Category: Stock Market

The homegrown investment bank is not regarded as a competitor to Commonwealth Bank of Australia (ASX: CBA) before, but that may be about to change.

I am not talking about Macquarie Group Ltd (ASX: MQG) vying to overtake CBA in home loans or market cap. CBA’s position in both these fronts look unassailable.

But I am referring to the hearts and minds of investors. CBA dominated investor perception of what is a high-quality financial institution for so long, and some of this gloss is wearing off.

CBA’s leadership losing its shine

CBA commands a market premium as it’s the undisputed leader when it comes to these revered qualities. This is also why mum and dad investors are fiercely loyal shareholders that are hooked in its dividends.

I am not suggesting for a moment that CBA isn’t a quality institution. But Australia’s largest home lender’s reputation could take a hit this Wednesday when it releases its quarterly update.

This will stand in contrast to Macquarie’s full year results unveiled on Friday that triggered a 6% jump in the Macquarie share price to a two-month high of $105.19.

This is despite the investment bank posting an 8% drop in FY20 profit, the halving of the dividend and withdrawing of its profit guidance.

Macquarie vs. big banks

But the profit outlook for the big four domestic banks makes Macquarie’s “bad” news look delectably good!

The three big banks turned in big double-digit profit crashes in the first half. Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) even went as far as suspending their dividends.

Meanwhile, National Australia Bank Ltd (ASX: NAB) slashed its interim dividend by more than two-thirds to 30 cents a share while pleading with investors to provide a $3.5 billion in extra cash via its cap raise.

Talk about a reverse capital return – big bank style!

Better protected

Further, Macquarie’s provisioning of a little over $1 billion is modest compared with what the big banks have to set aside for bad debts amid the COVID-19 pandemic.

CBA is tipped to announce total provisioning of $3 billion this week and a significant fall in quarterly cash profit that will make Macquarie look like the king of the banking hill.

Macquarie isn’t seen to be a direct rival to other ASX Australian banks as its income mix is different, even though it’s aggressively moved into home lending recently.

Foolish takeaway

The bank’s commercial lending and asset management business helped buoy its results with a 12% increase over FY19, while its commodities, markets and capital divisions, took a 29% profit hit.

While Macquarie isn’t immune to the coronavirus economic fallout, its better spread of income, which also includes offshore operations, means it may hold up better than our domestic banks.

For these reasons, some of the premium gloss from CBA could well rub-off on Macquarie – at least for the interim.

More reading

• ASX 200 Weekly Wrap: New ASX bull run continues
• 3 top ASX dividend shares to buy right now
• 5 things to watch on the ASX 200 on Monday
• Which is the cheapest ASX bank stock on the market?
• What to watch on the ASX 200 next week

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, Macquarie Group Limited, National Australia Bank Limited, and Westpac Banking. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post How Macquarie Group is vying to unseat CBA appeared first on Motley Fool Australia.

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The market closed higher last week on hopes of an imminent easing of coronavirus restrictions. The S&P/ASX 200 Index (ASX: XJO) finished the week up nearly 3% as Scott Morrison announced a staged reopening of the economy. 

Treasury estimates the coronavirus shutdown is costing the economy $4 billion a week. The economic hit is due to a combination of unemployment, productivity loss, and a drop in consumption.

Unemployment is predicted to hit 10% by June. But a recovery in GDP growth is expected by the end of the year, limiting the fall in GDP to 6% over 2020. Unemployment is predicted to improve slightly to 9% by the end of the year. 

Market conditions remain challenging given the uncertainty around COVID-19 and unknown speed of recovery. Nonetheless, ASX travel shares soared as Morrison announced “some” interstate travel would be permissible under stage 2 of the 3-step plan to reopen the economy. Shares in Flight Centre Travel Group Ltd (ASX: FLT) rose by 8.1% on Friday while Webjet Limited (ASX: WEB) shares were up by 9.3%. 

If all goes well under Morrison’s 3-step plan, 850,000 people will be back in work and around $9 billion pumped into the economy in about 8 weeks’ time. As restrictions ease, we take a look at the ASX shares that gained the most last week. 

Afterpay Limited (ASX: APT)

Shares in Afterpay gained 36.8% last week to finish the week at $39.88. Afterpay shares have now gained a massive 348% from their March low. The buy now, pay later provider reported March was its third-largest underlying sales month on record. Underlying sales in the March quarter increased 97% compared to Q3 FY19. 

Afterpay reported underlying sales of $7.3 billion for the year to the end of March, growing at 105% compared to the prior corresponding period. Healthy growth in merchant and customer numbers was recorded during the quarter – active customers grew to 8.4 million, up 122% on the prior corresponding period. Merchant numbers grew to 48,400 globally, up 78% on the prior corresponding period. 

Afterpay has made pre-emptive adjustments to risk settings which have had a positive impact on loss performance lead indicators in the second half of March and early April. The company has a strong balance sheet and liquidity position, meaning there should be no requirement to raise capital in the foreseeable future. 

EML Payments Ltd (ASX: EML)

EML Payments shares closed last week up 28.7% at $3.41. The payment solution company provides gift card and incentive programs, reloadable value cards, and virtual accounts for business payments. 

In the 5 years to FY19, EML Payments’ earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 82% on a compound annual basis. Revenue increased 37% in FY19 to $97.2 million. Approximately 87% of revenue was generated from recurring revenue streams. 

EML completed its acquisition of Prepaid Financial Services in April. Prepaid is a provider of white-label payments and banking-as-a-service technology. The terms of the acquisition were renegotiated with the enterprise value reduced by £94.5 million to £131.5 million. 

PolyNovo Ltd (ASX: PNV)

PolyNovo shares rose 28.1% last week to close the week at $2.55. The medical company released a presentation last week which estimated its near-term total addressable market at $7.5 billion. 

PolyNovo produces NovoSorb BTM, an implantable dressing that can be absorbed into the body as it heals. Currently used as a dermal scaffold, PolyNovo is also exploring the use of the technology in hernia repair, breast augmentation and reconstruction, and drug elation. 

PolyNovo recorded record sales of the NovoSorb BTM product in the US in March. The product has received CE mark approval and has launched in Europe with excellent results. A factory is being built in Port Melbourne to produce hernia products with the global hernia market estimated to be worth $3.1 billion. 

Appen Limited (ASX: APX)

Shares in Appen lifted 18.3% last week to finish the week at $30. Appen shares have now lifted 75% from March lows with the company benefitting from increased demand for its services due to the increasing importance of artificial intelligence for businesses. 

Appen develops human-annotated datasets for machine learning and artificial intelligence. The company recorded a massive 42% increase in EBITDA in FY19 and has forecast EBITDA of $125 million to $130 million in FY20. 

A pandemic-led increase in the use of search, social media, and eCommerce platforms is likely to support FY20 performance. The weaker Australian dollar and greater availability of crowd workers may also assist. Appen maintains a healthy balance sheet with cash resources in excess of $100 million so is well placed to weather the pandemic and respond to opportunities that arise. 

Qube Holdings Ltd (ASX: QUB)

Qube Holdings shares finished last week up 15.9% at $2.52. Qube was reinstated to official quotation last week after a $500 million equity raising. The raising provides Qube with significant balance sheet flexibility with over $1,150 million in liquidity. 

Qube Holdings provides import and export logistics services across Australia, New Zealand, and South-East Asia. Funds from the equity raising will be used to support continued investment in its core business. This includes capital expenditure on recent contract wins and strategic acquisitions. Additional opportunities are expected to arise in the current environment. 

Qube expects to spend a minimum of $420 million on capital expenditure (capex) between April 2020 and June 2021. This will cover maintenance capex, capex to support contracts with BlueScope Steel Limited (ASX: BSL), Shell, and BHP Group Ltd (ASX: BHP), and the purchase of new equipment to support growth and productivity. 

Qube has experienced a number of near-term impacts associated with COVID-19, but its investment in long-term strategic growth priorities remains unchanged. The business model remains resilient and continues to generate solid earnings from its diversified logistics activities. 

More reading

• Is Santos the best ASX 200 energy share?
• These ASX 200 shares are up over 1,000% in just 3 years
• ASX 200 Weekly Wrap: New ASX bull run continues
• 5 things to watch on the ASX 200 on Monday
• Which is the cheapest ASX bank stock on the market?

Kate O’Brien owns shares of Appen Ltd, BHP Billiton Limited, and POLYNOVO FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Emerchants Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO and Appen Ltd. 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 These ASX shares booked the biggest gains last week appeared first on Motley Fool Australia.

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The Suncorp Group Ltd (ASX: SUN) share price will be on watch today after the banking and insurance giant released a trading update.

How is Suncorp performing?

This morning Suncorp released a comprehensive update on how the coronavirus pandemic is impacting its businesses.

According to the release, the significant market volatility seen over recent months has resulted in $205 million mark-to-market losses on its investments portfolio to March 31.

It would have been worse had the company not had hedging strategies put in place.

In addition to this, the company’s Insurance business has been impacted both positively and negatively by the pandemic. It has been negatively impacted by landlord loss of rent claims, but positively impacted by motor claims frequency.

In respect to landlord claims, Suncorp expects there to be an increase in claims frequency and severity for loss of rent claims.

However, it advised that the precise impact is hard to predict given the legislative responses at Federal and State levels. The company is hopeful that many landlords and tenants will reach amicable arrangements, which would not trigger their policies.

Whereas with motor claims, the company notes that the introduction of restrictions in March has led to a reduction in claims lodgements in the consumer motor portfolio. This dynamic is also evident in commercial motor, albeit to a lesser extent.

However, with restrictions easing, it has already observed a discernible rise in lodgements over the last two weeks.

Finally, the company is expecting a modest drag on its gross written premium (GWP) growth in FY 2020. This is a result of take-up of hardship relief options, and the weaker operating environment.

Suncorp Bank.

In response to the pandemic, Suncorp Bank has included a $133 million management overlay within the third quarter collective provision. This also includes appropriate amounts for its exposure to commercial segments.

This takes the total collective provision balance to $234 million, more than double the equivalent number in the first half.

Management advised that this is underpinned by its view of unemployment reaching 11.5% and an 11% reduction in house prices, with property prices remaining depressed for a prolonged period of time.

Positively, management notes that the company is currently well capitalised, with capital levels in excess of what is required to cover the expected deterioration due to the pandemic.

What about dividends?

Suncorp advised that it will consider any final dividend in its normal year end process.

Though, consistent with maintaining a robust balance sheet, management and the board will adopt a conservative mindset when making decisions about any final dividend. This will involve consideration of its capital position, the outlook for the economy, and APRA’s guidance on dividends.

More reading

• These ASX shares booked the biggest gains last week
• Where I’d invest $1,000 into ASX shares right now
• Is Santos the best ASX 200 energy share?
• These ASX 200 shares are up over 1,000% in just 3 years
• ASX 200 Weekly Wrap: New ASX bull run continues

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.

The post Suncorp share price on watch after trading and dividend update appeared first on Motley Fool Australia.

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If I had $1,000 to invest into ASX shares right now, I’d go for Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). The Soul Patts share price looks really good to me right now.

About Soul Patts

Soul Patts is an investment conglomerate that has been going since the early 1900s. It’s invested in a variety of different industries and businesses such as TPG Telecom Ltd (ASX: TPM), Brickworks Limited (ASX: BKW) and Clover Corporation Limited (ASX: CLV).

It’s also invested in a number of unlisted businesses such as swimming schools, agriculture and resources. I really like that it may be about to expand into data centres.

Why I’d invest $1,000 at this Soul Patts share price

There are few investments listed on the ASX that have outperformed the ASX index as consistently over the long-term as Soul Patts. Its investment diversification strategy has been very good. It means that management can look at almost any potential investment.

At the time of writing the Soul Patts share price is down by 23% since 20 February 2020. I think that’s a sharp fall for a business that’s defensive and has a promising long-term future.

I’m a big fan of the company investing in small caps on the ASX. Its investments in shares like TPG and New Hope Corporation Limited (ASX: NHC) were tiny at the start, but they have grown tremendously. Soul Patts may be able to find the next opportunity with these investments.

I think it’s important to remember that interest rates are now incredibly low. With share prices a lot lower I think it makes sense to invest in shares. Soul Patts has a grossed-up dividend yield of 4.8% and it has increased its dividend every year since 2000. 

At this share price, I think Soul Patts looks like a very solid buy under $18. I’ll probably be buying shares next time trading rules allow.

More reading

• 2 ASX shares that every investor should own
• 3 ASX dividend shares raising dividends like clockwork
• Why I’m even more confident about the Soul Patts share price
• How to make a $1 million share portfolio by investing $1,000 a month
• 2 ASX shares to build a diversified dividend portfolio

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 Clover Limited. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company 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 Where I’d invest $1,000 into ASX shares right now appeared first on Motley Fool Australia.

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Last year, S&P/ASX 200 Index (INDEXASX: XJO) energy share Santos Ltd (ASX: STO) announced an agreement to purchase the Australian west LNG assets of ConocoPhillips (NYSE: COP). For US$1.39 billion, the company would acquire an estimated ~16% earnings per share accretion in 2020.

But then everything went wrong. Santos has been buffeted on both sides during the past 2 months through no fault of its own. The pandemic has effectively killed off demand while the Saudi-Russian oil price war has created a supply glut. A perfect storm that would have killed off a less well-managed company.

Nevertheless, Santos is well placed to weather this storm. It has used the current crisis to drive a transformative action plan. 

A disciplined ASX energy share

On 23 March 2020, Santos announced a $550 million (38%) reduction in 2020 capital expenditure. Santos also announced a $50 million reduction in 2020 cash production costs and is targeting a free cash break-even point of US$25/bbl. For a large scale capital intensive company, this is an outstanding effort. 

Even with the strains of coronavirus, Santos has produced the highest Cooper Basin gas production in 9 years. The company also generated $265 million of free cash flow in Q1 of CY2020. 

Strong balance sheet

The company is carrying more than US$3 billion in liquidity. This comprises US$1.15 billion in cold hard cash and US$1.9 billion in committed yet undrawn debt facilities.

In a wise tactical move, Santos unloaded a 25% stake in the Darwin LNG facility and the Bayu-Undan gas field to South Korean energy group SK E&S. It also has a letter of intent signed to sell-down a 12.5% interest in Barossa to JERA. This will allow Santos to pay for the ConocoPhillips acquisition in cash and $750 million 2-year debt.

Santos has also managed to sustain consistent pricing amid these turbulent times. The company has ~70% of volumes tied to prices via fixed price domestic gas sales, and oil hedged at an average floor price of US$39/bbl.

Add to this Santos has full control over current capital expenditure decisions with all major capital projects yet to take final investment decisions.

Foolish takeaway

The oil and gas sectors remain the blood of nations. For this reason, they remain the main industry globally to be protected by private armies. Oil and gas are likely to stay that way for the foreseeable future until genuine scalable alternatives emerge in the energy markets.

While the oil price is low now, it will rise again over time. Santos is, in my view, the best-placed ASX energy share to emerge from the pandemic structurally stronger than it was in January 2020. Its share price remains 41% down year-to-date.

More reading

• These ASX 200 shares are up over 1,000% in just 3 years
• ASX 200 Weekly Wrap: New ASX bull run continues
• 5 things to watch on the ASX 200 on Monday
• Which is the cheapest ASX bank stock on the market?
• 3 ASX 200 shares to buy before the market rebounds

Motley Fool contributor Daryl Mather 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.

The post Is Santos the best ASX 200 energy share? appeared first on Motley Fool Australia.

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