The Integrated Research Limited (ASX: IRI) share price will be in investors sights this morning.

A trading update from the company regarding its FY21 second-half performance is the latest news from the provider of user experience and performance management solutions.

Prior to market open, the Integrated Research share price was sitting at $1.90. At the time of writing, the company’s shares are swapping hands at $2.02, up 5%.

For better and worse

According to the release, the company expects its second-half performance for FY21 to be significantly improved on the first half.

Integrated Research is anticipating second half revenue to fall between $40 million and $45 million. This would be higher than the $34.1 million in revenue reported during the front half of the financial year.

Likewise, profit after tax is expected to be somewhere in the ballpark of $4 million to $7 million, compared to $0.1 million in the first half.

However, it’s not all sunshine and rainbows for the company. While the updated revenue and earnings guidance is ahead of the first half, it remains lower than the prior corresponding period in FY20.

For that reason, despite the improvement in the last half of trading, Integrated Research reckons its full year performance will be down on the last year. On the top line, the range is $74.1 million to $79.1 million – compared to $110.9 million in FY20.

On the earnings side, the company is forecasting $4.1 million to $7.1 million – compared to $24.1 million in FY20.

Influencing the numbers

Integrated Research has experienced a few speed bumps recently that is slowing down the performance of its IT solutions business.

The uncertain environment created by COVID-19 has led to customers requiring shorter-term contracts, tight budget conditions and approval processes, and delays to purchasing decisions. These hurdles have stifled performance in recent trading.

However, on a positive note, the company stated, “License fee revenue recognised in 2H to date already exceeds 1H with June being the strongest revenue month for the company.”

Integrated Research share price recap

The last year has been a tough one for Integrated Research shareholders. After quickly rebounding out of its depressed COVID lull, the Integrated Research share price reversed again.

As of today, the Integrated Research share price is down 45% for the past 12 months. This compares to the S&P/ASX 200 Index (ASX: XJO), which has surged 23% during the same timeframe.

The post Integrated Research (ASX:IRI) share price jumps 5% on trading update appeared first on The Motley Fool Australia.

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Integrated Research 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 Mayne Pharma Group Ltd (ASX: MYX) share price is trading lower today amid broad market weakness.

At the time fo writing, the pharmaceutical company’s shares are down 1.5% to 34.5 cents.

What did Mayne Pharma announce?

Investors have been selling the pharmaceutical company’s shares despite the release of a couple of promising announcements this morning.

According to the first release, the company has expanded its Australian dermatology portfolio by licensing the Australian rights to Solaraze and the Actikerall topical solution from Almirall. Both products are approved by the Australian Therapeutic Goods Administration (TGA).

Solaraze and Actikerall are indicated for the treatment of actinic keratosis (AK), which affects approximately 40% to 60% of Australians over the age of 40. Australia has the highest incidence of AK globally, with the main cause being long-term sun exposure.

In addition to this, Mayne Pharma revealed that it has filed Fabior foam with the TGA. Fabior was acquired from GlaxoSmithKline and re-launched into the US dermatology market in 2016. It is a topical retinoid indicated in the US for the treatment of acne in patients aged 12 years or older.

Combined, the three products have a $30 million market opportunity in Australia.

Mayne Pharma’s CEO Scott Richards said, “We are pleased to partner with Almirall, a global biopharmaceutical company focused on skin health and expand our Australian portfolio with these new differentiated dermatology products. Solaraze and Actikerall will be promoted by the existing Australian sales team focusing on dermatologists and general practitioners that specialise in skin cancer.”

Nextstellis update

According to the second release, Mayne Pharma and Mithra Pharmaceuticals have announced the US commercial launch of its Nextstellis product.

Nextstellis is a new oral contraceptive which was approved by the FDA in April. It is the first and only pill containing E4, a natural estrogen produced during pregnancy that is now synthesised from a plant source. E4 is the first new estrogen introduced in the US in over 50 years.

The product will compete in the short-acting combination hormonal contraceptive market which is valued at US$3.5 billion.

Mr Richards commented; “We are delighted to launch Nextstellis, a new birth control option for women and their healthcare providers. Every woman’s body reacts differently to hormones and so from today, American women will now have a new choice of estrogen to consider when thinking about birth control options.”

“Our key priorities with this launch are to educate the market on the benefits of Nextstellis and the new estrogen E4, gain broad payor acceptance and reimbursement, and ultimately become the preferred branded oral contraceptive in the market. The launch is supported by a highly experienced national Women’s Health sales team that is now actively promoting Nextstellis to healthcare providers,” he concluded.

The post Mayne Pharma (ASX:MYX) share price lower despite positive updates appeared first on The Motley Fool Australia.

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James Mickleboro does not own any shares 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Microsoft (NASDAQ: MSFT) recently unveiled what it’s pitching as its “biggest exclusive games lineup ever” for Xbox. The lineup features 30 exclusive titles as Microsoft tries to bolster its first-party game library to attract more subscribers to its a la carte gaming service, Xbox Game Pass. 

It’s a long overdue move for the software giant, which has operated in the shadow of Sony‘s (NYSE: SONY) PlayStation dominance over the last few decades. In the previous generation, PlayStation 4 outsold Xbox One by more than two to one, according to data from VGChartz. 

Microsoft has spent the last few years acquiring studios to match Sony’s in-house studio count to crank out more first-party titles. While it’s uncertain whether these moves will lead to the Xbox Series X/S outselling the PlayStation 5, Microsoft might be on to something given the tremendous lead Xbox Game Pass has over Sony’s PlayStation Now subscription service.

Getting value out of recent acquisitions

It was expected that Microsoft would expand its game roster after scooping up ZeniMax Media, which operates one of the top game studios in the industry — Bethesda Softworks — for $7.5 billion last year. 

Microsoft is packing a punch with its exclusive games. Besides the usual suspects like the new Halo Infinite and Forza Horizon 5, which have long been Xbox staples, Microsoft announced a few that will surely create buzz over the next year.

There is Redfall, a new multiplayer open-world first-person shooter from the makers of well-regarded titles Prey and Dishonored. Another standout on the list is an upcoming role-playing game called Starfield, coming in late 2022. Both of these upcoming games are from the teams at Bethesda. 

Bethesda is the studio behind two blockbuster franchises, The Elder Scrolls and Fallout. The addition of this studio to Xbox Game Studios will no doubt pull a lot of weight for the Game Pass subscription service.

Microsoft’s gaming business reported a revenue increase of 50% year over year in the fiscal third quarter and made up 9.6% of Microsoft’s total business through the nine-month period ending in March. 

Microsoft now has 23 first-party studios — nine more than PlayStation Studios. But it’s uncertain whether surpassing Sony on studio count and therefore allowing Xbox to potentially release more games, will help Microsoft beat Sony in console sales.

In the console war, Microsoft is facing an uphill battle. PlayStation continues to rank high on brand value with consumers. The 2021 Prophet Brand relevance index shows PlayStation ranking up there with the likes of Apple and Amazon. 

Early sales estimates show the PlayStation 5 outselling the Xbox Series X/S by a wide margin. Through the end of 2020, research from Ampere Analysis had PlayStation 5 selling 4.2 million units, compared to 2.8 million for Xbox Series X/S. Microsoft doesn’t disclose specific unit sales, but in May Sony said it had sold 7.8 million PS5 units.

Keep in mind, both consoles have been consistently sold out due to supply chain issues, so it’s possible that Microsoft is suffering more from component shortages than Sony is right now.

Nonetheless, investors are high on Sony’s growth prospects, with the stock up 32% over the last year. Gaming contributes 35% of Sony’s operating profit, and is much more valuable to the Japanese company than Xbox is to Microsoft. Sony reported a 43% increase in operating profit from its game and network services segment in fiscal 2020.

MSFT data by YCharts

Microsoft values subscribers, not hardware sales

The thing is, Microsoft doesn’t appear to be measuring its Xbox success on console unit sales. CEO Satya Nadella is applying the same playbook to the Xbox business as he did to the rest of Microsoft’s business in recent years. The Xbox is turning into a ubiquitous platform, where players can access games on different devices without owning a console. While Sony continues to highlight its total sold units of the PS5, Microsoft is touting its subscriber growth.

Sony’s PlayStation Now, which lets users play a selection of titles on console and PC for $10 per month, had 3.2 million subscribers at the end of fiscal 2020. That’s up from 1.8 million in fiscal 2019. 

Cloud gaming with the Xbox Game Pass Ultimate lets users play games on Android devices, in addition to consoles and Windows PCs. Game Pass had over 18 million subscribers through the fiscal second quarter ending in December, and that’s up from over 15 million in fiscal Q1. At that pace, Xbox Game Pass is on track to have approximately 30 million subscribers within the next year.

Sony may continue to dominate hardware sales, but Microsoft’s stellar lineup of 30 titles, 27 of which are going to Game Pass, could keep the software king far ahead in subscribers. 

The long-term opportunity in gaming looks bright for both companies, with 3 billion people expected to play video games by 2023, representing a mid-single-digit increase per year. But it’s a much easier path to convince a prospective gamer to try an affordable subscription service than drop hundreds of dollars on new hardware, so Microsoft might have the upper hand.

Sony is a force to reckon with in gaming, and it has plenty of exclusive titles that will draw a big crowd to the PlayStation. But Microsoft may do more to expand the audience for gaming in this console cycle than its rival.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Will Microsoft’s Xbox game lineup match Sony’s PlayStation dominance? appeared first on The Motley Fool Australia.

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John Ballard owns shares of Amazon and Microsoft. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Amazon, Apple, and Microsoft. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Amazon and Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The PointsBet Holdings Ltd (ASX: PBH) share price is tumbling lower with the market on Monday morning.

At the time of writing, the sports betting company’s shares are down 3% to $13.07.

Is this a buying opportunity?

One leading broker that appears to see today’s weakness in the PointsBet share price as a buying opportunity is Goldman Sachs.

This morning the broker retained its buy rating and $17.20 price target on the company’s shares.

Based on the current PointsBet share price, this implies potential upside of 32% over the next 12 months.

Why is Goldman bullish on the PointsBet share price?

According to the note, the broker recently hosted a virtual meeting with PointsBet management. It came away from the meeting incrementally more confident in the company’s US market execution and positioning.

Commenting on recent trends, Goldman said: “Whilst May was generally a quiet month for the industry given the sporting calendar, management was pleased with the overall performance and trends. Into June, momentum seems to have picked up given the NBA playoffs and Euro 2020, and with respect to CAC [customer acquisition costs], suggested similar if not better trends than 3Q given the generally quieter period of acquisitions.”

Market position

The broker also spoke to management about the company’s market position in the United States.

It explained: “Overall, PBH sees the US market over the medium term as supportive for 7 or 8 good sized operators (PBH is a clear top 4/5 operator currently), and is not entirely convinced that it would end up being a 4 operator market per some peer comments. Further, management believes near term M&A will likely continue to be bolt-on technology related acquisitions, though note that a lot of the low hanging fruit that peers are looking out for are largely gone.”

Legislation and expansion

Goldman notes that New York is a key market the company wants to expand into.

“On the reg/legislation front, with respect to NY, PBH noted that it remains absolutely keen to push for a license in the state and expects the process to be run like a reverse Dutch auction, whilst it remains to be seen as to where the tax rates will land, 50% is still OK in the context of a market where there might only be a few operators and everyone is on a level playing field. Further, they reiterated that there is minimal media asset overlap between NY and PA, albeit some overlap between NJ and NY,” it commented.

The broker also sees scope for PointsBet to be operating in a number of other markets in the near future, including Canada.

It explained: “Looking ahead, other states worth monitoring include Arizona and Ohio, whilst there remains the possibility of Canada opening up in early CY22, or even potentially as early as late CY21. Canada will operate different to the US (more like untethered states or AUS), without the need to access licenses through Brick and Mortar casinos. Overall, they continue to target being operational in 18 US states by end of CY22.”

In light of the above, Goldman Sachs continues to forecast explosive sales growth from PointsBet in the coming years.

For example, it is expecting revenue of $179.6 million in FY 2021, which is more than double FY 2020’s revenue of $75.2 million. And by FY 2023, PointsBet’s revenue is expected to have more than doubled again to $484.2 million.

Despite today’s decline, the PointsBet share price is still up 10.5% year to date.

The post Why the PointsBet (ASX:PBH) share price could jump 32% from here appeared first on The Motley Fool Australia.

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James Mickleboro does not own any shares mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Pointsbet Holdings Ltd. The Motley Fool Australia has recommended Pointsbet Holdings 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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The Bank of Queensland Limited (ASX: BOQ) share price is trading lower today after broad market weakness offset the release of a positive announcement.

At the time of writing, the regional bank’s shares are down 2.5% to $9.00.

What did Bank of Queensland announce?

This morning Bank of Queensland announced that the Treasurer of the Commonwealth of Australia has provided it with approval to hold a controlling stake of 100% in Members Equity Bank (ME Bank).

This follows the company’s announcement in February, which revealed that it had entered into an agreement to acquire ME Bank for a cash consideration of $1.325 billion.

Positively, the approval of the acquisition by the Treasurer was the only condition precedent to completion of the transaction. As a result, completion is now expected to take place on 1 July 2021.

Bank of Queensland’s Chairman, Patrick Allaway, believes the acquisition will help the bank compete against the big four.

He said: “The acquisition of ME Bank is a key step in our strategy to be a compelling alternative to the big banks. It is a defining moment in the transformation of BOQ Group, which will benefit our shareholders, customers and people.”

This sentiment was echoed by the company’s Managing Director and CEO, George Frazis.

He commented: “The addition of ME Bank to the BOQ Group will further strengthen our multi-brand strategy, deliver material scale, broadly double the size of our Retail bank, and provide us with geographic diversification. We look forward to the ME Bank team formally joining the BOQ Group very soon.”

The release notes that prior to completion, Bank of Queensland and ME Bank will continue to operate as separate businesses with no immediate changes expected for customers of either business.

The post Bank of Queensland (ASX:BOQ) share price lower despite ME Bank acquisition approval appeared first on The Motley Fool Australia.

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James Mickleboro does not own any shares 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 Commonwealth Bank of Australia (ASX: CBA) share price will be one to watch when trading resumes this morning. Australia’s largest retail bank comes into focus after announcing the sale of its general insurance division to Hollard Group.

At close of trade Friday, CBA shares were trading at $103.69 – down 2.1%. The S&P/ASX 200 Index (ASX: XJO) ended the trading day 0.13% higher.

Let’s take a closer look at today’s news.

CBA share price in focus

In a statement to the ASX, Commonwealth Bank confirmed it would be selling its Australian general insurance business to underwriter Hollard Group. CommInsure General Insurance currently has around 800,000 policies on its books.

Hollard Group’s proprietary insurance brands in Australia include Real Insurance among others. It is also the underwriter for many retail insurance products such as those offered by Woolworths Group Ltd (ASX: WOW) and Medibank Private Ltd (ASX: MPL).

CommBank did not disclose the full amount of the transaction – only that $625 million will be paid in upfront considerations, with the rest to be paid “upon achieving certain business milestones.” The deferred amount was not specified.

Hollard Group will also enter a “15-year strategic alliance” with CommBank to sell home and motor insurance policies exclusively to the bank’s customers. CBA says it will continue to earn income from this arrangement.

Subject to APRA approval, CommBank believes the transaction should be finalised sometime in the middle of next year. As well, the company says the sale will deliver a $400 million increase in its CET1 capital, which will improve its capital ratio by “approximately 9 basis points”.

CBA also claims it should see a post-tax gain of $90 million from the sale, “which includes estimated post-tax separation and transaction costs of approximately $130m.”

It will be interesting to see whether the bank’s latest news impacts the performance of the CBA share price today.

Management commentary

Commonwealth Bank CEO Matt Comyn said:

The transaction is consistent with CBA’s strategy to deliver differentiated customer propositions and the best integrated digital experiences. CBA and Hollard will coinvest in innovative, market-leading products and services that anticipate and meet the changing needs of our customers.

Hollard Australia managing director Richard Enthoven added:

We are incredibly excited by today’s announcement. The synergies between CBA and Hollard extend well beyond strategy and market segmentation. We have a shared vision for the future of home insurance, the potential for better customer outcomes, and an exciting role for digital innovation along our entire value chain.

CBA share price snapshot

Over the past 12 months, the CBA share price has increased by almost 51%. Last week, the bank reached an all-time high of $106.57, before slightly retreating. CBA shares cracked $100 per unit for the first time at the end of last month.

Commonwealth Bank has a market capitalisation of around $184 billion.

The post CBA (ASX:CBA) share price on watch after insurance business sale appeared first on The Motley Fool Australia.

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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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At the start of each week I like to look at ASIC’s short position report to find out which shares are being targeted by short sellers.

This is because I believe it is well worth keeping a close eye on short interest levels as high levels can sometimes be a sign that something isn’t quite right with a company.

With that in mind, here are the 10 most shorted shares on the ASX this week according to ASIC:

• Kogan.com Ltd (ASX: KGN) remains the most shorted share on the ASX with short interest of 11.8%. This was down slightly week on week. Significant inventory issues and a slowdown in sales have been weighing heavily on this ecommerce company’s shares.
• Resolute Mining Limited (ASX: RSG) has seen its short interest remain flat at 10.4%. Short sellers have been targeting this gold miner due to a number of operational issues and the weakening gold price. It was also just kicked out of the ASX 200 index.
• Webjet Limited (ASX: WEB) has seen its short interest edge lower to 10.4%. This online travel agent’s shares continue to be a favourite of short sellers. They may believe it is overvalued, particularly given the stuttering travel market recovery.
• Flight Centre Travel Group Ltd (ASX: FLT) has seen its short interest remain flat at 9.4%. As with Webjet, recent lockdowns and border closures are threatening to push back this travel agent’s recovery.
• Electro Optic Systems Hldg Ltd (ASX: EOS) has 8.7% of its shares held short, which is down week on week. Short sellers may be targeting this communications, defence, and space company due to concerns that supply chain issues could impact its performance.
• Inghams Group Ltd (ASX: ING) has 8.7% of its shares held short, which is up sharply week on week. Short sellers may have concerns over risks associated with an upcoming major contract renewal with a supermarket giant. Unfortunately, the poultry producer’s shares hit a 52-week high on Friday, much to the dismay of short sellers.
• Tassal Group Limited (ASX: TGR) has short interest of 8.5%, which is flat week on week. Weak salmon prices have been weighing on the company’s performance. However, Goldman Sachs believes that Tassal is set for a stronger FY 2022 with a recovery in demand well underway.
• Temple & Webster Group Ltd (ASX: TPW) has seen its short interest ease to 8.4%. Short sellers were targeting the online furniture and homewares retailer due to its plans to sacrifice profit growth to increase its market share.
• Zip Co Ltd (ASX: Z1P) has short interest of 7.1%, which is down week on week. Fears that a US bank will enter the BNPL market and undercut its Quadpay business appear to be weighing on sentiment.
• Megaport Ltd (ASX: MP1) has short interest of 7.1%, which is down week on week once again. Short sellers may be closing positions after investors began to switch from value stocks back into growth again.

The post These are the 10 most shorted shares on the ASX appeared first on The Motley Fool Australia.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends MEGAPORT FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd, Temple & Webster Group Ltd, and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended Electro Optic Systems Holdings Limited and Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited, Kogan.com ltd, MEGAPORT FPO, and Temple & Webster Group 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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High-growth technology shares have been excessively oversold and there’s now a very small window to take advantage.

That’s according to Frazis Capital Partners portfolio manager Michael Frazis, who said mutual funds are now “chronically underweight” on tech.

“Fund managers are now overexposed to late cyclicals,” he said in a memo to clients.

“Professionals have swung from overallocated to technology to underallocated.”

He took the example of this week’s suggestion from the US Federal Reserve that interest rises could come sooner than previously expected.

“[It] was met with a rally in growth stocks,” said Frazis.

“The market is crowded on the other side of the trade, whatever ‘crowded’ means.”

Punters often ask Frazis when’s a good time to buy. He usually avoids answering, but couldn’t help himself this time.

He noted, however, the opportunity is only fleeting.

“This looks like a decent setup. It’s rare that investing in technology is a contrarian thing to do, and these moments can pass quickly.”

Long-term growth rubs out share price corrections

There are many reasons Frazis is confident about the explosive-growth shares held in his fund.

Firstly, he noted, long-term growth will effectively rub out a temporary price correction.

“In fact, stocks can suffer a material 75% multiple contraction and still post exceptional long term returns,” he said.

“When modelling each portfolio company, we assume a substantial multiple contraction and slow-down in growth.”

Internal rate of return
		10-year growth rate
Enterprise value to sales multiple change	0%	10%	20%	30%	40%	50%
	(75%)	(4%)	4%	13%	22%	31%
	(50%)	3%	12%	21%	31%	40%
	(25%)	7%	17%	26%	36%	46%
Source: Michael Frazis; Table created by author

Regarding the prospect of rising inflation, Frazis claimed his stocks have “exceptional” pricing power.

“E-commerce platforms obviously transfer price increases through directly. But there’s something more interesting going on,” he said.

“The coronavirus e-commerce boom of 2020 has morphed into a broader consumer boom. In the United States, people are selling second-hand cars for more than they bought them new. I can’t remember even reading about a situation like that.”

How about higher input and labour costs?

Higher commodity input prices are a small part of tech and pharmaceutical companies, so inflation doesn’t whack them as hard as other sectors.

“Think of a heavily leveraged factory employing thousands of workers, that converts steel and raw materials into widgets for other factories higher in the supply chain. That is where inflation hurts,” said Frazis.

“Ironically it is precisely those kinds of companies that have outperformed recently.”

Frazis admitted higher inflation would see wages rise.

“Staff costs are very relevant for technology companies, but the high cost of each employee is more than matched by efficiency,” he said. 

“A salesperson or software engineer can generate very significant revenue compared to say, a retail or factory worker.”

The post Now’s a very small window to buy tech shares: analyst appeared first on The Motley Fool Australia.

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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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There’s an ASX-listed company that will soon deliver its lowest earnings in almost 10 years, but multiple experts think it’s currently ripe for buying.

And this is despite the fear of rising inflation permeating the market.

Watermark Funds Management portfolio manager Harry Dudley said that a competent value investor will buy up cyclical stocks on high multiples at the bottom of their earnings cycle.

“This is when earnings have troughed,” he posted on Livewire.

“Computershare Ltd (ASX: CPU) will soon deliver its lowest earnings per share in nearly a decade and this presents that opportunity.”

Computershare will boost profits as inflation rises

One of the best things about the share registry provider is that its bottom line will improve as inflation rises.

This is because Computershare will temporarily hold dividends and acquisition or buyback proceeds before they’re handed out to shareholders.

“Balances have averaged around US$16 billion over the past 5 years. From that… Computershare has collected nearly $1 billion of revenue (margin income) over the same time,” said Dudley.

“Given costs are minimal for management of these balances, it falls nicely to the bottom line, at nearly a 100% profit before tax (PBT) margin.”

Computershare is currently struggling because the return from this pool of cash is so poor with near-zero interest rates around the world.

“Computershare’s margin income earnings have fallen 60% in 2 years.”

But rates can only go up from here, which bodes well.

According to Dudley, if market expectations of interest rates are right, this side of the business would earn an additional profit before tax of about $415 million in the 2025 financial year.

To compare, the entire company is expected to rake in profit before tax of $460 million for the 2022 financial year.

“Looking at it another way, Computershare’s base business could have no growth and the group would deliver 90% profit before tax growth over the 3 years,” he said.

“This equates to an annual growth rate of 24%.”

Not the only one bullish on Computershare

Computershare’s inflation-dependent fortunes is similar to investment platforms Hub24 Ltd (ASX: HUB) and Netwealth Group Ltd (ASX: NWL).

They hold large pools of uninvested cash, which they lend out to the major banks.

“Computershare may be a boring business, but it holds significant upside potential,” said Dudley.

“We also consider [it] our best position to protect a portfolio against any runaway inflation.”

And he’s not the only expert who thinks the share registry provider is about to explode.

Wilson Asset Management portfolio manager John Ayoub picked Computershare as one of two finance stocks to watch, along with Challenger Ltd (ASX: CGF).

“There are still pockets of opportunity emerging in financials,” he told a company video last week.

Computershare stocks were down 0.58% on Friday, to close at $17.10. They started the year at $14.40.

The post This ASX share is the perfect inflation fighter, experts say appeared first on The Motley Fool Australia.

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• Why CBA, Challenger, Newcrest, & Santos are dropping today
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Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Hub24 Ltd and Netwealth. The Motley Fool Australia owns shares of and has recommended Challenger Limited and Netwealth. The Motley Fool Australia has recommended Hub24 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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This year Bega Cheese Ltd (ASX: BGA) shares had been on fire… until last month.

Starting the year off at $5.21, the food manufacturer completed its acquisition of Lion Dairy & Drinks in January then climbed 25% to be as high as $6.51 in April.

But the stock tumbled in May to end up as low as $5.75 to start this month.

So is the current dip a time to buy, or are there long-term issues with the company?

Fairmont Equities managing director Michael Gable thinks the former.

He said in his blog this week that Bega shares were currently selling on a 1-year forward price-to-earnings ratio of 20, which wasn’t any higher than when the business faced more margin pressure.

“The current multiple is not demanding in the context of a 3-year EPS growth of ~35% on a CAGR basis over the medium term (FY21-24),” said Gable.

“The strong overall EPS growth profile underpinned by a near-doubling of EPS in FY22 to reflect the full-year earnings contribution (and synergies) from the LD&D acquisition. The latter is expected to improve Bega’s earnings visibility and growth profile over the medium term.”

Bega’s financial outlook looks good

Despite it falling out of favour with investors, Gables reckons Bega is in better financial shape than ever.

“Results for the six months to 31 December 2021 showed evidence of operating leverage, with group EBITDA margin improving from 6.5% in 1H20 to 10.3%,” Gables wrote on his blog.

He added that operating leverage will be further boosted with “attractive returns” from a new lactoferrin facility. 

“The rationale for expansion into lactoferrin is supported by the fact that lactoferrin prices are strengthening on the back of higher levels of demand for Infant Milk Formula from new and existing nutritionals customers.”

Lion acquisition improves the business

According to Gable, the buyout of Lion Dairy & Drinks has “the potential to improve overall margin” in the medium term. 

“LD&D is considered a good strategic fit for Bega, as it diversifies Bega’s dairy exposure, increases scale, and accelerates the shift towards branded products. 

“The significance here is that branded products offer stronger organic growth rates, higher margins and higher returns.”

Already the new arm is a big contributor.

“Including the first full year of contribution from the LD&D acquisition, LD&D is expected to account for ~47% of overall sales and ~39% of overall EBITDA in FY22.”

Bega’s gearing expected to reduce

The food business’ debts are forecast to decrease in proportion to its earnings.

This had occurred even before Bega completed a $400 million equity raising to fund the Lion acquisition, according to Gable.

“Gearing — on a net debt to EBITDA basis — had reduced from 2.9x to 2.0x, despite the seasonal working capital build, which is typical of the 1st half,” he said.

“Given that part of the purchase price for the LD&D acquisition was funded by debt, the gearing level is expected to increase above ~2.0x in FY21, but remain below the leverage covenant of 3.0x. Importantly, gearing is expected to fall in FY22/23 to reflect the contribution from the LD&D acquisition and the potential divestment of some non-core LD&D operations.”

Bega shares were up 2.48% at Friday’s close, trading at $6.19.

The post Are Bega (ASX:BGA) shares a bargain right now? appeared first on The Motley Fool Australia.

More reading

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• Kraft to cough up $9.25m to Bega Cheese (ASX: BGA) over peanut label
• 2 compelling ASX shares rated as buys by brokers

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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