Shares in discount consumer electronics retailer JB Hi-Fi Limited (ASX: JBH) have dropped more than 5% today after the company concluded its annual general meeting (AGM) this morning.

The JB Hi-Fi share price is down 5.29% to $47.83 at the time of writing amidst a broader equity markets selloff across the world.

Major highlights from today’s AGM

• Total sales of $7.9 billion, up 11.6% on the prior year for the group. This includes sales from its Good Guys brand and e-commerce platform.

• Earnings Before Interest and Taxes (EBIT) was up 30.5% to $486.5 million.

• Net Profit After Taxes (NPAT) was up 33.2% to $332.7 million.

• Total dividends for FY20 were up 33.1% to 189 cents per share.

• In FY20 the company launched a new e-commerce platform for JB HI-FI in Australia and 3 new home delivery centres. Online sales grew 155%  and represents 7.6% of the company’s total sales.

• The FY21 trading update also shows some strong numbers in Australia where total sales grew by 30%. This represents the July 2020 – September 2020 trading period.

JB Hi-Fi’s business model

JB Hi-Fi is one of Australia’s largest discount retailers in home entertainment. Its brand also includes The Good Guys franchise, which it purchased in 2016. Its main competitor, Dick Smith Electronics, folded in 2016.

JB Hi-Fi’s competitive advantage is in its low-cost business model, where stores typically break even within one year. The company doesn’t have warehouses, and stocks its inventory on site in each outlet, minimising costs. Its business model thus relies on high volume and turnover.  

JB Hi-Fi has cemented itself as the category killer in electronics, similar to Bunnings in hardware, which is owned by Wesfarmers Ltd (ASX: WES). It has a network of 320 stores across Australia and New Zealand, and an online platform.

Opportunities and challenges ahead

Consumer electronics, including mobile phones, are more becoming commoditised products. JB Hi-Fi’s management has in the past lamented about the need to offer incentives continuously to attract mobile-phone customers, for example.

Management has also said that consumer electronic margins will be affected by price reductions resulting from high competition, especially with the arrival of Amazon.com Inc (NASDAQ: AMZN) in Australia in 2017. 

However, JB Hi-Fi’s well-known brand image in the eyes of the Australian consumer has attracted loyal customers and should be able to stave off competition in the short to medium term.

About the JB Hi-Fi share price this year

JB Hi-Fi’s share price has been a runaway tear this year. It began the year with the share price at $38 before dipping to $23.16 in March. It has since recovered to today’s level at $47.83 which represents a gain of 26% YTD.

This compares with a flat YTD return on S&P/ASX 200 Consumer Discretionary Sector (ASX: XDJ)index.

More reading

• Why ANZ Bank, JB Hi-Fi, Northern Star, & SEEK shares are dropping lower
• How did ASX retail shares perform in the latest quarter?
• Is Temple & Webster Group Ltd (ASX:TPW) still a buy?
• 5 major ASX 200 events this week
• The best time to invest may feel uncomfortable

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. dsunarto 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 Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended Amazon. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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In early afternoon trade the S&P/ASX 200 Index (ASX: XJO) is on course to record a disappointing decline. At the time of writing the benchmark index is down a sizeable 1.3% to 5,978.7 points.

Four shares that have fallen more than most today are listed below. Here’s why they are dropping lower:

Australia and New Zealand Banking GrpLtd (ASX: ANZ)

The ANZ Bank share price is down 2.5% to $18.72 following the release of its full year results. For the 12 months ended 30 September, the bank reported a 42% decline in cash earnings from continuing operations to $3.76 billion. A final fully franked 35 cents per share dividend was also declared. Both metrics fell a touch short of the market’s expectations.

JB Hi-Fi Limited (ASX: JBH)

The JB Hi-Fi share price is down 5.5% to $47.79. This follows the release of the retail giant’s first quarter update this morning. Although JB Hi-Fi delivered very strong sales growth during the quarter, its result implies a major slowdown in its growth during August and September.

Northern Star Resources Ltd (ASX: NST)

The Northern Star share price is down over 5% to $14.93. Investors have been selling Northern Star’s shares on Thursday after the price of the precious metal dropped lower despite the market selloff. It isn’t just Northern Star that is under pressure. The S&P/ASX All Ordinaries Gold index is down over 4% this afternoon.

SEEK Limited (ASX: SEK)

The SEEK share price has fallen 6% to $21.51 after being the latest ASX share to be targeted by offshore short sellers. Analysts at Blue Orca claim that SEEK’s China-based Zhaopin business is full of fake listings and is paying students to make fake resumes. It feels this raises questions over the validity of Zhaopin’s reported revenues. The short seller values the job listings company’s shares at a lowly $7.20.

More reading

• The Seek Ltd (ASX:SEK) share price under attack by offshore shorter
• ASX 200 down 1.1%: ANZ cash earnings down 42%, SEEK slammed, HUB24 jumps
• ANZ (ASX:ANZ) share price on watch after FY 2020 results release
• 5 things to watch on the ASX 200 on Thursday
• Hayne Commission continues to haunt the Big Four banks

Motley Fool contributor James Mickleboro owns shares of SEEK Limited. The Motley Fool Australia has recommended SEEK Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Helloworld Travel Ltd (ASX: HLO) share price is wobbly today following the release of a trading update.

The Helloworld share price stumbled on opening this morning, dropping down to $1.69. However, shares in the travel company rallied back up to $1.75 in midday trade, down 2.78% at the time of writing.

Let’s look at how Helloworld performed in the September quarter.

Business update

Helloworld reported a poor result for the period ending 30 September, as COVID-19 continued to severely impact the travel industry.

Total transaction value (TTV) plummeted to $176.8 million, representing a 90.6% decline on the previous corresponding period (pcp). However, the company highlighted a small recovery, which saw TTV increase from $51 million in July and August to $74.4 million in September.

Revenue sank to $12.4 million, an 86.8% fall from the same time from last year. The halt in travel booking effectively put a large number of its agency network in hibernation mode.

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) saw a loss of $4.1 million. This was a slight improvement on the $6 million loss forecast by the business.

Helloworld recorded a cash balance of $105 million at the end of the quarter. However, a bank debt was prepaid for $20 million, reducing its free cash to $85 million. The repayment decreased the company’s interest expenditure by $0.4 million per annum.

COVID-19 response

As international air travel dropped by 98% between March and October, Helloworld expects average TTV and revenues to remain low. The company has predicted that these levels will be around 10% to 15% below previous amounts until early 2021.

By responding quickly to the evolving COVID-19 crisis, Helloworld reduced personnel costs up to 75%, saving $9 million per month.

In addition, the company cut other key costs such as technology and communications, advertising and marketing, occupancy and non-personnel overheads.

Retail networks

Retail networks across Australia and New Zealand have been forced to adapt the fallout of travel bookings. A number of outlets have moved their operations to home or shared a premise with other agencies. The company said the liquidity runway for agents was getting shorter, especially without any specific federal government assistance.

Outlook for the Helloworld share price

With the re-opening of interstate borders, Helloworld is anticipating a recovery in the Australian domestic travel market. Furthermore, safe travel corridors established with COVID safe countries is scheduled to commence throughout 2021.

Based on current projections, Helloworld estimates an EBITDA loss of $1.5 million to $2 million per month until March 2021. In the latter of the year, the company advised it will move into a break-even position, conditional on travel bubbles.

Helloworld stated that it has enough liquidity to maintain operations until late 2022, and possibly longer from its current cash burn rate.

More reading

• Why ANZ Bank, JB Hi-Fi, Northern Star, & SEEK shares are dropping lower
• The Seek Ltd (ASX:SEK) share price under attack by offshore shorter
• ASX 200 down 1.1%: ANZ cash earnings down 42%, SEEK slammed, HUB24 jumps
• Why Coles, HUB24, Mesoblast, & Temple & Webster shares are pushing higher
• Yikes: World will owe 265% of GDP this year

Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Helloworld Limited. The Motley Fool Australia has recommended Helloworld Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Helloworld (ASX:HLO) share price dips on weak business update appeared first on Motley Fool Australia.

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The Seek Limited (ASX: SEK) share price has followed the struggling S&P/ASX 200 Index (ASX: XJO) to slump more than 6% on Thursday. Adding further insult to injury, Seek has come under strong scrutiny from an offshore shorter, Blue Orca Capital. Blue Orca published a 39-page report that values the Seek share price at just $7.20. Here is the rundown of the report. 

The Seek business 

Seek has a portfolio of employment, education and volunteer businesses which span across Australia, New Zealand, China, South East Asia, Brazil, Mexica, Africa and Bangladesh. The company is regarded as a tech company as it creates product technology solutions to address the needs of job seekers and hirers. It then facilitates the matching between job seekers and hirers across its online employment marketplaces. 

Blue Orca’s short report 

Blue Orca critiques Seek’s legacy platform in Australia as stagnating in growth. But the report mainly target’s Seek’s China business. Its Chinese online recruiting platform Zhaopin has been cited by Seek as China’s #1 player and growing rapidly. In FY20, Zhaopin accounted for 48% of the company’s consolidated revenues and was Seek’s only segment which reportedly grew revenues and profits. Blue Orca points to Seek’s Chinese business as a driving factor for why the company is able to trade at 404 times forward earnings. 

However, Blue Orca’s due diligence has revealed that “Zhaopin’s platform is inundated with fake postings by companies which were deregistered, in liquidation or flagged as abnormal operations” by Chinese authorities. Companies that Blue Orca had called out about their job postings on the website “stated directly that the postings were fraudulent”.

Blue Orca has described the Zhaopin platform as “rotten” and “devastating for Seek’s prospects”. It also takes a jab at the company’s financials, stating that Seek’s dividends give the false impression that its business produces healthy profits and cash flows, but these payments have “largely been funded by debt”. 

Rather than valuing Seek as a fast-growing online recruiting platform, Blue Orca describes the business as one that is “a slow or no-growth platform whose core business is shrinking and which carries a dangerous amount of debt”. As a result, it values Seek’s business at a “generous 20.5 times EV/adjusted EBITDA” and value’s the Seek share price at just $7.20 per share. 

Foolish takeaway 

Whether these statements are true or not, this situation is very similar to the short attack on WiseTech Global Ltd (ASX: WTC). J Capital made similar, seemingly outrageous statements such as Wisetech delivering overstated profit, suspect European growth and underperforming acquisitions. The repeated back and forth between J Capital and Wisetech was devastating for the Wisetech share price and sentiment. However, the company has since made a significant recovery from its previous lows. 

More reading

• ASX 200 down 1.1%: ANZ cash earnings down 42%, SEEK slammed, HUB24 jumps
• 5 things to watch on the ASX 200 on Thursday
• Today was mixed for the ASX 200, ending 0.1% higher
• These could be the next ASX stocks to unlock value by selling assets
• After sliding 3% this week, is Sydney Airport’s (ASX:SYD) share price a buy?

Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of WiseTech Global. The Motley Fool Australia has recommended SEEK Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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At lunch on Thursday the S&P/ASX 200 Index (ASX: XJO) is on course to record a disappointing decline due to COVID-19 concerns. The benchmark index is currently down 1.1% to 5,989.3 points.

Here’s what is happening on the market today:

SEEK shares slammed.

The SEEK Limited (ASX: SEK) share price is crashing lower today after the job listings company was targeted by a short seller. According to a note out of Blue Orca, it believes SEEK’s China-based business is full of fake listings. It also alleges that the company is paying students to make fake resumes. The short seller believes SEEK’s shares are worth only $7.20.

ANZ full year results.

The Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price is trading lower today following the release of its full year results. ANZ reported an unaudited statutory profit after tax of $3.58 billion. This was down 40% on the prior corresponding period. Its cash profit from continuing operations fell 42% $3.76 billion. A final fully franked 35 cents per share dividend was declared.

HUB24 shares surge higher.

The HUB24 Ltd (ASX: HUB) share price is surging higher on Thursday after returning from its trading halt. The investment platform provider’s shares were halted whilst it undertook a $50 million institutional placement. This placement has now been complete and will be used to acquire investment platform provider Xplore Wealth Ltd (ASX: XPL) and Ord Minnett’s non-custody Portfolio Administration and Reporting Service. The company also intends to increase its investment in integrated accounting and wealth solutions provider Easton Investments Ltd (ASX: EAS) to up to 40%.

Best and worst ASX 200 performers.

The best performer on the ASX 200 today has been the HUB24 share price with a sizeable 7% gain. Investors have responded positively to its acquisition plans. The worst performer has been the Westgold Resources Ltd (ASX: WGX) share price with a 9% decline. A number of gold miners are falling heavily today after a pullback in the gold price.

More reading

• The Seek Ltd (ASX:SEK) share price under attack by offshore shorter
• Why Coles, HUB24, Mesoblast, & Temple & Webster shares are pushing higher
• Why the HUB24 (ASX:HUB) share price is storming higher despite the market selloff
• ANZ (ASX:ANZ) share price on watch after FY 2020 results release
• 5 things to watch on the ASX 200 on Thursday

James Mickleboro owns shares of SEEK Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Hub24 Ltd. The Motley Fool Australia has recommended Hub24 Ltd and SEEK Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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In late morning trade the S&P/ASX 200 Index (ASX: XJO) has followed the lead of international markets and is sinking notably lower. The benchmark index is down 1.25% to 5,982.2 points.

Four shares that have not let that hold them back are listed below. Here’s why they are pushing higher:

Coles Group Ltd (ASX: COL)

The Coles share price is up a further 1% to $17.84. Investors have been buying the supermarket giant’s shares after brokers responded very positively to its first quarter update on Wednesday. One broker that was impressed was Morgans. It has upgraded Coles’ shares to an add rating with an improved price target of $19.40.

HUB24 Ltd (ASX: HUB)

The HUB24 share price has jumped almost 7% higher to $22.38. This morning the investment platform provider successfully completed its $50 million institutional placement. These funds will be used to acquire investment platform provider Xplore Wealth Ltd (ASX: XPL) and Ord Minnett’s non-custody Portfolio Administration and Reporting Service. In addition, HUB24 will increase its investment in integrated accounting and wealth solutions provider Easton Investments Ltd (ASX: EAS).

Mesoblast limited (ASX: MSB)

The Mesoblast share price has risen almost 1% to $3.13. This follows the release of its first quarter update this morning. This release included an update on the potential pathway to marketing approval for its lead product candidate remestemcel-L. Management continues to believe the immunomodulatory properties of remestemcel-L position this potential therapy at the forefront of treatment for severe and life-threatening inflammatory conditions. This includes COVID-19 acute respiratory distress syndrome (ARDS) and steroid-refractory acute graft versus host disease (SR-aGVHD).

Temple & Webster Group Ltd (ASX: TPW)

The Temple & Webster share price is up 2.5% to $10.91 despite there being no news out of the online furniture and homewares retailer. However, its shares have been very volatile this week, with the bulls and bears seemingly battling for control.

More reading

• Why the HUB24 (ASX:HUB) share price is storming higher despite the market selloff
• Today was mixed for the ASX 200, ending 0.1% higher
• These could be the next ASX stocks to unlock value by selling assets
• Beat low interest rates with these 2 ASX dividend shares
• Why Redbubble, Kogan, Marley Spoon and 1 other ASX share are surging

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 Hub24 Ltd and Temple & Webster Group Ltd. The Motley Fool Australia owns shares of COLESGROUP DEF SET. The Motley Fool Australia has recommended Hub24 Ltd and Temple & Webster Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Governments, businesses and citizens all over the globe have had to borrow money to survive the COVID-19 pandemic. 

But exactly how much?

Credit rating agency S&P Global Ratings has calculated that the world will owe a stunning 265% of gross domestic product by the end of the year.

That’s almost quadruple the amount of goods and services the entire planet produces.

“Since COVID-19 took hold, higher leverage, together with a challenging operating environment, has led us to lower the ratings on 22% of corporate and sovereign issuers globally,” said S&P Global Ratings senior research fellow Terry Chan.

“We project global debt to rise 10% to a massive US$200 trillion in 2020.”

The level of debt in Australia is comparable to the global rate.

According to AustralianDebtClock.com.au, all government, household and private credit in Australia currently total about $7.6 trillion.

The 2019 GDP for the nation was just under $2 trillion, according to the World Bank.

So total debt in Australia is at about 280% of GDP.

Don’t panic though, it’ll be okay

As scary as those numbers are, a debt crisis is unlikely in the short term, according to S&P Global Ratings head of research Alexandra Dimitrijevic.

“This is based on our assumption of a continuing, albeit choppy, global economic recovery,” she said.

“The recovery, in turn, is predicated on the wide availability of a COVID-19 vaccine by mid-2021, continuing accommodative financing conditions supported by monetary policies from major central banks, and the return of private-sector demand.”

Governments don’t have any choice but to borrow to prop up economies. If they don’t, a recovery will not come and unemployed citizens will struggle even more to pay off their debts.

“While governments globally are doing the heavy lifting supporting businesses and individuals, two-thirds of this year’s build-up is concentrated among G-7 sovereigns, which have strong financial markets and monetary flexibility,” Dimitrijevic said.

Business debt is indeed a worry, especially for sectors hit hard by lockdowns and other health restrictions.

“We see rising insolvency risk, with defaults likely to rise to levels not seen since the 2009 financial crisis,” said Chan. 

A saving grace for all borrowers is that interest rates are forecast to stay at historic lows well into 2023.

But a lot of known unknowns and unknown unknowns still remain.

“Our expectation that a global economic rebound will pick up speed next year is not without risks. Additional waves of COVID-19, or a delayed vaccine, could alter the trajectory to a W-shaped rebound – as could rising interest rates and a sustained dramatic widening of credit spreads, or a rebound in demand that falls short of our expectations,” Dimitrijevic said. 

“In many cases, debt-to-GDP ratios will only flatten as a result of a GDP recovery rather than debt actually declining.”

More reading

• 3 ASX shares you’ll regret not buying during this correction
• Why the HUB24 (ASX:HUB) share price is storming higher despite the market selloff
• How did ASX iron ore shares perform in the last quarter?
• GPT (ASX:GPT) share price falls after Q3 update
• Fortescue (ASX:FMG) share price lower despite record Q1 shipments

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The share market is currently going through a little bit of a correction. I think there are some ASX shares worth buying during this period.

The S&P/ASX 200 Index (ASX: XJO) is down 4.5% over the past 10 days. The NASDAQ is down around 7.5% from 12 October 2020. The share market could get even more volatile during/after the US election.

I think there are some ASX shares that are worth buying over the next week:

Redbubble Ltd (ASX: RBL)

The Redbubble share price has fallen 23% since 20 October 2020. That’s despite Redbubble recently announcing that it had a really strong first quarter.

In the first quarter it saw marketplace revenue increase by 116% to $147.5 million, gross profit soared 149% to $64.5 million and it generated $22.1 million of earnings before interest and tax (EBIT). Redbubble made $27.1 million of operating cashflow.

The artist-produced marketplace business is delivering some very impressive growth numbers. It’s this type of business model that can deliver really strong network effects as an ASX share. Both economically and with its brand. The more sellers and products there are the more customers it will hopefully attract. The more customers there are, the more that potential artist sellers will want to join the platform.

Economically, Redbubble has already developed its website. So a rising portion of new revenue will fall to the net profit line.

BWX Ltd (ASX: BWX)

The BWX share price has fallen by 20% since 14 October 2020.

The natural beauty business had a really strong FY20 with net revenue rising by 26% to $187.7 million and statutory net profit soaring 59% to $15.2 million. The multi-brand strategy is helping BWX grow its product footprint across the world.

Sukin is growing well, with exciting potential in North America. Meanwhile, Andalou Naturals and Mineral Fusion are now expanding outside of the US. I think BWX has exciting growth potential globally.

The ASX share is looking to build a new manufacturing hub in Melbourne which would make a big difference for its margins. But BWX is already seeing growth of its margins – in FY20 its gross profit margin improved to 58%.

In FY21 BWX is looking to grow its revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) by at least 10%.

At the current BWX share price it’s valued at 18x FY23’s estimated earnings.

Australian Ethical Investment Limited (ASX: AEF)

Australian Ethical’s share price is down 11% since 16 October 2020. That means it’s now down 54% since 19 June 2020.

I think the ASX share is definitely worth considering because of its long-term growth prospects. The funds under management (FUM) continues to rise each quarter. In the first quarter of FY21 it saw its FUM go up by 6.5% to $4.32 billion.

It’s benefiting from two trends. It’s being helped by the trend of people wanting to be invested ‘ethically’. Mandatory superannuation contributions are also helping steadily grow Australian Ethical’s superannuation FUM. Its managed funds’ FUM is also going up too.

Its underlying revenue and net profit went up 15% in FY20. I believe its net profit could steadily compound over the coming years as FUM keeps going up.

Fund management businesses are pretty scalable. The same team can manage $4 billion almost as easily as $4.3 billion. This will allow Australian Ethical to reduce its investment fees, which will make the investment proposition for potential members to be more attractive.

Foolish takeaway

I think each of these ASX shares have really good long-term growth potential, particularly Redbubble. I believe market selloffs are a good time to take advantage of lower share prices for the same businesses. That’s why I’m looking to invest today and over the next few weeks.

More reading

• Why Redbubble, Kogan, Marley Spoon and 1 other ASX share are surging
• Temple & Webster (ASX:TPW) share price barnstorms back with 11% rise
• The best time to invest may feel uncomfortable
• Got $1,000? You should buy one of these 8 ASX shares
• Why it makes sense to invest in ASX shares

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 Australian Ethical Investment Ltd. The Motley Fool Australia owns shares of and has recommended BWX Limited. The Motley Fool Australia has recommended Australian Ethical Investment Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The HUB24 Ltd (ASX: HUB) share price has returned from its trading halt and is defying the market selloff on Thursday.

At the time of writing, the investment platform provider’s shares are up 4% to $21.79.

Why was the HUB24 share price in a trading halt?

HUB24 requested a trading halt on Wednesday whilst it launched a $60 million equity raising to fund three strategic transactions.

These transactions comprise the acquisition of investment platform provider Xplore Wealth Ltd (ASX: XPL), the acquisition of Ord Minnett’s non-custody Portfolio Administration and Reporting Service (PARS), and an increased investment in integrated accounting and wealth solutions provider Easton Investments Ltd (ASX: EAS).

Management believes these transactions will strengthen its position as the leading provider of integrated platforms, data, and technology services for financial advisers, stockbrokers, private banks, licensees, accountants and their clients.

This morning the company took a step closer to completing these deals after announcing the successful completion of the institutional component of its equity raising.

According to the release, HUB24 has raised $50 million via a fully underwritten placement of 2.5 million new shares to institutional and sophisticated investors at a price of $20 per new share. This represents a 4.6% discount to its last close price.

Management advised that the placement attracted strong demand from existing HUB24 shareholders, as well as new investors.

What now?

HUB24 will now push ahead with its share purchase plan, which is aiming to raise a further $10 million from retail investors.

Eligible HUB24 shareholders will have the opportunity to apply for up to $30,000 worth of new shares. This is free of any brokerage, commission, or transaction costs, and at the same price as the institutional placement.

Why is HUB24 making these transactions?

Management notes that the transactions will increase the funds under administration (FUA) across the combined company to $42 billion ($28 billion in custody and $14 billion in non-custody).

It will also introduce additional capability to HUB24’s market leading platform and allow the company to benefit from the addition of new relationships. This includes two significant new clients who have indicated that these strategic transactions represent a positive outcome for their advisers and their clients.

In respect to earnings, HUB24 expects the transactions to deliver approximately 13% earnings per share accretion in FY 2022.

More reading

• ASX 200 flat: Afterpay impresses, Coles beats expectations, & HUB24 in a trading halt
• Why the HUB24 (ASX:HUB) share price is in a trading halt
• 5 ASX shares hitting record all-time highs this week
• Why HUB 24 (ASX:HUB) and these ASX shares are hitting new highs
• ASX 200 jumps more than 1%, big ASX banks rise

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 Hub24 Ltd. The Motley Fool Australia has recommended Hub24 Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The iron ore spot price is at a record 6-year high of around US$121 per tonne. This has been driven by significant iron ore demand from China and supply issues from iron ore producing countries such as Brazil and India.

China has a massive appetite for the world’s industrial metals, and when the country emerged from its COVID-19 woes in March, the government unleashed a flurry of fiscal stimulus aimed at building bridges, roads, utilities, broadband and railroads around the country.

The speed and size at which the country mobilised for economic recovery can only be described as unprecedented, in a good way. In August, its state railway operator announced plans to double its high-speed railway network by 2035. In Guangdong, the city has also put its chips in infrastructure amid slowing growth and plans to spend approximately 700 billion yuan (US$100 billion) this year on public medical facilities, 5G networking and transportation infrastructure. This significant move into infrastructure spending has seen the Chinese economy rebound 4.9% in the July to September quarter.

With iron ore prices holding record highs, let’s take a look at what this means for ASX iron ore shares.

BHP Group Ltd (ASX: BHP)

The BHP share price was largely flat during the 3 months ended 30 September. This is in line with the performance of the S&P/ASX 200 Index (ASX: BHP) more broadly, and during a period where iron ore prices had peaked.

As a diversified resources company, BHP derives approximately 64% of its earnings before interest, taxes, depreciation and amortisation (EBITDA) from iron ore, 19% from copper, 9% from metallurgical coal, and 10% from petroleum as per its FY20 results. Iron ore not only generates the most revenues, but also produces the highest EBITDA margins at 70% and the highest return on capital employed (ROCE) at 56%.

In its recent Q1 results, BHP reported iron ore production of 66.04mt, which is a 1% quarter on quarter decline, but is up 7% on the prior corresponding period. Management noted that record quarterly production at Jimblebar and strong supply chain performance offset the impact from planned major car dumper maintenance.

BHP’s earnings were relatively flat year-on-year as iron ore prices had spiked in a similar fashion in FY19. Its underlying EBITDA fell 5% to US$22.1 billion while underlying basic earnings per share (EPS) improved by 2% to US$179.2 cents per share. All things considered, BHP delivered a fair result despite 2 cyclones earlier in the year that could have materially lowered production.

Rio Tinto Limited (ASX: RIO)

Similarly, the Rio Tinto share price was also flat during the quarter ended 30 September. The company follows a similar distribution of earning as BHP with approximately 76% of its underlying EBITDA derived from iron ore, 9% from aluminium, 7% from copper and diamonds and 7% from energy and minerals as per 1H20 results.

The 1H20 results highlighted a 12% fall in operating cash flow to US$5.6 billion compared to 1H19, mainly due to lower prices and effect of timing differences. In June 2020, it made a final payment of $1.0 billion in Australian income tax with respect to 2019 profits. Its earnings were marginally weaker due to lower prices for aluminium and copper, while iron ore prices remained stable.

In Rio Tinto’s more recent third quarter production results, the company commented that global economic activity in the third quarter was generally strong and helped sustain optimism for a widespread recovery in 2021. However, it also pointed out that recent data suggests that the rate of recovery in growth is slowing in most economies, with pent-up demand dissipating and the rise of renewed lockdowns threatening recovery.

Furthermore, management highlighted that commodity demand in China has been strongly supported by commodity-intensive stimulus measures. However, this is against the backdrop of recovering seaborne supply that was disrupted earlier in the year, with major producers expected to deliver strong volumes in the fourth quarter.

It also noted that steel production ex-China remains down significantly, year on year.

Fortescue Metals Group Limited (ASX: FMG)

The Fortescue share price almost looks like a tech stock, having soared more than 60% this year. However, as a pure iron ore player with some of the lowest production costs in the world, in my view Fortescue could double in share price and still look cheap.

The company’s full year FY20 results highlight an outstanding year for shareholders with underlying EBITA increasing 38% to US$8.4 billion, net profit after tax increasing 49% to US$4.7 billion and a fully franked final dividend of A$1.00, lifting total dividends declared in FY20 to A$1.76 per share. 

In its Q1 results released this morning, Fortescue reported a strong start to FY21. In the quarter ended 30 September, mining, processing, rail and shipping combined to deliver record first quarter iron ore shipments of 44.3mt, 5% higher than the prior comparable period and 6% lower than Q4 FY2 (this reflected planned seasonal maintenance activity).

Fortescue reported C1 costs of US$12.74/wet metric tonne in Q1 FY21 were 2% lower than the prior comparable period. The miner also confirmed its Eliwana Mine and Rail and Iron Bridge Magnetite projects remain on schedule, with key milestones delivered for both projects in the latest quarter.

Fortescue recorded strong free cash flow generation in the quarter, which contributed to net cash of US$1.0 billion at 30 September 2020, compared to net debt of US$0.3 billion at 30 June 2020. 

Foolish takeaway

Rio Tinto’s recent commentary could make the case that iron prices have peaked, following surging demand from China and increasing iron ore supply from the rest of the world. This could potentially see some weakness in ASX iron ore shares in the short term, particularly in the Fortescue share price as it only mines iron ore.

However, while iron ore prices may take a breather, China has reiterated its focus on infrastructure and its consumption is likely to remain high to meet its key GDP growth targets.

In my view, the ASX iron ore shares are at a reasonable price level, highly profitable and currently pay market-leading dividends. While I wouldn’t classify them as growth shares, I believe their low production costs could make them a consistent ASX 200 dividend option for the long term.

More reading

• Fortescue (ASX:FMG) share price lower despite record Q1 shipments
• 3 ASX stocks are outperforming today after brokers upgraded them to “buy”
• Why China’s new COVID outbreak is seeing the Aussie dollar fall… and what this means for ASX shares
• ASX 200 Weekly Wrap: ASX snaps winning streak… just
• Buy these blue chip ASX shares for generous dividends in 2021

Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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