Author: therawinformant

The Inghams Group Ltd (ASX: ING) share price fell 5.1% yesterday with the chicken producer announcing the closure of a processing plant following positive COVID-19 tests. The Thomastown Further Processing Plant in Victoria has been temporarily closed after five employees at the plant tested positive for coronavirus. 

Ingham’s advised that it has had contingency plans in place for plant closures for some months. Other sites across Australia remain in operation. The temporary closure is not expected to materially impact the businesses results in FY21. Although the company is yet to announce FY20 results, in May it reported it was on track for 2H FY20 underlying EBITDA to exceed 1H FY20. Nonetheless, Ingham’s warned at the time that it would be premature to draw conclusions as to the trading results for the final weeks of FY20 given changes in volume and channel mix across the business. 

Impact of coronavirus 

COVID-19 restrictions created a temporary surge in retail sales in March and early April but as consumer behaviour normalised, store traffic subsided. Ingham’s has advised that out of home consumption of poultry products has been negatively impacted by the pandemic. Major customers have been resilient but their operations have been restricted to drive through and home delivery. Customers supplying hospitality and tourism industries have reduced purchases leading to weaker conditions in the food service and wholesale markets. 

Ingham’s CEO and Managing Director, Jim Leighton, said in early May, “COVID-19 has presented unprecedented challenges and we have executed a swift realignment of our supply chain and operations in order to manage any substantial operational issues created by required social distancing protocols in our facilities. This has created additional complexity, inefficiency, and cost and the temporary suspension of the production of some value enhanced products.”

Inghams share price outlook 

The Ingham’s share price remained fairly resilient in the March downturn, falling 18% from its February high of $3.76 to its March low of $3.06. It has now partially recovered to trade at $3.34. Ingham’s says it has a strong balance sheet with good access to liquidity and funding. There is significant headroom in debt covenants and the company says it is well supported by its lenders. Measures have been implemented to manage costs including reducing discretionary spend and capital expenditure. As a food business, demand for Ingham’s products is less variable than for more discretionary purchases. Demand from the hospitality industry is currently subdued, but this should lift with the easing of restrictions. 

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Motley Fool contributor Kate O’Brien 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 Catapult Group International Ltd (ASX: CAT) share price has surged 33% in the last 3 days. The positive price action follows a FY20 results preview that the company released to the market earlier this week.

So, can the Catapult share price go higher, and is now the time to invest?

Positive results preview

Earlier this week, Catapult released a preview of its unaudited earnings. The results were highlighted by the company generating net free cash of $9.0 million in FY20 and achieving cash flow positivity a year earlier than forecast.   

Despite professional sports being postponed due to the coronavirus pandemic, Catapult was able to grow group revenue and earnings before interest, tax, depreciation and amortisation (EBITDA), which was fuelled by the company’s scalable, subscription-based business model. Catapult expects total revenue for FY20 to be between $100 million to $101 million and EBITDA between $11.5 million and $12.5 million. Catapult also acknowledged the company’s strong financial position, boasting $27.5 million cash on hand.

How has Catapult performed during the pandemic?

As indicated by the company’s provisional results, Catapult has managed the pandemic relatively well. The company attributed this resilience to its subscription-based business model, which contributes approximately 75% to its revenue, along with the early implementation of cost control measures.

Although professional sporting leagues were postponed during the pandemic, Catapult managed to retain existing customers whilst also winning new clients. In an earlier update, the company noted that customers continued to purchase Catapult solutions during the height of the lockdown in order to prepare athletes for when competitions recommence.

Should you buy?

Catapult are world leaders in sports analytics and solutions, providing sports teams and athletes with technology that tracks and measures performance and recovery. The company’s solutions cover 3 divisions: elite video, wearables, and prosumer products, which provide elite performers and teams with metrics and information they can use to tailor strategy, training and recovery regimes.

Catapult has more than 3,000 elite clients, including soccer giants Chelsea Football Club and Real Madrid FC. In Australia, the company also has long-term contracts with the National Rugby League (NRL), Australian Football League (AFL) and the National Basketball League (NBL). With the majority of these sports having resumed the season, the short -term outlook for Catapult looks appealing.

In the long-term, a higher percentage of Catapult’s revenue is generated through subscription and recurring sales, which is also appealing. In addition, the company is in a global leader in athlete tracking solutions, giving Catapult great potential for growth in a relatively unpenetrated market.

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Nikhil Gangaram 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 Catapult Group International Ltd. The Motley Fool Australia has recommended Catapult Group International 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 Coca-Cola Amatil Ltd (ASX: CCL) share price is pushing higher on Thursday after the release of an update.

In morning trade the beverage giant’s shares are up 2.5% to $8.72.

What did Coca-Cola Amatil announce?

Coca-Cola Amatil has been finalising its first half financial results and is currently assessing the carrying value of each of its businesses.

In light of the adverse impact of COVID-19 on its trading performance and the prescribed approach to assessing carrying values, management advised that it expects to incur non-cash impairments in the range of $160 million to $190 million post tax in its half year accounts.

Management revealed that these impairments relate predominantly to its Indonesian business and will not impact its debt facilities. This is because these facilities do not have any financial covenants.

The final outcome of the impairment review is subject to external audit review and final board approval.

The company’s Group Managing Director, Alison Watkins, commented: “These expected impairments are non-cash accounting adjustments and we remain very confident about the long-term prospects for our Indonesian business”.

Trading update.

Coca-Cola Amatil revealed that it has experienced an improvement in trading conditions in its major markets during June. This reflects the gradual easing of COVID-19 related restrictions.

Trading volumes across the group in June 2020 were down approximately 9% compared to June 2019. This resulted in a second quarter 2020 volume decline of approximately 23% compared to the prior corresponding period.

How are its businesses performing?

Management advised that the rate of improvement has varied across different markets.

In New Zealand June volumes increased approximately 4% on June 2019 and in Australia monthly volumes declined approximately 3% year on year.

Over in Indonesia things haven’t been as positive. This market, where COVID-19 infection rates remain high, monthly volumes declined approximately 23% on June 2019.

Ms Watkins said, “It is encouraging to see the improvement in our Volumes as the pandemic restrictions were lifted across a number of our markets. It has also been pleasing to see that the strength of our brands and strong sales capabilities continue to drive market share gains in Australia and New Zealand. We nevertheless remain cautious, given the reinstatement of lockdown measures from July in Melbourne and the rising COVID19 infection rate in Indonesia.”

“The impacts of the pandemic are continuing to evolve with the situation fluid across all of our markets. I am proud of the way the Amatil team has responded to the unprecedented challenges we have faced and am confident that we have a clear path forward, which coupled with our ample liquidity, strong balance sheet and solid credit ratings, positions us well, to emerge from the pandemic as a stronger, better business,” she concluded.

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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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The August earnings season will be unlike anything we have ever seen in our investing careers. It will be a moment of truth when we’re able to find out what’s been going on behind closed doors over the past four months. We all have an idea of where the problems are, but there are always surprises. I think the following trends will be very important for investors to think about while positioning their portfolios.

Mass gatherings are still out

Clearly travel and tourism will be among the hardest hit sectors this earnings season. We have all seen the announcements about Qantas Airways Limited (ASX: QAN) reducing staffing levels and retiring aircraft. In addition, we all know other companies that have been smashed by the coronavirus pandemic include Webjet Limited (ASX: WEB) and Flight Centre Travel Group Ltd (ASX: FLT). However, during earnings season, these companies may still surprise on the downside. I think travel is likely to be a barren sector for at least the next two years. 

One company I think is unlikely to see its share price fall, however, is Alliance Aviation Services Ltd (ASX: AQZ). This company recently forecast a year-end profit before tax of $40 million. If anything, I think Alliance has a chance of surprising the market on the upside. 

Some other companies likely to report bad results during earnings season may include those exposed to retail real estate. In particular, Australian real estate investment trusts, or A-REITs, such as Vicinity Centres (ASX: VCX), Scentre Group (ASX: SCG) or GPT Group (ASX: GPT). For instance, GPT Group disclosed a re-valuation of 8 of the company’s retail centres, slashing 8.8%, or $476.7 million, from its portfolio valuation due to the impacts of coronavirus. These companies, in particular, could surprise on the downside. 

However, there are some real estate companies that may give the market cause to celebrate. I believe these are most likely to be companies focused on commercial real estate and self-storage. These include Centuria Office REIT (ASX: COF) and Abacus Property Group (ASX: ABP).

We may be seeing a shift from office to home-based work. Nevertheless, client leases in these two companies average 5.1 years and 4.4 years respectively. So even if their clients have downsized their office-based staff, they still have leases in place for now. In addition, both of these ASX shares have been sold down considerably. So much so, that I think there’s a good chance the market will be surprised come August.

Online trading is now, not tomorrow

The transition towards online shopping during the lockdown is now a recognised phenomenon. Digital-native companies such as Kogan.com Ltd (ASX: KGN) and Temple & Webster Group Ltd (ASX: TPW) have given every indication of strong results. They may surprise on the upside, however I think their success has already been priced into their share prices.

Potential earnings season surprises may also come from discretionary retail shares. Specifically, Accent Group Ltd (ASX: AX1) has recently reported that earnings before interest, taxes, depreciation and amortisation would be around 10% higher than FY19. This is largely due to digital sales and a 7% increase in like-for-like sales.

Other retail companies I will be watching include Lovisa Holdings Ltd (ASX: LOV), City Chic Collective Ltd (ASX: CCX) and Michael Hill International Ltd (ASX: MHJ). Of these three, I expect City Chic to perform well. The company already had two thirds of its global sales via digital channels. I believe Lovisa and Michael Hill are likely to disappoint in terms of overall sales volume. 

Earnings season for miners

Fortescue Metals Group Limited (ASX: FMG) is a pure play iron ore company that has benefitted greatly during lockdowns. Not only has the price of iron ore stayed strong, it has actually lifted. I expect this company to report solid results. This will be similar for all the larger gold mining companies. Of these, I think Regis Resources Limited (ASX: RRL) is likely to surprise on the upside, and is possibly the best choice of the established gold miners.

However, I’m not so sure about BHP Group Ltd (ASX: BHP). While iron ore has been very strong, other products like coal, copper and petroleum have seen production challenges and historically low prices. I think BHP will surprise on the downside, just as Rio Tinto Limited (ASX: RIO) may do for similar reasons.

However, even worse affected are likely to be the nation’s LNG and oil producers. Despite horrible oil prices, and disclosures of companies changing impairments, investors are still buying these shares. Personally, I think the pandemic has hastened a structural shift in the market. Maybe that will become evident during earnings season.

The move to work from home is over

Several companies did very well from the transition to working from home. Companies like JB Hi-Fi Limited (ASX: JBH) in particular reported strong results in June. However, I’m not sure this can continue into FY21. Personally, I needed one desk, one monitor and one chair. I am unlikely to need more than that for a year or so.

The same could be said for the retail arms of Wesfarmers Ltd (ASX: WES) including companies like Officeworks and Bunnings. I think most of the revenue uplift for these companies has already been priced in to their shares. They may well post strong results this earnings season, but I don’t think it is sustainable.

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Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd, Temple & Webster Group Ltd, and ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended Accent Group, Flight Centre Travel Group Limited, Kogan.com ltd, Scentre Group, Sezzle Inc, and 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 Northern Star Resources Ltd (ASX: NST) share price could be on the move today after the release of its quarterly production update.

How did Northern Star perform in the fourth quarter?

Newcrest Mining Limited (ASX: NCM) isn’t the only gold miner to finish FY 2020 strongly. This morning Northern Star revealed that it had a strong end to the financial year.

According to the release, Northern Star delivered a record 262,717 ounces of gold sold during the June quarter. This was achieved with an all-in sustaining cost (AISC) of A$1,475 an ounce (US$969 an ounce). This includes 50,251 ounces of gold sold at its Pogo operation for an AISC of US$1,276 an ounce.

For the full year, Northern Star achieved record total sales of 900,388 ounces at an AISC of A$1,496 an ounce (US$983 an ounce).

From this, its Australian operations sold a record 727,352 ounces at an AISC of A$1,350 an ounce (US$887 an ounce). This was at the low end of its stated 720,000 ounces to 800,000 ounces guidance range. The balance was made up by the Pogo operation, which mined 200,718 ounces and sold 173,036 ounces at an AISC of US$1,402 an ounce.

High gold price boosts balance sheet.

Northern Star reported an average realised price of A$2,208 an ounce for FY 2020.

This includes sales of 271,378 ounces into hedged positions, reducing the hedge book to 536,426 ounces and equal to just 15% of the next three years’ production.

This led to the company’s underlying free cash flow coming in at A$218 million during June quarter, despite investing ~A$44 million into growth capital and exploration.

As a result, Northern Star’s cash, bullion, and investments rose by a sizeable 40% to A$770 million at 30 June 2020. Its corporate bank debt stood at A$700 million, with A$200 million repaid post quarter on 6 July.

Northern Star’s Executive Chair, Bill Beament, commented: “Our quarterly sales of 262,717oz was not only a record, but also very solid given the imposts stemming from the COVID-19 measures we moved quickly to put in place.”

Mr Beament believes this demonstrates just how much its free cash flow can grow when conditions return to normal.

“All together, this demonstrates the significant potential to grow our free cashflow as the impacts of COVID-19 on production and costs are alleviated and, importantly, as our exposure to the spot gold price increases,” he added.

FY 2021 group production and cost guidance will be published with its annual reserve and resource update in the coming weeks.

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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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ASX bank shares could be undervalued right now. That’s the message coming from leading fundie, Neil Margolis, from Merlon Capital.

Why is this fund manager bullish on the banks?

According to an article in yesterday’s Australian Financial Review (AFR), Mr Margolis sees strong upside potential in Aussie bank shares.

Much of the investment thesis is based around the impact of bad debts and forecast dividends in the short to medium term.

According to the article, Mr Margolis said, ‘if consensus estimates for bad debts of between $8 billion to $10 billion per bank over the next three years were correct, it would allow banks to make modest dividend payments’.

Introducing dividend estimates into the equation is a real game-changer. The Australian Prudential Regulation Authority (APRA) has been cracking down on bank dividends in 2020.

However, the banking regulator is now looking to revise its guidance on those dividend restrictions. That could be good news for ASX bank shares and their investors this year.

What does this mean for ASX bank shares?

I think much of the current pricing of ASX bank shares reflects a pessimistic view on dividends. 

However, the Commonwealth Bank of Australia (ASX: CBA) share price currently has a 5.8% dividend yield. Similarly, Westpac Banking Corp (ASX: WBC) shares are yielding a huge 9.7% today.

While I wouldn’t expect these yields to be maintained in the current climate, low bad debts and a modest dividend could definitely be good news.

That could mean ASX bank shares have been oversold at their current prices. The Commbank share price has fallen 7.2% in 2020 but is now outperforming the S&P/ASX 200 Index (ASX: XJO).

Westpac shares have fared worse, falling 25.5% to $18.01 per share. Interestingly, both bank shares are trading at a price-to-earnings (P/E) ratio of 13.5.

It’s worth noting that Mr Margolis wasn’t totally bullish on ASX bank shares, highlighting that a prolonged period of coronavirus restrictions could spell trouble for current valuations.

Prolonged restrictions could make current bad debt provisions insufficient and ‘that could mean capital raisings and zero dividends’.

Are there other ASX dividend shares to buy?

According to the AFR article, casino operator Star Entertainment Group Ltd (ASX: SGR) could be worth a look at $2.77 per share.

Star has similar upside exposure to economic recovery as the banks but with ‘more than $2 of property value’ per share to help protect investors against the downside.

Mr Margolis was less bullish on Telstra Corporation Ltd (ASX: TLS) shares. Significant headwinds including challenges presented by the NBN were cited as potential negatives for the Telstra dividend.

Foolish takeaway

It’s a very interesting time in the markets ahead of the August earnings season.

I often take market commentary with a grain of salt. However, it does give us investors some food for thought ahead of a big month for ASX shares.

More reading

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra 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 A2 Milk Company Ltd (ASX: A2M) share price continues to kick goals for investors.

Shares in the Kiwi dairy group fell 2.1% lower yesterday but remain up 39.1% for the year. A $10,000 investment in A2 Milk in early April 2015 would be worth a tidy $348,214 today.

However, I prefer to look to the future instead of the past with my investments. That means I’ve got my eye on the A2 Milk share price ahead of its full-year earnings result on 19 August.

Is the A2 Milk share price overvalued?

The A2 Milk share price is trading just 2.7% below its all-time high of $20.05. 

That could mean it has been overbought by investors seeking to get extra cash into the market. However, I think there are enough strong, underlying share price drivers to warrant further exploration.

What was in the half-year result?

There’s also not too much that can be drawn from the company’s February half-year results given the changing global landscape.

A2 Milk posted half-year revenue up 31.6% to $806.7 million with EBITDA climbing 20.5% to $263.2 million.

That result was underpinned by strong growth in China label infant nutrition and United States milk revenue. Given China’s strong bounce back from the coronavirus pandemic, we could see further sales growth in these segments in August.

The company’s April trading update also gave investors some confidence about the full-year numbers. A2 Milk reported strong sales revenue growth across all key regions despite uncertainty for both revenue and earnings forecasts.

A2 Milk’s full-year EBITDA margin is expected to land between 31-32% for FY20. Currency impacts will also be worth watching given the volatility in the Australian, New Zealand and US dollars in 2020.

What is there to like about the A2 Milk share price?

One thing I like about the A2 Milk share price is its aggressive expansion plans. A2 Milk is looking to take the brand further abroad into the Canadian market.

Given its strong track record of strategy execution, I’m quietly hopeful about its Canadian plans.

A2 Milk has also continued to expand through increased investment in Synlait Milk Ltd (ASX: SM1).

A2 Milk now owns 19.84% of its fellow Kiwi dairy producer. While I wouldn’t call that diversification as such, I think it could generate a new growth corridor for A2 Milk going forward.

I also think recent strong supermarket sales bode well for a robust A2 Milk result in August.

Foolish takeaway

All in all, I’m quietly bullish on the company’s August full-year result. The A2 Milk share price has already climbed higher in 2020 but a strong result could see it hit a new record high next month.

More reading

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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