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.

The post ASX stock of the day: This ASX materials share jumped 11% today on a 250% surge in profits appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/2LeyblJ

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.

The post Reality bites: Broker warns CBA shares to underperform this week appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/3bkiiVl