The Australian dollar is expected to surge in the current half and that will create winners and losers among ASX shares.

The Aussie battler spent most of the first half of 2021 stuck between US76 and US78 cents. But several experts believe it’s set to breakout and test the US80 cent mark.

If our dollar does reach the psychologically important US80 cent-mark, it is unlikely to stop there. And the dramatic rise the currency will have far reaching implications for the S&P/ASX 200 Index (Index:^AXJO).

What’s holding the Australian dollar back?

The only caveat is that forecasting currency movements is one of the most challenging tasks for experts. Nonetheless, those who spoke with the Australian Financial Review believe the Aussie is significantly undervalued.

Their optimism is based on surging commodity prices. This usually lifts the Aussie, but Australia’s slow rollout of mass COVID-19 vaccinations has been blamed for our dollar’s underperformance.

Economic activity in other developed nations that have vaccinated a large proportion of their population have recovered strongly, according to Commonwealth Bank of Australia (ASX: CBA).

“The Aussie dollar has been range-trading around US77.5¢ for quite some time. A headwind has been the slow vaccination rollout compared to other developed economies,” the AFR quoted CBA’s currency strategist Kim Mundy.

“There was a very quick rollout in the US, UK and eurozone whereas Australia has really lagged, so that explains why the dollar has been stuck recently.”

Why the Aussie could surge past US80 cents in 2H21

But the Aussie will soon play catch-up with fundamentals. The bank is tipping the exchange rate to hit US83 cents by end of September before easing back to US81 cents by end of the calendar year as some of the steam comes out of the commodities supercycle.

CBA isn’t the only bank with a bullish Aussie dollar forecast. The National Australia Bank Ltd. (ASX: NAB) also believes that the Aussie will test US80 cents in the near-term before spending the latter half of 2021 above that level.

ASX shares that are negatively affected by the rising Aussie

A big rally in our dollar will weigh on a number of ASX 200 shares. Citigroup highlighted the Treasury Wine Estates Ltd (ASX: TWE) share price, Computershare Ltd (ASX: CPU) share price, Champion Iron Ltd (ASX: CIA) share price and Pilbara Minerals Ltd (ASX: PLS) share price as being negatively correlated to the rising Aussie.

It’s not all bad news though. The stronger Aussie could actually keep the ASX bull market going as it will dampen the effects of inflation.

Benefits of a strong exchange rate

The fear of rising prices is causing global equity markets to sputter. A stronger currency means that prices may not need to increase quite as fast here as we get a bigger bang for our buck.

Of course, ASX shares that import goods and pay in US dollars will also benefit from any re-rating in the Aussie dollar. These are mostly ASX small cap shares.

The key point here is that a surging Australian dollar in itself doesn’t necessarily spell gloom and doom for our bull market. But astute investors always have an eye on the exchange rate as this could affect their share allocation decision.

More reading

• May was a breakthrough month for the CBA (ASX:CBA) share price
• No China? No worries. The Treasury Wine (ASX:TWE) share price lifts 16% in May
• 2 small-cap ASX shares with huge potential: fund manager
• These were the best performing ASX 200 shares in May
• Top ASX shares to buy in June 2021

The post Expected spike in Aussie dollar to >US80 cents spells trouble for these ASX shares appeared first on The Motley Fool Australia.

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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.

Amazon (NASDAQ: AMZN) made its second multibillion-dollar investment in streaming content of the year with the acquisition of MGM Studios for $8.45 billion. The deal follows Amazon’s renewed partnership with the NFL for exclusive rights to an expanded Thursday Night Football schedule, starting with the 2022 season, which will cost about $1 billion per year.

After spending $11 billion on content across its Prime Video, Prime Music, and transactional video-on-demand service in 2020, Amazon’s quickly catching up to the industry giants like Netflix and Walt Disney. It’s all part of a strategy to transform Prime Video from a Prime add on to a must-have streaming service.

What Amazon gets with MGM

MGM brings quite a bit to the table that could help Amazon compete in streaming.

First, it brings production capacity. One of Amazon Studios’ limitations in original films and television was that it only had so many projects it could take on at once. As a result, it’s paying a lot in licensing fees to film studios receiving more bids than ever from streaming services. With MGM, it adds a mini-major film studio and brings on a TV studio that produced nearly 1,000 episodes of television in 2019.

Second, it adds valuable intellectual property (IP) such as James Bond and Rocky. The modern playbook for media companies includes using popular intellectual property to build franchises and expand into new content verticals. Disney has proven extremely adept at leveraging its IP with expansive Marvel and Star Wars universes and tapping the well of classic Disney characters every year with great success.

Amazon’s still searching for an ultra-popular title to draw repeat viewership to its Prime Video service. Netflix seems to have a constant stream of top-tier series debuting on its service every month.

Amazon will come out with an ultra-expensive series based on Lord of the Rings, but it’s a lot easier and less expensive to make series based on IP that the company owns. Using MGM’s characters could help produce another hit. (Note: Barbara Broccoli’s Eon Productions still co-owns James Bond with MGM, and Broccoli has been hesitant to greenlight TV series based on the characters.)

Finally, Amazon will gain access to MGM’s back catalog, which includes 4,000 films and 17,000 television episodes. MGM currently licenses those titles to various streaming services, as well as its own EPIX network.

Amazon will have the option to retain more of that library exclusively as existing deals expire. Priority for MGM’s content may prove extremely valuable in the future, as ongoing media consolidation and more companies offering direct-to-consumer services leave very few studios willing to make exclusive output deals for streaming.

The overall result could be a substantial increase in annual content spending for Amazon as it expands original productions and licenses more content from MGM. That’s on top of the purchase price. But those investments come with the expectation of increased Prime Video engagement.

Building a streaming video destination

The MGM acquisition fits into Amazon’s overall streaming strategy to make Amazon Prime Video a true destination for streaming entertainment. While Amazon managed to attract 175 million of its 200 million Prime members to its streaming service over the last year, the video service is seen as an add-on to the shipping service instead of a means of attracting new subscribers.

Amazon snagged a few high-profile films last year amid theater shutdowns — Borat and Coming 2 America — which attracted strong viewership. Meanwhile, consumers who exhausted Netflix or Disney+ may have decided to see what’s available on Prime Video since they already pay for Prime.

The addition of MGM, the production capacity, IP, and back catalog could help bring viewer-engagement levels with Amazon more in line with the largest competitors in the space. On top of that, millions of football fans will log in every week in the fall, and LOTR (Lord of the Rings) fans could have dozens of hours of new content to binge with a five-season commitment to its massive Tolkien-based series, starting with a 20-episode first season with a budget of $465 million.

The goal is to make Prime Video more of a destination for streaming instead of an afterthought. Not only could increased engagement with Prime Video lead to greater Prime retention rates and more shopping on its online marketplace, but it could also lead to broader adoption of Prime Channels. This would deeper entrench Prime into the home entertainment ecosystem and strengthen its customer relationships.

If it strengthens the appeal of the Fire TV platform, Amazon could benefit from greater ad revenue, as well. That’s what allows Amazon to justify spending as much as media giants like Netflix and Disney: It has more ways to monetize engagement.

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

More reading

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• The rumors were true: Amazon buys MGM in $8.5 billion deal
• Amazon sued by D.C. Attorney General for anticompetitive practices
• Better buy: MercadoLibre vs. Amazon

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

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The Commonwealth Bank of Australia (ASX: CBA) share price made history in May, closing above $100 for the first time on record. Here’s a wrap on the month that was for Australia’s largest bank.

The CBA share price tips higher on third-quarter results

CommBank’s third-quarter results showed that its earnings recovery was gathering pace, with cash net profit after tax sitting at $2.4 billion. To add some perspective, its third quarter net profit slumped to $1.3 billion amidst the COVID-19 induced year of 2020, $1.70 billion in 2019 and $2.35 billion in 2018.

The bank also posted a decline in loan impairment expenses, with a majority of customers transitioning from its COVID-19 temporary loan repayment deferral program.

The price action for CommBank shares on 13 May, the day of its third-quarter results being released, was rather interesting. Its shares opened 0.76% lower to just under $94. Its shares progressively pushed higher throughout the day, before closing 1.06% higher at $95.58.

Economic tailwinds for CBA shares?

Australia’s domestic economic recovery could be tracking ahead of schedule according to the RBA’s May monetary policy meeting.

The minutes observed that:

The Australian economy was transitioning from recovery to expansion earlier and with more momentum than previously anticipated.

This translated into an upgrade in near-term GDP forecasts:

In response to the stronger starting point and improved outlook further out, the forecast for GDP under the baseline scenario had been revised upwards. GDP growth of 4¾ per cent was expected over 2021 and 3½ per cent over 2022. If realised, this would leave the level of GDP a little below that forecast before the pandemic, mostly owing to lower population growth.

Above $100 for the first time

On 28 May, the CBA share price closed above $100 for the first time, at $100.56. This also helped the S&P/ASX 200 Index (ASX: XJO) set a new all-time record high of 7,179.5.

CommBank shares have climbed an extraordinary 11.2% in May, which is impressive given the bank’s sheer size and the typical slow moving nature of banks.

Beyond the face value of the CBA share price, it is positive to see the broader Australian economy recovering at a rate exceeding the RBA’s expectations.

More reading

• 2 small-cap ASX shares with huge potential: fund manager
• Top ASX shares to buy in June 2021
• ASX 200 Weekly Wrap: ASX record highs tumble like… Costa shares
• Fund managers ar buying EML Payments (ASX:EML) and this ASX share
• Breaking! ASX 200 hits another record share market high

The post May was a breakthrough month for the CBA (ASX:CBA) share price appeared first on The Motley Fool Australia.

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The EML Payments Ltd (ASX: EML) share price was out of form in May.

Over the month, the payments company’s shares shed a very disappointing 41.9% of their value.

This made the EML Payments share price the worst performer on the S&P/ASX 200 Index (ASX: XJO).

Why was the EML Payments share price sold off?

Investors were heading to the exits in their droves last month following the release of an update on its PFS Card Services Ireland business.

That update revealed that the Central Bank of Ireland has raised concerns over the business in relation to Anti-Money Laundering/Counter Terrorism Financing compliance.

While Ireland isn’t a big market and this decline might seem like a bit of an overreaction, there’s more to this than initially meets the eye.

This is because due to Brexit, EML Payments moved its European operations out of London and into Ireland. This means that this business is actually responsible for all its PFS Card Services’ European revenue.

And this certainly is a meaningful portion of its overall revenue. Management notes that 27% of EML Payments’ total revenue is generated by this business. And with the Central Bank of Ireland intending to take action, potentially even removing its financial service authorisation for the European market, the company could lose a big chunk of its revenue.

Is this a buying opportunity?

According to a note out of Macquarie, its analysts believe the weakness in the EML Payments share price could be a buying opportunity.

Late last month the broker retained its outperform rating but cut its price target by 35% to $4.00.

So, with the EML Payments share price currently fetching $3.32, this price target implies potential upside of over 20%.

Macquarie responded to the aforementioned news by removing the European operations out of its valuation in case they cease. Though, the broker notes that it doesn’t believe this will be the case.

This could mean additional upside potential should the Central Bank allow the business to continue its operations.

More reading

• These were the worst performing ASX 200 shares in May
• Fund managers ar buying EML Payments (ASX:EML) and this ASX share
• ASX 200 flat: Costa crashes & Fisher & Paykel Healthcare tumbles
• EML Payments (ASX:EML) share price on watch after responding to ASX query
• A2 Milk and EML were among the most traded ASX shares last week

The post Why the EML Payments (ASX:EML) share price sank 42% in May appeared first on The Motley Fool Australia.

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Its been an intense 12 months for the Treasury Wine Estates Ltd (ASX: TWE) share price. The back-and-forth between Treasury Wine and China’s Ministry of Commerce (MOFCOM) has brought an extreme level of volatility to the company’s share price.

The final decision by MOFCOM effectively shut the company out of China, with an anti-dumping and countervailing duty rate of 175.6% to its Australian wine in containers of two litres or less imported to China.

Compared to other China-dependent growth stories such as A2 Milk Company Ltd (ASX: A2M), Treasury Wine was quick to reallocate its Penfolds Bins and Icon range from China to other markets.

A ‘new’ Treasury Wine emerges in May

Treasury Wine’s investor day presentation was one of the catalysts for its almost 16% jump in May to $11.64.

The presentation provided much-needed financial forecasts for how the business would perform without China. In the update, the business revealed that expected FY21 earnings before interest, tax and SGARA (the difference between the fair value of harvested grapes and the cost of harvested grapes) was going to be in the range of $495 million to $515 million, compared to the $533.5 million delivered in FY20.

Treasury advised that this figure is ahead of current market consensus expectations and would represent growth of 33% in 2H21 compared to the prior corresponding period.

The update also provided visibility to Treasury Wine’s long-term financial and operational goals. These include delivering sustainable top-line growth, achieving high single-digit average earnings growth, continuing with the ‘premiumisation’ of its sales mix, and expanding EBITS margin to the target of 25%.

Rather than viewing the effective closure of the Chinese market as a glass-half-empty situation, the company’s presentation saw it as “exposing previously under-recoginsed opportunities”. Moving forward, Treasury Wine is aiming to drive growth through multi-regional and multi-channel sales models. The United States has been established as a premium wine growth business and the company is also targeting growth throughout Asia and Europe.

The Treasury Wine share price closed ~6% higher at $10.84 on the day of the investor day presentation. But the company’s shares would also continue chugging along in May, finishing the month at a near 4-month high of $11.64.

More reading

• These were the best performing ASX 200 shares in May
• How might Australia’s WTO battle with China affect this ASX share?
• Should ASX investors be fearful of greed in the face of inflation?
• Leading brokers name 3 ASX shares to sell today
• The latest ASX shares that top brokers have upgraded to “buy”

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Ask a Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In Part 2 of this edition, Kardinia Capital’s portfolio manager Kristiaan Rehder reveals 2 small-cap ASX shares with huge potential. And he explains why his fund remains bullish on CBA.

(You can find Part 1 of the interview here.)

The Bennelong Kardinia Absolute Return Fund employs a long/short strategy with the goal of making positive returns, whether the broader market is rising, falling, or flat. How did that strategy play out during the viral market meltdown and subsequent recovery in February and March 2020? 

During the meltdown last year, our stop losses came into play. Our short strategy really came into its own. We saw the strategy doing exactly what it’s designed to do during periods of extreme market dislocation. That’s to grow the invested capital when you come out of it, but first and foremost, to protect it in the first instance.

Our short book has never been so profitable. I’ve been running this strategy for 15 years. I’ve never seen the profits generated in such a short period of time. That really provided a huge amount of protection for our long book. That meant the Kardinia Fund only drew down 3.9% when the market fell over 36%.

It was certainly a difficult, stressful time.

The number of names on our long books collapsed. We were forced out of lots of positions through our stop losses. We were also actively selling our positions when we thought we were holding too much.

On the other side of the ledger, our short book became incredibly fat with profits.

Any observer looking in the depths of March 2020 would have seen the portfolio was unbalanced. We immediately responded to that by looking to replenish our long book.

The biggest risk was that if markets were to bounce, as we ultimately saw at the end of March, an unbalanced portfolio could cause a huge amount of damage to the underlying investors.

We were quickly moving to buy back into long positions in the quality end of the spectrum. And we moved quickly to lock in our profitable shorts so we could bring the portfolio back into equilibrium.

What was your best performing investment over the past 12 months?

Sorry to bore you, but it was actually CBA [Commonwealth Bank of Australia (ASX: CBA)].

What we recognised in March and April last year was that this was an earnings issue for the banks. It wasn’t a balance sheet issue, unlike what we saw during the GFC in 2008 and 2009.

We saw [in 2020] over 10% of borrowers switching off their interest and principal payments and deferring payments for 6 months. That put a huge amount of pressure on the banks. But the government came out with the JobKeeper initiative to allow a lot of businesses to stay afloat. And then you saw the quick response by central banks. So the banks weren’t going to go bankrupt.

That’s when we entered CBA.

What’s your outlook for CBA and bank shares more broadly now? 

We think asset growth is looking very favourable for the banks in this market. We’ve seen business in the large institutional lending side of things; strong credit growth; we’ve seen M&A [mergers and acquisitions] really starting to pick up. But we think that’s just the tip of the iceberg. There’s a lot more [M&A] coming.

The owner-occupied housing credit growth, based on the last data we saw, shows credit growth running at 6-7%. Owner-occupied is so important because 55% of all mortgages and 41% of all loans are written by owner-occupiers. It’s the real engine in the housing market and growing incredibly strongly. And we’re starting to see investor demand for credit starting to pick up as well.

The most exciting, I think, is the capitalisation of the banks.

CBA has a tier-one core capitalisation ratio of around 13%. We calculate that it translates to about $10 billion of surplus capital that’s going to be returned to shareholders in the way of dividends or buybacks. And I think that’s going to start this year.

A huge amount of capital return is going to find its way back into shareholders’ hands. So we have a very positive outlook towards CBA and the banks in general.

Atop the banks, can you offer a few ASX shares you think our readers should consider adding to their portfolios?

There are a lot of good companies out there with strong prospects.

One name at the smaller end of the spectrum to keep an eye on is Proteomics International Laboratories Ltd (ASX: PIQ). It’s very small, with a market cap of around $120 million.

They’ve developed a test to predict diabetic kidney disease. Approximately 40% of diabetics go on to develop diabetic kidney disease [DKD]. The issue with DKD is that most sufferers are asymptomatic when their kidneys start to fail. They often don’t present with any kidney issues until it’s largely irreversible, leading to dialysis or a full kidney transplant. DKD is costing the US Medicare system around $40 billion a year.

Proteomics’ test can predict whether a sufferer is actually going to contract DKD with an 84% predictive measure before it starts. So that’s a very interesting company that is looking to commercialise their product within the next 12 months.

One other, which most may not have heard of before, is Neometals Ltd (ASX: NMT).

The business is run by Chris Reed and his father. They’ve had a very successful mining career in WA, and they collectively own 10% of the company. They owned [a stake in] the Mt Marion Mine, a lithium mine, which was recently sold to Mineral Resources Limited (ASX: MIN) for over $100 million. They returned that capital back to shareholders.

And they’ve developed a process to recycle lithium batteries. This is going to be a big issue. In Europe, most of the discarded batteries are incinerated, where 90% of their mass is released into the atmosphere. Volkswagen alone is estimating they’ll have 1 million tonnes of discarded batteries by 2030.

Neometals has a solvent extraction process which can extract key commodities from the batteries — lithium and nickel being the 2 most valuable. Through their process, they are one of the lowest global cost producers of lithium and nickel.

They’ve developed a successful pilot plant and are in the process of building their demonstration plant, which is only 2 months from completion. Then they’ll move straight into commercialisation.

More reading

• Top ASX shares to buy in June 2021
• ASX 200 Weekly Wrap: ASX record highs tumble like… Costa shares
• Fund managers ar buying EML Payments (ASX:EML) and this ASX share
• Breaking! ASX 200 hits another record share market high
• 5 things to watch on the ASX 200 on Friday

The post 2 small-cap ASX shares with huge potential: fund manager appeared first on The Motley Fool Australia.

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The age-old saying “sell in May and go away” came home to haunt Afterpay Ltd (ASX: APT) shares last month.

The Afterpay share price began the month of May at $117.65. This was far from its February record highs of $160.05 but also a considerable improvement on the $100 it was fetching in late March. But things deteriorated quickly for Afterpay shares, which fell by as much as 30% over the month to an 8-month low of $81.85 on 13 May.

What’s been impacting the Afterpay share price?

ASX 200 tech shares under pressure

The S&P/ASX200 Info Tech Index (ASX: XIJ) index fell by as much as 18% in May. The index has since bounced off 8-month lows but is still down around 10% for the month.

This was consistent with the weakness experienced on Wall Street, where the tech-heavy Nasdaq Composite (NASDAQ: .IXIC) also slumped by as much as 7% before bouncing off lows.

Afterpay wasn’t alone in this selloff, with its tech heavyweight peers such as WiseTech Global Ltd (ASX: WTC) and Xero Limited (ASX: XRO) experiencing similar harsh selloffs at the beginning of the month.

There are a number of moving parts contributing to tech shares underperforming the market. On one hand, the prospect of higher inflation and interest rates could be weighing on the valuations of richly valued tech shares. As the economy emerges out of the coronavirus pandemic, pent-up demand and soaring commodity prices could prompt central banks to take the breaks off record-low interest rates.

Another recent theme to consider is the idea of pandemic winners turning into vaccine losers. One example of this can be seen among ASX e-commerce shares such as Kogan.com Ltd (ASX: KGN) and Redbubble Ltd (ASX: RBL) that appear to be cycling through a period of tough comparables and normalisation in consumer spending. We all know the last thing investors want to see in a growth story is a slowdown in momentum.

BNPL struggles

As mentioned, it wasn’t only the Afterpay share price that was struggling in May. The buy now, pay later (BNPL) sector appeared to amplify the weakness across the broader tech sector last month. Large-cap ASX-listed BNPL shares including Zip Co Ltd (ASX: Z1P) and Sezzle Inc (ASX: SZL) are now also far from their February record highs but have managed to stay in positive year-to-date territory.

The same can’t be said for some smaller BNPL shares.

Laybuy Holdings Ltd (ASX: LBY) shares hit a record all-time low in May of 51.5 cents after starting the year at $1.30. The company’s shares have made a small bounce off these lows, finishing the month at 72 cents.

The price action has been similar for peers including Openpay Group Ltd (ASX: OPY) and Splitit Ltd (ASX: SPT), which both slumped to, or very close to, 12-month lows during May.

Elsewhere, US-listed BNPL giant, Affirm Holdings Inc (NASDAQ: AFRM) also hit record all-time lows of US$46.50 in May, down from the US$70 it was fetching at the start of the month. But on a more positive note, after a few trading sessions around the US$50 level, its shares bounced off lows to close at US$60.81 last Friday.

More reading

• Don’t play the game you can’t win…
• Leading brokers name 3 ASX shares to buy today
• How are the ASX WAAAX shares performing in 2021?
• ASX 200 Weekly Wrap: ASX record highs tumble like… Costa shares
• 2 quality ASX growth shares with heaps of potential

The post Why the Afterpay (ASX:APT) share price hit an 8-month low in May appeared first on The Motley Fool Australia.

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The S&P/ASX 200 Index (ASX: XJO) was on form in May and charged notably higher. The benchmark index rose for the eighth consecutive month, recording a 1.9% gain over the period to end at 7,162.6 points.

While a good number of shares climbed higher with the index, some posted stronger gains than others. Here’s why these were the best performing ASX 200 shares in May:

Resolute Mining Limited (ASX: RSG)

The Resolute share price was the best performer on the ASX 200 in May with a 25.8% gain. This gain appears to have been driven largely by bargain hunters looking for undervalued options in the gold sector. After all, even after this strong gain, the Resolute share price down 23% year to date. Its shares were sold off earlier this year due to weak production and disappointing guidance. In addition to this, a solid rise in the gold price gave its shares a lift. Fellow gold miners Evolution Mining Ltd (ASX: EVN), Gold Road Resources Ltd (ASX: GOR), and Perseus Mining Limited (ASX: PRU) recorded gains of at least 17% in May thanks to the rising gold price.

Whitehaven Coal Ltd (ASX: WHC)

The Whitehaven Coal share price wasn’t far behind with a monthly gain of 23.4%. This gain appears to have been driven by the release of a couple of bullish broker notes during the month. Both Macquarie and Credit Suisse upgraded its shares to an outperform rating on valuation grounds. Macquarie has a $1.70 price target and Credit Suisse has a $1.55 price target.

ALS Ltd (ASX: ALQ)

The ALS share price was a strong performer and recorded a 17.5% gain. The catalyst for this was the release of the global testing, inspection, and certification company’s full year results. ALS reported a 5% decline in revenue to $1,761.4 million and a 1.5% reduction in underlying net profit after tax to $185.9 million. This was a significant improvement on its first half performance.

Treasury Wine Estates Ltd (ASX: TWE)

The Treasury Wine share price was on form and charged 16% higher in May. Investors were buying the wine company’s shares following the release of an investor update. According to the release, the company is expecting its earnings before interest, tax, and SGARA (EBITS) to be in the range of $495 million to $515 million in FY 2021. This was ahead of the market consensus estimate for EBITS. This went down well with analysts at Morgans. In response, the broker upgraded Treasury Wine’s shares to an add rating with a $13.00 price target.

More reading

• These were the worst performing ASX 200 shares in May
• 5 things to watch on the ASX 200 on Tuesday
• ASX 200 drops, Nuix sinks, Link declines
• How might Australia’s WTO battle with China affect this ASX share?
• How to avoid this costly ASX investor trap – it’s harder than you think

The post These were the best performing ASX 200 shares in May appeared first on The Motley Fool Australia.

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The A2 Milk Company Ltd (ASX: A2M) share price was a particularly poor performer in May.

During the month, the fresh milk and infant formula company’s shares lost a disappointing 23.5% of their value.

This means the a2 Milk share price is now down over 72% from its 52-week high.

Why did the a2 Milk share price crash lower in May?

The a2 Milk share price came under significant pressure last month following the release of yet another bitterly disappointing trading update.

That update revealed that trading conditions remain tough and that a collapse in demand had flooded the market with excess inventory. The latter led to a massive NZ$103 million to NZ$113 million inventory provision. That sure is a lot of infant formula tins being destroyed!

In light of this, management was forced to downgrade its FY 2021 guidance for a fourth time.

What is the company expecting?

Management revealed that it now expects to deliver revenue of NZ$1.2 billion to NZ$1.25 billion with EBITDA of NZ$132 million to NZ$150 million. This will mean a year on year reduction in EBITDA of 73% to 76%.

A2 Milk Company’s Managing Director and CEO, David Bortolussi commented: “While our third quarter trading was broadly in line with plan, it is clear that the actions taken to address challenges in the Daigou and CBEC channels will not result in sufficient improvement in pricing, sales and inventory levels to meet our previous guidance.”

“In the interest of the long-term health of our brand and the medium-term trading outlook of the business, more aggressive actions to address inventory will be taken which will impact FY21 revenue and EBITDA, and potentially 1Q22.”

And while Mr Bortolussi is positive on the future, the performance of the a2 Milk share price would indicate that the market isn’t as confident.

He said: “Despite these short-term setbacks, we are confident in the long-term potential for infant nutrition and other opportunities we have in China, and are determined to build on the strong position we have built in the market over the past five years.”

“We recognise that the China market and channel structure is changing rapidly and are commencing a comprehensive review of our growth strategy and executional plans to respond to this new environment.”

Shareholders will no doubt be hoping that this is the end of the downturn and that it is onwards and upwards for the a2 Milk share price from here. Time will tell whether that is the case.

More reading

• 3 reasons why the A2 Milk (ASX:A2M) share price could still be a buy
• ASX 200 down 0.15%: A2 Milk class action, Nuix crashes again
• a2 Milk (ASX:A2M) share price hit by class action news
• A2 Milk (ASX:A2M) shares are up 4% today. Has a bottom been found?
• Where to for the A2 Milk and Afterpay share price, and US economic growth? Motley Fool CIO Scott Phillips on Nine’s Late News

The post Why the a2 Milk (ASX:A2M) share price crashed 23% in May appeared first on The Motley Fool Australia.

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With winter upon us and the end of the financial year approaching, we asked our Foolish contributors to compile a list of some of the ASX shares experts are saying to Buy in June.

Here is what the team have come up with…

Bernd Struben: Commonwealth Bank of Australia (ASX: CBA)

My top ASX share pick for June is Commonwealth Bank for both its potential capital and dividend growth. The CBA share price has gained around 57% over the past 12 months. In fact, it breached the $100 mark for the first time ever just last week. And Kardinia Capital portfolio manager Kristiaan Rehder believes there’s more to come.

Rehder says that asset growth is looking very favourable for CBA in the current market. The bank has a tier-one core capitalisation ratio of around 13%. He calculates that works out to some $10 billion of surplus capital set to benefit shareholders either via dividends or buybacks.

Based on its share price of $99.72 at the time of writing, CBA has a market capitalisation of around $177 billion. It pays a trailing dividend yield of 2.5%, fully franked.

Motley Fool contributor Bernd Struben does not own shares of Commonwealth Bank of Australia.

Tristan Harrison: Pushpay Holdings Ltd (ASX: PPH)  

The electronic donation business continues to experience an upswing in profit margins. In FY21, its earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) margin increased from 22% to 34%.  

Pushpay is expecting further operating leverage as it grows revenue whilst expense growth is limited. The business is also expecting to grow the number of customers using its donor management system.  

It’s also looking to grow in the Catholic church segment over the next few years with an initial investment of between $6 million to $8 million in FY22. Pushpay is targeting a market share of over 25% of Catholic parishes.  

Motley Fool contributor Tristan Harrison does not own shares of Pushpay Holdings Ltd.

Mitchell Lawler: Catapult Group International Ltd (ASX: CAT)

The past year has been a challenging environment for sports organisations and companies to navigate. As borders closed, and health concerns mounted, sporting events all but ground to a halt.

Despite what has been described as the worst global sports industry conditions since World War 2, sports analytics company Catapult has managed to pull through.

Not only did the company stay afloat in FY21, but it also expanded. Catapult achieved 100% penetration of NFL teams and grew its multi-solution customers to include the Seattle Seahawks, Stanford University American Football, and the Arizona Coyotes, among others.

Further vaccine rollouts and a shift to more subscription-based sales have Catapult “increasingly confident” in its outlook.

Motley Fool contributor Mitchell Lawler does not own shares of Catapult Group International Ltd.

Sebastian Bowen: CSL Limited (ASX: CSL)

Brendon Lau: Costa Group Holdings Ltd (ASX: CGC)

According to one broker, the Costa Group share price could bounce next month from its devastating sell-off on the back of a disappointing trading update. Goldman Sachs believes shares in the fruit and vegetable grower were oversold when management warned of labour shortages and weak prices for tomatoes and avocados.

But Goldman sees the share price weakness as a buying opportunity as Costa has a number of medium-term growth opportunities in its favour. These include its expansion into China and Morocco. The broker is recommending the Costa share price as a ‘Buy’ with a 12-month price target of $4.85. At the time of writing, Costa shares are trading at $3.40.

Motley Fool contributor Brendon Lau does not own shares of Costa Group Holdings Ltd.

Rhys Brock: Bigtincan Holdings Ltd (ASX: BTH) 

Bigtincan develops sales enablement software. Its platform is designed to support businesses throughout their entire sales and marketing lifecycle, from onboarding and training new staff to managing customer relationships and automating manual processes. 

The Bigtincan share price has slid around 6% so far this year. It’s now also around 35% below its 52-week high of $1.60 reached in October. The sell-off has come despite the company recently reaffirming its guidance for full-year FY21 revenue at the upper end of between $41 million and $44 million (implying a year-on-year increase of as much as 42%!).   

Motley Fool contributor Rhys Brock owns shares of Bigtincan Holdings Ltd. 

James Mickleboro: Nitro Software Ltd (ASX: NTO)

Nitro Software is a company that aims to drive digital transformation in businesses around the world. It does this via its Nitro Productivity Suite, which provides integrated PDF productivity and electronic signature tools.

Demand for its offering has been growing strongly, leading to 68% of Fortune 500 companies and three of the Fortune 10 becoming customers. This helped underpin a 64% increase in annualised recurring revenue (ARR) to $27.7 million in FY20.

Pleasingly, management is expecting more of the same in FY21. It has provided ARR guidance of $39 million to $42 million. This will mean year-on-year growth of between 41% and 51.6%.

Morgan Stanley currently has an overweight rating and a $3.70 price target on Nitro shares. The company closed Monday’s session at $2.88 per share.

Motley Fool contributor James Mickleboro does not own shares of Nitro Software Ltd.

More reading

• These were the worst performing ASX 200 shares in May
• 4 ASX 200 blue chip shares analysts rate as buys
• Don’t play the game you can’t win…
• Why Bravura, Costa, Inghams, & Propel shares are pushing higher
• These ASX shares are the newest “buy” recommendations from leading brokers

The post Top ASX shares to buy in June 2021 appeared first on The Motley Fool Australia.

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