Author: therawinformant

Looking to top up your share portfolio? I think ASX tech shares provide plenty of choices.

Australia’s tech sector is growing rapidly, despite being quite small compared to the US market.

Here are two of my top picks right now: Carsales.com Ltd (ASX: CAR) and Bravura Solutions Ltd (ASX: BVS).

Carsales

Carsales has grown strongly over the past few years. In Carsales FY20 half-year report, it showed that between H1 FY16 and H1 FY20, the company managed to grow revenues at an impressive compound annual growth rate (CAGR) of 12%. Earnings before interest, tax, depreciation and amortisation (EBITDA) also grew strongly. EBITDA increased at a CAGR of 9% over the same period.

In its most recent trading update, it revealed that during mid-March to mid-April, car lead volumes were down 25% on normal levels. However, with lockdown restrictions easing, it is more than likely that lead volumes are now picking up.

This tech share has successfully built on its entrenched and dominant position in Australia over the past decade. This has helped to create a protective moat against market competition. This is despite slowing growth in the maturing online auto classifieds market locally.

Most of Carsales’ new growth is now coming from its overseas operations. These divisions now represent 23% of look-through revenue and 18% of look-through EBITDA. I believe that its overseas operations will fuel further strong growth over the next 5–10years. This positions the ASX tech share well for above-average share price growth during that time.

Another ASX tech share to consider: Bravura

Another ASX tech share worth considering is fintech operator, Bravura. It provides mission-critical enterprise software solutions. It services both the wealth management and funds administration industries.

The company provides software solutions for a range of financial products. These span from wrap platforms, superannuation and pension products to life insurance and portfolio administration offerings.

The company’s main operating markets are Australia, New Zealand, the United Kingdom, and South Africa. An impressive blue-chip client list includes the likes of Mercer, JPMorgan, Prudential, and Citi.

What really attracts me to this tech share is that it is a capital-light business model. It is also underpinned by a strong balance sheet.

The company’s flagship offering in Sonata is a next-generation wealth management administration platform. Its market appeal is that it enables users to interact with their clients through a range of devices. Demand for this flagship product continues to grow strongly.

Bravura has not seen a significant decline in demand during the coronavirus pandemic. In addition, the company recently reaffirmed its earnings guidance for FY 2020.

I believe that Bravura is well positioned for strong growth over the next 5–10 years.

More reading

• The top ASX growth shares I would buy for the 2020s
• Is the SEEK share price a buy right now?
• 2 outstanding ASX shares to buy after the market crash
• 3 ASX 200 shares to protect your portfolio from recession
• Why I’d buy Appen and these ASX growth shares for the 2020s

Phil Harpur owns shares of carsales.com Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Bravura Solutions Ltd. The Motley Fool Australia has recommended Bravura Solutions Ltd and 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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Consumer stocks have fared better during the COVID-19 crisis than many feared. But some ASX retail stocks are better placed in the post-coronavirus world.

The ASX retailers that have performed better than expected are those that have capitalised on changes to consumer behaviour during the shutdown.

These include those that can readily ramp up their online presence and sells products that are in demand from stay-at-home consumers.

ASX retail winners and losers

UBS points to another important trend. The increasing importance of customer data, which the broker believes will become the most important currency.

Mind you, not all retail companies have been able to ride these trends and the gap between the haves and have-nots are only set to widen.

“The gap between winners and losers looks set to expand over the next 3+ years,” said UBS.

“What is less clear is how P&Ls [profit and loss] will change for those that capitalise on accelerated structural change.”

3 things to watch for

The broker identified three potential changes to the P&Ls of retailers going forward. The first is the levers for sales growth, which can come from market share gains, utilising data to get shoppers to buy and expansion into new verticals.

The second is margin. There is an opportunity for the better retailers to increase profitability through more targeted promotions, cost-fractionization and more profitable verticals.

Finally, is the ability to lift return on invested capital (ROIC). This is related to expanding profit margins, but also reflects a lower capex in the longer run with the increased move to online and a lower rental bill.

Retailers are actively renegotiating with shopping centre landlords to cut rents and/or reduce the number of shops.

As I wrote last month, mega malls are losing their strategic advantage as the growth of online sales accelerate.

Best retail stocks to buy now

Perhaps the more important question for ASX investors is which retail stocks are best placed to report improvements across all three areas?

While there are a number on the S&P/ASX 200 Index (Index:^AXJO) that fall into this category, including online retailer Kogan.com Ltd (ASX: KGN) and fast food chain Domino’s Pizza Enterprises Ltd. (ASX: DMP), not all are trading on attractive valuations.

If you added this as an extra filter, three consumer-facing stocks stand out, according to UBS.

These are supermarket giant Woolworths Group Ltd (ASX: WOW), stationery and apparel group Premier Investments Limited (ASX: PMV) and KFC franchisee Collins Foods Ltd (ASX: CKF).

More reading

• 3 fantastic ASX 200 shares to buy right now
• Leading brokers name 3 ASX 200 shares to sell today
• ASX 200 jumps 3%: CBA rebounds, Afterpay hits a new record high
• Why AusCann, Phoslock, Kogan, & Village Roadshow are dropping lower
• Investing $1,000 into these ASX 200 shares could be a smart move

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd and Premier Investments Limited. The Motley Fool Australia owns shares of Woolworths Limited. The Motley Fool Australia has recommended Collins Foods Limited and Domino’s Pizza Enterprises 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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Over the last three decades the Australian share market has provided investors with an average return of approximately 9.5% per annum.

This means that if you’re going to beat the market over the next decade, you’ll need to aim high and target returns of at least 10% per annum.

But which shares could be capable of beating the market in the 2020s? I think the two listed below could be market beaters:

a2 Milk Company Ltd (ASX: A2M)

I believe that a2 Milk Company could be a market beater over the next decade. This is due to its expanding fresh milk footprint and the growing demand for its infant formula in the China market. This strong demand was evident in the first half when a2 Milk Company’s China label infant nutrition sales doubled to NZ$146.7 million.

While this is a sizeable figure, the company only has a very modest market share. And due to its strong brand and increasing distribution network in the country, I expect the company to capture a greater slice of the market throughout the 2020s and drive further strong earnings growth.

SEEK Limited (ASX: SEK)

Another ASX share which I think could be a market beater in the 2020s is SEEK. While 2020 has been a difficult year for the job listings giant because of the pandemic, I believe its long term outlook is as positive as ever. This is due to its leadership position in the ANZ market and its rapidly growing China-based Zhaopin business.

It is the latter business which I expect to be the key driver of growth over the next decade. In the first half of FY 2020 it contributed 47.8% of SEEK’s total revenue. This is almost double the revenue contributed by the ANZ business. Given the size of the China market and its opportunities in other key Asian markets, I believe the company is well-placed to hit its revenue target of $5 billion later this decade. This compares to revenue of $1,537.3 million in FY 2019.

More reading

• Is the SEEK share price a buy right now?
• 3 five-star ASX shares I would buy today
• ASX shares I’d buy if this decline is a second COVID-19 crash
• S&P quarterly rebalance: A2 Milk added to ASX 50 & NEXTDC in the ASX 100
• 3 of the best ASX 200 blue chip shares to buy today

Motley Fool contributor James Mickleboro owns shares of SEEK Limited. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended SEEK 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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ASX shares can be a great way to grow your wealth over the long-term.

Investing in quality businesses for the long-term can produce great results if you pick correctly.

No ASX share is guaranteed to generate strong capital growth, but I think these ideas could be some of the ones to potentially beat the market over the next decade:

Share 1: Altium Limited (ASX: ALU)

Altium is a leading electronic PCB software business. It is already one of the biggest players in the market and it’s aiming for clear market dominance by the middle of this decade. Altium’s management are aiming for 100,000 Altium Designer subscribers by 2025, which should help reach the revenue goal of US$500 million.

The ASX share wants to keep growing its earnings before interest, tax, depreciation and amortisation (EBITDA) margin as economies of scale benefit the business. Software businesses have an advantage because their software can be easily replicated and distributed for little cost. In the FY20 half-year result Altium reported an EBTIDA margin of 39.7%, up from 38.8%.

I believe Altium is a great business for a number of reasons. I’ve already mentioned the growing profit margins. It’s debt free with a growing cash balance. Altium has been paying a growing dividend. I also like that Altium is growing revenue in multiple regions.

The world is becoming increasingly technological, so Altium’s service will be even more important to its clients. The ASX share’s current client list includes Tesla, Space X, NASA, Google, Siemens, Microsoft, NEC, Belkin, HP, Amazon, Fitbit, Disney and Qualcomm.

Share 2: Pushpay Holdings Ltd (ASX: PPH)

Pushpay is an ASX share which specialises in facilitating electronic donations to not-for-profits. It’s getting a lot of success from the large and medium US church sectors with their large congregations.

Over the long-term the ASX share is targeting US$1 billion revenue, which represents 50% of the medium and large US church segments. In FY20 the company made US$129.8 million of operating revenue. There is a lot of potential growth left. 

I think the Church Community Builder acquisition was a wise one. The two businesses launched a joint product offering in April 2020. Pushpay wants to be able to offer the best-in-class church management system and the best community app.

In FY20 the company generated US$25.1 million of earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF). In FY21 management has guided EBITDAF will be between US$48 million to US$52 million. That would be a strong year of growth!

One of the most attractive things to me about Pushpay is about how scalable it is. In FY20 it increased its gross margin by five percentage points from 60% to 65%. I expect the gross margin can keep going up as the ASX share heads towards US$1 billion of revenue.

Share 3: Xero Limited (ASX: XRO)

Xero is another ASX share with excellent growth potential. It’s a cloud accounting software business which provides its service in several countries including Australia, New Zealand, the UK and the US.

Xero’s gross profit margin is very attractive. It increased from 83.6% in FY19 to 85.2% in FY20. Every new subscriber means a lot of the revenue also turns into more gross profit. 

The tech ASX share is still heavily investing for growth, yet the 30% increase in operating revenue in FY20 resulted in a 52% increase in earnings before interest, tax, depreciation and amortisation (EBITDA) to NZ$139.2 million.

Xero also finally achieved a profit in FY20. Its net profit was NZ$3.3 million and free cashflow increased by 320% to NZ$27.1 million.

The software business continues to grow its subscriber numbers. I think it can add many more over the next decade. In FY20 alone it added 467,000 net subscribers. Each new subscriber is another business paying attractive monthly revenue to Xero.

I think more business owners will choose Xero’s service this decade for the time-saving tools and automation.

Foolish takeaway

In my opinion, all three of these ASX shares are some of the best on the ASX. At the current prices I’d probably go for Pushpay because it has a longer growth runway and its profit margins are rising the fastest. Altium and Xero are great businesses, but I’d prefer to buy them both for around 10% cheaper than what they’re trading at today.

More reading

• Coles shares and 2 other ASX 200 companies to buy in the current market
• Why Nearmap and this ASX mid cap share could be strong buys
• Is the Altium share price the steal of the century?
• $3,000 invested in these 2 shares could make you a fortune over the next 10 years
• The most explosive ASX tech shares you can buy today

Tristan Harrison owns shares of Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Altium, PUSHPAY FPO NZX, and Xero. The Motley Fool Australia has recommended PUSHPAY FPO NZX. 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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There certainly are a lot of quality options for investors on the S&P/ASX 200 Index (ASX: XJO).

While not all shares on the benchmark index are in the buy zone, three which I think are great value are listed below.

Here’s why I would buy them today:

BHP Group Ltd (ASX: BHP)

The first ASX 200 share I would consider buying is BHP. The Big Australian is my favourite option in the resources sector due to its diverse, low cost, and world class operations. Another reason I like the company at the moment is due to favourable commodity prices. This is particularly the case with iron ore, which is trading beyond US$100 a tonne. And with many analysts expecting the steel making ingredient to trade at lofty levels for longer due to supply disruptions and robust demand, BHP looks well-placed to deliver strong results in both FY 2020 and FY 2021. As a result, I think the risk/reward on offer with its shares currently is compelling.

Ramsay Health Care Limited (ASX: RHC)

Ramsay Health Care is another ASX 200 share to look at. While the private hospital operator is facing very tough trading conditions, and this is unexpected to change in the near term, the market already understands this and has priced it into its shares. As a result, I think investors should be focusing on its long term prospects, which look very positive. This is due to ageing populations and increasing chronic disease burden which are expected to drive strong demand for healthcare services over the next decade and beyond.

REA Group Limited (ASX: REA)

Another ASX 200 share I would suggest investors consider buying is REA Group. It is a leading property listings company with real estate websites in Europe, Asia, the United States, and Australia. The pandemic has made trading conditions tough for the housing market, but with restrictions now easing there are signs of life again. In fact, last weekend auction clearance rates were very strong, all things considered. I expect trading conditions to improve over the next 12 months and for REA Group’s earnings growth to accelerate once the headwinds it is facing dissipate.

More reading

• Leading brokers name 3 ASX 200 shares to sell today
• ASX 200 jumps 3%: CBA rebounds, Afterpay hits a new record high
• Investing $1,000 into these ASX 200 shares could be a smart move
• Coles shares and 2 other ASX 200 companies to buy in the current market
• The Santos share price is down 36%! This is what I’d do today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ramsay Health Care Limited and REA 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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On Monday I looked at three ASX shares that brokers have given buy ratings to this week.

Unfortunately, not all shares are in favour with them right now. Three that have just been given sell ratings are listed below.

Here’s why these brokers are bearish on these ASX 200 shares:

G8 Education Ltd (ASX: GEM)

According to a note out of the Macquarie equities desk, its analysts have retained their underperform rating but lifted the price target on this childcare centre operator’s shares to 80 cents. Macquarie believes that demand for childcare will be volatile in the near term and expects this to weigh on its performance. Especially given the oversupply of centres across the country. The G8 Education share price is trading at 94.3 cents on Tuesday afternoon.

South32 Ltd (ASX: S32)

Another note out of the Macquarie equities desk reveals that its analysts have downgraded this mining giant’s shares to an underperform rating with a $1.90 price target. The broker made the move due to concerns over the weak prices of some of the commodities it produces. It feels this could lead to South32 falling short of expectations in the near term. Especially with the Australian dollar strengthening and becoming a headwind. The South32 share price is changing hands for $2.05 today.

Star Entertainment Group Ltd (ASX: SGR)

Analysts at Morgan Stanley have downgraded this casino and resort operator’s shares to an underweight rating with an improved price target of $3.30. According to the note, the broker believes that Star’s Sydney business will be negatively impacted by the opening of the new Crown Resorts Ltd (ASX: CWN) resort in the city at the end of the year. It feels this potential disruption has not been priced into its shares currently. The Star share price is trading just below its price target at $3.24 this afternoon.

More reading

• 3 fantastic ASX 200 shares to buy right now
• ASX 200 jumps 3%: CBA rebounds, Afterpay hits a new record high
• Investing $1,000 into these ASX 200 shares could be a smart move
• Coles shares and 2 other ASX 200 companies to buy in the current market
• The Santos share price is down 36%! This is what I’d do today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Crown Resorts 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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