due to improvements in technology and millennials entering its core demographic age. It describes online penetration rates in Australia for furniture and homeware sales as in its infancy compared to the United Kingdom and United States. MyDeal estimates that online sales penetration is approximately 5.1% compared to the respective 15.2% and 16.6% in the UK and US. 

Q1FY21 trading update 

The company highlighted FY21 first quarter gross sales of $56.7 million, up 317% year on year. This represents a gross sales run rate of approximately $226.7 million. Its active customers increased 268% year on year to a record 669,897 as at 30 September 2020.

The company launched its own private label business, Duke Living, to leverage its proprietary marketplace data to offer quality products at affordable prices. Duke Living follows a just-in-time inventory model and outsourced warehousing to reduce capital requirements. It also possesses the flexibility to sell goods through other marketplaces such as those operated by eBay Inc (NASDAQ: EBAY) and Amazon.com, Inc (NASDAQ: AMZN) to drive volumes. This brand has generated gross sales exceeding $1.6 million between its launch in June 2020 and 30 September 2020. 

Taking a closer look at its customer metrics, MyDeal points to an increase in new customers and repeat orders as drivers in its run rate growth. In this quarter, approximately 50% of its transactions were from repeat customers. From a demographic perspective, its core customer base sits within the key disposable income demographic with 25% of customers within the 25-34 age bracket and 20% within the 35-44 age bracket. 

Moving forward, MyDeal aims to build an iOS and Android app that will improve the mobile shopping experience, reduce marketing costs and increase customer stickiness. The company will also be on the lookout for any acquisitions that complement its vision and objectives. 

The MyDeal.com.au share price is currently up 6.56% at the time of writing following its solid maiden quarterly update and a wider rebound in the ASX 200. 

Change in director’s interest 

In addition to its positive quarterly update, MyDeal.com.au also announced one of its board members had acquired an additional 200,000 shares at $1.296 per share.

Insider purchases don’t always equate to positive medium to long-term share price performance. However, it does show the confidence of management and its willingness to put skin in the game. 

More reading

• These 3 ASX shares to IPO recently are struggling
• Are these small cap ASX shares the next Kogan (ASX:KGN) and Nearmap (ASX:NEA)?
• Here’s how Adore Beauty (ASX:ABY) and these new IPOs have fared since listing
• Zebit Inc (ASX:ZBT) share price crashes 21% lower following IPO
• MyDeal (ASX:MYD) share price rockets 120% higher following IPO

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends eBay and recommends the following options: long January 2021 $18 calls on eBay, short January 2021 $37 calls on eBay, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool Australia has recommended Amazon. 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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Shares in ASX copper miners are outperforming today even as multiple reports confirmed China added Australian copper to its list of “banned” imports.

The Sandfire Resources Ltd (ASX: SFR) share price jumped 3.4% to $4.27 and the OZ Minerals Limited (ASX: OZL) share price added 1% to $14.82 during lunch time trade.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) is struggling at breakeven while the Fortescue Metals Group Limited share price and Rio Tinto Limited (ASX: RIO) share price tumbled.

ASX copper miners the latest victims of China’s tantrum

The outperformance of our copper miners comes even as Bloomberg reported that China is ordering its traders to stop buying at least seven types of Aussie commodities.

On top of Aussie copper ore and concentrate, other imports being targeted include wine, coal, barley, lobsters, sugar and timber.

It’s the clearest sign yet that relations between Australia and its most important trading partner are continuing to deteriorate.

Why copper is holding firm despite trade threat

But Sandfire Resources is downplaying the risk to its earnings from the copper ban. It believes it can find other buyers for its copper, reported the Australian Financial Review.

What’s more, the miner’s cash pile that stands close to $400 million will buy it time to seek out new markets.

OZ Minerals is also brushing off the threat. Its chief executive Andrew Cole pointed out that China can’t produce its own copper, unlike coal or wine. This means, China will still need to import the red metal from somewhere, if not Australia.

If the trade tension drives the price of copper higher, Chinese authorities may very well have to swallow their pride and reverse the decision.

China is world’s largest importer of copper

China buys around half of Australia’s copper exports and is the largest importer of the commodity in the world, according to data from Statista.

The Asian giant purchased US$40.8 billion worth of copper in 2019, which is more than the next five largest importers.

Outlook for ASX copper miners still look bright

Further, the COVID‐19 pandemic may be providing a net benefit to copper producers. While global factory production may have tumbled in the near-term, copper exports from Latin America may be impeded for years.

For instance, production at Escondida, which holds the world’s largest copper reserves and is co-owned by BHP Billiton Ltd (ASX: BHP) and Rio Tinto, may not recovery to pre-COVID levels for three years.

In the meantime, industrial production (particularly in China) is starting to recover.

Cost blowouts and longer-than expected lead times in getting new copper mines up and running will further crimp supply.

This explains why analysts remain upbeat on the outlook for copper as the price of the commodity improved 0.2% to US$3.09 a pound today despite news of the Chinese tariff.

More reading

• Quantitative Easing (QE) is here. What does it means for ASX shares?
• 5 things to watch on the ASX 200 on Wednesday
• ASX 200 finished 2% higher on Tuesday
• Here’s what an interest rate of 0.1% means for ASX shares
• Why IDP Education, Sandfire, Telix, & Treasury Wine shares are dropping lower

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, OZ Minerals Limited, and Rio Tinto Ltd. Connect with me on Twitter @brenlau.

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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Yesterday, we heard from the Reserve Bank of Australia (RBA) after its monthly meeting concluded for November. Most headlines discussed how the RBA lowered interest rates to yet another record low of 0.1%, down from the previous level of 0.25%. This will have many ramifications, some of which we discussed yesterday.

However, the RBA made another very important announcement that I think is worthy of discussion today. In addition to the cash rate cut, the RBA also announced that it would be undertaking a massive government bond-buying program, which some are calling Quantitative Easing (QE). QE is a new policy in Australia, but not around the world. In fact, the United States Federal Reserve has initiated several rounds of QE over the past decade, starting in the immediate aftermath of the global financial crisis. QE involves the central bank buying massive amounts of government bonds. This has the effect of lowering borrowing costs throughout the economy, which in turn is supposed to spur and encourage economic growth as a result.

Until now, Australia has avoided QE, but no longer. The RBA yesterday announced it would be going on a bond-buying spree of its own, promising to purchase $100 billion worth of government bonds over the next 6 months, with an aim to buy $5 billion worth every week until then.

According to reporting in yesterday’s Australian Financial Review (AFR), RBA Governor Philip Lowe told Australians that “the lower interest rates and our plan to buy $100 billion of government bonds over the next six months will help people get jobs and support the recovery of the Australian economy”.

So what does this mean for ASX shares?

QE for the ASX?

QE is normally viewed as highly supportive of assets like shares. That’s because it crowds out buyers in the bond market, forcing more capital into those markets, which then tends to spill over into other asset markets. It also lowers the yields of government bonds, which also pushes out buyers not willing to accept rock-bottom bond yields.

We’ve seen this play out over in the US. Since November 2010, the Dow Jones Industrial Average Index (DJX: .DJI), a flagship US index, is up more than 145%, whilst the Nasdaq Composite (NASDAQ: .IXIC), another flagship index, is up more than 330%.

One could conclude that QE has played a significant part in these returns. Thus, that’s probably why the S&P/ASX 200 Index (ASX: XJO) was up a hefty 1.9% after the RBA’s QE program news yesterday. 

More reading

• ASX copper miners brush off latest Chinese tariff threat
• 5 things to watch on the ASX 200 on Wednesday
• ASX 200 finished 2% higher on Tuesday
• Here’s what an interest rate of 0.1% means for ASX shares
• ASX 200 has explosive start to trading ahead of RBA decision

Motley Fool contributor Sebastian Bowen 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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Travel shares are trading higher today after a border announcement by New South Wales Premier Gladys Berejiklian. The premier declared NSW would reopen its border to Victorians on Monday 23 November.

She also called on other Australian states to reopen their borders to NSW. 

“If NSW has the guts to open our borders to Victoria, you should have the guts to open your borders to us. It is in our national interest. It is in the interest of all our citizens,” she said.

The decision means that Victorians wishing to travel to NSW after 23 November will no longer have to get government permission or quarantine for 14 days. 

Prior to this announcement, NSW was open to all Australian states except Victoria. This latest border relaxation will make NSW the only state in the country to have open borders with every other state. 

Which shares are trading higher?

After the announcement, share prices in travel-related companies have climbed.

At the time of writing,  Qantas Airways Limited (ASX: QAN) rose by 3.24% to $4.62, while Sydney Airport Holdings Pty Ltd (ASX: SYD) climbed by 3.1% to $5.98.

Also flying higher are Flight Centre Travel Group Ltd (ASX: FLT), which soared up by 6.81% to $13.02, and Corporate Travel Management Ltd (ASX: CTD) rose 3.23% to $15.97.

More reading

• 3 ASX shares rated as buys by brokers
• Zip and Credit Clear were among the most traded shares on the ASX last week
• How Sydney’s new road could pressure the oOh!Media (ASX:OML) share price
• These are the 10 most shorted shares on the ASX
• ASX 200 Weekly Wrap: ASX 200 has another shocker as US election approaches

Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited. The Motley Fool Australia has recommended Flight Centre Travel Group 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 Pendal Group Ltd (ASX: PDL) share price has fallen by around 7% today, trading at $6.36 at the time of writing. This comes after the company published an annual report earlier this morning revealing that many important KPIs have underperformed.

What’s moving the Pendal share price?

The market is no doubt responding to a number of Pendal’s missed KPIs. Most striking is the fall in net profit after tax (NPAT), which has fallen by 25% against FY19. In addition, operating revenue fell by 3%, funds under management (FUM) fell by 4% against the previous corresponding period (pcp), and cash earnings per share fell by 11%. The Pendal dividend payment has also fallen by 18%.

Operating expenses were 3% higher compared to the pcp. According to the report, the increase in expenses is attributed to investments in the global executive team, and technological improvements.

The company’s base management fees declined 5%, which Pendal attributed largely to its lower average FUM (4% lower than pcp). The base management fee margin remained relatively stable, down one basis point (bps) to 48 bps, which Pendal has attributed to a slight change in asset mix over the year.

According to today’s announcement, the decline in Pendal’s FUM was the result of net outflows of $6.5 billion and unfavourable foreign currency movements of $2.3 billion, as the US dollar (-5.1%) and British pound (-0.9%) weakened against the Australian dollar. 

The company reported its outflows were primarily $3.3 billion in net redemptions from European strategies, with investors continuing to reduce their exposure to the region over Brexit concerns and investment underperformance.

Management commentary

The group’s chief executive officer Mr Emilio Gonzalez commented:

The global economic and health crisis has accelerated a number of secular trends in the global asset management industry and highlighted the importance of ESG factors affecting the sustainability of businesses; a need to broaden distribution channels and to reduce costs in the operating model.

Pendal has already made progress in all of these areas and recognises the need to increase the pace of investment in order to position the company to take advantage of the opportunities inherent in these trends and deliver long-term sustainable FUM growth.

Mr Gonzalez highlighted that the company’s ability to execute on this strategy will require a multi-year investment, indicating that Pendal’s fixed costs for the 2021 financial year are expected to increase by 8–10%.

“We believe this strategy will deliver a more cost effective model and increase FUM by around 50% by FY25,” he added.

Despite today’s losses, the Pendal share price is still up by more than 16% in the past month. 

More reading

• ASX 200 finished 2% higher on Tuesday
• Takeovers will continue to rock ASX shares

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.

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The Afterpay Ltd (ASX: APT) share price has been a standout performer among buy now, pay later (BNPL) shares. Afterpay’s competitors such as Zip Co Ltd (ASX: Z1P), Splitit Ltd (ASX: SPT), Sezzle Inc (ASX: SZL), Laybuy Holdings Ltd (ASX: LBY) and Openpay Group Ltd (ASX: OPY) are all well below their record all-time highs, while Afterpay may go up even higher. 

The company’s upbeat quarterly update saw a series of positive broker updates come about for the Afterpay share price target. However, given Afterpay’s ballooning $28 billion valuation on $519.2 million revenue and a loss of $22.9 million in FY20, the general concensus is cautious. These broker upgrades are still below the current Afterpay share price of $99.04.

Cautious updates to the Afterpay share price 

UBS Group AG (NYSE: UBS) has been the least optimistic broker for its Afterpay share price target. The broker has maintained a price target within the $20 range throughout Afterpay’s run to $100. Yesterday, the broker nudged its price target from $28.50 to $30.00 and retains a sell rating. Despite continuing improvement in transaction values and customer growth, the broker still sees this market leader as overvalued. 

Goldman Sachs Group Inc (NYSE: GS) raised its Afterpay share price target from $93.45 to $94.40 and retains a neutral rating. It reacted positively to Afterpay’s first quarter trading update and notes robust customer growth in the United States and improving margins. However, the broker remains cautious about increasing competition. Afterpay’s current share price is ahead of its target so it retains a neutral rating. 

What investors can look forward to

While the Afterpay quarterly update was positive and highlighted its strong growth trajectory, it also shed light on its global expansion and demographic tailwinds. 

In August, Afterpay launched its product in Canada, with a number of large retailers now live, integrating or signed. In its FY20 results, Afterpay outlined its plan to enter the rest of Europe via the acquisition of Pagantis. This acquisition is progressing well and is on track for completion by the end of the 2020 calendar year, pending regulatory approval by the Bank of Spain.

This will provide Afterpay a licence to operate in Spain, France, Italy and Portugal as well as pending licence passport applications in Germany and Poland. The company has completed a cross-functional, 100-day integration plan to launch as soon as possible, post completion. 

Plans to expand into Asia are also progressing well with the established base in Singapore to drive the development of the Southeast Asia market. Its acquisition of local BNPL ‘Empatkali’ in Indonesia is also under way.

More reading

• Zip and Credit Clear were among the most traded shares on the ASX last week
• Laybuy (ASX:LBY) launches tap to pay digital card
• These were the best performing ASX tech shares in October 
• Why Zip Co Ltd (ASX:Z1P) share price is down 15% in one week
• Where to invest $1,000 into ASX shares this week

Lina Lim 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’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Sezzle Inc. 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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An online broking platform has offered free, $1 million insurance for its users in case it becomes insolvent.

Multinational platform, eToro, announced Wednesday that all its Australian, Europe and United Kingdom customers would receive the coverage automatically at no cost.

“The insurance will form the third layer of protection for clients after segregated trust accounts and regulatory protections,” stated the company.

“In the unlikely event that eToro were [sic] to enter a state of insolvency, the policy would kick in to cover clients for losses above the relevant financial compensation schemes to a value of AU$1 million, and in accordance with the purchased policy.”

The insurance will cover both cash held on the platform and open accounts, but exclude cryptocurrency assets.

Everyday Australians have lost millions in the past

You might think an online broking provider going bankrupt is a fanciful prospect. But there are several recent examples in Australia where everyday investors have lost money from their broker collapsing.

Only a couple of months ago, online customers of collapsed broker BBY found out they would only receive 44 cents for each dollar they were owed.

To rub salt in the wound, the liquidator accused former director and tennis legend, Ken Rosewall, of receiving $3.3 million while the company was insolvent.

Last year, online broker Halifax went down, taking $20 million of client money with it.

“The primary cause of the deficiency appears to be the use of client monies to fund operating losses since at least January 2017,” said administrator Ferrier Hodgson.

“The management accounts, audited accounts and lodgements with ASIC all appear to present with accounting irregularities.”

The lost $20 million represented about 9% of investors’ cash.

eToro stated its million-dollar insurance policy would provide “peace of mind” for its 15 million users.

“It signals the fintech’s ongoing commitment to providing the best possible user experience and safeguarding client wellbeing.”

The coverage is underwritten by Lloyd’s of London.

eToro was established in 2007 and is a platform that allows investors to mimic the portfolios of other successful users.

More reading

• ASX stock of the day: Kleos Space (ASX:KSS) shares rocket 21% on satellite news
• Analysts divided over future of Westpac (ASX:WBC) share price
• Infomedia (ASX:IFM) share price up 7% on contract win
• Gold explorer Tesoro Resources (ASX:TSO) jumps 25% on high-grade intercept
• The Nanosonics (ASX:NAN) share price is surging higher

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 Kleos Space SA (ASX: KSS) share price is in the spotlight today. Kleos shares are rocketing at the time of writing, up 21.37% to 80 cents a share after closing at 66 cents a share yesterday and opening at 69 cents this morning.

Whilst today’s move might seem dramatic, it’s just the latest gain for Kleos shareholders, who have had a truly fantastic month. Kleos shares were 28 cents each at the start of October, which means they have risen by more than 185% since 1 October. The shares are up more than 150% year to date, and more than 400% since the company’s IPO in August 2018.

So what is this high-growth share? And why is it exploding even higher today?

Kleos shares: an introduction

According to the company, Kleos Space was founded in 2017 by “experienced Space engineers”. The plan was to develop a “new Space enabled Data-as-a-Service concept and disruptive in-Space technologies.”

Kleos is dual-listed, sitting on the ASX as well as Germany’s Frankfurt Stock Exchange, and is based in Luxembourg.

The company operates satellites and satellite infrastructure that collect radio frequency information. It states that “rather than observing the Earth in the visible domain as you would with cameras, Kleos is observing it in the ‘radio frequency’ part of the spectrum using antennas”.

By using its satellites in conjunction with each other, it can identify where radio signals are coming from on the Earth. It’s a sort of “reverse GPS”, as the company describes the technology.

In this way, Kleos can determine whether signals it receives are coming from legitimate activity, or activity that might indicate an illegal operation, particularly in the maritime space. Thus, Kleos can assist with finding illegal fishing, smuggling and trafficking operations, and monitoring national borders. It sells this data as a service to governments and companies.

Fly me to the moon

Kleos has been progressing its scouting satellites program over the past month. This program aims to deliver commercially available data as well as demonstrate the company’s technology, underpinning plans for future expansion.

Kleos has a ride-share contract with the US-based Spaceflight Inc., and has four satellites at  ‘mission-ready’ status, where they have been since since the middle of 2019. They were ready to go at the launch site in February 2020, with the launch planned for March before the coronavirus pandemic delayed launch operations.

However, back in September, Kleos told investors that it has a new tentative launch date for early November, which saw a jump in the Kleos share price at the time. Today, this has been reaffirmed. Kleos told the markets this morning that it expects the launch to take place on Saturday 7 November. This will be the first phase of the satellite’s lifecycle, known as “the Launch and Early Orbit Phase”.

According to today’s announcement, this “is a critical phase of the mission, covering launch, deployment and in orbit commissioning to handover to the Mission Operations Team to enact day to day operations and data generation activities.”

It’s estimated that this phase will last 9–12 weeks. After that, the satellite will undergo a handover to the Missions Operations Team for the next stage.

Judging by the enthusiastic reaction of the markets this morning to the news, investors appear to be relieved to have some firm dates from Kleos. 

More reading

• Which small cap ASX shares were the best performers in October?

Motley Fool contributor Sebastian Bowen 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 Westpac Banking Corp (ASX: WBC) annual result has divided ASX analysts on the bank’s future. On one hand, the stockbroker, Morgans, is optimistic on the Westpac share price and retains a ‘buy’ recommendation. On the other hand, Bell Financial Group Ltd (ASX: BFG) head of research, TS Lim, believes Westpac “possibly came close to having a near-death experience in fiscal 2020”. However, most analysts have maintained a ‘buy’ on the Westpac share price. This includes UBS Group AG (NYSE: UBS) who reiterated it as a ‘buy’ with a $20.50 price target, after the bank announced what some would call a multi-year turnaround report card.

Testing the Westpac share price

While the bank has announced a multi-year turnaround plan, there are a number of headwinds it is working against. For instance, The Australian explains how the further reduction in the cash rate by the Reserve Bank of Australia to 0.1% reduces revenues. Meanwhile, non-bank lenders are providing further competition to the bank’s core mortgage and commercial lending business. 

Morgans also noted the average increase of full time employees (FTE) by 8% between the first and second half of FY20. Although, it does expect the FTE number to reduce as customers come off COVID support. Furthermore, Westpac CEO, Peter King, explained that mortgage processing issues emerged due to the pandemic in India and the Philippines, thus resulting in some duplication of work. He further announced during the results webcast that jobs would be brought back into Australia, reducing the overall headcount and increasing efficiency. 

Small business lending is another looming issue for the bank. Mr King noted that there had been a high non-response rate as the 6 month deferral period is coming to an end. He further commented:

“On small business, we’re at the end of the six-month period. A lot of people are indicating they’re going to commence repayments, but I do want to see it.”

Turning around the battleship

During the presentation, Westpac CFO, Michael Rowland, highlighted the negative growth in mortgages over both halves of FY20. According to Mr Rowland, in the second half of FY20, this was largely attributable to the issues in offshore call centres, along with the pandemic’s impact on demand. However, these reasons do not explain the fall during the first half of FY20. Mr King said:

“Mortgage growth has been a problem for us this year, we have not kept up with the market.”

Mr King and Mr Rowland, both acknowledged the effort it would take to improve the mortgage business. As part of its multi-year turnaround plan, the bank has dedicated much spending to fixing and simplifying IT infrastructure and people. In IT, the company plans to replace human steps by using digital and data.

In addition, there was an admission of poor processes contributing to the fall in mortgage growth. Indeed, this was also a recommendation from the Hayne Royal Commission into financial services. In December 2019, Westpac’s then CEO, Brian Hartzer, resigned. This came after AUSTRAC applied to the Federal Court for civil penalty orders against Westpac for deficient oversight of its anti-money laundering and terrorism financing obligations.

At the time, the Westpac share price was trading at $27.17 per share. Today, at the time of writing, it is asking $17.38.

Further improvements

As part of the company’s broad sweep, Mr King announced a range of additional measures. For instance, the bank would be simplifying the products and services offered in an attempt to reduce complexity. In addition, the company has decided to exit non-core businesses as well as introducing an end-to-end “line of business” service model to increase accountability.

The bank is targeting mortgage growth in line with major banks by the second half of FY21. However, while the remainder of the big four banks are spending on growth, Mr King has to devote 47% of his $1.7 billion investment bill to fixing issues of risk and compliance.

The light on the horizon

One issue that Morgans dwelt on, as did both Mr King and Mr Rowland, was the CET1 ratio. This measures a bank’s capital against its assets. Westpac has worked during the year to bring this to 11.2%, which Morgans believes is a strong pro-forma ratio.

In addition, the bank has already seen strong growth in customer deposits. Mr Rowland also spoke of an increasing rate of home loan applications, but was not yet ready to call it a positive trend. Importantly, Westpac said it had $16.6 billion in Australian home loans on repayment pauses at 28 October, reflecting 41,000 accounts. That was down from $54.7 billion at the height of the pandemic.

Morgans, UBS, Bell Potter and others have maintained a ‘buy’ on the Westpac share price despite the troubled year it’s had, and its multi-year turnaround plan. 

More reading

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• Rising jobs and house loans place these ASX shares in focus
• Here’s how much Westpac’s (ASX:WBC) new dividend is worth
• Glory days of ASX bank shares are gone: fundie

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.

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