After being circled by funds for 6 weeks since it put up the “for sale” sign, a private equity firm is confirmed to be in talks to buy AMP Ltd (ASX: AMP). US private equity firm, Ares Management, appears to have access to a data room for due diligence. This is a very strong signal that the board is willing to sell, after a 77.6% slide in the AMP share price over the past 5 years. 

AMP consists of a bank, the financial planning business, and the AMP Capital funds management division. According to its website it has approximately $189.8 billion in assets under management (AUM). Its current market cap is $4.4 billion.

Could AMP see a bidding war?

The Australian Financial Review believes the US fund is preparing an offer north of $5 billion. Nonetheless, AMP appears to have many other suitors. 

This comes amidst a tumultuous time for the wealth industry in Australia. The Hayne Royal Commission set this in motion after it brutally dissected the “fee for no service” scandal, ultimately leaving all four big banks determined to retreat from wealth management. 

For instance, last week US equity firm Kohlberg Kravis Roberts (KKR) was believed to be working on a buyout proposal. This was after earlier abandoning an approach for AMP Capital. In addition, KKR is currently completing a 55% buyout of First Colonial, the wealth arm of the Commonwealth Bank of Australia (ASX: CBA). 

Others mentioned in relation to the real estate portfolio include Vicinity Centres (ASX: VCX) and Lendlease Group (ASX: LLC). There may still be others in the background yet to declare an interest.

Of all the banks, Commissioner Hayne was particularly scathing of AMP and its workplace culture, contributing to the decline of the AMP share price, until a sexual harassment scandal finally forced a reckoning.

About a month later, it had a new chair and launched a review of its business through two investment banks.

Foolish takeaway

The AMP share price will be in focus once trading starts to see what investors make of this. To date, the wealth manager has been silent on news of the talks.

Nonetheless, AMP has over $149 billion in assets under management. The quality of the AMP assets, either individually or together, has generated a lot of interest. So too has the low AMP share price, and the willingness to sell all or part of the business. What happens next is anyone’s guess.

More reading

• Down 4% in 10 days: Is it time to buy ASX 200 shares?
• Tesla (NASDAQ:TSLA), Fastly (NYSE:FSLY) among most popular US shares last week
• Hayne Commission continues to haunt the Big Four banks
• These beaten-up shares are about to pick up: Moody’s
• These could be the next ASX stocks to unlock value by selling assets

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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The ResMed Inc (ASX: RMD) share price could be a positive performer on Friday after it released a first quarter update which beat expectations.

How did ResMed perform in the first quarter?

During the first quarter of FY 2021, ResMed reported a 10% increase in revenue to US$751.9 million. This compares to the market consensus estimate of US$709.47 million.

And thanks to widening margins due to a favourable product mix changes and foreign exchange rates, ResMed’s operating profit grew even quicker at 27% to US$216.9 million. During the first quarter, ResMed’s product mix comprised 50% device revenue, 38% masks revenue, and 12% SaaS revenue.

On the bottom line, ResMed’s net income grew by 48% to US$178.4 million. Though, this was largely attributable to the impact of legal settlement expenses in the prior year.

On a non-GAAP basis, net income grew by 37% to US$185.4 million and earnings per share also grew 37% to US$1.27. The latter was ahead of expectations, with the market consensus at US$1.03 per share.

What were the drivers of its growth?

ResMed’s CEO, Mick Farrell, revealed that the company has been benefiting from increased demand for ventilators due to the pandemic.

He commented: “Our first quarter results reflect solid performance and positive trends across our business. During the quarter, we continued to support the global COVID-19 pandemic response, providing ventilators, masks, and circuits to countries in need around the world.”

But the company’s core sleep treatment business was also performing well, despite the challenges it faces from the COVID crisis.

Mr Farrell explained: “In our core markets of sleep apnea, COPD and asthma, we are encouraged by the sequential improvement in new patient volume, as well as the ongoing strong adoption of our mask and accessories resupply programs.”

“We have accelerated the launch of digital health solutions to help clinicians remotely diagnose, treat, and manage patients during the pandemic and beyond. Our global team is effectively managing SG&A expenses, while investing in broad-based R&D programs to help accelerate our ResMed 2025 growth strategy: improving 250 million lives in out-of-hospital healthcare in 2025,” he added.

How did ResMed perform in different regions?

ResMed’s revenue in the U.S., Canada, and Latin America, excluding Software as a Service, increased by 9% over the prior corresponding period. This was driven by strong sales across its mask product portfolio and increased demand for ventilators due to COVID-19. It was partially offset by a decrease in demand for sleep devices.

Revenue from Europe, Asia, and other markets grew by 10% on a constant currency basis. Management advised that this was primarily driven by sales across its device and mask product portfolio. This includes increased demand for ventilators due to COVID-19.

Finally, its Software as a Service revenue increased by 6% due to continued growth in resupply service offerings and stabilising patient flow in out-of-hospital care settings.

More reading

• 5 things to watch on the ASX 200 on Friday
• Why Resmed, Coles, Afterpay and one other have made early share price gains
• Why these 7 ASX 200 shares received broker upgrades this week
• The ASX healthcare shares I would buy and hold until at least 2030
• Leading brokers name 3 ASX shares to sell today

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

The post ResMed (ASX:RMD) share price on watch after smashing Q1 expectations appeared first on Motley Fool Australia.

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For me, building products business Brickworks Limited (ASX: BKW) is a high-conviction buy right now.

The Brickworks share price has drifted lower by 13.5% since 9 October 2020. I don’t think investors need to be negative about the business though. If anything, the outlook has been improving for the company in recent weeks.

The improving construction outlook

In terms of COVID-19, Australia is in one of the best positions in the world. There is hardly any community spread in the whole country. That helps the economy run much closer to normal.

Don’t get me wrong, the country isn’t totally back to normal. Many Aussies are still doing it tough. There are still hard borders between states. No international tourism is happening right now. But Victoria’s economy is finally opening up.

Australian house prices are rising again. I think this is likely to help the construction sector considerably. Ultra-low interest rates and easier lending make it more likely that the entire property market bounces back.

Brickworks is seeing growth for its order book and this will help drive profits higher in FY21. It has a number of quality brands that could see improving profits over the coming months.

Brickworks’ exciting industrial property trust plans

One of the key reasons why I think the Brickworks share price is a buy today is due to its industrial property trust that it owns 50% of, along with Goodman Group (ASX: GMG).

At the end of FY20, the Brickworks share of the trust was valued at $727 million, which was a 15% increase from the $633 million value from FY19.

The existing portfolio of properties is good industrial real estate, like warehouses. There are two warehouse projects that I’m particularly excited about.

It recently secured a lease pre-commitment for 20 years with Amazon at the property trust’s Oakdale West Estate in Sydney. The other major commitment is with Coles Group Ltd (ASX: COL). These high-tech distribution warehouses give Brickworks good exposure to high-quality tenants that want the best logistics they can buy. These warehouses are expected to increase the value of the trust as well as deliver more rental income.

After those two facilities are completed, the gross assets held within the various joint venture trust assets across Sydney and Brisbane is expected to exceed $3 billion.

The long-term growth of its major investment

Brickworks owns around 40% of investment house Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). Brickworks has been a shareholder for decades and this investment continues to deliver growing dividends for Brickworks.

As regular readers would know, Soul Patts is one of my preferred ASX share investments. The fact that Brickworks owns such a large amount of it is really attractive and makes Brickworks much more defensive in my opinion.

Soul Patts’ own portfolio continues to diversify over the years, which makes it even less risky for Brickworks.

The investment conglomerate has grown its dividend every year for the past 20 years.

Brickworks’ dividend

In this era of COVID-19, any business that can display reliable dividend qualities is attractive. Brickworks hasn’t cut its dividend for over 40 years. I think that’s a great record of reliability.

At the current Brickworks share price it offers a grossed-up dividend yield of 4.8%. That’s a solid starting yield in this era of ultra-low interest rates.

Foolish takeaway

At the current Brickworks share price it’s trading at under 17x FY21’s estimated earnings. I think that’s a very reasonable valuation, with the completion of the two new distribution centres not too far away. I’d be very happy to buy Brickworks shares today, whether the market falls further or rises from here.

More reading

• Why market crashes are useful for buying ASX dividend shares
• 2 Warren Buffett ASX dividend shares to buy in November
• Why it makes sense to invest in ASX shares
• 2 Warren Buffett ASX shares to buy right now
• 3 must-have ASX income shares for your portfolio

Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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 that the current market dip is the perfect time to buy some forever shares for your portfolio.

The S&P/ASX 200 Index (ASX: XJO) fell by around 1.6% yesterday and that means lower prices for many of the ASX’s best businesses.

If I get the opportunity to buy a great investment at a cheaper price, I’ll take the market up on that. Not every business is a buy during a market selloff.

But I think these two forever ASX shares could be worth buying during this market volatility:

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

Soul Patts is an investment conglomerate that has been listed since 1903. It’s one of the oldest businesses on the ASX. It has already proved to be a forever share because it has lasted more than a century.

I think it’s one the best businesses on the ASX. It may not have ultra-high profit margins like a tech share. It doesn’t seem to have the type of fast global growth aspirations that Afterpay Ltd (ASX: APT) has. But it’s consistently generating solid results.

When Soul Patts reported its FY20 result for the period to 31 July 2020, it was able to report that its average total shareholder return (TSR) was 5.1% per annum better over five years and 5.2% better per annum over the previous 20 years.

It has a diversified portfolio of listed and unlisted businesses that ranges from telco giant TPG Telecom Ltd (ASX: TPG) to swimming schools. It owns large stakes in other ASX businesses like Brickworks Limited (ASX: BKW) and Australian Pharmaceutical Industries Ltd (ASX: API).

I think Soul Patts is a forever ASX share because the investment house is regularly adding to its portfolio. For example, in FY20 it invested $127.7 million into the agricultural sector at a time of a difficult drought. I think that was the perfect example of how Soul Patts likes to invest with a contrarian style.

The Soul Patts share price has fallen around 5% since 19 October 2020.

Betashares Global Quality Leaders ETF (ASX: QLTY)

Quality businesses can perform well in both good times and bad, in my opinion. That means the share prices and returns of quality businesses can also give more downside protection.

This exchange-traded fund (ETF) is invested in global businesses which rank well on return on equity (ROE), debt to capital, cashflow generation and earnings stability. These are well run businesses that generate good annual profits for shareholders, they don’t have risky balance sheets and are consistently profitable.

What businesses count among the highest quality in the world? Here are the biggest 10 holdings in the portfolio (out of 150): Keyence, Nike, Texas Instruments, Nvidia, UnitedHealth, Novo Nordisk, Facebook, Intuit, Alphabet and L’Oreal.

The above list is certainly high-quality. And the holdings will keep changing as newer businesses build a reputation for quality. I think it’s a forever share because of that constantly-evolving portfolio.

It’s a pretty cheap ETF with a management fee of just 0.35% per annum. That helps keep the net returns stay strong. The returns have been strong in the short-term and since inception. Over the past year the Betashares Global Quality Leaders ETF has delivered a net return of 17.8% per annum. Since inception in November 2018, the ETF has delivered net returns per annum of 19.6%.

The global nature of this portfolio means that it can be invested anywhere in the world. It has investments from countries like Finland, Spain, France and Denmark. I think it’s the type of ETF you could hold for a very long time.

More reading

• Why market crashes are useful for buying ASX dividend shares
• 2 Warren Buffett ASX dividend shares to buy in November
• I’d buy these 2 ETFs for dividends and growth
• 3 important rules to help you build wealth
• Why you should pay attention when management buy (or sell) ASX shares

Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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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While the market volatility this week has been disappointing, every cloud has a silver lining.

The silver lining in this selloff is the pullback in the share prices of some quality growth shares.

Three ASX growth shares that I would buy after the selloff are listed below:

Altium Limited (ASX: ALU)

The Altium share price is now trading approximately 12% lower than its 52-week high. I think this could make it a good time to buy the electronic design software platform provider’s shares. Especially given its outstanding long term growth potential thanks to its exposure to the rapidly growing Internet of Things and AI markets. These are driving strong demand for its Altium Designer software and also its other businesses such as Octopart and NEXUS.

Appen Ltd (ASX: APX)

Another growth share to buy is this leading developer of high-quality, human-annotated training data for machine learning and artificial intelligence. The Appen share price is currently trading 23% lower than its 52-week high. And while this means it is still trading at a premium to the market average, I believe it is great value considering its growth potential. I’m confident Appen can grow its earnings at a strong rate over the 2020s thanks to its leadership position in a market growing very quickly.

Xero Limited (ASX: XRO)

A final growth share to buy is this cloud-based business and accounting software provider. The Xero share price hasn’t fallen back as much as the rest from its 52-week high. However, a 7% discount to what some investors were willing to pay less than a couple of weeks ago seems like a good deal to me. Especially if you’re planning to make a buy and hold investment. Due to the quality of its platform, its stickiness, and its successful evolution into a full-service small business solution, I believe Xero is well-placed for solid growth over the next decade.

More reading

• Down 4% in 10 days: Is it time to buy ASX 200 shares?
• Why market crashes are useful for buying ASX dividend shares
• These ASX growth shares could be long-term market beaters
• Where to invest $20,000 into ASX shares right now
• 3 quality ASX growth shares to buy in November

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 CSL Ltd., PUSHPAY FPO NZX, and Xero. The Motley Fool Australia owns shares of and has recommended A2 Milk and Bravura Solutions Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO and Appen Ltd. The Motley Fool Australia has recommended PUSHPAY FPO NZX and ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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It was a very disappointing day of trade for the S&P/ASX 200 Index (ASX: XJO) on Thursday. The benchmark index followed the lead of U.S. markets and dropped 1.6% to 5,960.3 points.

Will the market be able to bounce back from this on Friday? Here are five things to watch:

ASX 200 expected to rebound.

It looks set to be a better day for the Australian share market after Wall Street rebounded overnight. According to the latest SPI futures, the ASX 200 is poised to open the day 36 points or 0.6% higher this morning. In late trade in the United States, the Dow Jones is up 0.95%, the S&P 500 has risen 1.7%, and the Nasdaq has jumped 2.2%. The latter could be good news for local tech shares like Afterpay Limited (ASX: APT).

ResMed Q1 update.

The ResMed Inc (ASX: RMD) share price could be on the move today when it hands in its first quarter update. Earlier this week, analysts at Macquarie warned that the company’s device revenue could be lower this quarter due to softer than expected ventilator volumes. It expects ResMed to report revenue of US$714 million for the first quarter.

Oil prices continue to weaken

The share market may be rebounding, but the same cannot be said for oil prices which have continued to weaken. This could be bad news for the likes of Beach Energy Ltd (ASX: BPT) and Oil Search Limited (ASX: OSH) on Friday. According to Bloomberg, the WTI crude oil price is down 2.9% to US$36.30 a barrel and the Brent crude oil price is down 3.5% to US$37.75 a barrel. Oil prices are on track to have their worst week since April.

Janus Henderson update.

The Janus Henderson Group CDI (ASX: JHG) share price will be one to watch on Friday. Its US-listed shares dropped lower overnight following the release of its third quarter update. The fund manager reported a 6% increase in assets under management to US$358.3 billion. While this was positive, it was all down to favourable market movements. Janus Henderson recorded net outflows of US$2.9 billion for the quarter.

Gold price lower.

Gold miners Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) could have a subdued end to the week after the gold price softened again. According to CNBC, the spot gold price has dropped 0.5% lower to US$1,869.40 an ounce. This was driven by a strengthening U.S. dollar.

More reading

• Are ASX retail investors ‘dumb money’?
• Buy these 3 ASX stocks that hit a 52-week low during this market meltdown
• Why the Mesoblast (ASX:MSB) share price gained today as the ASX 200 fell
• Down 4% in 10 days: Is it time to buy ASX 200 shares?
• ASX 200 sinks 1.6%, ANZ (ASX:ANZ) reports FY20 result

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 CSL Ltd., PUSHPAY FPO NZX, and Xero. The Motley Fool Australia owns shares of and has recommended A2 Milk and Bravura Solutions Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO and Appen Ltd. The Motley Fool Australia has recommended PUSHPAY FPO NZX and ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The stock market crash has caused a number of high-quality businesses to trade at cheap prices. The past performance of the stock market suggests that they offer long-term recovery potential. Over time, this may mean that they significantly outperform other mainstream assets.

As such, now could be the right time to build a diverse portfolio of cheap shares. They could boost your financial prospects and help to bring your retirement date a step closer.

High-quality companies trading at cheap prices

While some shares are deservedly cheap after the market crash, others appear to be undervalued. For example, some companies with sound balance sheets and significant competitive advantages are trading at exceptionally low prices because of weak investor sentiment towards their sector.

Although they may face uncertain operating conditions and weak financial prospects in the short run, over the long term they have the potential to deliver improving profitability. Therefore, now could be an excellent opportunity to buy such companies while they appear to offer wide margins of safety. They could produce impressive capital returns that boosts the performance of your portfolio.

Recovery potential after a market crash

While some share prices have rebounded after the market crash, others continue to trade significantly down year-to-date. History suggests that, over time, the prospects for the wider stock market are relatively positive. After all, the stock market has always produced new record highs after its downturns. In doing so, the share prices of most companies have often made strong gains that produce high capital returns for investors.

Therefore, buying stocks today for their long-term turnaround potential could be a sound move. Risks such as Brexit, the United States election and coronavirus may hold back global stock prices in the short run. But the track record of equity markets suggests that the long-term prospects for stock prices is likely to very positive.

Relative return potential

While the market crash has caused paper losses for many investors this year, the long-term return prospects from shares are higher than other mainstream assets. For example, low interest rates mean that cash and bonds may struggle to offer impressive returns once inflation has been taken into account.

Meanwhile, property investing may offer less scope to obtain undervalued assets due to price rises in the global property market over the past decade. Therefore, on a relative basis, shares appear to offer a more favourable risk/reward investing opportunity.

Of course, shares may not necessarily produce impressive returns in the short run due to the ongoing threat of a second market crash. However, over the long run they have the potential to generate surprisingly high capital returns – especially for those investors who buy and hold high-quality businesses while they are trading at cheap prices.

More reading

• Are ASX retail investors ‘dumb money’?
• Zebit Inc (ASX:ZBT) share price tumbles lower on Q3 update
• Buy these 3 ASX stocks that hit a 52-week low during this market meltdown
• Why the Mesoblast (ASX:MSB) share price gained today as the ASX 200 fell
• Down 4% in 10 days: Is it time to buy ASX 200 shares?

Motley Fool contributor Peter Stephens 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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Retail ASX investors — meaning ‘small money’ investors like you or I — have often been looked down upon by institutional investors (read fund managers, pension funds and the like) as ‘dumb money’. That’s because small investors tend to do silly things with their share portfolios, such as selling shares in the middle of a market crash, or so the stereotype goes.

But a Firstlinks interview with Gemma Dale, Director of SMSF and Investor Behaviour at nabtrade, the online investing platform of National Australia Bank Ltd (ASX: NAB), sheds some interesting insight on the matter.

First, Ms. Dale notes that retail investors using the nabtrade platform had cash stockpiles at “record highs” in January and February – a period coinciding with global share markets at record highs. Doesn’t sound too dumb to me.

Second, Ms. Dale notes that during March and April (during the share market crash), “clients were buying like mad”, swinging nabtrade’s normal 50/50 buying and selling ratio to between 70/30 and 80/20. Following this period, Ms. Dale notes that June saw some mild profit-taking activity from ASX retail investors, but activity has been “more normal” ever since, albeit with relatively large cash piles on the side, a sign that many retail investors are “not sure that markets will stay at this recovered level”.

Some ASX shares investors have been buying

Interestingly, the article also supplies a table of the 10 most traded ASX shares over the year, sorted by investors’ age.

It tells us that Baby Boomers (those investors born before 1964) were heavily investing in ‘traditional’ blue chip ASX 200 shares, with the big four banks all at the top of the list, accompanied by BHP Group Ltd (ASX: BHP) and Woodside Petroleum Ltd (ASX: WPL). There were also some ‘speculative shares’ like Qantas Airways Ltd (ASX: QAN), Webjet Limited (ASX: WEB) and Zip Co Ltd (ASX: Z1P).

The patterns are largely similar in the Gen X category (born between 1965–1980), with Afterpay replacing Woodside on the top 10 list, and Qantas commanding a higher position.

However, for Gen Y (1981–1994) and Gen Z (1995–2005), a different pattern emerges. NAB shares remined the most purchased stock for both groups (as well as for Gen X and Baby Boomers). However, we see a far greater interest in the speculative shares like Qantas, Zip, Flight Centre Travel Group Ltd (ASX: FLT), Afterpay and Webjet. Interestingly, both Gen Y and Gen Z’s lists also featured exchange-traded funds (ETFs), specifically the Vanguard Australian Shares Index ETF (ASX: VAS), whereas Baby Boomers and Gen X’s list did not.

Ms. Dale commented on this observation:

It’s fascinating that the generations are almost identical, except very young people invest in twice as many ETFs as all other people, at about 12% of trades.

Foolish takeaway

It appears that ASX investors’ love of the big four bank shares did not take a beating in 2020, even though those banks’ share prices did (continuing years of underperformance). Old habits die hard, it seems.

On the whole, it was very encouraging to find that retail investors weren’t making the mistakes they are apparently infamous for during the intense market volatility we saw earlier in the year. That iron law of investing — buy low, sell high — seems to still hold sway.

More reading

• Down 4% in 10 days: Is it time to buy ASX 200 shares?
• $14 trillion investor alliance warns Aussie mining companies
• Here’s what this broker thought of the Afterpay (ASX:APT) Q1 update
• 2 ASX 200 shares poised to rocket when the world reopens
• The Credit Clear (ASX:CCR) share price has rocketed 133% since its IPO this week

Sebastian Bowen owns shares of National Australia Bank Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Flight Centre Travel 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 release of a third quarter update on Thursday wasn’t enough to stop the Zebit Inc CDI (ASX: ZBT) share price from dropping lower with the market.

The U.S. based ecommerce company’s shares dropped 3.5% to $1.10.

This means the Zebit share price is now trading 30% lower than its IPO price of $1.58.

What is Zebit?

Zebit is a newly listed ecommerce platform with a built-in buy now, pay later offering (BNPL).

It has a focus on the large (and growing) proportion of the US population (est. 100 million) that is considered to be credit challenged. 

It aims to provide affordable credit for consumers that wouldn’t qualify for credit cards or even for regular BNPL platforms like Afterpay Limited (ASX: APT) or Sezzle Inc (ASX: SZL).

How did Zebit perform in the third quarter?

For the three months ended 30 September, Zebit reported revenue of US$15.35 million and a gross margin of 28.2%.

No figures were provided for the prior corresponding period to compare against. Though, judging by its commentary, I suspect its revenue was down on the third quarter of FY 2019.

Management advised that it “deliberately constrained demand and was much more selective in its underwriting criteria related to customer acquisition and taking new orders during Q3 FY 2020.”

One positive, though, was that these operational tactics resulted in a heavier mix of orders from tenured customers on the platform. This increased the overall quality of its booked revenue.

Which may explain why the third quarter was the first positive EBITDA quarter since incorporation. Though, this didn’t quite lead to its operations being fully profitable. On the bottom line, Zebit posted a net loss after tax of US$0.33 million.

The company also booked a bad debt reserve of 6.26%. This is the proportion of bad debt Zebit expects to take for historical outstanding sales.

What now?

Management notes that in September the company decided to resume operating on a pre COVID-19 business-as-usual basis. It explained that it decided to do this because of the continuing development of its proprietary credit decision models and predictive analytics.

It advised that the switch resulted in an acceleration in orders and new registered users during the month of September.

This is just in time for the company’s busiest quarter. Zebit CEO and Co-Founder, Marc Schneider commented: “H2 has historically accounted for about 65% of Zebit’s total annual revenue, with Q4 being the most material quarter of Zebit’s fiscal year. Q4 contains well known key sales events for consumers, namely the Black Friday / Cyber Monday sales event as well as Christmas trading.”

“The remainder of 2020 will be a busy time for Zebit as we deploy the IPO capital and continue to grow our registered user base across the U.S. and continue to deliver upon our IPO objectives in the most significant quarter of Zebit’s fiscal year,” Mr Schneider concluded.

More reading

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

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