Who said recessions are bad for retailers? The Nick Scali Limited (ASX: NCK) share price could be set to jump after it posted a positive profit report and predicted better times ahead.

While the furniture retailer posted a 2.1% dip in FY20 revenue to $262.5 million, it managed to lift its earnings before interest and tax by 1.7% to $60.8 million as net profit was steady at $42.1 million.

That’s a good result in this COVID-19 stricken environment, although that’s not the most exciting pieces of news.

Profit and dividend upgrade

Management is forecasting first half FY21 profit “to be up by at least 50-60%” compared to the same time last year and it increased its final dividend by 12.5% to 22.5 cents per share.

The dividend lift is unusual for this reporting season. UBS described this period succinctly when it coined the term “dividend recession”. Many ASX stocks, such as big banks like Commonwealth Bank of Australia (ASX: CBA), will be slicing their payouts due to the pandemic.

COVID boost to sales

The COVID-19 lockdown probably helped Nick Scali. Demand for home furnishings got a boost with stuck-at-home consumers taking the opportunity to refresh their dwellings.

“During the temporary closure of the Company’s stores in April, the online store was launched across all product categories and achieved greater than $3m in sales orders for the quarter,” said the company in its ASX statement.

“The online store positively contributed to EBIT in the first quarter of operation.”

Cost control pads margins

But what’s also impressive is the group’s cost control. The weaker Australian dollar puts pressure on the retailer’s bottom line as it imports its goods from overseas and pays in US dollars.

The impact of the exchange rate can be seen on its skinnier gross margin, but management’s cost cutting in a difficult environment more than offset this.

This allowed its EBIT margin to expand by 90 basis points to 23.2% in FY20 over the previous financial year.

It’s operating cash flow also recorded an impressive 22.6% jump to $75.4 million and its order book is brimming.

Big order book

“Contrary to the decline in sales revenue, written orders grew by 9% with same store sales orders up 4%,” added Nick Scali.

“Following the temporary closure of Australian stores for most of April, and up until mid-May in New Zealand, May and June sales orders grew by 72% year on year.”

Around 65% of the company’s products, like sofas, are made to order and takes between 9 weeks and 13 weeks for delivery.

Nick Scali scaling the fiscal cliff

The big surge in orders before June 30 means Nick Scali will book the sales and profits in the current quarter – contributing to management’s bullish profit guidance for the current half.

The way profits are booked could help Nick Scali manage the so-called “fiscal cliff” facing the sector. This cliff refers to the gradual or full withdrawal of support measures from October.

Other retailers like Harvey Norman Holdings Limited (ASX: HVN) and Wesfarmers Ltd (ASX: WES) are also expected to post strong FY20 results. But their outlook could be more sombre.

More reading

• Overvalued or a strong buy? Nextdc and 1 more ASX growth share to watch
• Will the Domino’s share price continue to surge in August?
• Up 21% in a month, is the Northern Star share price a buy?
• Is the BHP share price a good coronavirus hedge?
• Why I would buy CBA and this ASX dividend share

Motley Fool contributor Brendon Lau owns shares of Commonwealth Bank of Australia. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of Wesfarmers 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 gold shares. They’re arguably the hottest thing on the market right now except for maybe tech shares. One of those leading the pack is Northern Star Resources Ltd (ASX: NST). In fact, the Northern Star share price has surged 20.8% in the last month.

So, how does Northern Star compare to its peers and is it still in the buy zone?

Why the Northern Star share price has gone up

One huge factor has been the bearishness in global share markets.

Investors have been on edge ever since the March bear market. While the S&P/ASX 200 Index (ASX: XJO) has bounced back strongly, there are still lingering concerns.

Those fears have been heightened amid the Victorian lockdown and the looming August earnings season.

That has pushed global gold prices to a new record high and the Northern Star share price has climbed with it.

In fact, ASX gold shares are continuing to climb. Low-interest rates and a weakening US dollar are continuing to fuel demand with a potentially bullish outlook ahead.

How does Northern Star compare to its peers?

Let’s take a look at the numbers and see if there’s any relative value in the Northern Star share price.

Northern Star trades at a price-to-earnings (P/E) ratio of 53.5 with a market capitalisation of $12.2 billion.

On first glance, that looks to be quite expensive for an ASX gold share.

The Saracen Mineral Holdings Limited (ASX: SAR) share price has also been outperforming. In fact, Saracen shares have rocketed 81.3% higher this year to a market capitalisation of $6.6 billion.

Saracen shares trade at a P/E ratio of 44.9, while St Barbara Ltd (ASX: SBM) shares have a lower 21.2 multiple.

One thing to keep in mind is the huge resources that both Northern Star and Saracen have to work with. That includes the joint ownership of the Kalgoorlie Super Pit gold mine which has massively boosted production.

Foolish takeaway

Despite how bullish the market is on ASX gold shares, I don’t think the Northern Star share price is a buy.

There’s no sign of inflation in the short-term which could hamper global gold prices’ future growth. While market volatility may continue, I’m not sure gold will continue to surge.

Add to that a relatively expensive P/E ratio and I don’t think it’s a compelling buy in the current market.

More reading

• Overvalued or a strong buy? Nextdc and 1 more ASX growth share to watch
• Will the Domino’s share price continue to surge in August?
• Why this leading fundie likes the Newcrest share price
• Nick Scali share price bolstered by strong outlook and dividend upgrade
• Is the BHP share price a good coronavirus hedge?

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 Up 21% in a month, is the Northern Star share price a buy? appeared first on Motley Fool Australia.

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Iron ore producer and explorer, Fortescue Metals Group Limited’s (ASX: FMG), shares gained 25.7% in July. The rising Fortescue share price placed the company near the top of July’s best gainers on the S&P/ASX 200 (INDEXASX: XJO).

And the Fortescue share price has continued its run higher in August. In the first three trading days of this month, the company’s share price is up another 5.4%. That brings Fortescue’s year-to-date share price gain to 69.8%. Since its 9 March low, the share price is up almost 112%.

These are the kinds of gains resource investors might normally expect from a risky, small-cap mining share reporting a big resource discovery. But with a market capitalisation of $56.4 billion, Fortescue is anything but small.

While Fortescue’s share price has gained nearly 70% so far in 2020, the ASX 200 — down 0.6% yesterday — has lost more than 10%.

What does Fortescue do?

Fortescue is an iron ore production and exploration company. With core assets located in the Western Australia’s Pilbara region, Fortescue first publicly listed in 1987. It now ranks as the fourth largest iron ore producer in the world.

The company owns and operates integrated operations spanning two iron ore mine hubs; the five-berth Herb Elliott Port and Judith Street Harbour towage facility in Port Hedland and the fastest heavy haul railway in the world.

Why is Fortescue’s share price soaring higher?

Fortescue’s share price has benefited from the high iron ore price, currently still well above US$100, at US$105.59 per tonne.

Fortescue share holders have also benefited from the production slowdowns of one of the company’s chief rivals, Brazil’s Vale SA (NYSE: VALE). Vale saw a big fall in its iron ore production, as Brazil struggled to control the nation’s COVID-19 outbreak.

On the other end of the globe, China — the world’s biggest importer of iron ore — has been recovering from its own virus-related slowdowns. With China’s demand for steel — and thus iron ore — forecast to remain strong, I expect Fortescue’s share price to continue performing well.

Indeed, Fortescue shares have performed strongly into August, buoyed by the company’s fourth quarter report. The report revealed it had beaten its financial year iron ore estimates, revealing the company had, “Record iron ore shipments of 47.3 million tonnes (mt) for the quarter and 178.2 mt for FY20, exceeding the top end of guidance of 177 mt and 6% higher than FY19.”

More reading

• Why Crown, Fortescue, Kogan, & Nearmap shares are storming higher
• The Fortescue Metals share price just hit a new record high
• These were the best performing ASX 200 shares in July
• These were the worst performing ASX 200 shares in July
• Top brokers name 3 ASX shares to sell next week

Motley Fool contributor Bernd Struben 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 Why the Fortescue share price gained 26% in July and is still running strong appeared first on Motley Fool Australia.

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I think the Australian information technology sector is a great place to look for buy and hold investments.

This is because there are a good number of companies that I believe have the potential to grow materially over the next decade.

Three which I feel could generate outsized returns for investors over the long term are listed below. Here’s why I would buy them:

Altium Limited (ASX: ALU)

Altium is an award-winning electronic design software provider which I believe has a long runway for growth. This is thanks to its exposure to the fast-growing Internet of Things and artificial intelligence markets. These two markets are underpinning the proliferation of electronic devices globally. This is a big positive for Altium, as its software is used as an integral part of the design process by companies such as HP, Lenovo, Boeing, Philips, and BMW. Given the positive industry tailwinds, I expect demand for its software to continue increasing for a long time to come.

Appen Ltd (ASX: APX)

Another company which is benefiting from the artificial intelligence boom is Appen. This is because it has a leadership position in the development of high-quality, human-annotated training data for machine learning and artificial intelligence. As with Altium, Appen has worked closely with some very big companies. These include Apple, Facebook, and Microsoft. I believe this is a testament to the quality of its offering. Looking ahead, with spending on artificial intelligence expected to grow materially over the next decade, I believe Appen is positioned perfectly to deliver above-average profit growth over the long term.

Xero Limited (ASX: XRO)

A final tech share to look at is Xero. It is a provider of cloud-based business and accounting software which has been growing at an explosive rate over the last couple of years. This has been driven by increasing subscriber numbers and strong recurring revenue growth. Given its massive global market opportunity, high quality and sticky product, and strong pricing power, I believe it is in a great position to continue this trend for a long time to come.

More reading

• Where to invest $10,000 into ASX shares immediately
• 2 ASX tech shares to buy and hold beyond 2026
• If you invested $50k in these ASX shares 3 years ago, you’d be a millionaire today
• Want to invest $3,000 into ASX blue chips?
• Why I would invest $50,000 into these excellent ASX 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 and recommends Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia owns shares of Appen 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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Investors in lithium producer Galaxy Resources Limited (ASX: GXY) enjoyed a tremendous 41.0% share price gain in July.

The stock hit a monthly high of $1.12 per share on 28 July. It closed the month at $1.10 per share, up from 78 cents at the start of July. That puts Galaxy high on the top gainers list for the All Ordinaries Index (ASX: XAO) last month.

It’s been a wild ride for the company’s investors in 2020. The Galaxy Resources share price plummeted a gut-wrenching 42.3% from 5 February to 4 May. Investors who held their nerve were rewarded handsomely though. Since 4 May, the share price has gained 63.4%.

Year-to-date, the share price is up 16.0%, giving the company a market cap of $475 million. Over that same time the All Ords — down 0.5% yesterday — lost 9.9%.

What does Galaxy Resources do?

Galaxy Resources Limited is a lithium producer working to create a large scale, global lithium chemicals business to power the future. It has a diversified portfolio of lithium hard rock and brine assets at different levels of development.

Those include its hard rock operations in Mt Cattlin, Western Australia. Galaxy is also progressing with its development of its flagship brine project, Sal de Vida in Argentina, among the world’s largest undeveloped lithium brine assets. The company is also progressing the early stage development of its James Bay project in Quebec, Canada.

Short sellers beware!

On 6 July, Galaxy Resources made the top 10 list of shorted stocks, coming in at number six, according to figures from ASIC. Believing the weakness in lithium prices would see the company’s share price fall, short sellers held 8.1% of the stock on 6 July.

With the stock gaining 36.5% since then, the short sellers got this one completely wrong.

And the company’s outlook remains strong.

On 13 July the company reported:

A multiyear offtake extension has been executed with long term major customer Yahua Industrial Group. Yahua has recently doubled their lithium hydroxide production capacity and has agreed to purchase additional spodumene concentrate from Mt Cattlin.

If you’re out for the specifics, Yahua agreed to purchase an additional 30,000 dmt of 6% Li2O spodumene concentrate in 2020. It also agreed to buy 120,000 dmt per year from 2021 to 2025 on a take or pay basis.

More reading

• Why the Pinnacle Investment share price has rocketed 40% since 1 July
• ASX marching higher despite COVID-19: Where should you invest?
• These are the 10 most shorted shares on the ASX
• How investors can make the most of all this uncertainty
• ASX 200 Weekly Wrap: ASX has week of high volatility

Motley Fool contributor Bernd Struben 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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Alliance Aviation Services Ltd (ASX: AQZ) reported a 24.1% jump in profit before tax after the close of trading on Wednesday. The company’s diverse business model enabled it to pivot in mid-stride during the coronavirus pandemic quicker than any other airline. Consequently, it was able to continue flying throughout the pandemic.

The company’s FY20 top line revenue was $298.6 million, versus $277.1 million in FY19. In addition, flying hours were only 1% lower. As a brief financial summary, the company flew basically the same hours for an additional 7% of revenue, and saw profit before tax increase by 24.1%. This underlines very disciplined cost management throughout the period in addition to higher paying flights.

The company also ended the year with 4 additional aircraft, and reduced debt by $6 million.

Alliance Airlines high points

Contract sales made up 68% of company revenue. Specifically, they contributed $202.5 million for the year, which is an increase of 22.5% compared to FY19. This was the result of two factors. First, the continuation of resource sector companies as part of the nation’s essential services. Second, the social distancing requirements. This resulted in more flights required for existing customers to traffic workers to and from remote sites safely.

Wet leases were down by 46.3%. This is when the company’s planes fly under another company’s brand. This is due to the suspension of the group’s wet lease agreement with Virgin Australia Holdings Limited (ASX: VAH) in March 2020.

Another standout performer for Alliance Airlines was chartered flights. This increased by 97% over the year. The group performed charter services for a number of new resource sector clients, sporting teams and various emergency services from the lockdown period to the end of the financial year.

Its stoic performance throughout the coronavirus pandemic has resulted in additional work. For example, the company was awarded flights to the Whitsundays by the Queensland Government. In addition, it announced a new 10-year airline services contract with South32 Ltd (ASX: S32) for the Cannington and Groote Eylandt (GEMCO) mine sites on 1 May.

Company outlook

Alliance Airlines carried out a placement to institutional investors for an amount of $91.9 million. In addition, it raised a further $3.9 million via a share purchase plan for retail investors. These funds are to increase the fleet size to take advantage of opportunities in the market.

On the 3 August 2020, the group announced it had entered an agreement with Azorra Aviation of the United States. Specifically, this was for the purchase of 14 Embraer E190 aircraft. Moreover, the package included related inventory, ground support equipment, tooling and training devices.

The company has a number of new routes already planned in regular public transport (RPT) for these aircraft. Furthermore, it expects several of its charter flights to mature into long term charter contracts. Lastly, most requirements for social distancing has now ceased, however contracted schedules continue to be higher than pre-COVID-19 levels.

Nevertheless, the airline is not without competitors. Today’s announcement by Virgin Australia that it was going to kill off its Tigerair brand reduces low cost flight competition. However, it still finds itself competing head first with the Qantas Airways Limited (ASX: QAN) regional carrier Qantaslink, as well as Regional Express Holdings Ltd (ASX: REX).

Foolish Takeaway

The performance of Alliance Airlines during the pandemic has vindicated the company’s diverse business model. Moreover, based on its performance, it has won extra contracts. I believe the company’s financial results are sustainable, and will continue to improve into the future. This is due to the planned expansion building on existing successes, thereby reducing the risk of failure.

As a result of its planned expansion, there will be no final dividend for FY20. The company is currently trading at a price-to-earnings (P/E) ratio of 19.4 and has a market valuation of $571.59 million.

More reading

• Top broker warns Afterpay and these ASX stocks could disappoint on profit results
• Qantas share price lower after Virgin Australia announces future plans
• This is the only ASX sector tipped to report earnings growth this reporting season
• Earnings season: What to expect from the CSL FY 2020 result
• Afterpay and Qantas were among the most traded shares on the ASX last week

Motley Fool contributor Daryl Mather 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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I think the BHP Group Ltd (ASX: BHP) share price could be a good hedge right now.

Investors are starting to talk about a “two-speed” share market. We’re seeing a real split across the S&P/ASX 200 Index (ASX: XJO) between the winners and losers in the current economy.

On the one hand, industries like travel and hospitality are struggling. However, some mining sectors, tech and gold are booming in the current climate.

I think the BHP share price could be part of that “quicker speed” part of the economy. And that’s why it could be a good coronavirus hedge right now.

Why the BHP share price has been surging higher

Shares in the Aussie iron ore miners have done reasonably well this year.

The BHP share price is down 2.6% for the year while Fortescue Metals Group Limited (ASX: FMG) and Rio Tinto Ltd (ASX: RIO) shares have climbed 69.8% and 2.8% higher, respectively.

For context, the S&P/ASX 200 Index (ASX: XJO) is down 10.3% in the year to date.

The key factor here has been surging iron ore prices. Demand out of China has been strong as the country’s infrastructure boom continues.

That is good news for the BHP share price and the miner’s August earnings result. BHP is set to announce its FY20 result on August 18 and it’ll be one worth watching.

Why BHP could be a coronavirus hedge

It seems like much of BHP’s fortunes currently rest with China. While many ASX 200 shares are struggling, this unconventional share price driver could make BHP a good hedge.

Despite all the rhetoric around trade diversification and a move away from China, it still makes up 48.8% of Australia’s exports.

That’s good news for the iron ore miners like BHP. If the demand for iron ore remains strong, the BHP share price could break even in no time.

In fact, if Australia starts an infrastructure boom of its own, BHP shares could be back in positive territory by the end of the year.

More reading

• Overvalued or a strong buy? Nextdc and 1 more ASX growth share to watch
• Will the Domino’s share price continue to surge in August?
• Nick Scali share price bolstered by strong outlook and dividend upgrade
• Up 21% in a month, is the Northern Star share price a buy?
• Why I would buy CBA and this ASX dividend share

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 Is the BHP share price a good coronavirus hedge? appeared first on Motley Fool Australia.

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The ELMO Software Ltd (ASX: ELO) share price will be on watch on Thursday after the release of the cloud-based HR, payroll, and rostering software provider’s full year results this morning.

How did ELMO perform in FY 2020?

For the 12 months ended 30 June 2020, ELMO‘s strong form continued and its delivered further strong growth in annualised recurring revenue (ARR), statutory revenue, cash receipts, and customer numbers.

The company reported ARR of $55.1 million and statutory revenue of $50.1 million for FY 2020. This represents a 19.7% and 25% increase, respectively, over the prior corresponding period. Also growing strongly were its cash receipts. They came in at $57.5 million for the year, up 27.6% on FY 2019’s result.

Over the period the company’s gross profit margin fell 1.3% to 85.3%. However, this was due to its investment in client services to support an enlarged and growing customer base.

Statutory earnings before interest, tax, depreciation, and amortisation (EBITDA) was a loss of $4.2 million. Management advised that this reflects its continued investment to support its longer term growth initiatives.

Despite this, the company finished the period in a very strong financial position. Thanks partly to its capital raising in May, ELMO had a cash balance of $139.9 million at the end of the period.

Management advised that this means it is well capitalised to continue investing in both organic growth and strategic acquisitions.

What were the drivers of its growth?

One of the key drivers of ELMO’s growth was its increasing customer numbers. The company’s customer base grew to 1,682 organisations over the year, an increase of 25.4%.

Also supporting its growth was an increase in average modules per customer from 2.4 to 2.7.

Pleasingly, management notes that customer concentration remains very low, with the largest customer representing less than 2% of ARR. Furthermore, the 10 largest customers account for less than 7% of its ARR.

Another positive is that ELMO’s Customer Lifetime Value to Customer Acquisition (LTV:CAC) ratio remains high at 8.1. Management believes this underpins its continued investment thesis in growth.

ELMO’s CEO and Co-Founder, Danny Lessem, was pleased with the company’s performance in FY 2020.

He commented: “Despite some of the challenges associated with COVID-19, FY20 has been another year of robust growth for ELMO. Particularly at this time, businesses are recognising the benefits of cloud-based technologies to deliver flexible and innovative workplace solutions.”

“ELMO’s overall strategy remains unchanged: delivering organic growth supplemented with strategic acquisitions, continuing our growth trajectory into FY21 and beyond. We are well placed to capitalise on anticipated tailwinds in the adoption of cloud-based business tools, including HR-technology,” he added.

FY 2021 outlook.

Management appears confident that another year of strong growth awaits the company in FY 2021.

It has provided guidance for ARR of $65 million to $70 million, which represents year on year growth of 18% to 27%.

It will be a similar story for revenue, with the company expecting this to be in the range of $57 million to $61 million. This is expected to be driven by strong organic growth, supplemented with selective acquisitions.

Once again, the company is expecting to post an operating loss as it focuses on its growth strategy. ELMO’s EBITDA is expected to be -$4 million to -$7 million in FY 2021.

More reading

• Could these small cap ASX shares be the next Afterpay?
• 3 ASX SaaS shares to buy this week
• Add these ASX small cap shares to your watchlist immediately
• How to get rich by investing in small cap ASX shares
• ASX 200 jumps almost 2% today, Afterpay rises

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 Elmo Software. The Motley Fool Australia has recommended Elmo Software. 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 ELMO Software share price on watch after delivering more strong growth in FY 2020 appeared first on Motley Fool Australia.

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