Category: Stock Market

The Bubs Australia Ltd (ASX: BUB) share price is surging notably higher on Thursday.

At the time of writing, the infant formula company’s shares are up 10% to 67 cents.

Why is the Bubs share price surging higher?

The Bubs share price is on the move today following the release of its second quarter update.

For the three months ended 31 December, Bubs reported a 12% decline in gross revenue to $12.8 million. This was despite the company reporting a 34% increase in China cross border ecommerce (CBEC) sales and strong sales growth in Australian supermarkets compared to the same period last year.

In respect to supermarket sales, management notes that Bubs is the fastest growing infant formula manufacturer across Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW). Though, it is worth remembering that Bubs is working from a much smaller base compared to the market leaders such as a2 Milk Company (ASX: A2M), Aptamil, and Bellamy’s. So, its stronger growth isn’t overly surprising, especially given the recent expansion of its ranging.

The corporate daigou channel remains challenged but has improved since the first quarter. Bubs more than doubled its sales in the channel quarter on quarter.

What about costs?

Bubs was burning through its cash again during the second quarter. It spent $13.6 million on product manufacturing and operating costs over the three months, which was more than it generated in revenue.

This led to a net operating cash outflow of ~$5.7 million. This was offset slightly by a $3.8 million share purchase plan, leaving the company with a cash balance of $40.2 million.

It notes that this is sufficient to fund its operating activities for eight quarters based on its second quarter.

Bubs Founder and Chief Executive Officer, Kristy Carr, appears optimistic that the worst is behind the company now. This may explain why the Bubs share price is charging higher today.

She commented: “Whilst the impact of COVID-19 continues to cause channel disruption and market conditions remain challenging, we are pleased to report sales growth is returning across all product groups, channels and regions, with quarter-on-quarter growth revenue increasing 36 percent.”

“While this is still some 12 percent below the prior comparable period due to the contraction of the Daigou channel, we are particularly pleased by the strong rebound in domestic sales which are up 31 percent quarter-on-quarter. Total export sales revenue was also up 45 percent on previous quarter, and up 55% on prior year, validating our global expansion strategy is taking hold.”

More reading

• Here’s why the Bubs (ASX:BUB) share price crashed 40% lower in 2020

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk and BUBS AUST FPO. The Motley Fool Australia owns shares of COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Bigtincan Holdings Ltd (ASX: BTH) share price is jumping higher today.

In morning trade, the artificial intelligence-powered sales enablement automation platform provider’s shares are up 4.5% to $1.12.

Why is the Bigtincan share price jumping higher?

Investors have been buying Bigtincan shares this morning following the release of its second quarter update.

According to the release, Bigtincan continued its strong form in the second quarter and delivered annualised recurring revenue (ARR) of $48.4 million. This represents growth of 50% over the prior corresponding period.

Management advised that this comprised organic ARR of $40 million (up 42.9%) and ARR of $8.4 million from recently completed acquisitions. However, the latter reduces to $6.8 million on a sustainable basis, comprising $6.8 million (US$5.2 million) from ClearSlide and $1.6 million from Agnitio.

A key driver of its organic growth was the success of the company’s “Land and Expand” strategy. It notes that 21% of Bigtincan’s total active customer base expanded their use of its platform during the first half of FY 2021. This compares to 16% during the same period last year.

Quarterly customer cash receipts came in at $10.5 million, which was an increase of 32% over the prior corresponding period (excluding multi year payments). And quarterly cash operating payments were up 17% on the prior corresponding period but steady quarter on quarter at $11.6 million.

This left the company with total cash and cash equivalents of $33.4 million at the end of December. Though, since then the company has received the proceeds from its capital raising, giving it a pro forma cash balance of $65 million.

Bigtincan CEO and Co-Founder, David Keane, commented: “Strong organic growth and overall 50% ARR growth over the previous corresponding period demonstrates the ongoing demand for Bigtincan’s technology during the pandemic.”

“Our customers continue to see Sales Enablement technology as critical to connect their customer facing teams together in the absence of face to face meetings, and as a way to empower their teams to be ready to deal with a smarter and more informed buyer. The recent strategic acquisitions, new technology partnerships and a growing global team provide a strong foundation for the company to continue to meet this growth in customer demand,” he added.

Outlook

Potentially boosting the Bigtincan share price today will be management’s outlook update.

It advised that it expects its ARR to be at the top end of FY 2021 ARR guidance range of $49 million to $53 million. This guidance assumes a stable exchange rate and stable customer retention.

More reading

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• Why the Bigtincan (ASX:BTH) share price is edging higher today
• These ASX shares are growing at a rapid rate in FY 2021
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends BIGTINCAN FPO. The Motley Fool Australia owns shares of and has recommended BIGTINCAN FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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

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

Netflix Inc (NASDAQ: NFLX) made a very important announcement in its fourth quarter letter to shareholders. “We believe we no longer have a need to raise external financing for our day-to-day operations,” management wrote in bolded and italicized type.

CFO Spence Neumann expects the company to produce breakeven free cash flow for the year, and that number ought to climb well into positive territory in 2022 and beyond. The company will pay down existing debt to a manageable level and then plans to return excess cash to shareholders through a share buyback.

But Netflix could reasonably generate over $10 billion in free cash flow every year by the middle of the decade. What will it do with its piles of cash at that point?

Expand the service with new verticals

Netflix has subtly expanded its service over the last few years to appeal to a broader audience. Investments in film, unscripted, adult animation, and more have already produced strong engagement, expanding its audience and enabling continued price increases.

The media company’s also pouring more money into children’s programming and animated films. The move could be a response to Walt Disney Co (NYSE: DIS)‘s rapid ascension in streaming. If anything, Disney+ is proving the breadth of demand for franchise animated films like its Pixar and Disney studio productions. 

Netflix may use its excess cash to invest in additional verticals that are showing strong engagement on other platforms. Several analysts have speculated Netflix could acquire sports rights at some point in the future. Content chief Ted Sarandos has previously said sports isn’t core to Netflix’s value proposition; there’s nothing Netflix can add to the sports viewing experience.

But in an interview with Variety in September, CEO Reed Hastings said sports and other content verticals could make their way onto Netflix in the distant future. “I doubt news, but sports, video gaming, user-generated content — if you think of the other big categories, someday it could make sense,” he said.

There’s certainly potential for Netflix to add new verticals, but live programming like sports is well outside its wheelhouse. As with every new area Netflix invests in, it has the potential to start small and grow quickly if it sees traction. And with a growing cash buffer, experimenting in other areas comes with a favorable risk-reward ratio.

Acquiring content and intellectual property

Netflix may become more interested in acquisitions in the future if it has excess cash to spend. It’s made only one acquisition in the past; it bought comic publisher Millarworld in 2017. The first slate of original series and films based on Millarworld characters will debut this year.

If Netflix can create popular content based on acquired intellectual property, it may look to repeat the process in the future. It’s a strategy right out of Bob Iger’s Disney playbook. Disney made several major acquisitions during Iger’s tenure, and he reinvigorated franchises and built out a slate of potential blockbusters well into the next decade based on acquired intellectual property.

Netflix may focus more on regional acquisitions that could further its progress in attracting international audiences. Netflix has the benefit of being able to produce content for local markets with the potential of creating a global hit. Disney, by comparison, is trying to make a billion-dollar box-office hit with every film release. Ultimately, more local acquisitions could present more opportunities and be a better investment for Netflix.

A long-term play

There’s still a long way to go before Netflix is sitting on piles of cash. After all, it’s only expecting to break even this year. But with consistent revenue growth and operating margin expansion set to continue for years to come, it may be only a few years before the media company has more cash than it can spend with its current strategic plans. While returning cash to shareholders through a buyback is nice, many investors may be just as happy to see Netflix continue investing to further its long-term growth.

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

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• Netflix has a lot to prove to investors this week

Adam Levy owns shares of Netflix and Walt Disney. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Netflix and Walt Disney. The Motley Fool Australia has recommended Netflix and Walt Disney. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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

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There are some exchange-traded funds (ETFs) that have been generating strong returns over the last few years.

You may have heard of some of the largest ETFs like Vanguard Australian Shares Index ETF (ASX: VAS) and BetaShares Australia 200 ETF (ASX: A200). Those two just focus on the 300 and 200 largest shares on the ASX, respectively.

But there are other ETFs that give international diversification and have produced stronger returns:

VanEck Vectors Morningstar Wide Moat ETF (ASX: MOAT)

This ETF is provided by VanEck, one of the biggest providers in Australia. It says that VanEck Vectors Morningstar Wide Moat ETF gives investors exposure to a diversified portfolio of attractively priced US companies with sustainable competitive advantages according to Morningstar’s equity research team.

The ETF utilises Morningstar’s research process to find businesses that possess wide economic moats and are trading at attractive prices relative to Morningstar’s estimate of fair value.

All of the businesses that it’s invested in are listed in the US, but the underlying earnings from the companies that make up the portfolio can (and many do) generate earnings from across the world.

Looking at the latest monthly portfolio disclosure, it had 50 holdings with the largest 10 positions being John Wiley & Sons, Charles Schwab, Corteva, US Bancorp, Wells Fargo, Constellation Brands, Bank of America, Boeing, Yum! Brands and Cheniere Energy.

The sector allocation of the ETF is fairly diversified, these are the biggest five weightings with the percentage allocated: healthcare (18.8%), financials (17.6%), information technology (17.5%), industrials (12.2%) and consumer staples (10.8%).

VanEck Vectors Morningstar Wide Moat ETF has annual management costs of 0.49% per annum.

Its returns over the past five years has been 16.6% per annum, which was 2% per annum better than the S&P 500.

Betashares Global Cybersecurity ETF (ASX: HACK)

This ETF is a way for investors to get exposure to the world’s leading cybersecurity companies in a single ASX trade. The portfolio includes global cybersecurity giants, as well as emerging players, from a range of global locations.

BetaShares says that with cybercrime on the rise, the demand for cybersecurity services is expected to grow strongly for the foreseeable future.

A vast majority of the portfolio is made up of businesses listed in the US, but there are representations from other countries like the UK, Israel, Japan and France.

Its biggest 10 positions on 27 January 2021 were: Crowdstrike, Zscaler, Cisco Systems, Accenture, Splunk, Fireeye, Proofpoint, Juniper Networks, F5 Networks and Fortinet.

This ETF has annual management fees of 0.67%. In terms of returns, Betashares Global Cybersecurity ETF has made net returns of 25.6% per annum over the last three years and 21.4% since inception in August 2016.

More reading

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of BETA CYBER ETF UNITS. The Motley Fool Australia has recommended VanEck Vectors Morningstar Wide Moat ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Inflation in Australia is on the way up, which could have dire consequences for growth shares.

The Australian Bureau of Statistics on Wednesday revealed the consumer price index (CPI) rose 0.9% in the December quarter.

This meant the annual inflation rate has now been dragged up from 0.7% to 0.9%.

“The December quarter CPI was primarily impacted by an increase in tobacco excise and the introduction, continuation and conclusion of a number of government schemes, including child care fee subsidies and home building grants,” said ABS head of prices statistics Michelle Marquardt.

Tobacco prices went up 10.9% and child care a whopping 37.7%. Domestic holiday travel costs also headed up 6.3% as state borders opened up for a while.

The danger here is that rising inflation will prompt the Reserve Bank of Australia to consider raising the cash rate.

Why rising inflation could eat us alive

Forager Funds chief investment officer Steve Johnson earlier this month predicted 2021 would “be a difficult year” for exactly that reason.

“If we’re ever going to see pressure on interest rates going up and inflation, it’s going to be over the course of the next two years,” he said.

“I think that’s the big risk for financial markets of all sorts out there, that interest rates start to pick up over the next few years and that people start looking at 5% and 6% returns on equities and saying ‘Well, I can get 3% on a bond portfolio now. I want more.”

As well as the rate rise, the current danger is that so many investors have put money into the market with an assumption that low rates would last forever.

This is especially the case for growth stocks, where investors have relied on future earnings to justify high valuations. 

“There are theories, from ageing populations to technological improvements and low cost labour substitution, that explain low inflation or even deflation as a permanent feature of the developed world,” said Johnson.

“I don’t have a strong view that those theories are wrong. But I know that when the whole market thinks something can’t possibly happen, the consequences of that assumption being wrong are significant.”

But maybe it’s nothing to worry about this year

Precisely because of these risks, other experts think the Reserve Bank would be reluctant to put rates up any time soon.

“The central banks are unlikely to allow a repeat of the ‘taper tantrum’ that caused the market to fall over in October 2018, so we can probably relax for this year at least,” said Marcus Today director Marcus Padley last week.

AMP Capital economist Shane Oliver predicted RBA governor Philip Lowe to “stay the course” in his “the year ahead” speech next month.

“A shift to hawkishness now would be inconsistent with the RBA’s commitment to focus on the achievement of actual inflation sustainably at target.”

He thought the RBA would eventually raise rates but there are too many reasons not to pull that trigger in 2021.

“While the jobs market has improved faster than expected, we are still a long way from full employment. Jobs growth is likely to slow a bit in the months ahead with some jobs (eg travel related) taking longer to return and some (eg in parts of retail) likely to never return again,” said Oliver.

“The end of JobKeeper in late March will create a bit of apprehension (not that I expect much impact), coronavirus still has the potential to create upsets in the short term with uncertainty remaining how effective vaccines will be, [and] the strong Australian dollar is maintaining pressure on the RBA to extend quantitative easing.”

More reading

• 3 reasons why I’d buy cheap stocks right now and hold them to 2030
• IOOF (ASX:IFL) share price on watch after second quarter update
• Here’s why the Tyro (ASX:TYR) share price is in focus today
• Why the a2 Milk (ASX:A2M) share price could tumble lower today
• Why the Eagers Automotive (ASX:APE) share price is on watch today

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Despite the stock market recovery over recent months, it is possible to buy cheap stocks today. They could be appealing because their prices may undervalue their long-term prospects. This could mean that they offer long-term capital growth potential.

Furthermore, the stock market has an excellent track record of recovering from its downturns to post new record highs. This could increase the chances of today’s cheap shares posting turnarounds.

Meanwhile, other mainstream assets such as cash and bonds offer very low returns at the present time. This may increase the appeal of undervalued shares on a relative basis.

Cheap stocks may be mispriced

It is difficult to determine the value of many companies today. Their financial performances are being disrupted by coronavirus in many cases, which could mean lower profitability in the short run. However, a number of cheap stocks appear to be undervalued based on their long-term growth potential. For example, industries such as banking and retail are likely to ultimately return to more attractive operating environments in the coming years. Therefore, current levels of profitability may undersell their prospects.

Buying any asset at a price that is lower than its intrinsic value is likely to increase the chances of generating positive capital returns. With sentiment currently very weak in some sectors, there may be opportunities for investors to buy high-quality companies while they offer wide margins of safety.

A track record of recovery

The chances of a long-term recovery for many of today’s cheap stocks appear high. The stock market has experienced numerous downturns in its past, and has always been able to produce new record highs. Similarly, the world economy has experienced many recessions and periods of slower growth. It, too, has always bounced back to post positive GDP growth.

With many major economies likely to benefit from stimulus packages over the coming years, the outlook for many regions could be positive. This may lead to rising profitability for many of today’s undervalued shares that allows them to command higher stock prices over time.

The relative appeal of cheap shares

Buying cheap stocks could be even more appealing because of the lack of value available elsewhere. Bond prices have risen to high levels over recent years in response to low interest rates, while property prices have surged in many major economies for the same reason. Meanwhile, cash returns are extremely low, and could even be below inflation over the long run.

As such, on a relative basis, cheap shares could be attractive purchases. Certainly, they may experience further challenges in the short run from a tough economic outlook that leads to disappointing financial performances. However, over the coming years a portfolio of undervalued stocks could realistically produce high returns that improves an investor’s financial situation.

More reading

• IOOF (ASX:IFL) share price on watch after second quarter update
• Here’s why the Tyro (ASX:TYR) share price is in focus today
• Why the a2 Milk (ASX:A2M) share price could tumble lower today
• Why the Eagers Automotive (ASX:APE) share price is on watch today
• 2 top ASX dividend shares to buy in February

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The IOOF Holdings Limited (ASX: IFL) share price will be one to watch this morning.

This follows the release of the financial services company’s second quarter update.

How is IOOF performing?

It was an eventful second quarter for IOOF, with Funds Under Management, Advice and Administration (FUMA) falling $0.4 billion to $202.4 billion at the end of December.

Management advised that this reflects an uplift of $12.7 billion in FUMA due to market movements, which was offset largely by one-off negative movements of $10 billion.

These negative movements include $8.1 billion from the termination of the BT relationship, $1.5 billion from the liquidation of IOOF’s Cash Management Fund, and a $0.4 billion one-off transfer from the Cash Management Trust.

IOOF’s Chief Executive Officer, Renato Mota, also revealed that the company was impacted by the Early Release of Super (ERS).

He said: “This quarter has seen ongoing impacts of ERS, especially the final opportunity for early access. As well, we have experienced the ongoing impacts of COVID, including client concern and uncertainly around ongoing and potential economic impacts. Our ClientFirst approach has been invaluable in ensuring that our clients have the support that they need during times of significant uncertainty.”

Nevertheless, the strong market performance helped offset much of this to leave its FUMA down only slightly for the three months.

“There has been strong market performance over the quarter and as a result of the scale and diversity of our business, the market contribution of $12.7 billion to FUMA has largely offset outflows.”

Mr Moto was also pleased with the progress the company is making with its transformation plans.

He commented: “We are making good progress towards the transformation of the business. In particular, we are transforming the advice business through our Advice 2.0 strategy and progressing our platform simplification strategy, while supporting IOOF’s open architecture approach and enabling choice for our clients.”

The Chief Executive is now looking ahead to the middle of the year when its FUMA should be boosted by the acquisition of the MLC business from National Australia Bank (ASX: NAB).

“We have continued to meet key milestones in the execution of our transformation program including Advice 2.0 and Evolve. We are progressing well and meeting targets to enable the completion of the proposed MLC acquisition before 30 June 2021,” he added.

No guidance has been given in respect to first half profits or its expectations for the full year.

More reading

• Is the NAB (ASX:NAB) share price a buy?
• ASX 200 Weekly Wrap: Change in America spurs ASX 200 higher
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• This top broker thinks the NAB (ASX:NAB) share price is a strong buy
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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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Tyro Payments Ltd (ASX: TYR) share price is one worth watching in early trade today. All eyes will be on the Aussie payment solutions provider after the company released an update regarding its terminal connectivity saga.

Why is the Tyro share price in focus?

Wednesday evening saw Tyro provide a final status update on its terminal connectivity issue. The issue first came to light on 7 January 2021 and has been the subject of much attention, pushing the Tyro share price down 24.7%.

Tyro reported that the number of terminals connected to its network has now returned to pre-incident levels. This was confirmed by real-time monitoring data of terminals connected to Tyro’s switch engine over the last month.

However, it wasn’t all good news for shareholders and the Tyro share price is one worth watching as a result. Tyro said there are a “limited number” of active merchants still impacted by the connectivity issue.

486 merchants currently do not have an operational terminal. Tyro is continuing to work with these operators to get their payments systems back online.

1,490 merchants have at least one fully operational terminal but also at least one non-functioning unit. There are also 643 merchants with terminal types over 6 years of age which are no longer manufactured. Those units are now obsolete and merchants are being encouraged to replace them.

The Tyro share price has been under pressure due to the connectivity issue for nearly all of January. This includes fending off activist short-sellers targeting the Aussie payments group.

To that end, Tyro also provided a transaction value status update yesterday. Transaction value compared to FY20 numbers is up 8% date on date, and same day on day compared to 26 January.

January year to date figures are up 9% to $13.779 billion compared to $12.606 billion in FY20. That also makes the Tyro share price one to watch early on Thursday.

Foolish takeaway

Yesterday’s update is just the latest chapter in the ongoing connectivity issue impacting the Tyro share price. Shares in the payments group are worth watching in early trade following the company’s final status update.

More reading

• Why IDP Education, Lake Resources, Mach7, & Tyro shares are shooting higher
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• Kogan (ASX:KGN) pays price for illegal emails
• ASX 200 rises 1.2%

Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Tyro Payments. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The A2 Milk Company Ltd (ASX: A2M) share price will be on watch this morning following the release of an announcement.

At the time of writing, the fresh milk and infant formula company’s New Zealand listed shares are in the red.

Why might the a2 Milk share price tumble lower?

As well as being caught up in a broad market selloff following weakness on Wall Street overnight, the a2 Milk share price could come under pressure after announcing the exit of one of its executives.

According to the release, the company’s Chief Growth and Brand Officer, Susan Massasso, has advised of her intention to step down from her role effective 15 April 2021. From that date, Massasso will continue with the company in an advisory capacity.

The release explains that Susan Massasso intends to broaden her career into more advisory work, including non-executive positions in the future.

The Chief Growth and Brand Officer was one of a number of executives that sold shares in August before COVID-19 headwinds hit the company hard and sent its shares crashing lower. Massasso offloaded 541,391 shares through on market trades.

Commenting on her exit, acting CEO Geoff Babidge said: “Susan has been instrumental in building our brand and business since she joined the Company in 2013. With her passion and commercial insight, she has been a key contributor to our success, and we will miss having her in the business. We are pleased that Susan will continue to be involved in the business supporting the Executive Leadership Committee and reporting to the incoming CEO, David Bortolussi.”

Susan Massasso added: “My nearly eight years at The a2 Milk Company has been the role of a lifetime. Being part of such a passionate team and assisting in the development of this extraordinary business has been a privilege. Our leadership position as pioneer of the A2 protein proposition, our distinctive brand and unique company culture are core elements which will support our ongoing growth into the future. I am also looking forward to continuing my involvement with the Company in my new capacity in the future.”

More reading

• 3 top ASX blue chip shares to buy
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• 3 reasons why the A2 Milk share price could be a buy
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• Leading broker downgrades a2 Milk (ASX:A2M) shares

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Eagers Automotive Ltd (ASX: APE) share price is one to watch in early trade today. Shares in the Aussie car retailer could be on the move after the company released a trading update late on Wednesday afternoon.

Why is the Eagers Automotive share price on watch?

Eagers provided some good news to investors after Wednesday’s market close. The company released a trading update for the twelve months ended 31 December 2020 – the first full year of trade for the automotive group.

Eagers Automotive was formed when AP Eagers merged with Automotive Holdings Group in late 2019.

Eagers expects to report an underlying operating profit before tax from continuing operations of $209.4 million for 2020. That would represent a 108.6% increase on 2019’s $100.4 million figure.

Wednesday’s announcement was the second profit guidance upgrade in just six weeks for Eagers. The previous update had flagged guidance of $195 million to $205 million for 2020. The Eagers Automotive share price jumped to a new all-time high following that announcement on 11 December.

Management said the improved profit result compared to guidance had been delivered by strong performance in both its car and truck retailing businesses.

Why is Eagers’ business performing well?

The coronavirus pandemic has proved to be something of a positive for Eagers’ business. Used car and other vehicle markets have been hot with strong sales in the past year or so.

That’s largely come on the back of less economic impacts than anticipated as well consumers turning away from public transport during the pandemic. Strong government stimulus programs such as JobKeeper and early access to superannuation have also helped to increase many Aussies’ cash balances.

That has meant strong demand for used cars, trucks, motorcycles and boats which has boosted the Eagers Automotive share price higher. 

In fact, shares in the Aussie car retailer are up 46.4% in the last twelve months. It’s been a similar story for rival Carsales.com Ltd (ASX: CAR) in 2020.

The Carsales share price has climbed 86.3% since the bottom of the March bear market compared to a 356.5% gain for Eagers Automotive over the same period.

The S&P/ASX 200 Index (ASX: XJO) closed down 0.7% at 6,780.60 points on Wednesday afternoon.

More reading

• ASX 200 falls 0.6%
• Aussies ready to splash on travel, entertainment, cars
• Think you saw growth in 2020? Just wait for 2021: fundie
• Why these leading ASX gold and tech shares could rally on through 2021
• How ASX shares in the automotive sector outperformed the market in 2020

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has recommended carsales.com Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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