Category: Stock Market

The Jumbo Interactive Ltd (ASX: JIN) share price is inching higher today after the company announced it has secured a software licence approval in Great Britain. At the market open, the Jumbo share price originally jumped to $14.10 before retreating to $13.92 at the time of writing for a 0.07% gain so far today. This compares to S&P/ASX 200 Index (ASX: XJO) which is down 0.25% to 6,677 points in intraday trading.

What did Jumbo announce?

The Jumbo share price is creeping up following the company’s report that the Gambling Commission approved and issued a remote gambling software operating licence.

Jumbo will now begin to supply its software-as-a-service (SaaS) platform to licenced operators under the Gambling Commission’s umbrella. This will allow end-consumers to use Jumbo’s gambling and lottery services in Great Britain.

The newly approved software operating licence is an extension of Jumbo’s United Kingdom subsidiary, Gatherwell. The latter holds external lottery manager operating licences (remote and non-remote).

Pleasingly for the company, Jumbo stated that it is able to provide its UK market an increased offering. This includes both a SaaS platform, and a managed charities solution operated by Gatherwell.

What did management say?

Commenting on the positive announcement, Jumbo CEO and executive director, Mr Mike Veverka, said:

We are delighted to achieve this international expansion milestone which, together with our local subsidiary Gatherwell, will drive our growth strategy in the UK charities market. This is an important step in Jumbo expanding its footprint in the UK following the great work carried out by the Gatherwell team to date.

Addressable market

Jumbo revealed that there are currently 168,168 registered charities in England and Wales. These organisations had total estimated revenue inclusive of grants, donations, lotteries and other fundraising activities of 77.404 billion pounds as at 30 September 2018. According to Jumbo, its immediate addressable market is estimated at around 775 million pounds in lottery sales via ‘Society Lotteries’ and local authority lotteries.

This highlights the scope of opportunity that lies ahead if Jumbo can manage to substantially penetrate this market. 

About the Jumbo share price

The Jumbo share price has accelerated since the beginning of the month, delivering 28% gains for shareholders. While still materially down from its pre-COVID-19 levels of above $20, Jumbo has been focusing its strategy on digital expansion.

Should it be able to further harness consumers around the world onto its online platform, the Jumbo share price could shoot higher.

More reading

• Fundie names 5 ASX shares with good growth prospects
• Why Elders, Jumbo, Northern Star, & PolyNovo shares are charging higher
• Jumbo (ASX:JIN) share price on watch following signed Lotterywest agreement
• 2 ASX mid cap shares that are growing strongly
• Leading brokers name 3 ASX shares to buy today

Aaron Teboneras owns shares of Jumbo Interactive Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Jumbo Interactive Limited. The Motley Fool Australia owns shares of and has recommended Jumbo Interactive 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 Stockland Corporation Ltd (ASX: SGP) share price is up today after the company announced the appointment of a new chief executive officer.

Industry veteran Tarun Gupta will replace Mark Steinert, who has been at the helm since 2013 and announced his retirement from the company in June. At the time of writing, the Stockland share price is trading up 3.07% at $4.70.

Why is the Stockland share price lifting?

In announcing the appointment, Stockland said Mr Gupta would bring plenty of experience to the CEO position. He is the current chief financial officer at Lendlease Group (ASX:LLC), having first joined that company as a graduate and holding a variety of senior positions across 26 years.

Stockland described Mr Gupta as “the right man for the job”, with deep commercial experience and a proven track record in leading and managing large property operations. The company also said that Mr Gupta was highly regarded in the industry, and had a strong reputation among property investors. 

Mr Gupta will join Stockland on 1 June 2021, and Mr Steinart will remain as CEO until then. Meanwhile, Lendlease announced that its deputy chief financial officer, Frank Krile, will step into the group chief financial officer role on an interim basis.

Mr Gupta will earn a fixed remuneration of $1.5 million annually, in addition to long-term and short-term incentives.

Challenging times ahead for Stockland

Mr Gupta will join Stockland at a time of big challenges. 

More than half of the Stockland’s earnings comes from its retail property portfolio. Of Stockland’s 34 retail shopping centres, 24 are tenants in the challenged department store sector. The department store business model is under increasing pressure from online competition.

In addition, 9 of Stockland’s 34 sites include Target stores. Target owner Wesfarmers Ltd (ASX: WES) has announced plans to close half its Target stores or rebadge them as K-Mart. Given Stockland already has 14 K-Mart stores, 9 of them at the same locations as its Target stores, this could be challenging scenario for Stockland. 

How has the Stockland share price performed in 2020?

The Stockland share price has rebounded strongly after losing 60% of its value in March at the height of the coronavirus pandemic. At $4.70, the Stockland share price is now back to almost the same level it was at the beginning of the year. The company commands a market cap of $10.9 billion. 

More reading

• 3 ASX companies named and shamed as worst in industry
• Why these ASX 200 shares just hit record highs
• ASX stock winners from the $23 billion Victorian state budget
• Could Citi’s forecast spell good news for the Lendlease (ASX:LLC) share price?
• Leading brokers name 3 ASX shares to buy today

Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers 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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At lunch on Thursday the S&P/ASX 200 Index (ASX: XJO) is running out of steam and threatening to end its winning streak. At the time of writing, the benchmark index is roughly flat at 6,678.1 points.

Here’s what is happening on the market today:

Bega Cheese announces major acquisition.

The Bega Cheese Ltd (ASX: BGA) share price is in a trading halt today whilst it aims to raise a total of $401 million via an underwritten entitlement offer and placement. The proceeds will be used to partly fund the acquisition of Lion Dairy & Drinks for $534 million. Lion Dairy & Drinks is the business behind a wide range of brands such as Dare, Farmers Union, Juice Brothers, Pura, and Yoplait. Management expects the acquisition to be double digit earnings per share accretive in FY 2022.

Virgin Money UK sinks.

The Virgin Money UK CDI (ASX: VUK) share price is sinking lower following the release of its full year results. For the 12 months ended 30 September, the UK-based bank reported a 77% drop in full year underlying pre-tax profit. This decline was driven largely by a sizeable 501 million pound impairment charge in relation to an expected surge in bad loans because of COVID-19. This led to analysts at Macquarie downgrading its shares to a neutral rating this morning. It has a $2.70 price target on its shares.

WiseTech Global reaffirms guidance.

The WiseTech Global Ltd (ASX: WTC) share price is pushing higher on Thursday after it reaffirmed its guidance for FY 2021. The logistics solutions company expects revenue of $470 million to $510 million and EBITDA of $155 million to $180 million. This represents growth of 9% to 19% and 22% to 42%, respectively. However, it is worth noting that the company has warned that the ongoing and longer-term impacts of COVID-19 are still not completely predictable.

Best and worst ASX 200 performers

The best performer on the ASX 200 on Thursday has been the Harvey Norman Holdings Limited (ASX: HVN) share price with a 5.5% gain. This morning Credit Suisse retained its outperform rating and $5.06 price target in response to its trading update yesterday. The worst performer has been the Virgin Money UK with an 8% decline following its full year results release.

More reading

• Is the Harvey Norman (ASX:HVN) share price good value?
• Bega Cheese (ASX:BGA) announces $534 million Lion Dairy & Drinks acquisition
• Why the WiseTech Global (ASX:WTC) share price is climbing higher today
• The real earnings growth driver for ASX bank stocks in FY21 isn’t what you think
• 5 things to watch on the ASX 200 on Thursday

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of WiseTech Global. 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 Harvey Norman Holdings Limited (ASX: HVN) share price could still have room to grow according to one leading broker.

Who is positive on Harvey Norman?

A note out of Goldman Sachs this morning revealed that its analysts have retained their buy rating and put a $4.90 price target on this retail giant’s shares following the release of its annual general meeting update yesterday.

That update revealed that Harvey Norman’s aggregated sales revenue increased by 28.2% between 1 July and 21 November compared to the prior corresponding period. This has been driven by strong same store sales growth across almost all regions over the period.

Things were even better on the bottom line. Thanks to margin expansion, the company’s unaudited profit before tax for the period 1 July to 31 October was up a massive 160.1% on the prior corresponding period.

Goldman believes the company’s growth will inevitably slow in the second half but has increased its forecasts to account for stronger than expected sales trends and operating leverage.

It said: “We maintain our expectations that the strong growth seen over 2H20 and into 1H21 is unlikely to be sustained once the industry starts to cycle through the strong base in 2H21.”

“However, we revise sales forecasts to reflect the stronger ongoing sales trend and operating leverage resulting in EBIT revisions of +28.7% in FY21, but less significantly at +3.1% in FY22. Our revised PBT forecasts imply growth of +75.7% over the more significant Nov/Dec period, after +185.9% in Jul/Aug and +136.7% in Sep/Oct,” Goldman added.

Why buy Harvey Norman shares?

The broker sees Harvey Norman as a great option for income investors due to its generous yield.

It explained: “[its target price] now offering a potential total return of 15.7% driven by strong dividend yield support. We forecast HVN is trading at 13.8x PE and offers a 6.5% fully franked dividend yield in FY22. We maintain our Buy rating on HVN and the stock remains a preferred exposure in the discretionary retail sector.”

More reading

• ASX 200 up 0.8%: Fisher & Paykel Healthcare impresses, Harvey Norman’s profits surge
• Harvey Norman (ASX:HVN) share price higher on stellar sales update
• 5 things to watch on the ASX 200 on Wednesday
• ASX 200 Weekly Wrap: ASX continues to climb, despite outage
• 5 things to watch on the ASX 200 next week

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

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The Bega Cheese Ltd (ASX: BGA) share price remains in a trading halt on Thursday whilst it undertakes a capital raising to fund a major new acquisition.

What did Bega Cheese announce?

This morning Bega Cheese announced the launch of a $401 million underwritten entitlement offer and placement to fund the acquisition of Lion Dairy & Drinks for $534 million.

According to the release, this will comprise a 1 for 4.5 pro-rata accelerated non-renounceable entitlement offer of approximately $220 million and an institutional placement of approximately $181 million.

These funds will be raised at an offer price of $4.60 and through the issue of approximately 87 million new shares. This offer price represents a 9.1% discount to its last close price.

What is Lion Dairy & Drinks?

Lion Dairy & Drinks’ core business is the manufacture, marketing, sales and distribution of:

• Milk Based Beverages (Dare, Farmers Union, Big M, Masters, Dairy Farmers)
• Yoghurt (Yoplait, Farmers Union, Dairy Farmers)
• Chilled Juices (Juice Brothers, Daily Juice)
• Cream and Custard (Pura, Dairy Farmers)
• White Milk (Pura, Dairy Farmers, Masters).

Lion Dairy & Drinks also has Australia’s largest national cold chain distribution network supplying food service and convenience stores and a national manufacturing footprint comprising 13 sites.

Management expects the acquisition to create significant value for shareholders.

Bega Cheese’s Executive Chairman, Barry Irvin, commented: “We are delighted to announce this acquisition which we believe will create significant value for shareholders. The acquisition delivers important industry consolidation and value creation with synergies across the entire supply chain. The expanded product range, manufacturing and distribution infrastructure and brand portfolio realises our ambition of creating a truly great Australian food company.”

Financials.

The combined business is expected to generate revenue in excess of $3 billion.

Lion Dairy & Drinks delivered pro forma normalised EBITDA of $56 million (post-AASB 16) excluding synergies for the 12 months to 30 September.

Base case synergies of $41 million per annum are expected. This is primarily from milk network optimisation, indirect procurement, and a corporate reorganisation.

All in all, the deal is expected to be double digit earnings per share accretion in FY 2022.

Bega Cheese’s Chief Executive Officer, Paul van Heerwaarden, concluded: “We are very pleased with the performance of acquisitions made in recent years which are achieving or exceeding our profit targets. The recent company restructure and ERP implementation will allow us to integrate this Acquisition and take advantage of the various synergies and growth opportunities across domestic and international markets.”

More reading

• Is the Harvey Norman (ASX:HVN) share price good value?
• Don’t waste the stock market crash! I’d use Warren Buffett’s strategy to profit from it
• Will Netflix stock crash in 2021?
• Citadel (ASX:CGL) share price flat as scrip offer approved
• Gentrack (ASX:GTK) share price slips following mixed full-year results

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

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The 2020 stock market crash may have left some investors feeling cautious about the idea of buying shares. A weak economic outlook and political risks in Europe may mean that they sell equities and invest in lower-risk assets.

However, investors such as Warren Buffett have previously avoided such a strategy. Instead, he has sought to use a market decline to his advantage. It enables him to buy high-quality companies when they trade at low prices. Over the long run, this can produce impressive returns that lead to outperformance of indexes such as the S&P 500 Index (SP: .INX) and FTSE 100 Index (FTSE: UKX).

Buying cheap shares after a stock market crash

The stock market crash has caused a wide range of companies to trade at relatively low prices. Certainly, some sectors have recovered in recent months. However, others such as financial services companies, energy businesses and leisure stocks continue to trade at prices that are lower than their historic averages.

Warren Buffett has always sought to buy companies when they offer a wide margin of safety. In other words, when they trade for less than they are worth. This is often caused by temporary weak operating conditions that could give way to an improving outlook over the long run. Therefore, buying cheap shares that have the potential to recover could lead to impressive capital returns that are ahead of the wider index.

Focusing on quality stocks

Of course, not all shares will recover after a stock market crash. Some businesses may fail to evolve in line with consumer tastes. Or, weak operating conditions may mean that their poor financial positions are exposed.

Therefore, Warren Buffett has sought to purchase high-quality stocks after a market decline. For example, they may be businesses with low debt levels that mean they can outlast their sector peers during a period of challenging operating conditions. Similarly, they could be companies with wide economic moats that enable them to outperform sector peers in a weak market and as the economic outlook improves.

As such, focusing on strong businesses with a competitive advantage could be a means of improving an investor’s prospects after a stock market crash. It may reduce risk and improve long-term returns.

Buffett’s long-term view

Recovering from a stock market crash can take a prolonged period of time. For example, it took many companies several years to fully recover from the effects of the global financial crisis.

As such, investors such as Warren Buffett have been successful because they allow their holdings a long period of time to fulfil their potential. This can mean disappointing returns in the short run if the market experiences further volatility and declines. However, a patient approach can be beneficial to an investor’s returns in the long run. It could lead to market outperformance and a higher portfolio value in the coming years.

More reading

• Will Netflix stock crash in 2021?
• Citadel (ASX:CGL) share price flat as scrip offer approved
• Gentrack (ASX:GTK) share price slips following mixed full-year results
• Straker Translations (ASX:STG) share price flat after half year results release
• The Nitro (ASX:NTO) share price is down 20% in a month. Time to invest?

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. 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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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.

The clock is ticking on 2020, and Netflix Inc (NASDAQ: NFLX) investors can’t complain. Shares of the leading premium streaming service provider have risen 49% through Tuesday’s close, fueled by another year of healthy growth and a platform that has made the most of the new normal by entertaining a growing number of folks who are spending more time at home than usual.

Next year might not be as kind. Rivals are starting to heat up, and a recent price hike may make Netflix more expendable. The emergence of viable vaccines and treatments for COVID-19 may find us hungry for a return to entertainment outside of the home. We also can’t dismiss the reality that Netflix stock isn’t cheap by most conventional measuring sticks. This year has been great for shareholders. We may not be saying the same thing about 2021. 

The crown

Netflix has historically moved higher on odd-numbered years. It was the S&P 500 Index‘s (SP: .INX) biggest gainer in 2013 and 2015 with triple-digit gains each time. It trounced the market with its 55% pop in 2017. Last year’s 21% gain was pedestrian by previous odd-year standards, and actually lost to the market’s nearly 30% return. 

There will be challenges in 2021. Let’s start with the 800-pound Dunder Mifflin fan base in the room. Netflix will lose The Office in January. The cult-fave sit-com will stream exclusively on NBC’s fledgling Peacock platform after this year. It lost Friends to HBO Max earlier this year.

Netflix no longer corners the market on premium streaming success. Several major media stocks including Walt Disney Co (NYSE: DIS), Apple Inc (NASDAQ: AAPL), Comcast Corporation (NASDAQ: CMCSA), and AT&T Inc. (NYSE: T) have jumped into the market in the past 13 months, and that includes Disney+, which has amassed 73.7 million subscribers in its first year of service. There’s no denying that Netflix still wears the crown when it comes to being the ultimate streaming kingmaker. It’s no surprise that The Queen’s Gambit and the latest season of The Crown were trending in November. Netflix has a huge advantage over the competition in both the size of its digital audience and the data it has collected on their streaming preferences. 

However, we can’t just ignore that Netflix did raise its monthly rate last month for US subscribers. The 8% increase may not seem like much — and the market initially applauded the late-October move — but Netflix growth took a hit the last time it boosted its prices. The early 2019 pricing increase and Netflix subsequently falling woefully short of its account growth targets in back-to-back reports explain why the stock lost to the market last year. Since then we’ve seen the arrival of Disney+, Apple TV+, HBO Max, and Peacock. Will a royal flush beat a full house?

The bullish counterargument here is that Netflix finds a way. Streaming services are also reasonably cheap enough that most consumers are subscribing to several services. Netflix is a hit factory through thick and thin, and it has thrived this year even as we’re several months deep into a recession. 

I’m not selling my shares of Netflix, but I’m heading into 2021 with a guarded approach. Revenue and subscriber growth should decelerate next year. Unlike the big gains of 2013, 2015, and 2017, it wouldn’t be a shock to see the stock underperform the market the way it did in 2019. An outright crash seems unlikely. Streaming is here to stay. However, the year ahead could prove challenging to the top dog in this suddenly crowded market.

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

More reading

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Rick Munarriz has positions in Disney, Netflix, Apple, and AT&T. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Apple, Netflix, and Walt Disney. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Comcast and recommends the following options: long January 2021 $60 calls on Walt Disney and short January 2021 $135 calls on Walt Disney. The Motley Fool Australia has recommended Apple, Netflix, and Walt Disney. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Citadel Group Ltd (ASX: CGL) announced today that its shareholders have approved the all-scrip offer from private equity group, Pacific Equity Partners, as an alternative to the all-cash $5.70 per share takeover offer. At the time of writing, the Citadel share price is trading flat at $5.67.

About the Citadel takeover

In September, investors scrambled to buy up the Citadel share price after the company announced it had received a takeover approach from Pacific Equity Partners (PEP).

The proposed offer at the time was for an all-cash price of $5.70 per share, a 43% premium on the Citadel share price at that time. The offer valued Citadel’s equity at $448.6 million and enterprise value at $503.1 million. The Citadel share price jumped by 35% on the news that day. 

However, the terms of the bid also gave shareholders the option to take a scrip alternative to enable them to retain an indirect interest in the business. In this alternative proposal, they can choose either all-cash, all-scrip or a combination of the two.

Today’s voting results have validated shareholders’ wish for the alternative scrip proposal.

Management backing

The company’s directors have been supportive of the offer and recommended that shareholders vote in favour of the scheme.

Citadel board chair, Peter Leahy, said this about the takeover offer:

The PEP offer is an attractive transaction which provides an all-cash option for Citadel shareholders. The Citadel board has unanimously concluded that the scheme represents a compelling outcome for our shareholders, customers, suppliers, and staff.

It is worth noting that the cash offer price of $5.70 is a significant discount to where the Citadel share price was trading in November 2018. At that point the company’s shares were trading at over $9. Furthermore, it’s actually lower than the company’s February high of $5.92. 

Next steps

An all-scrip scheme is unusual for a private equity buyout, however under the terms of this scheme, shareholders can elect to take scrip in Pacific Group Topco Limited,  a private holding group set up to own Citadel’s shares. 

The Citadel directors have today reiterated their recommendation that Citadel shareholders approve the offer, in the absence of a superior proposal, and subject to the independent experts continuing to conclude that the scheme is in the best interest of Citadel shareholders.

More reading

• Don’t waste the stock market crash! I’d use Warren Buffett’s strategy to profit from it
• Will Netflix stock crash in 2021?
• Gentrack (ASX:GTK) share price slips following mixed full-year results
• Straker Translations (ASX:STG) share price flat after half year results release
• The Nitro (ASX:NTO) share price is down 20% in a month. Time to invest?

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

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The Gentrack Group Limited (ASX: GTK) share price has slipped slightly in opening trade this morning after the software company released mixed full-year results for the 2020 financial year.

Gentrack builds software for energy utilities, water companies and airports, mainly in Australia and New Zealand. The company’s platform aims to develop, integrate and support billing and customer management solutions. At the time of writing, the Gentrack share price is trading 1.42 lower at $1.39.

What did Gentrack announce?

Gentrack reported growth in a number of metrics, but fell short other areas. For the period ending 30 September, revenue declined 10% to $100.5 million over the prior corresponding period (pcp). The company attributed the revenue slump to the impact of COVID-19 which saw delays in projects, particularly its airport programs.

Annual recurring revenue (ARR) saw an 4.9% uplift, which Gentrack registered $81.3 million over the comparable period. Its utilities business did the heavy lifting, representing $70.9 million of the group portfolio, with its airport division coming in at $10.4 million.

Earnings before interest, tax, depreciation and amortisation (EBITDA) plummeted 51% to $12.1 million.

Statutory net profit after tax came at a loss of $31.7 million. This included a partial write-down of $34.5 million mostly related to its blip and utilities segment due to COVID-19 uncertainly.

Gentrack recorded a cash balance of $16.8 million at the end of September, reflecting an increase of 263% from the year before.

The board advised that due to the net profit after tax loss, it will not pay a final dividend to shareholders.

Management commentary

Commenting on the results, Gentrack CEO Gary Miles said:

The results reflect a tough year for our utilities and airports customers. Pleasingly, the revenue mix and shift in annual recurring revenues is positive.

We see opportunities in our markets and our strong net cash position sets us up to accelerate our technology investment and lead the industry as it transforms to the cloud and clean technologies. This year, we’ve also played a key role in enabling our customers to adapt to COVID, keeping their mission critical systems operational and ready to support customer hardship at this time.

FY21 outlook

Looking ahead to the new FY22 year, Gentrack opted not to provide investors with a guidance. However, it did reveal that it expected EBITDA run rate for FY21 to be well below H2 FY20. This in turn could hit the company’s bottom line with a possible break-even depending on its ongoing product investment strategy.

Management said that it continued to see opportunities in cloud technology and would seek to compete in this space.

Furthermore, the company will deliver an update on progress at its annual general meeting in February.

About the Gentrack share price

The Gentrack share price has been trading lower this year, sitting around 65% below its high of $4.02 last November. However, the Gentrack share price is up 25% since the start of the month.

The company has a market capitalisation of $139 million and a price-to-earnings (P/E) ratio of 12.8.

More reading

• Ask a fund manager: Totus Capital’s Sam Granger reveals the methods behind his outperforming High Conviction Fund

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

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The Straker Translations Ltd (ASX: STG) share price is trading flat on Thursday following the release of its half year results.

At the time of writing the translation platform provider’s shares are fetching $1.59.

How did Straker perform in the first half?

For the six months ended 30 September, Straker delivered a 9% increase in revenue to NZ$14.8 million.

The vast majority (93%) of this revenue is classed as recurring, with its annualised repeat revenue increasing 32% to NZ$28.1 million.

A reduction in the company’s gross margin due to COVID-19 induced pricing pressures and acquisitions, led to its gross margin falling from 54.4% to 51.1%.

Nevertheless, Straker recorded positive adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of NZ$0.04 million, compared to a NZ$0.24 million loss a year earlier. Management advised that this was driven by acquisition synergies and COVID-19 related cost reductions.

Cash used in operating activities was NZ$0.4 million, down from NZ$1.5 million a year earlier. Management believes this reflects the improved operating performance of the business.

This led to Straker finishing the period with cash on hand of NZ$7.7 million, which management believes provides more than enough capital to fund its operations.

The company’s CEO and Co-Founder, Grant Straker, commented: “We are very pleased with the progress we have made over the last half year. Although the COVID-19 pandemic disrupted momentum and margins in the first quarter, we have over the last few months seen a resumption of growth and this culminated in September with our largest ever sales month.”

“COVID-19 is accelerating the transition of the translation industry to an outsourced and automated model and we are benefitting from this trend. Our technology and service proposition continues to gain recognition around the world, as our recently announced contract with IBM highlights and this interest is filling the sales pipeline. We are seeing particularly strong engagement with global enterprise customers who value our global reach as much as they value the speed, accuracy and service that our platform delivers,” he added.

Outlook.

The company believes its growth can continue in the second half and beyond, particularly given its recent game-changing agreement with IBM.

Mr Straker said: “Straker is well placed to continue to grow for the remainder of the current financial year and beyond. Core repeat revenue is strong. The relationships we have established with new enterprise customers through acquisitions and through the follow up by our sales teams positions us for organic growth.”

 “We continue to expect revenue from the recently announced IBM agreement to positively impact the Q4FY21 financial results and expect it to yield a significant contribution in FY22,” he added.

The chief executive also revealed that the company has acquisitions in its sights and discussions are ongoing.

He explained: “Meanwhile, with COVID-19 accelerating the consolidation of the global translation industry, we have resumed talks with several potential acquisition targets where we can drive immediate margin improvements as we integrate our technology and share support office costs.”

Before concluding: “We are looking ahead with confidence and look forward to providing an update at the end of the third quarter, if not before.”

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• Why the Straker Translations (ASX:STG) share price is rocketing 37% higher today

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