Vicinity Centres (ASX: VCX) is either one of the great investing opportunities of 2020 or a real estate investment trust (REIT) in terminal decline. The company is trading at a price to book value (P/B) of 0.45 based on the results of the most recent quarter. At this price, you could theoretically buy the entire REIT, sell off all of the assets and make a 55% profit. In addition, the company pays a trailing 12-month dividend of 12.47%, which looks outstanding.

That is the positive side of the investment. A higher than average dividend and a share price that looks cheap. In fact, the company’s share price is down by 47.9% in year-to-date trading. So, as this looks too good to be true, you have to ask – what’s wrong with this investment?

Effects of COVID-19 on Vicinity Centres

Even with a cursory glance, I believe it’s clear this is a well managed company. For example, over a period of eight years, the company has managed to grow its free cashflow by around 48.7% on average. That doesn’t just happen by accident. Yet Vicinity Centres finds itself in dire straits today due predominantly to the fallout resulting from the coronavirus pandemic.

Vicinity’s most recent valuation tells the story. The property evaluation, which was done in June, resulted in a property value reduction of 11.3% across the company’s entire portfolio. For the REIT’s flagship portfolio, the reduction was 8%. The company has spun this reduction to highlight the strength of its flagship assets, but for me that’s a little hard to believe.

While there were a multitude of reasons for the revaluation, it was the real world impacts of the pandemic that made the most difference. These included waivers and deferrals of rent, higher vacancy allowances, and the capital required for new leasing. In addition, the valuers included likely lower rent and sales growth, and increased capital allowances for the re-purposing of centres.

The future of the sector

It is the concept of re-purposing the centres to meet customer requirements that I find particularly interesting. It begs the question; are we seeing the mega-shopping malls enter a new phase, or is this an industry in terminal decline?

The idea that lockdowns have hastened the move to online shopping has seemingly passed from theory to fact. Furthermore, revenues of companies like Nick Scali Limited (ASX: NCK), Temple & Webster Group Ltd (ASX: TPW), and Kogan.com Ltd (ASX: KGN) during lockdowns seem to support this.

In summary, we know Vicinity Centres is headed into a bad reporting year, we just don’t know how bad. Moreover, large discretionary malls are likely to face revenue pressures from both the pandemic and the ongoing recession. Therefore, what should we be looking for in the company’s report due for release next Wednesday 19 August?

Cash and equivalents

Vicinity Centres recently completed a $1.2 billion institutional placement on 2 June, as well as a $32.6 million share purchase plan for retail investors on 8 July. As a result, the company has considerably strengthened its balance sheet. Specifically, the REIT has reduced its amount of gearing from 34.9% to 26.6% and has cash and undrawn debt facilities of $2.6 billion.

In the FY20 report, I will be looking to see what is planned for these funds. Has the company been required to draw down on them much to date? Are they purely to get through an uncertain period? Or will they be used to pivot away from mega malls? If so, to where?

Vicinity Centres funds from operations (FFO)

FFO defines the cashflow of REITs. In Vicinity Centres’ last pre-pandemic report in February, it had already noted that FFO was down by $12.5 million. This was largely due to the reduction in the price of equities held. Accordingly, the company had already downgraded its FY20 guidance for FFO by 0.4 cents per security. Moreover, it had also recently completed the acquisition of Uni Hills Factory Outlets in Victoria.

The two key figures we need to be looking at in the FY20 report will be statutory profit after tax and FFO. The company withdrew its guidance, but 17.2 – 17.4 cents was the last we heard from it on the issue. In these two figures, we will be looking to find out exactly how bad things are. How much has statutory profit after tax fallen? How much in FFO per security?

As above, it will also be very interesting to see what Vicinity Centres’ future strategy is. Given everything that has happened, the ‘sit and wait’ approach may not be a good idea right now. In the February report, the company noted that physical stores were critical to the success of click-and-collect operations. Can this be further enhanced? Or could we be looking at new, click-and-collect only malls?

Foolish takeaway

Given Vicinity Centres operates in the retail sector, we know that there will be bad news, little to no FY21 guidance, and very likely no dividend. What we are looking to find out is what the company is actively doing to change the revenue and earnings picture. Is it purely in the ‘sit and wait’ category, or is it going to be actively pursuing mitigation or diversification of some form?

Our key metrics to look for are the balance sheet summaries, cash on hand, statutory profit after tax, and funds from operations. This will tell us how bad things are, and how far the company has to travel to get back to normalcy. Moreover, it may also tell us if this REIT still sees a long-term future in large malls.

More reading

• Kogan share price in spotlight after it releases new profit update
• These were last week’s best performing ASX shares
• 3 ASX shares poised for huge growth over the next year
• Brokers name 3 ASX shares to buy right now
• The next ASX stocks to beat expectations during this reporting season

Daryl Mather 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 and Temple & Webster Group Ltd. The Motley Fool Australia has recommended Kogan.com 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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The Qantas Airways Limited (ASX: QAN) share price is pushing higher on Monday morning following an update on its share purchase plan.

At the time of writing the airline operator’s shares are up 2% to $3.39.

What did Qantas announce?

This morning Qantas provided the market with an update on its share purchase plan. This follows the successful completion of its $1,360 million fully underwritten placement at the end of June.

Those funds were raised at $3.65 per share after the airline received high levels of interest from both existing and new institutional investors. In fact, demand to participate in the placement was significantly in excess of the funds that Qantas sought to raise.

Unfortunately, the same cannot be said for demand from retail investors. Qantas was aiming to raise up to $500 million via its non-underwritten share purchase plan. However, this morning it revealed that it has managed to raise just $71.7 million.

Qantas received valid applications from 8,660 eligible shareholders with an average application amount of $8,200. This represents a participation rate of approximately 5% of 173,343 eligible shareholders and falls short of its target by $428.3 million.

Given this shortfall, Qantas won’t have as much liquidity to ride out the storm as first hoped. An update on this and its current cash burn rate is likely to be released with its full year results this month.

Why did the share purchase plan flop?

Management blamed the timing of the share purchase plan for the flop. It notes that it coincided with a series of tightened border restrictions across Australian states and territories, sparked by a COVID-19 outbreak in Melbourne and small clusters elsewhere.

This has weighed on the Qantas share price and made its share purchase plan far less attractive to investors.

For example, the new shares issued under the share purchase plan will be at $3.18 per share. This represents just a 2.5% discount to the 5-day volume weighted average price up to, and including, 5 August 2020 (the closing date).

And given the trajectory the Qantas share price was taking at that point, it would not have been at all surprising to see its shares drop below the issue price.

Fortunately, for those that were brave enough to take part in the offer, the Qantas share price rebounded last week and is now 6.6% higher than the issue price.

More reading

• Top brokers name 3 ASX shares to buy next week
• Alliance Airlines reports 24% increase in profits
• Top broker warns Afterpay and these ASX stocks could disappoint on profit results
• Qantas share price lower after Virgin Australia announces future plans
• Earnings season: What to expect from the CSL FY 2020 result

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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Are ASX gold shares oversold? According to an article in the Australian Financial Review (AFR), there could be more risk than investors are currently pricing in.

Why gold prices continue to climb

The coronavirus pandemic has provided a trigger for global gold prices to climb higher. In fact, gold continues to push to new record highs beyond the US$2,000 per ounce mark.

Market volatility and a bearish outlook for the global economy are what started the momentum. However, the gold mania that has taken over markets is being fuelled by a few other factors.

Central banks and governments have flushed a lot of cash into global markets. That means money supply is increasing and, in normal times, you’d expect to see inflation push higher.

Gold has historically also been a good hedge against inflation. That’s good news for investors in ASX gold shares who are hoping to protect against downside risks.

However, while there are some big pluses to holding gold right now, it’s not all good news.

Are there risks ahead for ASX gold shares?

The Newcrest Mining Limited (ASX: NCM) share price slumped 2.0% lower but is up 21.0% for the year.

It’s a similar story for Saracen Mineral Holdings Limited (ASX: SAR) with the ASX gold share climbing 77.4% to $5.89 per share.

But according to the AFR article, gold is not just a one-way bet in 2020.

For one, the article notes a drop-off in end-user demand for gold. That’s largely driven by the jewellery industry which is a heavy user of the precious metal.

Jewellery demand dropped 51% compared to the first half of 2019 according to a report from the World Gold Council.

The other factor is a fall in demand from central banks around the world. That same report noted central bank demand of 233 tonnes in the first half of 2020, down 39% on 2019 figures.

The AFR article also notes that US real yields have potentially bottomed out with little room to fall further. That means the potential attractiveness of gold as a hedge could be similarly limited.

Foolish takeaway

I think ASX gold shares are delicately balanced right now. While the likes of Newcrest and Saracen have climbed higher this year, some investors are starting to think they’ve been overbought.

That’s why I think Newcrest’s full-year earnings announcement on Friday is worth watching. It will give investors a good look at what we can expect from ASX gold shares in the next 6 to 12 months.

More reading

• It’s ASX reporting season! Here’s what to watch out for this week
• CBA and 2 more ASX 200 shares to watch this week
• ASX 200 Weekly Wrap: Surging commodity prices snap ASX 200’s losing streak
• 5 things to watch on the ASX 200 on Monday
• Why it’s a good time to buy and hold ASX shares

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Are ASX gold shares like Newcrest overbought right now? appeared first on Motley Fool Australia.

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The sky-high Kogan.com Ltd (ASX: KGN) share price will be in the spotlight after management upgraded its recently upgraded guidance.

Management indicated that the strong sales and earnings momentum it experienced in the last few months is accelerating into FY21.

More profit upgrades for FY21

Gross sales in July jumped more than 110%, while gross profit increased by 160% over the same time last year.

This compares with its previous update on July 21 where management said gross sales and profit improved by 95% and 115%, respectively, its June quarter.

Kogan share price is the COVID-19 outperformer

Shares in the online retailer is one of the shooting stars from the COVID-19 crisis with the stock rallying nearly 150% since the start of the year.

Kogan isn’t the only retailer to benefit from the pandemic lockdown, but it’s the one that stands out. Other high-flying retailers like the JB Hi-Fi Limited (ASX: JBH) share price, Nick Scali Limited (ASX: NCK) share price and Wesfarmers Ltd (ASX: WES) share price “only” managed gains of around 11% to 25%.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) fell close to 10% over the same period.

Conviction looms large

But Kogan’s recent conviction for “misleading” customers continues to be a thorn in the side of an otherwise outstanding performance.

The Federal Court found that breached Australian Competition Law four days before the last profit update. Kogan is facing steep fines with the court yet to determine relief and penalties for the breach.

Kogan jacked up the prices of more than 600 products just before its tax time promotion, which offered a 10% discount off inflated prices to shoppers.

Kogan’s contempt for customers?

What’s more worrying is that management doesn’t seem to have learnt from that lesson. You only need to read the quotes from the company’s CEO and founder Ruslan Kogan in the July 21 update to see it’s thick with irony.

“We operate in one of the most transparent and competitive industries. We’ve been increasing competition for Australian consumers 24/7 for 15years —all our prices and specifications are publicly advertised every second of the day,” said Kogan.

“Every decision we make in the business assumes that our customers are smart shoppers who have done lots of research — in other words, educated, informed consumers.”

Governance vs. financial performance

You know what they say about the word “assume” – it makes an ass out of “u” and “me”.

It almost sounds like management is saying if you got misled and paid too much, it’s really your fault for not being educated or informed.

Extremely poor choice of words, in my view, and as I said before, a company that treats customers in contempt isn’t likely to treat shareholders much better.

More reading

• What to look for in the Vicinity Centres FY20 report
• CBA and 2 more ASX 200 shares to watch this week
• Results: GPT share price on watch as net profit falls 247%
• These were last week’s best performing ASX shares
• ASX 200 Weekly Wrap: Surging commodity prices snap ASX 200’s losing streak

Brendon Lau has no position in any of the stocks mentioned. Connect with me on Twitter @brenlau.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia owns shares of Wesfarmers Limited. 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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Charter Hall Long WALE REIT (ASX: CLW) shares had a strong finish to the week, jumping 5.1% higher to $4.97 per share. That was on the back of a strong full-year result headlined by a 5.2% jump in operating earnings.

Here’s why I think the coronavirus pandemic has created a solid case for Charter Hall Long WALE REIT shares.

What did the ASX REIT report on Friday?

I was pleasantly surprised by the full-year numbers for the year ended 30 June 2020 (FY20).

Operating earnings climbed 5.2% on the prior corresponding period (pcp) to $121.9 million. Statutory profit totalled $122.4 million with distributions to shareholders up 5.2% to 28.3 cents per share.

Based on Friday’s closing price of $4.97, that represents a tidy dividend yield of 5.7% per annum.

Net tangible asset per security climbed 9.3% to $4.47 while balance sheet gearing was a lowly 24.2%.

The Aussie REIT boasts a $3.6 billion property portfolio, up from $2.1 billion last year, following $1.4 billion of property acquisitions.

But the real reason I like the Charter Hall Long WALE REIT is, unsurprisingly, for its long weighted-average lease or “WALE” terms.

Why Charter Hall Long WALE REIT shares could be a buy

Understandably, investors are worried about Aussie real estate investment trusts (REITs) right now. After all, there aren’t many real estate sectors that are looking rock solid.

Retail, commercial, office and residential real estate all have their challenges. COVID-19 has been the trigger, but not necessarily the cause, of much of this instability.

For starters, Charter Hall Long WALE REIT shares provide the upside of high distributions. That’s good news given the uncertainty around rental income and the role of commercial landlords right now.

But I think the average lease term here is the key. The ASX REIT reported a portfolio WALE of 14.0 years, up from 12.5 years at 30 June 2019.

That means that rather than seeing a big impact from short-term movements, Charter Hall Long WALE REIT shares could actually outperform.

That’s because the ASX REIT already has long-term agreements in place with tenants locked in. On top of that, the COVID-19 impact has been relatively minor so far.

The REIT reported that small and medium enterprise (SME) tenants, those more at risk of negative impact, comprise just 0.4% of net rent.

Charter Hall Long WALE REIT also provided just 0.2% of rent relief to tenants in FY20, with FY20 guidance reaffirmed and delivered.

Foolish takeaway

I think a long average-weighted lease term and blue-chip tenants is good for the ASX REIT.

If you’re looking for dividend stability amid the short-term volatility, Charter Hall Long WALE REIT shares could be a good option.

More reading

• ASX 200 jumps 0.75%: Westpac tumbles on AUSTRAC update, Credit Corp surges

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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ASX reporting season is upon us. Every August, a large number of the companies on the ASX report their full year results. This allows investors to gauge performances over the past 12 months and get some insight into future performance.

This reporting season, however, is unlike any other. The effects of coronavirus will be apparent in many companies’ financial results. For most, the pandemic has had a negative impact. But for a few, it has driven sales and revenues to new heights. Here’s what to look out for during this week of ASX reporting season. 

What’s happening in ASX reporting season this week?

Monday 

The week starts with a bang and when Aurizon Holdings Ltd (ASX: AZJ) releases its full year report. Australia’s largest rail-based transport business, Aurizon has been fighting the ACCC in court over the latter’s decision to oppose Aurizon’s proposed sale of its Acacia Ridge Terminal. In June, Aurizon confirmed underlying earnings before interest, taxes, depreciation and amortisation (EBIT) guidance of $880 million to $930 million for FY20. 

Tuesday

On Tuesday, it will be time to take a look at the financial sector with Challenger Ltd (ASX: CGF) providing its results. The wealth manager was subject to volatile investment markets over the second half of FY20 which may impact on results. The Challenger share price is yet to recover from the March downturn, remaining nearly 60% down from its high for the year. 

Wednesday 

On Wednesday, we hear more from the financial sector with Magellan Financial Group Ltd (ASX: MFG) reporting. The Magellan share price fell on Friday despite the wealth manager reporting an increase in funds under management. Commonwealth Bank Bank of Australia (ASX: CBA) is also due to release its full year results. Investors are eager to see whether the bank will pay a final dividend, and if so, its size. 

Thursday

Come Thursday, it’s time to hear from AGL Energy Limited (ASX: AGL) and Breville Group Ltd (ASX: BRG). AGL has predicted full year profits will be in the upper half of its guidance range of $780 million to $860 million. The Breville share price hit a record high last week with the appliance maker reporting strong sales throughout the pandemic. 

Friday 

On Friday it’s the miners’ turn, with Newcrest Mining Limited (ASX: NCM) and Iluka Resources Limited (ASX: ILU) reporting. The Newcrest share price has recently hit all time highs off the strength of the gold price. Iluka saw its mineral sands revenue decline 16% in the half year to June compared to the prior corresponding period, reflecting the impact of COVID-19 on key markets. 

More reading

• Aurizon share price on watch after solid profit and dividend growth in FY 2020
• CBA and 2 more ASX 200 shares to watch this week
• ASX 200 Weekly Wrap: Surging commodity prices snap ASX 200’s losing streak
• 5 things to watch on the ASX 200 on Monday
• 5 things to watch on the ASX 200 next week

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Challenger Limited. The Motley Fool Australia has recommended Aurizon 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.

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ASX dividend shares are a great way to build a beginner share portfolio. Coronavirus excepted, they are a good way to generate steady cash flow and provide flexibility with reinvestment.

Here are 3 ASX dividend shares that I think are solid buys for beginners.

What’s good about ASX dividend shares?

I think the “bird in the hand” theory is a good one. Basically, a dollar today in the form of dividends is better than an uncertain amount tomorrow in capital gains.

In Australia, ASX dividend shares also have another advantage: franking credits.

The current tax imputation scheme means that dividends receive favourable tax treatment. This effectively eliminates the risk of that money being taxed at the company level and at the individual level.

That’s good news for investors, particularly those in retirement, where franking credits can actually boost your income higher.

There is, of course, regulatory risk in the form of government tax changes but it’s still a big tick for ASX dividend shares right now.

BHP and 2 more top picks for a beginner portfolio

The first ASX share I’m watching is BHP Group Ltd (ASX: BHP). BHP shares are currently yielding 5.4% with a market capitalisation of $183.3 billion.

Iron ore prices are surging and a cyclical share like BHP is doing well right now. That means that dividends may fluctuate in the short-term but I’d expect long-term income to be quite reliable.

Another ASX dividend share I’d like to buy for a beginner portfolio is National Australia Bank Ltd (ASX: NAB).

Prior to COVID-19, NAB shares had a very tidy dividend yield even amongst the ASX banks. While distributions may not return to what they were, I think NAB will remain a reliable ASX dividend share for the long-term.

Given the strong link between the Big Four banks and the Aussie economy, I also think it’s a good bet for long-term stability.

Finally, it’s worth considering a broad market exchange-traded fund (ETF). Australian companies tend to have a higher payout ratio compared to their global peers, largely due to the favourable tax treatment.

That means a broad-market ASX ETF like BetaShares Australia 200 ETF (ASX: A200) could be worth a look.

This BetaShares ETF has a 12-month net distribution yield of 4.1% with a management fee of just 0.07% per year.

This is an easy option for exposure to many ASX dividend shares like BHP and NAB in one convenient investment.

More reading

• ASX 200 Weekly Wrap: Surging commodity prices snap ASX 200’s losing streak
• Top brokers name 3 ASX shares to sell next week
• 5 things to watch on the ASX 200 next week
• Here are a couple of safe and strong ASX dividend shares to buy
• Ready for the “80% stock market crash”?

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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