Pro Medicus Limited (ASX: PME) shares have continued their positive run on Monday despite the market weakness.

In morning trade, the ASX 200 healthcare share has climbed over 3% to hit an all-time high of $108.67.

Why is this ASX 200 healthcare share charging higher?

Investors have been buying the company’s shares after it announced the launch of the “groundbreaking” Visage Ease VP for the new Apple Inc (NASDAQ: AAPL) product, the Apple Vision Pro.

Apple Vision Pro is the tech behemoth’s newly released spatial computer that blends digital content and apps into your physical space. It lets users navigate using their eyes, hands, and voice.

According to the release, Visage Ease VP has been designed to take advantage of the unique capabilities of Apple Vision Pro. It supports immersive, spatial experiences for diagnostic imaging and multimedia.

The company notes that Visage Ease VP includes all the proven functionality of Visage Ease, plus the exciting addition of Visage’s powerful cinematic rendering engine for stunning volume-rendered images in immersive space.

In addition, anywhere, on-the-go access with Visage Ease VP has additional flexibility with virtual screens at more than 4K resolution for each eye, independence from environmental lighting restrictions, and the ability to interact with imaging seamlessly in the user’s physical space.

Management also notes that Visage Ease VP uses the natural and intuitive input of eyes, hands, and voice navigation “to provide an end-user imaging experience that’s unlike any other application.”

The ASX 200 healthcare share already has a user testing out the technology. It notes that UC San Diego Health, a tier 1 academic medical centre and Visage customer, is the first health system to pilot the technology.

Dr. Paul Murphy from UC San Diego Health commented:

The visualization of three-dimensional medical imaging in immersive space creates exciting opportunities to improve patient care. Technology that allows for sophisticated eye motion and gesture controls for reviewing 2D and 3D medical imaging could potentially help in efficient tumor board reviews and create collaborative spaces in healthcare.

The post Apple Vision Pro and an ASX 200 healthcare share hitting all-time highs appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple and Pro Medicus. The Motley Fool Australia has recommended Apple and Pro Medicus. 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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It has been a very rewarding time to be an ASX share investor over the last several months. Several market sectors have seen gains to the point where some companies may have become too expensive. But I think there are still some great share market buying opportunities.

As a general rule, we don’t want to invest when a particular company is trading at a euphoric price. However, it’s also worth keeping in mind that solid businesses that are growing have a good chance of delivering appealing capital returns over time – don’t give up on a good business just because its share price is higher today than in October 2023.

Shares in the two ASX stocks below have already enjoyed significant lifts, and I think they can keep rising over the long term.  

Pacific Current Group Ltd (ASX: PAC)

Pacific Current describes itself as a “global multi-boutique asset management business committed to partnering with exceptional investment managers”. The ASX share combines capital, offering uniquely-tailored economic structures, with strategic business development to help businesses grow.

Since 1 December 2023, the Pacific Current share price is up 21%. But I don’t think this is going to be the all-time peak.

Its biggest investment is in the fund manager GQG Partners Ltd (ASX: GQG), which is growing funds under management (FUM) strongly and paying large dividends to Pacific Current.

Other fund managers include Astarte, Avante, Banner Oak, Carlisle, Cordillera, Pennybacker, Proterra and Victory Park.

Growth of Pacific Current’s FUM can lead to rising management fees. The improving investment environment is good news for natural FUM growth, and I think investors are more likely to want to put new money into fund managers’ hands.

In the three months to December 2023, Pacific advised that its aggregate FUM rose 5.6% in Australian dollar terms. Excluding GQG, FUM increased 4.5% for US dollar-denominated fund managers.

Pacific Current’s ownership-adjusted FUM – adjusted for how much it owns of each business – rose from US$14.3 billion to US$15.3 billion.

In that quarterly update, the ASX share said its boutiques had made “strong progress” towards its projection of between A$2 billion to A$5 billion of gross new commitments, excluding GQG, in FY24, with A$2.6 billion of commitments already secured in the first half.

Xero Ltd (ASX: XRO)

I think Xero is one of the strongest ASX tech shares and an exciting ASX growth share.

It’s already a very large ASX share, but the accounting software company has a lot more profit growth to come, in my opinion.

Over the last decade, it has been investing heavily for long-term growth. It’s now letting its profit margins improve while still investing a very healthy amount for more growth.

Xero’s underlying profitability could come shining through in the next few results, I’m expecting big increases in percentage terms of the net profit after tax (NPAT) and cash flow.

The HY24 result showed operating revenue growth of 21% to NZ$800 million, and the adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) grew a lot quicker – it increased 65% to NZ$204.5 million.

With the ASX share’s gross profit margin now sitting at 87.5%, ongoing subscriber growth and an increasing average revenue per user (ARPU), I think there’s a great chance of further longer-term price growth and potential Xero share price gains, despite the 39% rise over the last 12 months.

The post 2 soaring ASX shares I’d buy now with no hesitation appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended Xero. 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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CSL Ltd (ASX: CSL) shares are in the red today.

Shares in the S&P/ASX 200 Index (ASX: XJO) biotech stock closed on Friday trading for $299.79. In morning trade on Monday, shares are swapping hands for $296.90, down 1%.

For some context, the ASX 200 is also down 1% at this same time.

Despite that dip, that still sees the stock up 28% since 30 October.

And it makes CSL the third largest company listed on the ASX, with a market cap just shy of $145 billion.

But it’s not the big surge in CSL shares that’s brought the biotechnology giant under regulatory scrutiny in the United Kingdom. Or, at least, not directly.

What’s happening with CSL shares in the UK?

As you may be aware, CSL’s three operating segments are CSL Behring, CSL Vifor, and its Seqirus businesses.

CSL Vifor is a global leader in iron deficiency and iron deficiency anaemia therapies. The company acquired Vifor Pharma for US$11.7 billion in 2022 in a deal that boosted CSL shares once completed.

At its capital markets day presentation in October management noted, “CSL Vifor will continue to grow its leading iron franchise through market expansion and life cycle management.”

CSL’s iron-deficiency treatment is known as Ferinject.

But in possible headwinds for CSL shares, Vifor has run into a potentially sticky patch in the UK, where some four million people suffer from iron deficiency anaemia.

As Reuters reports, the UK’s Competition and Markets Authority (CMA) launched an investigation last Wednesday into whether Vifor Pharma disparaged a competing iron-deficiency treatment produced by its competitor Pharmacosmos to benefit Ferinject.

CMA will investigate whether the company impinged on Pharmacosmo’s business by making misleading claims to medical professionals about the safety and efficacy of Monofer, Pharmacosmos’s competing treatment.

CSL has not yet responded to the allegations.

But if the CMA finds the company did engage in anti-competitive practices, CSL shares could come under pressure amid a potentially sizeable fine and the accompanying reputational damage.

The post Up 28% since October, why are CSL shares attracting regulator scrutiny? appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL. The Motley Fool Australia has recommended CSL. 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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Metcash Limited (ASX: MTS) shares will be out of action again on Monday.

That’s because the wholesaler has just asked for its shares to remain suspended until Wednesday.

What’s going on with Metcash shares?

Metcash requested that its shares remain offline so that it can undertake a $325 million capital raising.

According to the release, the company aims to raise the funds via a $300 million fully underwritten institutional placement and a $25 million non-underwritten share purchase plan.

The placement is being undertaken at $3.35 per Metcash share, which represents an 8% discount to its last close price.

Why is Metcash raising funds?

The proceeds from the capital raising, along with its existing cash and debt facilities, will be used to acquire three strategically aligned businesses that deliver further diversification and resilience, and an even stronger growth trajectory.

The main acquisition will be Superior Food for an enterprise value of up to $412.3 million. It is a leading Australian foodservice distribution business. Management believes it is a logical extension of Metcash’s Food strategy and will enhance its core Food wholesale and distribution capabilities.

Superior Food has a large network of ~600 suppliers with a product range comprising ~15,000 SKUs. Products are delivered to ~20,000 customers across a diverse range of markets including quick service restaurants, corporate caterers, cafés, restaurants and hotels.

The total acquisition price implies 9.0x FY 2024 estimated underlying EBITDA before annualised synergies and 6.9x including annualised synergies of ~$14 million.

Another acquisition the company is making is Bianco Construction Supplies for an enterprise value of $82.2 million. It is a construction and industrial supplies business servicing the South Australia and Northern Territory trade market.

The third acquisition is Alpine Truss, which is one of the largest Frame & Truss operators in Australia. Metcash has agreed a deal valued at $64 million for the business.

The good news for shareholders, and potentially Metcash shares when they return to action, is that the transactions are expected to be earnings accretive. Management estimates that they will be mid-single digit earnings per share accretive on a pro-forma October 2023 last-twelve-month basis including synergies. In addition, they are expected to be accretive to Metcash’s margins.

Metcash CEO, Doug Jones, said:

Metcash is the logical owner of Superior Food, and the acquisition cements our position as the largest wholesaler and distributor of food to independent businesses in Australia. Superior Food provides a compelling opportunity to expand in an attractive and adjacent growth market through an industry leading player with an established national platform for future growth. The combination of the two businesses unlocks diversification benefits, procurement savings, range expansion and extends our purpose of Championing Successful Independents.

The post Metcash shares paused for $325m capital raising to fund Superior Food acquisition appeared first on The Motley Fool Australia.

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ASX defensive shares are a good place to look for investment opportunities in the current economic environment. While interest rates may be lowered this year, there still is uncertainty about whether there’s going to be a downturn or not. So, I’m going to tell you about Propel Funeral Partners Ltd (ASX: PFP).

Extremely defensive earnings

There’s a saying that there are only two things certain in life – death and taxes. We can’t invest in the Australian Taxation Office (ATO), but we can invest in this funeral provider.

Sadly, a certain number of people are going to die each year. This means there’s a fairly consistent amount of demand annually.

Propel is a funeral operator in Australia and New Zealand with a market capitalisation of more than $600 million. It is the second biggest funeral provider in the Australia and New Zealand region.

The company has increased its market share in Australia from around 1% in 2015 to approximately 8% in 2022. It has a sizeable market share which is steadily growing thanks to its organic growth and a steady flow of acquisitions. At the company’s AGM, it advised it had committed $121 million to acquisitions over the past 12 months.

Growth tailwinds

If a company is able to grow revenue, even in a downturn, then I think it can claim to be a relatively defensive ASX share. FY23 saw Propel’s revenue increase by 16%, even though the 2023 financial year didn’t exactly see a recession.

According to the Australian Bureau of Statistics (ABS), death volumes are expected to increase by 2.4% per annum from 2023 to 2030 and 2.5% per annum from 2030 to 2040.

If Propel can maintain (or grow) its market share, then it should experience an increasing number of funerals as the years go by, though it won’t necessarily go up every single year.

In FY23, the business saw a funeral volume of 18,029, an increase of 9% year over year.

Appealing factors for profit and dividend growth

Not only is the number of funerals growing, but the company is increasing its profitability.

Propel is achieving a steady increase in average revenue per funeral – this increased by 6% in FY23, and it has grown at a compound annual growth rate (CAGR) of around 3% since FY14.

If the business can increase its profit, this could lead to a growing dividend and a rising Propel share price over time.

As I mentioned, FY23 saw revenue rise 16%, while the operating net profit after tax (NPAT) increased 17.9% to $20.9 million.

In the first quarter of FY24, the company saw the average revenue per funeral increased by a further 4.3% year over year to $168.5 million.

In FY24, Propel expects to report revenue of between $200 million to $220 million — an increase of between 18.7% to 30.5%.

Valuation

The ASX defensive share is currently valued at 30x FY24’s estimated earnings, according to the forecast on Commsec, with more growth expected in FY25 and FY26, putting it at 24x FY26’s estimated earnings.

The post Is this the most defensive ASX share money can buy? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Propel Funeral Partners. 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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I love looking at ASX-listed exchange-traded funds (ETFs) which offer both diversification and a good investment strategy that can lead to good returns.

I believe that the international share market is full of opportunities – the ASX only accounts for 2% of the global share market

It’s easy in hindsight to say which ASX ETFs are good picks. But, in my opinion, the ones that have done very well could continue to do well, despite the strong performance over the past year.

VanEck MSCI International Quality ETF (ASX: QUAL)

The QUAL ETF unit price has risen by around 33% over the past year, outperforming the S&P/ASX 200 Index (ASX: XJO) which only rose by 2%.

The idea is that it’s invested in the world’s highest-quality companies which rank well on key fundamentals including a high return on equity (ROE), earnings stability and low financial leverage.

It’s invested in around 300 of these quality companies from across the world, with good allocations to countries like Switzerland, the UK, Japan, Denmark and a few more. The biggest weighting is to the US, which has an allocation of 74%.     

A year ago, QUAL ETF’s portfolio was suffering (in valuation terms) from the fear surrounding interest rates and valuation. Confidence has come soaring back and the ongoing earnings strength has been reassuring.

Past performance is not a guarantee of future performance, but since its inception in October 2014, the QUAL ETF has delivered an average return per annum of around 15%. I think it’s capable of producing net returns of more than 10% per annum over the long term because of its focus on quality metrics.

Betashares Global Cybersecurity ETF (ASX: HACK)  

The HACK ETF unit price has climbed by 44% over the last year, which is a very strong rise for an ASX ETF with no leverage (debt).

In my eyes, this is one of the strongest ETFs around and it’s exposed to a strong tailwind.

Cybersecurity is a very integral industry because of the important nature of what it protects – government data, online banking, e-commerce, internal business data, and so on.

We’ve seen a number of large Australian businesses hit by cyber attacks in recent times including Optus, Medibank Private Ltd (ASX: MPL) and IPH Ltd (ASX: IPH). Hopefully, lots of other companies have upgraded their protection so they’re not the next ones to be hit. Even small businesses and households can be vulnerable to cyber attacks as well.

There’s not a lot of diversification with this portfolio – there are only around 30 names, and they’re all focused on cybersecurity. But, I think that’s a good thing. With more digital adoption by the world, there’s an ever-growing need to have adequate protection.

According to Statista, the size of the global cybersecurity market is projected to grow by 92% in the seven years between 2023 to 2030. I think this can continue to drive the profitability of the HACK ETF’s global holdings higher, and this can lead to solid investment returns.

Although past performance is not a guarantee of future returns, the HACK ETF has delivered an average return per annum of 17% since inception in August 2016.

The post 2 ASX ETFs I wish I’d bought for my portfolio appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended BetaShares Global Cybersecurity ETF. The Motley Fool Australia has positions in and has recommended BetaShares Global Cybersecurity ETF. The Motley Fool Australia has recommended IPH. 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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Investors have been selling ASX gold shares Silver Lake Resources Ltd (ASX: SLR) and Red 5 Ltd (ASX: RED) on Monday.

At the time of writing, the Silver Lake share price is down 9% and the Red 5 share price is down 3%.

Why are these ASX gold shares falling?

Investors have been selling these ASX gold shares today after responding negatively to the announcement of an agreement to merge and create a ~$2.3 billion, ~445,000 ounces per annum, diversified, leading mid-tier gold company with a strong balance sheet to pursue growth.

According to the release, under the terms of the transaction, Red 5 will acquire 100% of the shares in Silver Lake and each Silver Lake shareholder will receive 3.434 Red 5 shares for every share held.

Upon implementation of the transaction, Red 5 shareholders will own 51.7% of the merged entity and Silver Lake shareholders will own the remaining 48.3%.

The combined entity will be led by Russell Clark (from Red 5) as Chairman and Luke Tonkin (from Silver Lake) as Managing Director and CEO. The board will comprise four directors from each of the current Red 5 and Silver Lake boards.

The Silver Lake board of directors unanimously recommends that its shareholders vote in favour of the transaction. This is subject to the independent expert’s report.

Why are they merging?

Although the market may not be keen on the merger, the two companies believe that it will bring together a highly complementary combination of assets and balance sheets, creating value for shareholders. CEO-elect, Luke Tonkin, said:

This transaction represents a highly complementary combination of assets and balance sheets for the mutual benefit of both Silver Lake and Red 5 shareholders. Mergers work when each company brings attributes that the other company does not possess, which is undoubtedly the case here. The increased scale, diversification and financial strength of the new company that will be formed via this transaction will be primed for continued strong cash flow generation and further growth.

This sentiment was echoed by Red 5’s CEO, Mark Williams. He said:

This transaction represents a logical merger of two leading mid-tier gold companies and represents an exciting inflection point for Red 5 shareholders following the successful development, ramp-up and achieving steady state production at King of the Hills. The merger creates a ~445,000 oz pa diversified gold producer with assets in tier one jurisdictions. With a sector leading balance sheet, the merged entity provides a strong foundation for future growth.

The post Guess which ASX gold shares are sinking after announcing a ~$2.3b merger appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Accent Group Ltd (ASX: AX1) shares have risen 22% since 24 November 2023, which compares to a rise of 9.5% over the same time period for the S&P/ASX 200 Index (ASX: XJO).

After such a strong rise in the ASX retail share, could the shoe retailer still be a good investment?

Cheap forward valuation

This year could be tricky for many retailers because of cost of living difficulties, which has led to the share prices of retailers falling.

However, I like looking at cyclical opportunities when they’re at a weaker point in the cycle.

The Accent share price is still down close to 20% from its 52-week high in April 2023.

Profit may drop in FY24, but it could rebound nicely in FY25 and FY26. By FY26, it might be as profitable as ever and make earnings per share (EPS) of 16.6 cents. This would put the business at under 13x FY26’s estimated earnings.

Investing should be a relatively long-term-focused activity. While we don’t have to hold every single ASX share forever, I think it’s a good idea that each investment should make sense on a multi-year timeline.

FY26 really isn’t that far away — we’re already more than halfway through FY24.

I’d call Accent shares a buy for its longer-term potential, particularly when we consider a number of positives about the company.

Positives about Accent shares

The company is continuing to grow the portfolio of global brands that it sells in Australia.

Some of the latest brands to sign up with Accent are Ugg and Herschel, opening up more potential sales. I don’t know what brand might be next, but any more growth could help earnings.

Accent is steadily opening more stores, which increases its scale. The company said at its AGM that its store opening program was on track with 70 new stores expected to open in the first half of FY24.

Another exciting element of the business is its level of digital sales, which can be more profitable than store sales because they don’t come with all of the stored-related costs. In FY23, around a fifth of its sales were digital.

I’ll also point to its growing number of owned brand sales. Businesses like Nude Lucy and Glue Store are owned entirely by Accent, so any growth it achieves is entirely benefiting the ASX retail share for the long-term.

The forward dividend yield is also compelling. According to Commsec, it could pay a grossed-up dividend yield of 10.25% in FY26.

The post Are Accent shares a good buy right now? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Accent Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Accent Group. 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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ASX dividend share Universal Store Holdings Ltd (ASX: UNI) may pay enormous dividends in 2025 and 2026 if things go well for the retail company.

Universal Store owns a group of what it describes as “premium youth fashion brands”. Spearheaded by its Universal Store brand, it also has the THRILLS, Worship and Perfect Stranger brands. It’s trialling the Perfect Stranger brand as a standalone retail concept.

At the last count, it operates 98 physical stores across Australia, as well as three online stores.

How big could the dividend be?

The company has increased its dividend payouts since it started paying them in 2021. In FY23, it paid an annual dividend per share of 22 cents. This is a trailing grossed-up dividend yield of 4.6%.

According to Commsec projections, the business may pay an annual dividend per share of 23.1 cents in FY24. This increase would be a grossed-up dividend yield of 8%.

In FY25, the ASX dividend share is then projected to pay an annual dividend per share of 25.9 cents — a grossed-up dividend yield of 9%.

Going onto FY26, Universal Store is forecast to pay an annual dividend per share of 28.2 cents, which would be a grossed-up dividend yield of roughly 10%.

In other words, the company is expected to keep growing its payout throughout this period and keep the dividend growth streak alive.

Can profit grow over the long term?

The company is projected to generate earnings per share (EPS) of 46.2 cents in FY26, which would put it on a forward price/earnings (P/E) ratio of just 9. Retailers typically trade on a low earnings multiple, which enables an appealing dividend yield, if they pay a dividend.

There are a number of things the ASX dividend share is doing to grow profit.  

It’s opening new stores across its brands, with the growth of Perfect Stranger particularly interesting. The already-opened newer stores are maturing, meaning they’re reaching their full potential. The ASX dividend share is also working on “developing [the] online experience and integration with physical stores”.

Another area of focus is that Universal Store is improving the productivity of its operations and technology.

If the employment rate of younger Aussies can stay relatively strong during this period, which it appears to be so far, then sales and profit could continue to be strong. That may unlock the dividend yields of the future that I’ve talked about.

The post This ASX dividend share is predicted to pay a 10% yield in 2026 appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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ASX tech stock Bailador Technology Investments Ltd (ASX: BTI) looks to be a great investment option right now. In fact, I’d rather invest in it than the electric vehicle maker Tesla Inc (NASDAQ: TSLA).

Let me start by saying I’m not suggesting it’s going to perform as well as Tesla has done over the long term — I mean from today onwards.

Tesla has performed incredibly well in the last few years, and it might continue to do very well. However, the US giant does now have a huge market capitalisation, and there is growing competition from other car makers manufacturing electric cars, including China’s BYD.

There are a few key reasons why I like Bailador, which primarily invests in relatively small, unlisted tech companies. It describes itself as a growth capital fund focused on the information technology sector.

Let’s get into why I think it’s got great return potential.

Strong revenue characteristics

Bailador says it typically invests between $5 million to $20 million in companies seeking growth-stage investment.

There are particular areas it likes to look at for opportunities: software as a service (SaaS) and other subscription-based internet businesses, online marketplaces, software, e-commerce, high-value data, online education, telecommunication applications and services.

Bailador invests in businesses with the ability to generate repeat revenue, they should have a huge market opportunity, and they typically generate revenue from international sources.

Software platform Siteminder Ltd (ASX: SDR) is currently its biggest position. It was listed on the ASX after Bailador’s initial investment and has grown enormously. Siteminder is a world leader in hotel channel management and distribution solutions for online accommodation bookings. In the FY24 first half, Siteminder reported revenue growth of 27.9%.

Before Bailador sold its stake in Instantscripts for $52 million (at an internal rate of return of 64% for the fund), that digital healthcare business had grown its revenue at more than 100% year over year.

For FY23, the Bailador portfolio revenue growth was 67%, with around 84% of revenue being recurring.

I’d expect that any future investments Bailador makes will have an attractive revenue outlook, which helps the compounding potential of revenue.

Attractive unit economics

Revenue growth isn’t the only important thing – it needs to be profitable growth in the long term.

If a technology business has good margins, then additional volume should help profitability because of the operating leverage.

Bailador deliberately looks to invest in businesses that have a “proven business model with attractive unit economics”.

In FY23, the gross profit margin of the ASX tech stock portfolio’s company holdings was around 62%. Future investments may have an even higher gross profit margin.

Investors usually focus on the profit potential of a business, and the underlying businesses could be very profitable in the future. It can take a while to get to profit-making status – just look at how long it took Tesla. Siteminder expects to be underlying earnings before interest, tax, depreciation and amortisation (EBITDA) and underlying free cash flow positive in the second half of FY24.

Big valuation discount of the ASX tech stock

I think the Bailador share price is trading at a very attractive discount.

The company said it had pre-tax net tangible assets (NTA) of $1.77 and post-tax NTA of $1.64 at 31 December. The current Bailador share price is around $1.31, which is a 20% discount to the post-tax NTA. The improving wider economic picture could lead to investors seeing value in this ASX tech stock.

Those NTA figures may actually be conservative and underestimate the value of its current investments.

Bailador sold InstantScripts to Wesfarmers Ltd (ASX: WES) at a price 25% higher than what it had valued InstantScripts at – the carrying value.

Bailador also recently saw Rezdy taken over by a US private equity fund, which increased its equity valuation of Rezdy by approximately 46%.

Siteminder’s valuation is decided by its daily share price, but other Bailador investments like Access Telehealth and Rosterfy could be worth more than the ASX tech stock is currently valuing them at.

I think there’s good potential for the ASX tech stock’s NTA discount gap to close, and the strength of the underlying growth may drive these businesses higher.

The post Forget Tesla, I think this ASX tech stock is poised for an incredible run appeared first on The Motley Fool Australia.

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• Got $1,000? 2 ASX shares to buy right now
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Motley Fool contributor Tristan Harrison has positions in Bailador Technology Investments. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bailador Technology Investments, SiteMinder, Tesla, and Wesfarmers. The Motley Fool Australia has positions in and has recommended SiteMinder and Wesfarmers. The Motley Fool Australia has recommended Bailador Technology Investments. 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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