In late morning trade the S&P/ASX 200 Index (ASX: XJO) is fighting hard to stay in positive territory. At the time of writing the benchmark index is up 0.15% to 6,023.3 points.

Four shares that are climbing more than most today are listed below. Here’s why they are zooming higher:

The Australian Ethical Investment Limited (ASX: AEF) share price is up 6% to $6.74. This follows the release of its profit guidance for FY 2020 this morning. The ethical fund manager revealed that it expects underlying profit after tax to be between $9 million and $9.5 million. The mid-point of this guidance range represents an increase of 41% on the 12 months ended 30 June 2019.

The Magellan Financial Group Ltd (ASX: MFG) share price is up 3.5% to $64.45. Investors have been buying the fund manager’s shares after the release of its latest funds under management update. According to the update, in June, Magellan experienced net inflows of $249 million. This comprised net retail inflows of $173 million and net institutional inflows of $76 million.

The St Barbara Ltd (ASX: SBM) share price has jumped over 8% to $3.57. This follows the release of the gold miner’s quarterly production update this morning. Fourth quarter gold production came in at 108,612 ounces, which lifted its full year production to 381,887 ounces. This was in line with its full year production guidance of 370,000 to 400,000 ounces. St Barbara closed the year out with A$406 million in cash and term deposits.

The Sezzle Inc (ASX: SZL) share price has rocketed 14% higher to $4.65 after releasing its second quarter update. During the quarter, Sezzle’s underlying merchant sales came in at US$188 million (A$272.3 million). This represents a 58% quarter on quarter increase and a 349% year on year increase. This was driven by strong growth in active customers, active merchants, and repeat usage.

More reading

• St Barbara share price lifts 6% on record quarterly production
• Sezzle share price rockets 20% higher on record Q2 result
• Top brokers name 3 ASX shares to sell next week
• 5 things to watch on the ASX 200 on Friday
• This ASX fund manager is still ultra-bearish on shares

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Australian Ethical Investment Ltd. The Motley Fool Australia has recommended Australian Ethical Investment Ltd. and Sezzle Inc. 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 Why Australian Ethical, Magellan, St Barbara, & Sezzle shares are zooming higher appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/2VQfnyE

After a strong start to the day, in late morning trade the S&P/ASX 200 Index (ASX: XJO) has given back the majority of its gains and is trading only ever so slightly higher at 6,019.7 points.

Four shares that have failed to follow the market higher today are listed below. Here’s why they are tumbling lower:

The Lovisa Holdings Ltd (ASX: LOV) share price is down 4.5% to $6.95. On Monday analysts at Macquarie retained their neutral rating and lifted their price target on the jewellery retailer’s shares to $6.00. With Lovisa’s shares now trading well beyond this price target, investors may be taking a bit of profit off the table after a strong gain this month.

The New Hope Corporation Limited (ASX: NHC) share price has fallen 5% to $1.39. This appears to have been driven by a broker note out of Credit Suisse this morning. According to the note, the broker has downgraded its coal price forecasts materially. This has led to the broker retaining its neutral rating but cutting its price target on New Hope’s shares to $1.40.

The Temple & Webster Group Ltd (ASX: TPW) share price is down 3% to $7.13. It looks as though investors are taking profit after some incredible gains by the homewares retailer’s shares. Prior to today, the Temple & Webster share price was up a whopping 400% from its March low. Investors have been buying its shares after the pandemic accelerated the shift to online shopping.

The Whitehaven Coal Ltd (ASX: WHC) share price is down 5% to $1.50. This also appears to have been driven by the note out of Credit Suisse. Investors appear concerned by the broker’s bearish view on coal prices. Though, it is worth noting that the broker has retained its overweight rating on Whitehaven Coal’s shares. It has lowered its price target to $2.25.

More reading

• Leading brokers name 3 ASX shares to buy today
• ASX 200 Weekly Wrap: Afterpay, Tech push ASX 200 back above 6,000
• Here are 3 ASX COVID-19 success stories
• 10 more top broker ASX share picks for FY21
• 2 dirt-cheap ASX shares to buy next 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 Temple & Webster Group Ltd. The Motley Fool Australia has recommended 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.

The post Why Lovisa, New Hope, Temple & Webster, & Whitehaven Coal are tumbling lower appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/2Daxo4k

The St Barbara Ltd (ASX: SBM) share price is up by 6.69% today after the gold miner provided a production update. St Barbara announced full year gold production of 381,887 ounces, in line with its guidance of 370,000 to 400,000 ounces. 

What does St Barbara do? 

Named after the patron of miners, St Barbara is an Australian-based gold explorer and producer. The company has assets across Western Australia, Papua New Guinea, and Canada. Listed in 1969 as Endeavour Oil, St Barbara has focused on gold production since the early 2000s.

As at June 2019, St Barbara had resources of approximately 12 million ounces of contained gold including ore reserves of 5.9 million ounces of contained gold. 

What did St Barbara announce today?

St Barbara announced that it produced 108,612 ounces of gold during the June quarter, up from 91,547 ounces in the March quarter. This was the first time St Barbara produced more than 100,000 ounces of gold since Q4 FY18. Over the full year, 382,887 ounces of gold were produced, in line with guidance. 

The Atlantic Gold operation in Nova Scotia, Canada, produced a record 106,663 ounces of gold over the full year. The Gwalia gold mine in Western Australia produced 171,156 ounces of gold, recording improved production performance following an operational review. The Simberi mine in Papua New Guinea delivered 104,068 ounces of gold for the full year. 

Commenting on the results, St Barbara managing director and CEO Craig Jetson said, “the quarter indicated the potential of the company, with quarterly production of over 100,000 ounces for the first time in two years. 2020 marks a new era in the evolution of St Barbara.” 

About the St Barbara share price

St Barbara generated net cash of $86 million during the fourth quarter, ending FY20 with $406 million in cash and term deposits. The miner has benefitted from rising gold prices over 2020. The gold price has risen from below $2,300 an ounce in January to nearly $2,600 an ounce currently. 

The St Barbara share price has been on the rise since hitting a low of $1.66 in March and is now up 111% to $3.51 per share at the time of writing.

More reading

• Why Australian Ethical, Magellan, St Barbara, & Sezzle shares are zooming higher
• Top brokers name 3 ASX shares to sell next week
• Should you buy ASX gold shares like Saracen Minerals in July?
• Why the share prices of these 3 gold miners climbed higher on Monday
• Where to invest for reliable dividend shares

Motley Fool contributor Kate O’Brien 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.

The post St Barbara share price lifts 6% on record quarterly production appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/2ZC2GIQ

The Musgrave Minerals Ltd (ASX: MGV) share price hit all-time highs yesterday on the back of another new gold discovery at its Starlight project.

The small cap ASX miner has been going from strength to strength this year on the back of multiple new discoveries. 

What did Musgrave announce?

Yesterday, Musgrave Minerals reported findings for a further for a further 8 reverse circulation (RC) drill holes at the new Starlight gold discovery. These finds follow on the announcement made by Musgrave Minerals last month that sent the share price storming up 40%.

The significant findings from yesterday’s announcement were as follows:

• 85m @ 11.6g/t Gold from 7m (20MORC058) including;
  • 8m @ 99.0g/t Gold from 7m including;
    • 3m @ 254.2g/t Gold from 8m and
  • 4m @ 45.5g/t Gold from 38m and
  • 6m @ 9.4g/t Gold from 86m

• 68m @ 5.9g/t Gold from 21m (20MORC057) including;
  • 8m @ 48.5g/t Gold from 21m (20MORC057) including;
    • 1m @ 300.4g/t Gold from 22m

• 9m @ 10.7g/t Gold from 52m (20MORC055) including;
  • 6m @ 15.7g/t Gold from 52m

• 6m @ 32.3g/t Gold from 61m (20MORC061) including;
  • 1m @ 163.3g/t Gold from 62m

All the gold that was intercepted in the most recent report was outside the existing resource estimate for the project. The results confirm and extend the high-grade gold mineralisation in the area. The miner confirmed that diamond drilling is underway to test the depth extent of the Starlight lode below 200 vertical metres.

Commenting on the results, Musgrave managing director Rob Waugh said:

Starlight continues to produce stunning gold results in near surface drilling. Further RC drilling is underway to infill and extend the Starlight mineralisation with the aim of completing a JORC resource update late in Q3 2020. Drilling is continuing with two rigs on site and we are confident we can extend Starlight and the new White Light lode and make significant new discoveries in the belt.

About the Musgrave Minerals share price

Musgrave Minerals shares have been storming higher since the middle of June, reaching new highs of above 61 cents. The miner’s shares have returned 701% since this time last year.

The Musgrave Minerals share price has opened slightly lower today, sitting around 58 cents per share, which puts Musgrave’s market capitalisation at $271.87 million at the time of writing.

More reading

• Musgrave Minerals share price jumps 40% after revealing bonanza gold results

The post Why the Musgrave Minerals share price was storming higher yesterday appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/2BI5iwU

The QBE Insurance Group Ltd (ASX: QBE) share price is pushing higher in morning trade on Tuesday.

At the time of writing the insurance giant’s shares are up over 2% to $9.62.

Despite now trading 35% higher than its March low, the QBE share price is still down a sizeable 37% from its 52-week high.

Is the QBE share price in the buy zone?

One broker that sees the weakness in the QBE share price in 2020 as a buying opportunity is Goldman Sachs.

Earlier today the broker added the company to its conviction buy list with a price target of $11.26.

This price target implies potential upside of 17% for QBE’s shares over the next 12 months. This potential return stretches to over 22% if you include its estimated dividends for FY 2021 of 52 cents per share.

Why is Goldman Sachs bullish on QBE?

According to the note, the broker believes there are two medium-term opportunities for QBE that could generate value for investors.

The first is upside from putting (potential) excess capital to work, whereas the other is margin expansion from operating leverage.

In respect to its excess capital, Goldman Sachs sees ~US$100 million+ upside to its net profit after tax if QBE were to move back to its target prescribed capital amount (PCA) range.

The broker commented: “We estimate QBE is likely to report a PCA ratio around 1.9x in FY20 following the completion of its capital plan, plus what we forecast to be a small loss for the year.”

“[…] intentions behind the capital actions taken in the early days of the pandemic were a mix of fortifying the balance sheet ahead of potential COVID-19 related headwinds [and] boosting flexibility to capitalise on any dislocation in the industry.”

However, it notes that risks around the balance sheet are now receding meaningfully. As a result, the broker expects QBE to be “left with adequate flexibility to explore both selective growth and investment portfolio repositioning.”

“We expect QBE could achieve c.US$100m+ in incremental NPAT if it felt comfortable to return toward a PCA ratio closer to the mid-point of its 1.6-1.8x target range,” it explained.

Margin expansion.

The broker also believes that the pandemic is unlikely to derail the solid momentum of QBE’s efficiency program.

Combined with a positive premium mix and its belief that it is well-placed to weather hardening reinsurance rates, Goldman sees scope for ~1.2%+ margin expansion from operating leverage through to FY 2021.

Should you invest?

While I’m not a big fan of QBE, I do think Goldman Sachs makes some great points and it could be worth considering at the current level. Especially for income investors given its estimated 5%+ yield in FY 2021.

More reading

• 5 things to watch on the ASX 200 on Tuesday
• Why the Dorsavi share price rocketed 277% higher yesterday
• Fund managers have been snapping up Sonic and these ASX 200 stocks
• ASX 200 falls 0.9%, Afterpay share price hits new record
• ASX winners and losers from last week

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. 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 Leading broker adds QBE shares to conviction buy list appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/2Z7kJrE

The Afterpay Ltd (ASX: APT) share price has been going nuts in 2020. In just six months, the share price of the buy now, pay later (BNPL) operator has risen by a staggering 120%. Afterpay now lords over a market capitalisation of more than $18 billion.

It’s an eye-popping increase and a reflection of the rapid revenue growth the company is chalking up. Investors are expecting big things and, as such, the Afterpay share price is hot.

But Afterpay does not operate in a vacuum. In a market economy, high returns attract competition like honey attracts bears and eventually the high returns can get competed away.

The BNPL sector is crawling with ASX listed competitors including Splitit Ltd (ASX: SPT), Zip Co Ltd (ASX: Z1P), Openpay Group Ltd (ASX: OPY) and Sezzle Inc (ASX: SZL). And let’s not forget FlexiGroup Limited (ASX: FXL) which is desperately throwing the kitchen sink at the BNPL space with its products ‘humm’, ‘bundll’ and OXIPAY.

Does Afterpay have a competitive advantage?

So it’s worth asking; in such a competitive space, does Afterpay really have a sustainable competitive advantage? Without this economic moat, competitors will start to erode Afterpay’s market share. If that is likely to happen, we’ll want to ensure we pay less for the company’s shares today.

One of the reasons Afterpay has attracted so much attention is because it looks like it has the makings of a company with a growing network moat. That is, the more places you can use Afterpay, the more valuable it becomes. This helps to explain the rapid roll-out of Afterpay to as many big-name retailers as possible.

The appeal of network-based moats is that they can result in natural monopolies and oligopolies over time. Facebook, eBay and Airbnb are examples of this ‘winner takes all’ type domination.

It is a juicy prospect. However, most powerful network moats also need to have high switching costs to keep users around. For example, a new auction website competing with eBay will have fewer buyers and sellers, making it hard for me to get a great price for what I’m selling.

Can the Afterpay share price continue rising?

What does Afterpay have to protect itself from the onslaught of competition, to trap both retailers and consumers on its island? You might think all that data is worth something. But as respected venture capital firm Andreessen Horowitz notes, data itself offers little additional protection to network moats.

Perhaps Afterpay can use its scale to lower the costs to merchants and therefore prevent competitors from stealing market share. But I feel like merchant fees are likely to be competed down over time anyway. The BNPL service is essentially a commodity offering and there is little that will stop competitors undercutting each other to win share.

Foolish takeaway

I think it could be argued that Afterpay’s rapid growth has formed a small, network-based moat. But moats aren’t worth much to us unless they are sustainable. My concern is that aggressive competition will compete away Afterpay’s advantage over time and I would be careful to factor that in to the price I pay for its shares today.

More reading

• Sezzle share price rockets 20% higher on record Q2 result
• Afterpay expects sales to double to $11bn and launches $800m cap raise
• The FlexiGroup share price is lagging its BNPL peers. Should you buy?
• Are Afterpay shares the next Visa?
• ASX 200 falls 0.7%, Qantas and Afterpay make a partnership

Regan Pearson has no position in any of the stocks mentioned.

You can follow him on Twitter @Regan_Invests.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended FlexiGroup Limited and Sezzle Inc. 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 Does Afterpay have a competitive advantage? appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/3ecNIi5

On Monday, the Allegra Orthopaedics Ltd (ASX: AMT) share price soared 502.27% as it announced the acquisition of patents from the University of Sydney.

What were the patents?

The patents acquired were related to a bio ceramic material that can be used as a synthetic bone substitute. The material is known as Sr-HT-Gahnite. 

Allegra Orthopaedics issued 4,806,000 ordinary shares to the University of Sydney in exchange for the patents.

The company has been working with the University of Sydney since 2014, exclusively licensing the Sr-HT-Gahnite material.

According to the announcement, the material is able to simulate the performance of natural bone by achieving the mechanical strength required for load-bearing application. It is also capable of the bioactivity required for bone regeneration. The material can be reabsorbed, which reduces long term complications. Additionally, it is suitable for 3D printing.

With the use of this material, Allegra is working towards developing and commercialising implants that it says will offer a revolutionary approach to surgeries.

Allegra has previously commenced the commercialisation of an interbody cervical spinal cage that utilises the material. This device could be the world’s first fully synthetic spinal cage that will be able to regenerate bone under spinal load conditions and be completed absorbed by the body which will leave the body free of foreign materials. 

Commenting on the news, Allegra CEO Jenny Swain stated:

We are very excited about the acquisition of these patents as we believe this material will enable us to create and commercialise highly desirable implants with unique properties that we can bring to the market. The acquisition of these patents is recognition of our ability to identify and work collaboratively with academic organisations such as the University of Sydney to bring innovative products to market and strengthens our company’s innovative capacity.

About the Allegra Orthopaedics share price

Allegra Orthopaedics develops and supplies various bone replacement technologies. Its primary product is the Active Total Knee, which works as a prosthetic knee. It is also licensed to distribute hip, knee and lower limb replacements.

The company reported in June that it expects sales revenue for the 2020 financial year to be 20–25% higher than sales revenue in the 2019 financial year. Sales growth was driven by the company’s LINK orthopaedic implant product range and the introduction of a new face shield product in April 2020, which has seen high demand due to the coronavirus pandemic. However, Allegra expects only marginal improvement in its net profit or loss for the 2020 financial year due to costs from its innovations division.

As at yesterday’s close, the Allegra Orthopaedics share price has risen 783% from its 52-week low of $0.06, and is up 165% since the beginning of the year. Since this time last year, the Allegra Orthopaedics share price is up by 382%.

More reading

• 5 things to watch on the ASX 200 on Tuesday
• Kogan and 1 other ASX share to buy and hold beyond 2025
• 2 ASX shares I would buy for growth and income
• 2 five-star ASX shares for strong long-term growth
• The most popular US shares that Aussies are buying includes a few surprising names

Motley Fool contributor Chris Chitty 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.

The post Up 500%: Allegra Orthopaedics share price goes sky high following acquisition of patents appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/38wWLcg

The Sezzle Inc (ASX: SZL) share price has been a strong performer on Tuesday.

In morning trade the buy now pay later provider’s shares are charging 20% higher to a record high of $4.88.

Why is the Sezzle share price surging higher?

While Afterpay Ltd (ASX: APT) may be stealing the headlines today with its capital raising and impressive trading update, its smaller buy now pay later rival has also released a very positive update of its own.

According to the release, Sezzle’s strong form continued in the second quarter with stellar underlying merchant sales (UMS) growth.

Sezzle reported UMS of US$188 million (A$272.3 million) for the quarter. This represents a 58% quarter on quarter increase and a 349% year on year increase.

Key drivers of this growth were increases in active customers, active merchants, and usage.

At the end of the quarter there were 1.48 million active customers using its platform. This is up 28% from the last quarter and 243% from the prior corresponding period.

It was a similar story for active merchants, which rose 27% quarter on quarter to 16,112. This is an increase of 219% from the same period last year.

Management also notes its improving consumer profile. Repeat usage improved over 10 points year on year to 87.5% for June 2020 compared to 77.2% in June 2019. Pleasingly, its performance in June represents the 18th straight month of sequential improvement.

Sezzle’s Executive Chairman and CEO, Charlie Youakim, commented: “In these uncertain times, we are fortunate to announce record Q2 results across a number of our key metrics. Our performance reaffirms our product’s utility to consumers looking for a smarter way to budget their personal finances and the overall market shift to eCommerce.”

“Our strong performance in Q2 is reflective of an improving consumer profile combined with an accelerated adoption of eCommerce due to the pandemic. The undercurrent of organic growth that we are experiencing is exciting to see as our business matures. The gains in repeat customer usage and frequency of purchases by cohorts are key drivers to lower loss rates and greater net transaction margin (NTM),” he added.

Outlook.

Management appears confident that its strong form can continue.

It anticipates that by the end of 2020, it will have achieved an annualised run rate for UMS exceeding US$1 billion (A$1.4 billion) per annum.

More reading

• Does Afterpay have a competitive advantage?
• Afterpay expects sales to double to $11bn and launches $800m cap raise
• The FlexiGroup share price is lagging its BNPL peers. Should you buy?
• Are Afterpay shares the next Visa?
• ASX 200 falls 0.7%, Qantas and Afterpay make a partnership

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Sezzle Inc. 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 Sezzle share price rockets 20% higher on record Q2 result appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/3iAdaRV

On 1 July, the Prime Minister announced a $270 billion defence spending plan to upgrade the Australian Defence Forces (ADF). He made specific references to long-range missile systems, highly sophisticated sensor technology, as well as a very large spending commitment on ships. Reinforcing the need for the ramp up, Mr Morrison said:

“We have moved into a new and less benign strategic area, one in which the institutions and patterns of cooperation that have benefitted our prosperity and security for decades are now under increasing, and I would suggest, almost-irreversible strain“.

The Prime Minister’s many references to the Indo-Pacific region also raises the possibility of additional defence spending from other countries in our region over the coming years.

Which ASX shares are likely to benefit from the defence spending spree?

Some of the companies below already have sizable contracts with the ADF. Others are likely to see increases in revenue from this newly announced spending program. Less clear is the impact on ASX shares of any additional regional spending resulting from increasing global tensions.

Shipbuilding

The announcement of the $270 billion investment in Australia’s defence forces made mention of ship building activities already underway. On 1 May, Austal Limited (ASX: ASB) announced it had won a $324 million contract from the Royal Australian Navy to design and construct 6 Cape-class patrol vessels. This addition will grow the nation’s fleet to 18. Furthermore, in June the company announced a US$43 million modification to a previously awarded Littoral Contract Ship (LCS) contract with the United States Department of Defence. 

Highlighting the importance of Austal to the US defence forces, the company also announced in late June the provision of US$50 million in funding from the US government. This is to maintain, protect, and expand US domestic production of steel shipbuilding capabilities for capital projects over the next 24 months.

In February, Austal had a forward order book of $4.9 billion and has announced several contract wins during the lockdown period. In fact, the company upgraded its earnings guidance for FY20. It is on schedule to deliver earnings before interest and taxes of $125 million, up by $15 million or 13.6% on the prior corresponding period.

Advanced weaponry

Electro Optic Systems Holdings Limited (ASX: EOS) saw its share price rise by 23.31% on Monday. This was on top of a 10.8% increase the previous week. 

The company has been hot property since the Prime Minister’s speech. On Friday, Electro Optic Systems announced that it was in negotiations with the Commonwealth Government for 251 remote weapons stations (RWS) to be purchased over 12 months. Electro Optic is the global market leader in lightweight remote weapons systems.

The company sells a range of products for the defence sectors. These include a communications platform it recently acquired after purchasing the satellite communications business, Audacy Corporation. So while it is an early beneficiary of the $270 billion defence spending, I certainly don’t think this will be the last contract the company will win under the plan. 

While Electro Optic is necessarily opaque, we do know it has a range of active defence contracts with various navies in NATO as well as previous RWS sales in South East Asia. I expect Electro Optic will continue to benefit from additional sales within the South East Asian region in the near future. 

Defence materials

There are a number of small-cap defence contractors with proven track records listed on the ASX. Many of these are likely to benefit from increased defence spending both locally and from within the region. 

One such example, with a market cap of $71 million, is Quickstep Holdings Limited (ASX: QHL). The company is Australia’s leading independent manufacturer of advanced carbon fibre composite components. These are used across the defence aviation sector. 

Quickstep is an approved supplier for the international Joint Strike Fighter (JSF) program – the largest military aerospace program in the world. Quickstep supplies more than 30 individual components with content on every aircraft produced. It has has an international client base and saw total sales lift by 14% in H1 FY20.

Unlike Electro Optic and Austal, this company is not a primary supplier of machines, it provides materials to others. Nonetheless, it has a rolled gold client list, including; Lockheed Martin, BAE Systems, and Boeing Defense. As defence spending rises not only in Australia but also within the region, I expect Quickstep to be a beneficiary.

The Quickstep share price has jumped 25% since the Prime Minister’s speech outlining the $270 billion defence plan.

Foolish takeaway

The companies listed above are active defence contractors with robust and largely local supply chains. Additionally, all three have mature manufacturing capabilities and are trusted suppliers to both the ADF and US defence forces. As the $270 billion defence spending starts to roll out, I’m confident these companies will benefit, both locally and internationally.

More reading

• 3 innovative ASX shares to buy
• Why Electro Optic Systems, Mayne Pharma, Tyro, & WAM Leaders are racing higher
• EOS share price on watch following defence spending talks
• Electro Optic Systems share price on watch after winning major government defence contract
• Why you can expect further gains for ASX shares this quarter

Daryl Mather owns shares of Austal Limited and Electro Optic Systems Holdings Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Austal Limited and Electro Optic Systems Holdings Limited. The Motley Fool Australia has recommended Electro Optic Systems Holdings 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 3 ASX shares for the $270 billion defence plan appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/2Z5vfzB