The Mosaic Brands Ltd (ASX: MOZ) share price is sinking today after the company released its earnings report for the first half of the 2021 financial year (1H21).

After gradually lifting 1.02% to 99 cents a share through the morning, the Mosaic Brands share price took a sudden plunge at midday, dropping 8.6% to 90 cents at the time of writing.

Mosaic Brands (formerly known as Noni B) is the ASX retail company behind famous Aussie retailing brands like Noni B, Rivers, Beme, Millers and Autograph. The company has close to 1,400 stores around the country.

The company has had a rough trot over the past few years, falling from a high of around $3.70 a share back in late 2018 to less than a dollar today. Even so, Mosaic shares are up around 326% from the lows we saw back in March 2020.

What’s driving the Mosaic Brands share price today?

Mosaic announced a bit of a mixed bag today. The company reported that revenues came in at $299.1 million, down 29% from $414.1 million for the prior corresponding period (1H20). That was despite Mosaic’s online sales surging 27% year on year, rising from $41.1 million to $52.3 million. That represents a 17% share of overall revenues, rising from 10% in 1H20. Group margins also improved by 3% to 61%.

Despite that heavy drop in revenues, Mosaic reported an increase in earnings before interest, tax, depreciation and amortisation (EBITDA) of 38%, going from $32.7 million in 1H20 to $45.1 million in 1H21. However (as the company noted), this growth in EBITDA was massively assisted by JobKeeper payments from the federal government over the period. Mosaic said ‘normalised EBITDA’, which assumes no COVID-19 lockdowns and no JobKeeper, would have been $17.32 million.

The company also reports that its net cash position has increased by 1,109% to $65.3 million from the $5.4 million of the prior corresponding period.

Mosaic will not be paying a dividend for the half, in order to “preserve cash”. The company has not paid a dividend since 2019.

Outlook for 2021 and beyond

Mosaic Brands CEO Scott Evans had this to say on the results:

The result was driven by a number of initiatives to reset the group for a post-COVID economy, including a continued focus on margin growth…

Whilst JobKeeper was an invaluable element in managing through the last 10 months, having now ended, Mosaic has transitioned through its toughest ever trading period, strengthened its balance sheet and returned to its track-record of profitability.

Given the unique demographic of our customers, we did not see, nor expect, a short term stimulus sugar hit to sales. However, conversely we are now planning for a longer-term sustainable lift in sales due to post-vaccine tailwinds as many of those same customers emerge from hibernation.

More reading

• Here’s why the Australian Ethical (ASX:AEF) share price is crashing 10% lower
• The Healius (ASX:HLS) share price receives a boost
• Humm (ASX:HUM) share price plummets 15% despite rising profits
• Regis Healthcare (ASX:REG) share price down despite paying a HY21 dividend
• What’s lifting the MoneyMe (ASX:MME) share price 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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It has been a disappointing day for the Australian Ethical Investment Limited (ASX: AEF) share price.

In afternoon trade, the fund manager’s shares are down a sizeable 10% to $6.45.

Why is the Australian Ethical share price tumbling lower?

The catalyst for the decline in the Australian Ethical share price on Wednesday has been the release of its half year results.

For the six months ended 31 December, the company reported a 10% increase in operating revenues to $25.6 million.

This was driven by its positive investment performance, strong growth in new customers, and record net inflows. This was partially offset by superannuation fee reductions and fee and threshold reductions across some managed funds.

The company’s operating expenses grew quicker than its revenue and were up 11% to $18.9 million. Management advised that this was due to its investment in its brand, distribution capabilities, operational platform, customer experience, and strategic initiatives and regulatory projects.

This ultimately led to Australian Ethical reporting an underlying profit after tax of $4.9 million for the half. This was up 11% on the prior corresponding period.

Thanks to this profit growth, the company’s board was able to declare a fully franked interim dividend of 3 cents per share. This is an increase of 20% on the previous year.

How does this compare to expectations?

Although its profit result was in line with its guidance range of $4.6 million to $5.1 million, judging by the Australian Ethical share price performance today, it appears as though investors were expecting an even stronger profit.

What else is weighing on the Australian Ethical share price?

In addition to this, management’s outlook for the remainder of FY 2021 could be weighing on the Australian Ethical share price.

Management advised that it expects higher operating expenses in the second half.

Australian Ethical’s CEO, John McMurdo, commented: “The second half of the financial year will be impacted by higher operating expenses, due to timing of expenditure, as well as increased investment in capability, strategic initiatives and regulatory projects as we continue to position our business for success.”

The chief executive also revealed that it would be lowering its fees.

“Looking forward, as part of our fee strategy, we will continue to reduce fees as we grow, to increase our competitiveness, and pass on benefits to our customers,” he added.

The company also confirmed that any performance fee on the Emerging Companies Fund will only crystallise on 30 June 2021. This is if the fund outperforms the Small Industrials Index benchmark. This fee is calculated at 20% of the outperformance.

Despite today’s decline, the Australian Ethical share price is still up a sizeable 31% in 2021.

More reading

• 2 quality ASX shares to buy for the long-term

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 Australian Ethical Investment Ltd. The Motley Fool Australia has recommended Australian Ethical Investment 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 Healius Ltd (ASX: HLS) share price received a boost in early trade after the company released its first-half report. At the time of writing, the Healius share price was up 4.10% to $4.06.

Healius share price gets a boost from results

Earlier today, Healius released strong results for the first half of FY21 ending 31 December 2020.

The company’s report was headlined by a 190% increase in net profit after tax (NPAT) of $75.6 million. For the half-year, Healius also reported a 230% increase in earnings before interest and tax (EBIT) of $136.6 million.

For the first 6 months of FY21, Healius generated $953.5 million in underlying revenue. The rebound in revenue marked a 16% increase compared to the $817.4 million generated in the first half of FY20.

Despite a rise in underlying net profits, Healius recorded a lower statutory net profit of $62.8 million. The company also highlighted the sale of its medical and dental centres late last year, with Healius banking $489.2 million.

Healius noted its strong capital position, with the company recording a 56.2% increase in operating cash flow of $251.2 million. In addition, the company declared a fully franked interim dividend of 6.5 cents per share, representing a 55% payout ratio.

Riding COVID-19 revenue wave

Despite the COVID-19 pandemic impacting certain divisions, Healius saw its pathology department perform strongly. For the half-year, the company saw revenue in its pathology division rise 22% to $711.4 million. Healius attributed the strong performance to robust COVID-19 testing volumes.

On the contrary, the company saw government-imposed lockdowns impact its imaging division. As a result, Healius reported a 39.1% decline in EBIT for its imaging department for the half-year.

Healius also noted a 21.5% increase in revenue from its day hospitals division. For the first half, the division reported revenue of $41.8 million and EBIT of $6.8 million.

Healius chief executive, Dr. Malcolm Parmenter, noted that:

The results delivered for 1H 2021 demonstrate the inherent strength of our simplified portfolio and value proposition centred on our specialist diagnostics businesses, while the performance of Day Hospitals validates our confidence in the medium and long-term prospects of this business.

The outlook for Healius

Management noted that Healius is well positioned for the second half of FY21, as non-COVID revenue streams recover across its divisions.

Given the fluid nature of the COVID-19 pandemic, the company’s management did not provide guidance for the full year.

At the time of writing, the Healius share price is trading more than 3% higher for the day.

More reading

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• Top brokers name 3 ASX shares to buy today
• Why Afterpay, Credit Corp, Healius, & Volpara shares are storming higher
• These 2 ASX stocks jumped after a broker upgrade to “buy” today

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 Humm Group Ltd (ASX: HUM) share price is under pressure today after the release of the company’s latest half-year results (1H FY21).

The buy now, pay later (BNPL) company delivered a significant uplift in net profit for the first half of FY21 but investors have responded by sending the Humm share price down 15.91% to $1.11 at the time of writing.

Humm share price sinks despite robust performance 

Humm reported a 6.4% decrease in gross income to $225.2 million. The company indicated the fall is largely attributable to lower interest income in Australia Cards and reduced income from its discontinued consumer leasing portfolio. Similarly, gross profit was down 4.1% to $173.4 million for the same reasons. 

Despite the company completing a capital raise in 1H21, its earnings per share and return on equity metrics were all up as a result of strong growth in cash net profit after tax (NPAT), which was up 25.8% to $43.3 million. 

To add some perspective, Morgans is forecasting Afterpay Ltd (ASX: APT) to deliver an NPAT of $5 million and Zip Co Ltd (ASX: Z1P) to deliver an NPAT loss of $25 million this reporting season.

In the last 6 months, the company saw total customers increase 40% to 2.62 million and a significant uplift in total app downloads, increasing 89% to 540,000. This growth translated into a 14% increase in BNPL volume to $473 million, made up of a 293% increase in the number of transactions to 1.51 million. 

Strategy for growth 

The BNPL sector is a crowded space but Humm outlaid its plans to make the most of the rapidly growing industry. 

The company highlighted its focus on displacing the $30 billion SME credit market in Australia, via its new product, Hummpro. Hummpro groups purchases into monthly balances, providing businesses an extra month to repay. The app charges a flat monthly fee when used, and additional fees to further extend the repayment period. 

Humm is the only BNPL player in Ireland, and the company advised it is also gaining additional geographic exposure with planned launches into the United Kingdom and Canada in 2H21. 

The company’s current BNPL exposure in Australia, New Zealand and Ireland gives it an approximate market opportunity of $517 billion. By adding the UK and Canada into the mix, this market opportunity expands to almost $2 trillion.

More reading

• Humm (ASX:HUM) share price up on new BNPL for SMEs
• Will LimePay IPO drive ASX BNPL shares even higher?
• Leading brokers name 3 ASX shares to buy today
• Why the Humm (ASX:HUM) share price is charging 7% higher 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 ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Humm 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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The Regis Healthcare Ltd (ASX: REG) share price has fallen after reporting its FY21 half-year result.

Regis is one of the largest aged care providers in the country with more than 7,000 operational places.

What did Regis announce?

In the Regis FY21 half-year result it reported that its revenue from services rose 6.3% to $353.1 million.

The revenue included $6.8 million of one-off COVID-19 government funding, $0.9 million of a temporary uplift in the aged care funding instrument (ACFI) and $7.9 million from the acquisition of the business and assets of the Lower Burdekin Home for the Aged Society (LBHA).

The aged care business said that its average occupancy improved to 88.3%, up from 87.9% in the prior corresponding period. It achieved growth in its average available operational places to 7,170. The average occupancy rate improved with increased contributions from the WA ramp-up homes and the number of mature homes. The ending occupancy at 31 December 2020 was 89.7%.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 1.2% to $42.6 million and net profit after tax (NPAT) dropped 8.9% to $11 million.

The net profit included COVID-19 costs including staff expenses, protective equipment and other related costs of $9.7 million. It also included the profit on the sale of passive assets of $2.5 million.

Regis blames lack of funding

Regis managing director and CEO Dr Linda Mellors said:

Our half-year financial performance, in part, reflects management initiatives to preserve profitability in the face of an unsustainable residential aged care sector landscape.

Inadequate Commonwealth Government funding and prevailing uncertainty across the sector needs to be urgently addressed in order to ensure provider viability and build adequate capacity for the future. We look forward to the findings of the royal commission into aged care quality and safety including positive recommendations relating to the future financing and funding of the sector.

Balance sheet and growth plans

Net cash flows from operating activities for the half-year were $49 million, down from $74 million in the prior corresponding period. Net cashflows were impacted by COVID-19, particularly in Victoria.

The refundable accommodation deposits (RADs) and accommodation net cash inflow was $4.7 million – down from $46.6 million in the prior corresponding period. It managed to achieve positive inflows despite COVID-19 lockdowns that impacted community confidence in the sector and a number of Regis homes.

Regis said that the balance sheet was strengthened by the sale of a parcel of land at Palm Beach, Queensland, which was sold for approximately $21 million.

During the half-year, the company repaid $43 million of bank borrowers. Net debt at 31 December 2020 was $183.1 million, which represented a 35% reduction of net debt from $281.5 million last year.

The commencement of the greenfield development in Camberwell, Victoria, is planned for later in FY21.

Regarding the remaining developments in the pipeline, activities such as preparing land for commencement, development approvals, design documentation and arranging licences required are underway in readiness to commence construction once conditions are more favourable.

Regis Healthcare dividend

The board of Regis Healthcare has declared an interim dividend of 2 cents per share, which is franked to 50%.

Regis Healthcare share price

The Regis share price is down 18% over the past year, which includes the effects of COVID-19. However, it has actually risen more than 75% since the world learned of the effectiveness of the COVID-19 vaccines in November 2020.

Outlook

Regis Healthcare says that it continues to focus on business performance improvement relating to occupancy and earnings uplift strategy.

The royal commission report will be a significant impact on the industry, which is due to be released this week. It’s confident that the acquisition and development opportunities will arise after the royal commission and it said it’s well placed to take advantage of the opportunities.

Regis decided not to give any guidance because of the imminent release of the report.

More reading

• What’s lifting the MoneyMe (ASX:MME) share price today?
• AdAlta (ASX:1AD) share price rockets 31% on United States FDA update
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• What’s going on with the Fatfish (ASX:FFG) share price today?
• Is the Harvey Norman (ASX:HVN) share price next to do a capital return cashback?

Motley Fool contributor Tristan Harrison 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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MoneyMe Ltd (ASX: MME) shares are gaining today after the company released its half-year (H1 FY21) financial results. At the time of writing, the MoneyMe share price has edged 1.3% higher to $1.61.

Let’s take a look at how the digital consumer credit business has been performing.

What did MoneyMe report?

The MoneyMe share price is gaining today after the company reported 12% revenue growth for the financial half year ending 31 December. Revenue of $24 million was up from $21 million in H1 FY20. The company said contracted revenue had increased to more than $20 million.

Net profit after tax (NPAT) of $1.3 million was down from $4.3 million in the previous corresponding half, reflecting a $1.1 million income tax benefit in H1 FY21 compared to a $4.3 million tax benefit in the corresponding half.

Statutory profit before tax (PBT) was $200,000, compared to a $1.6 million loss in H1 FY20. Underlying PBT came in at $5.3 million.

In other news boosting the MoneyMe share price, the company reported a 21% growth in originations to $114 million, up from $95 million in the prior corresponding period. Around 47% of customer originations were driven by returning customers.

Customer receivables ramped up by 32% to $168 million.

Commenting on the half-year results, Clayton Howes, MoneyMe CEO, said:

I am delighted with MoneyMe’s profitable growth for the half year ended 31 December 2020 that continues to reflect the increasing diversification of our products and their distribution. It is exciting to see the new funding warehouse facility delivering significantly lower funding costs and new business origination capacity and our core and more recently launched products resonating so well with Generation Now.

Looking ahead, Howes added:

The innovation pipeline is continuing at pace as we continue to invest for massive scale and product diversification opportunities. A fantastic first half that sets the business up well for further high and profitable balance sheet growth.

MoneyMe said it expects revenue and customer receivables growth to accelerate into the second half of the financial year, based on the originations growth reported in Q2 FY21.

MoneyMe share price snapshot

The MoneyMe share price has almost fully recovered from the 69% plunge it faced during the COVID-19-fuelled market panic last February and March. Over the past 12 months, MoneyMe shares are now down 2.4%. That compares to a 0.3% gain on the All Ordinaries Index (ASX: XAO).

So far in 2021, the MoneyMe share price is up 9.5%.

More reading

• MoneyMe (ASX:MME) share price edges higher. Here’s why
• Why the MoneyMe (ASX:MME) share price is climbing higher

Motley Fool contributor Bernd Struben 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 AdAlta Ltd (ASX:1AD) share price is rocketing today following the positive news on its drug trials. In mid-morning trade, the biotech company’s share price is soaring 31.4% higher to 23 cents.

However, at the time of writing, the AdAlta share price has retreated slightly to 20 cents, up 14.29%. Also, it’s worth noting that the AdAlta share price reached a 52-week high of 26.5 cents in the opening minutes of trade.

Quick take on AdAlta

Established in 2006, AdAlta is a clinical-stage biotechnology company. The company’s focus is on researching and developing protein-based therapies. Thus, AdAlta utilises a range of unique compounds, known as i-bodies, to create a pipeline of drugs to treat serious diseases. This includes idiopathic pulmonary fibrosis (IPF) and other human fibrotic diseases.

What did AdAlta announce?

The AdAlta share price is racing higher as investors are fighting to get a parcel of its shares.

In this morning’s release, AdAlta advised it has been granted Orphan Drug Designation (ODD) from the United States Food and Drug Administration (FDA). In particular, this is for its lead product candidate AD-214.

The Orphan Drug Act, created by the FDA, aims to motivate biopharmaceutical companies in developing potential medicines for rare or ‘orphan’ diseases. The ODD provides preferential treatment that enhances a company’s standing with the agency. It is estimated that rare and orphan diseases affect around 200,000 people in the United States alone.

The welcomed decision enables the company to receive special benefits of achieving incentivised targets. This includes eligibility for seven years of market exclusivity after FDA approval and discounted tax credits of 50% of drug testing costs. Benefits also include additional protocol assistance, reduced review times, and specific marketing authorisation application fees waived.

This follows the company’s previous ODD for AD-114, the predecessor molecule to AD-214.

AdAlta noted that receiving ODD will bring extra economic value for AD-214. This will flow onto its future commercial partners.

About the AdAlta share price

In the past year, the company’s shares have accelerated to give investors a gain of more than 180%. In March, the AdAlta share price traded for as little as 4 cents, before gradually increasing over the 11 months. However today, the biotech’s shares reached a 52-week high of 26.5 cents.

Based on the current share price, AdAlta commands a market capitalisation of roughly $51 million.

More reading

• What’s happening with ASX 200 tech shares today?
• What’s going on with the Fatfish (ASX:FFG) share price today?
• Is the Harvey Norman (ASX:HVN) share price next to do a capital return cashback?
• ASX 200 down 0.45%: Woolworths rises, Blackmores jumps, Appen sinks
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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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Yesterday, the S&P/ASX 200 Info Tech (ASX: XIJ) was the worst-performing index, slumping by more than 4% compared to the S&P/ASX 200 Index (ASX: XJO) that surged in the afternoon to finish 0.86% higher. 

High profile ASX 200 growth shares across the board struggled to find headway amid the selloff.

At the larger end of town, big losses came from the Domino’s Pizza Enterprises Ltd (ASX: DMP) share price, which slumped 8.50% to give back all its reporting season gains, the Afterpay Ltd (ASX: APT) share price fell 7.20% and Seek Limited (ASX: SEK) is now down for the year after falling 7.10%. 

Elsewhere, big winners from last year, including Lynas Rare Earths Ltd (ASX: LYC), Temple & Webster Group Ltd (ASX: TPW) and JB Hi-Fi Limited (ASX: JBH), also gave up substantial gains. 

Trigger for yesterday’s selloff 

One thing that could be the catalyst for a tech and growth-driven selloff is rising bond yields.  

In the United States, the 10-year treasury yield is often regarded as the risk-free rate, given the US government has never defaulted on its debt obligations. The 10-year treasury yield previously took a nosedive from 1.95% to 0.40% between December 2019 to March 2020.

In more recent months, treasury yields have been on a tear, soaring from lows of 0.50% in August 2020 to 1.36% this month.

Higher yields signal higher borrowing costs and inflation, which could negatively affect businesses and share market performance. 

The shares that led the market higher when interest rates were plummeting are now the ones most vulnerable as interest rates rise. 

Conversely, value sectors, including financials, utilities, real estate and commodities, can often withstand or benefit from higher interest rates. 

This was evidenced by the 0.86% increase in the ASX 200 yesterday, with the big four banks, miners, oil and REITs doing the heavy lifting. 

US tech shares rebound before close 

The tech-heavy Nasdaq Composite (INDEXNASDAQ: .IXIC)  found itself down as much as 4% last night but managed to rebound in the last few hours of trade to close 0.96% higher. 

ASX 200 tech shares have struggled to follow the Nasdaq for a rebound, with the S&P/ASX Information Technology index experiencing two consecutive red days, down 1.98% at the time of writing. 

More reading

• Is the Harvey Norman (ASX:HVN) share price next to do a capital return cashback?
• ASX 200 down 0.45%: Woolworths rises, Blackmores jumps, Appen sinks
• Monash IVF (ASX:MVF) share price jumps on profit growth and dividend restart
• The Bigtincan (ASX:BTH) share price is down 6%, despite strong growth
• SEEK (ASX:SEK) share price on watch after Zhaopin sell down update

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 Temple & Webster Group Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Dominos Pizza Enterprises Limited, SEEK Limited, and Temple & Webster Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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It has been an eventful day for the Fatfish Group Ltd (ASX: FFG) share price on Wednesday.

This morning the tech venture builder company’s shares jumped as much as 22% to 16.5 cents following the release of an announcement.

However, shortly afterwards when the Fatfish share price had eased to 14.5 cents, its shares abruptly entered a trading halt.

What is going on with the Fatfish share price?

Investors were buying Fatfish shares this morning following the release of announcement relating to its 50.1% owned Abelco business.

According to the release, the Sweden-based investment company has reported profit after tax of A$15.1 million for FY 2020. This is up 526% from a loss of A$3.5 million in FY 2019.

However, it is worth noting that this has been driven almost entirely by asset sales. During the year, Abelco actually reported a 29% decline in revenue to $1.75 million.

Fatfish explained: “Abelco turn-arounds from making a loss of A$3.5 million in FY2019 to a profit of A$15.1 million in FY2020. This is largely due to Abelco’s disposal of non-profitable subsidiaries, as well as the appreciation in the value of other key assets, including Abelco’s stakes iCandy Interactive Limited (ASX: ICI), that has shown strong share price performance during the financial period.”

Why is the Fatfish share price in a trading halt?

The Fatfish share price was placed into a trading halt pending the release of an announcement concerning a “material development” in Smartfunding’s Buy Now Pay Later (BNPL) services.

The company’s shares will remain in a trading halt until the earlier of the release of the update or the commencement of trading on Friday.

What is Smartfunding?

Last week Fatfish revealed that Smartfunding successfully launched its BNPL service as scheduled in Singapore. The company also explained that it sees opportunities to expand outside the country into the rest of South East Asia.

It commented: “Singapore is indisputably the dorminant (sic) financial hub for the Southeast Asia region. By being regulated and headquarted (sic) out of Singapore, Smartfunding aims to attract businesses not only in Singapore, but as well as from the rest of the Southeast Asian economies.”

All eyes will be on the Fatfish share price on Friday when this “material” announcement is made.

More reading

• Why the Fatfish (ASX:FGG) share price is charging 10% higher
• Why the Cirralto (ASX:CRO) share price is in a trading halt
• What’s with the Afterpay (ASX:APT) share price fall today?
• Why the Fatfish (ASX:FFG) share price is diving 21% today
• The Fatfish (ASX:FFG) share price has exploded 155% higher today

Motley Fool contributor James Mickleboro 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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Speculation of a big capital return cash splash failed to fire up the Harvey Norman Holdings Limited (ASX: HVN) share price.

Shares in the electronics and furniture retailer tumbled 4.2% to $5.12 this morning when the S&P/ASX 200 Index (Index:^AXJO) fell 0.5%.

Other ASX retailers are also in the red, although not by quite as much. The JB Hi-Fi Limited (ASX: JBH) share price lost 2.7% to $46.60 and the Wesfarmers Ltd (ASX: WES) share price surrendered 1% to $50.41.

Capital return can’t save the Harvey Norman share price

A downgrade by UBS may be the reason for the Harvey Norman share price underperformance. The broker dopped its rating on the shares to “neutral” from “outperform” even as it highlighted the chance of a capital return.

Harvey Norman is flushed with cash after all as it is one of the COVID-19 winners. Sales across the group are soaring as consumers who can’t spend on international travel turn to buying stuff for the home.

“At its November update, profit before tax had increased 161% YoY [year-on-year],” said UBS.

“ABS preliminary data indicated 10% YoY growth in non-food retail in the month of January. We see a reasonable probability of capital management (HVN debt free at the 1H21, excess franking credits).”

Profit up but recommendation down

The broker lifted its 12-month price target on the stock to $5.36 from $5.30. But it believes the Harvey Norman share price has reached fair value after its big rally since March 2020, although a sizable capital return could see the stock shoot higher.

“We forecast 32cps dividends in FY21 on the basis of a 65% payout ratio,” added UBS.

“Net debt (excluding leases) is forecast to be zero at the 1H21 and ~A$120mn (assuming working capital normalisation) at the FY21 (0.1x EBITDA pre AASB16).

“HVN finished FY20 with A$500mn of Australian tax paid franking credits, allowing for meaningful distribution of value to shareholders during this period of above average profits.”

Big dividend supercycle

If UBS is right about the dividend, the Harvey Norman share price is sitting on a yield of 6.25%. This jumps to 8.9% if franking is included.

Harvey Norman paid a final dividend of 18 cents a share in October last year but topped this up with a 6 cents a share special dividend.

The payout in this financial year is almost certainly going to be bigger even without a capital return or special dividend.

Talk about the prospects of an ASX dividend supercycle!

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

The post Is the Harvey Norman (ASX:HVN) share price next to do a capital return cashback? appeared first on The Motley Fool Australia.

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