The Orica Ltd (ASX: ORI) share price has dropped by 4.7% to $16.16 at the time of writing.

This comes after revealing a 31% reduction in its statutory net profit after tax (NPAT) in its full year results released this morning.  

Main highlights of Orica’s FY20 results

Orica chief executive Alberto Calderon says that the company was operating in an extremely difficult market this year as COVID-19 severely impacted its customers in the emerging markets countries.

He also attributed the fall in earnings to the higher gas costs on the east coast of Australia, which directly increased the company’s expenses.

Nevertheless, Calderon is still optimistic, saying that the explosives maker will deliver a “significant” increase in earnings in the year ahead.

Some of the headline metrics announced by Orica today were:

• NPAT for the 12 months ended 30 September was $168 million, down 31% on the prior corresponding period
• Underlying EBIT of $605 million, down 9%
• Those numbers were on the back of a 5% drop in revenue to $5.61 billion
• Underlying earnings per share (EPS) decreased by 23% to 75.7 cents per share.
• An unfranked final dividend of 16.5 cents per share to be paid on 15 January 2021

Calderon stated:

While the COVID situation means the year ahead cannot be predicted with any great certainty, the impacts are temporary. With most of our customers operations returning to pre-COVID activity, we have cautious optimism about the year ahead. With continued momentum, we expect to deliver a significant increase in EBITDA and a return to EBIT growth in the year ahead.”

We will stay focused on what we can control – making our operations as efficient as possible, driving our growth engines, and working hard to minimise our impact on the environment and deliver climate-resilient economic growth.

Milestones achieved

There was a bright side to today’s downbeat results as Orica announced several milestones it says it has achieved during the year.

These include the successful acquisition of Exsa and the commencement of the production of ammonium nitrate in its Burrup plant.

Orica says that it has also rolled out its BlastIQ platform to 87 sites – which would enable the company to gain insights into and digitally manage the drill and blast information and processes.

The company says that it has reduced its greenhouse gas emission by 9% during the financial year, and has new reduction targets of at least 40% by 2030.

The Orica share price performance in 2020

The Orica share price has performed dismally in 2020, having lost 23% in a year headlined by the pandemic. The share price was at one point trading as low as $14.27 in March, before arriving at yesterday’s closing price of $16.97. At this price, Orica commands a market cap of $6.9 billion.       

Orica is one of the world’s largest suppliers in providing commercial blasting and tunneling solutions. It manufactures and distributes a wide variety of explosives and blasting chemicals and products to the mining, energy, and infrastructure sectors. It was founded in 1874 and is now a top 50 ASX company by market cap.

More reading

• Why the Atlas Arteria (ASX:ALX) share price is falling today
• Here’s why the Regis (ASX:REG) share price has soared by 21% today
• Why the City Chic (ASX:CCX) share price is edging lower today
• Could the Aristocrat (ASX:ALL) share price be a leading ASX 200 growth share?
• Mesoblast (ASX:MSB) share price rockets higher on major Novartis agreement

Motley Fool contributor Eddy Sunarto 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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Aristocrat Leisure Limited (ASX: ALL) shares demonstrated significant strength after the company announced its full year results on Wednesday this week. The Aristocrat share price slumped 6% on open before making a sharp recovery to close 4% higher. From trough to peak, this represents a 10% move in share price in just one day. 

At face value, the company’s results appeared to be weak given the slump in earnings. However, big brokers reacted positively to the results, especially with the growth in Aristocrat’s digital business. All things considered, could the Aristocrat share price be a leading ASX 200 growth share to buy? 

Full year results recap 

Aristocrat’s group revenue decreased 5.9% to $4.1 billion, reflecting a 32% decrease in its gaming (land-based) revenue as a result of customer venue closures and social distancing restrictions. This was largely offset by a 29% growth in its digital revenues. 

Earnings before interest, tax, depreciation and amortisation (EBITDA) was 32% lower than the prior corresponding period at $1,089.4 million. Despite lower earnings, Aristocrat maintains a significant balance sheet with almost $2 billion of available liquidity at 30 September 2020. 

Management appears to be confident with the company’s financial position and authorised a final fully franked dividend of 10 cents per share.  

Brokers upgrade Aristocrat share price target 

Despite a fall in earnings and the Aristocrat share price trading at a price-to-earnings (P/E) ratio of more than 70, big brokers are bullish on its outlook. 

Citigroup Inc (NYSE: C) raised its Aristocrat share price target from $34.60 to $40.60 and retains a buy rating. This represents almost a 20% upside to Aristocrat’s current share price of $33.90 (at the time of writing). The broker believes Aristocrat’s FY20 results were conservative and leave the door open for positive surprises in the first half of FY21. Citi increased its expected earnings for Aristocrat for FY21 by 7% and for FY22 by 10%. 

Similarly, UBS Group (NYSE: UBS) raised its Aristocrat share price target from $34.25 to $38.80 and retains a buy rating. The broker was impressed by the company’s ability to capitalise on digital business.

Credit Suisse Group (NYSE: CS) was more conservative in its share price upgrade from $30.00 to $37.60 with an outperform rating. It notes that Aristocrat’s United States gaming operations were a highlight, but that the Australian contraction reinforced ongoing risks. 

Macquarie Group Ltd (ASX: MQG) largely maintained its Aristocrat share price target from $31.50 to $32.00 with a neutral rating. While it cites better than expected FY20 results, the broker was disappointed by Aristocrat’s progress on controlling costs. 

More reading

• Why the Aristocrat Leisure (ASX:ALL) share price can go higher from here
• ASX 200 rises again on Wednesday
• Why Aristocrat Leisure, Chalice Gold, Westpac, & Whitehaven Coal shares are charging higher
• ASX 200 up 0.35%: Aristocrat FY 2020 results, big four banks higher, a2 Milk update
• Aristocrat Leisure (ASX:ALL) share price in focus after FY 2020 results

Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group 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 Mesoblast limited (ASX: MSB) share price is rocketing higher on Friday morning.

In early trade, the biotechnology company’s shares are up 20% to $3.95.

What did Mesoblast announce?

Mesoblast was busy with the announcements this morning, releasing its quarterly results and revealing a new collaboration with a major pharmaceutical company.

In respect to its quarterly results, Mesoblast reported a 92.3% decline in revenue to US$1.3 million for the first quarter. This was due largely to a US$15 million milestone payment received in the prior corresponding period.

Royalty revenue on sales of TEMCELL HS in Japan decreased US$0.6 million to US$1.3 million for the quarter. This was driven by a temporary shutdown in production by JCR Pharmaceutical as it expands its facility capacity to meet increasing demand.

Research and development costs increased 55.6% to US$19.3 million, manufacturing costs lifted 340% to US$11.9 million, and management and administration costs grew 40% to US$7.7 million.

This ultimately led to Mesoblast reporting a loss after tax of US$24.5 million for the quarter, compared to a loss of US$5.5 million a year earlier.

At the end of the period, Mesoblast had cash on hand of US$108.1 million. However, this has since been boosted to pro-forma cash on hand of US$158.1 million due to the collaboration revealed below.

Novartis collaboration.

Mesoblast has entered into an exclusive worldwide license and collaboration agreement with Novartis for the development, manufacture, and commercialisation of its mesenchymal stromal cell (MSC) product remestemcel-L.

The agreement will have an initial focus on the development of a treatment for acute respiratory distress syndrome (ARDS), including that associated with COVID-19.

As part of the transaction, Novartis will make a US$50 million upfront payment, including US$25 million in equity. It will also fully fund global clinical development for all-cause ARDS and potentially other respiratory indications.

Furthermore, management revealed that Mesoblast could receive a total of US$505 million pending achievement of pre-commercialisation milestones for ARDS indications and additional payments post-commercialisation of up to US$750 million. The latter is based on achieving certain sales milestones and tiered double-digit royalties on product sales.

Mesoblast’s Chief Executive, Dr Silviu Itescu, commented: “Our collaboration with Novartis will help ensure that remestemcel-L could become available to the many patients suffering from ARDS, the principal cause of mortality in COVID-19 infection. This agreement is in line with our corporate strategy to collaborate and partner with world-leading major pharma companies in order to maximize market access for our innovative cellular medicines.”

More reading

• Here are the 10 most shorted shares on the ASX
• ASX 200 surges again on Wednesday
• Why the Mesoblast (ASX:MSB) share price is jumping higher today
• These are the 10 most shorted shares on the ASX
• Why the Mesoblast (ASX:MSB) share price crashed 40% lower in October

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.

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The Kogan.com Ltd (ASX: KGN) share price is dropping lower on the day of its annual general meeting (AGM).

At the time of writing, the ecommerce company’s shares are down 1% to $18.12.

What happened at the Kogan AGM?

Arguably the hottest topic at the AGM was not its trading update but rather its controversial decision to award its CEO, Ruslan Kogan, and CFO, David Shafer, some very generous retention options.

For more background on this topic, I would suggest you read this article by my colleague Eddy Sunarto.

At the AGM, Kogan’s chairman Greg Ridder, remained defiant on the options and believes the two executives deserve them.

Speaking about recent meetings with shareholders, Mr Ridder said: “What became clear from the meetings I had was that we should have held an EGM in May when we announced the grant of Retention Options to Ruslan and David.”

“At the time, Shareholders could only have dreamed that the value created for Shareholders would be where it is today. With the benefit of hindsight, I think that, had the EGM been held shortly after announcement of the Retention Options, proxy advisers and media would not have been distracted by the recent gains in share price when considering the value of the executive awards at the time they were announced.”

Despite proxy advisors suggesting shareholders vote against the options, Mr Ridder appears to expect them to gain enough votes to be actioned.

However, the company’s remuneration report looks set to get a first strike, which the chairman admitted was “perplexing” given its strong performance and low executive pay.

The chairman commented: “…it was perplexing to see proxy advisers recommend a vote AGAINST the adoption of the Remuneration Report, and for many super funds to follow the proxy advisers’ recommendations. While the Remuneration Report is retrospective, it appears many of the votes received are prospective and we will receive a “strike”, albeit that – based on Proxies – it does seem that a majority of Shareholders are in favour of adopting the report.”

Trading update.

Today’s presentation reveals that the company’s strong form continued through to the end of October.

According to the release, gross sales for the first four months of FY 2021 are up 99.8% on the prior corresponding period. Gross profit is up 131.7% and earnings before interest, tax, depreciation and amortisation (EBITDA) has jumped 268.8%.

At the end of October the company had 2,682,000 active customers. This is up 9% since the end of August.

Management commented: “In the first four months of the financial year, we have seen strong performance from our Product Divisions and Kogan Marketplace. We are now entering the peak Christmas trading period. November and December are typically the most important months of the year for the Business, with strong trading performance in these months throughout prior years.”

“There has been an increase in variable and marketing costs as a result of the significant growth of the Business. While delivering a significant YoY increase in Adjusted EBITDA, we have also made a series of the largest ever monthly marketing investments into building the customer base and brand, which we expect will have long term benefits for the Company,” it concluded.

More reading

• Tussle at Kogan (ASX:KGN) over executive compensations
• Why ASX tech shares should fly long after this crisis is over
• Dow Jones hits new record highs. Are ASX 200 shares next?
• Why the Openpay (ASX:OPY) share price is up and down today
• Macquarie (ASX:MQG) picks best ASX stocks to buy for 2021 post-COVID recovery

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 Kogan.com ltd. The Motley Fool Australia has recommended Kogan.com 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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On Thursday the Altium Limited (ASX: ALU) share price dropped 1% to $35.81.

This followed the release of the electronic software design platform provider’s annual general meeting presentation.

What happened at the meeting?

At the virtual meeting, management was very upbeat on its future, noting that its shift to the cloud with its Altium 365 platform will be a big positive for the company.

Altium’s CEO, Aram Mirkazemi, believes the shift will help the company in its quest to dominate the market and then transform it.

He commented: “While dominance and transformation are part of one journey, this strategy sets up two engines of growth for value creation. Our strong software business drives our dominance engine, and our new cloud platform Altium 365, is the basis of our transformation engine. From a business perspective, these two engines provide independent drive, and at the same time are complementary and reinforce each other,” he added.

He believes this shift will be supportive of its target of almost doubling its subscriber number to 100,000 by 2025.

So why did the Altium share price drop lower?

While the medium to long term looks very positive, the near term appears to be more challenging based on management’s comments. This could explain why the Altium share price underperformed yesterday.

Management advised that it is continuing to be impacted by COVID-19. And while the last two months have been more positive, its full year result will be reliant on a strong second half.

Based on a 45/55 revenue split between the halves, management expects to deliver revenue in the range of $US200 million to US$212 million in FY 2020. This will be a year on year increase of 6% to 12%.

In respect to earnings, Altium expects this to lead to earnings before interest, tax, depreciation and amortisation (EBITDA) of US$76 million to US$89 million. This represents a 0.1% decline to 16% increase from the US$76.63 million it recorded in FY 2020.

Mr Mirkazemi commented: “Traditionally, our first half EBITDA margin is always lower than our second half as a stronger second half revenue positively impacts our EBITDA. I expect this to be exaggerated this year by COVID but confident that full year EBITDA margin will remain well within the range.”

Is the Altium share price in the buy zone?

One broker that is sitting on the fence following this update is Goldman Sachs.

After looking through its update, the broker has retained its neutral rating and $36.35 price target on its shares.

More reading

• ASX 200 down 0.3%: Altium FY 2021 guidance, Crown drops, insurance shares sink
• Altium (ASX:ALU) share price pushes higher following AGM update
• 2 ASX growth shares predicting big growth this decade
• 5 things to watch on the ASX 200 on Thursday
• 2 ASX shares targeting huge growth during the 2020s

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. 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 Commonwealth Bank of Australia (ASX: CBA) share price will be on watch today after the release of a positive update this morning.

What did CBA announce?

This morning Australia’s largest bank revealed that APRA has completed the review into the progress it has made against the Prudential Inquiry Remedial Action Plan and made a decision in relation to the bank’s operational risk capital as part of the Enforceable Undertaking.

According to the release, APRA’s validation review found that Commonwealth Bank has made significant progress in implementing its Remedial Action Plan.

As a result, the operational risk overlay imposed on the bank has now been reduced from $1 billion to $500 million with immediate effect.

Management notes that this reduction represents an increase in Common Equity Tier 1 capital of 17 basis points.

Commonwealth Bank’s Chief Executive Officer, Matt Comyn, said: “We welcome APRA’s acknowledgment of the progress we have made over the past two years. At the same time, we and APRA recognise there is still a substantial amount of work to do before our Remedial Action Plan is fully implemented and embedded across CBA.”

“We remain committed to achieving these outcomes and to ensuring the improvements to strengthen governance, accountability and risk culture frameworks, practices and outcomes are sustained,” he added.

What was the Remedial Action Plan?

In June 2018 the bank revealed its Remedial Action Plan which outlined the steps its board and senior leaders will take to respond to the Prudential Inquiry’s 35 recommendations.

This followed an inquiry which identified a number of shortcomings in the bank’s governance, culture, and accountability frameworks, particularly in dealing with non-financial risks. This includes a shortcoming related to Anti-Money Laundering and Counter-Terrorism Financing (AML-CTF) matters.

Commonwealth Bank intends to provide its next update on its progress in February 2021.

More reading

• Why ASX bank share dividends might be surging soon
• Here’s what you need to know from today’s banking summit
• Morgan Stanley updates its share price targets for the big 4 banks
• Afterpay (ASX:APT) share price under pressure by US BNPL giant
• ASX 200 up 0.35%: Aristocrat FY 2020 results, big four banks higher, a2 Milk update

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.

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The A2 Milk Company Ltd (ASX: A2M) share price has been uncharacteristic of its usual market leading performance of late. The flow-on effect of pantry destocking and disruption to its reseller channels has seen A2 Milk shares slump more than 30% from their record all-time highs in August. Following the company’s annual meeting on Wednesday this week, two big brokers retained their A2 Milk share price targets, which represent significant upside compared to its current price. 

Annual meeting rundown 

A2 Milk provided FY21 commentary for its operational regions. 

It was a challenging first half for its ANZ segment as daigou/reseller channels were impacted by COVID-related issues. A2 Milk expects the current impact to moderate over the course of the year. 

The company’s China label range and Mother and Baby Store (MBS) has delivered a strong performance year to date. For the most recent 11/11 online sales event, which was highly competitive, it achieved a 24% English label volume growth as well as strong brand and product rankings.  

From an earnings perspective, China-based channels accounted for 48% of A2 Milk’s total infant nutrition sales in FY20. Its MBS currently holds a 2.2% market share in China, which remains a significant opportunity for further growth. 

Fresh milk in Australia continued to perform strongly with current 12-month market share of 11.6% in October, up from 11.3% at June year end. In FY20, liquid milk contributed to 12.8% of the group’s earnings. 

A2 Milk’s North American operations continue to scale, achieving broad distribution across the entirety of the United States. A2 Milk products can now be found in more than 20,300 stores in the US.  The impact of COVID on the US has made consumers more value conscious. A2 Milk has shifted its short-term investment from broadcast advertising to a greater emphasis on in-store activation, account specific pricing and promotional activity. The company expects net revenue to be broadly consistent with FY20 and also predicts an improved earnings before interest, taxes, depreciation and amortisation (EBITDA) result in FY21. 

The US continues to be a strategically important market for A2 Milk, given its position as the largest global milk market and growing premium segment. 

A2 reaffirmed its guidance, as advised in September, which included FY21 group revenue of $1.80 billion to $1.90 billion (4% to 9.8% growth on FY20 revenue). 

Brokers retain A2 Milk share price target 

Macquarie Group Ltd (ASX: MQG) retained its A2 Milk share price target of NZD$17.95 (as per New Zealand Stock Exchange listing) and outperform rating. There was no change to rating or target after reviewing the company’s reaffirmed profit guidance. Macquarie notes early signs of a recovery in daigou sales channels. 

UBS Group (NYSE: UBS) retained its A2 Milk share price target of $20.50 with a buy rating. It was pleased with the company’s reaffirmed profit guidance and signs of improvement in daigou channels. 

More reading

• China is a much bigger threat to the ASX bull run than COVID
• Why a2 Milk, Crown, Immutep, & Suncorp shares are dropping lower
• Is the A2 Milk (ASX:A2M) share price a buy?
• ASX 200 rises again on Wednesday
• Why a2 Milk, ALS, Centuria Industrial, & Serko shares are dropping lower

Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk and Macquarie Group 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 Accent Group Ltd (ASX: AX1) share price could be on the move today after the release of a trading update ahead of its annual general meeting.

How is Accent performing in FY 2021?

This morning the footwear retailer revealed that its sales for the first 20 weeks of FY 2021 are well ahead of its expectations.

According to the release, Accent’s like for like sales are up 15.7% over the period excluding its Auckland and Victorian stores.

In respect to its Auckland and Victorian stores, the company estimates that their closures have impacted its sales by $39 million compared to the prior corresponding period. Based on this, total like for like sales were up 1.3% over the 20 weeks.

Accent’s Digital business has continued its strong performance thanks to the shift to online shopping. It recorded a 129% increase in sales compared to the same period last year.

Accent Group CEO, Daniel Agostinelli, said: “With Victorian stores now open post lockdown, trade is strong and well ahead of expectations. We are continuing to see digital sales growth in excess of 100% and customers flooding back to Victorian physical stores since reopening at the end of October.”

“The strength in trade in the other states and New Zealand as previously reported has continued. We do not expect that the recent lockdown in Adelaide will have a material impact on sales given our store footprint and demonstrated capability to pivot to online sales,” he added.

New stores.

Also growing is the company’s store network. Despite the pandemic, Accent is on track to open approximately 80 new stores in FY 2021. This includes new concepts, such as Stylerunner.

At the end of October, the first Australian Stylerunner store opened in Armadale, Victoria. Pleasingly, management advised that sales to-date are materially ahead of expectations. An additional three stores have been signed.

In addition to this, three Pivot stores are now open in Highpoint and Ballarat in Victoria and Shellharbour in New South Wales. All three stores are trading well against expectations. A total of 15 stores are planned to be opened by the end of FY 2021.

Mr Agostinelli commented: “We are pleased with the strong trade to date and delighted with the performance of our new stores in Stylerunner and Pivot. Our plans are well set to capitalise on the important November cyber events, Christmas and Back to School trading periods.”

“Our integrated omnichannel model has allowed us to trade strongly through a highly disrupted period along with demonstrated operating capability to respond to store impacts that may arise due to COVID-19, including the current Adelaide lockdown,” he concluded.

More reading

• 5 things to watch on the ASX 200 on Friday
• Best and worst ASX retail stocks to own in the COVID recovery
• JB Hi-Fi (ASX:JBH) share price sinks lower on broker downgrade
• 2 ASX dividend shares with above-average yields
• Attention value investors: These ASX shares could be very cheap

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Accent Group. 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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If you’re reading The Motley Fool then you’ll already know technology shares have powered markets upwards worldwide this year.

The S&P/ASX All Technology Index (ASX: XTX) is up 128% since the COVID-19 trough in March. In the US, the Nasdaq Composite (INDEXNASDAQ: .IXIC) has shot up 72% in the same interval.

The big tech giants have ballooned so much that FAANGM stocks – Facebook Inc (NASDAQ: FB), Amazon.com Inc (NASDAQ: AMZN), Apple Inc (NASDAQ: AAPL), Netflix Inc (NASDAQ: NFLX), Alphabet Inc (NASDAQ: GOOGL) and Microsoft Corporation (NASDAQ: MSFT) – now make up 25% of the total market capitalisation of the S&P 500 Index (INDEXSP: .INX).

Locally, Afterpay Ltd (ASX: APT) has multiplied its share price 11 times since March. Temple & Webster Group Ltd (ASX: TPW)’s stocks have gained 565%.

This has meant many investors have bought up tech shares.

Even if you didn’t directly buy any, the mere fact that their values have gone up so much means they now take up a far bigger proportion of your portfolio than before. Without you doing anything.

The theory is a low interest rate environment favours growth businesses like these over more mature industries.

Anxiety to diversify

But looking at your portfolio, you might feel nervous about having so many eggs in the technology basket. After all, an old investment adage is to diversify.

Should you sell some off to rebalance the portfolio? Should you buy some non-tech sectors to rebalance? Should you hold on, because tech is the way of the future?

The Motley Fool this week asked some professional fund managers what a retail investor should do if they fear they have too much tech.

Multiple fundies told The Motley Fool that technology is a broad sector, so whether you should be worried depends on the individual companies you hold.

“Rather than clustering tech stocks all in one basket, investors also need to consider what stage of the business cycle they find each of their individual tech investments,” said Cyan Investment Management portfolio manager Dean Fergie.

“Many tech stocks are commercially proven and profitable, [while] others are little more than concepts that are sucking up investor cash before their technology or business models are commercially proven.”

Nucleus Wealth head of investments Damien Klassen agreed that not all tech shares are equal and you can easily diversify within the sector.

“I’d be worried about having too much exposure to a particular business model. But tech shares come in all shapes and sizes, manufacturers, service companies, intermediaries, intellectual property owners, etc,” he told The Motley Fool.

“Show concern about your portfolio if you have too many growth and expensive stocks. But, tech shares aren’t all expensive. For every Advanced Micro Devices Inc (NASDAQ: AMD) trading on 90 times last year’s earnings, there is an Intel Corporation (NASDAQ: INTC) trading on 9 times. Depending on your risk levels, you probably want to incorporate both types.”

Remember your risk appetite

Prime Value portfolio manager Richard Ivers said that it was important to refer back to the reason you’re investing in the first place and the resulting risk appetite.

“Go back to fundamentals and understand why you own them and whether the investment case still stacks up,” he said.

“Tech is a very broad sector with some very high quality companies with resilient earnings – for example, software companies – and others that are early stage and quite speculative. Ensure your investments match your risk profile.”

Klassen said that the customer sector of each tech company could be a way to achieve diversification. 

“Tech spans the world – advertising revenue, consumer goods, finance, real estate, job ads and more. Almost every economic sector has both traditional companies and tech companies,” he said.

“Be concerned about having too much exposure to one type of profit driver or economic sector.”

Selling down and looking for the next winner

Frazis Capital Partners portfolio manager Michael Frazis told The Motley Fool last month that his fund was up about 60% in the year of COVID-19.

This success was largely driven by technology shares. His clients have seen the Afterpay share price shoot up 22 times since Frazis bought in, Appen Ltd (ASX: APX) 9 times, and Xero Limited (ASX: XRO) 5 times.

But in a memo to his clients this week, Frazis warned we could be at a “rare turning point”.

“We are dramatically reducing what little we have left invested in 40x revenue businesses,” he said.

“Longer term yields have begun to rise, tech valuations are at record highs, and we believe a period of serious multiple compression has already begun.”

Frazis said that his fund would now turn to the life sciences sector.

“We are focused on the next set of opportunities in the $1 billion to $20 billion market cap range growing at more than 100% [per year],” he said.

“Many companies in the life sciences are coming off epidemically depressed revenues, are cyclically defensive, and have growth rates as high as any in tech.”

Klassen told The Motley Fool that technology is such a huge part of the world that it’s not outrageous to have more in your portfolio this decade than the last.

But be sensible.

“Tech is a desirable exposure, but not so desirable or rare that you should ignore the tenets of good portfolio construction.”

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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. Tony Yoo owns shares of AFTERPAY T FPO, Alphabet (A shares), Amazon, Appen Ltd, Temple & Webster Group Ltd, and Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Amazon, Apple, Facebook, Microsoft, and Netflix. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Appen Ltd, Temple & Webster Group Ltd, and Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Intel and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Alphabet (A shares), Amazon, Apple, Facebook, Netflix, 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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The Redbubble Ltd (ASX: RBL) share price will be on watch this morning after naming its new Chief Executive Officer (CEO).

What did Redbubble announce?

This morning the ecommerce company revealed that it has appointed former SEEK Limited (ASX: SEK) executive, Michael Ilczynski, as its new CEO.

Mr Ilczynski, who was formerly the CEO of SEEK Asia Pacific and Americas, will replace interim CEO, Martin Hosking, on 27 January 2021.

Redbubble’s Chair, Anne Ward, believes Mr Ilczynski will be a great fit for the company and that his previous experience with SEEK will help take it to the next level.

She commented: “Michael played a major role in helping SEEK grow into the global force it is today. That track-record, including the successful development of his team, evolution of the product and scaling of the business, are the right combination to continue Redbubble’s transition from a niche to mainstream global consumer marketplace.”

“SEEK is one of the few companies in Australia to have been down this path before Redbubble and we are delighted to be able to attract a proven, senior leader of Michael’s calibre to join Redbubble,” she added.

The Chair also praised its interim CEO, Martin Hosking, for leading Redbubble through a challenging operating environment and delivering exceptional growth.

She said: “We are grateful to Redbubble’s interim CEO Martin Hosking for an incredible year of strong performance in challenging circumstances and for his ongoing support as Michael takes over. This is the right appointment for our shareholders, our people, our artists and our customers.”

Mr Hosking has agreed to remain on the Board as a non-executive director. The company notes that this means it will continue to benefit from his deep knowledge and experience during its next phase of growth.

Mr Ilczynski appears up for the challenge of leading Redbubble through its next phase.

The new CEO commented: “Redbubble is a truly unique global organisation. The three-sided marketplace that has been built is now operating with real scale and momentum, presenting a wonderful opportunity to further grow the Redbubble and TeePublic brands, to connect deeply with our customers, and to deliver more value to our artists and fulfilment partners.”

More reading

• ASX 200 rises on mixed Thursday
• SEEK (ASX:SEK) share price flat despite FY 2021 guidance upgrade
• 5 things to watch on the ASX 200 on Thursday
• ASX stock of the day: Redbubble (ASX:RBL) shares up 5% today
• 5 things to watch on the ASX 200 next week

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.

The post Redbubble (ASX:RBL) share price on watch after naming former SEEK exec as new CEO appeared first on Motley Fool Australia.

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