Regional Express Holdings Ltd (ASX: REX) shares are lifting off today following the release of the airline’s half-year (1H21) results. At the time of writing, the Rex share price is trading 2.84% higher at $1.63 a share.

Let’s take a look at how the company has been performing.

What’s driving the Rex share price?

The Rex share price is on the rise today despite the airline reporting that its passenger numbers decreased by 71.2% for the period due to coronavirus travel restrictions.

Revenue (excluding government grants and subsidies) for the half sank by 60.5%, or $100.6 million, to $65.6 million compared to 1H20 revenue of $166.2 million.

However, Rex’s total 1H21 revenue including government grants and subsidies was $125.1 million.

Net profit for 1H21 jumped 43.5% to land at $9.9 million vs $6.9 million for 1H20.

In other news boosting the Rex share price, the company’s earnings per share (EPS) popped up to 9 cents for the 1H21 period from 6.2 cents in the prior corresponding half.

Total assets at the end of the first half came in at $274.2 million, compared with $252.8 million in total assets in 1H20.

CEO comments 

Commenting on the airline’s results, Rex executive chair Lim Kim Hai said: 

The COVID pandemic has completely devastated every passenger airline and has been the most significant set-back the global airline industry has ever experienced in its history. Rex would have been obliged to shut down over 90% of its network if not for various federal and state governments assistance programmes…

Rex’s regional operations in 2H FY21 are only expected to be marginally improved compared to the first half as the roll out of vaccination from March is not expected to make a significant difference until the new financial year. Should this eventuate, then the expected cessation of all government assistance packages in the final quarter of this FY will mean that the Group is expected to incur significant losses in that period.

The board did not declare a dividend and Rex did not provide any guidance due to the “extreme volatility” the company is facing.

Rex share price snapshot 

The Rex share price has climbed by more than 50% over the past six months and more than 65% over the past year.

Based on the current share price, the company’s market capitalisation is approximately $174.6 million. Rex currently has 110.2 million shares outstanding.

More reading

• Why did Qantas (ASX:QAN) shares soar 4% on Tuesday?

Motley Fool contributor Gretchen Kennedy 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 Tesserent Ltd (ASX: TNT) share price is tanking today despite the company reporting a significant lift in revenues and earnings during its first half in FY21.

At the time of writing, the Tesserent share price is down 20.6% to 25 cents a share.

High growth not enough for Tesserent share price

Cybersecurity continues to be a focus area for many businesses and the Australian government. As our lives become more reliant and integrated with technology, the importance it has grows. The target on our critical data infrastructure has also expanded over time.

Consequently, many cybersecurity companies have been called into the fray over the last year as the issue becomes more prominent. The Australian Government also released its Cyber Security Strategy 2020, which will see $1.67 billion invested in the sector over 10 years.

The increased awareness of cybersecurity has aided in Tesserent’s year-over-year (YoY) turnover increase of 500% to $36.5 million.

Heading further down the income statement, operational earnings before interest, tax, depreciation, and amortisation (EBITDA) swung to a positive $2.9 million. This compares to the prior year’s $1.7 million loss.

Considering the falling Tesserent share price today, the question is why? A potential inhibitor could be the bottom-line statutory loss before tax. Due to acquisitions and the company’s employee share option plan (ESOP), losses increased to $6.18 million in the half. This a 55% greater loss than 1H FY20.

Acquisitions centre stage for future growth

Tesserent outlined that the second half will benefit from the inclusion of its recent New Zealand acquisition, Lateral Security. In addition, six months of revenue and earnings will fold into the second half from Seer Security, Airloom, Ludus Cybersecurity, and iQ3.

Furthermore, the company stated that all of its FY21 goals remained intact. Some of these include:

• Focus on capturing market share in three key markets: Government (including Defence), critical infrastructure and banking & finance
• Continuing to drive the company’s acquisition strategy to expand on Cyber 360 capabilities and increase shareholder value through incremental EPS growth
• Explore international expansion opportunities with a focus on Australia’s key Five Eyes allies, which consists of the United States, United Kingdom, New Zealand, and Canada.

Importantly, the company’s results are unaudited and could change upon review. Tesserent informed the market that it would relay any changes once solidified.

Taking in today’s losses, the Tesserent share price is still up a whopping 325% in the last year. The cybersecurity company has been riding the wave of enthusiasm for the sector since mid-2020.

More reading

• Why the MyFiziq (ASX:MYQ) share price is rising today
• Here’s why the Limeade (ASX:LME) share price is crashing 32% lower
• Elon Musk doubles down on promise to IPO Starlink
• Why is the Bellevue Gold (ASX:BGL) share price frozen?
• Why Fortescue, Genworth, Limeade, & Northern Star shares are sinking

Motley Fool contributor Mitchell Lawler 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 MyFiziq Ltd (ASX: MYQ) share price is gaining today as the company announced its half-yearly results after the close of trade on Friday.

Shares in the small-cap image capture and dimensioning technology provider are currently trading 2.09% higher, at a price of $1.96.

Strong revenue growth

The MyFiziq share price has shot up over the past month as the company’s revenue surged. For the half-year ending 31 December 2020, revenue rose 150.3% to $887,092.

However, this did not stop the company from slumping to a substantial half-year loss of $5.47 million, up from $2.9 million in 2019. The loss includes extensive share-based payments to suppliers, directors and employees under the company’s incentive plans. In addition, MyFiziq has incurred losses on its investments in various entities.

Regarding the company’s cash flow, net cash used in operating activities reduced from $1.77 million to $1.17 million. This is a $600,000 improvement on last year and was driven by a stable cost base and improvement in its collection of outstanding fees.

The company executed 15 binding agreements with channel partners across the six months. This boosted its cash balance, but it was its $5 million capital raise in October last year that generated meaningful cash. As such, this took the company’s overall balance to $4.7 million.

Strategic investments

MyFiziq’s joint venture partner, Body Composition Technologies (BTC), undertook a $1.92m capital raising during the period. Pouncing on the opportunity, MyFiziq invested $671,000 and now owns the majority stake with 54.5%.

The ASX listed company claims that although BCT has not yet started generating revenue, taking a majority stake provided the strategic advantage of consolidating additional revenue in the future.

Moreover, the company signed an agreement with Canadian-based Triage Technologies in December of last year. The deal will see MyFiziq take a strategic stake in Triage and licence the use of the Triage AI health assistant technology for integration into the company’s CompleteScan SaaS offering.

Under the terms of the agreement, MyFiziq will invest up to US$6 million into Triage, comprising US$3 million in cash and US$3 million in equity.

More reading

• What’s going on with the MyFiziq (ASX:MYQ) share price today?

Motley Fool contributor Daniel Ewing 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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One of the worst performers on the Australian share market on Monday has been the Limeade Inc (ASX: LME) share price.

In afternoon trade the employee experience software company’s shares are down a massive 32% to $1.01.

Why is the Limeade share price crashing lower?

Today’s decline appears to be a delayed reaction to Limeade’s underwhelming full year results release at the end of last week.

For the 12 months to 31 December, the company reported a 19.3% increase in revenue to US$56.6 million. This was driven by a 20.8% lift in recurring subscription revenue to $54.9 million.

While this was solid, its guidance for the year ahead has overshadowed its positive form in FY 2020.

FY 2021 outlook

Management expects its FY 2021 revenue to be in the range of US$50 million to US$53 million. This implies a 6.4% to 11.5% year on year decline.

Management explained that COVID-19 was the reason for the weak guidance.

It said: “COVID-19 slowed new customer growth in 2020 and therefore impacted revenue outlook when coupled with 2021 forecast churn… Growth in new 2021 customer acquisitions will continue to be seasonal, accelerating in H2 and contributing to revenue growth in 2022.”

Customer numbers decline

One metric which appears to have worried investors and could be weighing on the Limeade share price today is its customer numbers.

Management notes that COVID-19 “slowed new customer growth in 2020.” However, it did more than slow its growth. Hidden away in its report, the company reveals that its customer numbers actually fell 13.3% from 173 in FY 2019.

Furthermore, that was actually the second year in a row of declining customer numbers. In FY 2018, Limeade had 187 customers. And judging by its outlook, there’s a risk that it could make it three years of declines in a row in FY 2021.

Is the Limeade share price selloff a buying opportunity?

Analysts at Macquarie see value in the Limeade share price at the current level.

This morning the broker retained its outperform rating but cut the price target on its shares to $1.73.

Based on the current Limeade share price, this price target implies potential upside of ~71% over the next 12 months.

More reading

• Why Fortescue, Genworth, Limeade, & Northern Star shares are sinking
• Why Limeade (ASX:LME) shares are bouncing around today

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 Limeade, Inc. 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.

According to news reports, Elon Musk’s SpaceX is now worth $74 billion. 

That number is based on the company’s implied valuation after having recently raised $850 million in new capital from private stock sales. How much the company is really worth, though — or at least, how much its famous Starlink broadband satellite internet subsidiary is worth — won’t be known until the company IPOs Starlink.

But that could happen sooner than you think.

Musk doubles down

SpaceX COO Gwynne Shotwell has been dropping heavy hints about SpaceX’s desire to conduct an initial public offering for Starlink for more than a year now. Her boss, Elon Musk, has also backed the idea, telling SpaceX fans on Twitter in September that Starlink would “probably” IPO — but not for several years.

We will probably IPO Starlink, but only several years in the future when revenue growth is smooth & predictable. Public market does *not* like erratic cash flow haha. I’m a huge fan of small retail investors. Will make sure they get top priority. You can hold me to it.

— Elon Musk (@elonmusk) September 28, 2020

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That timeline changed this month, however, and we got our first clear confirmation from Musk that an IPO will happen, and maybe even soon. 

Once we can predict cash flow reasonably well, Starlink will IPO

— Elon Musk (@elonmusk) February 9, 2021

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No beating around the bush there. Musk said it straight out: “Starlink will IPO” (emphasis added). Granted, Musk still isn’t stating a date, but he did give us a couple clues: First, that SpaceX wants to get a good idea of how much cash Starlink can produce over time — probably in order to better gauge how much to sell Starlink stock for at its IPO.

But second, SpaceX will not necessarily wait until cash is actually flowing in great quantities. Simply being able to “predict” future performance will suffice.

How much money does the world’s richest man need?

How long might that take? It took Starlink three months to amass its first 10,000 subscribers worldwide. With each paying $99 per month for the service, that works out to less than $12 million in annual revenue. But Starlink is proving immensely popular, and growing fast — in fact, just earlier this month, Musk opened up Starlink to widespread subscription in the U.S., allowing customers to reserve spots in line to get the service as early as “mid to late 2021.”

As customers flock to Starlink from Canada, the U.K., and the U.S., analysts who’ve crunched the numbers believe Starlink might need three years — and 3 million subscribers — to turn cash-flow positive. The resulting $3.3 billion or so in annual revenue that this would bring in should do the trick. In the meantime, Musk himself admits that Starlink will need to traverse “a deep chasm of negative cash flow” over “the next year or so.”

But that doesn’t necessarily mean he will wait three full years before announcing an IPO. If he can just glimpse the chasm’s edge from the middle and see that he’s headed in the right direction, that could suffice.

SpaceX needs to pass through a deep chasm of negative cash flow over the next year or so to make Starlink financially viable. Every new satellite constellation in history has gone bankrupt. We hope to be the first that does not.

— Elon Musk (@elonmusk) February 9, 2021

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The upshot for Starlink IPO investors

Long story short, I wouldn’t be surprised to see SpaceX announce a date for its Starlink IPO sometime in the next couple of years — and perhaps even as early as this year. As for how much it will cost you to buy into the IPO, though…

Consider that Musk has repeatedly stated his belief that Starlink could bring in revenue in excess of $30 billion per year. Personally, I have my doubts about that number. But let’s take it at face value for the time being, and compare Starlink to an internet provider like Comcast (NASDAQ: CMCSA). Comcast’s internet revenue last year totaled $60 billion, according to data from S&P Global Market Intelligence — and accounted for just under 60% of the company’s total revenue. Apply that percentage to Comcast’s market capitalization of $240 billion, and an internet business roughly the size of what Musk plans Starlink to become might be worth in the neighborhood of $72 billion — nearly as much as private investors are valuing all of SpaceX at today.

What’s more, SpaceX is targeting 60% operating profit margins for Starlink — nearly half again the 42% operating profit margin for Comcast’s internet division. So multiply that $72 billion by 1.5, and now we’re potentially talking about a $108 billion valuation for Starlink. Add a bit of premium to that price for the “Elon Musk is magic” effect on stock market valuations, and what do you end up with for the final price of Starlink?

Your guess is as good as mine, but one thing’s for certain: This IPO will not be cheap. If and when it arrives, don’t expect to get a bargain.

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

More reading

• Why this ASX tech ETF is in the buy zone
• How Tesla’s (NASDAQ:TSLA) Elon Musk just lost $19 billion
• Why Tesla and Peloton Interactive led the Nasdaq lower Wednesday
• Bitcoin hits record high: Why Saxo says the cryptocurrency is here to stay
• Tesla stock split: Is another one coming?

Rich Smith 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 Tesla. 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.

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The S&P/ASX 200 Index (ASX: XJO) has opened the week on a very positive note. At the time of writing, the flagship ASX index is up a healthy 1.54% to 6,775 points. Clearly, investors are trying to put the carnage of last Friday behind them, at least for now.

But one ASX company hasn’t turned up to the party. Bellevue Gold Ltd (ASX: BGL) shares are in a trading halt today, frozen on ice at 72 cents a share.

What’s going on?

Unfortunately for investors, it’s not exactly good news today. The announcement of the trading halt was delivered just before market open this morning. In its release, Bellevue told us that:

The Company was required to request a halt in the trading of its securities today after becoming aware of a historic administrative oversight to the appointment of its previous auditor, Grant Thornton that backdates to 2018…

The non-compliance with Chapter 2M relates to a historical administrative oversight in relation to the appointment of the Company’s previous auditor that backdates to 2018. Although the Board does not consider that the oversight described in this announcement is a price sensitive matter, it had no alternative but to request a trading halt in light of legal advice regarding the potential need to seek orders under section 1322 of the Act in respect of the share issues the subject of the cleansing notice.

Bellevue went on to state that “the company should have sought approval” for the Grant Thornton appointment. But due to the oversight, it inadvertently did not seek this approval. Bellevue has also stated that it will “shortly apply” to the Supreme Court of Western Australia for orders declaring that the appointment was not invalid and does not constitute a breach of the Corporations Act.

Bellevue Gold has also told the markets that the Australian Securities and Investments Commission (ASIC) and the ASX have both been informed of the oversight. They have also been informed of the Supreme Court application.

About the Bellevue Gold share price

Bellevue Gold is one of the ASX’s mid-tier gold miners. At the current (suspended) Bellevue share price of 72 cents, the company has a market capitalisation of $608.66 million. Bellevue shares have had a fantastic run in recent years, but have given up a lot of that success over the past few months.

Back in March 2016 (five years ago), the Bellevue share price was trading at just 3 cents. But by November last year, Bellevue shares had climbed to a high of $1.49 (a return close to 5,000%). But since November, the Bellevue Gold share price has collapsed by more than 50% to its current level. It will be interesting to see how investors react to today’s news when Bellevue is released from its suspension on Wednesday or once its application has been heard.

More reading

• Why the Bellevue Gold (ASX:BGL) share price is crashing 23% lower today
• Why Bellevue Gold, Coles, NRW, & Perpetual shares are trading lower today

Motley Fool contributor Sebastian Bowen 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 S&P/ASX 200 Index (ASX: XJO) is back on form and racing higher on Monday afternoon. At the time of writing, the benchmark index is up 1.45% to 6,770.1 points.

Four ASX shares that have failed to follow the market higher today are listed below. Here’s why they are sinking:

Fortescue Metals Group Limited (ASX: FMG)

The Fortescue share price is down 6% to $22.64. Today’s decline has been driven by the the iron ore giant’s shares trading ex-dividend this morning for its fully franked interim dividend of $1.47 per share. When a share goes ex-dividend, it trades without the rights to an upcoming dividend. In light of this, a share will tend to drop to reflect this. Eligible shareholders can look forward to receiving this dividend on 24 March.

Genworth Mortgage Insurance Australia Ltd (ASX: GMA)

The Genworth share price has sunk 7% to $2.39. This morning the company revealed that major shareholder Genworth Financial has entered into an agreement to sell its ~52% stake in the company. If the sales agreement completes successfully, Genworth Financial will no longer own any shares in Genworth Mortgage Insurance Australia.

Limeade Inc (ASX: LME)

The Limeade share price has crashed 32% lower to $1.01. This appears to be a delayed response to the company’s full year results release on Friday. Investors appear very disappointed with the employee experience software company’s guidance for FY 2021. Management expects revenue of US$50 million to US$53 million. This is a decline on FY 2020’s revenue of US$56.6 million.

Northern Star Resources Ltd (ASX: NST)

The Northern Star share price is down 2.5% to $9.96. Investors have been selling this gold miner’s shares following a pullback in the gold price on Friday. On Friday night, the spot gold price sank 2.6% to US$1,728.80 an ounce. Rising US bond yields and a strengthening US dollar sent the precious metal to an eight-month low.

More reading

• ASX 200 up 1.5%: Afterpay & Zip jump, Fortescue tumbles
• Why the Fortescue (ASX:FMG) share price is sinking 6% today
• ASX 200 Weekly Wrap: Friday carnage ruins last week of ASX earnings
• 5 things to watch on the ASX 200 on Monday
• Why outperforming ASX resources shares will be in the hotseat on Monday

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 Limeade, Inc. 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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When mentioning the red hot buy now, pay later (BNPL) sector, an investor might immediately think of the two largest and most famous providers on the ASX. Those would be Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASZ: Z1P). Afterpay did arguably start and pioneer the whole BNPL craze a few years ago, and it remains the largest BNPL company on the ASX today.

Zip is the second largest provider and has enjoyed playing silver to Afterpay’s gold for many years as well. Even today, as the ASX is graced by a dozen BNPL companies all fighting for a slice of this growing pie, Zip and Afterpay still seem to dominate investor sentiment around the burgeoning industry.

But another name has been in the news lately. And this name has a powerful ASX friend.

Klarna cleans up

Klarna is a BNPL company based in Sweden. If you haven’t heard of Klarna, you will no doubt have heard of the ASX giant it has teamed up with to provide its services here in Australia. Yes, Klarna is working with Commonwealth Bank of Australia (ASX: CBA). Today, the two companies offer Klarna’s services through CBA’s platform.

So exactly how much of a threat to Afterpay and Zip does Klarna pose? A recent report from Bloomberg sheds some light on that question. The report tells us that Klarna is about to undertake a capital funding round to its institutional investors. The company is seeking to raise between US$800 million and US$1 billion in fresh funds.

The report states that this funding round has just valued Klarna at “around” US$31 billion (~$40 billion). That means it would be worth roughly triple what it was back in September last year when the company held its last capital raise. Based on current prices, Zip has a market capitalisation of $6.06 billion, and Afterpay boasts a $35.94 billion market cap.

Is Klarna a threat to Afterpay and Zip?

If that valuation for Klarna does come to fruition, it would reportedly make Klarna “Europe’s most valuable startup”, and a gorilla in the BNPL space.

Afterpay and Zip are attempting to aggressively expand into new markets, primarily the United States. And that’s where they might run headlong into Klarna. Bloomberg reports that Klarna has “risen in popularity in the US”, and has emerged as a challenger to other US payments companies like Paypal Holdings Inc (NASDAQ: PYPL) and Squre Inc (NASDAQ: SQ).

For Afterpay and Zip, competition is certainly not going away anytime soon. But then again, it’s also nothing new.

More reading

• Why Afterpay, Austal, Reece, & Service Stream shares are racing higher
• ASX 200 up 1.5%: Afterpay & Zip jump, Fortescue tumbles
• BNPL providers like Afterpay (ASX:APT) set for increased regulation
• Will the Afterpay (ASX:APT) share price go higher in 2021? Here’s what Goldman Sachs thinks.
• ASX 200 Weekly Wrap: Friday carnage ruins last week of ASX earnings

Sebastian Bowen 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 PayPal Holdings and Square. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO and recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended PayPal Holdings. 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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In afternoon trade, the S&P/ASX 200 Index (ASX: XJO) is well and truly back on form and charging higher. At the time of writing, the benchmark index is up 1.5% to 6,774.6 points.

Four ASX shares that are climbing more than most today are listed below. Here’s why they are racing higher:

Afterpay Ltd (ASX: APT)

The Afterpay share price has rebounded 6% to $126.40. Investors have been buying the payments company’s shares amid improving sentiment in the tech sector. In addition to this, this morning analysts at Ord Minnett retained their buy rating and increased their price target on its shares to $150.00.

Austal Limited (ASX: ASB)

The Austal share price is up 6% to $2.52. The catalyst for this was news that Austal’s Philippines business has successfully delivered Hull 419 to Fjord Line of Norway. The 109 metre high-speed catamaran vehicle-passenger ferry is the largest ferry to be constructed by Austal, at any of the company’s shipyards worldwide. In addition to this, this morning Credit Suisse upgraded the shipbuilder’s shares to an outperform rating with a $2.75 price target.

Reece Ltd (ASX: REH)

The Reece share price has climbed 5% to $17.00. This gain appears to have been driven by another broker note out of Ord Minnett. This morning its analysts upgraded the plumbing parts company’s shares to a hold rating. It made the move in response to its half year results release last week.

Service Stream Limited (ASX: SSM)

The Service Stream share price is up over 3% to $1.19. This is despite there being no news out of the essential network services provider. However, with the Service Stream share price losing almost 40% of its value last week, some investors may believe its shares have been oversold. Last week Ord Minnett put a buy rating and $2.06 price target on its shares following its half year results.

More reading

• ASX 200 up 1.5%: Afterpay & Zip jump, Fortescue tumbles
• BNPL providers like Afterpay (ASX:APT) set for increased regulation
• These are the 10 most shorted shares on the ASX
• Will the Afterpay (ASX:APT) share price go higher in 2021? Here’s what Goldman Sachs thinks.
• Here’s why the Austal (ASX:ASB) share price is storming 6% higher

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 Austal Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Service Stream Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Appen Ltd (ASX: APX) share price has become a shell of its former self. From a superstar performer in the ranks with leading ASX 200 tech shares such as Afterpay Ltd (ASX: APT) and Xero Ltd (ASX: XRO), to losing more than 50% of its value since August 2020. 

Despite its weaker earnings and shocking share price performance, analysts at Bell Potter think that the Appen share price is still worth holding. 

The Appen share price nosedives on weak earnings 

Just when you think things couldn’t get worse, shares in the data solutions provider dived last Wednesday on poor FY20 earnings. At the $16.50 level, this marks a 60% slump since its August 2020 record-all time high and brings its shares to a 2-year low.

After running the ruler for Appen’s full-year earnings,  the company’s underlying earnings before interest, taxes, depreciation, and amortization (EBITDA) of $108.6 million was close to Bell Potter’s forecast of $109.0 million.

Revenue of $599.4 million was 6% below the broker’s forecast of $637.4 million, but a higher-than-forecasted EBITDA margin made this up. 

Looking ahead, Appen provided a forecast FY21 underlying EBITDA of $120 million to $130 million. This was well below the broker’s forecast of $145.8 million. The company cited year-to-date orders in hand of $240 million (vs. $210 million a year ago) and that “1H21 earnings growth will be impacted by the near-term challenges, a greater skew of timing of project delivery to 2H21 and the lower pcp cost base”. 

As a result, Bell Potter downgraded its 2021 and 2022 earnings per share (EPS) forecasts by 23% and 26%. It now forecasts underlying EBITDA in 2021 to be $119 million, just below the guidance range. 

Appen share price rated as a hold

Bell Potter maintains a hold recommendation for Appen shares with a 12-month price target of $19.50. This represents an upside of approximately 17.50% compared to its price at the time of writing. The broker points to the company’s redeeming factors, which include its long-term growth track record and strong customer relationships. 

Appen was established in 1996 and has a long track record of revenue growth with strong margins. In 2020, the company recorded revenue and underlying EBITDA growth of 12% and 8%, respectively. 

The key competitive advantage of Appen is the longstanding relationships it has with many of its customers. The majority of revenue is from repeat customers as they update and upgrade their products.

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Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Appen Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO and Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Bell Potter thinks the Appen share price is a hold, even if it’s down 20% last month appeared first on The Motley Fool Australia.

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