Author: therawinformant

This morning Australia’s leading investment platform provider CommSec released data on the most traded ASX shares on its platform from last week.

A number of familiar faces have made it into the top five again this week, with one company far and away the most traded share on the platform.

Here’s the data:

Mesoblast limited (ASX: MSB)

Mesoblast shares were easily the most traded shares on the CommSec platform last week and accounted for 5.6% of total trades. And while a sizeable 75% of these trades came from buyers, it wasn’t enough to stop the Mesoblast share price from losing 35% of its value. An unfavourable decision by the US FDA led to the share price weakness.

A2 Milk Company Ltd (ASX: A2M)

This infant formula company’s shares were popular with retail investors last week and were responsible for 2.6% of total trades on the platform. It appears as though investors were taking advantage of an 18.5% decline in the a2 Milk share price following a disappointing trading update to pick up shares. Approximately 83% of these trades came from buyers.

BrainChip Holdings Ltd (ASX: BRN)

This artificial intelligence technology company’s shares are in the top five again. BrainChip shares accounted for 2.4% of trades on the CommSec platform last week, with 62% coming from buyers. This buying support couldn’t stop the BrainChip share price from losing almost 23% of its value over the five days.

Zip Co Ltd (ASX: Z1P)

Investors were trading this buy now pay later provider’s shares in large numbers last week. Approximately 2.2% of trades on the CommSec platform were attributable to Zip’s shares. And although the company’s shares rose almost 9% during the week, just 38% of these trades came from the buy side.

Flight Centre Travel Group Ltd (ASX: FLT)

Finally, reductions in COVID-19 numbers in Victoria and news that a travel bubble would soon be opening between Australia and New Zealand gave the travel sector a boost last week. This led to Flight Centre shares accounting for 1.8% of trades on the CommSec platform. Buyers accounted for 56% of these trades, helping drive its shares 6% higher for the week.

More reading

• Why IAG, Mayne Pharma, Mesoblast, & Temple & Webster shares are tumbling lower
• Why this ASX tech share could be better than BNPL stocks 
• Could the Zip share price be ready to have a crack at $10 again? 
• Should you buy the A2 Milk Company Ltd (ASX: A2M) share price dip? 
• Afterpay vs Zip, which is the better investment?

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 owns shares of and has recommended A2 Milk. 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 Envirosuite Ltd (ASX: EVS) share price has surged today following the release of its Q2 FY21 update.

The Envirosuite share price rocketed up 11.1% to 20 cents in earlier trade before dropping to 19 cents, up 5.56% at the time of writing. This compares to the All Ordinaries Index (ASX: XAO) which is down 0.1% at 6,130 points.

Let’s take a look at how Envirosuite is tracking for the quarter.

Strong start to Q2

The global leader in environmental intelligence announced three contract sales of more than $1 million in the first week of Q2.

The new contracts include Envirosuite’s first ever sale of its new Smart Water software product suit with GHD Group Australia. The software is designed to assist GHD engineers in the modelling, design, calibration and validation of water, wastewater treatment and desalination plants. Envirosuite advised of potential for further software licence sales to GHD customers.

Envirosuite said that its Water Designer suite was the first of several new software solutions being rolled out globally. It is estimated that there are around 25,000 water treatment sites that could benefit from Envirosuite’s Smart Water products.

In addition, the company signed a new minimum 6-year odour management contract with Veolia France. The agreement is the sixth Veolia site to become an Envirosuite customer across 4 countries. The new deal will see Envirosuite’s product be used by the plant’s operators to help manage the detection and prediction of odour.

Lastly, Istanbul Airport committed to a 5-year arrangement for a noise management solution. Turkey’s newest airport which accommodates more than 200 million passenger per year, stated that Envirosuite’s best in class products was a deciding factor.

What did management say

Envirosuite CEO Peter White was excited about the new contracts. He said:

EVS’s Water solutions have demonstrated they can make a positive environmental and cost impact in the global water sector, while the new contract with Istanbul Airport underscores the value of EVS’s noise and vibration monitoring technology to airports as flight volumes begin to increase around the world.

Istanbul is a new airport customer in a new country for EVS. It has ambitions to become the biggest airport in the world. The initial term is for five years and we look forward to a long association.

Mr White said the company was also excited to have commercialised the first of its new Smart Water products with GHD Australia and to extend its global relationship with Veolia, adding:

These new contract wins so early in Q2 FY21 highlight both the attractiveness of Envirosuite’s solutions to global operators in water and airports and also the strength of our sales pipeline across all the sectors in which we operate.

Envirosuite share price summary

The Envirosuite share price has made strong comeback since falling to a 52-week low of 7 cents in March. With a market capitalisation of $199 million, the positive start for Q2 FY21 may push the Envirosuite share price close to its multi-year high of 39 cents.

More reading

• Why the Image Resources (ASX:IMA) share price is rocketing higher today
• Why the Envirosuite (ASX:EVS) share price is zooming up 26% today
• Why the Droneshield (ASX:DRO) share price has rocketed higher
• Starpharma (ASX:SPL) share price tumbles on oversubscribed placement
• Why the Paradigm (ASX:PAR) share price has rocketed 8% higher today

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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I think that small cap ASX shares could be great buys right now.

Small caps have a lot of potential. They are a lot earlier on in their overall growth journey compared to a blue chip. ASX small caps could deliver a lot of growth. Sometimes they are valued lower than larger peers because many investors haven’t discovered them yet.

I believe a small cap has a market capitalisation of less than $1 billion. You could argue that small caps are ones worth less than $500 million or $300 million, but I think $1 billion is a good milestone.

With that in mind, here are three small cap ASX shares I’d be willing to buy today:

BWX Ltd (ASX: BWX)

BWX is a natural beauty business with a variety of growing brands. It’s generating strong performance at the moment – in FY20 net revenue rose 26%, the gross margin increased to 58%, earnings before interest, tax, depreciation and amortisation (EBITDA) climbed 30% and statutory net profit increased 59%.

A pleasing aspect of BWX is that its multiple brands have multiple growth avenues. Sukin is largely based in Australia, but it’s now expanding overseas. Andalou Naturals and Mineral Fusion are American brands that are now growing internationally as well.

Sukin, the most important brand, is becoming increasingly available to mass channels in the USA and Europe, which led to revenue growth of 55% last financial year.

The small cap ASX share is looking to build a new manufacturing hub which will help future growth. It’s expecting revenue and EBITDA growth of at least 10% in FY21.

At the current BWX share price it’s trading at 34x FY21’s estimated earnings.

City Chic Collective Ltd (ASX: CCX)

City Chic is another Aussie business growing globally.

It’s a retailer of plus-size clothing, footwear and accessories for women. FY20 was a disrupted year with COVID-19 causing store closures. This is during a period of significant growth and investment for the company.

The small cap ASX share’s focus on providing a good online experience has really helped over the past seven months. In FY20, 65% of its total sales were online, and online sales grew by 113.5% compared to FY19.

It’s no longer just an Australian bricks and mortar retailer. The company is seeing growth of its northern hemisphere business thanks to organic growth as well as targeted acquisitions. The northern hemisphere accounted for 42% of its global sales, up from 20% in the prior year.

It was recently unsuccessful with its bid for Catherines, a US competitor which was in financial difficulty. However, I like the strategy of trying to buy competition during this period because it means it can get it for a cheap price and turn that brand into an online-only offering. I’m sure management are looking for another target to try to buy.

At the current City Chic share price it’s trading at 23x FY22’s estimated earnings.

Australian Ethical Investment Limited (ASX: AEF)

Australian Ethical is one of the most promising fund managers on the ASX.

The small cap ASX share is consistently growing its funds under management (FUM), whereas other fund managers are seeing mixed FUM performance and a regular outflow of funds.

In FY20 it saw net profit increase by 46% to $9.5 million with underlying profit after tax growing by 42% to $9.3 million. Excluding the impact of a $3.6 million performance fee, revenue and underlying profit after tax both increased by 15%.

Two of the most promising statistics related to its FUM. It experienced net inflows of $660 million (up 100%) and 19% growth of FUM to $4.05 billion.

There is a growing trend of people looking for ethical investments, ones that do good for the world, or at least don’t have negative impacts on the world. A key factor of Australian Ethical is that it’s a superannuation provider. That means it’s exposed to the useful mandatory contributions and tax-advantaged system. As it scales it can reduce fees for investors, making it more attractive and could attract further FUM. 

The Australian Ethical share price has fallen by around 50% since 19 June 2020. I think now is a good opportunity to buy it at a much cheaper price than before despite the small cap ASX share’s growth prospects still being strong.

More reading

• 3 small cap ASX shares I’d buy with $3,000 right now
• The BIG problem with ASX ethical investing
• I waited 10 years before pouncing on this stock
• 3 ASX shares you’ll regret not buying during this correction
• 3 ASX growth shares I’d buy today for growth and income

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Australian Ethical Investment Ltd. The Motley Fool Australia owns shares of and has recommended BWX Limited. The Motley Fool Australia has recommended Australian Ethical Investment 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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At lunch on Tuesday the S&P/ASX 200 Index (ASX: XJO) is on course to end its winning streak. The benchmark index is currently down 0.2% to 5,928.7 points.

Here’s what is happening on the market today:

Northern Star-Saracen Mineral mega merger.

Both the Northern Star Resources Ltd (ASX: NST) share price and the Saracen Mineral Holdings Limited (ASX: SAR) share price are storming higher on Tuesday after the gold miners announced a mega merger to create a $16 billion gold mining giant. Management notes that the merger will create a top 10 global gold company targeting production of 2 million ounces of gold per annum exclusively in tier-1 locations. It also expects the merger to result in unique pre-tax synergies of $1.5 billion to $2 billion.

IAG announces class action settlement.

The Insurance Australia Group Ltd (ASX: IAG) share price is dropping lower on Tuesday after announcing that it has settled a class action brought against it by Johnson Winter & Slattery. According to the release, the class action related to add-on insurance products sold through motor vehicle and motorcycle dealers. Insurance Australia has agreed to pay $138 million, which remains subject to approval by the Federal Court of Australia. Inclusive of all related costs and after insurance recoveries, IAG anticipates a net after tax impact from this settlement of less than $50 million.

BHP increases Shenzi stake.

The BHP Limited (ASX: BHP) share price is trading lower today after announcing an agreement to acquire an additional 28% working interest in the Shenzi development in the deepwater Gulf of Mexico. BHP has agreed a purchase price of US$505 million. This deal will increase the mining giant’s working interest to 72% and immediately add approximately 11,000 barrels of oil equivalent per day of production.

Best and worst ASX 200 performers.

The best performer on the ASX 200 on Tuesday has been the Northern Star share price with a 7% gain following its merger announcement. The worst performer has been the Mirvac Group (ASX: MGR) share price with a 3.5% decline on no news. A number of property companies have come under pressure today.

More reading

• Why Baby Bunting, Northern Star, Oil Search, & Telix shares are storming higher
• Why IAG, Mayne Pharma, Mesoblast, & Temple & Webster shares are tumbling lower
• Meet the latest ASX small cap stock that’s racing ahead during COVID
• Northern Star (ASX:NST) and Saracen (ASX:SAR) announce mega merger
• BHP (ASX:BHP) share price lower after US$505 million Shenzi oil investment

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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In late morning trade the S&P/ASX 200 Index (ASX: XJO) is dropping lower and on course to end its winning streak. The benchmark index is currently down 0.4% to 5,917.6 points.

Four shares that have not let that hold them back today are listed below. Here’s why they are storming higher:

The Baby Bunting Group Ltd (ASX: BBN) share price is up 6% to $1.74. Investors have been buying the baby products retailer’s shares after the release of a trading update this morning. According to the release, Baby Bunting’s FY 2021 comparable store sales growth to 2 October was 17%. Excluding its stores in the Melbourne metropolitan region, its comparable store sales would have been up 28.5%.

The Northern Star Resources Ltd (ASX: NST) share price has jumped 7% higher to $14.81 after announcing a merger with Saracen Mineral Holdings Limited (ASX: SAR). Management notes that the merger will create a top 10 global gold company targeting production of 2 million ounces of gold per annum exclusively in tier-1 locations. It also expects the merger to result in unique pre-tax synergies of $1.5 billion to $2 billion.

The Oil Search Limited (ASX: OSH) share price is up almost 4% to $2.81. The catalyst for this was a strong rebound in oil prices overnight. Prices jumped higher amid a combination of COVID-19 stimulus hopes and production disruption in Norway. The S&P/ASX 200 Energy index is up 1.7% at the time of writing.

The Telix Pharmaceuticals Ltd (ASX: TLX) share price has stormed almost 6% higher to $1.74. This follows an announcement which revealed that the clinical-stage biopharmaceutical company’s 18F-FET product has been granted Orphan Drug Designation for the positron emission tomography (PET) imaging of glioma by the US FDA. The granting of this designation qualifies Telix for various drug development incentives. These could include FDA-administered market exclusivity for seven years and waived FDA prescription drug user fees.

More reading

• Telix (ASX:TLX) share price jumps 8% higher on FDA update
• Meet the latest ASX small cap stock that’s racing ahead during COVID
• Northern Star (ASX:NST) and Saracen (ASX:SAR) announce mega merger
• Baby Bunting (ASX:BBN) share price on watch after very strong Q1 sales growth
• ASX 200 up 2.3%: Big four banks charge higher, Qantas soars, energy shares jump

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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Douugh Ltd (ASX: DOU) is a fintech company that collects consumer banking data which then results in tailored ongoing financial coaching, mentoring and guidance to the user. The company recently completed its $18 million inital public offering (IPO) at 3 cents per share and more than doubled on its ASX debut on Tuesday. It currently operates in the US with intentions to launch into Australia and international markets. As an exciting fintech play that aims to disrupt the traditional global banking system, could the Douugh share price emerge as an ASX tech share unicorn to buy?  

How is it different from a bank or neobank?  

Douugh is different to existing Australian neobanks such as Xinja, Up Bank, Volt and 86 400 as it is not a licenced bank. It has however secured two banking partners, one in the US (Choice Bank) and one in Australia (Regional Australia Bank), enabling it to accept deposits and issue a bank account guaranteed under the Australian Government’s Financial Claims Scheme. This business model means that it is not forced into operating a traditional balance sheet model which typically relies on price competition through deposit and lending products. Instead, Douugh operates as a software and services business, charging end consumers fixed and variable fees.

Furthermore, Douugh has also signed a long-term, strategic innovation and marketing partnership agreement with Mastercard, initially starting in the US and Australia to assist with growth. This agreement allows Douugh to issue a Douugh-branded Mastercard debit card via its bank partner, provides significant marketing support to each country and early access to new technology licencing and collaboration opportunities. 

How will the company make money? 

Douugh is currently executing the first phase of its growth strategy, offering a smart bank account and debit card offering that is powered by AI driven insights and money management features under a subscription model. Its customers can connect existing bank accounts and credit cards to get a single view of their balances. It aims to expand on its product features by converting to a paid subscription offering that will incorporate the following: 

• Wealth management
• Cashback rewards 
• Credit score monitoring 
• International remittance 
• Access to product marketplaces 

In the long term, the company aims to transition into SME banking and offer integrations to key accounting platforms such has Xero, Quickbooks and MYOB. It also intends to expand into other key international markets such as Europe, Asia and South America. 

Is the Douugh share price a buy?

The company is in its infancy and will likely require additional capital in the future to expand into international markets, grow its product suite and acquire market share. I do however, admit that it has a refreshing approach to traditional banking with a roadmap for additional features in investing, open banking and tapping into the SME market. There are significant risks in investing in such a small company, but Douugh could be onto something. 

More reading

• Why Baby Bunting, Northern Star, Oil Search, & Telix shares are storming higher
• Why IAG, Mayne Pharma, Mesoblast, & Temple & Webster shares are tumbling lower
• Telix (ASX:TLX) share price jumps 8% higher on FDA update
• Meet the latest ASX small cap stock that’s racing ahead during COVID
• Northern Star (ASX:NST) and Saracen (ASX:SAR) announce mega merger

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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In morning trade on Tuesday the S&P/ASX 200 Index (ASX: XJO) has given back its early gains and is dropping lower. At the time of writing the benchmark index is down 0.4% to 5,918.1 points.

Four shares that have fallen more than most today are listed below. Here’s why they are tumbling lower:

The Insurance Australia Group Ltd (ASX: IAG) share price has fallen 2% to $4.54. This morning the insurance giant revealed that it has settled the class action brought against it by Johnson Winter & Slattery. These proceedings relate to add-on insurance products sold through motor vehicle and motorcycle dealers. The settlement involves a gross payment of $138 million and is subject to approval by the Federal Court of Australia.

The Mayne Pharma Group Ltd (ASX: MYX) share price has crashed 17% lower to 31.5 cents after the release of an update. The pharmaceutical company advised that it has received a response from the US Food and Drug Administration (FDA) in relation to its abbreviated new drug application for a generic version of NUVARING. The FDA has raised questions about the application, which Mayne Pharma will address in a timely manner.

The Mesoblast limited (ASX: MSB) share price is down 2% to $3.48. This appears to have been driven by profit taking after a strong rebound in the Mesoblast share price on Monday. The biotech company’s shares have been very volatile since the FDA rejected its remestemcel-L application pending further trials.

The Temple & Webster Group Ltd (ASX: TPW) share price has fallen 4% to $11.74 despite there being no news out of the online furniture retail company. However, with the Temple & Webster share price up 360% year to date prior to today, I wouldn’t be surprised if some of this decline is related to profit taking from investors.

More reading

• ASX 200 jumps 2.6%, big 4 banks surge
• Why the Mesoblast (ASX:MSB) share price jumped 14% higher today
• These were the worst performing shares on the ASX 200 last week
• ASX 200 drops, Trump has COVID-19, Mesoblast (ASX:MSB) share price sinks
• Why Beach, Fortescue, Mesoblast, & SeaLink shares are tumbling lower

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 Temple & Webster Group Ltd. The Motley Fool Australia has recommended Temple & Webster Group 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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The Telix Pharmaceuticals Ltd (ASX: TLX) share price has been a strong performer on Tuesday.

In morning trade the clinical-stage biopharmaceutical company’s shares jumped 8% to $1.78.

This leaves the Telix share price within sight of its 52-week high of $1.95.

Why is the Telix share price charging higher today?

Investors have been buying Telix’s shares this morning after it announced that the United States Food and Drug Administration (FDA) has granted Orphan Drug Designation (ODD) for 18F-FET for the positron emission tomography (PET) imaging of glioma. This is a type of brain tumour.

According to the release, the granting of this ODD qualifies Telix for various drug development incentives. These may include FDA-administered market exclusivity for seven years, waived FDA prescription drug user fees, and tax credits for R&D and clinical development costs.

What is glioma?

Gliomas comprise a group of primary brain tumours arising from glial cells which surround and support the neurons of the brain.

The company notes that there are over 22,000 cases in the United States each year and represent over 80% of all malignant brain tumours.

Telix’s CEO, Dr Christian Behrenbruch, commented, “PET imaging of the brain is increasingly used to supplement conventional imaging with MRI, which for many years has been the primary clinical imaging modality in patients with glioma at all stages of disease.”

“The granting of an Orphan Drug Designation by the FDA for 18F-FET provides Telix with the option to develop this valuable PET imaging agent commercially, to ensure it is available to patients with glioma across the disease spectrum,” he added.

In addition to this, management notes that 18F-FET is highly suitable for use as a companion diagnostic to TLX101. This is Telix’s therapeutic drug candidate for treating glioblastoma, a highly aggressive form of glioma.

In light of this, Mr Behrenbruch believes “18F-FET’s relevance as a patient selection and therapeutic monitoring tool for TLX101 is particularly beneficial to the Company.”

More reading

• Why Atlas Arteria, Cochlear, Telix, & Treasury Wine shares are dropping lower
• Why Iron Road, Nuchev, Telix, & Treasury Wine shares are pushing higher today
• Telix (ASX:TLX) share price charges higher on FDA update
• 3 exciting small cap ASX healthcare shares to watch

Motley Fool contributor James Mickleboro owns shares of TELIXPHARM DEF SET. 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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It looks like land-bound Aussies have found a new way to splurge their holiday budget – and this ASX small cap is reaping the benefits.

The closing of international borders till at least late 2021 means that overseas holidays are off the agenda. It appears that cashed-up Aussies with nowhere to go are indulging in their mid-life fantasies and buying motorcycles.

At least, that’s what I took away from the MotorCycle Holdings Ltd (ASX: MTO) profit update released today.

MotorCycle share price revving up

The motorcycle dealership said its first half FY21 earnings before interest, tax, depreciation and amortisation (EBITDA) will be “in excess of $20 million”.

This compares to its 1HFY20 EBITDA of $10.4 million and its 2HFY20 figure of $10.3 million.

The news sent the MotoCycle share price surging 22.5% to a two-year high of $2.45 in early trade.

Can the MTO share price sustain momentum?

It seems the group has also benefited from the federal government’s JobKeeper wage supplement and cost cutting to deal with COVID-19.

But before investors get too excited, management included a warning to its bullish update.

“Given the exceptional circumstances, care should be taken using this year’s results as a guide for future performance,” it said in its ASX release.

ASX small cap in the fast lane

Investors though aren’t quite listening and if the MotoCycle share price closes around the current level, it would have gained 21% since the start of 2020.

That puts it only a tat behind the Carsales.Com Ltd (ASX: CAR) share price at 28%, but well ahead of the Autosports Group Ltd (ASX: ASG) and Eagers Automotive Ltd (ASX: APE) share price, which are wallowing in the red.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) shed 14% of its value over the same period.

Another ASX small cap COVID winner

But the MTO share price isn’t the only small cap retailer zooming ahead this morning. The Baby Bunting Group Ltd (ASX: BBN) share price surged 6.5% to $4.89 after it too released a bullish update.

The baby products retailer told investors that its going gangbusters. Margins are expanding and same store sales have jumped 17% since the start of the June 30 financial year, reported the Australian Financial Review.

Excluding locked-down metro Melbourne, same store sales are up 28.5% while click and collect sales surged 233%.

Who said a crisis only brings bad news?

More reading

• Baby Bunting (ASX:BBN) share price on watch after very strong Q1 sales growth
• Why now is a great time to buy ASX shares
• 5 things to watch on the ASX 200 on Tuesday
• Altium (ASX:ALU) updates market on restructure
• The latest ASX small cap buy ideas from leading brokers

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Connect with me on Twitter @brenlau.

The Motley Fool Australia has recommended 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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Both the Northern Star Resources Ltd (ASX: NST) share price and the Saracen Mineral Holdings Limited (ASX: SAR) share price are storming higher on Tuesday morning.

At the time of writing the Northern Star share price is up 5% to $14.55 and the Saracen share price is up 8% to $5.65.

Why are these gold miners charging higher?

Investors have been buying Northern Star and Saracen shares this morning after they announced an agreement to undertake a $16 billion merger-of-equals.

According to the release, this merger will create a top 10 global gold company targeting production of 2 million ounces of gold per annum exclusively in tier-1 locations.

The companies also expect the merger to result in significant synergies. A total of $1.5 billion to $2 billion in unique pre-tax synergies are forecast from the merger. This is via the consolidation of their KCGM ownership, optimisation of processing throughout the broader Kalgoorlie and Yandal regions, and other savings over a ten-year period.

As part of the agreement, Northern Star will acquire 100% of the shares in Saracen for 0.3763 Northern Star shares for each Saracen share held. Based on Monday’s Northern Star share price, this equates to $5.20 per share.

Saracen will also pay a special, fully franked dividend of A3.8¢ per share, conditional on the scheme becoming effective and banking consents.

The scheme is unanimously recommended by the board of Saracen, subject to no superior proposal emerging and the independent expert concluding that it is in the best interests of shareholders.

“An abundance of value.”

Northern Star’s Executive Chair, Bill Beament, believes the merger will create a lot of value for both sets of shareholders.

He commented: “Northern Star has only ever pursued growth when it will create value for shareholders, and this merger-of-equals will create an abundance of value for both Northern Star and Saracen shareholders.”

“This is significant value-creating M&A. Our position as joint venture partners at KCGM, the close proximity of the majority of the combined company’s assets and a host of other synergies makes this a unique opportunity exclusive to Saracen and Northern Star shareholders,” he added.

This sentiment was echoed by Saracen’s Managing Director, Raleigh Finlayson, who will lead the merged entity.

He said: “The benefits which will flow to Saracen shareholders from this merger are significant. The pre-tax synergies alone are expected to be worth in the order of A$1.5 to A$2.0 billion over the next 10 years.”

“Saracen shareholders will own 36.0% of the combined group and therefore share in the significant benefits of these synergies, which is value that would not have been available to our shareholders otherwise. It is difficult to foresee anything like that reduction in our cost base outside of this merger,” the managing director added.

Mr Finlayson notes that this is one of the most logical mergers in mining industry history.

He concluded: “This is one of the most logical and strategic M&A transactions the mining industry has seen. The savings, the synergies and the growth opportunities it will generate make the transaction extremely compelling. In short, it is a unique opportunity for Saracen shareholders unlikely to be replicated via any other avenue.”

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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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