Category: Stock Market

Analysts at Goldman Sachs have adjusted their economic forecasts following the improved trajectory for COVID-19 in Australia.

While the investment bank still expects a sharp -10% quarter on quarter contraction in GDP in the second quarter of 2020, it now expects a consumer-led recovery to commence one quarter earlier in the third quarter.

In response to this, Goldman Sachs has been looking through the mid cap sector and has adjusted its recommendations accordingly.

Here’s what the broker thinks about these four mid cap ASX share:

Breville Group Ltd (ASX: BRG) 

Goldman has retained its neutral rating and $16.70 price target on this appliance manufacturer’s shares. It notes that Breville is a high quality business (strong balance sheet, solid returns and long-term growth potential in the US and UK/EU markets remains very attractive), however, it feels the current valuation reflects these strengths.

City Chic Collective Ltd (ASX: CCX)

The broker has retained its buy rating and $3.25 price target on this fashion retailer’s shares. It likes City Chic and believes it is a strong retailer in its clearly defined category (plus sized clothing). It also notes that it has a strong online presence, with 60% of sales from online channels. Other positives include its capital light business model and growth potential across multiple geographies (US/UK/EU).

GUD Holdings Limited (ASX: GUD)

Goldman Sachs has upgraded this products company’s shares from a neutral rating to a buy rating with a $10.50 price target. It made the move on valuation grounds, noting that its shares are changing hands at a lowly 13x estimated FY 2022 earnings.

Reject Shop Ltd (ASX: TRS)

Finally, the broker has upgraded this discount retailer’s shares from a sell rating to buy with a $4.75 price target. The broker likes Reject Shop due to its turnaround story with a new executive team, its robust balance sheet, and the potential for material improvements in efficiencies in labour, rent and stock turn. It also notes that the company has a strong cash balance, with its net cash representing approximately 28% of its market capitalisation.

More reading

• Leading brokers name 3 ASX shares to buy today
• Who said ASX retail shares were dead?
• 4 ASX retail shares up more than 100% in the past month
• Revealed: Which ASX shares will grow during coronavirus?
• 2 ASX retail shares that could thrive after COVID-19

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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Is the Australia and New Zealand Banking Group (ASX: ANZ) share price a buy? It’s down 42% since the Australian share market started declining.

The Australian banking sector has been turned upside down by the coronavirus pandemic.

Between all of the big ASX banks like ANZ, National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Macquarie Group Ltd (ASX: MQG), they have already provisioned billions of dollars for the economic impacts of the coronavirus. Commonwealth Bank of Australia (ASX: CBA) is yet to announce its own estimated pain.

In the recent half-year ANZ result announced that statutory profit after tax was down 51% to $1.55 billion. Cash profit was down 60% to $1.41 billion. The decline was driven by credit impairment charges of $1.67 billion which included increased credit reserves for coronavirus impacts of $1.031 billion.

Clearly bank investors had mostly been expecting something like this because the ANZ share price is currently down 41% to $16 today and on 23 March 2020 it had plunged to around $14.

Was it the right call to defer the ANZ dividend?

I think it was. In my mind it’s a much wiser move to defer the dividend and not do a capital raising at a dilutive share price. We’re still early into this whole situation. The economic fallout could last a lot longer than just the length of government restrictions.

On the economic side of things it’s good the Australia is in a position where lockdowns can start to be lifted. But a lot of industries are still being heavily disrupted. ANZ can’t truly say yet how much bad debts it will face because the situation is changing every week.

If it turns out better than expected than ANZ may still be able to pay a dividend later in the year. ANZ could also decide not to pay a dividend at all, depending on what happens.

Is the ANZ share price a buy?

If you believe the worst of the economic pain is already known then perhaps the ANZ share price is a buy. It’s already fallen a lot – how much further could it fall?

I’m not sure it’s good to buy yet though. I’d want to wait a few months to see what happens next. It could stay at this lower level for some time. There’s a chance that the market is feeling a bit too confident about the rest of 2020. I wouldn’t buy it thinking profit and dividends will resume quickly. Low interest rates are here to stay for at least a few years.

More reading

• Reality bites: Broker warns CBA shares to underperform this week
• Why Advance Nanotek, Macquarie, Tyro, & Zip Co shares are charging higher
• 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 Tristan Harrison has no position in any of the stocks mentioned. 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 Scentre Group (ASX: SCG) share price has popped today after the Westfield owner gave a market update to investors before the bell this morning.

Scentre shares closed at $2.22 on Friday afternoon, but opened at $2.26 this morning and are sitting at $2.28 at the time of writing – a 3.18% bump.

Scentre cancels interim dividend

Well, let’s get the bad news out of the way first: Scentre has officially cancelled its 2020 interim dividend distribution. Here’s how the company justified its move in the ASX release this morning:

“Given the uncertainty regarding the pandemic, its duration, the economic impact and the timing of operating cash flows for the Group, the Group has determined to not pay an interim distribution for the Half Year period ending 30 June 2020. The Group believes that retaining this capital will further strengthen its financial position and ability to continue to deliver long term returns to its securityholders.”

Although this was a move most investors had braced themselves for, it will no doubt still be a painful pill to swallow. Many investors buy into REITs (real estate investment trusts) like Scentre for dividend/distribution income, so the absence of this income from Scentre shares isn’t negligible.

What else did Scentre tell us?

You may have noticed that the Scentre share price has risen substantially today, so the news out of this REIT can’t be all bad. Scentre did also inform the markets that its capital position was healthy with increased liquidity to $3.1 billion, and it has managed to retain its ‘A’ grade credit rating.

The company also told markets that 57% of its retail tenants, representing 70% of the gross lettable area, remain open, with “more retailers scheduled to reopen over the coming weeks”.

Scentre also noted that “as more retailers have reopened, we have seen an increase in customer visitation in recent weeks and most significantly over this last weekend there was double the level of visitations from 5 weekends ago”.

All of these developments point to Scentre recovering once restrictions are lifted across the coming months, and it might not look like the retail apocalypse for the company that many feared a few months ago.

This is reflected in the current Scentre share price, which although is still a long way away from the ~$4 levels we were seeing early in the year, is still far above the $1.35 low we saw in March.

The next few months will still be crucial for this ASX REIT, however, and we shall have to see how this company pulls itself out of the woods when the coronavirus is, at last, behind us.

More reading

• Are ASX retail shares undervalued today?
• 3 ASX shares to buy as a beginner
• Is there long-term value in ASX REITs?
• Increase your income with $5,000 in ASX shares
• Some ASX shares will never be the same again

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Scentre Group. 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 Ophir High Conviction Fund (ASX: OPH) released its April report this morning and provided investors with an update on its portfolio and its market view.

Have share markets gone too far?

Ophir notes that share markets have rebounded very strongly from their March lows.

This is despite the impending release of “the worst economic data the world has seen since the Great Depression” over the next few months. This data will include the “sharpest falls in GDP, the highest unemployment and the largest contraction in corporate earnings in many countries.”

However, the fund manager believes things are very different to the 1930s.

It explained: “Unlike the Great Depression though, it is our opinion that this crisis is likely to be much shorter, though there will likely be some lasting impacts on consumer behaviour.”

The fund manager warned that it is difficult to predict how the market will react to the upcoming economic data. However, as it is a long-term focused investor, it isn’t being put off and remains heavily invested.

Furthermore, it notes that this crisis is “as much about ascertaining what long term changes we might see in consumer buying behaviour as it is about avoiding the immediate losers.”

Which leads us on to Ophir’s portfolio update. The Ophir High Conviction Fund’s investment portfolio returned +12.1% during April.

Key drivers of its return were payments company Afterpay Ltd (ASX: APT), artificial intelligence company Appen Ltd (ASX: APX), and gold miner Evolution Mining Ltd (ASX: EVN).

This was offset slightly by the underperformance of shares such as private health insurer NIB Holdings Limited (ASX: NHF) and medical device company ResMed Inc. (ASX: RMD).

Ophir notes: “Both Resmed and NIB Holdings suffered some payback in April for being two of the only 25 stocks in the ASX300 that went up in March. Both have been significant outperformers since the onset of COVID-19.”

Should you be investing in the share market?

I think Ophir is spot on with its assessment. Over the next few months we are likely to see some horrific economic data, but I remain confident the recovery will be far swifter than the Great Depression.

In light of this, I think investors ought to continue investing in the share market. And particularly companies which are continuing their growth unabated during the pandemic such as Afterpay and Appen.

More reading

• 3 ASX 200 pandemic winners and 3 losers
• Buy these 4 ASX shares to survive the pandemic
• These ASX shares booked the biggest gains last week
• 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 owns shares of AFTERPAY T FPO and Appen Ltd. The Motley Fool Australia has recommended NIB Holdings Limited and ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The S&P/ASX 200 Index (ASX: XJO) is continuing its fine form of recent weeks today and is up 1.24% at the time of writing to 5,457.7 points. Since the lows we saw in March, the ASX 200 has now rallied well over 20%, meaning we are in a new bull market for ASX shares once more.

But one investor not popping the champagne right now is David Pace – co-founder of Greencape Capital.

According to reporting in the Australian Financial Review (AFR), Pace is calling time on the current bullish sentiment defining ASX shares, saying “the days of market gains are numbered, and investors should prepare for another sell-off”.

Calling the performance of the ASX 200 over the past 6 weeks as an “inevitable rally” over the reopening of sections of the Australian economy, Pace is worried about this euphoria wearing off as the “economic reality sets in”.

“I’m not expecting the upswing to continue,” the AFR quotes Pace as stating. “If we are in some form of social distancing for the rest of the year – and it might be as profound as we are currently experiencing – there are parts of the economy that will struggle.”

Should ASX investors be worried today?

Mr Pace’s comments should certainly be appreciated in my view. Greencape Capital has long been a successful fund manager on the ASX and Pace is certainly an experienced hand at markets.

However, Pace is not selling everything and walking away. More recently, Greencape is looking to load up on shares that Pace sees as having a high chance of coming out the other side of coronavirus stronger than before: “Our bias is backing better-than-average people in better-than-average businesses”.

Pace names Aristocrat Leisure Limited (ASX: ALL), James Hardie Industries (ASX: JHX) and Sydney Airport Holdings Pty Ltd (ASX: SYD) as top stocks Greencape considers under this label.

However, Pace does dispense a word of caution: “We are cautious not to overdo it. We are wanting to see some proof statements about what the other side looks like”.

“It’s a sea of uncertainty right now and that’s not a wonderful backdrop for putting down money unless you’re getting bargain-basement prices,” he added.

Foolish takeaway

Whether the markets go higher from here or we do see another market crash, I think investors should stick to their strategy regardless. In my view, investing in quality businesses but also keeping some cash on the side is a great playbook you can use to hedge your bets either way.

More reading

• Webjet share price jumps 25%: Is it good value?
• Is the Woolworths share price a buy?
• 3 ASX 200 pandemic winners and 3 losers
• ASX 200 storms 1.2% higher: Cochlear reports 60% sales decline, Webjet jumps 22%
• 3 ASX 200 shares to watch this week

Motley Fool contributor Sebastian Bowen 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 this ASX 200 share market recovery “fool’s gold”? This ASX fundie thinks so appeared first on Motley Fool Australia.

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The S&P/ASX 200 Index (ASX: XJO) has started the week off in sensational form. In afternoon trade the benchmark index is up 1.2%.

While the majority of shares on the index are pushing higher, none have pushed as hard as the Webjet Limited (ASX: WEB) share price on Monday.

The online travel agent’s shares were up as much as 25.5% to $3.68 this morning. When its shares hit that level, they had gained an impressive 36% over the last two trading days.

Why is the Webjet share price rocketing higher?

Investors have been buying Webjet and fellow travel agent Flight Centre Travel Group Ltd (ASX: FLT) (up 9% today) following the announcement of the Federal Government’s 3-step plan to reopening Australia.

While step one will have a small benefit to travel agents, as intra-state travel is being encouraged in some states, the third step is the one which could give them the biggest short term boost.

If Australia avoids a spike in infection rates as restrictions ease, state governments look set to push ahead with the second step in June and then the third step in July.

That third step is likely to include the opening of borders to allow interstate travel once again, which would be a major boost to the local tourism industry.

In addition to this, there’s the potential for a trans-Tasman travel bubble being opened up later this year allowing travel between Australia and New Zealand. This would be another much needed boost for Webjet and its industry peers.

But whether this level of travel will be enough to make Webjet’s operations profitable in the near term is difficult to say. Though, with the company recently raising $346 million via an equity raising and reducing its costs down materially, it looks well-positioned to come out of the crisis in a strong position.

Should you invest?

While I think things are looking a lot more positive for Webjet, I feel its shares are deceptively expensive at this point and wouldn’t be in a rush to invest.

Based on FY 2019’s net profit of $60.3 million, Webjet’s shares are changing hands at 20x earnings.

I’m not overly confident Webjet will deliver a profit of that level again until FY 2023. Which begs the question, do you want to pay 20x FY 2023 earnings for Webjet’s shares? I think better value options are available elsewhere on the market.

More reading

• Is this ASX 200 share market recovery “fool’s gold”? This ASX fundie thinks so
• Is the Woolworths share price a buy?
• 3 ASX 200 pandemic winners and 3 losers
• ASX 200 storms 1.2% higher: Cochlear reports 60% sales decline, Webjet jumps 22%
• 3 ASX 200 shares to watch this week

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel 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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