Author: therawinformant

The Electro Optic Systems Hldg Ltd (ASX: EOS) share price suffered a rocky end to last month following its strong start. Electro Optic shares finished June at $4.68, despite reaching prices above $6.60 during the month.

Since the end of June, the company’s share price has risen on the back of a recent announcement confirming negotiations were underway for a major new contract with the Australian Government.

What does Electro Optic Systems do?

Electro Optic Systems specialises in three sectors:

• Defence: Electro Optic Defence Systems specialises in technology for weapon systems optimisation and integration, as well intelligence, surveillance and reconnaissance for land warfare. Its most notable products are its vehicle turrets and remote weapon systems.
• Space: Electro Optic Space Systems specialises in applying optical sensors to detect, track, classify and characterise objects in space. It can be applied both for military and commercial applications. Electro Optic technology played an integral part in the successful launch of the SpaceX rocket.
• Communication: Electro Optic Systems provides global satellite communications services and systems.

What influenced the Electro Optic System share price?

There was very little news out of Electro Optic over the month of June, which ended up being a month of two halves. Electro Optic traded very strongly at the start of the month after news in late May that it had completed the acquisition of satellite communications business, Audacy Corporation, before falling away strongly towards the end of the month.

The Electro Optic share price had dropped as low as $2.98 during the coronavirus pandemic, as military spending was diverted elsewhere. However, the Electro Optic share price steadily climbed through May and early June as news of the acquisition landed.

After reaching a high of $6.60 during early June, the return of volatility to the markets saw the Electro Optic share price reversing those gains and plunging to a low of $4.68. This was despite news of the company being added to the S&P/ASX 200 Index (ASX: XJO).

What now

Recently, Electro Optic Systems announced it had entered into contract negotiations for a deal with the Commonwealth of Australia for the acquisition of 251 remote weapon stations and related material. This sent the Electro Optic share price flying up to prices of $6.56, however it has since dropped back to a price of $5.41 at time of writing. 

More reading

• 3 ASX shares that could benefit from Australia and Japan deepening ties
• 3 ASX shares for the $270 billion defence plan
• 3 innovative ASX shares to buy
• Why Electro Optic Systems, Mayne Pharma, Tyro, & WAM Leaders are racing higher
• EOS share price on watch following defence spending talks

Daniel Ewing has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Electro Optic Systems Holdings Limited. The Motley Fool Australia has recommended Electro Optic Systems Holdings 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 Boral Limited (ASX: BLD) share price is in the spotlight as the stock is likely to be hit by corporate action or mergers and acquisitions (M&A) in FY21.

The speculation is given a new lease on life after Seven Group Holdings Ltd (ASX: SVW) revealed that it’s lifted its stake in the embattled building products supplier.

The Seven Group share price jumped 3.3% to $17.43 while the Boral share price added 1.3% to $3.79 in morning trade.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) gained 1.3% at the time of writing with every sector trading higher.

M&A spotlight shines bright on Boral

Coming back to Kerry Stokes’ Seven Group, the Australian Financial Review reported that the construction equipment rental group upped its holdings in Boral to 16.3%.

Seven Group bought 50.5 million extra shares in Boral in July to add to its 12.2% holdings, prompting investors to ask what its game plan is.

It’s unlikely that Seven Group will want to swallow Boral whole, in my view. Its primary interest is to split Boral into pieces and to acquire the Australian assets.

Boral’s divestment and spin-off opportunities

This will allow Seven Group to broaden its offering to the infrastructure construction market at a time when governments are ramping spending on projects. Our state and federal governments are using infrastructure building as a key strategy to revive our COVID-19 afflicted economy.

Seven’s move puts further pressure on Boral’s incoming chief executive Zlatko Todorcevski, who has barely gotten his feet under his deck.

While Todorcevski isn’t showing his hand yet, there’s speculation that he will divest Boral’s troubled US assets that were acquired under his predecessor Mike Kane.

Boral’s road to redemption

All of Boral’s woes can be laid at Kane’s feet as he presided over six profit downgrades over two years.

It’s little wonder the Boral share price is a woeful underperformer after having shed more than 40% of its value over the period.

Even the struggling CSR Limited (ASX: CSR) share price is holding up better. It too had to a few skeletons in the closet to clear but the stock only lost a more modest 11% in the past two years.

The star of the sector is James Hardie Industries plc (ASX: JHX) share price, which is a key pick in the industrials space for me.

Is the Boral share price a buy?

But Boral may have a chance to redeem itself in this financial year with new leadership and a list of ideas from activist shareholders on how to unlock value in the group – while benefitting themselves, naturally.

COVID-19 or no COVID-19, the next 12 months will likely be a roller coaster ride for Boral shareholders.

Investors with a strong stomach for risk might went to hop on, although I would wait till the reporting season to decide.

More reading

• Is the Southern Cross Media share price cheap right now?
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• Biggest dividend cuts in 10 years to hit ASX investors next month
• Why the Mirvac share price is a good relative buy
• 5 things to watch on the ASX 200 on Wednesday

Motley Fool contributor Brendon Lau owns shares of James Hardie Industries plc and Seven Group Holdings Limited. Connect with me on Twitter @brenlau.

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

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It’s fair to say 2020 has not been a good year for the Southern Cross Media Group Ltd (ASX: SXL) share price. The Aussie media company’s value slumped 5.7% lower yesterday and is now down 80% in 2020.

What does Southern Cross Media actually do?

Southern Cross Media Group is a media provider in the communications services sector on the ASX. The group is one of Australia’s major media companies, as the parent company of Southern Cross Austereo.

The group owns and engages in the broadcasting of content on free to air commercial radio (AM, FM and digital), TV and online media platforms across Australia. Southern Cross (formerly Macquarie Media Group) is responsible for brands including 2Day FM, Triple M and the Hit Network.

Despite Southern Cross Media shares slumping in 2020, the company still boasts a market capitalisation of $436 million. That still keeps the Aussie media company within the S&P/ASX 200 Index (ASX: XJO) as of S&P’s latest June rebalancing.

What do the numbers say?

Clearly, shares in Southern Cross have been smashed this year. But they’re far from the only ones with media being one of the hardest-hit sectors alongside travel and hospitality. The likes of oOh!Media Ltd (ASX: OML) and Seven West Media Ltd (ASX: SWM) have also been smashed in the coronavirus-triggered sell-off.

As a result of the recent bear market, Southern Cross Media shares currently trade at a price-to-earnings (P/E) ratio of just 3.7. That means for every $3.70 paid for the share, investors would expect to receive $1 worth of earnings. That’s a great ratio, but also potentially misleading given the lagging nature of the ratio. If you still think you can rely on that number, take a look at Southern Cross’ dividend yield.

The Aussie media share is currently paying investors a whopping 40.4% trailing dividend yield. Of course, with minimal earnings this year, I’d be more than surprised if there is any dividend in 2020.

Given the company’s dividend yield and P/E aren’t that informative, I’d look to its most recent trading update on 6 May. Encouragingly, Southern Cross reported positive earnings before interest, tax, depreciation and amortisation (EBITDA) in April. That came as revenue declines were offset by cuts to operating expenses.

The group’s net debt sat at $161.8 million as at 4 May, inclusive of the company’s $169 million equity raising announced on the same day.

Is the Southern Cross Media share price cheap?

Despite what the numbers say, I’m not sure if the Southern Cross Media share price is cheap right now. No investors want to be ‘trying to catch a falling knife’, particularly given so much uncertainty.

So much has changed in the last 6 months, so at a minimum, I’d be waiting for the August earnings season before investing in Southern Cross. That should give a better idea of earnings potential and management’s outlook for FY21. With government stimulus like JobKeeper set to fall away in September/October, it could be a volatile period for Southern Cross Media shares.

However, where there is risk there could be a reward. As the great Warren Buffett says, “Be fearful when others are greedy and greedy when others are fearful“. However, I personally think the media industry outlook is too uncertain to speculate on the company as a long-term buy right now. 

More reading

• Is the Boral share price next to be hit by M&A action?
• Is the BHP share price about to surge?
• Biggest dividend cuts in 10 years to hit ASX investors next month
• Why the Mirvac share price is a good relative buy
• 5 things to watch on the ASX 200 on Wednesday

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has recommended oOh!Media 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 Openpay Group Ltd (ASX: OPY) share price jumped more than 5% in early trade to hit a record high of $4.98 per share, before dropping back shortly after. This share price action comes on the back of a strong quarterly update released by the company before market open.

At the time of writing, the Openpay share price is trading at $4.41 per share, up 0.23% on yesterday’s close.

What did Openpay announce today?

The Aussie buy now, pay later (BNPL) company’s growth just doesn’t seem to stop. Openpay achieved record growth across multiple leading indicators in the fourth quarter of FY20. That includes active plan numbers up 229% from last year, active customer numbers up 141% and active merchants up 52% from Q4 FY19.

Total transaction value (TTV) jumped 98.2% for the full year to $192.8 million. TTV was also up 119% for the quarter compared to Q4 FY19. Full year revenue climbed 64% compared to FY19, while online channel contributions rose to 39% of plan originations.

That’s good news for the BNPL company in the current environment. Tighter coronavirus restrictions have impacted brick-and-mortar retail sales in 2020. However, a growing online sales function could be the key to strong growth in 2020.

The company’s net bad debts also caught my eye this morning. Keeping bad debts low while growing the book is a key factor for long-term scalability. Openpay ticked that box in Q4 FY20, with net bad debts as a percentage of TTV falling to less than 2.9%, compared to 4.7% last quarter.

In terms of balance sheet strength, things are also looking good. Openpay has a 25 million-pound (A$45 million) facility and recently completed a $33.77 million equity raising. As a result, cash on hand grew to $70.1 million as at quarter end, with significant undrawn debt at its disposal.

It’s no surprise the Openpay share price started strongly this morning following the news. The Aussie fintech’s shares have already rocketed more than 1,200% higher since the March bear market.

Is the Openpay share price in the buy zone?

Overall, there aren’t too many negatives from today’s announcement. While investors sold out of the industry in February and March, BNPL shares are a hot commodity.

However, the Openpay share price has been on an extreme bull run. That could continue in 2020 but I don’t think the pace is sustainable in the long-term.

The group’s strong integration with Woolworths Group Ltd (ASX: WOW) through its Business with Woolworths program is “well progressed” to deliver revenues in 1H FY21.

Before buying in, I think I’d like to see more of these initiatives and longer-term revenue profile. On that note, Openpay also announced a strategic partnership with ASX healthcare group 1st Group Limited (ASX: 1ST) this morning as part of its continued expansion.

However, if you’re bullish on the BNPL sector, Openpay may be as good an option as Afterpay Ltd (ASX: APT) right now. Afterpay shares have also rocketed higher this morning on the back of Openpay’s strong update.

More reading

• Afterpay share price shoots higher on Apple Pay and Google Pay updates
• Is Altium still a leading ASX 200 tech share to buy?
• This could be a problem for the Afterpay share price
• ASX 200 drops 0.6% today, Afterpay share price down 7%
• Is the Coles share price still attractive after it surged to a record high today?

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO and Woolworths 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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It has been a volatile day of trade for the Zip Co Ltd (ASX: Z1P) share price following the release of its fourth quarter update.

The buy now pay later provider’s shares have been up as much as 6.5% to $7.50 and down as low as 6% to $6.50 this morning.

At the time of writing the Zip share price is roughly flat at $7.02.

How did Zip Co perform in the fourth quarter?

During the fourth quarter, the Afterpay Ltd (ASX: APT) rival reported revenue of $44.2 million on transaction volume of $570.7 million.

This represents a 64% and 62% increase, respectively, on the prior corresponding period. It is also a lift of 5% and 10% from the third quarter.

Zip’s strong growth during the quarter was driven by a 60% lift in customer numbers to 2.1 million and an 81% jump in transaction numbers to 2.9 million. Both figures are in comparison to the fourth quarter of FY 2019.

One slight disappointment during the quarter was an increase in net bad debts. This metric lifted to 2.24%, from 1.84% in the third quarter and 1.63% from the same period last year. Though, positively, its arrears metric has been on the decline. Given that this is a leading indicator for future bad debts, this is great to see.

What about the full year?

For FY 2020, annualised transaction volume was ~64% higher year on year and $100 million ahead of target at $2.3 billion. This led to a 72% year on year increase in revenue to $161.2 million.

The figures above do not include the proposed acquisition of U.S. based QuadPay. Post completion, Zip will have pro-forma annualised transaction volume of $3.2 billion, annualised revenue of $252 million, and more than 3.9 million customers.

This transaction is subject to a number of closing conditions, including shareholder approval at the EGM which is expected to be held next month.

Zip’s Managing Director and CEO, Larry Diamond, was rightfully pleased with the company’s performance in FY 2020.

He said: “We are very pleased with the results for the full year FY20, and in particular Q4, as Zip continued to deliver on its ANZ strategy whilst accelerating its global growth ambitions. This was testament to the hard work of the entire Zip team and the support of our 24.5k retail partners.”

“The business model was tested during COVID-19 and proved extremely resilient – in terms of transaction volume, strong revenue mix and outstanding customer repayment performance. Our product differentiation, strong proprietary credit platform and penetration into defensive, everyday spend categories delivered in spades.”

Outlook.

No guidance or targets were given for FY 2021 at this point, but are likely to be unveiled with its results release next month.

Nevertheless, Mr Diamond appears confident that Zip’s growth can continue.

He said: “We continue to believe the credit card model is fundamentally broken with customers demanding flexible, responsible, interest free alternatives – the flight to BNPL is indeed a global trend.”

“The recently announced QuadPay transaction is an important step in our global expansion and provides access to the world’s largest retail market, the USA ($5tr and 15x Australia) during a time when interest-free instalments are transforming the way people pay. We look forward to the EGM in August and completing the transaction,“ he concluded.

More reading

• Which ASX shares will benefit from the second lockdown?
• 2 high growth ASX 200 shares to buy with $10,000 amid the coronavirus pandemic
• ASX shares tapping into the US market
• ASX 200 Weekly Wrap: Rocketing BNPL shares fail to stop ASX 200 slide
• The market is going long on the Afterpay share price but shorting its weaker rival

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 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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The medical device industry includes any device which can diagnose, prevent, or treat a disease or other condition. Examples range from bandages and syringes to pacemakers and prostheses. These technologies save and improve lives by detecting diseases earlier and providing more effective treatment options. The global medical device market is expected to grow to over $521 billion by 2022. 

Australia’s healthcare market is sophisticated and receptive to new products. The aging population, federal budget initiatives, and a willingness to adopt new technologies are expected to drive growth in the medical device market. Goldstein Market Intelligence forecasts the Australian medical device market will grow at a compound annual growth rate of 10% between 2017 – 2030. Globally, economic growth, increasing prevalence of chronic diseases, and technological advances will also drive growth. Here we take a look at two ASX medical device shares with promising developments in the use of their devices. 

Avita Therapeutics Inc (ASX: AVH) 

The Avita Therapeutics share price has been down over the past week or so despite news on Monday that its RECELL System is being procured by the United States Department of Health and Human Services to build preparedness for public health emergencies. US sales in the fourth quarter were disappointing, increasing just 0.2% to US$3.79 million. Results were negatively impacted by the onset of COVID-19.  

What does Avita do? 

Avita is a regenerative medicine company with a technology platform that can be used in the treatment of burns, chronic wounds, and for aesthetic applications. Avita’s devices utilise the regenerative properties of a patient’s own skin. A suspension of the patient’s skin cells is prepared and then sprayed onto areas requiring treatment. 

The company’s first product, the RECELL System, was approved by the FDA in late 2018. The system is used to treat thermal skin burns using spray on skin cells. Data from more than 8,000 patients globally reinforces that the RECELL System is a significant improvement over current standards of care, offering better clinical outcomes and cost savings. 

Fourth quarter challenges 

During the fourth quarter, the company faced the most challenging commercial conditions since the RECELL System was launched. Variability in both revenue and procedural volumes was observed. Although burns treatment is not an elective procedure, the incidence of burn injuries decreased due to nationwide protective orders. 

The re-prioritisation of hospital resources to support COVID-19 patients meant that April saw the lowest monthly revenue and procedural volumes so far this calendar year. Growth recovered, however, in May and June thanks to the benefits of the RECELL System in reducing hospital stays and allowing for fewer and smaller surgeries. 

CEO Mike Perry said, “Despite the tough macro environment, the clear benefits of the RECELL System including shortened length of hospital stays, together with less invasive and fewer surgeries, continues to resonate with hospitals, physicians, and patients.” 

Strong outlook  

While Avita experienced a difficult fourth quarter, full year results were impressive. Total sales were approximately $14.32 million, an increase of US$8.78 million or 160% over the previous year. RECELL System sales were US$13.79 million, up 213% over the prior year.  

Avita is looking to expand therapeutic uses for the RECELL System as well as its geographic reach. The FDA has approved a pivotal study into the use of the RECELL System to treat vitiligo. Avita is confident it will be an effective offering. More than 1,000 patients have been treated outside the United States, and eight publications have attested to the benefits of the system in treating the condition. 

Regulatory approval for the RECELL System is being sought in Japan. The application has been delayed somewhat by the pandemic, but further testing data is expected to be submitted in August. In the United States, FDA approval of the next generation RECELL 2.0 is expected in mid 2021 which will assist with market access in the outpatient hospital setting. 

Polynovo Ltd (ASX: PNV) 

The Polynovo share price is up 79% from its March low. Currently trading at $2.36, Polynovo shares remain below the all time highs of above $3 seen in February. Polynovo has seen strong sales of its Novosorb BTM product recently, with the company predicting that FY20 product sales will at least double FY19. 

What does Polynovo do? 

Polynovo is a medical device company that develops and manufactures dermal regenerative solutions using patented biodegradable polymer technology. Its NovoSorb BTM product is a dermal scaffold used to regenerate the dermis when lost through extensive surgery or burns. 

Strong US sales 

June 2020 was a new record sales month in the US for Polynovo. Despite the adverse impact of COVID-19 on many businesses, Polynovo has had success in opening new accounts and achieving record sales. Between July 2019 and 30 June 2020 there has been a 67% increase in hospital accounts in the US. Overall, sales in the June quarter were 33% higher than the March quarter. 

In the United Kingdom, Polynovo recently announced its first sale. There have been six operations in England and Scotland with further sales anticipated. There have also been numerous applications of NovoSorb BTM in Germany, Austria, and Switzerland, with sales growing as traction is gained across the region. Managing Director Paul Brennan said, “These sales results for NovoSorb BTM are very strong given the difficulties faced with COVID-19”.

Polynovo outlook 

Polynovo estimated the dermal scaffold market in which it operates is worth $1.5 billion and growing at a compound annual growth rate of 10%. The company owns 51 patents for various uses of its polymer technology platform. It also plans to enter the hernia and breast augmentation/reconstruction markets in the near future. 

The hernia devices market is estimated to be worth $3 billion, with demand for synthetic resorbable products growing at a compound annual growth rate of 34%. Polynovo is building a factory in Port Melbourne to manufacture hernia products which is expected to be completed this month. Polynovo is planning on entering the US market in July/August 2021. 

Chairman David Williams said, “Sales are still lumpy but there is a strong upward trajectory as surgeons embrace our product and the patient results it gives. While FY20 sales will show impressive growth over FY19, the sales run-rate is more impressive and should be a better indicator of the near term future.”

More reading

• 2 ASX growth shares to buy in the healthcare sector
• Why I think the Polynovo share price is a buy right now
• AVITA Therapeutics share price climbs 4% on BARDA update
• 3 exciting ASX growth shares to buy and hold until 2030
• ASX 200 drops 0.6%, Afterpay hits a new record

Kate O’Brien owns shares of Avita Medical Limited and POLYNOVO FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Avita Medical Limited and POLYNOVO FPO. The Motley Fool Australia has recommended Avita Medical 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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