Category: Stock Market

With so many shares to choose from on the Australian share market, it can be hard to decide which ones to buy.

The good news is that brokers across the country are doing a lot of the hard work for you.

Three top shares that leading brokers have named as buys this week are listed below. Here’s why they are bullish on them:

Audinate Group Ltd (ASX: AD8)

According to a note out of UBS, its analysts have retained their buy rating but cut the price target on this media networking technology company’s shares to $7.30. The broker is a big fan of Audinate’s Dante product and believes it has a massive long term market opportunity. And while it does expect sales to soften over the coming quarters due to the pandemic, the broker believes it is well worth looking beyond this and focusing on its long term potential. I agree with UBS and feel Audinate would be a great buy and hold option for investors.

REA Group Limited (ASX: REA)

A note out of Morgan Stanley reveals that its analysts have retained their overweight rating and $105.00 price target on this property listings company’s shares. It was pleased with its latest quarterly update given the tough trading conditions it was facing. And while conditions in the industry continue to be tough, the broker remains positive on its long term prospects. Especially given the structural tailwinds it is benefiting from. I agree with Morgan Stanley and feel REA Group is a top blue chip to own.

Reject Shop Ltd (ASX: TRS)

Analysts at Goldman Sachs have upgraded this discount retailer’s shares to a buy rating from sell and put a price target of $4.75 on them. Goldman likes Reject Shop due to its turnaround story with a new executive team, a more robust balance sheet, and the potential for material improvements in efficiencies in labour, rent and stock turn. It also notes that its valuation is supported by a cash balance that was 28% of its market capitalisation based on its last closing price. While I’m not a big fan of Reject Shop, I think Goldman Sachs makes some very good points.

More reading

• REA Group shares are up 53% since late March. Is it too late to invest?
• The ASX 200 blue chip shares I would buy with $5,000 after the market crash
• Highlights from the week: ASX 200 rises 2.75%
• How to build your first ASX share portfolio
• Market close: ASX 200 ends 0.5% higher

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

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The Advance Nanotek Ltd (ASX: ANO) share price has surged 11.51% today after the company announced profits are expected to more than double. Net profit before tax for FY20 is expected to be approximately $8.4 million, 2.5 times greater than FY19 profit before tax. 

What does Advance Nanotek do?

Advance Nanotek manufactures zinc oxide, which is used in sunscreen. First formed in 1997, Advance Nanotek has been listed on the ASX since 2003. Its product range suits a wide variety of sunscreens and cosmetics, with its Zinxation recipe providing SPF50+ for broad UVA/UVB protection. Advance Nanotek has a current annual capacity of 3,000 tonnes, and is investing to increase capacity beyond 5,000 tonnes. 

Advance Nanotek’s business

Around 70% of Advance Nanotek’s sales are in the US. The company’s production facilities were temporarily closed in the US but have now reopened with sunscreen manufacturing recommenced, albeit at smaller volumes. Advance Nanotek expects US sales volumes to return to normal and has established stockpiles in a logistics facility to take advantage of the expected upturn in conditions. 

The board is looking to expand Advance Nanotek’s aluminium oxide business into new markets and improve supply to existing customers by raising capacity. Stock will be made available at an EU logistics facility, with sales from the aluminium oxide product in FY20 expected to be ~$2 million. 

Financial results

Advance Nanotek recorded sales revenue of $11.3 million in 1HFY20, up from $4.7 million in 1HFY19. Net profit before tax for the half was $4.81 million, nearly 3 times greater than the prior corresponding period. Earnings per share increased to 5.71 cents up from 3.03 cents in 1HFY19. 

The company ended the half with cash and cash equivalents of $304,964 and borrowings of $1.1 million. Strong sales continued into the second half with profit before tax of $1.3 million in January. FY20 anticipated turnover is up 46% on FY19 to $18 million. 

Outlook

US sales increased 280% for the 7 months to 31 January over the prior corresponding period. Some negative impact from coronavirus has been experienced with US citizens cancelling or delaying travel plans for the summer. This may have a modest negative impact on Advance Nanotek’s $30 million FY20 sales target. 

Nonetheless, Advance Nanotek has seen impressive increases in profit over the last few years. Profit before tax increased from $0.56 million in the 5 months to November 2017 to $3.831 million in the 5 months to November 2019. Full year FY20 net profit is estimated to be $8.4 million. 

More reading

• Why Advance Nanotek, Macquarie, Tyro, & Zip Co shares are charging higher

Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Advance NanoTek Limited. 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 relative outperformance of the Commonwealth Bank of Australia (ASX: CBA) share price is under threat as one leading broker believes the stock will slump this Wednesday.

This is when Australian’s largest ASX-listed bank will release its quarterly earnings and update.

The news will be ugly, according to Morgan Stanley, which is predicting a 70% to 80% chance that the stock will fall relative to the S&P/ASX 200 Index (Index:^AXJO) and keep underperforming for next two months.

Cut above the rest

CBA shares have fallen 24% since the start of 2020 as the COVID-19 pandemic rocked the economy, but that’s better than the other ASX big banks.

The National Australia Bank Ltd. (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking GrpLtd (ASX: ANZ) share prices have tumbled by over 30% each.

The three laggards have reported dismal first half profits in the last two weeks, so the bad earnings news from CBA isn’t unexpected although that may not be the bank’s biggest problem.

Reality check

“We expect a ~30% fall in cash profit, an A$1bn COVID-19 provision and a CET1 ratio of ~11.2%,” said Morgan Stanley.

“While the profit decline and higher provisioning are unlikely to surprise investors in the current environment, we think the trading update will lead to less confidence in the capital and dividend outlook.”

This will make CBA’s market premium harder to justify.

CBA losing its crown

The bank has long held the crown of being the best quality bank on our market and investors are happy to pay a higher multiple for the stock.

For instance, CBA trades on a FY21 forecast price-earnings (P/E) multiple of 15 times and a price-to-book value (P/BV) of 1.5 times, based on Morgan Stanley’s estimates.

This compares to the average P/E of 11 times and P/BV of around 0.8 times for its peer group.

Foolish takeaway

This is why the broker thinks CBA is more vulnerable to a de-rating if the cycle deteriorates further, and offers less upside in a rebound scenario.

Morgan Stanley rates the stock as “underweight” (meaning a “sell”) with a price target of $57.50 a share.

If you want to find out more about bank valuations and the importance of P/BV, click here to read my weekend article on the cheapest bank on the ASX.

But of course, price and quality usually move in opposite directions. Those willing to pay for a relatively safer stock in the sector may want to consider Macquarie Group Ltd (ASX: MQG) instead – at least until more coronavirus water passes under the banking bridge.

More reading

• Why Advance Nanotek, Macquarie, Tyro, & Zip Co shares are charging higher
• 3 ASX 200 shares to watch this week
• How Macquarie Group is vying to unseat CBA
• ASX 200 Weekly Wrap: New ASX bull run continues
• 5 things to watch on the ASX 200 on Monday

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

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The changes in our behaviour during the COVID-19 lockdown has created pandemic winners and losers up and down the S&P/ASX 200 Index (ASX: XJO).

Some of these are obvious. Companies like Qantas Airways Limited (ASX: QAN) and Sydney Airport Holdings Pty Ltd (ASX: SYD) are undoubtedly going to see a fall in full-year earnings. 

However, some are less obvious. Some companies have profited greatly during the pandemic while others may be in for a structural change to their earnings.

3 pandemic winners

ASX gold mining companies have benefited greatly from the rise in the gold price. The Evolution Mining Ltd (ASX: EVN) share price has been one of the great winners. Its share price is up 43.7% year to date (YTD). In fact, it has risen by over 60% since its low point on 16 March. Evolution has benefitted from both the rising gold price and the low Australian dollar. It is regularly one of the top 3 traded gold shares by volume on the ASX. 

JB Hi-Fi Limited (ASX: JBH) is another pandemic winner. The company has seen a rise in earnings due to the short-term rush for work-from-home accessories. Laptops, printers, monitors, keyboards. All items that are bringing trade to JB Hi-Fi’s network of stores. The company reported a 6.9% growth in YTD Q3 sales for JB Hi-Fi Australia. This is up from 4.1% during the comparable period last year.

Ansell Limited (ASX: ANN) is the Australian manufacturer of personal protective equipment (PPE) such as gloves and surgical masks. The Ansell share price has risen by 3.5% YTD. It hit a low point on March 23 and has risen by 41% since then. Ansell is one of the great pandemic winners as it is a company built for crises such as this.

3 pandemic losers

The Bapcor Ltd (ASX: BAP) share price is down by 20% YTD. Given the restrictions in place during the national lockdowns, this is to be expected. However, Bapcor may also suffer a structural reduction in earnings if work-from-home becomes widespread after the resumption of normal work.

The Oil Search Limited (ASX: OSH) share price has been devastated by the pandemic. It is currently down by 59% YTD. The company has been hit not only by the collapse in demand but also by the glut in supply from the Saudi-Russian oil price feud. The company is currently performing well in a fight for survival. Nevertheless, it will be interesting to see if it emerges as the same company it was in January.

Transurban Group (ASX: TCL) has seen its average daily traffic (ADT) percentage drop by 44% across all Transurban assets in the final week of April compared to the same period last year. If work from home becomes permanent, the company is likely to see a structural reduction in ADT% which may call into question other expansion plans. 

More reading

• ASX 200 storms 1.2% higher: Cochlear reports 60% sales decline, Webjet jumps 22%
• Are ASX retail shares undervalued today?
• 3 ASX 200 shares to watch this week
• Where to invest $20,000 into ASX shares for strong long term returns
• Are there any safe havens in ASX aviation shares?

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool Australia owns shares of Transurban Group. The Motley Fool Australia has recommended Ansell 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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Shareholders have overwhelmingly voted against executive pay packets at AMP Limited (ASX: AMP). Last week’s annual general meeting saw 67% of shareholders vote against the board’s remuneration report for 2019.

Chief Executive Francesco De Ferrari was paid approximately $4 million in base salary and short-term rewards. Non-executive directors were paid $3.79 million as a group. 

The wealth manager delivered a $2.5 billion loss last financial year and did not pay a final dividend. The AMP share price is down around 35% in the past 12 months and is currently trading for $1.42.

What does the vote mean?

The shareholder vote does not prevent these payments being made, but puts pressure on the board. The ‘two strikes’ rule means a vote on a board spill will be triggered if more than 25% of shareholders vote against two remuneration reports. 

AMP struggles with legacy issues

AMP is still making amends for practices uncovered in the Royal Commission.The wealth manager continues to repay customers for inappropriate advice and for charging customers for advice never received. In its most recent financial year, AMP paid $190 million to clients in misconduct fees. Impairments of $2.35 billion were recorded to address legacy issues.

AMP failed to pay either interim or final dividends last year as its wealth management business sagged. Chairman David Murray told shareholders the decision was disappointing, but in the long-term interests of the company. He  responded to shareholder criticism of executive pay packets by saying the pay reflected the size of the challenge ahead for AMP. 

Business reset 

The wealth manager is undertaking a fundamental reset of its business. Foundational steps in a three-year transformation are underway, but there is much work to be done. CEO De Ferrari said, “2019 was a year of fundamental reset for AMP. We rebased our business, set out a new group strategy, and strengthened our capital base to accelerate the execution of our strategy.”

AMP has shelved the divestment of its New Zealand wealth management operations due to the economic disruption of COVID-19. Offers did not meet expectations, so AMP has decided to retain and grow the business. 

AMP is proceeding with the sale of AMP Life. A deal was struck to sell the business to Resolution Life last year for $3 billion. Payment of the next dividend is dependent on the completion of this sale. Multiple complications have been encountered during the sale process. 

Foolish takeaway

The shareholder strike is an embarrassing blow for AMP. Previous voluntary cuts to fees were not enough to stave off shareholder anger. In April, AMP revealed at least $19.4 billion in outflows in the first 3 months of the year. The wealth manager better hope its transformation strategy brings results. 

More reading

• Is this the next major ASX financial institution to raise capital?
• In a further blow to millions of retirees, leading portfolio manager says ASX banks could slash dividends by more than half

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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At lunch on Monday the S&P/ASX 200 Index (ASX: XJO) is on course for a strong start to the week. The benchmark index is up 1.2% to 5,454 points at the time of writing.

Here’s what has been happening on the market today:

Big banks push higher.

The big four banks are doing their part today, with three of the four pushing higher on Monday. The best performer in the group is the Westpac Banking Corp (ASX: WBC) share price with a gain of 0.8%. The easing of lockdown restrictions appears to be lifting the banks and the market as a whole today.

Cochlear sales fall 60% in April.

The Cochlear Limited (ASX: COH) share price is pushing higher despite revealing a sharp decline in sales. During the month of April, sales revenue across the Cochlear business fell by ~60% on the prior corresponding period. The sales of cochlear and acoustic implants were the most severely affected. Management also revealed that it is cash flow negative at present, but expects its strong liquidity position to be sufficient to navigate the crisis.

Suncorp updates the market.

The Suncorp Group Ltd (ASX: SUN) share price is charging higher after the release of a trading update. The banking and insurance giant revealed that its insurance business has been both positively and negatively impacted by the pandemic. It has been negatively impacted by landlord loss of rent claims, but positively impacted by lower motor claims. Elsewhere, 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.

Best and worst ASX 200 performers.

The Webjet Limited (ASX: WEB) share price has been the best performer on the ASX 200 today with a 22% gain. Investors appear optimistic that the easing of lockdowns will lead to a recovery in travel bookings. The worst performer has been the Graincorp Ltd (ASX: GNC) share price with a 4% decline. This follows news that China is threatening to slap an 80% import tax on Australian barley.

Returns as of 7/4/2020

James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Cochlear 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.

More reading

• 3 ASX 200 shares to watch this week
• Why Fisher & Paykel Healthcare, Graincorp, Polynovo, & SEEK are dropping lower
• ASX tourism shares on watch as government flags easing of coronavirus restrictions
• Indonesian market boom for 6 ASX shares
• Where to invest $20,000 into ASX shares for strong long term returns

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The coronavirus pandemic has changed the way we live, work, and shop. Restrictions are starting to lift, but normality may still be a while away. Our habits have changed, and some of these changes may be permanent. 

While in lockdown we’ve seen significant increases in online shopping, demand for remote working solutions, and home cooking. This has impacted consumer spending patterns and the way we interact with businesses. Some companies are better positioned for this shift than others. 

Certain products and industries are seeing increased demand. In some cases, these increases may be sustained. Suppliers of these products and services will benefit from these tailwinds in the months to come. 

So where do you invest if you want to survive (and thrive) in the coronavirus pandemic? We took a look at recent changes to find 4 ASX shares that are leveraged to these trends. 

Coles Group Ltd (ASX: COL) 

First it was panic buying, then it was baking challenges. The major supermarkets have been the major beneficiaries of coronavirus buying trends. Along with competitors Woolworths Group Ltd (ASX: WOW) and Metcash Limited (ASX: MTS), Coles has benefited from a surge in sales. 

In the March quarter, Coles reported a 12.4% increase in total sales which reached $9,226 million. Supermarket sales were up 13.1% which marks the 50th consecutive quarter of comparable sales growth for supermarkets. 

Liquor was negatively impacted by bushfire smog over capital cities and floods in January and February, before seeing the impact of COVID-19 later in the quarter. Still, liquor sales increased 7.2% over the quarter to $740 million. 

With the outbreak of the coronavirus pandemic, demand for online shopping surged, putting pressure on supply chains. Coles has leased 2 high-tech sheds in Sydney and Melbourne as it looks to automate its supply chain and speed up home deliveries. 

Last year, Coles entered a service agreement with Britain’s Ocado Group to bring an online grocery platform, fulfilment technology and home delivery solution to Australia. Online fulfilment automation is expected to improve customer service and reduce waste, as well as support employment opportunities at a time when many businesses are cutting or delaying investment. 

Zip Co Ltd (ASX: Z1P)

Buy now, pay later services have seen demand continue unabated through the coronavirus pandemic. Afterpay Ltd (ASX: APT) competitor Zip reported an 81% increase in monthly revenue in April, while customer numbers increased 66% to 2 million. 

Zip Co focuses on acquiring prime and near-prime customers with a revolving line of credit to finance their retail purchases. Merchants offering Zip include Amazon, Chemist Warehouse, Optus, Bunnings, and Big W. Merchant numbers increased 50% year-on-year in April, reaching 23,100. 

In April, monthly transaction volume increased to $181.6 million, an 86% increase year-on-year. Zip has reported that the start of May looks to be considerably stronger again by comparison to April. Managing Director Larry Diamond said, “our product differentiation and penetration into purchases for online, the home, and everyday categories, delivered robust transaction volume.”

Zip believes its success is due to the defensive nature of its model, which plays in many categories that customers are spending in. Its exposure to online has helped the business, as has the platform’s ability to allow users to pay bills and make purchases across groceries, retail and home. 

Ramsay Health Care Limited (ASX: RHC)

Healthcare is non-negotiable, especially in the current environment. Ramsay Health Care is one of the largest hospital operators in Australia. Operating nearly 500 facilities across 11 countries, Ramsay Health Care has expanded its capacity significantly in the last couple of years. 

The hospital operator has finalised deals with the Queensland and Victorian Governments to make facilities available during the coronavirus pandemic. In return for maintaining full workforce capacity at its facilities, it will receive net recoverable costs for its services. 

Private hospitals took a revenue hit when the government cancelled certain elective surgeries. Under the new agreements with state governments, Ramsay Health Care will break even on earnings before interest and tax (EBIT). 

Ramsay Health Care undertook a capital raising in April in the face of an uncertain operating environment. The healthcare company raised $1.4 billion via a placement and share purchase plan. Proceeds of the raising were used to partially repay revolving debt facilities. 

Ramsay Health Care performed strongly prior to the COVID-19 pandemic, with revenue increasing 22.5% to $6.3 billion in H1FY20. Core net profit after tax (NPAT) of $273.6 million was recorded, up 3.4% on the prior corresponding period. Earnings per share increased 3.7% to 132.5 cents. 

Non-urgent elective surgeries are resuming following the lifting of the government ban on 27 April. In the longer term, Ramsay Health Care is likely to benefit from trends including the aging population and increased healthcare spending. 

Xero Limited (ASX: XRO) 

Xero provides cloud-based accounting software to small and medium businesses. Although many of its customers will have suffered in the downturn, they still have tax obligations so will continue to require accounting software. 

Xero’s product is sticky and boasts over 2 million subscribers. It is operating in an industry where structural growth is being driven by regulation and a broad-based shift to the cloud. Increased remote working is also likely to hasten this shift to the cloud. This could push more potential clients towards Xero’s solutions.

Xero releases its full-year financial results this month which will provide more clarity on how it has been impacted by COVID-19. The company was well-positioned prior to the crisis with a self-funding business model and strong balance sheet. 

Xero has established itself in a dominant Software-as-a-Service position in Australia and New Zealand. It also has a growing presence in the UK and US. Prior to the pandemic, Xero was seeing healthy growth in subscriber numbers. While this may slow in the near term, long term structural factors still work in Xero’s favour. 

More reading

• Why Advance Nanotek, Macquarie, Tyro, & Zip Co shares are charging higher
• 3 ASX 200 shares to watch this week
• Where to invest $20,000 into ASX shares for strong long term returns
• These ASX shares booked the biggest gains last week
• These ASX 200 shares are up over 1,000% in just 3 years

Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO, COLESGROUP DEF SET, Woolworths Limited, and Xero. 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.

The post Buy these 4 ASX shares to survive the pandemic appeared first on Motley Fool Australia.

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