The Webjet Limited (ASX: WEB) share price is on the move on Wednesday morning following the release of its full year results. This follows the company’s decision to shift its financial year to end on 31 March.

At the time of writing, the online travel agent’s shares are down 1% to $4.60.

How did Webjet perform in FY 2021?

It is no secret that Webjet has been struggling greatly because of the pandemic. In light of this, it will come as no surprise to learn that the company is reporting a significant decline in revenue and a sizeable loss for the nine-month period ending 31 March.

According to the release, Webjet recorded total transaction value (TTV) of $453 million and revenue of $38.5 million in FY 2021. This compares to TTV of $3,021 million and revenue of $266.1 million during the 12 months of FY 2020.

This means that Webjet was operating with a TTV/revenue margin of 8.5% in FY 2021, which is only down slightly from 8.8% in FY 2020.

And despite cutting its underlying expenses down to $94.8 million, compared to $238.5 million in FY 2020, this wasn’t enough to stop the company from recording a sizeable $56.3 million underlying operating earnings loss.

On the bottom line, the company recorded an underlying loss of $88.8 million. This is an increase from an underlying loss of $42.3 million during the 12 months of FY 2020.

Nevertheless, the company has the balance sheet strength to handle this. At the end of the period, Webjet had $431 million pro forma cash on hand. It also notes that its term debt maturity has now extended to November 2023, which it feels gives it a significant runway.

Trading update

Failing to give the Webjet share price a boost this morning was an upbeat update on its performance during the month of April. Management notes that as markets reopen, its businesses are rebounding quickly.

For example, during April, Webjet OTA Australian domestic bookings were 95% of April 2019 levels, WebBeds USA TTV was at 83% of April 2019 levels, and Online Republic bookings were 48% of April 2019 levels.

Management commentary

Webjet’s Managing Director, John Guscic, said: “We are hopeful that vaccine rollouts will allow travel markets to reopen and continue to do everything we can to make sure we are optimally positioned to capture the significant global B2B market opportunity and accelerate bookings growth in our B2C businesses.”

“We know there is strong demand for travel – we’ve seen that with the performance of Webjet OTA, with Australian domestic bookings reaching 95% of pre- Covid bookings in April. Webjet OTA has always had a key strength in servicing the domestic leisure market and our ability to scale costs in line with demand meant it was profitable as soon as borders opened.

“The Australian and New Zealand domestic borders remaining opened also meant we saw Online Republic return to profitability in April and believe there is considerable scope for that business as global leisure markets reopen.

While WebBeds continues to be impacted in most regions, we know that once borders do open, our businesses rebound. We’re already seeing that in North America. The US is among the first to reopen and WebBeds is already at 83% of pre-Covid TTV in that market. WebBeds is committed to emerging from Covid as the #1 global B2B provider and we are confident our transformation initiatives will materially reduce costs across the business. As such, we have increased WebBeds’ profitability target to 8/3/5 once the business is back at scale,” he added.

Outlook

Webjet notes that there is strong pent-up demand for travel. This is particularly the case for leisure travel.

Pleasingly, management believes it is well positioned to capture the pent-up demand after transforming all of its businesses to be ready to capitalise when global travel returns.

It also points out that the structural shift from offline to online continues to accelerate, with all its businesses positioned to capture demand through the medium.

Mr Guscic commented: “While we wait for markets to open, we have not stood still. We have taken the opportunity to transform our business to be ready for the recovery. We have looked at ways to be more agile, lean and efficient across the entire business – from service and quality, to operating and marketing, to capital strength, and management restructuring. We have created a global platform that will reduce costs at scale by at least 20% and provide the structural support to focus on those markets that will rebuild fastest, where competitors are weakest, and we can target the #1 position.”

“We see a world of opportunity. We know people cannot wait to travel – to reunite with families and loved ones, to embark on adventures and to explore the world. Webjet has significant cash reserves, we have a team that’s always been agile and hungry to win, and we are ready to go,” he concluded.

More reading

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• The Webjet (ASX:WEB) share price is down 11% this week: Is it time to buy?
• To sell or not to sell? 3 brokers weigh in on Webjet (ASX: WEB) shares

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet 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 Kathmandu Holdings Ltd (ASX: KMD) share price will be one to watch on Wednesday morning. This follows the retail company’s announcement that it has reshaped its leadership team. 

At yesterday’s market close, the Kathmandu share price was trading at $1.49.

Kathmandu designs and retails clothing, footwear, and equipment for surfing and the outdoors. Its brands include Kathmandu, Oboz and Rip Curl.

What changes did Kathmandu make?

In today’s release, Kathmandu advised it has appointed a new Group CEO and managing director to lead its businesses.

The appointment of Rip Curl CEO Michael Daly to the position will see him take over the reins from outgoing CEO Xavier Simonet.

After more than 5 years at the group helm, Mr Simonet has stepped away from Kathmandu to become the new CEO of Australia’s trade and investment commission, Austrade. 

Mr Daly’s role will come into effect immediately, as Kathmandu now seeks to find a successor for Rip Curl.

Kathmandu chair David Kirk welcomed the new appointment, saying:

After an extensive international search, I am delighted to announce that Michael Daly will be the new Group CEO of Kathmandu Holdings. Michael has led Rip Curl for 8 years with a relentless focus on brand, product, people and the bottom line and we are confident he will bring the same focus and energy to the wider group.

Incoming CEO Michael Daly added:

This is an exciting next step for me. The group has a portfolio of outstanding brands in Kathmandu, Rip Curl and Oboz and I am looking forward to leading three great teams as we work together to grow and develop the group.

About the Kathmandu share price

The Kathmandu share price has trekked higher over the past 12 months, increasing more than 60%. Year-to-date performance has also climbed, giving investors a gain of around 25%.

Based on valuation metrics, Kathmandu presides a market capitalisation of roughly $1 billion, with approximately 709 million shares on issue.

More reading

• Why these ASX shares just raced to 52-week highs

Motley Fool contributor Aaron Teboneras 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 Appen Ltd (ASX: APX) share price is on watch this morning after providing a trading update and announcing a restructuring to the market.

This restructuring is aimed at aligning to the company’s product-led and consumer-centric strategy, as well as changes to financial reporting to give greater visibility to the drivers and performance of the business.

Appen says that the changes reflect its evolution to become a broader range of AI data annotation products and solutions.

The new structure and reporting

Its new organisation structure will have four customer-facing business units – global, enterprise, China and government.

The global unit will focus on providing data annotation services and products to major US global tech customers.

Appen’s enterprise unit will be responsible for driving growth outside of its global customers by leveraging its product suite to serve new customers and AI use cases.

The China and government units will continue to try to capture market share in those high-growth markets.

Appen said that the new leadership structure, combined with profit and loss responsibility, will increase performance.

Management believe that the organisation alignment and technology-enabled productivity will allow resources to be optimised for the company’s future needs.

The tech company also said that there’s going to be new segment reporting for investors to get a better understanding on performance, growth and market dynamics.

There’s two segments – ‘global services’ for the services provided to global customers using data annotation tools and ‘new markets’ for global customers using annotation products and the enterprise, government and China businesses.

Reporting will be in US dollars, to enable easier comparison of financial performance between periods.

Appen CEO Mark Brayan said:

            Our new structure will drive performance and growth by aligning our business with market opportunities and customer needs. Value will be created by pursuing product-led expansion and by giving teams end-to-end responsibility and control over delivery for their customers.

Appen trading update

The company’s year to date revenue plus orders in hand for delivery in FY21 is approximately US$260 million at the end of April 2021. Appen said this US dollar figure was consistent with the same methodology and timing used for the update provided at the annual general meeting in May 2020.

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) is expected to be between US$83 million to US$90 million. This is the guidance provided to the market at its FY20 result that was given out in February.

More reading

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Tristan Harrison 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 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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So far, 2021 has been a frustrating year for shareholders of ASX tech company Pushpay Holdings Ltd (ASX:PPH). Investors would have been hoping for a repeat of last year, in which the online payment platform’s shares gained around 80% and even briefly touched an all-time high price of $2.272.

But instead, the company’s shares have been trading more or less sideways. At their current price of $1.54, they are down about 13% year-to-date. The closest they’ve come to breaking through the psychological $2 barrier was in early April when they rose as high as $1.91.

Let’s take a look at what may be driving this lacklustre share price performance and see if Pushpay can turn it around over the second half of the year.

Company Background

First, a little background information on Pushpay.

The New Zealand-based company develops software applications for church groups, with a particular focus on the US market. Its software platform provides church leaders with the digital communication tools required to boost engagement. In addition, it builds a sense of community amongst their congregation. However, its real selling point is its ability to facilitate online cash donations.

Pushpay’s software allows churches to monitor how much individuals are donating. The software also offers a suite of applications that can help encourage higher levels of giving. It also produces insightful reporting, which can help churches run more targeted money-raising campaigns.

Recent financials

Pushpay released its results for the full year ended 31 March 2021 just last week. In the announcement, the company reported total revenues of US$181 million (an uplift of 39%). Pushpay also reported a total net profit of just over US$31 million (an increase of 95%). The relatively bigger jump in the company’s bottom line was due to improvements in both gross margin and operating leverage.

Gross margin expanded by 3 percentage points during the financial year, from 65% to 68%. And while the company’s operating revenue increased by 40%, total operating expenses increased by just 9%. Surprisingly, Pushpay anticipates operating leverage to increase even further in the coming years as the business continues to scale up.

The Pushpay share price

Despite delivering strong financial results at the upper end of its previously issued earnings guidance, the Pushpay share price has barely budged. Since the release of its annual report, Pushpay shares have edged up just 3%.

It’s hard to say exactly what is driving Pushpay’s poor share price performance. However, there are a few macroeconomic factors that could be having an impact.

Inflation fears in the US – Pushpay’s key market – have sparked continued rounds of global selloffs of growth shares. This is because growing companies’ valuations are mostly based on expectations of future earnings – the idea being that they will eventually “grow into” their lofty valuations. However, when there are high rates of inflation, the value of those future earnings can begin to erode.

Secondly, many tech shares made huge gains last year. On the ASX, under-the-radar tech companies like Megaport Ltd (ASX:MP1) and Nitro Software Ltd (ASX:NTO) surged to new highs. This was because they tailored their product offerings to support companies adapting to lockdowns.

But as global economies open up again, there has been a cyclical shift out of growth companies – particularly tech shares like Pushpay – and towards value stocks. These include mature companies that were beaten down during COVID-19 like resources giants Rio Tinto Limited (ASX:RIO) and BHP Group Ltd (ASX:BHP). These companies also benefit from the increase in commodity prices caused by inflation.

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Rhys Brock owns shares of PUSHPAY FPO NZX, MEGAPORT FPO and Nitro Software Limited. 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 PUSHPAY FPO NZX. The Motley Fool Australia has recommended MEGAPORT FPO, Nitro Software Limited, and PUSHPAY FPO NZX. 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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Gold prices have lagged behind surging commodity prices this year. Without the support of a solid gold price, S&P/ASX 200 Index (ASX: XJO) gold shares have underperformed both the broader market and their mining peers. 

However, the precious metal has made a comeback in recent weeks, pushing to a 3-month high of around US$1,860.

ASX gold shares including Evolution Mining Ltd (ASX: EVN), Northern Star Resources Ltd (ASX: NST) and Newcrest Mining Ltd (ASX: NCM) are also eyeing near-term highs, thanks to firmer gold prices. 

What’s behind the gold rally? 

Rising inflation expectations 

Inflation in the US has accelerated at its fastest pace in more than 12 years. The Consumer Price Index, which measures the cost of a basket of goods and services, increased 4.2% in April compared to a year ago. And well above the US Federal Reserve’s target of 2%. However, the 4.2% is measuring against prices at the height of COVID-19.

Federal Reserve chair Jerome Powell has anticipated a short-term spike in prices as the economy rebounds and that the Fed has the tools to deal with higher inflation should it become a problem. 

Investors often think of gold as an inflation hedge. Unlike paper money that loses its value, especially as more is printed, gold supply is relatively constant. The expectation that higher inflation is here to stay could be helping gold prices edge higher. 

US Treasury yields ease 

Gold doesn’t bear any yield, so higher yields typically drive the gold price lower. 

US 10-year treasury yields surged from lows of 0.50% to as high as 1.76% between August 2020 and March 2021.

During this time, gold prices topped out at US$2,075 on 10 August 2020 and hit a low of US$1,680 by mid-March. 

Yields have eased in recent weeks, taking a breather around the 1.60%. 

Geopolitical instability 

Gold is often referred to as a safe haven asset that is popular amidst periods of rising geopolitical tensions and hostilities. 

It’s possible the escalating Israel and Palestine conflict could be driving upside volatility in the gold price as calls for ceasefire grow. 

Bitcoin crashing? 

It could be a coincidence, but the resurgence in gold has coincided with Bitcoin’s (CRYPTO: BTC) largest correction since March 2020. Bitcoin has lost almost a third of its value after briefly hitting US$64,899 on 14 April. 

Since 14 April, gold has rallied from US$1,700 levels to US$1,876 at the time of writing. 

Why ASX gold shares are on watch 

ASX gold shares have underperformed both the ASX200 and S&P/ASX200 Materials (INDEXASX: XMJ) index this year. The resurgence of gold could further drive margins for ASX gold miners.

Newcrest for example, is one of the lowest producers in the world, boasting an all-in sustaining cost of US$891/oz. The uptick in gold price makes a significant difference for its profitability and potential dividends.

The Newcrest share price rallied as high as 6% this week to a 7-month high of $29.27. Its shares were unable to hold onto gains, and are currently fetching $28.73. 

More reading

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Motley Fool contributor Kerry Sun 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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It’s no secret that the exchange-traded fund (ETF) has become an uber-popular investment vehicle on the ASX over the past decade or so. ETFs started simple, with funds mostly tracking indexes like the broad-based S&P/ASX 200 Index (ASX: JXO). But today, there seems to be an ETF for every flavour you can think of. Oil? There’s the BetaShares Crude Oil Index ETF (ASX: OOO). Do you find particular interest in the share market of South Korea? Then the iShares MSCI South Korea ETF (ASX: IKO) could pique your eye.  Food loving investors might find interest in the BetaShares Global Agriculture ETF (ASX: FOOD). Robotics? Try the ETFS ROBO Global Robotics and Automation ETF (ASX: ROBO). You get the idea.

The youngins love it

But new research from ETF provider BetaShares shows just how much of this interest comes from younger investors. 2020 was a great year for the ETF structure, despite the disruption of the global market crash in March. According to the research, the number of ASX investors using ETFs climbed 58% in 2020, from 455,000 to 720,000. That was reportedly the largest annual increase ever recorded.

What’s more, nearly two–thirds (65%) of these new ETF investors entering the market between March and August 2020 were under the age of 40. That is, millennials and ‘Gen Zers’.

Alex Vynokur, CEO of BetaShares, said this of what he sees:

The average age of the ETF investor continues to fall, as first–time investors increasingly are made up of those under the age of 40. This continues a long–term trend and demonstrates that the wealthier early SMSF adopters of ETFs are now joined by younger Australians, who are also turning to ETFs tohelp themachieve their financial goals...

Investing can be daunting, particularly in times of volatility, such as during the pandemic–related market turmoil or more recently, during the GameStop controversy. The fact that investors, particularly younger investors, continued to invest in ETFs throughout 2020 suggests that not only are investors attracted to the liquidity ETFs offer in volatile markets, they also appreciate simple, cost–effective way to diversify portfolios and minimise single stock risks…. We are preparing for another strong year of growth

Why are ETFs so hot right now?

So why are investors, especially millennials and Gen-Zers, choosing to invest in ETFs rather than individual ASX or international shares? Well, 63% of the investors BetaShares surveyed stated that diversification was the most important factor at play for choosing ETFs. This makes sense. It is far easier to achieve diversification through a single share of an ETF than through direct share investing. That’s because a single ETF can hold thousands of individual holdings with it. Other reasons why investors chose an ETF (or two) for their portfolios include access to specific overseas markets (24%), avoiding risk to individual stock exposure (42%), and efficiency (39%).

These numbers look set to grow even higher over the next 12 months. BetaShares is expecting another 190,000 investors to buy their first ETF in the next year. And if last year’s statistics hold, this will include 120,000 millennials and Gen-Zers. ETFs are the new black right now, that’s for sure.

More reading

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• ASX 200 up 0.6%: James Hardie Q4 update, St Barbara sinks, Nuix jumps

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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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 1 of our interview, Medallion Financial managing director Michael Wayne reveals the 2 ASX shares that are his clients’ biggest holdings but still look good value.

Investment style

The Motley Fool: What’s your fund’s philosophy?

Michael Wayne: Medallion Financial, we’re not a fund management company per se. We run personal portfolios or private portfolios for individuals.

Essentially the strategy that we employ for our clients is what we call a top-down, bottom-up approach. And by that what we mean is that we look to identify those sectors of the economy that are booming and have the brightest outlook and the best chances, in our view, of doing well from those natural tailwinds that are out there around the economy. 

So for example, things like healthcare, aging population, emerging middle classes throughout Asia – there’s a natural inertia and a natural momentum to a sector like that… Or the technology space, for instance, is another example of a sector that has those tailwinds.

The idea is once we identify the top-down approach in those sectors that benefit from the global thematics at play, we’ll then look to identify the best quality businesses from within those sectors.

MF: What are the two most popular holdings currently among your clients?

MW: Every client is slightly different, but we do try to keep a uniform investment approach across all our clients.

So some of the businesses that pop up most frequently across portfolios are things like CSL Limited (ASX: CSL). Obviously being the largest healthcare provider it’s been a great performer over the years. And as the price goes up, weightings tend to go up. So CSL’s among the top biggest holdings for clients.

MF: The CSL share price hasn’t gone that well in the past 12 months or so. How do you feel about the business at the moment?

MW:  We think they’re offering some decent valuation – as far as CSL goes, that is. Obviously, COVID hasn’t been great for their blood collections business in the US. However, we think that’s transitory. 

We do think that once the reopening phase plays out, that that level of supply of blood plasma will start to pick up again. CSL is a dominant player worldwide. It’s got the infrastructure in place to guarantee supply of the five different blood proteins. So they’re in a pretty strong, competitive position. 

Often they get talked about as being expensive because the PE [price-to-earnings] ratio comes across as being quite high. But the reality is someone like CSL spends up to a billion dollars if not more these days on research and development. And they account for that in the first year, rather than spreading that out over, say, a decade. That has the effect of… depressing earnings somewhat, which makes that PE ratio, in our view, somewhat inflated. 

So yeah, we’re buyers of CSL at these levels. And we think that it will continue to do well over the years to come.

I’ll give you a couple more. Aristocrat Leisure Limited (ASX: ALL) is a particular holding that we have quite large holdings in for clients, amongst the top 5 holdings. Others are Macquarie Group Ltd (ASX: MQG), for instance, which has been a good performer particularly of late, and it’s started to kick on again.

REA Group Limited (ASX: REA) is another one. So those 4 would be amongst the biggest holdings for the vast majority of our clients.

MF: At current prices, which of the four are still tempting enough to buy?

MW: I think CSL and Aristocrat are probably two that offer for a little bit better value than the other two.

But REA Group’s the entrenched leader in the real estate space – obviously, real estate is going through a strong patch at the moment, that should benefit them. Macquarie Group had a good set of numbers just the other day. So they look like they’re on a pretty good track to growth. 

Buying and selling 

MF: What do you look at closely when considering buying a stock?

MW: We touched on the top-down bottom-up approach, and this is focusing probably more on the bottom-up sort of stuff that we look at. We like companies that are high quality. And by that we mean businesses that have seen successive years of revenue growth, of earnings growth. Their margins are constant or increasing over time.

We prefer a low level of debt or what we call a net gearing to be negative, which means they’ve got more cash on the balance sheet than debt. Free cash flow is very important.

Then for those businesses that are more on the emerging side of things, so this probably relates mostly to some of the tech companies. Many of those traditional metrics won’t look that attractive just because they’re more emerging – they might not even have earnings or profits at this stage. In those types of businesses, we look for low churn rates. We look for characteristics such as average revenue per customer for those SaaS model companies, high margins again. We look for companies that might be sacrificing profitability today in order to generate growth and earnings into the future. So we look at things like marketing spend and how that’s impacting cash flows and earnings. 

MF: What triggers you to sell a share?

MW: It’s a good question because often we see a lot of clients that come across and they are holding these positions which have just fallen away year after year after year. So being able to sell out of something I think is very important. You can have 9 out of 10 trades up 10% but if you get that one trade down 50%, 60%, 70%, it undoes a lot of that good work.

So for us, what we focus on is letting the winners run and [cutting] our losers pretty early. 

And what triggers us to sell out of a share is often the news flow. We don’t have an arbitrary number like a 10% fall or anything, but if the company comes out with a negative update we’ll review it. If they come out with a 2nd negative update, we’ll sell it for sure. 

So there’s no hard and fast rule. But as a general rule of thumb, we prefer to cut those losers pretty quickly off the back of bad news rather than willing and hoping for them to come back.

Tomorrow in part 2 of our interview, Wayne reveals the most underrated share on the ASX at the moment.

More reading

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Tony Yoo owns shares of CSL Ltd. and Macquarie Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia has recommended REA Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post 2 ASX shares I hold that I’d still buy more of: fundie appeared first on The Motley Fool Australia.

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Are you looking for some excellent ASX dividend shares to add to your income portfolio? 

Then you might want to take a look at the ones listed below. Here’s what you need to know about these dividend shares:

Accent Group Ltd (ASX: AX1)

The first ASX dividend share to look at is Accent Group. This retail conglomerate is primarily focused on the footwear market and owns a number of popular store brands. Among its portfolio are retailers HypeDC, Platypus, and The Athlete’s Foot.

Accent has been growing its earnings and dividends at a solid rate in recent years. This has been driven by a combination of new store brand launches, the expansion of its existing footprint, and strong sales in-store and online.

This strong form has continued in FY 2021, with Accent reporting a 6.6% increase in first half sales to $541.3 million and a 57.3% increase in net profit after tax to $52.8 million. And thanks to its growth accelerating in the third quarter, it looks set to deliver a bumper full year result in August.

Bell Potter is a big fan of the company and has a buy rating and $3.30 price target on its shares.

The broker is also forecasting an 11.7 cents per share dividend in FY 2021 and a 12.3 cents per share dividend in FY 2022. Based on the current Accent share price of $2.58, this will mean a fully franked yields of 4.5% and 4.6%, respectively.

National Australia Bank Ltd (ASX: NAB)

Another ASX dividend share to consider is NAB. It could be a good option if your portfolio doesn’t already have exposure to the banking sector.

Especially given the favourable outlook for the sector right now thanks to Australia’s strong economic recovery and the booming housing market.

Furthermore, although its shares have been strong performers in 2021, they have been tipped to climb higher.  According to a note out of Goldman Sachs, its analysts have a conviction buy rating and $29.97 price target on the bank’s shares.

Goldman notes that NAB remains its preferred sector exposure due to its cost management initiatives, its position as the largest business bank, and its strong capital position.

The broker is forecasting fully franked dividends of 124 cents per share and 133 cents per share in FY 2021 and FY 2022, respectively. Based on the current NAB share price of $26.37, this will mean yields of 4.7% and 5.1%.

More reading

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Could the A2 Milk Company Ltd (ASX: A2M) share price now be too cheap to ignore considering it’s almost at $5?

The company and shareholders have been suffering over the last year. It’s hard to believe that since the end of July 2020, the A2 Milk share price has fallen by almost 75%.

But operating conditions have materially worsened since then. Every few months A2 Milk has given out a disappointing trading update to investors.

The latest one was handed out just over a week ago.

A2 Milk told investors that the trading dynamics in the China infant nutrition market have been and continue to be challenging for A2 Milk and many international competitors.

Whilst the FY21 third quarter trading was broadly in line with management’s plan, it was clear to the company that actions taken to improve things with the daigou channel as well as cross-border e-commerce (CBEC) channels will not result in a sufficient improvement in pricing, sales and inventory levels to meet previous guidance based on April sales being well below the plan.

Not only that, but A2 Milk has ended up with a lot more inventory than expected. The business plans to rebalance inventory by further reducing sell-in to the daigou and CBEC channels and this will need to continue for the rest of the FY21 fourth quarter. This may continue into the first quarter of FY22 too. This is aimed at reducing customer and distributor inventory to target levels, which will significantly reduce sales for FY21.

There will be an additional stock provision in FY21 of between NZ$80 million to NZ$90 million, on top of the NZ$23 million recognised in the FY21 first half.

A2 Milk is also going to spend more on marketing to drive demand.

All of these problems and solutions will result in a significantly lower earnings before interest, tax, depreciation and amortisation (EBITDA) margin in FY21, of between 11% to 12%.

FY21 revenue is now expected to be in a range of between NZ$1.2 billion to NZ$1.25 billion.

Is the A2 Milk share price too cheap to ignore?

A2 Milk itself said these actions are being taken to return to growth as quickly as possible and to deliver acceptable margins.

The company estimated that if the one-off charges and sales reductions to reduce inventory were ignored, the business would record annual revenue in the order of NZ$1.3 billion and an EBITDA margin in the low to mid-twenties.  

Brokers on the whole don’t think this is an incredible price. Credit Suisse still rates A2 Milk as a sell after the big decline with a price target of $5 on concerns that the Chinese demand may not return with a change for families choose local Chinese products.

However, there’s also a broker like Morgans that rates A2 Milk shares as a buy with a price target of $6.65. Whilst it’s not expecting a recovery back above $10 any time soon, Morgans is suggesting a share price return of around 30% over the next 12 months. FY22 could include a lot of earnings growth as these issues are worked out. Even just solving the stock problem would help significantly next financial year.

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

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