Author: therawinformant

The Sonic Healthcare Limited (ASX: SHL) share price is outperforming this morning after its results allayed a key concern of its critics.

Shares in the medical diagnostic services group jumped 2.3% to a record high of $35.50 when the S&P/ASX 200 Index (Index:^AXJO) slumped 1% at the time of writing.

Even healthcare sector heavyweights were swept up in today’s sell-off. The CSL Limited (ASX: CSL) share price tumbled 3.2% to $302.10 while Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) share price and Healius Ltd (ASX: HLS) share price shed around 1% each.

Improved profit and sales performance

Sonic is outperforming after posting stronger sales and earnings. Group revenue increased 11% to $6.86 billion while underlying net profit improved by 7% to $552 million in FY20.

Another standout was the 26% jump in operating cash flow to just over $1 billion, thanks in large part to prepayment of US Medicare testing fees.

Further, management held its final dividend steady at $0.51 a share, although when combined with the small increase in its interim dividend, the total payment for FY20 inched up 1.2% to $0.85.

Share price jumps as key worry laid to rest

You might think medical stocks can’t put a foot wrong during the COVID-19 mayhem, but that couldn’t be further from the truth.

Sceptics believed the drop in Sonic’s core business will collapse as people avoided seeing their doctor for regular check-ups and other ailments.

Routine screening and diagnostics are the bigger profit drivers for the group as it collects fatter margins than coronavirus testing. So, the fear was that any surge in COVID-19 tests wouldn’t be enough to save Sonic’s bottom line.

However, Sonic proved the disbelievers wrong. While demand for its core services were hit hard at the onset of the pandemic, it’s rebounded strongly. Its performance in several of its key markets, including those in Europe are holding up relatively well.

Margin pressure vs. revenue surge

The tipping of the scale towards COVID testing explains why there was some pressure on group margins. This is evidenced by the slower rate of growth for its bottom line.

But that’s a small point. Sonic showed that it can have its cake and eat it thanks to cost cutting, while its Aurora acquisition at the start of 2019 also supplemented the growth.

Can the good times last for the SHL share price?

What’s more, the growth momentum is carrying through into FY21. Management said that revenue in July and August is “substantially higher” than historical rates.

This is more to do with COVID testing than its base business, although the latter did experience a 5% revenue increase in July for most countries over the same month last year. Only the US and UK are down, but there are signs of a turnaround.  

However, it might be too early to think that the current financial year will be a blockbuster earnings event for Sonic. Investors can’t necessarily bank on the big upsurge in revenue to last for all of FY21 given that no when can predict how and when the pandemic will end.

More reading

• Why CSL, Iress, Santos, & Webjet shares are dropping lower
• After the stellar COVID-19 rebound, can ASX share prices keep rising?
• ASX 200 down 1%: Qantas results, Afterpay hits record high, Webjet crashes lower
• Why Afterpay, Codan, IDP Education, & Sonic shares are charging higher
• Why it may not be too late to chase ASX reporting season record breakers

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

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has recommended Ramsay Health Care Limited and 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 IPH Ltd (ASX: IPH) share price is this morning falling lower following the release of the company’s full year reports. At the time of writing, the IPH share price has tumbled 5.46% to $7.97.

How did IPH perform in FY 2020?

The IPH share price has fallen lower despite the company releasing relatively strong financial results for the FY 2020. IPH delivered strong revenue of $370.1 million, up a huge 43% despite the challenging market conditions. Revenue was largely driven by Asian IP which grew 6%. In contrast Australia and New Zealand revenue declined 5% although this was largely due to the FY19 Xenith results being written off.

In further good news for the company, it reported statutory NPAT of $54.8 million representing in a 3% increase on the prior corresponding period.

The IPH results demonstrate the ongoing resilience of the business despite the challenging market conditions caused by COVID-19 in the second half of the year. The business remains well placed with continued strong cash generation, a robust balance sheet with enhanced financial flexibility and no refinancing commitments until 2022.

As a prudent measure, IPH drew $20 million from existing facilities in March 2020 and, as a result, had cash on hand of $82.9 million at year end of which $12.7 million was subsequently repaid in August 2020.

Foreign currency also plays a large part in the company’s earnings thanks to its diversified earning portfolio. IPH seeks to reduce this risk through hedging against specific FX risks since a 1-cent movement in the AUD/USD exchange rate can have a $1.9 million effect on revenue. However this current policy is under review.

Dividend

For FY2020, IPH declared a final dividend of 15 cents per share, fully franked, bringing the full year dividend to 28.5 cents per share. This was up 14% on the prior year.

The full year dividend is in line with the board’s dividend policy to pay 80-90% of cash NPAT as dividends.

What’s next for the IPH share price?

For FY21, IPH aims to continue leveraging its expanded focus on Asia, especially in China, in order to develop a network effect for the company. It also aims to continue margin expansion and increase operational efficiencies across the group.

IPH does note, however, that there will be continued disruptions from COVID-19 and thus it will continue to adopt a prudent approach to managing the business in what is a challenging environment. In response, the company will focus on developing its digital platform for increased usability.

Unfortunately for IPH shareholders, the weakening of the US dollar is also likely to affect reported revenues moving forward.

The IPH share price has recovered 26.9% from its March low but is 3.2% down in year-to-date trading. The IPH share price has fallen 15.7% over the past 12 months.

More reading

• Coca Cola share price on the rise, despite mixed earnings report
• Spirit Telecom share price soars 7% on capital raising and acquisition news
• Why CSL, Iress, Santos, & Webjet shares are dropping lower
• After the stellar COVID-19 rebound, can ASX share prices keep rising?
• Pacific Smiles share price jumps 10% on FY20 results

Motley Fool contributor Daniel Ewing 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 Growthpoint Properties Australia Ltd (ASX: GOZ) share price has risen by 1.4% in trading so far today, following the release of its full year financial results.

Growthpoint is a real estate investment trust (REIT) which owns and actively manages a portfolio of industrial and office properties across Australia.

Profit down for the full year

Growthpoint’s statutory profit after tax dropped to $272.1 million, down from $375.3 million in the prior financial year. This was mainly due to a lower net gain in the first half of FY 2020. Growthpoint revealed funds from operation (FFO) per security of 25.6 cents per security (cps). This was a slight 2% increase on the prior corresponding period (pcp).

However, the property group’s FY 2020 distribution came in at 21.8 cps, a decline of 5.2%. The group reduced the distribution as a precautionary measure due to the uncertainty about the wider industry impact of the coronavirus pandemic.

Growthpoint noted that it had a strong balance and its gearing was currently well below target range. It has also no debt on its books maturing until FY 2022. The company entered into a new $100 million debt facility back in May. This means that the group currently has on its balance sheet undrawn debt lines of $360 million and $43 million of cash.

Strategic achievements during FY 2020

During FY 2020, Growthpoint was able to complete 2 major projects.  In February, the group reached completion on a new A grade office building, named Botanicca. During June, it completed the expansion of its distribution centre in Gepps Cross. Retail giant Woolworth has now started a 15-year lease extension on the property. Both projects were completed ahead of schedule and on budget.

Property portfolio re-evaluated

Growthpoint’s property portfolio was re-evaluated at the end of the financial year to total $4.2 billion. This was  5.0% higher than the valuation done 12 months prior. The group noted that the value of the portfolio did not significantly change during second half of the year.

Growthpoint managing director Timothy Collyer said the group’s earnings had not been materially impacted by the COVID-19 pandemic to date. In addition, Growthpoint delivered FFO of 25.6 cps in FY20, which was ahead of the group’s withdrawn guidance.  

“This reflects our disciplined approach to portfolio construction over a number of years. We have invested in modern, high-quality office and industrial properties. We have also carefully selected our tenants, favouring large companies and government,” Mr Collyer said.

What’s ahead for the Growthpoint share price

At this stage it’s unclear what the future holds for the Growthpoint share price in FY 2021. The group acknowledged that a high level of uncertainty remains for FY 2021 with regards to its ongoing operations. This is due to the continuing impact of the coronavirus pandemic. Consequently, the group has decided not to provide FFO guidance for FY 2021.

However, it has revealed FY 2021 distribution guidance of 20.0 cps for FY 2021. The company anticipates that this distribution will be to be paid in equal half-yearly instalments.

More reading

• Santos share price slumps as interim dividend slashed
• Why Afterpay, Codan, IDP Education, & Sonic shares are charging higher
• Origin share price falls 7% on annual result
• Qantas reveals routes that are busier now than before Covid-19
• Apple to hit US$3 trillion by 2023, analyst predicts

Motley Fool contributor Phil Harpur 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 Santos Ltd (ASX: STO) share price slumped as much as 4.8% in early trading today as the company revealed the heavy toll whipsawing oil prices has taken on first half earnings.

Oil and gas producers have battled through an especially rough 6 months as the COVID-19 pandemic exploded. Lower demand for land and air transport sent West Texas Intermediate (WTI) crude plunging from US$61 per barrel at the start of January, to an unprecedented -US$40 per barrel in April as investors panicked and dumped oil options. Since then WTI has crawled its way back to US$42 per barrel in August, but the damage to Santos has been clear.

How did Santos perform in the first half of 2020?

Santos announced it generated sales revenue of US$1.7 billion in the first half of 2020, 16% lower than the same period last year.

It was an especially disappointing outcome for investors given record production of oil and gas to 38.5 million barrels of oil equivalent (mmboe), a 4% increase on the same time last year.

Significantly lower oil and LNG prices meant that the average realised oil price Santos received was down -34% to US$48 per barrel, while the average realised LNG price dropped 14% to US$8.57 per million British Thermal Units (mmBtu).

Disappointingly, after massively writing down the value of some of its oil and gas assets to the tune of over US$750 million, Santos reported a loss of US$289 million for the 6 months.

Will Santos still pay a dividend?

Yes, Santos will still pay a dividend, but it will be a big drop on the same time last year. Santos announced it will pay a fully franked interim dividend of US 2.1 cents per share, down 65% on the far more enticing US 6.0 cents per share dividend paid last year.

This is in keeping with the company’s ‘sustainable’ dividend policy, which targets a range of 10% to 30% payout of free cash flow.

If you’ve been watching Santos shares for its dividend, you’ll need to move quick! Shares go ex-dividend on 25 August 2020. This is the date when shares start selling without the value of its dividend payment.

What’s the outlook for Santos for the rest of 2020?

For the second half of the financial year Santos is turning up the heat on production. The company is estimating production of between 44.5 million and 49.5 million barrels of oil equivalent in the second half, which suggests a total of up to 88 mmboe. Year-on-year this would be production growth of up to 16.5%.

This is good news for investors as it sneaks in above the guidance Santos provided in their 2019 annual report of producing 79–87 mmboe in 2019.

Still, it will take a strong, sustained recovery in energy prices for Santos investors to have a result to really cheer about in the second half of the year.

At the time of writing, the Santos share price is down 3.57% to $5.67 per share.

More reading

• 5 things to watch on the ASX 200 on Wednesday
• Why I like the Santos share price over Woodside
• 5 things to watch on the ASX 200 on Monday
• 5 things to watch on the ASX 200 on Friday
• How the Santos share price could gain from COVID-19 stimulus

Motley Fool contributor Regan Pearson has no position in any of the stocks mentioned.

You can follow him on Twitter @Regan_Invests.

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 on course to record a sizeable decline. The benchmark index is currently down 0.85% to 6,115.1 points.

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

The Afterpay Ltd (ASX: APT) share price has surged 8% higher to $80.92. Investors have been buying the payments company’s shares after it upgraded its earnings before interest, tax, depreciation and amortisation (EBITDA) guidance for FY 2020. According to the release, due to better than expected net transaction losses, Afterpay is now forecasting EBITDA of approximately $44 million in FY 2020. This is a 76% to 120% increase on its previous EBITDA guidance of $20 million to $25 million.

The Codan Limited (ASX: CDA) share price has jumped 13% to $10.16. This follows the release of an impressive full year result by the electronic products company. Codan delivered record sales of $348 million thanks to strong metal detector demand. And on the bottom line, the company reported a record statutory net profit after tax of $64 million. This was an increase of 40% year on year.

The IDP Education Ltd (ASX: IEL) share price has jumped 31% to $19.42. Investors were scrambling to buy the student placement and language testing company’s shares after the release of a surprisingly strong full year result. Despite the pandemic, IDP Education reported a 2% decline in revenue to $587.1 million and a 29% increase in EBITDA to $148.6 million.

The Sonic Healthcare Limited (ASX: SHL) share price is up 2% to $35.30. This morning the healthcare company released its full year results. It delivered underlying revenue growth of 11.5% to $6.8 billion and underlying net profit growth of 6.5% to $552 million. This allowed Sonic to pay a final dividend of $0.51 per share, bringing its full year dividend to $0.85 per share. The latter is up 1.2% on the prior year.

More reading

• Afterpay share price rockets to record high after guidance upgrade
• IDP Education share price rockets 45% higher on surprisingly strong FY 2020 result
• The Afterpay share price is up a massive 700% since March. Is it still a buy?
• 5 things to watch on the ASX 200 on Thursday
• Afterpay share price on watch after upgrading FY 2020 guidance

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 Idp Education Pty Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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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Today, the Origin Energy Ltd (ASX: ORG) share price was down 6.62% after the company reported its annual result. At the time of writing, the Origin share price had fallen to $5.50 after closing yesterday’s session at $5.89.

What was in the announcement?

Origin Energy’s revenue was down 11% in the 2020 financial year to $13.16 billion.

According to Origin, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) were $3.14 billion which was $91 million less than the 2019 financial year. The company stated that this largely reflected lower gross profit from electricity following the introduction of retail price regulation.

The company’s profit for the 2020 financial year was $83 million, a drop of 93% compared to the company’s profit in the 2019 financial year. According to Origin, this reflected a $1.2 billion APLNG impairment and the effects of a loss making contract.

Underlying profit for the year was $1.02 billion, this was in line with underlying profit in the 2019 financial year. The company stated that underlying profit was stable compared to the prior year with lower corporate and liquid natural gas hedging costs. However, these cost reductions were partly offset by lower margins on electricity.

Origin had free cash flow of $1.64 billion in the 2020 financial year. It stated that cash flow was up 7% and included increased cash distributions from APLNG.

Adjusted net debt was $4.6 billion at 30 June 2020,  according to the company this was a $773 million decrease from June 2019. If a lease liability held by the company was included, net debt was $5.2 billion at 30 June 2020.

Origin announced a final dividend of 10 cents per share, unfranked. Its dividend reinvestment plan will remain in place with a nil discount.

When commenting on the outlook for the year ahead, the company discussed the coronavirus, stating; “The path to recovery for the economy and the markets in which we operate will depend on the effectiveness of the health and community responses to contain the virus, and the policy response to mitigate the economic impacts.”

About the Origin share price

Origin is an Australian energy company that produces and distributes liquid natural gas and electricity. It has been listed on the ASX since 2000.

The Origin Energy share price is up 46.67% since its 52-week low of $3.75, however, it is down 35% since the beginning of the year. The Origin share price is down 24.86% since this time last year.

More reading

• Is the Origin Energy share price cheap or will it keep falling?
• 4 coronavirus-resistant blue chip ASX shares
• Origin share price falls along with demand for gas and electricity
• Why AMP, FlexiGroup, Marley Spoon, & Origin shares are tumbling lower
• These shares were the ASX 200’s biggest losers last week

Motley Fool contributor Chris Chitty 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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Qantas Airways Limited (ASX: QAN) chief executive Alan Joyce revealed Thursday that there are actually some routes that have more customers now than before the pandemic.

Overall the airline lost $2.7 billion before tax for the 2020 financial year due to Covid-19 lockdowns and travel restrictions.

But Joyce said that there is a massive pent-up desire for Australians to travel, citing the success of its first post-Covid sale before the second wave arrived.

“We had Jetstar having the biggest sale in its history when the borders opened up. I think it was 200 bookings a minute. It was unbelievable the level of interest there was for people to travel interstate.”

Surprisingly, some routes are seeing more customers now than before the coronavirus pandemic.

They are intra-state flights that are not affected by state border closures.

“We have routes like Brisbane to Cairns which is actually [now] the top route in Qantas’ network. The traffic on that is bigger than the traffic we had pre-COVID-19,” he said.

“Perth to Broome is actually ahead of what it was pre-COVID-19. Sydney–Ballina is ahead of what it was pre-COVID-19.”

Pent-up demand for travel could turn Qantas’ fortunes

The fervour for intra-state travel, according to Joyce, shows how there could be a surge of business when state borders eventually loosen up.

“People seeing family and friends, people seeing relatives, people doing businesses and seeing business colleagues. It has given us real strong confidence that when we can get the borders there, we know there is huge demand for these services.”

The aviation chief was frustrated at the lack of national consistency in which state borders open and which ones shut.

“We’re saying ‘Let’s have the rules to say what would you have to see in order for those borders to be open?’ So, we all have clarity and know what’s the right thing to do,” he said.

“Western Australia, South Australia, Northern Territory, Queensland, Tasmania – we’ve got closures there still. With very low cases, no cases, and it’s been like that for a while.”

More reading

• Qantas demands national action to avoid horrible ‘cliff’
• Qantas share price on watch following FY 2020 earnings release
• The highest paid CEOs in the ASX 200
• 5 things to watch on the ASX 200 next week
• Qantas share price is facing this new challenge in FY21

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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

It was a historic day for Apple Inc. (NASDAQ: AAPL) yesterday. The iPhone maker became the first U.S. company to achieve a market cap of $2 trillion, making it the world’s most valuable company. Apple hit this milestone just two months after hitting $1.5 trillion and two years after becoming the first publicly traded company in the U.S. to hit $1 trillion.  

The ink is barely dry on this latest watermark, and one analyst is already prognosticating that Apple will hit $3 trillion — and sooner than many think.

Technology analyst Dan Ives with Wedbush has gone out on a limb, predicting that Apple’s market cap will balloon to $3 trillion by 2023. He cited several factors that he believes will elevate the company to the next level.

Ives points to the ongoing transition to 5G — the next generation of mobile technology — and the resulting upgrade “super cycle” as a major catalyst. In a recent note to clients, Ives said, “Apple has a ‘once in a decade’ opportunity over the next 12 to 18 months as we estimate roughly 350 million of Cupertino’s 950 million iPhones worldwide are in the window of an upgrade opportunity.”

He also cites Apple’s services segment, which has been an increasingly important part of the company’s business over the past several years. Over the previous four quarters, services has generated revenue of nearly $52 billion, up 18% year over year, and now represents 19% of Apple’s total revenue. Ives values Apple’s services business at between $700 billion and $750 billion.

Ives has a reputation for being among the most bullish of Apple watchers, repeatedly suggesting that the company’s market cap would cross the $2 trillion threshold by year’s end. Turns out his estimates were right, with Apple reaching the benchmark months ahead of schedule. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Want to own the FAANG stocks? Here are 3 ways you can
• Here are the top 5 US shares ASX investors have been buying
• Tech shares race to record highs as Bank of America tips BHP and Rio shares
• Why Warren Buffett would never buy Afterpay shares
• Stock split watch: Could Amazon be next?

Danny Vena owns shares of Apple. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Apple. The Motley Fool Australia has recommended Apple. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The market may be dropping lower on Thursday, but that hasn’t stopped the Afterpay Ltd (ASX: APT) share price from charging higher.

In morning trade the payments company’s shares jumped 9.5% to reach a record high of $82.00.

Why is the Afterpay share price rocketing higher?

Investors have been scrambling to buy Afterpay shares today following the release of an after-market update on Wednesday.

That update revealed that the company now expects to report stronger than predicted earnings before interest, tax, depreciation and amortisation (EBITDA) in FY 2020.

On 7 July 2020, Afterpay announced that its Net Transaction Loss (NTL) as a percentage of underlying sales was expected to be up to 55 basis points in FY 2020. However, since then, the company has experienced higher than anticipated collections of instalment payments relating to its 30 June 2020 receivables balance.

Management explained: “The July Trading Update for the FY20 NTL% was based on a relatively short period of collections data relating to the 30 June 2020 receivables balance from 1 July 2020 through to the date of the 7 July 2020 announcement. Since that time, and with the benefit of more collections data reviewed as part of the process of preparing the full year financial statements, a reduced NTL% is now expected.”

What does this mean for its earnings?

As a result of the above, management now expects to report a much-improved NTL of just 0.38% for FY 2020.

This means that its Net Transaction Margin (NTM) as a percentage of underlying sales will be stronger than expected, giving its profitability a major boost.

So much so, Afterpay’s EBITDA is now expected to be approximately $44 million in FY 2020. This is a 76% to 120% increase on its previous EBITDA guidance of $20 million to $25 million.

Another positive is that its provisions for the year will now be much lower. Afterpay’s unaudited provision for expected losses is forecast to be approximately $34 million. This represents 4.16% of its unaudited gross consumer receivables balance of approximately $817 million.

Is it too late to invest?

I continue to believe that Afterpay is a great long term investment. However, its shares are looking pretty expensive, so they carry a lot of risk. In light of this, I would suggest investors keep their position to just a small part of a balanced portfolio.

More reading

• Why Afterpay, Codan, IDP Education, & Sonic shares are charging higher
• The Afterpay share price is up a massive 700% since March. Is it still a buy?
• 5 things to watch on the ASX 200 on Thursday
• Afterpay share price on watch after upgrading FY 2020 guidance
• This ASX fund manager is going back to value in a post-COVID world. Here’s why.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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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Metcash Limited‘s (ASX: MTS) has been given the nod for its acquisition of a 70% majority stake in Total Tools Holdings Pty Ltd for an estimated $57 million. The Australian Competition & Consumer Commission (ACCC) announced today it would not oppose the Metcash acquisition.

Metcash is a wholesaler and retailer of hardware and home improvement products through its Independent Hardware Group (IHG). Total Tools is a leading participant in Australia’s professional tool segment.

The ACCC decision

The ACCC said Metcash’s acquisition would enhance competition with Bunnings in multi-category hardware stores. Bunnings is owned by Wesfarmers Ltd (ASX: WES).

ACCC chair Rod Sims said:

We saw that generally Mitre 10 focuses on DIY customer and those looking for convenience, while Total Tools mainly attracts trade customers because of their extensive range of trade quality products and specialised staff.

We have seen a lot of activity in the tool industry this year. Bunnings is the clear market leader, and with IHG increasing its footprint, any further consolidation of the tool market at a national, state or local level will be scrutinised closely.

The Metcash acquisition

The acquisition includes franchisor operations and one company-owned store. Over time, it will become a mix of independently owned and joint venture retail stores.

In addition, Metcash will provide Total Tools with a $35 million debt facility to support its growth plans and the future acquisition of an ownership interest in a select number of stores. 

Moving forward, the acquisition will include a pathway for Metcash to acquire the remaining 30% within the next 4 years. 

Metcash CEO Jeff Adams said in July the acquisition of Total Tools enhanced Metcash’s position in the hardware market. It would benefit independent retailers in both Total Tools and the independent Hardware Group, and aligned with Metcash’s purpose of “championing successful independents”, he said.

Mr Adams went on to say:

The acquisition is being funded out of existing cash reserves. The equity raising in April strengthened our balance sheet and provided us with the flexibility to execute on strategic acquisitions such as Total Tools.

In morning trade, the Metcash share price is down 2% and is trading at $2.90.

More reading

• Why it may not be too late to chase ASX reporting season record breakers
• Wesfarmers share price on watch after cautious outlook overshadows strong FY 2020 result
• Low interest rates the new normal? 3 ASX dividend shares to buy today
• Is the Coles share price a post-earnings buy for ASX dividend income?
• These 3 ASX stocks just got upgraded by top brokers to “buy” today

Motley Fool contributor Matthew Donald owns shares of Wesfarmers Limited. The Motley Fool Australia owns shares of Wesfarmers 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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