The TechnologyOne Ltd (ASX: TNE) share price is pushing higher on Tuesday following the release of its annual general meeting update.

In afternoon trade the enterprise software company’s shares are up 1.5% to $8.32.

This makes the company one of the only tech shares to be in positive territory today. At the time of writing, the S&P/ASX All Technology Index (ASX: XTX) is down a disappointing 3.7%.

Why is the TechnologyOne share price rising?

Investors have been bidding the TechnologyOne share price higher today after it reaffirmed its guidance at its virtual annual general meeting.

In his presentation, the company’s CEO, Edward Chung, advised that he expects to see continuing strong growth in Software-as-a-Service (SaaS) annualised recurring revenue (ARR) and profits in FY 2021.

He notes that its momentum remains the same, and the company continues to double in size once again in the next five years.

However, as investors will have seen in previous years, TechnologyOne’s sales pipeline is weighted to the second half. In light of this, the company has warned that the first half of FY 2021 will not be indicative of its full year results.

Remuneration report receives a first strike

Going into the annual general meeting, CGI Glass Lewis and Ownership Matter had recommended that shareholders vote against the company’s remuneration report.

They made this recommendation because the TechnologyOne Board exercised discretion by granting long term incentives (LTIs) to employees even though targets were not achieved.

Approximately 38.27% of shareholders followed this advice and voted against it, giving TechnologyOne a first strike. Another strike next year will lead to a board spill.

Chairman strikes back

This didn’t go down well with the company’s Founder and Chairman, Adrian Di Marco, who believed that its executives shouldn’t have been judged against pre-COVID targets and deserved to be granted their LTIs.

Mr Di Marco explained:  

“TechnologyOne executive team performed exceptionally well in FY20 to deliver another year of record revenue, record profit, record SaaS growth and record dividend, all in the midst of a global pandemic. Also, no one can dispute that our Remuneration is working exceptionally well for our shareholders as TSR increased by 12.1%, while total remuneration for executives, after board discretion, was well below TSR.”

“Unfortunately, some large Institutional Funds voted AGAINST our remuneration ignoring the facts above and the real-world considerations faced by our Board because they are against the use of Board discretion as a matter of policy.”

“The Board is very aware of the need to retain and motivate its high performing executives.The Board believes our executives should be rewarded for the strong performance delivered during a global pandemic; as well as the very successful change in strategy to drive SaaS ARR growth, without any loss of their LTI award because of unrealistic and aggressive targets that were set prior to COVID19 or set before we changed our strategy to drive SaaS growth.”

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• Brokers name 3 ASX shares to buy right now

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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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.

For all its design innovation, Apple (NASDAQ: AAPL) is not particularly known for being in the vanguard of communications standards, lagging the Samsung S10 5G phone by 18 months before introducing its own model, the iPhone 12.

So it may be a surprise that although 5G is really just coming into its own, Apple is already looking to the future advent of 6G networks. According to a report last week by Bloomberg, the tech giant is hiring research engineers to work on the sixth generation of wireless technology.

The latest generation of wireless network connectivity first got notice after AT&T began updating certain Android phones with a 5G E icon to denote that customers were in areas with enhanced capabilities.

Other carriers didn’t take kindly to the messaging because the service was still operating on 4G, and Sprint ended up suing because of it. T-Mobile, which acquired Sprint, launched the first stand-alone 5G network last year that wasn’t based on 4G LTE technology.

Samsung’s Galaxy S10 was released first in Korea before eventually making its way to the U.S. And though some analysts had doubts Apple’s iPhone 12 would be a hit with consumers, the iPhone 12 Pro Max has become the most popular 5G smartphone in the U.S.

Now Bloomberg says Apple is getting ready for the next transition, and though 6G isn’t expected to roll out until 2030 or later, the tech company is looking for people to design next-generation wireless communication systems and participate in forums about 6G technology.

As Apple becomes more vertically integrated, including the design of its own computer chips, it may no longer be happy with letting others blaze the trail with new technology.

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

More reading

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• Fortnite maker Epic Games files antitrust lawsuit against Apple in the EU
• TSMC could soon make Apple’s AR dreams a reality
• Why investors should look beyond the ASX 200 to US share markets
• Nasdaq at record high! Here’s what it means for the ASX 200

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Apple. The Motley Fool Australia has recommended Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Rich Duprey owns shares of AT&T. The Motley Fool owns shares of and recommends Apple. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.

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Investors may have become accustomed to the Afterpay Ltd (ASX: APT) share price only going in one direction… up.

But today marks a gritty 8% sell-off for the ASX market’s beloved buy now, pay later (BNPL) leader. 

Why is the Afterpay share price slumping?

There has been no market-sensitive news out of the BNPL giant today nor from its peers such as Zip Co Ltd (ASX: Z1P) and Sezzle Inc (ASX: SZL) that could affect its share price. Brokers have also yet to provide any updates or new target prices leading into Afterpay’s half-year results this week.

With no immediately identifiable cause, the one thing that could potentially be weighing on the Afterpay share price was the US market overnight and rising bond yields. 

10-year Treasury yield are eyeing 1.40% for the first time since February 2020. On a rapidly rising trajectory, the 10-year Treasury yield has surged from record all-time lows of 0.50% in August 2020 to 1.37% last night. 

And rising yields are raising concerns that higher borrowing costs could derail the roaring equity markets.

Growth and tech shares are most vulnerable to rising yields because they are already viewed as richly valued. As yields go higher, the future cash flows of growth shares are discounted more heavily, reducing the company’s value today. 

The bigger picture

It’s not just the Afterpay share price taking a hit today.

Sectors including energy, materials, industrials and financials typically benefit from higher yields. However, it’s a very different story regarding ASX growth shares in sectors including consumer discretionary, consumer staples, healthcare and information technology.

The biggest losers on the ASX today could all be described as growth shares and trading at significantly higher price-to-earnings (P/E) ratios.

Current leading ASX 200 decliners at the time of writing include: 

• Afterpay down 7.89% 
• Lynas Rare Earths Ltd (ASX: LYC) down 6.74%
• Zip Co Ltd down 5.17% 
• Domino’s Pizza Enterprises Ltd (ASX: DMP) down 7.98%
• Seek Limited (ASX: SEK) down 7.78%
• Carsales.Com Ltd (ASX: CAR) down 4.19%

More reading

• ASX investors watch out for a rise in interest rates in 2022
• Why the Austal (ASX:ASB) share price got torpedoed today
• Why Afterpay, Austal, Perenti, & SEEK shares are tumbling lower
• What does Citi think about ASX reporting season so far? 
• ASX 200 flat: SEEK CEO exits, Afterpay sold off, BOQ surges higher

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 carsales.com Limited, Dominos Pizza Enterprises Limited, and SEEK 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 Euro Manganese Inc CDI (ASX: EMN) share price is cruising higher today. This comes after the company’s announcement of new support.

Shares in the manganese miner are currently trading strongly. At the time of writing, the Euro Manganese share price has risen to 69 cents. Therefore, since last nights close, the share price has gained an impressive 11.3%.

European Support

Shares in the Canadian based miner are on a tear today as the company announced a new agreement.

The company and its Czech Republic subsidiary gained the support of EIT InnoEnergy.  EIT is a knowledge and innovation community supported by the European Commission. It will provide financial support to Euro Maganese. In addition, it will provide its extensive European network. Thus, aiding the successful integration of Euro Manganese into the EU’s battery supply chain.

Furthermore, the company will assist Euro Manganese in securing off-take agreements with consumers of manganese products. This includes European electric vehicle batteries and cathode manufacturers.

Furthermore, as part of the deal, EIT will provide 250,000 Euros in equity investment. The sum will be funded in three rounds over the next twelve months. Shares will be equal to the amount of funding and be issued to EIT upon receipt of each tranche.

Euro Manganese Management Comments

CEO, Marco Romero, spoke about the deal saying:

The Chvaletice Project is Europe’s largest manganese resource and we plan to develop it using clean, commercially proven and state-of-the-art technology. We are grateful to have enlisted the support of EIT InnoEnergy and look forward to working with them to bring our project to fruition. By recycling the Chvaletice tailings, our Czech subsidiary, Mangan Chvaletice, will be providing Europe with high-purity manganese products that meet or exceed the EU and Czech Republic’s stringent environmental standards.

About the Chvaletice Manganese Project

Euro Manganese claims that its Chvaletice project is the only sizeable manganese resource in the European Union. Consequently, the project has the potential to provide up to 50% of the projected 2025 European demand for manganese.

Moreover, unlike many other mining projects, it will also bring environmental and social benefits. This is as a result of the use of polluted water being utilised in the conversion process. Long term jobs will also be created in the region of the Czech Republic where the mine will be located.

More reading

• Why the Worley (ASX:WOR) share price is climbing today
• ASX investors watch out for a rise in interest rates in 2022
• Why the Hipages (ASX: HPG) share price is even higher today
• Why is the Spirit Technology (ASX:ST1) share price lifting?
• Here’s why Oil Search (ASX:OSH) just slashed its dividend

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

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The Worley Ltd (ASX: WOR) share price is trading higher this afternoon, up 3.7% at $10.93 a share at the time of writing.

This follows 2 ASX announcements from the professional services company today. They include news on a front-end engineering design (FEED) contract and the release of Worley’s half-year results for FY21.

Let’s hone in on the company’s results during the period it described as “challenging” ending 31 December 2020.

Worley delivers results in a challenging business environment

Worley reported an aggregated revenue of $4.5 billion, down on the $6 billion revenue reported for the same period in FY20.

Statutory net profit after tax and amortisation (NPATA) was down 61% to $60 million, compared to $154 million in the prior corresponding period (pcp).

The service firm’s underlying earnings before interest, tax, depreciation and amortisation (EBITDA) fell from $366 million in the first half of FY20 to $207 million for HY21.

Underlying operating cash flow also dropped to a net inflow of $281 million, compared to $361 million in the pcp.

Worley reported underlying basic earnings per share (EPS) of 22.3 cents, a much lower result than the first half FY20 EPS of 41.5 cents.

The Worley board of directors declared an unfranked interim dividend of 25 cents per share.

CEO insight and group outlook

Commenting on the results, Worley CEO Chris Ashton said:

The actions we have taken during the period have set the business up for the future. We have continued to deliver on our operational savings program, with a total of $286 million savings delivered as at 31 December 2020, exceeding the original target of $275 million. Today we announce the target is increased to $350 million to be delivered by 30 June 2022…

Although the coronavirus pandemic has resulted in several project delays, the company expects the projects to return as the global economy continues to recover. Worley also noted that there had been minimal project cancellations throughout the pandemic.

The business will maintain a diversified client portfolio to accommodate the fact that different industries will recover at different rates as the world returns to pre-COVID-19 conditions.

Worley expects an improved EBITA in the second half of FY21 compared to H1 FY21. This follows the award of new projects and the future benefits from cost reductions implemented during the first half.

Worley share price snapshot

Worley is a global provider of professional project and asset services in the energy, chemicals and resources sectors. The company has a current market capitalisation of $5.4 billion, with 522.1 million shares outstanding.

The Worley share price has dropped 25.14% over the past 12 months.  

More reading

• Why the Worley (ASX:WOR) share price will be on watch today
• What’s with the Worley (ASX:WOR) share price today?
• Oil’s recovery is happening faster than you think: Citigroup
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Motley Fool contributor Gretchen Kennedy has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Reserve Bank of Australia might be forced to break its promise and lift rates as soon as next year, if credit markets are right.

Interest rate traders are betting that our central bank will increase the cash rate to 0.25 basis points in late 2022 from its record low levels of 0.1% currently.

What’s more, these traders think interest rates will be at least 0.5% the following year, reported the Australian Financial Review.

Interest rate traders playing chicken with the RBA

That runs contrary to RBA Governor Philip Lowe’s commitment to keep rates at record lows until 2024, if not later.

Inflation fears are driving credit investors to undertake one of the boldest trades on the market – to bet against the central bank.

ASX investors should pay heed as interest rate expectations can derail the extremely popular investment in high-growth tech stocks.

ASX shares most at risk to rising interest rates

You only need to look at the meteoric rise of the Afterpay Ltd (ASX: APT) share price and Zip Co Ltd (ASX: Z1P) share price to see what I mean.

Such shares are more sensitive to rising rates than other parts of the share market as their valuations are highly leveraged to bond yields. More specifically, it’s the 10-year government bond yield that’s the focus as it sets the “risk-free” benchmark that risk assets are priced against.

While all shares would be impacted as the risk-free rate and valuations move in opposite directions, value stocks won’t be hit as hard as they haven’t run up as much.

Dividend paying stocks are also better protected as their generous distributions give investors a reason to stay onside.

Share allocation and interest rates

This means ASX shares like the National Australia Bank Ltd. (ASX: NAB) share price and Telstra Corporation Ltd (ASX: TLS) share price would fare better than the tech darlings as rates rise.

Meanwhile, other ASX shares could prove to be a good hedge against rising rates because their earnings increase with inflation.

These include our big resource companies, like the BHP Group Ltd (ASX: BHP) share price, OZ Minerals Limited (ASX: OZL) share price and Santos Ltd (ASX: STO) share price. Rates and commodity prices typically move in the same direction.

Investors, mind your head!

What’s prompting the credit market to forecast a rate hike are inflation worries. The mass COVID-19 vaccination programs rolling out around the world are fuelling speculation of a strong economic rebound.

The US president’s plan to stuff US$2 trillion into the pockets of Americans is also forcing inflation-fearing investors to scramble for cover.

Sure, credit markets could be wrong about the RBA. But given that the spike in bond yields are evident around the world, this is one risk you can’t afford to take your eyes off.

More reading

• Why the Austal (ASX:ASB) share price got torpedoed today
• Why Afterpay, Austal, Perenti, & SEEK shares are tumbling lower
• What does Citi think about ASX reporting season so far? 
• ASX 200 flat: SEEK CEO exits, Afterpay sold off, BOQ surges higher
• Smash term deposits with these high yield ASX dividend shares

Brendon Lau owns shares of BHP Billiton Limited, National Australia Bank Limited, OZ Minerals Limited, Santos Limited, and Telstra Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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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Hipages Group Holdings Ltd (ASX: HPG) shares are on the rise today after the company released its first financial results since listing on the ASX late last year. At the time of writing, the Hipages share price has climbed 3.11% to $2.32.

What’s driving the Hipages share price?  

The Hipages share price is on the move today after the company recorded a strong performance across all key metrics for its maiden report covering the period ending 31 December 2020 (1H FY21). 

Hipages delivered monthly recurring revenue in December of $4.6 million, up 31% and overall recurring revenue of $25.3 million, up 26%. 

It advised there had been no adverse impacts from COVID-19, with gross margins improving to 87% compared with 77% in 1H FY20. Margin expansion and increasing revenues translated into earnings before interest, tax, depreciation and amortisation (EBITDA) of $6.9 million compared to an EBITDA loss of $0.1 million in the prior corresponding period (pcp).

More surprisingly, with a market capitalisation of just $292 million, the company turned over an NPAT of $1.5 million, compared to the $5.3 million loss incurred during the pcp. Its strong financials were driven by a 12% increase in tradies on the platform to 28,800 and a 14% increase in job volumes to 0.8 million. 

What is Hipages?

Hipages is an Australian software-as-a-service provider with a platform designed to connect tradies and consumers. The company was formed with the goal of addressing the difficulties that arise out of organising home improvement projects.

According to Hipages, its platform “provides an efficient, technology-driven model to connect consumers with qualified tradies, and facilitates the management of other elements of the home improvement process, such as communication, payment and ratings and recommendations”.

Macro trends driving growth

In other news boosting the Hipages share price today, the company highlighted a number of trends with the potential to drive further growth over the medium to long term. These include a growing addressable market of 9.9 million Australian households which spent around $80 billion on home improvement services in 2020 and around 257,000 trades businesses in Australia employing 1.1 million tradies. 

The company also pointed to growth in tradie ad spend, with expected spend by tradies on advertising in 2020 to be approximately $976 million. Looking ahead, Hipages forecast tradie ad spend to grow by approximately 8.8% per annum. 

Hipages share price snapshot

Hipages has experienced a strong start to the second half of FY21 with January revenue up 18% on the pcp. The company has advised this is ahead of expectations with, again, no adverse impact from COVID. Over the remainder of FY21, Hipages intends to reinvest cost savings into brand marketing, tradie acquisition, technology, and product development to accelerate growth. 

As mentioned, the company is a relatively new addition to the ASX, having debuted on 12 November 2020 at an initial public offering (IPO) price of $2.45 per share. On its first day of listing, the Hipages share price ran as high as $2.85, or around 16% higher than the offer price. However, Hipages shares have since drifted lower and have been hovering around their current levels since the start of this calendar year.

More reading

• Why is the Spirit Technology (ASX:ST1) share price lifting?
• Here’s why Oil Search (ASX:OSH) just slashed its dividend
• Adbri (ASX:ABC) share price soars on strong FY20 result
• Why the Estia Health (ASX:EHE) share price is swinging around
• Why the Uniti (ASX:UWL) share price just broke its record high?

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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The Spirit Technology Solutions Ltd (ASX: ST1) share price is up 1.3% in afternoon trading. This was slightly down, having been up more than 8% earlier today. At the time of writing, the Spirit Technology share price is sitting at $0.39. 

We take a look at the telecommunication and cloud services provider’s results for the financial year ending 31 December (H1 FY21) below.

What financial results did Spirit Technology report for H1 FY21?

The Spirit Technology share price got a boost from this morning’s ASX release, revealing revenue and other income of $44.0 million for the half-year. That’s a 253% increase from the prior corresponding period (pcp). Additionally, total recurring revenue leapt 99% from the prior corresponding period to $21.1 million.

Spirit indicated that securing higher value recurring revenue contracts for longer durations has helped drive the total revenue lift. Undoubtedly, this was credited to its ability to cross-sell its premium managed services and cybersecurity offerings atop its data offerings.

The company rebounded from a net profit after tax loss (NPAT) of $740,000 in H1 FY20 to report a positive NPAT of $508,000.

Underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) increased 176% year-on-year to $4.4 million.

Spirit Technology reported a positive operating cash flow for the half-year of $4.3 million. Additionally, with $23.3 million of cash and available debt as at 31 December.

Comments from the Director

Regarding the half-year results, Sol Lukatsky, Spirit Technology’s Managing Director, said:

It is particularly pleasing to deliver a profitable H1 21 in a period of investment in scaling up the business, building a national brand and integrating multiple acquisitions. We’ve been able to adeptly respond to the changing needs of business, as their IT&T needs become increasingly complex by delivering a comprehensive bundled offering across cloud, voice, data, managed services and cyber security with a strong customer focus.

Looking ahead, Lukatsky added, “We have further growth in our sights as we launch new products, continue to expand our reseller network and realise the benefits of the investments made over the past year and during 2021.”

Spirit Technology share price snapshot

The Spirit Technology share price has been an outperformer over the past 12 months, with shares up 95%. That compares to a 0.4% gain on the All Ordinaries Index (ASX: XAO) over that same time.

Year-to-date the Spirit Technology share price is down 2%.

More reading

• Why the Hipages (ASX: HPG) share price is even higher today
• Here’s why Oil Search (ASX:OSH) just slashed its dividend
• Adbri (ASX:ABC) share price soars on strong FY20 result
• Why the Estia Health (ASX:EHE) share price is swinging around
• Why the Uniti (ASX:UWL) share price just broke its record high?

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 SPIRIT TC FPO. The Motley Fool Australia has recommended SPIRIT TC FPO. 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 Oil Search Ltd (ASX: OSH) share price is on fire today. At the time of writing, it is up 6.3% to $4.31 a share. OSH shares closed at $4.07 each yesterday, but opened at $4.21 this morning and rose as high as $4.42 just after open. However, the share price has settled this afternoon to the current price.

The catalyst for these moves higher was the release of the company’s earnings report covering the full 2020 calendar year this morning before the market open.

What did Oil Search report this morning?

2020 was a rough year for oil companies, and this is reflected in Oil Search’s results today. The company reported that revenues of US$1.074 billion, down 32% from 2019’s US$1.585 billion. Despite that drop in revenues, Oil Search managed to increase oil production to 29.02 MMboe (million barrels of oil equivalent). This is up 4% from 2019’s 27.95 MMboe.

Earnings Before Interest, Taxes, Depreciation, Amortization, and Exploration Expenses (EBITDA) came in at US$721.1 million, down 37% on 2019’s US$1.146 billion. That swung Oil Search’s net profit after tax (NPAT) metric to a loss of US$320.7 million for the year. This was down 203% from a net profit of US$312.4 million in 2019.

On the ‘core NPAT’ metric, the company reported a profit of US$22 million. This was down 93% from 2019’s US$320.9 million.

However, Oil Search has managed to put a dent in its net debt over the year. The company reported net debts of US$2.983 billion in 2019. In 2020 this figure was reduced by 20% to US$2.376 billion.

Even so, investors might be disappointed with the final dividend Oil Search is putting on the table. The company has announced it will pay a final dividend of 0.5 US cents per share. That’s down 89% on the 4.5 US cents per share final dividend Oil Seach paid out last year. If annualised, that dividend would equate to a forward yield of roughly 2.9% on the current share price and exchange rate.

The company reports that this dividend represents a payout ratio of 47% of core NPAT. Oil Search’s dividend policy is to return between 35-50% of core NPAT to shareholders.

Looking forward to 2021

Managing Director of Oil Search, Dr. Keiran Wulff, had a few interesting things to say about the company’s outlook for 2021:

We have entered into oil price hedges to reduce the Company’s downside exposure to oil prices over the balance of 2021. We have locked in a floor price of US$55 per barrel covering nine million barrels of oil equivalent production over the period from May to December 2021… With this hedge arrangement, we have not limited our exposure to further oil price appreciation…

Whilst we are encouraged by the recovery in the oil price over the last few months, particularly given our strong cash flow and earnings leverage to higher prices, the Company remains focused on maintaining discipline in both our capital management and in cost control across our operations.

More reading

• Why Bank of Queensland, MNF, Oil Search, & Starpharma are charging higher
• 5 things to watch on the ASX 200 on Thursday
• 5 things to watch on the ASX 200 on Friday
• Oil’s recovery is happening faster than you think: Citigroup
• Fossil fuels vs renewables: What’s ahead for ASX energy shares?

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

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The Adbri Ltd (ASX: ABC) share price is up more than 7% after the construction business announced its FY20 result to the market.

FY20 result highlights

Adbri reported that its revenue had declined by 4% to $1.45 billion. The company said that the impact of lower residential activity affected cement and concrete volumes, offsetting improved sales of lime and concrete products.

The construction business also said that its underlying net profit after tax (NPAT) fell 6% to $115.6 million. However, this was ahead of the market guidance that was withdrawn in April 2020. The company said it prudently responded to pressures from slowing markets, rising input costs and challenges posed by COVID-19.

Adbri said that the earnings reflected the benefit of cost reductions achieved as a result of the group’s cost-cutting and business improvement programs which exceeded initial targets as well as stronger than anticipated volumes in the second half, particularly in Western Australia.

Reported net profit after tax of $93.7 million was up from $47.3 million in FY19. This reflected non-cash impairment charges totalling $15.2 million after tax and significant items totalling $6.7 million after tax.

Cashflow from operations increased by 32.6% to $256.2 million with improved working capital and lower income tax payments offsetting reduced distributions from joint ventures and higher interest payments.

Balance sheet

Adbri said that its balance sheet remains strong with net debt reduced by $51.2 million to $372.1 million at 31 December 2020.

The Adbri board decided to declare a final dividend of 7.25 cents per share, bringing the full year dividend to 12 cents per share, representing a payout ratio of 68% of underlying earnings.

Adbri’s current focus

The company outlined a number of initiatives to create shareholder value over the long-term.

It’s looking to continue reducing costs and improve its operational performance. It’s looking to restore lime volume and earnings after the end of the Alcoa lime contract from 30 June 2021. Adbri is targeting downstream integration and diversification with its businesses. It’s looking to increase exposure to infrastructure and maximise value creation opportunities across its land holdings.

Outlook

Adbri said that its 2020 performance demonstrated the quality of its vertically integrated business and the value of its balanced geographic and sector exposure.

Stimulus measures from all levels of government, particularly fast-tracking of construction projects including infrastructure spending, home-building grands and stamp duty relief are anticipated to benefit demand for construction materials in 2021. The improvement in housing approvals in the second half of 2020 is translating to commencements. Planned infrastructure projects are moving to the construction phase at varying levels of speed.

However, Adbri said that trading conditions are expected to remain challenging until the stimulus measures completely offset underlying softness in east coast construction markets.

Adbri said that it’s making progress in evaluating strategic initiatives to unlock opportunities for the lime business.

In 2021, Adbri is expecting earnings to be impacted when the Alcoa contract concludes and by the anticipated start-up of a competing cement terminal in NSW with an expected after-tax impact of $16 million for 2021.

However, Adbri is expecting earnings will be supported by increasing demand for cement and lime from a growing number of mining projects as the resources sector continues to operate largely uninterrupted.

It’s targeting $20 million in cost savings to counter cost headwinds of $10 million in 2021. Capital expenditure is anticipated to be around $200 million, including approximately $75 million for the Kwinana Upgrade Project and approximately $40 million in development capital.

Surplus land sales are expected to generate $20 million to $30 million in proceeds over the next two years.

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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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