Author: therawinformant

ASX bank investors have to endure a roller coaster ride as the market falls in and out of love with the sector.

The share prices of the big four crashed as the COVID-19 crisis unfolded and quickly rebounded on a FOMO buying frenzy.

That bounce quickly petered with bank stocks copping the brunt of the selling today. The Westpac Banking Corp (ASX: WBC) share price was the worst in the group with a 2.9% decline to $17.38.

But the National Australia Bank Ltd. (ASX: NAB) share price and Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price weren’t far behind with around a 2.7% fall each.

The Commonwealth Bank of Australia (ASX: CBA) share price is the outlier (as usual). Shares in our biggest domestic bank shed 1.5% to $66.30 and is the only one in the group that outperformed the 2.2% drop on the S&P/ASX 200 Index (Index:^AXJO).

The bank valuation debate

Investors are blowing hot and cold towards the sector as experts can’t seem to quite agree on whether these stocks are cheap or expensive.

The debate centres around bank’s return on equity (ROE) and price to book value (P/B). The Australian Financial Review reported that a consensus view seems to be forming around the sector’s post-coronavirus ROE of around 10%.

The P/B multiple is also fairly black and white with the big banks trading at around 0.9 times, with the exception of the higher quality CBA at 1.5 times.

The problem is working out if these measurements represent value in the face of growing loan defaults after government support ends in September.

Multiple earnings headwinds

The Australian Banking Association data shows that the total number of deferred loans stand at nearly 800,000. If most of these distressed borrowers can’t return to paying off their monthly mortgage payments soon, things could get ugly for the banking sector.

There’re other headwinds impacting on bank profits too. Their net interest margin (which is essentially their operating profit margin) have been under pressure even before the pandemic.

Record low interest rates and a flattening bond curve have made more challenging for these lenders to turn a buck. Banks make the most hay when short-term bond yields are materially lower than longer-term yields.

Stay focus on dividend yield

I won’t blame you if you don’t quite get what ROE and P/B really measure or why retail investors should care.

The fact is, the only measure that I think is important at this juncture is the dividend yield. If the banks can achieve a ROE of around 10% as most analysts expect, this should enable them to pay out around 70% of profits as dividend.

Foolish takeaway

That should provide investors with a forecast dividend yield of around 6% before franking at the current share prices.

Add in franking, and that will push the yield north of 8% (except for CBA as investors will need to pay a premium for quality).

Even if that proves too optimistic and the gross-up yield drops to around 6%, that still represents good value to me as interest rates are expected to stay close to zero for a few years yet.

More reading

• Why MOAT is my favourite ASX ETF
• ASX 200 falls 2%, ASX travel shares drop heavily
• Clinuvel share price jumps as investors favour healthcare
• Why the ASX 200 tumbled lower on Monday and 2 shares to buy
• Should you buy ASX shares during this market selloff?

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, National Australia Bank Limited, and Westpac Banking. 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.

The post Can ASX big banks generate an attractive sustainable dividend yield from FY21? appeared first on Motley Fool Australia.

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Buying ASX shares for both growth and income isn’t something that too many investors actively strive for in my experience. You’ll hear “I’m a growth investor” or “I’m a dividend income investor’ far more than “I go for growth and income”, I’d wager.

But by not seeking the best of both worlds, you might be overlooking some potentially lucrative returns. There are many ASX shares that have made investors very wealthy with a combination of both growth and income.

So, with this in mind, here are 2 ASX shares that I think investors can reasonably expect to deliver both capital growth and dividend income going forward.

Ramsay Health Care Limited (ASX: RHC)

Ramsay Health Care isn’t a favourite share of the income investor right now. This company used to have one of the best ASX dividend records around – 20 years of uninterrupted increases. Unfortunately, the COVID-19 crisis put an end to that this year and Ramsay has suspended its dividend payments until further notice.

Ramsay runs a network of private hospitals across Australia and a few other countries, including the United Kingdom and France. I think private healthcare is going to be playing an increasingly large role in the hospital network over the coming decade or two, given the demographic of our ageing population. Ramsay is well placed to capitalise on this trend, which should give this company a very long growth runway

I think Ramsay is still a top choice for both growth and income today. Yes, the company has suspended dividend payments. But I think this suspension won’t last long, and indeed I think it was prudent at the time, given the uncertain path ahead for the economy. I don’t think it will be too long until dividends resume and investors enjoy another strong streak of payout increases.

WAM Global Ltd (ASX: WGB)

WAM Global is a listed investment company (LIC) that aims to find undervalued growth opportunities from various share markets around the world. This company has been growing its dividends rapidly (including by 50% last year), even though it only started life in 2018. WAM Global’s last interim dividend came in at 6 cents a share, which gives the LIC a trailing grossed-up dividend yield of 4.42% on current prices.

WAM Global is also well-poised for some nice capital gains down the road. Some of WAM Global’s current top holdings include Amazon.com, Tencent, Costco and Activision Blizzard – all top-notch growth companies outside the realm of most ASX investors. 

I think WAM Global’s management team has shown, alongside WAM’s other LICs like WAM Capital Ltd (ASX: WAM), that it knows how to grow wealth with a long-term mindset. Thus, I’m very confident in WAM Global today and in its future ability to provide both growth and income.

More reading

• Insiders have been buying these ASX 200 shares
• Why the Healius share price will be in the spotlight tomorrow morning
• 2 top ASX dividend shares for income in 2020
• Where to invest $20,000 into ASX shares immediately
• These ASX healthcare shares could be long term market beaters

Motley Fool contributor Sebastian Bowen owns shares of Ramsay Health Care Limited and WAMGLOBAL FPO. The Motley Fool Australia has recommended Ramsay Health Care 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 S&P/ASX 200 Index (ASX: XJO) fell by more than 2% today to 5,720 points.

Here are some of the highlights from the share market today:

ASX 200 travel shares decline

The travel sector suffered a heavy selloff today, three of the worst performing shares in the ASX 200 were from the travel industry.

The Corporate Travel Management Ltd (ASX: CTD) share price dropped 9.9%. The Flight Centre Travel Group Ltd (ASX: FLT) share price fell 8.5%. Webjet Limited (ASX: WEB) saw a share price drop of 7.9%.

Several other ASX travel shares declined too. Airline Qantas Airways Limited (ASX: QAN) suffered a 3.6% share price drop. The Sydney Airport Holdings Pty Ltd (ASX: SYD) share price fell 4.6%. The Helloworld Travel Ltd (ASX: HLO) share price dropped 5.6%.

Looking at New Zealand travel shares, the Auckland International Airport Limited (ASX: AIA) share price fell 2.3% and the Air New Zealand Limited (ASX: AIZ) share price declined by almost 5%. Travel software company Serko Ltd (ASX: SKO) saw its share price fell 3.8%.

Healius Ltd (ASX: HLS) share price soars

The ASX 200 healthcare company experienced a 19% rise of its share price.

Healius announced today it has entered into a binding agreement to sell its medical centres business for $500 million to BGH Capital on a cash and debt free basis. It will retain the day hospitals and IVF segments.

Dr Malcolm Parmenter, the managing director and CEO, explained why Healius sold the division and what it will do with the money:

“This sale is consistent with our strategy of simplifying our portfolio and focusing on our leading and scalable diagnostics and day hospital business, in order to deliver on our mission of seeking and sustaining life-enhancing healthcare through people who care.

“The proceeds will strengthen the company, reducing our net debt and freeing up capital for investment, while enabling shareholders to realise the value of the medical centres business, which has not been reflected in our share price.”

Healius is seeing more normal trading levels as the economy opens up from the COVID-19 restrictions. Revenues are recovering strongly in line with the opening of the broader economy, according to Healius.

The ASX 200 business also said that it had signed the refinance of its syndicated bank debt facility of $500 million which was due to mature in January 2021. The facility has been increased by $70 million to $570 million and its maturity has been extended to January 2024 with unchanged covenants.

Super Retail Group Ltd (ASX: SUL) capital raising and trading update

Super Retail went into a trading halt this morning to announce a capital raising and trading update.

The ASX 200 retail business is going to do an underwritten accelerated pro-rata non-renounceable entitlement offer to raise approximately $203 million at a fixed price of $7.19 per share.

The equity raising will enable the company to keep executing its strategy and pursue its strategic growth initiatives.

In terms of trading, the company has seen a strong bounce back for its overall sales. Super Retail’s like for like sales fell by 26.2% in April 2020 compared to April 2019. However, Super Retail’s group like for like sales increased by 26.5% in May 2020 compared to May 2019.

We’re only halfway through June but sales growth has continued to benefit from the strong consumer environment.

Looking at the revenue for the financial year to date to 31 May 2020, total revenue was $2.52 billion, which was up 1.9%. However, like for like sales were only up 1.2%. The company stated that the gross margin percentage was down over April and May, impacted by a shift in product mix and a higher proportion of online sales.

More reading

• Why MOAT is my favourite ASX ETF
• Can ASX big banks generate an attractive sustainable dividend yield from FY21?
• Clinuvel share price jumps as investors favour healthcare
• Why the ASX 200 tumbled lower on Monday and 2 shares to buy
• Should you buy ASX shares during this market selloff?

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Helloworld Limited and Serko Ltd. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited, Super Retail Group Limited, and Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited, Helloworld Limited, and Serko 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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Shares of Clinuvel Pharmaceuticals Limited (ASX: CUV) are trading nearly 3% up today with investors looking to the healthcare sector for value. Prior to the March market correction, Clinuvel’s share price was trading above $29 and are yet to regain these levels. 

What does Clinuvel do?

Clinuvel has spent the last 15 years developing its product, Scenesse; the world’s first systematic photoprotective drug. Scenesse is used to treat Erythropoietic Protoporphyria (EPP) which is a metabolic genetic disorder causing intolerance to light. 

EPP patients suffer painful reactions and burns from exposure to direct light, which means they must avoid it at all times. Reactions can occur after just a few minutes of exposure and last days or weeks. The disorder is rare, affecting around 10,000 people worldwide and causes social isolation and anxiety. 

The Scenesse drug provides EPP patients with photoprotection and the ability to lead a “normal” life. Prior to the creation and regulatory approval of Scenesse in Europe in 2014 and the US in 2019, EPP had no approved treatment.  

What does the Clinuvel share price represent?

Clinuvel has progressed from the R&D phase into the commercialisation phase with FY17 being the first year of commercial operations and the first profitable year. Its profits rose in FY18 and FY19, with the December 2019 period seeing Clinuvel eighth consecutive half-year profit. Its earnings per share increased from 18 cents in 2017 to above 30 cents in 2019. 

Clinuvel paid its first dividends to shareholders in FY18 and FY19. The company is debt-free and has cash and equivalents of over $60 million. The share price has increased by around 700% over the last 5 years, taking Clinuvel into the S&P/ASX 200 (ASX: XJO) in June last year. 

What’s next for Clinuvel? 

Clinuvel hopes to specialise in creating treatments for rare genetic conditions. And beyond 2020 it is seeking to evolve into a diversified pharmaceutical company.

Clinuvel plans to take Scenesse to new regions to develop a paediatric formulation. A clinical trial is also underway to evaluate Scenesse for the treatment of vitiligo as a repigmentation agent. 

Clinuvel has strong cash flow and an ambition to deliver new products which provide treatment to multiple patient groups. Investors with an eye on the Clinuvel share price will be interested to see if it can sustain long-term growth and evolve into an integrated biopharmaceutical company. 

More reading

• Why MOAT is my favourite ASX ETF
• Can ASX big banks generate an attractive sustainable dividend yield from FY21?
• ASX 200 falls 2%, ASX travel shares drop heavily
• Why the ASX 200 tumbled lower on Monday and 2 shares to buy
• Should you buy ASX shares during this market selloff?

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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After a reasonably subdued morning of trade, the S&P/ASX 200 Index (ASX: XJO) fell heavily in the afternoon to end the day notably lower.

The benchmark index tumbled a disappointing 2.2% to 5,719.8 points.

Why did the ASX 200 tumble lower?

Australian investors were selling off shares this afternoon after U.S. futures took a sharp turn.

At present, futures contracts are pointing to the Dow Jones opening the day 3.3% lower, the S&P 500 starting the week with a 2.8% decline, and the Nasdaq index opening 2.3% lower.

According to CNBC, stock futures fell heavily amid signs of a second wave of coronavirus cases in the United States as the economy reopens. This follows a spike in cases late last week in a number of states.

President and chief investment strategist, Ed Yardeni, from Yardeni Research, believes that investors got ahead of themselves in respect to the reopening.

Mr Yardeni said, courtesy of CNBC, that: “The meltup may need to take a break, as sentiment has turned too bullish too rapidly. Now that reopening is happening, there’s fear of suboptimal results: less social distancing triggering a second wave of the virus, followed by another round of lockdowns.”

Though, another lockdown seems unlikely based on what Treasury Secretary Steven Mnuchin told CNBC late last week. Mnuchin suggested that shutting down the economy again wasn’t viable and would only “create more damage.”

Is this a buying opportunity for Australian investors?

Unfortunately for Australian investors, we have a tendency to follow the lead of U.S. markets regardless of what is happening over here. This means that if the U.S. does struggle with a second wave, it could weigh on our market in the near term.

However, I wouldn’t let this put you off investing. In fact, I would suggest you look to see if you like the look of any of the shares that have pulled back notably over the last few days.

Companies like Aristocrat Leisure Limited (ASX: ALL) and EML Payments Ltd (ASX: EML), for example, have fallen heavily since last week. I think this could be a buying opportunity for long term-focused investors. I feel both shares trade on attractive multiples relative to their long term earnings growth potential.

More reading

• Why MOAT is my favourite ASX ETF
• Can ASX big banks generate an attractive sustainable dividend yield from FY21?
• ASX 200 falls 2%, ASX travel shares drop heavily
• Clinuvel share price jumps as investors favour healthcare
• Should you buy ASX shares during this market selloff?

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 Emerchants Limited. The Motley Fool Australia has recommended Emerchants 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.

The post Why the ASX 200 tumbled lower on Monday and 2 shares to buy appeared first on Motley Fool Australia.

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The S&P/ASX 200 Index (ASX: XJO) and All Ordinaries (ASX: XAO) have both tumbled more than 7% over the past 4 trading sessions. This follows an increase in coronavirus cases and a grim economic outlook announced by the United States Federal Reserve last Thursday.

With all things considered, should investors be buying ASX shares during this recent market selloff? 

The bad news 

Coronavirus infections continue surging 

From a global perspective, the coronavirus pandemic is still running rampant. The US experienced a record number of new cases across multiple states last week. State health officials are pointing to an increase in gatherings over the Memorial Day holiday as a catalyst for this increase.

South America has also seen a surge in cases with daily infections surpassing those in Europe and the US. The World Health Organization declared the region the pandemic’s ‘new epicentre’ on 22 May. 

China reported its highest daily increase of coronavirus cases in 2 months, with 57 new confirmed cases over the weekend. The cases identified in Beijing have been linked to its biggest wholesale food market, which has since been shut down. 

I believe the recent selloff combined with fresh news that the pandemic is not showing signs of slowing down will add to the uncertainty and panic in the markets. 

Unemployment crisis 

The US Fed updated its economic projections for the year, predicting a 6.5% drop in its GDP. It also estimates an unemployment level by the end of the year of approximately 9.3%. Whilst this is still dire, it is less than the 13.3% seen in May. 

Australia is in much better shape, with a seasonally adjusted unemployment rate of 6.2% in April. However, much of this can be attributed to the JobKeeper stimulus package that is assisting many businesses to retain their employees in what are extremely tough times.

On Monday morning, prime minister Scott Morrison warned that some businesses will fail when JobKeeper is withdrawn. This creates a lot of uncertainty, and businesses will no doubt be more cautious with spending moving forward. 

Patience is needed 

This is a unique recession, in that it came about because an economic shutdown was required to prevent the spread of the virus. Should the pandemic subside, there is no reason why the economy can’t return to a pre-COVID-19 state. The amount of money going into the economy via quantitative easing is both greater and faster than the responses to crises such as the GFC. Interest rates are still at a record low and will be low for many years to come.

Australia is also one of the leading countries to come out of COVID-19 largely unscathed. However, it is the rest of the world that we are waiting on to resume activity in key sectors such as education and travel.

Foolish takeaway 

I believe that it is a good idea for investors to be patient and wait for the current market volatility and uncertainty to subside before jumping in and buying ASX shares. 

More reading

• The ASX winners and losers from the latest S&P index shake-up
• 3 Warren Buffett quotes to start your week off right
• Shares up? Haven’t you seen the economy?
• These 5 ASX shares were last week’s worst performers
• Why the Reliance Worldwide share price is outperforming today

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

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If you’re looking for strong returns in the 2020s, then I think having a little exposure to the small cap side of the market could be a good thing.

At this side of the market there are a number of companies that have the potential to grow materially over the next decade.

While it is worth remembering that not all small cap shares will live up to their potential, I feel the two listed below have a good chance of doing so. Here’s why I think they could have bright futures:

ELMO Software Ltd (ASX: ELO)

ELMO Software is a fast-growing provider of cloud-based human resources and payroll software. Its increasingly popular unified platform allows users to streamline processes for everything from employee administration, recruitment, and payroll. Demand for its offering has continued to grow in FY 2020, with management recently providing full year guidance for annualised recurring revenue (ARR) of $55 million to $57 million. This represents an increase of 20% to 24% on the prior corresponding period. The good news is that its current ARR is only scratching at the surface of its total addressable market in the ANZ region. This means it still has a significant runway for growth in the local market and also the opportunity to expand into other key markets in the future.

Mach7 Technologies Ltd (ASX: M7T).

Mach7 is a medical imaging data management solutions provider for healthcare organisations. Its solutions create a clear and complete view of the patient to inform diagnosis, reduce care delivery delays and costs, and improve patient outcomes. Demand for Mach7’s offering has been growing strongly in recent times, leading to the company delivering a 158% increase in revenue to $9.1 million during the first half. I’m confident there will be more strong growth in the years to come, especially after its recent acquisition of Client Outlook. The addition of this leading provider of an enterprise image viewing technology increases Mach7’s total addressable market from US$0.75 billion to US$2.75 billion.

More reading

• Mach7 share price charges 7% higher on acquisition news
• Why Mach7, Meridian, Spark, & TPG Telecom are pushing higher
• ELMO Software share price on watch after upgrading FY20 guidance
• ELMO Software and 2 other ASX growth companies see businesses adapt to a “new normal”
• 3 small cap ASX tech shares that could be stars of the future

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 MACH7 FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Elmo Software. The Motley Fool Australia owns shares of and has recommended Elmo Software. 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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