The Federal Government’s mid-year economic and fiscal outlook (MYEFO) is due today and iron ore prices are top of mind. The BHP Group Ltd (ASX: BHP) share price will be one to watch alongside Rio Tinto Limited (ASX: RIO) as the government looks to commodities to keep its budget deficit under control.

What is the economic and fiscal outlook?

The Federal Government releases the MYEFO each year to provide an economic update to the country. It is a highly-anticipated release from the Government regarding its half-year expectations which updates the outlook from the previous budget.

The S&P/ASX 200 Index (ASX: XJO) is set to open higher this morning ahead of the release but there’s already talk about what’s inside.

What does it mean for the BHP share price?

According to an article in the Australian Financial Review (AFR), the forecast deficit for this financial year is set to stay below $200 billion. That’s largely thanks to a dramatic decrease in the number of JobKeeper recipients combined with strong iron ore prices. Iron ore prices have been booming in recent months thanks to strong offshore demand and infrastructure boom.

The expectation for higher commodity prices has been a big factor in a strong rebound for ASX miners in 2020. The BHP share price has climbed 9.2% for the year and 68.9% in the last 9 months. Meanwhile, Rio Tinto and Fortescue Metals Group Limited (ASX: FMG) shares have surged 13.1% and 103.8%, respectively.

Iron ore is generally considered a ‘safe’ export to China amid the ongoing trade spat. That’s largely due to Australia’s market dominance in the industry, with few substitutes around the world. BHP, Rio and Fortescue are three of the “Big Four” producers, with troubled Brazilian company Vale the other major competitor. Given the strong demand for the commodity, iron ore exports are expected to remain relatively unaffected by the deteriorating relations.

Coalition governments have historically been conservative in estimating iron ore prices for budgeting purposes. That looks set to continue with the MYEFO using a forecast free on board price of US$55 per tonne by September 2021.

Foolish takeaway

The BHP share price will be one to watch today as the Federal Government talks through its MYEFO for FY2021. It looks like iron ore is once again firming up as a key cog in Australia’s economic machine which could make the Aussie miner’s shares worth tracking in 2021.

More reading

• 2 blue chip ASX dividend shares to buy
• 5 things to watch on the ASX 200 on Thursday
• ASX 200 rises 0.7% on Wednesday
• Should I care about this week’s mid-year economic and fiscal outlook?
• Why the Codan (ASX:CDA) share price is surging 5% higher today

Motley Fool contributor Ken Hall 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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Are you looking to add a small cap share or two to your balanced portfolio?

Then take a look at the ASX small cap shares listed below, which are both growing at a rapid rate in 2020. Here’s what you need to know about them:

IntelliHR Ltd (ASX: IHR)

IntelliHR is a cloud-based human resources and people management platform provider which has been growing at an explosive rate this year. During the first five months of FY 2021, the company reported an impressive 148% increase in subscriber numbers. As a result, it now has almost 30,000 contracted subscribers on its books.

This strong customer growth has underpinned similarly strong revenue growth. As of its last update, IntelliHR’s contracted annual recurring revenue (ARR) was up 81.3% to $2.8 million.

But management isn’t resting on its laurels and remains highly focused on delivering further growth in the years to come. This will be supported by its high quality software, international expansion, and favourable industry trends.

In respect to the latter, the company notes that it is well-positioned in a high growth global market that is being disrupted by the trend to Working-from-Home brought on by the pandemic.

Pointerra Ltd (ASX: 3DP)

Pointerra is a growing technology company with a focus on the commercialisation of 3D geospatial data. It provides a software solution that allows users to manage, visualise, and share large digital 3D datasets. This software is able to extract vital information from the data that would otherwise take many hours to do.

Demand for the company’s technology has been growing strongly. This led to its Annual Contract Value (ACV) increasing 18% to US$5.82 million between October and November. This, however, is still only scratching at the surface of its market opportunity. Management estimates that it is currently worth a staggering $500 billion annually.

More reading

• ASX small caps could get a boost with the Aussie dollar hitting 28-month highs
• Why the IntelliHR (ASX:IHR) share price rocketed 26% higher to a 52-week high
• Here are the best performing ASX tech shares in November
• intelliHR (ASX:IHR) share price surges 8% on rapid expansion
• Pointerra (ASX:3DP) share price falls 6% despite positive update

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 Pointerra Limited. The Motley Fool Australia has recommended Pointerra 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 Immutep Ltd (ASX: IMM) share price is on watch this morning on news the company will significantly upscale its manufacturing capacity.

The Immutep share price finished Wednesday’s trading session at 43 cents, up 6.1%.

Immutep is a biotech company focused on the development of LAG-3 immunotherapeutic products for cancer and autoimmune diseases.

What did Immutep announce?

In today’s release, Immutep advised it will begin ramping up the manufacture its lead product candidate, eftilagimod alpha, otherwise known as efti or IMP321.

The decision to increase production follows the company’s positive interim results from its efti clinical trials.

Immutep will expand its efti manufacturing process from 200 litres to a proposed 2,000 litre bioreactor capability. The WuXi Biologics plant in China will house production of the soluble LAG-3 protein, which is expected to scale up throughout 2021.

Although management did not specify the cost involved, it said a recent conversion of warrants will fund the strategic move.

CEO commentary

Commenting on the progress, Immutep CEO Marc Voigt said:

Following the very encouraging interim Overall Survival data announced last week from our largest clinical trial, AIPAC, we have activated our plans to upscale the manufacturing of efti to 2,000L single-use bioreactors to prepare for potential commercial manufacturing and potential registration trials in multiple indications.

WuXi Biologics is an important and long-term partner for us with excellent technical and commercial capabilities. We are entering 2021 in a very strong position, both financially and operationally.

About the Immutep share price

The Immutep share price has soared recently, reaching 63 cents just a few days ago. While its shares have pulled back around 31%, the company is still up 40% from 1 month ago.

Immutep has grown from an ASX micro-cap share to a now small-cap share, with a market capitalisation of $211.9 million.

More reading

• ASX stock of the day: Immutep (ASX:IMM) shares blast up 60% on trial news
• Why a2 Milk, Crown, Immutep, & Suncorp shares are dropping lower

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

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The Zip Co Ltd (ASX: Z1P) share price will be one to watch after the buy now pay later provider announced a capital raising.

What did Zip announce?

Late on Wednesday Zip announced the launch of a $150 million capital raising.

This comprises an underwritten $120 million placement to institutional and sophisticated investors and a non-underwritten $30 million share purchase plan.

According to the release, Zip is raising the funds at $5.34 per new share, which represents a 4.1% discount to its last close price of $5.57.

Why is Zip raising funds?

Zip revealed that it is undertaking the capital raising to support its US growth and UK expansion, explore new markets, and product expansion.

The majority of the proceeds will be used on its growing US-based QuadPay business. Management intends to deploy 58% or $85 million of the capital in this market.

It notes that it has been experiencing significant growth in the $5 trillion market. In November, the company’s transaction value and customer number tripled to $264.2 million and 2.8 million, respectively. Pleasingly, it is achieving this growth with market leading unit economics.

Management wants to build on this and expects the capital raising to accelerate its growth. This includes customer acquisition, app usage, and merchant partnerships.

What else are the funds being used for?

Approximately 10% or $15 million will be deployed in the UK to scale its operations, support merchant and customer acquisition, and underpin its receivables funding until a local facility is established.

In addition, Zip intends to use 24% of the raise or $35 million to support its recently established New Markets division. This side of the business has been established to lead the active pursuit of global growth opportunities. It will also invest in strategic interests, greenfield launches, and local partnerships outside its core business.

The company revealed that its New Markets division has already made a couple of strategic investments. The first is United Arab Emirates-based buy now pay later provider, Spotii. The second is leading payments platform provider Twisto. The latter is operational in Czechia and Poland. It has an omni-channel product set aligned with Zip and the ability to passport licensing across the European Union.

Finally, the remaining 8% or $12 million will be deployed in the ANZ market. This includes supporting the launch of the Zip Business offering and the development of additional products within its digital wallet.

More reading

• 5 things to watch on the ASX 200 on Thursday
• The Tyro (ASX:TYR) share price is down 20% in one month. Time to buy?
• Openpay (ASX: OPY) share price rockets up 8% after major announcement
• ASX 200 falls on Tuesday
• Creso Pharma and Nuix were among the most traded shares on the ASX last week

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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With interest rates unlikely to be improving any time soon, the share market looks set to remain the best place for income investors to earn an income for some time to come.

But which ASX dividend shares should you buy this month? Two blue chip ASX dividend shares that are rated as buys right now are listed below. Here’s what you need to know about them:

Australia and New Zealand Banking GrpLtd (ASX: ANZ)

The big four banks have been very strong performers over the last six weeks. In fact, since the start of November, the ANZ share price has risen a mouth-watering 24%. While the majority of its gains may be gone now, the bank has still been tipped as one to buy by analysts at Citi.

Earlier this week the broker put a buy rating and $23.75 price target on its shares. Citi is also forecasting a 105 cents per share dividend in FY 2021 and a 140 cents per share dividend in FY 2022. Which, based on the latest ANZ share price, represents dividend yields of 4.5% and 6%, respectively, over the next couple of years.

Rio Tinto Limited (ASX: RIO)

Thanks to very favourable copper and iron ore prices, this mining giant appears perfectly positioned to deliver another strong result in FY 2021. And with its balance sheet looking robust, the majority of the free cash flow it generates looks set to be returned to shareholders in the form of buybacks and dividends.

One broker that is positive on Rio Tinto is Ord Minnett. This week the broker reiterated its buy rating and $150.00 price target on its shares. It expects a dividend of ~$6.31 per share in FY 2021 and then ~$7.27 per share in FY 2022. Based on the current Rio Tinto share price of $114.37, this will mean fully franked dividend yields of 5.5% and 6.35%, respectively.

More reading

• 3 key takeaways from the ANZ annual general meeting
• Brokers warning high iron ore prices are unsustainable
• ASX 200 up 1.1%: ANZ AGM, Resolute jumps, travel shares soar
• The Commonwealth Bank (ASX:CBA) share price is climbing higher today. Here’s why.
• Here’s how ASX 200 bank shares have performed in 2020 so far

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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On Wednesday the S&P/ASX 200 Index (ASX: XJO) was back on form and stormed higher. The benchmark index rose 0.7% to 6,679.2 points.

Will the market be able to build on this on Thursday? Here are five things to watch:

ASX 200 to rise again.

The Australian share market looks set to continue its rise on Thursday. According to the latest SPI futures, the ASX 200 is poised to open the day 27 points or 0.4% higher this morning. This is despite it being a reasonably mixed night of trade on Wall Street. Late on, the Dow Jones is down 0.3%, the S&P 500 is down 0.05%, and the Nasdaq is up 0.1%.

Zip equity raising.

The Zip Co Ltd (ASX: Z1P) share price will be on watch after it announced a $150 million capital raising to support its growth. This comprises an underwritten $120 million institutional placement and a $30 million non-underwritten share purchase plan. The buy now pay later provider is raising the finds at $5.34 per share, which represents a 4.1% discount to its last close price. It will use the capital to support its US growth, UK expansion, and product expansion.

Oil prices higher.

Energy producers including Beach Energy Ltd (ASX: BPT) and Oil Search Ltd (ASX: OSH) could have a solid day after oil prices rose again. According to Bloomberg, the WTI crude oil price is up 0.5% to US$47.85 a barrel and the Brent crude oil price is 0.75% higher to US$51.13 a barrel. Oil prices overcame news of a surprise build in US inventories and pushed higher.

Gold price edges lower.

Gold miners such as Evolution Mining Limited (ASX: EVN) and Saracen Mineral Holdings Limited (ASX: SAR) could come under pressure after the gold price softened. According to CNBC, the spot gold price is down 0.1% to US$1,854.0 an ounce. This follows the release of an update by the US Federal Reserve.

Crown update.

The Crown Resorts Ltd (ASX: CWN) share price will be on watch today after the casino and resorts operator released an update on its Sydney operation. According to the release, Crown Sydney has been granted a liquor licence on an interim basis for certain non-gaming operations. This includes the Crown Towers hotel, bars, and some restaurants. It has been granted for the period 16 December 2020 to 30 April 2021.

More reading

• The Tyro (ASX:TYR) share price is down 20% in one month. Time to buy?
• ASX 200 rises 0.7% on Wednesday
• Should I care about this week’s mid-year economic and fiscal outlook?
• Why the Codan (ASX:CDA) share price is surging 5% higher today
• ASX 200 up 1.1%: ANZ AGM, Resolute jumps, travel shares soar

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The Tyro Payments Ltd (ASX: TYR) share price has fallen almost 20% this month, despite the company releasing weekly figures showing increases in monthly transaction volumes.

It seems the payment solution’s share price has also underperformed compared to other payment providers. For example, the Zip Co Ltd (ASX: Z1P) share price is down 7.5% for the month, while the Sezzle Inc (ASX: SZL) shares are down 10% for the same period.

Market darling Afterpay Ltd (ASX: APT) on the other hand, is an outlier in the buy now, pay later sector, up 13% in the past month as its inclusion in the S&P/ASX 200 Index (ASX: XJO) looms.

So does this mean the current Tyro share price presents a good entry point for investors? Let’s take a look.

Why are Tyro shares underperforming?

The Tyro share price performance is somewhat baffling for investors.

For one, the company should have benefited from the full reopening of the economy, as the possibility of an early vaccine rollout has gained momentum over the past month.

This is because Tyro provides payment solutions to small-business merchants through its physical Tyro Eftpos terminals, and the full normalisation of retail businesses would be the ideal situation for the company.

The Tyro share price should also have been boosted by the recent surge in Australian consumer spending, as the Australian Bureau of Statistics reported a 3.3% growth in spending in the three months ending September.

The company also should benefit from the recently announced proposed merger of major Australian domestic payment systems – Eftpos, BPay and NPP Australia. That merger would expedite Tyro’s foray into the online payments segment as it rides on Eftpos’ online infrastructure. 

In addition, Tyro reported upbeat results at its annual general meeting in October, where it revealed solid growth continuing in FY 2021 despite the pandemic.

The company reported that its payments business had maintained its merchant acquisition momentum, with 33,200+ merchants on its platform at 30 September 2020. This is up 8% on the prior corresponding period. Despite lockdowns and restrictions, the company delivered growth in transaction value year to date, with transactions standing at $6.8 billion, up 5% on the same period last year.

So after all that, the question remains: why has the Tyro share price been underperforming in the past month? 

About the Tyro share price

The Tyro share price closed at $3.22 today, up 1.26%. As mentioned, the Tyro share price is down 20% for the month. On a year-to-date basis, the share price is down 8%, and is still a long way off from its 52-week high of $4.53.

The company commands a market value of $1.6 billion.

More reading

• Openpay (ASX: OPY) share price rockets up 8% after major announcement
• ASX 200 falls on Tuesday
• Creso Pharma and Nuix were among the most traded shares on the ASX last week
• ASX 200 down 0.1%: APRA removes bank dividend restrictions, Fortescue slides, Zip higher
• Zip (ASX:Z1P) share price rises on Harvey Norman (ASX:HVN) partnership

Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Tyro Payments. 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 ELMO Software Ltd (ASX: ELO) share price will be one to watch on Thursday following the release of a big announcement after the market close today.

What did ELMO announce?

This afternoon ELMO announced that it has made another acquisition in the United Kingdom.

This follows the acquisition of UK-based human resources platform provider, Breathe, in October for an initial payment of 18 million pounds (A$32.4 million).

On this occasion, ELMO has announced the acquisition of Webexpenses, a high growth, cloud-based expense management solution.

Management notes this acquisition provides ELMO with highly complementary technology, as well as a large customer base, accelerating its mid-market expansion in the UK.

Furthermore, the transaction adds to ELMO’s revenue, customer base, and its market opportunity.

What is Webexpenses.

Webexpenses is a cloud-based expense management solution with annualised recurring revenue (ARR) of £4.5 million (A$7.9 million) at the end of November.

It has a large and growing customer base in the UK, with over 1,000 customers and a high customer retention of 90%.

The business has a gross profit margin of over 90% and generated EBITDA of £0.6 million (A$1.0 million).

Webexpenses’ owner and Chairman, Michael Richards, will continue on as a strategic advisor to the UK business. The company’s CEO, Adam Reynolds, will continue on in his current role.

According to the release, this acquisition increases ELMO’s Total Addressable Market (TAM) by A$1.4 billion to A$12.8 billion across the UK and ANZ markets.

It also opens up a significant two-way cross-sell opportunity for ELMO. The expense management solution will be sold to new and existing ELMO customers in Australia and New Zealand, whereas ELMO’s existing product suite will be sold to Webexpenses’s UK customers.

How much is ELMO paying?

The release explains that the purchase consideration consists of an initial payment of £20 million (A$35.3 million) using a combination of cash (51%) and scrip (49%).

In addition to this, there is an earnout consideration estimated to be £13 million (A$23.0 million). It is payable in cash (51%) and scrip (49%), subject to the achievement of financial targets.

Despite the Breathe and Webexpenses acquisitions, ELMO remains well capitalised and has over A$70 million in cash on its balance sheet.

ELMO’s CEO and Co-Founder, Danny Lessem, commented: “The acquisition of Webexpenses is an exciting and significant step in ELMO’s growth journey. The Webexpenses platform is highly complementary to ELMO’s existing offering. Customers will have the ability to manage employee expenses effectively and efficiently as part of our convergent HR and payroll solution.”

“The cross-sell opportunity for ELMO’s comprehensive product suite into Webexpenses’ large customer base is substantial. ELMO’s market opportunity has increased markedly, and our strategic positioning is further strengthened,” he concluded.

Guidance upgrade.

In light of this acquisition, the company has lifted its guidance for the full year.

It now expects ARR of $81.5 million to $88.5 million (up from $72.5 million to $78.5 million) and an EBITDA loss of $2.4 million to $7.4 million (compared to a loss of $3.5 million to $7.5 million).

More reading

• 3 ASX growth shares to buy for 2021
• 2 ASX growth shares to buy in December
• These ASX tech shares have been tipped for big things
• 3 small cap ASX tech shares growing at a rapid rate
• 2 exciting ASX tech shares to buy right now

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 and recommends Elmo Software. The Motley Fool Australia has recommended Elmo Software. 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.

Most of us, investors and otherwise, had mentors tell us at one time or another to “never say never.” While that adage may also apply to stock investing, I think an exception should be made for Square (NYSE: SQ).

Despite its name, this financial services and mobile payments specialist is anything but boring or conventional. The way the company is shaking up finance, investors could square away gains in this fintech stock for years to come. Let’s examine three reasons why. 

1. The (more) cashless society

Indeed, many investors want to cash in on the so-called “cashless society.” They base this on a perception that physical currency will disappear.

Despite my bullishness on Square stock, I would not go so far as to assert that. However, cash has significant limitations, most of which Square’s products help address. Individuals have gravitated toward these options in increasing numbers.

This is particularly true of Square’s Cash App. It allows users to square up their payments, banking, and even their stock or bitcoin purchases on the application.

The success of the Cash App is even exceeding management’s expectations. In the third quarter, Cash App drove gross profit growth of 212% over the prior year. As of June, usage had grown to more than 30 million monthly active users.

2. The Square ecosystem

Moreover, beyond Cash App’s versatility, Square has built a full finance ecosystem.

In the previous century, finance companies did not venture into multiple financial operations. One might have turned to a Bank of America for personal banking and a mortgage. An enterprise like Charles Schwab would have handled stock trading. For those who owned a business, a company like ADP might have managed payroll. That enterprise may have also collected money in a cash register made by NCR.

Square can perform all of those functions within one ecosystem. This has led to fundamental changes in the public’s relationship with the finance industry.

Due to these changes, people may decide they simply need Cash App and will close their bank and brokerage accounts. Businesses could also drop payroll and cash management companies in the same manner.

Consequently, Square could send its detractors running in circles. Due to this one-stop-shop for all things money, some may charge the company with “taking over finance.” Although I would stop short of making that prediction, such a belief could cement Square’s place in the fintech industry.

3. The state of Square stock

More importantly to investors, such a perception will inevitably help Square stock. Indeed, its performance has already driven massive shareholder value. Its stock price has risen by nearly 250% year to date. 

SQ data by YCharts

With that level of growth, few would describe it as a “cheap stock.” Nonetheless, it is not as expensive as it appears.

Indeed, a forward P/E ratio of 175 seems pricey. After all, diluted earnings per share rose by only about 17% year over year in the most recent quarter. That may not appear high enough to support such a valuation.

However, revenue surged by almost 140%, driven in part by an 11-fold increase in bitcoin revenue. The bitcoin revenue comes with razor-thin profit margins.

Still, most of the increased profits came from transaction and subscription-based revenue. Square invested most of that profit increase back into the business. This move should lead to higher shareholder returns in the long run.

Furthermore, its price-to-sales (P/S) ratio stands at only about 13. This compares well to its rival, PayPal. Also, its P/S ratio is about one-third that of what some have called the “Square of Brazil,” StoneCo. 

The bottom line

No matter what happens with the stock in the near term, Square continues to change how individuals and businesses interact with money.

Through the Cash App, it connects individuals to the cashless society. Additionally, with the Square ecosystem, more customers could drop bank accounts and other financial products that were once considered essential.

The company’s successes have taken the stock to new highs. Investors who buy Square and square it away will probably see the shape of their stock portfolios continue to improve.

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

More reading

• How the 21st century actually started in 2020
• Better Buy: Square vs. Visa
• These stocks would have doubled your money last year

Will Healy owns shares of Square. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends PayPal Holdings and Square and recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool Australia has recommended PayPal Holdings. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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

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There are a number of reasons why growth investors might like Kogan.com Ltd (ASX: KGN) shares.

What does Kogan.com do?

As the name might suggest, Kogan.com is an internet-based business. Specifically, it’s an e-commerce company that sells a wide variety of products and services through its platform.

In terms of retail, it sells things from categories like TVs, computers, phones, cameras, heating and cooling, appliances, home and garden, furniture, office supplies, toys, video games, clothes and shoes, health and beauty, sports, tools, cars, alcohol, groceries and more.

In terms of services, it offers things like car insurance, home insurance, credit cards, home loans, internet, mobile and energy.

Here are some positives about the e-commerce ASX share:

Kogan First

Kogan First is a membership program that gives members free delivery on 1,000s of products. Members can also be upgraded to express shipping at no extra cost. It offers priority customer service and exclusive member-only deals and discounts.

The ASX share says that this membership program creates a large and growing community of loyal customers who access free shipping and a range of exclusive benefits.

According to data from the company, Kogan First members purchase on average much more often than the non-members, demonstrating loyalty to the platform, and also demonstrating the significant savings available through the loyalty program.

Kogan.com is also hoping that these members will be more likely to sign up to the extra services that the company offers, which would make those members even more valuable to the business.

Rising margins

A business that can increase profit margins is likely to be able to increase its bottom line profit, which may be able to help the Kogan.com share price.

Kogan.com’s gross margin was 17.9% in FY17, 19.5% in FY18, 20.7% in FY19 and 25.4% in FY20. That is steady progression for the business over consecutive years.

The earnings before interest, tax, depreciation and amortisation (EBITDA) margin has also been increasing with the company’s improving operating leverage. The EBITDA margin was 4.3% in FY17, 6.3% in FY18, 6.9% in FY19 and 9.3% in FY20.

One of Kogan.com’s preferred profit measures is adjusted EBITDA, which excludes unrealised foreign currency gains or losses, equity-based compensation and one-off non-recurring items. The adjusted EBITDA margin has also been improving – it was 5.2% in FY17, 6.3% in FY18, 7.2% in FY19 and 10% in FY20.

Diversifying earnings

Kogan.com is constantly working to add to its earnings. It’s adding more products on its main site. But it has also been making acquisitions to grow the business as well.

It wasn’t too long ago that Kogan.com acquired quality furniture business Matt Blatt and continue it as an online-only offering.

Kogan recently announced that it was expanding into New Zealand by buying the online retailer Mighty Ape for AU$122.4 million. It specialises on gaming, toys and other entertainment categories.

Before the impact of synergies, Mighty Ape has FY21 forecast revenue of AU$137.7 million, forecast gross profit of AU$45.7 million and forecast EBITDA of AU$14.3 million. This would represent year on year growth in revenue, gross profit and EBITDA of 43.7%, 58.1% and 254.1% respectively for Mighty Ape.

Kogan.com is expecting to generate significant revenue and cost synergies across plenty areas of the business after the acquisition.

How expensive is the Kogan.com share price right now?

Using Commsec earnings projections, it’s valued at 25x FY23’s estimated earnings.

In the AGM trading update it said that in the first four months of FY21 to October 2020 it had seen gross sales grow by 99.8%, gross profit went up 131.7% and adjusted EBITDA jumped 268.8%. Management said that ‘product divisions’ and the Kogan marketplace is generating a strong performance as customers continue to shop online.

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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia has recommended Kogan.com 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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