The AMP Ltd (ASX: AMP) share price is lifting higher as we walk through afternoon trade.

AMP shares are on the move after the company posted its half-year results. Let’s investigate further.

What did AMP announce?

In a positive for the AMP share price, the company recognised a 57% year-on-year increase in net profit, reaching $181 million.

Moreover, its Australian wealth management assets under management (AUM) grew 8% also.

This carried through to surplus capital of $452 million above target requirements. As a result, the group’s underlying return on equity was 8.3%, up from 6% the year prior.

In contrast to these results, AMP decided against paying a dividend, as the board seeks to ring-fence capital budgeting, which is consistent with previous language on its balance sheet. For instance, AMP has other drains and pulls on liquidity in its AMP Capital Private Markets demerger to consider.

However, AMP authorised a share repurchase program of $200 million on 30 June, to offset this cancelled dividend. Little colour was given in the report on when investors can expect the dividend to be reinstated.

AMP did however give colour on FY21 guidance expectations. It sees controllable costs of $775 million, in line with previous guidance.

Moreover, AMP estimates the cadence of loan growth for AMP Bank will remain strong into the second half, whereas AMP Capital FY21 earnings are tipped for a down-step from the year prior.

Investors have rallied the AMP share price as we walk through afternoon trade, on heavy volume.

Shares in the financial services giant are now exchanging hands at $1.12 apiece, a 3.89% gain on the day, and nearly a 2% gain from midday.

AMP share price snapshot

The AMP share price has posted a year-to-date loss of 28%, extending the previous 12 month’s loss of 19%.

These results have lagged the S&P/ASX 200 Index (ASX: XJO)’s return of around 25% over the past year.

The post The AMP (ASX:AMP) share price is pushing 4% higher this afternoon appeared first on The Motley Fool Australia.

More reading

• AMP (ASX:AMP) share price higher despite cancelled dividend
• AMP (ASX:AMP) share price on watch as net profit jumps 57%
• How did the AMP share price respond last earnings season?
• The AMP (ASX:AMP) share price is trading on a forecast 9.4% dividend yield
• If you invested $1000 in AMP (ASX:AMP) shares a decade ago, this is how much it would be worth now

The author Zach Bristow has no positions 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 Bruce Jackson.

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The Galan Lithium Ltd (ASX: GLN) share price won’t be going anywhere on Thursday after the company requested a trading halt.

What’s the trading halt for?

The trading halt was requested on the basis of an upcoming capital raising.

The company advised that its shares will remain halted until Monday, 16 August or upon the release of the announcement.

The decision to raise capital comes right after the Galan Lithium share price surged 23.08% to $1.28 in August.

What’s next for Galan Lithium?

Galan Lithium operates the Humbre Muerto Salar project, located in the world-renowned lithium triangle in Argentina.

According to a recent company presentation for the battery minerals conference in Perth, Galan Lithium has described its project as one with some of the “best grades” and “lowest impurities” in Argentina.

The company’s preliminary economic studies and scoping study highlight a long life project yielding more than 40 years at a production rate of 20,000 tonnes per annum of battery grade lithium carbonate.

The project is expected to have a competitive capex of US$388 million with a 30% contingency.

The area possesses a rich setting for lithium brine development with features such as groundwaters sourced from volcanic rocks, hydrothermal activity and an arid climate.

The project is well-advanced in terms of exploration activities and is currently focused on the completion of a pre-feasibility study and pilot plant permits.

According to the company’s June quarter results, it is currently engaged with WSP Consulting Chile and SRK Consulting in transforming the project’s significant resource into reserves, the main foundation of its feasibility study.

The company expects drilling to follow soon after and is currently in advanced discussions with drilling companies to execute the program.

At the end of the June quarter, Galan Lithium had a cash on hand position of $15.5 million.

Galan Lithium share price snapshot

The Galan Lithium share price has joined in on the red hot lithium sector, surging 245% year-to-date.

Galan Lithium has a market capitalisation of approximately $313 million.

The post Why is the Galan Lithium (ASX:GLN) share price frozen? appeared first on The Motley Fool Australia.

More reading

• Top brokers name 3 ASX shares to sell today
• The AMP (ASX:AMP) share price is pushing 4% higher this afternoon
• The Telstra (ASX:TLS) share price is driving 4% higher on Thursday
• The Downer (ASX:DOW) share price is driving 4% higher this afternoon
• AGL (ASX:AGL) dividend slashed. Share price down 3% on Thursday

Motley Fool contributor Kerry Sun 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 Bruce Jackson.

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The Telstra Corporation Ltd (ASX: TLS) share price is surging higher this Thursday. At the time of writing, Telstra shares are up a healthy 3.66% to $3.97 a share. That share price represents a new 52-week high for this ASX 200 telco. That well eclipses the previous 52-week high of $3.88 a share that we saw earlier this week.

Telstra share price surges on FY2021 earnings report

It’s fairly obvious why Telstra shares are rising so steeply today. This morning, the telco released its FY2021 earnings report to the markets, and it has evidently been well received by investors.

As we covered extensively on the Fool earlier this morning, Telstra reported that its total income and earnings before interest, tax, depreciation and amortisation (EBITDA) both fell by 11.6% and 14.2% respectively. Even so, it managed to increase its net profit after tax by 3.4% to $1.9 billion. It also managed to bump up its free cash flow by 11.6% to $3.8 billion.

Those last numbers meant that the telco was able to keep its dividend steady at 8 cents per share. As well as initiate a $1.25 billion share buyback program.

This last news will probably come as a relief for income investors. These investors, perhaps still burned from Telstra’s 2017 dividend cuts, may have been nervously eyeing Telstra’s still-generous dividend yield. At an annualised 16 cents per share, Telstra is still offering a forward yield of 4.02% on current pricing.

The share buybacks have no doubt been welcomed by investors too. Buybacks, by decreasing the overall share count, increase each Telstra shares’ earnings per share (EPS), and are usually conducive to higher share prices due to the laws of supply and demand (less supply means higher prices).

At the current Telstra share price, the company has a market capitalisation of 36.4 million, and a price-to-earnings (P/E) ratio of 26.64.

The post The Telstra (ASX:TLS) share price is driving 4% higher on Thursday appeared first on The Motley Fool Australia.

More reading

• ASX 200 midday update: Telstra, NAB, & QBE results
• Telstra (ASX:TLS) share price lifts off after dividend announcement
• Everything to know about the Telstra (ASX:TLS) $1.35bn share buyback
• Why GrainCorp, Myer, QBE, & Telstra shares are storming higher
• Telstra (ASX:TLS) share price on watch after hitting guidance & $1.35bn buyback

Motley Fool contributor Sebastian Bowen owns shares of Telstra Corporation Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Downer EDI Limited (ASX: DOW) share price is 4.42% higher in early afternoon trade following the release of the company’s full-year results for financial year 2021.

To the market’s delight, Downer this morning reported a profit for the financial year just been.

After closing yesterday’s session at $5.54, the Downer share price is currently $5.78.

Let’s take a closer look how Downer performed over the 12 months ended 30 June 2021.

The financial year that’s been for Downer

The Downer share price is responding well to the company’s full-year results.

Downer has reported an underlying net profit after tax and amortisation of $261.2 million ­– 21.4% more than it reported last year.

It also clocked in a statutory net profit after tax of $230 million. That’s a significant improvement from its previous financial year’s statutory net profit, which came in at a loss of $105.8 million.

The Downer share price is also likely being driven higher by its latest dividend.

The company has handed a 12 cent final dividend back to the holders of each of its shares. That brings its total dividends for the financial year to 21 cents. All dividends given to Downer’s shareholders during the 2021 financial year were fully franked.

Downer share price snapshot

Today’s 4.42% gain has helped boost recent performance on the ASX.

Shares in the company are now trading for 6% more than they were at the start of 2021. They’ve also gained 34% since this time last year.

For comparison, the S&P/ASX 200 Index (ASX:XJO) has gained 23% over the last 12 months.

The post The Downer (ASX:DOW) share price is driving 4% higher this afternoon appeared first on The Motley Fool Australia.

More reading

• ASX tech shares lagging the ASX 200 on Thursday
• ASX 200 midday update: Telstra, NAB, & QBE results
• The Downer (ASX:DOW) share price on watch after FY21 earnings
• 5 things to watch on the ASX 200 on Thursday
• Here are 3 of the most heavily traded ASX 200 shares today

Motley Fool contributor Brooke Cooper 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 Bruce Jackson.

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The AGL Energy Limited (ASX: AGL) share price is in the red straight out of the blocks in early trade.

AGL shares are on the move down as the energy giant updated its dividend schedule as part of its FY21 earnings report.

Let’s investigate a little further.

AGL’s dividend

AGL has an extensive dividend history that dates back to 2003. It resumed payments in 2013 after an eight year pause.

AGL’s dividend has been quite growth-agnostic across the term of its distribution schedule.

To illustrate, in the period of 2003 – 2021, AGL grew its dividend at a compound annual growth rate (CAGR) of only 1.94%. Prior to the dividend haircuts in 2020 and 2021, the CAGR was 7.2%.

In a negative note for the AGL share price, AGL declared a full year dividend of 75 cents per share in its FY21 results, which is an approximate 23.5% down-step from the year prior.

In addition, it is both the interim and final dividend of 35 cents and 41 cents respectively, that came in behind the previous year’s payouts.

The down-step occurred on the backdrop of a 10% year on year decrease in revenue, coupled with a 33.5% slide in underlying profits, to $537 million.

Furthermore, this caps of a choppy year for AGL, after it announced plans to demerge into two standalone businesses earlier in the year.

This coincided with the suspension of its special dividend program, where it intended to pay 25% of underlying profits to shareholders over the coming periods.

What does this mean for investors and the AGL share price?

Back on 30 July, we calculated that AGL’s dividend was not enough to overcome the underperformance of its share price on the charts over the last 5 years.

AGL shareholders still realised a loss of 12.4% on their initial investment, if purchasing 1,000 AGL shares on 1 March 2015 and holding until 30 July, when factoring in the total return received in capital gains and dividends. Stripping the dividend out of the equation, the loss mushrooms to 52%.

Therefore, some might argue that AGL’s dividend has provided some downside coverage over the past 5 years.

Furthermore, The Motley Fool encourages investors to consider the notion of a “value trap” when investing in dividend-paying shares, in AGL’s case.

To illustrate, there is an inverse relationship between dividend yield and price. When price goes down, yield goes up, and vice versa.

AGL’s share price has tanked more than 61% over the past 5 years, whereas its dividend has increased over that time.

The apparent dividend yield on AGL shares, therefore, appears to be high, but investors must also consider that this may not be an accurate representation of the investment case, due to the underperforming share price.

Such is the case right now with AGL shares, which now trade on a dividend yield of roughly 9–10% after this morning’s update.

In addition, given that dividends do provide some downside cover to share price depreciation, the down-step is unlikely to please investors.

Therefore, it stands to reason that investors are selling AGL shares in droves on the back of its FY21 dividend and results. To illustrate, AGL shares are now exchanging hands at $7.29 apiece, a 4% dip into the red from the open.

Foolish takeaway

AGL is reigning in its dividend payout further, as per its FY21 results. This marks a further downstep in AGL’s distribution schedule, which has faced headwinds over the last two years.

The AGL share price has posted a loss of 57% over the last 12 months and 39% since January 1. This is well behind the S&P/ASX 200 Index (ASX: XJO)’s return of around 25% over the past year.

Finally, investors also need to consider the concept of a value trap in their due diligence for dividend paying shares.

The post AGL (ASX:AGL) dividend slashed. Share price down 3% on Thursday appeared first on The Motley Fool Australia.

More reading

• AGL (ASX:AGL) share price on watch following FY21 earnings
• 5 things to watch on the ASX 200 on Thursday
• How did the AGL (ASX:AGL) share price perform last earnings season?
• What can we learn from the AGL Energy (ASX:AGL) share price history?
• Could it be time to consider buying AGL (ASX:AGL) shares?

The author Zach Bristow has no positions 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 Bruce Jackson.

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The Rio Tinto Limited (ASX: RIO) share price has been the worst performer on the S&P/ASX 200 Index (ASX: XJO) on Thursday.

In afternoon trade, the mining giant’s shares are down 7% to $120.35.

Why is the Rio Tinto share price sinking?

The good news for shareholders is that the decline in the Rio Tinto share price has nothing to do with commodity prices or anything operational.

Rather, today’s decline has been driven almost entirely by the fact that the mining giant’s shares are trading ex-dividend today.

When a share trades ex-dividend, it means it is trading without the rights to an upcoming dividend payment.

As result, this morning the company’s share price dropped to reflect the fact that new buyers will not be receiving its upcoming dividend.

The Rio Tinto dividend

Eligible Rio Tinto shareholders can now look forward to receiving the company’s interim and special dividends next month on 23 September.

The mining giant is paying its shareholders fully franked dividends totalling 760.06 cents per share. This comprises an interim dividend of 509.42 cents per share and a special dividend of 250.64 cents per share.

As a comparison, the Rio Tinto share price has fallen 879 cents today. This means that 86% of this decline is attributable to the dividends that will be paid.

What about the rest?

The rest of the weakness in the Rio Tinto share price is likely to be due to profit taking from investors.

With Rio Tinto shares up strongly over the last 12 months, some investors may be cashing in now that they have locked in this bumper dividend.

Though, if analysts at Macquarie are on the money, it might be a little too soon to do that. At the end of last month the broker put an outperform rating and $162.00 price target on its shares. This implies potential upside of almost 35% over the next 12 months.

The post Why the Rio Tinto (ASX:RIO) share price is down 7% today appeared first on The Motley Fool Australia.

More reading

• ASX 200 midday update: Telstra, NAB, & QBE results
• Is the Rio Tinto (ASX:RIO) share price a buy right now?
• How does the Rio Tinto (ASX:RIO) dividend compare to the materials sector?
• ASX 200 shares could get boost on prediction that A$ will crash to US68c
• How is the Mineral Resources (ASX:MIN) share price holding up against the materials sector?

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 Bruce Jackson.

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The Andromeda Metals Ltd (ASX: ADN) share price is in the green after the company announced a new joint venture.

Andromeda has entered an agreement to join forces with an unlisted company, Peninsula Exploration to explore 4 tenements located near Andromeda’s Great White Kaolin Project.

The Andromeda share price is up 4.25% on the back of the news today. Shares in the mineral exploration company are currently swapping hands for 16 cents apiece.

Let’s take a closer look at Andromeda’s new partnership.

New joint venture

Andromeda’s new partnership will form the Eyre Kaolin Project Joint Venture.

Andromeda’s geology team expects the site to be prospective for halloysite, and kaolin clay has already been found there.

According to Andromeda, targets at the project have returned similar results to the Great White and Mount Hope Projects.

The Andromeda share price has a history of soaring on good news regarding the company’s kaolin ventures.

Peninsula Exploration already holds the exploration licences for 4 tenements covering a 2,799 sqm area on South Australia’s Eyre Peninsula.

Andromeda has agreed to pay Peninsula $20,000 to enter the joint venture. Over the next 12 months, the company will spend a further $140,000 on the project.

In the project’s first stage, if Andromeda spends $750,000, it will earn a 51% interest in the joint venture.

After the first stage, Andromeda could earn another 29% by spending an additional $2 million.

At that point, Peninsula can choose to swap its 20% holding for a 1.5% net profit royalty if the companies decide to mine the tenements.  

Andromeda share price snapshot

Today’s gains haven’t been enough to boost the Andromeda share price out of the red this year.

Andromeda shares are trading hands for 47.7% less than they were at the start of 2021.

However, the share price has grown by 224% since this time last year.

The company has a market capitalisation of almost $400 million. There are approximately 2.46 billion shares outstanding.

The post Andromeda (ASX:ADN) share price higher on new joint venture appeared first on The Motley Fool Australia.

More reading

• Andromeda (ASX:ADN) share price edges lower on board reshuffle
• Here’s why the Andromeda Metals (ASX:ADN) share price is jumping 13%

Motley Fool contributor Brooke Cooper 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 Bruce Jackson.

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The Transurban Group (ASX: TCL) share price is pushing higher on Thursday afternoon. This follows the toll road operator’s latest positive announcement regarding the Maryland Express Lanes Project.

At the time of writing, Transurban shares are fetching for $13.45, up 0.22%.

Maryland Express Lanes Project update

In a statement to the ASX, Transurban advised that the Accelerate Maryland Partners (AM Partners) has received approval for works on the Maryland Express Lanes Project.

The AM Partners is led by Transurban and Macquarie Capital as lead project developers and equity members.

The green light was given by the Maryland Board of Public Works over the Public-Private Partnership (PPP) agreement. The approval is for the first phase of the project in the Greater Washington area (United States).

Under the initial stage, it proposed that AM Partners will build approximately 60 kilometres of highway toll lanes. This will connect Northern Virginia with key business and residential centres in Maryland.

The next step in the predevelopment process will see AM Partners work with the Maryland Department of Transportation.

A final concession agreement and financial close is expected sometime in late 2022 on the first phase of the project.

Transurban CEO, Scott Charlton touched on the significant milestone, saying:

The Maryland Express Lanes Project is set to be one of the largest PPPs in the USA, and the delivery of Phase 1 will be our first partnership with the Maryland Department of Transportation.

The Maryland Express Lanes Project will address one of the region’s worst congestion points, the American Legion Bridge, and allow us to extend the benefits of our Express Lanes network to motorists travelling between Virginia and Maryland.

About the Transurban share price

Over the last 12 months, Transurban shares are relatively flat, down 2%. Year-to-date hasn’t fared much better, also down 1%. The company’s share price is sitting just below the middle of its 52-week range of $12.36 and $15.64.

Transurban commands a market capitalisation of roughly $36.8 billion, making it the 15th largest company on the ASX.

The post Why the Transurban (ASX:TCL) share price is edging higher today appeared first on The Motley Fool Australia.

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• 2 quality ASX shares for a retirement portfolio
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• Suncorp share price surges. Transurban falls. Scott Phillips on Nine’s Late News
• The ASX reporting wrap-up: Suncorp, Transurban, ELMO
• Transurban (ASX:TCL) share price slumps amid latest West Gate Tunnel drama

Motley Fool contributor Aaron Teboneras 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 Bruce Jackson.

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The Fatfish Group Ltd (ASX: FFG) share price is rocketing today, up 7% in early afternoon trade, having earlier posted gains of 19%.

At the time of writing, the Fatfish share price is trading in the green at 6.2 cents apiece.

Below we look at the news out today from the ASX tech share.

What did Fatfish announce?

Fatfish’s share price is surging after the company reported fresh monthly and quarterly sales records at its insurtech (insurance and technology) investee company Fatberry.

Fatfish, along with its Swedish-listed subsidiary Abelco Investment Group, together own 61% of Fatberry.

According to today’s release, sales increased 36.7% from May to June, hitting $569,599 in monthly gross sales in June.

Total sales for the first half of 2021 of $1,977,391 represent a record high for Fatberry.

The Fatfish share price also may be getting a boost from its report that Fatberry’s quarter-on-quarter average sales growth over the past 4 quarters is at 478% per quarter.

What did management say?

Commenting on the results, Fatberry CEO John Tan said:

Fatberry is riding on a very strong growth momentum. We are breaking our own records every quarter and growth is seen continuously in all operational measurements, from visitor counts on our website to overall sales performance.

The company has equipped itself with the right business model, stellar team and technology to drive this exponential growth for quite a while more.

Fatberry’s current insurance products cover vehicles, motorbikes, personal accident and travel insurance. The company plans to launch a new insurance product category before the end of September.

Fatfish share price snapshot

The Fatfish share price has been a standout performer over the past 12 months, gaining 530%. By comparison the All Ordinaries Index (ASX: XAO) is up 26% over that same time.

Year-to-date, Fatfish’s share price has continued to outperform, up 58% in 2021.

Fatfish and its Swedish subsidiary, Abelco, operate from innovation hubs in Singapore, Kuala Lumpur and Stockholm.

The post Why the Fatfish (ASX:FFG) share price is storming 7% higher today appeared first on The Motley Fool Australia.

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• Why this small-cap ASX share can follow $6 billion rival
• Alexium (ASX:AJX) share price rockets 34% on sales update
• When was the best day on the Zip (ASX:Z1P) share price chart in 2021?
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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 Bruce Jackson.

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What if you knew of a small-cap ASX share that was doing all the right things that its bigger rival did years ago?

If you could see how it could grow as big as the larger competitor, would you be tempted to buy in?

NovaPort Capital analyst Tim Binsted is certainly excited when he’s fishing for small-cap “tiddlers that can grow into tomorrow’s whales”.

And he reckons he’s just caught one.

“Laboratory and environmental services business HRL Holdings Ltd (ASX: HRL) is capitalised at just over $55 million and the journey of ASX-listed peer ALS Ltd (ASX: ALQ) — capitalised at more than $6 billion — gives some indication of the market opportunity.”

A small-cap that’s already profitable

A major upside of HRL, according to Binsted, is that it’s in the black already.

“Unlike many early-stage businesses, HRL is already profitable,” he said on the NovaPort blog.

“This meets a key criterion that NovaPort Capital looks for in emerging companies: cashflows that can fund growth without the downside risk associated with many high-growth, high cash-burn businesses.”

Binsted showed a comparison of underlying earnings margins of HRL and its competitors, which showed it ranked 3rd in a field of 9.

“HRL generates margins that are very healthy when judged against a peer set of much larger businesses.”

The business also has “a strong balance sheet with negligible debt”, according to Binsted.

3 paths to growth

Binsted’s team thinks HRL’s testing capabilities in food and water quality and environmental hazards put it in an excellent position for growth.

There are 3 ways that it could grow:

• Investment in existing operations (new tests, equipment upgrade, new regions)
• Bolt-on acquisitions to expand services or customer demographics
• ‘Transformational’ acquisition for rapid expansion

According to Binsted, HRL is pursuing all 3 avenues.

“The recent acquisition of Water Testing Hawkes Bay in New Zealand, while small, demonstrates the capacity to continually expand the group’s testing lines,” he said.

“HRL is also investing in a joint venture with Milk Test NZ called Food Lab that has just commenced trading and will begin with a focus on the NZ dairy industry.”

HRL leadership estimate Food Lab’s addressable market is about NZ$40 million, to be fought over with 2 main competitors.

“Snaring a third of this market would be material given HRL’s current revenues of around $35 million.”

As for that massive transformational takeover, the chair of HRL is a man named Greg Kilmister.

“Kilmister was the chief executive of ALS Limited and took the business from a market cap of less than $400 million to more than $3 billion,” said Binsted.

“That’s the kind of steady hand that provides comfort in any big strategic moves or tough patches.”

HRL has a clear plan

Binsted was impressed that HRL presented a very precise 3-year plan for growth during its recent financial year 2021 results announcement.

“This will require reinvestment, but we are willing to back management to use shareholder capital wisely and drive value-accretive growth.”

The company has a software arm called Octfolio which Binsted’s team thinks has tremendous potential.

“Octfolio’s hazardous materials, workplace safety, and field management software generates just under $1 million in revenue. At that size, it has proof of concept and customer validation but is immaterial to earnings and valuation,” the analyst said.

“With a re-energised sales focus, Octfolio could become a significant, and high value, revenue stream. Its current contribution is not valued by the market, so the upside is large relative to any downside.”

Small-cap risk

Of course, Binsted reminded investors that no ASX share is a sure thing.

“Growth is not a right and markets are competitive. There are no guarantees that HRL’s organic investment drive will bear fruit,” he said.

“It is also possible that the share price will suffer near-term as the growth initiatives crimp current earnings ahead of any potential revenue growth.”

HRL currently operates in “a comfortable niche”, but desperately needs economies of scale to elevate to the next level.

“Failure to get to scale or a misguided acquisition in the quest to bulk up are 2 further risks to our investment thesis.”

The post Why this small-cap ASX share can follow $6 billion rival appeared first on The Motley Fool Australia.

More reading

• Why the ALS (ASX:ALQ) share price is charging higher today

Motley Fool contributor Tony Yoo 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 Bruce Jackson.

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