Exchange-traded funds (ETFs) are often hailed for the diversification they can bring to one’s share portfolio. Since an ETF is a fund, it holds a basket of underlying shares within it.

The level of diversification offered by an ETF, however, can vary in scale and scope. Some ETFs cover specific industries, some cover the share markets of an entire country and some cover markets spanning multiple countries. These separate categories offer different types of diversification, some of which may suit certain investors more than others.

On that note, let’s take a closer look at one ASX ETF that offers more diversification than almost any other. That ETF is the Vanguard MSCI Index International Shares ETF (ASX: VGS).

A highly-diversified ETF

The reason VGS can be considered one of the most diverse ETFs on the ASX lies in its nature. The fund tracks the MSCI World ex-Australia index, which, according to Vanguard, follows “the world’s largest companies listed in major developed countries”. These advanced economies include the United States, Japan, the United Kingdom, France, Canada, Germany, Switzerland, New Zealand, Hong Kong and others (14 to be precise).

From these countries, The ETF tracks more than 1,500 different underlying shares. Due to sheer size, most of these holdings (67.5%) are domiciled in the United States, but Japan, the UK and Canada also meaningfully contribute.

Because of this US dominance, most of VGS’s top holdings are US companies. Its 10 largest holdings are as follows:

1. Apple Inc (NASDAQ: AAPL)
2. Microsoft Corporation (NASDAQ: MSFT)
3. Amazon.com Inc (NASDAQ: AMZN)
4. Facebook Inc (NASDAQ: FB)
5. Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL)
6. Tesla Inc (NASDAQ: TSLA)
7. Johnson & Johnson (NYSE: JNJ)
8. JPMorgan Chase & Co (NYSE: JPM)
9. Visa Inc (NYSE: V)
10. Procter & Gamble Co (NYSE: PG)

Other large holdings that are not US companies include Nestle SA, Novartis, LVMH and Toyota Motor Corp.

Although it appears as though VGS is a US-centric ETF, it’s worth noting that most of the largest US companies it holds have significant global operations.

So how has this ETF performed?

Well, VGS has managed to return 5.8% in 2021 so far. It has also delivered an annualised return of 11.26% over the past 3 years, 11.03% over the past 5, and 12.03% since its inception in 2014. Part of these returns has come from dividend distribution payments. VGS possesses a trailing distribution yield of 1.81% on recent pricing.

The fund charges a management fee of 0.18% per annum, which means it will cost an investor $18 per year for every $10,000 invested.

Foolish takeaway

Outside the emerging markets space, there aren’t too many ETFs on the ASX that offer a more diversified portfolio that VGS. It provides investors with exposure to more than 1,500 companies around the world through just one holding. 

More reading

• 2 ETFs to buy for strong diversification
• These top ETFs could be great options for ASX investors right now
• 2 high quality ETFs for ASX investors to buy today
• 2 quality ETFs to buy for the long term

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Sebastian Bowen owns shares of Alphabet (A shares), Facebook, Johnson & Johnson, JPMorgan Chase, Procter & Gamble, Tesla, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Amazon, Apple, Facebook, Microsoft, Tesla, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Johnson & Johnson and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool Australia has recommended Alphabet (A shares), Amazon, Apple, Facebook, and Vanguard MSCI Index International Shares ETF. 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 Incannex Healthcare Limited (ASX: IHL) share price has zoomed up today as the company announced positive results in its drug study results.

Shares in the bio tech small cap are currently trading 7.5% higher at 17 cents.

What Incannex does

Incannex is a clinical stage pharmaceutical development company in the cannabis industry. The company utilises medicinal cannabis products and psychedelic therapies for the treatment of obstructive sleep apnoea and traumatic brain injury among other things.

Incannex is pursuing FDA registration, subject to ongoing clinical success, for each product under development.

In addition, the company owns a license to import, export and distribute medicinal cannabis products and has launched a line of cannabinoid oil products. The products are sold under Incannex’s product supply and distribution agreement with Cannvalate – a major shareholder of Incannex.

What’s driving the Incannex share price?

Incannex shares are higher today as the company expands its IHL-675A drug to include more inflammatory lung conditions. This comes after the company received positive results from additional in vivo (animal) studies.

The drug IHL-675A combines CBD with hydroxychloroquine for anti-inflammatory purposes. Previous tests have shown it is excellent candidate for the prevention and treatment of sepsis associated acute respiratory distress syndrome (SAARDS).

Incannex has now expanded target indications with initial patent filings for IHL675A to include asthma, bronchitis, and other inflammatory lung conditions.

Furthermore, the company estimates that the global addressable drug market for its products will reach US$50.4 billion by 2022.

Management comments

Incannex Healthcare CEO Joel Latham welcomed the news, saying:

IHL-675A is consistently showing stronger anti-inflammatory properties than CBD. Continued research will reveal how important this will be to the cannabinoid sector in light of continued research globally on CBD and its application to inflammatory conditions.

The synergistic action of IHL-675A allows us to substantially expand the potential uses for IHL675A and presents new patient treatment opportunities.

About the Incannex share price

Shares in Incannex are rising today as the company reported favourable drug results.

The company’s share price has soared in the last 6 months, up from 6 cents to 17 cents and banking an impressive 183.3% in the process.

More reading

• Here are 3 ASX IPOs this fund manager was buying
• Here’s why the Tombador (ASX:TI1) share price is rocketing 35% higher
• Top brokers name 3 ASX shares to sell today
• 3 compelling ASX shares rated as buys by brokers
• 2 ASX growth shares to buy right now

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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Earlier this week I took a look at three ASX shares which had helped the OC Micro-Cap Fund smash the market. You can read about that here.

Those shares weren’t the only ones helping drive OC Micro-Cap Fund’s strong performance. The fund manager also took part in a few IPOs during the final quarter of 2020. Here’s what it was buying:

Booktopia Group Ltd (ASX: BKG)

The OC Micro-Cap Fund participated in the IPO of this online book retailer. This proved to be a good move, with the Booktopia share price gaining 13% in the final quarter.

Booktopia recently released its half year update and revealed that it had a very strong finish to the year with both a record month in December and a record half. Booktopia shipped a massive 728,000 units during the final month of the half, bringing its total shipments to 4.2 million units for the six months.

This was a 40% increase in shipments on the same period last year and underpinned a 52% increase in unaudited half year revenue to $113 million and a 506% increase in adjusted EBITDA to $8 million.

Doctor Care Anywhere Ltd (ASX: DOC)

The fund manager also took part in the IPO of this telehealth company. It will have been delighted to see the Doctor Care Anywhere share price surge 50% higher during the quarter.

As with Booktopia, Doctor Care Anywhere was on form during the final three months of 2020. It reported a 151% increase in fourth quarter revenue to 3.8 million pounds, bringing its unaudited full year revenue to 11.6 million pounds. This was a 102% year on year increase.

Management advised that this was driven by a 186% increase in the eligible patient metric to 2.2 million and the increasing demand for telehealth services during the pandemic.

OC Micro-Cap Fund commented: “DOC is a UK based tele-health provider with plans to expand its offering into continental Europe and potentially in the Asia-Pacific region. The COVID-19 health crisis has accelerated patients switch to accepting online medical advice (rather than face to face consultations) and DOC is well placed to capitalise on this opportunity to deeply penetrate its potential customer base.”

Sovereign Cloud Holdings Ltd (ASX: SOV)

The OC Micro-Cap Fund also participated in this private cloud infrastructure company’s IPO. As with the others, this proved to be a success, with the Sovereign Cloud share price gaining 37.3% during the period.

The fund manager believes it has significant potential.

It commented: “SOV, at $100m market capitalisation, is on the smaller side for our Fund to participate in as an IPO but we believe the company has tremendous potential. SOV provides a private cloud infrastructure environment for sensitive information controlled by customers such as the Australian government and the ADF and is levered to increasing value and use of data.”

More reading

• Brokers name 3 ASX shares to buy right now
• ASX 200 falls 0.6%
• Why Booktopia, Nitro, Reliance, & Vulcan shares are charging higher
• Why the Booktopia (ASX:BKG) share price is rocketing 15% to a record high
• Why the Doctor Care Anywhere (ASX:DOC) share price is shooting 6% higher

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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The Tombador Iron Limited (ASX: TI1) share price is one of the best performers on the ASX market today. Its shares are rocketing 49% higher to 11 cents at the time of writing. This comes on the back of a signed offtake agreement with Trafigura.

Based in Singapore, Trafigura is one of the world’s largest commodity trading houses. The company provides services to connect producers, processors, and consumers in the oil and petroleum, metals, and minerals markets.

Let’s take a closer look at the agreement and what this means for the Trafigura share price. 

What’s pushing the Tombador share price higher?

The Tombador share price is on the move today after announcing a lucrative partnership deal.

According to its release, the company advised it has executed a binding offtake agreement with Trafigura.

Under the agreement, Trafigura will purchase 100% of Tombador’s high-grade iron ore that is mined and sold to the international export market. This does not include the separate sales that are made domestically to the Brazilian market.

While the release did not provide much information, Tombador stated that the contract terms include details in regards to the sale, shipment, delivery, and pricing for the iron ore. In addition, Trafigura will provide a pre-delivery partial payment to Tombador for support of the additional working capital.

The contract is valid for an initial minimum period of 3 years from when iron ore is first produced at the mine. Provided both parties are satisfised, the term of the deal will be renewed annually.

Quick take on Tombador

Formed in October, 2020, Tombador is an Australian miner that is focused on the development and retailing of iron ore. The company owns 100% of a world-class Tombador iron ore project, situated in the Bahia State in Brazil.

CEO commentary

Commenting on the partnership, Tombador CEO, Gabriel Oliva, said:

With production on track to commence in Q2 2021, we are delighted to have forged a relationship with a company of the calibre of Trafigura. This partnership provides certainty for sales and working capital support, ensuring a smooth entry to the international market once operations commence.

More reading

• The moral of the GameStop story?
• The Vmoto share price tumbles 9% despite some positive sales figures
• ASX 200 Weekly Wrap: Reality (and GameStop) finally hits ASX
• Revenue growth pushes Wisr (ASX:WZR) share price higher
• The Next Science (ASX:NXS) share price is up 8% today. Here’s why

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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On Wednesday I looked at three ASX shares that brokers have given buy ratings to this week.

Unfortunately, not all shares are in favour with them right now. Three ASX shares that have just been given sell ratings by brokers are listed below. Here’s why these brokers are bearish on them:

BWP Trust (ASX: BWP)

According to a note out of UBS, its analysts have retained their sell rating and $3.86 price target on this Bunnings landlord’s shares. This follows the release of a half year result earlier this week that was a little softer than it was expecting. In addition to this, it has issues with its valuation and believes the market isn’t pricing in the risks it is facing. The BWP share price is currently fetching $4.11 on Thursday afternoon.

Platinum Asset Management Ltd (ASX: PTM)

A note out of Morgan Stanley reveals that its analysts have retained their underweight rating but lifted the price target on this fund manager’s shares to $3.20. According to the note, the broker believes that Platinum’s shares are overvalued considering the fund outflows it is experiencing. In December, the company experienced net outflows of approximately $149 million despite an improving performance. The Platinum share price is trading at $4.36.

Virgin Money UK CDI (ASX: VUK)

Analysts at Morgans have retained their reduce rating but lifted the price target on this UK based bank’s shares to $2.36 following its first quarter update. According to the note, the broker was pleased to see the company report low impairment charges during the quarter and reaffirm its guidance for FY 2021. Nevertheless, Morgans holds firm with its reduce rating and sees more value in some of the Australian banks. The Virgin Money UK share price is trading at $2.69 this afternoon.

More reading

• Why AGL, Bubs, BWP, & Origin shares are dropping lower
• ASX 200 up 0.9%, Afterpay drops, CBA rises
• Why the Virgin Money UK (ASX:VUK) share price is surging 13% higher
• ASX 200 up 1.1%: Amcor jumps, South32 sinks, Virgin Money UK rockets
• Here’s why the BWP (ASX:BWP) share price is heading 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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Brokers are constantly looking at the ASX share market, deciding which businesses look like promising ideas and which ones look expensive.

The below ASX shares have been rated as buys by at least three brokers:

City Chic Collective Ltd (ASX: CCX)

City Chic is a retail business which specialises in plus-size apparel, footwear and accessories for women.

It’s currently liked by at least three brokers.

It operates a variety of different brands. It owns City Chic, Avenue, CCX, Hips & Curves, Fox & Royal. It has a network of almost 100 stores across Australia and New Zealand. It also has websites operating in Australia, New Zealand and the US. On top of that, it has marketplace and wholesale partnerships with big retailers in the US like Macys and Nordstrom, and a wholesale business with European and UK partners such as ASOS and Zalando.

Avenue targets value-conscious women with a long history and significant online customer following in the US. Hips & Curves and Fox & Royal are online intimates brands in the US and ANZ respectively.

One of the main reasons why brokers such as Morgan Stanley like the ASX share is that the retail apparel sector is doing well, as seen with updates from other apparel companies.

Morgan Stanley likes the balance sheet strength of the business, which could fund other acquisitions. City Chic recently announced the acquisition of Evans in the UK.

Reject Shop Ltd (ASX: TRS)

Reject Shop is a discount retailer in Australia. It’s currently liked by at least three brokers.

The ASX share is currently going through the process of trying to lower its cost base. Morgan Stanley pointed out that Reject Shop’s management said at the AGM that the strategy is going according to plan.

Reject Shop could be a beneficiary from customers spending more time at home, it’s also working on providing a smaller number of different products so that there’s more product availability of the remaining items for customers and so that it has better buying power with suppliers.

One of the other ways that Reject Shop is looking to improve margins is by renegotiating many of its leases with landlords.

Once the company’s cost base is set at a sustainable level, it’s expected to pursue longer-term growth through store network expansion and e-commerce.

However, there have been delays at Australian ports which is affecting stock availability and increased costs through higher shopping charges.

Bapcor Ltd (ASX: BAP)

Bapcor claims to be the largest auto parts business in Australasia.

This ASX share is currently liked by at least six brokers.

The company is seeing elevated levels of demand during these strange times.

Trade and wholesale represent over 80% of Bapcor’s business, with retail representing around 20%. Management said that trade focussed businesses perform solidly in difficult economy conditions, which is being demonstrated by the current levels of performance.

Bapcor said that retail businesses continue to gain momentum with revenue up 40% over the prior corresponding period in the first half of FY21. The company has implemented a number of initiatives to help growth. That includes a new Autobarn store format which is delivering a significant uplift in sales. It has also improved its e-commerce capabilities and continued to open new locations.

One of the other things that Bapcor is doing to improve profit margins is that it’s building a new distribution centre for Victoria. The automated picking system is expected to be operational by August 2021. Management believe this will offer significant operational benefits.

In the first half of FY21, Bapcor is expecting profit growth of at least 50%.

More reading

• Got money to invest for dividends? Here are 3 ASX shares
• 2 little known ASX growth shares to buy
• Why this fund likes these 3 ASX shares
• 2 ASX dividend shares rated as strong buys by brokers
• The ASX small cap with the best global expansion potential may not be tech

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Bapcor. 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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ASX growth investing is a trend that has rapidly grown in popularity over the past few years. From the rise of the WAAAX shares to the rise of buy now, pay later (BNPL) companies, there has certainly been a lot going in in this space.

But of the countless companies trying to occupy this space, which are the best shares to invest in for 2021 and beyond? Here are 2 to consider today:

2 ASX growth shares

Afterpay Ltd (ASX: APT)

Afterpay, we’re here again. This BNPL pioneer is never far from the spotlight. Last year, Afterpay sensationally cratered during the coronavirus-induced market crash, falling to a multi-year low of $8.01 a share. But since then, this company has managed to engineer a stunning recovery.

Just last month, Afterpay yet again set a new all-time high share price of $151.22. Even on today’s share price of $147.02 (at the time of writing), this company is up more than 1,500% from those lows.

Although this share price looks expensive from that perspective, there’s a reason investors’ can’t get enough of this company. It has been growing at breakneck speed too.

In its annual report for FY2020, the company announced a 112% increase in underlying sales to $11.1 billion and a 73% rise in earnings before interest, tax, depreciation and amortisation (EBITDA). Afterpay has always been a company that has looked expensive. But remember, that perception has not paid off for anyone in the past 5 years.

Bigtincan Holdings Ltd (ASX: BTH)

Bigtincan is another ASX growth share to look at today. This company provides a Software-as-a-Service (SaaS) business model which provides businesses with access to Bigtincan’s Hub platform.

Bigtincan Hub works as a ‘sale enablement’ service and allows business clients to use tools like document editing, cloud storage and video conferencing. It essentially helps businesses function more efficiently, and hone their marketing strategies. It has also been expanding rapidly, especially in the past year. The acquisitions of VoiceVibes and ClearSlide have the potential to add a lot of functionality to Bigtincan Hub, and allow the company to expand into areas where it previously had little presence.

On top of that, Bigtincan is a company that is already growing fast organically. In its recently-announced quarterly update, Bigtincan told investors that recurring revenues had grown by an astonishing 50% over the prior corresponding quarter. Its recent capital raising has also left the company with plenty of cash in the bank for future expansion.

More reading

• Leading broker tips 3 ASX shares to positively surprise during earnings season
• 2 explosive ASX growth shares to buy immediately
• ASX 200 up 0.9%, Afterpay drops, CBA rises
• 2 ASX shares that humbled successful fundies
• Why the Afterpay (ASX:APT) share price is pushing higher again

Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends BIGTINCAN FPO. The Motley Fool Australia owns shares of and has recommended BIGTINCAN FPO. 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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The Peel Mining Ltd (ASX: PEX) share price shot 11% higher today on the back of a market update about the miner’s Wirlong site. Peel shares are swapping hands for 25 cents apiece at the time of writing.

Peel Mining is a western New South Wales mineral explorer. The company is focused on developing large-scale and high-grade base metal deposits in the Cobar Superbasin.

Peel Mining holds an approximate 27% shareholding in Saturn Metals Ltd (ASX: STN), a junior gold exploration company that has built a portfolio of assets in the Western Australian Goldfields region.

Peel Mining share price soars upon copper announcement

Prior to the Peel Mining share price shooting up, the company reported very strong copper mineralised intercepts at its 100% owned Wirlong deposit.

In today’s announcement, Peel highlighted the mineralisation discovered is consistent with and supports the company’s geophysical and geological modelling. The modelling involves the application of an electromagnetic conductor plate and a revised structural model.

Peel Mining managing director Rob Tyson commented:

These drillholes continue to demonstrate very high copper tenors, akin to those seen in previous drilling. The results highlight Peel’s opinion of the potential of Wirlong as we push towards a maiden mineral resource and emphasise our desire to become Cobar’s next copper-dominant base and precious metals mining Company.

A summary of Peel Mining’s Wirlong project

The Wirlong Copper discovery is located approximately 70km south-southeast of Cobar. Mineralisation at Wirlong has been defined from near-surface to a depth of more than 600 metres below surface.

As mentioned by Tyson, the company has initiated efforts to establish a copper-rich maiden mineral resource at Wirlong. The resource definition program for this project consists of approximately 11,000 metres of drilling and is anticipated to be completed in the June quarter of 2021.

The next steps for the maiden resource are preliminary metallurgical testwork, ore sorting trials, along with resource modelling and estimation and a scoping study.

The Peel Mining share price has fallen 6.25% over the past six months. On current prices, the company has a market capitalisation of $80.3 million.

More reading

• Goldman Sachs names 2 growing ASX dividend shares to buy
• Why is the Origin (ASX:ORG) share price tanking today?
• Why the Adveritas (ASX:AV1) share price is rising 5% higher
• Here’s why the Qantas (ASX:QAN) share price is soaring today
• Amazon introduces new electric delivery trucks in Los Angeles

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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If you’re an income investor on the lookout for dividends that could grow strongly in the future, then you might want to take a look at the shares listed below.

Here’s why they could be worth considering:

Bravura Solutions Ltd (ASX: BVS)

Bravura Solutions is the financial technology company behind the Sonata wealth management platform. This popular platform allows financial advisers to connect and engage with clients via computers or smart devices.

In addition to this, the company has been bolstering its offering with a number of key acquisitions in recent years. This includes the addition of FinoCamp, Midwinter, and Delta Financial Systems.

FinoCamp builds unique and highly flexible software that supports the UK wealth market, Midwinter is a financial planning software provider, and Delta Financial Systems provides technology to power complex pensions administration in the UK market.

FY 2021 looks set to be a very challenging year because of the pandemic and Brexit. However, analysts at Goldman Sachs think investors should look beyond this short term weakness and focus on its strong long term growth potential.

The broker currently has a buy rating and $4.50 price target on its shares. It is also forecasting dividends of ~10.6 cents per share, ~12.4 cents per share, and ~14.4 cents per share over the next three years. This represents yields of 3.5%, 4.1%, and 4.7%, respectively.

Coles Group Ltd (ASX: COL)

This supermarket giant is another ASX share which has been tipped to grow its dividend at a solid rate in the coming years.

This is thanks to its defensive qualities, focus on automation, cost cutting, and growing own brand sales.

Goldman Sachs is also very positive on Coles and currently has a buy rating and $21.10 price target on its shares.

The broker is forecasting dividends of 64 cents per share, 68 cents per share, and 76 cents per share over the next three years. Based on the current Coles share price of $18.30, this represents fully franked yields of 3.5%, 3.7%, and 4.15%, respectively.

More reading

• 4 most trusted ASX companies (and the 4 least trusted)
• 2 of the best ASX dividend shares to buy today
• Got cash to invest? Here are 3 ASX shares to buy
• Top ASX shares to buy in February 2021
• ASX 200 Weekly Wrap: Reality (and GameStop) finally hits ASX

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Bravura Solutions Ltd. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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 Origin Energy Ltd (ASX: ORG) share price is down by 7.06% to $4.61 at the time of writing.

The downward spiral was set off by the release of Origin’s revised operating conditions and guidance for FY2021.

Here’s a few things we learned from the announcement.

Origin expects gross profits to be down

Origin expects FY2021 electricity gross profit to be down $250–290 million year-over-year. The previous guidance predicted a $170–220 million reduction.

The company puts this loss to lower wholesale prices, payment of a non-recoverable $40 million increase in network costs and the impact of mild summer conditions.

The natural gas gross profit is also expected to be down $200–250 million year-over-year. This has been raised from the original $100–150 million estimate.

Origin advised that the decline of the natural gas gross profit was influenced by lower sales and the roll off of legacy sales contracts that totalled $70 million.

The company believes that improved LPG and community energy services will partially offset electricity and gas gross profit losses.

Origin share price slides in tough operating environment

In addition to revised guidance, the company also commented on the current business environment.

Origin lists the influences of the coronavirus and weather patterns brought by La Niña as having had a material effect on the business.

The company expects the presently challenging operating conditions of energy markets to persist in FY2022.

Origin downgraded its underlying earnings (including electricity and gas) to the $1–1.14 billion range. Its initial guidance estimated between $1.15–1.3 billion.

Commenting on Origin’s position, CEO Frank Calabria said:

Origin has two leading businesses with high quality assets and resources. We remain very focused on maximising value from the existing businesses and pursuing growth in customer value and low carbon solutions, which puts Origin in an ideal position to lead, and capture value, from the energy transition.

Regardless of the downgrades, Origin believes that its retail business is still on track to meet its $100 million FY2021 cost out target. The company stated that operations are performing well with strong cash flow generation.

The Origin share price has lost over 37% during the last 12 months.

More reading

• Why AGL, Bubs, BWP, & Origin shares are dropping lower
• ASX 200 down 0.7%: AGL & Origin sink lower, Qantas pushes higher
• Here’s why the Origin Energy (ASX:ORG) share price is climbing today
• These ASX energy stocks just got zapped by a broker downgrade
• Why ASX energy shares are under pressure right now

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

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