The REA Group Limited (ASX: REA) share price has been a strong performer over the last 12 months.

Since this time last year, the property listings company’s shares are up a sizeable 67%.

Can the REA Group share price keep climbing?

The good news for investors is that Goldman Sachs believes the REA Group share price can keep on climbing.

In response to its third quarter update last week, the broker has retained its buy rating and lifted its price target on the company’s shares to $187.00.

Based on the current REA Group share price of $156.05, this price target implies potential upside of 20% over the next 12 months.

What did Goldman say?

Goldman was pleased with REA Group’s performance during the third quarter and expects more of the same in the future. Particularly given its belief that it is winning market share from rival Domain Holdings Australia Ltd (ASX: DHG).

It commented: “For REA, we see a strong near-term earnings outlook, given: (1) April listings +98% yoy (+33% vs. Apr-19), with listings strength continuing into May/Jun (and FY22E) in our view; (2) Strong yield growth, with +8%/+6% price rises in FY22/23E (in line with GSe); (3) Ongoing depth penetration (Premiere All traction, new products gaining strong traction); (4) Share gains vs. DHG – We estimate REA Australia revenue grew +13-14% (Resi > +15%, given +8% listings, > +7% yield) vs. DHG Digital +8% (Resi +11%, with +4% listings, +7% yield); and (5) strong cost discipline, with FY21E costs now marginally higher (was flat) given stronger revenues.”

This led to Goldman upgrading its earnings forecasts for FY 2021 through to FY 2023 and its price target accordingly.

Don’t forget Move

The broker also advised investors not to overlook the value of REA Group’s investment in US-based Move.

It commented: “Despite the strong YTD performance, we still do not believe the market is fully appreciating the value of Move. For example, although: (1) our FY21 revenue for Move of US$615mn is equivalent to 85% of REA FY21E; (2) it is growing materially faster (i.e. +30% in FY21E vs. REA +10% cc); (3) it is meaningfully lower margin, Move should see margin expansion (we expect Move EBITDA margin to increase from 3% in FY20 to c.15% in FY21E vs. REA 58% to 62%). However, despite these strong financial metrics, our above consensus US$6.9bn Move valuation is only 40% of our REA valuation.”

More reading

• ASX 200 rises, Macquarie falls, Magellan declines
• How shares with massive PE ratios can be cheap
• ASX 200 up 0.45%: Macquarie full year results & REA Group Q3 update
• REA (ASX:REA) share price on watch after third quarter results
• 2 stellar ASX growth shares rated as buys

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group 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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Share markets have been funny the past few years.

For much of last year, while COVID-19 first raged (and for a few years prior), US and ASX shares have counter-intuitively shot upwards whenever the economy looked suppressed.

Bad news meant good news.

Nucleus Wealth head of investments Damien Klassen said this is because share markets are “driven by narrative”.

“Bad economic news meant bond yields fell and inflation expectations cratered. However, it also meant more central bank intervention. Growth stocks boomed,” he said in a memo to clients.

Of course, this led to some absurd consequences.

“In a time of no growth, any stock that did exhibit 6 months of growth would ‘therefore’ grow forever. Even better if the stock didn’t make any profit!” 

“A lower bond yield meant investors could pay more for those stocks. In the land of the blind, the one-eyed man became king.”

ASX shares like Afterpay Ltd (ASX: APT) and Tesla Inc (NASDAQ: TSLA) ended up as the poster children for this trend last year.

Good news is good news

The story took a sharp turn in November.

Coronavirus vaccines started to show promise of worldwide rollout, and a change of government in the US revived hope for the global economy.

Good news was, all of a sudden, good news.

“Good economic news meant higher profits,” said Klassen.

“Value stocks became the new leaders, and growth stocks sank. Banks, cyclicals, commodities all shot higher on the expectation of rising economic growth.”

Good news is bad news

Since this year started, the prospect of rising inflation triggered by the post-COVID recovery started worrying markets.

Ten-year bond yields actually rose in both the US and Australia.

Good news was now bad news.

“It is basically the reverse of the first narrative,” Klassen said.

“It assumes that the rising bond yields and inflation will burst the stock market bubble.”

While there has been some correction to the fast-growing ASX shares of 2020, it’s still uncertain which narrative will dominate for the rest of this year.

Where are the markets headed this year?

Klassen reckons the least likely to win out this year is the “good news is bad news” narrative.

“Not only do I think that the inflationary pressures will be temporary, but… central banks do not want bond yields to rise to the point where they damage economic growth,” he said.

“The Australian and European central banks have expressly commented on this. The US Fed has avoided explicitly commenting, and so maybe markets will test their resolve. This could lead to short term pull-backs, but these are more likely to be buying opportunities.”

Klassen’s team predicts that as inflation rises, growth in profits will reduce overvaluation of shares.

There may be some “violent rotational rotations under the equity hood”, but overall the market will not experience a breakdown.

“So, the focus right now is on the ‘good news is good news’ argument,” Klassen said.

“Deflation and disinflation are likely to take over in the coming months, but that is a theme for later.”

He warned this is not a “set and forget” time for fund managers like himself.

“My favoured narrative, ‘good news is good news’, is the only non-contradictory semantic. However, the categorisation probably over-trivialises the other narratives,” said Klassen.

“They are genuine possibilities. I am closely watching for signs that growth is tapering and deflationary forces are again reigning supreme.”

More reading

• What’s happening with the Pointerra (ASX:3DP) share price?
• Star (ASX:SGR) and Crown (ASX:CWN) shares on watch amid $12bn merger proposal
• Is the NEXTDC (ASX:NXT) share price in the buy zone?
• ASX 200 Weekly Wrap: Bank shares push ASX 200 towards all-time high
• LIVE COVERAGE: ASX to move lower; Crown-Star $12 billion merger on the table

Tony Yoo owns shares of AFTERPAY T FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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 Pointerra Ltd (ASX: 3DP) share price has been on something of a rollercoaster ride recently. Just a few short weeks ago, shares in the junior ASX tech company were trading for 52 cents, their lowest price since early February. But from there they went on a sudden tear, surging as high as 75.5 in just over a week – a gain of 45%!

Sadly, the rally didn’t last. Last week, Pointerra shares plummeted back down to earth, wiping out just about all those recent gains. By the close of trade on Friday, Pointerra shares were valued almost back where they started a couple of weeks ago, at just 55 cents. So, what exactly was behind the big swings in its share price?

Company background

First, a brief explanation of what Pointerra actually does.

Pointerra develops software that helps companies in industries like utilities and resources (among others) manage and analyse large 3D datasets. Pointerra’s software allows users to capture, store and visualise data with up to one-millimetre accuracy. As you can imagine, tools like this can come in handy when you are trying to plan and manage large-scale construction and mining projects.

The company operates a data-as-a-service (DaaS) business model. This is similar to the software-as-a-service (SaaS) business model employed by other tech companies like Altium Limited (ASX: ALU) and Bigtincan Holdings Ltd (ASX: BTH), where software developers sell subscription-based licenses to users which are then granted access to the software via a web browser. Pointerra just adds data hosting services on top of that. This means users can access their data from anywhere in the world – and also seamlessly share it with their employees and stakeholders.

Recent movements in the Pointerra share price

The initial jump in the Pointerra share price coincided with the release of the company’s March quarter activities report. Pointerra reported record quarterly cash receipts from customers of $1.37 million (a quarter-on-quarter increase of almost 115%).

The company also stated that development projects designed to spur economic growth post-COVID were driving increased demand for Pointerra’s data visualisation platform from the architecture, engineering and construction sectors.

Investors seemed to like what was in the report, and the Pointerra share price rocketed higher. That was until the release of two further announcements made by the company at the end of April.

The first was Pointerra’s enterprise sales and annual contract value (ACV) update. The company stated that the annual value of its contracts with customers had increased by US$1 million (to just under US$8 million) during the period from 29 January 2021 to 29 April 2021.

The increase in Pointerra’s ACV wasn’t quite as dramatic as the uplift in quarterly cash receipts, but it may provide a more accurate view of the company’s underlying growth rate. As Pointerra itself noted in the report, “quarter-on-quarter cash receipts may continue to be variable as new customers are onboarded with a variety of different payment cycles.” ACV, on the other hand, ignores variability in the timing of these cash receipts.

The second announcement Pointerra made was its planned acquisition of US-based company Airovant. The company operates a similar DaaS model to Pointerra, but uses drone technology to collect aerial imagery data for customers in the construction and energy sectors.

What’s next for Pointerra?

Where to next for the Pointerra share price is up for debate. Along with ASX industry peer Nearmap Ltd (ASX: NEA) – which also saw its share price tumble last week, though for entirely different reasons – Pointerra remains an exciting company operating in a niche industry. It is also still only a small company, with limited revenues and a market capitalisation of under $400 million – meaning it remains a speculative investment.

Pointerra has given the market a lot to digest over the last few weeks and, clearly, investors are still struggling to work out how to price it all in. While that could mean more volatility is on the way, it still makes the Pointerra share price an interesting one to watch this year.

More reading

• Why Beach Energy, Bigtincan, Pointerra, & ResMed are sinking today
• Pointerra (ASX:3DP) share price plummets 10% on acquisition news
• What’s happening with the Pointerra (ASX:3DP) share price?
• 3 growing small cap ASX shares to watch
• Why Megaport, Pointerra, Regis Resources, & Zip are charging higher

Rhys Brock owns shares of Pointerra Limited, Altium, BIGTINCAN FPO, and Nearmap Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends BIGTINCAN FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Nearmap Ltd. and Pointerra Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Altium. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended BIGTINCAN FPO, Nearmap Ltd., and Pointerra 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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All eyes will be on the Crown Resorts Ltd (ASX: CWN) share price and the Star Entertainment Group Ltd (ASX: SGR) share price on Monday morning.

This follows confirmation that the latter is proposing a $12 billion merger to create a gambling and hospitality giant.

What was announced?

This morning Star Entertainment confirmed that it has submitted a conditional, non-binding, indicative proposal to merge with Crown at a nil-premium share exchange ratio of 2.68 Star shares per Crown share.

Based on recent trading values of Star and the substantial value that would be unlocked by a merger, the company estimates that its pro forma share price is more than $5.00 per share. This implies potential value of the scrip consideration in excess of $14.00 per Crown share.

This is a 15.5% premium to the current Crown share price of $12.12.

In addition to this, Star’s indicative proposal includes a cash alternative of $12.50 per Crown share for up to 25% of its issued share capital.

Why merge?

Star revealed that it believes that a merger with Crown represents a compelling value proposition for all shareholders for a number of reasons.

One of those is that it represents a highly accretive transaction for both Star and Crown shareholders. Management notes that it would create a national tourism and entertainment leader with a world-class portfolio of integrated resorts.

It would also have enhanced scale and geographic earnings diversification, significant balance sheet strength, and free cashflow generation to accelerate debt repayment, support attractive fully franked dividends and pursue continued investment.

Star estimates that the merger could deliver between $150 million to $200 million of cost synergies per annum with an estimated net value of $2 billion. Furthermore, it could unlock significant value from a sale and leaseback of the enlarged property portfolio.

Finally, it believes it would provide access to exciting growth opportunities only available through the merger across marketing and events, digital and technology initiatives, investment in online capabilities and optimisation of a combined loyalty program to deliver enhanced value for members.

“A compelling investment proposition”

Star’s Chairman, John O’Neill AO, said: “A merger of The Star and Crown would result in significant scale and diversification and unlock an estimated $2 billion in net value from synergies. With a portfolio of world-class properties across four States in Australia’s most attractive and populated catchment areas and tourism hubs, the combined group would be a compelling investment proposition and one of the largest and most attractive integrated resort operators in the Asia Pacific region.”

The Crown Board has responded to the news, advising that it has not yet formed a view on the merits of the merger proposal.

It will now commence a process to assess the proposal, having regard to the value and terms of the proposal and other considerations. It will also engage with relevant stakeholders including regulatory authorities.

Takeover offer increased

That won’t be the only thing the Crown Board has to consider.

This morning it revealed that Blackstone has increased its takeover offer to $12.35 cash per share. This represents an increase of $0.50 cash per share (or 4%) compared to the previous indicative offer price of $11.85 cash per share.

Once again, the indicative offer price will be reduced by the value of any dividends or distributions declared or paid by Crown.

More reading

• 5 things to watch on the ASX 200 on Monday
• Why the Crown (ASX:CWN) share price is on watch today
• Crown (ASX:CWN) share price in focus after Oaktree offers to fund $3bn Packer exit
• What’s with the Crown (ASX:CWN) share price today?

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. 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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If you’re looking to boost your portfolio with some growth shares, then you might want to look at the one listed below.

Here’s why the NEXTDC Ltd (ASX: NXT) share price could be in the buy zone for growth investors.

What is NEXTDC?

NEXTDC is a data centre operator that provides businesses with a range of services. This includes Data-Centre-as-a-Service (DCaaS), Data Centre Infrastructure Management-as-a-Service (DCIMaaS), and Professional Services.

In respect to DCaaS, this service provides businesses with hyper-scale colocation. This is secure, high-density data centre space with redundant power supply and support services. It sees customers host their own infrastructure, using the facility as an extension of their own property.

Whereas DCIMaaS sees the company’s ONEDC cloud platform allow the centralised management of data centre assets in NEXTDC facilities. This delivers businesses real-time intelligence to their decision-makers, for a monthly subscription per rack.

Demand for its services has been growing at a rapid rate in recent years and shows no signs of slowing. In fact, a significant amount of future capacity has already been contracted to its customers. This alone has the potential to underpin solid earnings growth in the coming years.

Management is also aiming to bolster this with potential expansions internationally and has its eyes on the Singapore and Tokyo markets. Earlier this year the company opened offices in these markets.

Is the NEXTDC share price good value?

One leading broker that sees a lot of value in the NEXTDC share price is UBS. It currently has a buy rating and $15.40 price target on its shares.

Based on the current NEXTDC share price of $11.01, this price target implies potential upside of almost 40% over the next 12 months.

UBS appears confident that NEXTDC is well-placed for growth over the coming years.

More reading

• 2 explosive ASX growth shares rated as buys
• 3 buy-rated ASX growth shares for investors in May
• How $20,000 turns into $250,000 in 10 years with ASX shares
• 5 things to watch on the ASX 200 on Thursday
• 2 five-star ASX 200 shares that are rated very highly

Motley Fool contributor James Mickleboro owns shares of NEXTDC Limited. 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 S&P/ASX 200 Index (ASX: XJO) has just enjoyed a week in the green, which has pushed the flagship index towards its pre-COVID all-time high. Although the ASX 200’s gain of 0.8% for the week wasn’t particularly impressive on its own, it did end up pushing the index to 7,080.8 points by the end of the week, less than 1% off its all-time high of 7,160 points.

Investors can largely thank the ASX bank shares for this rise. Three of the big four banks reported half-yearly earnings this week. Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), and Australia and New Zealand Banking Group Ltd (ASX: ANZ) all reported big rebounds in profits for the periods, reflecting the Australian economy’s ‘snap back’ from the COVID pandemic.

They all also reported large increases in dividends that banking investors can now look forward to (although still not to the levels shareholders were receiving before the pandemic). This will still no doubt be very welcome, given that banking dividends all but dried up last year.

Investors seemed most impressed by Westpac, sending its shares up by more than 4% last week to a new 52-week high. But ANZ was evidently a disappointment, with the market sending the ANZ share price down by 3.5%.

ASX banks not the only winning shares… but tech not so lucky

Another ASX sector enjoying some sunlight last week was the resources sector, particularly those ASX shares involved in iron ore. Iron pricing once again had a top week last week, rising to more than US$200 per tonne, which is an extremely high level by historical standards. BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO), and Fortescue Metals Group Limited (ASX: FMG) all rose to near their all-time highs.

But for every winner, there tends to be a loser. And the losers last week were, by a long way, ASX tech shares. Spurred by heavy sell-offs on the US markets over the week, some of the ASX’s biggest tech companies were smashed last week. Appen Ltd (ASX: APX) copped the worst of it, sliding more than 20%. But more on that later.

ASX newcomer Nuix Ltd (ASX: NXL) also stood out last week for plunging to yet another all-time low of $3.51 per share on Friday. Investors who picked up Nuix shares on its December 2020 initial public offering (IPO) would now be down by around 55%.

How did the markets end the week?

As we flagged earlier, the ASX 200 had a pretty decent week, rising 0.78% from 7,025.9 points to 7,080.8 points.

Monday started off pretty flat with a gain of just 0.04%. But things picked up on Tuesday and Wednesday with gains of 0.56% and 0.4% respectively. Thursday saw a brief backslide of 0.48%. But this was offset by another day in the green on Friday, which added 0.27% and ensured a week-to-week rise.

Meanwhile, the All Ordinaries Index (ASX: XAO) also had a decent, if not as good as the ASX 200, week overall. The All Ords started out at 7,290.7 points and finished up at 7,325.2 points for a gain of 0.47%.

Which ASX 200 shares were the biggest winners and losers?

Worst ASX 200 losers	% loss for the week
Appen Ltd (ASX: APX)	(21.5%)
Nearmap Ltd (ASX: NEA)	(19.3%)
Afterpay Ltd (ASX: APT)	(18.9%)
Altium Limited (ASX: ALU)	(15%)

As we touched on, Appen was the ASX 200’s wooden spoon share last week. Appen was dragged down as part of the overall ASX tech sell-off. But matters weren’t helped by a presentation the company’s management gave last week either. This presentation threw some shade on the company’s immediate outlook, as well as rising competition. Investors weren’t impressed and shredded Appen’s market capitalisation by a fifth to a multi-year low.

Nearmap was another ASX tech share that was feeling the pain last week. Nearmap was actually doing rather well for a while there, with a well-received trading update released on Wednesday. But an announcement that the company would be facing legal proceedings on Thursday spooked investors, and the company ended up selling off near 20%. That’s despite Nearmap denying the allegations.

Buy now, pay later (BNPL) company Afterpay also copped some selling, plunging to a 5-month low of under $100 per share over the week. Unlike the above shares, this wasn’t sparked by anything in particular aside from weakness in the sector.

It was a similar story with Appen and Afterpay’s WAAAX stablemate Altium.

Now with the losers out of the way, let’s check out last week’s winners:

Topping the ASX 200 last week was gold miner Resolute Mining. ASX gold miners all tended to enjoy a big sentiment boost last week, helped along by rising gold prices. Resolute seemed to be the one to buy this time. Although saying that, Silver Lake wasn’t too far behind with its 8.6% rise.

Fellow miner (although not of yellow metal) Iluka Resources was also a big beneficiary of investors’ love last week. There was no major news out of the miner, although Iluka’s star has been on the rise for a few months now.

Finally, insurer QBE was also hot property. Investors seemed to be buoyed by the company’s annual general meeting during the week.

A wrap of the ASX 200 blue-chip shares

Before we go, here is a look at the major ASX 200 blue-chip shares as we start on yet another week in paradise:

ASX 200 company	Trailing P/E ratio	Last share price	52-week high	52-week low
CSL Limited (ASX: CSL)	36.25	$274.51	$320.42	$242
Commonwealth Bank of Australia (ASX: CBA)	20.89	$93.92	$94.10	$58.65
Westpac Banking Corp (ASX: WBC)	22.33	$26.09	$26.40	$14.91
Australia and New Zealand Banking Group Ltd (ASX: ANZ)	16.81	$27.75	$29.55	$15.07
National Australia Bank Ltd (ASX: NAB)	24.68	$26.78	$27.84	$15.11
Fortescue Metals Group Limited (ASX: FMG)	8.59	$22.97	$26.40	$10.96
Woolworths Group Ltd (ASX: WOW)	35.18	$39.42	$42.57	$33.82
Wesfarmers Ltd (ASX: WES)	32.72	$54.26	$56.40	$36.01
BHP Group Ltd (ASX: BHP)	28.09	$50.09	$50.93	$30.10
Rio Tinto Limited (ASX: RIO)	16.33	$127.11	$130.30	$81.08
Coles Group Ltd (ASX: COL)	20.51	$16.13	$19.26	$14.95
Telstra Corporation Ltd (ASX: TLS)	23.29	$3.47	$3.58	$2.66
Transurban Group (ASX: TCL)	–	$14	$15.64	$12.36
Sydney Airport Holdings Pty Ltd (ASX: SYD)	–	$5.92	$7.49	$4.99
Newcrest Mining Ltd (ASX: NCM)	17.58	$27.33	$38.15	$23.08
Woodside Petroleum Limited (ASX: WPL)	–	$23.26	$27.60	$16.80
Macquarie Group Ltd (ASX: MQG)	23.94	$158.45	$162.06	$97.91
Afterpay Ltd (ASX: APT)	–	$95.38	$160.05	$38.51

And finally, here is the lay of the land for some leading market indicators:

• S&P/ASX 200 Index (XJO) at 7,080.8 points.
• All Ordinaries Index (XAO) at 7,325.2 points.
• Dow Jones Industrial Average at 34,778 points after rising 0.66% on Friday night (our time).
• Bitcoin (CRYPTO: BTC) going for US$57,986 per coin.
• Gold (spot) swapping hands for US$1,831 per troy ounce.
• Iron ore asking US$209 per tonne.
• Crude oil (Brent) trading at US$68.28 per barrel.
• Australian dollar buying 78.45 US cents.
• 10-year Australian Government bonds yielding 1.62% per annum.

That’s all folks. See you next week!

More reading

• 2 highly rated ASX dividend shares with generous fully franked yields
• 5 things to watch on the ASX 200 on Monday
• 2 ASX 200 shares to buy for dividends
• The big four banks and Macquarie offer these juicy dividend yields
• 2 quality ASX dividend shares for income investors next week

Sebastian Bowen owns shares of Bitcoin, National Australia Bank Limited, Newcrest Mining Limited, and Telstra Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Bitcoin. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Appen Ltd, CSL Ltd., and Nearmap Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Altium and Nuix Pty Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited and Telstra Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO, Altium, COLESGROUP DEF SET, Transurban Group, Wesfarmers Limited, and Woolworths Limited. The Motley Fool Australia has recommended Nearmap Ltd. and Nuix Pty Ltd. 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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More reading

• A2 Milk (ASX:A2M) share price in danger after downgrading guidance again
• 2 highly rated ASX dividend shares with generous fully franked yields
• 5 things to watch on the ASX 200 on Monday
• 2 small cap ASX shares to keep your eyes on
• Top brokers name 3 ASX shares to sell next week

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Kate O’Brien owns shares of Apple and Rio Tinto Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), and Apple. 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 A2 Milk Company Ltd (ASX: A2M) share price could come under further pressure on Monday.

This follows the release of a trading update which reveals that it has downgraded its FY 2021 guidance yet again.

What did a2 Milk announce?

According to the release, trading dynamics in the China infant nutrition market have continued to be challenging for the company.

As a result, it has now become clear that the actions taken to address challenges in the daigou/reseller and CBEC channels will not result in sufficient improvement in pricing, sales and inventory levels to meet its downgraded guidance. Particularly after April sales were well below plan.

Comprehensive review

The release advises that the a2 Milk Board tasked management to undertake a comprehensive review of inventory in the trade. This work has indicated that the level of channel inventory is higher than had been anticipated.

As a result of the inventory review, it believes it is clear that the challenges in the daigou/reseller and CBEC channels have been exacerbated by excess inventory and difficulties with visibility.

In response to this, and in the interest of the long-term health of the a2 brand and the medium-term trading outlook of the business, management advised that it will be taking more aggressive actions to address excess inventory. This will impact FY 2021 revenue and EBITDA, and potentially also the first quarter of FY 2022.

What now?

Despite these short-term setbacks, management remains confident in the long-term opportunity that the infant nutrition market in China represents. Furthermore, it is determined to build on the strong position it has built within the key market over the past five years.

Nevertheless, management recognises that the China market and channel structure is changing rapidly. It has therefore commenced a comprehensive process to review its growth strategy and executional plans to respond to this new environment.

One person that won’t be sticking around to see this through is a2 Milk’s Chief Executive Officer of Asia Pacific, Peter Nathan. A separate announcement reveals that he has resigned from his role.

Capital management

One thing that may be supportive of the a2 Milk share price today is management’s plan to actively consider capital management initiatives.

This includes putting its vast cash balance to use with a potential share buy-back. Full details on its plans will be revealed with its full year results in August.

New guidance

The company is now targeting revenue for FY 2021 in the order of NZ$1.2 billion to NZ$1.25 billion.

As for earnings, it is expecting an earnings before interest, depreciation and amortisation (EBITDA) margin of 11% to 12% (excluding MVM transaction costs).

This compares to its previously downgraded guidance of revenue of NZ$1.4 billion and an EBITDA margin of 24% to 26% (excluding MVM acquisition costs).

Looking ahead, management warned that it will take some time to rebalance inventory levels and restore channel health. As a result, an immediate recovery is not expected and a further update for FY 2022 will be provided in August.

The a2 Milk share price is down 40% since the start of the year.

More reading

• A2 Milk (ASX:A2M) share price falls as China suspends dialogue
• Top brokers name 3 ASX shares to buy today
• Is it time to give the A2 Milk (ASX:A2M) share price another chance?
• a2 Milk and Zip were among the most traded ASX shares last week
• The ASX’s China problem is getting worse… and quickly

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post A2 Milk (ASX:A2M) share price in danger after downgrading guidance again appeared first on The Motley Fool Australia.

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Last week the Reserve Bank of Australia kept the cash rate on hold at a record 0.1% for yet another month. Unfortunately for income investors, this looks set to be the case for some time to come.

But don’t worry, because the share market is here to save the day with its countless dividend options. Two ASX dividend shares that are highly rated are listed below:

Accent Group Ltd (ASX: AX1)

The first ASX dividend share to consider is Accent. It is a footwear-focused retailer which owns a collection of popular store brands. These include HypeDC, Platypus, and The Athlete’s Foot.

Thanks to a combination of new store brand launches, the expansion of its existing footprint, and growing demand in-store and online, Accent has been growing its earnings and dividends at a solid rate for a number of years.

The good news is that this is continuing in FY 2021. In February Accent reported a 6.6% increase in first half sales to $541.3 million and a 57.3% increase in net profit after tax to $52.8 million.

One broker that is a big fan of Accent is Bell Potter. It has a buy rating and $2.65 price target on its shares.

The broker is forecasting an 11.9 cents per share dividend in FY 2021 and a 12.2 cents per share dividend in FY 2022. Based on the current Accent share price of $2.64, this will mean a fully franked yields of 4.5% and 4.6%, respectively.

Australia and New Zealand Banking GrpLtd (ASX: ANZ)

If you don’t already have exposure to the big four banks, then it could be worth considering ANZ Bank.

It has been a strong performer so far in FY 2021, as was demonstrated in its recent first half update. The good news is that trading conditions remain favourable and ANZ appears well-placed for growth again.

Analysts at Morgans are positive on the bank and are forecasting generous dividends from ANZ over the next two years. Its analysts are forecasting fully franked dividends of 145 cents per share and 163 cents per share in FY 2021 and FY 2022, respectively. With the ANZ share price currently fetching $27.75, this will mean yields of 5.2% and 5.9%.

Morgans has an add rating and $34.50 price target on its shares.

More reading

• The big four banks and Macquarie offer these juicy dividend yields
• 2 blue chip ASX dividend shares given buy ratings
• Telstra (ASX:TLS) and 2 other dividend shares with yields over 6% today
• Brokers name 3 ASX shares to buy now
• Macquarie (ASX:MQG) share price on watch after posting $3bn profit and 86% dividend increase

Motley Fool contributor James Mickleboro 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 Bruce Jackson.

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On Friday the S&P/ASX 200 Index (ASX: XJO) finished a solid week on a positive note. The benchmark index rose 0.3% to 7,080.8 points.

Will the market be able to build on this on Monday? Here are five things to watch:

ASX 200 futures pointing lower

The Australian share market looks set to start the week with a small decline despite a solid finish on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open the week 4 points lower this morning. On Wall Street on Friday, the Dow Jones rose 0.65%, the S&P 500 climbed 0.75%, and the Nasdaq stormed 0.9%.

Crown-Star merger

Both the Crown Resorts Ltd (ASX: CWN) share price and the Star Entertainment Group Ltd (ASX: SGR) share price will be ones to watch closely amid speculation the latter has tabled a merger proposal. According to the SMH, Star is proposing a $12 billion merger that would create a gambling and hospitality giant.

Oil prices rise

Energy producers such as Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) could start the week on a positive note after oil prices pushed higher. According to Bloomberg, the WTI crude oil price rose 0.3% to US$64.90 a barrel and the Brent crude oil price climbed 0.3% to US$68.28 a barrel. Oil prices added 2% for the week.

Gold price pushes higher

Gold miners including Newcrest Mining Limited (ASX: NCM) and Northern Star Resources Ltd (ASX: NST) will be on watch today after the gold price stormed higher on Friday night. According to CNBC, the spot gold price recorded a 0.85% gain to US$1,767.0 an ounce. The precious metal had its best week in six months.

Iron ore price jumps again

The shares of BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) could be on the rise today after the iron ore price continued its ascent. According to Metal Bulletin, the spot iron ore price rose US$10.37 per tonne or 5.1% to US$212.25 per tonne on Friday night.

More reading

• 2 ASX 200 shares to buy for dividends
• These were the best performing ASX 200 shares last week
• These were the worst performing ASX 200 shares last week
• ASX 200 rises, Macquarie falls, Magellan declines
• The RBA just told us what’s going to happen with interest rates

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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post 5 things to watch on the ASX 200 on Monday appeared first on The Motley Fool Australia.

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