The market may be giving ground this morning but two ASX shares are bucking the downtrend after getting upgraded to “buy” by top brokers.

The S&P/ASX 200 Index (Index:^AXJO) slipped 0.4% at the time of writing as weak leads from Wall Street weighed on sentiment.

But the pessimism isn’t extending to the Telstra Corporation Ltd (ASX: TLS) share price as it was one of two ASX shares to find favour with brokers today.

Upgraded to “buy” on mobile strength

The Telstra share price gained 0.5% to $3.14 after JPMorgan called it the best placed to benefit from mobile subscriber trends.

Mobile is the most important growth driver for the Telstra share price and TPG Telecom Ltd (ASX: TPG) share price. Telcos can’t make much from fixed broadband as the NBN has a stranglehold on that market.

“Our in-depth assessment of the market suggests that both Telstra and TPG’s Vodafone will lose share of the prepaid market to [Mobile Virtual Network Operators],” said JPMorgan.

“However, in the more lucrative postpaid market, we believe Telstra is better placed given its head start in the rollout of 5G infrastructure.”

Telstra share price catalysts

Better than expected growth in its mobile subscriber base is one potential share price catalyst for Telstra. The other is cost savings in fixed broadband.

“Additionally, we are currently at the bottom of Telstra’s medium-term EBITDA target of A$7.5-$8.5 billion by FY2023,” added JPMorgan.

“This implies potential upside to our valuation should management achieve cost reduction targets in Fixed Broadband.”

The broker upgraded its recommendation on the Telstra share price to “overweight” from “neutral”. Its 12-month price target is $4.05 a share.

Recovery play underpins “buy” upgrade for this ASX share

Another ASX share that is outperforming today is the Clover Corporation Limited (ASX: CLV) share price.

Shares in the nutrition technology company jumped 1% to $1.51 at the time of writing. UBS reckons there’s another 30% plus upside when it upgraded the Clover share price to “buy” from “neutral”.

The broker believes it’s a good recovery play as Clover’s sales were heavily impacted by the COVID-19 disruption.

Boost from Chinese regulators

Clover’s technology is used to increase the Docosahexaenoic acid (DHA) in infant formula. While the sales recovery might not be “V-shaped” given the sombre outlook by A2 Milk Company Ltd (ASX: A2M), Clover is likely to get a regulatory boost from China.

“A key result positive was CLV’s expectation for China to mandate increased DHA requirements for infant formula during 2H21E, with a 2-year introductory period,” said UBS.

“The company expects a revenue benefit from new customer wins from FY23E.”

UBS’ 12-month price target on the Clover share price is $2 a share.

More reading

• ASX 200 down 0.6%: Telstra upgraded, Webjet rated as a buy, Westpac update
• 2 ASX 200 shares that keep growing the dividend every year
• 5 things to watch on the ASX 200 on Wednesday
• Sneaky way ASX company can boost share price by 7%
• ASX 200 jumps, Pointsbet reveals acquisition, Metcash drops

Brendon Lau owns shares of Telstra Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Clover Limited. The Motley Fool Australia owns shares of and has recommended A2 Milk and Telstra 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 PointsBet Holdings Ltd (ASX: PBH) share price started from humble beginnings in June 2019 at an initial public offering (IPO) price of $2.00 and market capitalisation of $220 million.

Its shares have since surged more than 7- fold, resulting in the company joining the S&P/ASX 200 Index(ASX: XJO) back on 27 January 2021. 

The bookmaker is taking the emerging United States sports betting market head-on and is currently operational in Australia and 5 US states. Despite its significant share price run, Bell Potter thinks there’s plenty of growth left for the PointsBet share price. 

Bell Potter retains speculative buy rating

Bell Potter is bullish on the PointsBet share price, retaining a speculative buy rating with a $20.55 valuation on 16 March. At the time of writing, its shares are swapping hands for $14.44.

The broker highlights the company’s recent acquisition of Banach Technology, a Dublin-based sportsbook solutions provider that has developed a proprietary risk-management platform and quantitative-driven trading models for operators. Bell Potter believes Banach will enhance PointsBet’s technology platform to provide a superior betting experience.

PointsBet anticipates the size of the US in-play market to increase rapidly. Currently, the company estimates a 50/50 split between bets placed pre-game and in-play. Within three years, PointsBet anticipates that ~75% of bets will come from in-play betting products. The company believes that in-play clients are more valuable across key metrics, including higher engagement, higher retention and higher turnover.

Bell Potter sees Banach playing a pivotal role in driving “increased in-play betting turnover by reducing periods when betting is suspended during a live sporting match”. Banach’s technology capabilities are expected to complement PointsBet’s competitive advantage in its breadth and depth of available betting markets.

Bell Potter analysts highlight that during the Super Bowl, PointsBet offered 765 different betting markets compared to its major competitors that only offered 248 to 543 markets. 

Key assumptions for the PointsBet share price target 

Bell Potter has made several assumptions for its bullish take on the PointsBet share price.

The broker assumes the company will start operations in West Virginia and Kansas by the end of 2021. It also forecasts that US states, including Kansas, Ohio, Missouri, Louisiana and New York, should legalise sports betting over the next three years.

PointsBet would be able to commence operations in these states through its existing partnerships. 

More reading

• How this week’s Fed meeting could impact ASX 200 shares
• ASX 200 jumps, Pointsbet reveals acquisition, Metcash drops
• Why Clover, PointsBet, Syrah, & Temple & Webster shares are racing higher
• ASX 200 up 0.8%: Metcash update, tech shares rebound, PointsBet acquisition
• Why all eyes will be on the PointsBet (ASX:PBH) share price today

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

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The consensus is that no matter what US Federal Reserve Chairman Jerome Powell tells the press today (overnight Aussie time), it will impact S&P/ASX 200 Index shares.

Rick Rieder is BlackRock’s CIO for global fixed income. As quoted by CNBC, Rieder said:

I think the last press conference, I think I watched with one eye, and listened with one ear. This one I’m going to be tuned in to every word, and the markets are going to be tuned in to every word. If he says nothing, it will move markets. If he says a lot it will move markets.

As you may know, the Fed has been meeting behind closed doors for the past 2 days. Tomorrow morning – or tonight, if you’re keen enough to tune in – ASX 200 investors will have a clearer picture of its intentions.

Why the Fed’s announcement matters for ASX 200 shares

The United States and numerous other nation’s economies are growing strongly as they begin to recover from the coronavirus pandemic – including Australia and economic powerhouse China.

The pressing questions then for ASX 200 shareholders are, how soon will the Fed begin to unwind its unprecedented monetary easing policies? How soon could the world’s most-watched – and most imitated – central bank begin to ratchet up interest rates and scale back its quantitative easing (QE) program?

Currently, the Fed’s official interest rate sits at 0.25%. And it buys US$80 billion of Treasuries and US$40 billion of mortgages every month. Yep, that’s US$1.44 trillion (AU$1.87 trillion) every year.

But as the US economy is posting strong growth, bond yields have been ramping higher. As recently as 4 August, US 10-year Treasuries had a yield of 0.52%. Today that’s up at 1.62%. And these long-term rates have a direct trickle-down effect on key loans, like mortgages.

As the Federal Open Market Committee members study the latest economic forecasts, they may adjust their expectations on winding down QE and ratcheting up interest rates.

When can ASX 200 investors expect the US Fed to raise interest rates?

While virtually no experts expect US rates to rise this year, some have flagged 2022, with more pointing to 2023.

According to CNBC, the last forecast showed “five of 17 members expected a rate hike in 2023, and just one forecast a hike in 2022”.

Mark Cabana, head of US short-rate strategy at Bank of America, said:

We think they will sound a bit more optimistic but still cautious. That said, we think it will be hard for them to sound as dovish as they have been just because the facts on the ground are improving.

As a result of that, we think they’re going to sound a little less accommodative than the market is expecting. We think they’re likely to show a hike at the end of 2023.

How will rising rates in the US impact ASX 200 shares?

Like it or not, where the US goes, much of the world follows. Not only will higher interest rates from the Fed impact ASX 200 shares with business in America, but it’s also likely the Reserve Bank of Australia and other central banks may follow in the Fed’s footsteps.

ASX 200 growth shares could be the most impacted by Jerome Powell’s speech.

Growth shares are those that can grow revenue and share price faster than the broader economy. They’re also more vulnerable to any shocks, like rising interest rates.

The Afterpay Ltd (ASX: APT) share price, for example, is up 484% over the past 12 months.

Or Pointsbet Holdings Ltd (ASX: PBH), whose share price has soared 776% over the past full year.

That compares to a gain of 28% on the ASX 200.

Powell’s speech on the Fed’s expected timeline for raising rates and scaling back QE could impact the broader ASX 200, but it’s the ASX 200 growth shares that may move the most.

More reading

• ASX 200 jumps, Pointsbet reveals acquisition, Metcash drops
• Flight Centre and Zip were some of the most traded ASX shares last week
• The Afterpay Ltd (ASX:APT) share price on watch after launch in France, Spain and Italy
• Here’s what Citi thinks about the Afterpay (ASX:APT) share price
• Why Clover, PointsBet, Syrah, & Temple & Webster shares are racing higher

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

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In late morning trade the S&P/ASX 200 Index (ASX: XJO) is on course to give back a portion of yesterday’s gain. The benchmark index is currently down 0.4% to 6,799.3 points.

Four ASX shares that are not letting that stop them push higher are listed below. Here’s why they are rising today:

Lake Resources N.L (ASX: LKE)

The Lake Resources share price is up 3% to 36 cents. Investors have been buying the lithium company’s shares after it refreshed its flagship Kachi Lithium Brine Project Pre-Feasibility Study (PFS) based on revised lithium price estimates. It now estimates that the project has a net present value of US$1.6 billion (A$2.1 billion). This is almost double its previous estimates. Lake Resources made the move following discussions with potential off-takers and recent projections from Benchmark Mineral Intelligence.

PainChek Ltd (ASX: PCK)

The PainChek share price has jumped 10% to 7.6 cents. This morning PainChek released an update on its smart phone-based pain assessment and monitoring application. According to the release, the Universal Pain Assessment Solution has received CE Mark in Europe and Therapeutic Goods Administration clearance in Australia.

Z Energy Ltd (ASX: ZEL)

The Z Energy share price has risen over 4% to $2.72. Investors have been buying the New Zealand-based fuel retailer’s shares after it announced that it has successfully renegotiated the covenant waivers with its banking syndicate. This will allow Z Energy to recommence distributions to shareholders, starting with an expected full year dividend in FY 2021.

Zip Co Ltd (ASX: Z1P)

The Zip share price is pushing 2% higher to $8.92 despite there being no news out of the buy now pay later provider. However, investors may believe its shares are good value based on a note out of Citi yesterday. Although its analysts have retained their neutral rating, their price target of $11.35 is notably higher than where its shares trade at today.

More reading

• Why the Lake Resources (ASX:LKE) share price is shooting 10% higher today
• Flight Centre and Zip were some of the most traded ASX shares last week
• The Afterpay Ltd (ASX:APT) share price on watch after launch in France, Spain and Italy
• Here’s what Citi thinks about the Afterpay (ASX:APT) share price
• Why did the Afterpay (ASX:APT) share price and 2 other BNPLs fall 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 ZIPCOLTD FPO. 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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Galaxy Resources Limited (ASX: GXY) shares are sinking today after the company released an update to the market earlier this morning. At the time of writing the Galaxy share price is trading 1.59% lower at $2.47.

Here’s what the company had to say.

Update on resource and ore reserves

The Galaxy share price is sliding lower today after the company updated the mineral resource and ore reserve estimates for its Mt Cattlin operation in Western Australian.

As at 31 December 2020, Mt Cattlin mineral resources were estimated at 12.0Mt (tonnage) at a grade of 1.3% Li2O. Ore reserve estimates were revised to 8.0Mt at a grade of 1.1% Li2O. The company noted that ore reserves had depleted by 0.25Mt due to reduced mining activity.

In the investor presentation, Galaxy highlighted that production in 2021 will be accelerated to meet customer demand. The company noted that mining rates have increased from 200k BCM per month in 2020 to 324k BCM per month in February 20201. As a result, Galaxy estimates mining production for Q1 to be in the range of 45 to 48kt.

Galaxy also provided an outlook for future opportunities at Mt Cattlin. The company cited 1.3Mt of unprocessed tailings with an average grade of 1% Li2O. As a result of strong demand in China, Galaxy is looking to explore the sales of tailings as aggregates for civil construction.

How has the Galaxy share price been performing?

Galaxy is an international lithium production company with facilities and hard rock mines in Australia, Canada and Argentina. The company’s flagship and wholly-owned Mt Cattlin mine in Western Australia currently produces spodumene and tantalum concrete.

The Galaxy share price has surged since late 2020, fulled by soaring lithium spot prices and a recovery in resources. Investors have been keeping a keen eye on lithium companies like Galaxy as lithium prices eye 2-year highs.

Earlier this month, Galaxy made headlines after providing an update on its James Bay Lithium Mine Project in Canada. According to the update, the preliminary assessment found that the project is a viable, near-term supplier of spodumene.

The company’s management also highlighted that the project will deliver average annual production of 330,000 tonnes of spodumene with an approximate mine life of 18 years.

Over the past year, the Galaxy share price has jumped by nearly 200%. Year to date, Galaxy shares are up by around 7%.

More reading

• ASX lithium shares on watch as lithium prices eye 2-year high
• Goldman reaffirms its conviction buy on this ASX share on Yallourn shutdown
• Top brokers name 3 ASX shares to sell today
• Here’s why the Galaxy (ASX:GXY) share price is pushing higher today
• Why this broker is bullish about ASX lithium shares

Motley Fool contributor Nikhil Gangaram 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 Paladin Energy Ltd (ASX: PDN) share price isn’t going anywhere this morning as management requested a trading halt. This comes after the company announced an equity raise to repay its senior notes and reorganise its capital structure.

The uranium producer’s shares are standing at 46.5 cents from yesterday’s market close.

What’s with the Paladin share price?

The Paladin share price is not trading today as investors weigh up the company’s latest update.

In its announcement, Paladin advised that it is undertaking an equity raise through a non-renounceable entitlement offer and institutional placement. The goal for the equity raise is to redeem the company’s outstanding senior secured notes and reset its debt obligations. Paladin is hoping to raise roughly $218.7 million.

The institutional placement will see around 347.3 million new ordinary shares issued to investors to raise $128.5 million. Paladin was granted a waiver from ASX listing rule 7.1 to expand the placement capacity as the offer is underwritten. On traditional terms, the company would only be able to issue 15% of its shares without shareholder approval.

In addition, Paladin expects a 1-for-8.5 pro-rata accelerated non-renounceable entitlement offer of 243.7 million new shares to raise $90.2 million.

The company will issue both the placement and entitlement offer at 37 cents for each new share. This represents a discount of 20.4% on yesterday’s closing price of 46.5 cents and a 17.2% mark-down on the 5-day volume average weighted price (VWAP).

Where will the funds go?

The proceeds of the equity raise will be primarily allocated towards redeeming the senior notes. Paladin forecasts the senior notes to have a balance of $203.6 million, including principal and interest, on 31 March 2021. The senior notes were originally due to mature in January 2023.

Management stated that the overhanging debt obligation hindered the company as it has security arrangements attached. This, in turn, affected its financial flexibility to resurrect uranium mining operations at the Langer Heinrich mine in Namibia.

Paladin has repaid the debt, it projects to have a net cash position of US$30 million. This will further boost its liquidity profile and allow the company to restart funding for the US$81 million required to bring the Langer Heinrich mine online.

What did management say about the capital raise?

Paladin CEO Ian Purdy commented:

This equity raise represents the final step in a truly transformational ‘reset’ of the Paladin story with the upcoming full redemption of the legacy corporate debt on Paladin’s balance sheet.

The company now has the benefit of increased capital flexibility which provides a solid foundation for management to continue its focus on the restart of Langer Heinrich and value creation for equity holders in an improving uranium market.

The Paladin share price has gained more than 800% in the past 12 months and moved above 80% higher year-to-date.

More reading

• Why ASX uranium shares could run even hotter in 2021

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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If you’re wanting to construct a balanced portfolio, having a few blue chip ASX shares in there could be a good idea.

Blue chip companies tend to be well-known, long-established, and in strong financial positions.

They’re companies that are likely to be around for a long time, allowing investors to make long term investments that benefit from the power of compounding.

But which ASX blue chip shares should you buy? Two to consider are listed below:

REA Group Limited (ASX: REA)

The first blue chip ASX share to look at is REA Group. It is the clear leader in real estate listings in the Australian market. At the end of the first half, the company reported 115 million monthly visits to its platform. This is 3.2 times more visits than its nearest competitor.

In addition to this, REA Group revealed that trading conditions are improving and listing volumes are growing again. Combined with price increases, cost reductions, and new revenue streams, this appears to have positioned the company for growth over the coming years.

One broker that expects this to be the case is Morgan Stanley. It is very positive on the company’s future and recently put an overweight rating and $175.00 price target on its shares. This compares to the current REA Group share price of $135.97.

Wesfarmers Ltd (ASX: WES)

Wesfarmers is arguably one of Australia’s highest quality companies. The conglomerate owns and operates a diverse group of businesses across several sectors. This includes Bunnings, Catch, Covalent Lithium, Kmart, Officeworks, and Target.

And given Wesfarmers’ strong financial position and penchant for making earnings accretive acquisitions, it seems quite likely that it will be adding to its portfolio in the near future.

In fact, analysts at Goldman Sachs believe the company has an excessive capital position, with over $8 billion in excess of credit requirements, prior to the Mt Holland development. This gives it a lot of firepower when considering its next move.

It is partly because of this that the broker currently has a buy rating and $59.70 price target on its shares. This compares to the latest Wesfarmers share price of $50.59.

More reading

• Why ASX e-commerce shares could keep running higher in 2021
• ASX 200 Weekly Wrap: Calm restored to the ASX 200
• 2 blue chip ASX dividend shares in the buy zone
• 10 of the best ASX shares to buy in March
• Will the ASX share e-commerce boom last?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers 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.

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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.

There’s no denying that the adoption of streaming video accelerated over the course of the past year and as the global leader, Netflix (NASDAQ: NFLX) was one of the ultimate beneficiaries.

The company added more than 36 million subscribers in 2020, bringing its worldwide total to 204 million, and helping push the stock price up 67% last year.

This, of course, raised the inevitable question about how Netflix will follow up such a banner year. Several developments in recent months provide insight into the company’s strategy and there’s mounting evidence that Netflix could continue its growth trajectory in 2021.

Let’s look at three reasons why now is the time to buy Netflix stock.

1. Cracking down on password sharing

Netflix has long tolerated a certain amount of account sharing, even going so far as to say it was “a positive thing”. Back in 2016, CEO Reed Hastings explained, “We love people sharing Netflix whether they’re two people on a couch or 10 people on a couch,” Hastings said. “That’s a positive thing, not a negative thing.” 

The company appears to have had a change of heart. In a move Netflix described as a test, some users got a message when logging into the service that read, “If you don’t live with the owner of this account, you need your own account to keep watching.”

Viewers could opt to receive a verification code by text or email to authenticate the account. They also had the option to verify later. “This test is designed to help ensure that people using Netflix accounts are authorised to do so,” the company said in a statement. 

Data suggests that as many as 33% of users share their Netflix password, according to data supplied by Magid Research. With 204 million subscribers, that could amount to at least 67 million unpaid viewers. Given the $14 monthly charge for Netflix’s most popular tier, the company is potentially forgoing more than $11 billion in revenue each year. 

This crackdown could help boost the company’s monthly subscriber base, thereby boosting revenue.

2. Licensing content?

Netflix has long argued that the biggest reason people subscribe to its service is the seemingly endless library of movies and television shows available on its platform. In-house titles including Stranger Things, Ozark, and The Queen’s Gambit have catapulted Netflix to the top of the streaming video industry, and the company has promised that new in-house movies will be released every week in 2021. 

The tech giant may be taking a page from the legacy media playbook and is exploring licensing some of its original content to other outlets, according to a report in The Information. Netflix is considering licensing some of its older movies and television shows, and has had discussions with Comcast‘s Peacock and ViacomCBS, among others.

While some Netflix originals, including Bojack Horseman and Narcos, have appeared on other networks, they were co-produced by other studios that retained the rights to license them in the future.

These recent discussions revolve around content that is solely owned by Netflix and could result in lucrative licensing fees for the streaming giant. It could also attract new Netflix subscribers into the fold by giving them an idea of the programming they’re missing out on.

3. Lower-cost subscriptions

Back in early 2019, Netflix tested a mobile-only tier in several countries that was significantly less expensive than its existing offerings. The lower-cost tier was available on just one mobile phone or tablet at a time with standard streaming quality.

The test was ultimately a success and later that year, the company announced the mobile-only plan was here to stay, initially rolling the plan out in India.

At the time, Netflix said it “will be an effective way to introduce a larger number of people in India to Netflix and to further expand our business in a market where Pay TV ARPU [average revenue per user] is low (below $5)”. 

Bank of America Securities analyst Nat Schindler suggests this might be a precursor to a tier that caters to “price-sensitive consumers,” citing the success of the test in India and other countries.

Fuel in the tank

With the accelerated adoption of streaming video that occurred during the pandemic, it’s widely believed that some of Netflix’s growth in 2020 came at the expense of slower subscriber additions in 2021. That could certainly be the case. However, the streaming giant was cash flow positive last year, and it expects that to be the case going forward.  

Given the evidence, there are plenty of reasons to believe that for long-term investors, the Netflix growth story is far from over. 

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

More reading

• The tech-heavy Nasdaq is now in a correction!
• Nasdaq slumps overnight, ASX 200 shares to open weaker
• Better Buy: Netflix vs. AT&T
• Why the Nine (ASX:NEC) share price hit another 52-week high
• Netflix dominates Golden Globes, ushering in new era for streaming

Danny Vena owns shares of Netflix. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Netflix. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Comcast. The Motley Fool Australia has recommended Netflix. 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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Qantas Airways Limited (ASX: QAN) is completely dominating domestic aviation in the post-COVID era, holding 74% of the market in December.

That’s according to the Australian Competition and Consumer Commission’s Airline Competition in Australia report released Wednesday, which showed industry-wide, passenger numbers were still just 41% of pre-COVID levels.

“Australia’s domestic airlines are starting to experience a recovery in their passenger numbers, but it remains a very challenging environment,” said ACCC chair Rod Sims.

Intrastate flights dominated in 2020 due to state border closures, but interstate travel made a comeback at the end of the year. December saw 69% of domestic passengers flying to a different state, compared to just 26% in September.

The return of interstate travel gave Qantas’ biggest rival Virgin Australia a boost, with its market share going from 20% to 24% in the final quarter.

Qantas shares were down 0.36% to go for $5.46 in early trade on Wednesday.

There was no ‘expensive’ period last Christmas

It seems Regional Express Holdings Ltd (ASX: REX)’s challenge of the Qantas-Virgin duopoly had a profound effect on domestic aviation.

Even though Rex only started flying between metropolitan cities this month, including the lucrative Sydney-Melbourne route, its mere threat meant tickets remained inexpensive over Christmas.

“Domestic airfares normally peak over holiday periods but we didn’t see that happen in December, partly because the three airline groups offered competitive promotions in a bid to get customers back in the skies,” Sims said.

“With three carriers on Australia’s busiest route, competition has been vigorous and consumers are the beneficiaries of this. Each airline will need to work hard to win over consumers.”

Rex plans to add more big city flights – Adelaide, Gold Coast and Canberra are coming on board within weeks.

Regional Express shares were up 1.19% in early Wednesday trade, to sell for $1.695. They were just 71 cents one year ago.

Plenty of support for aviation sector

The industry is awash with government subsidies at the moment.

The Regional Airline Network Support and Domestic Airline Network Support schemes were brought in during the COVID-19 downturn last year. It was due to end in March but has since been extended to the end of September.

Then last week the federal government launched its new Tourism Aviation Network Support Program, which sees air tickets to 13 tourist destinations 50% subsidised.

Sims noted that the 3 major airlines are targeting slightly different demographics.

“It appears that Virgin and Rex are both targeting business and leisure customers who value a certain level of service but are also mindful of the price,” he said.

“This may leave Qantas facing less competition for premium customers, and through its Jetstar brand, for budget holiday customers as well.”

The ACCC’s quarterly report on the aviation industry was commissioned by treasurer Josh Frydenberg last year in the midst of the coronavirus downturn.

More reading

• Why the Regional Express (ASX:REX) share price is flying high today
• Share market on watch over AstraZeneca vaccine fears
• The Flight Centre (ASX:FLT) share price is up 40% in six months: Can it go higher?
• Leading brokers name 3 ASX shares to buy today
• Why brokers think the Qantas (ASX:QAN) share price could fly 17% higher

Motley Fool contributor Tony Yoo owns shares of Qantas Airways Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Fonterra Shareholders’ Fund (ASX: FSF) shares are edging higher in morning trade after the organisation released its results for the six-months ending 31 January 2021. At the time of writing, the Fonterra share price has inched 0.22% higher to $4.66. In comparison, the S&P/ASX 200 Index (ASX: XJO) is currently trading 0.3% lower. 

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

What’s driving the Fonterra share price?

The Fonterra share price is on the rise despite the fund reporting a 5% decline in total revenue on the prior corresponding period (pcp) to NZ$9.9 billion. Gross profit, however, improved by 3% to total NZ$1.7 billion.

While reported net profit was down 22% on the pcp (NZ$391 million), normalised net profit came in at NZ$418 million, representing a 43% jump on the pcp. Similarly, earnings before income tax (EBIT), were down 18% on the reported numbers (NZ$657 million) but up 17% on the normalised numbers (NZ$684 million).

The normalised numbers reflect the underlying performance of the business. It does not take into account costs associated with the fund’s divestment from Chinese dairy farms, which is still pending.

Breaking down EBIT by export region, we can see what helped to salvage Fonterra’s results in the period and where its growth opportunities exist.

Normalised EBIT from Africa, the Middle East, Europe, North Asia, and the Americas was down 7% on the pcp. It totalled NZ$201 million. Asia Pacific (excluding China) normalised EBIT was up 9% to equal NZ$190 million. Normalised EBIT from Greater China was up an eye-watering 38% to total NZ$339 million. Over the period, 50.4% of all Fonterra’s earnings came out of China alone.

Fonterra still forecasts the farmgate milk price to be NZ$7.30 to $7.90 per kilogram of milk solids (kgMS). Fonterra updated the market on this earlier in the month.

Earnings per share (EPS) for the fund are forecast to be between 25 and 35 cents. Fonterra will pay an interim dividend of 5 cents per share.

Words from the CEO

Fonterra CEO, Miles Hurrell, commented on the results, saying: 

While down on this time last year at a headline level, the 2020 financial year benefited significantly from the divestments of DFE Pharma and foodspring®.

Despite the major impact COVID-19 is having around the world, the Co-op is staying focused on what it can control – looking after our people, making progress on our strategy to drive sustainable value for New Zealand milk and remaining committed to our 2021 priorities. Those priorities are:

• Our Co-operative, which is about being there for farmers and employees;
• Performance, which is about hitting our financial targets; and
• Community, which is about exceeding customer expectations, supporting communities through our nutrition programmes and making New Zealand’s low carbon farming model a powerful point of differentiation.

Mr Hurrell also said inventory was up on the pcp. He attributes this mostly to shipping delays resulting from the pandemic.

Fonterra background

Fonterra is the largest company in New Zealand (by turnover and market capitalisation) and one of the largest dairy producers in the world. In fact, 30% of all global dairy exports are produced by Fonterra. Around 11,000 New Zealand dairy farmers own Fonterra as a co-op.

It was created out of the deregulation of the New Zealand dairy industry. As it has near-monopoly status, it sets the price it will pay dairy farmers for its products. This is the farmgate price. The price is calculated using global dairy commodity prices. This is because Fonterra exports 95% of all its product.

Fonterra share price snapshot

Unlike other dairy producers, such as the A2 Milk Company Ltd (ASX: A2M) and Synlait Milk Ltd (ASX: SM1), the Fonterra share price is up on this time last year.

One year ago, the Fonterra share price was trading at $3.78 and soon after hit a 52-week low of $3.24. Investors having bought Fonterra shares this time last year would be sitting on a tidy 23.28% return on investment.

More reading

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• What’s lifting the Fonterra (ASX:FSF) share price today?
• Court rules on Bega Cheese (ASX:BGA) and Fonterra (ASX:FSF) trademark dispute
• Fonterra (ASX:FSF) share price on watch after narrowing earnings guidance

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

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