While the big four banks are usually the ones stealing the limelight in the financial sector, I believe regional retail banks such as Bank of Queensland Limited (ASX: BOQ) and Bendigo and Adelaide Bank Ltd (ASX: BEN) remain desirable as investment prospects.

Both of these blue-chip institutions have some of the highest fully-franked trailing dividend yields going around, representing a historically strong income source for shareholders. Likewise, these banks are currently facing similar headwinds that include COVID-19, the weaker national economic environment and the financial recovery from Australia’s unprecedented bushfire season in regional communities.

Despite facing profound challenges, are either of these banks a prudent investment right now?

Bendigo and Adelaide Bank

The slightly larger of these banks, Bendigo maintains a market capitalisation of approximately $3.77 billion and is the largest retail banking institution outside of the big four.

The Bendigo and Adelaide Bank share price at the time of writing is trading at $7.13, thus representing a price-to-earnings (P/E) ratio of 12.04. This P/E sits at a discount to major competitors such as National Australia Bank Ltd (ASX: NAB), which has a P/E of 16.4, and Westpac Banking Corp (ASX: WBC), with a P/E of 13.6, suggesting that Bendigo may be slightly better value at its current share price.

In addition, Bendigo’s trailing dividend yield sits at 9.26%, having paid out a healthy last dividend of 31 cents per share in March. Of course, COVID-19 has chewed up most of the company’s profits and many institutions are seeking to preserve cash. As such, market consensus is that the bank will likely severely cut its final FY20 dividend by as much as 75%. Only time will tell if this proves to be the case with Bendigo reporting its full-year FY20 results next week on 17 August.

In the meantime, brokers from Citi last week placed a price target on the bank of $7.25, rating the company as ‘neutral’. The broker cited concerns over Victoria’s stage 4 lockdowns as a major headwind, particularly in H2 of FY20, highlighting that this may lead to higher loan deferrals and tighter lending margins.

Although the bank’s share price has struggled in recent times due to its exposure to lending in regional areas, worsened by this year’s bushfires, I remain optimistic that heightened domestic travel and spending in regional areas due to COVID-19 may offset some of the losses taken on by Bendigo.

The bank has a long way to get back to its 52-week high of $11.69, but investors with a long-term view will likely see significant upside from a combination of capital gains and upper-end dividend distributions.

Bank of Queensland

This slightly smaller bank comes in at a market capitalisation of $2.8 billion. The Bank of Queensland share price currently trades at $6.17 at the time of writing. Notably, Bank of Queensland’s P/E ratio sits at under 10, making it a slightly less expensive option compared to other financial institutions.

Similarly to Bendigo, the current Bank of Queensland share price is trading at a sizeable discount of 38% to its 52-week high of $9.98, which was achieved in September last year. Bank of Queensland also maintains a fully-franked trailing dividend yield of over 10%, despite choosing to defer its dividends as of April this year.

According to its results for the first-half of FY20, Bank of Queensland saw its net profit slashed by as much as 40%, and earnings per share withdraw by 16%. Operating expenses also grew by 9% due to a deteriorating economic environment.

Despite poor first-half results in what management dubbed a ‘transitional’ year, Bank of Queensland remained positive regarding its strong balance sheet, aided by a $340 million equity raising.

But according to reporting by the Australian Financial Review, last month Bank of Queensland reported a $112 million increase in loans over 90 days overdue, and provided loan deferrals to over 21,000 customers. This is largely inevitable due to the current difficulties facing the institution and it is great to see the bank helping out its customers in their time of need. It may, however, lead to severe write-downs on some of the company’s loans and a slashed valuation of the bank.

Foolish takeaway

Some short-term pain will undoubtedly be felt for shareholders of both banks but, over the long term, I believe these regional institutions will eventually make a comeback. If I had to pick one, I’d go with Bendigo. It’s a bigger player overall and its loan books appear to be holding up marginally better in the current economic climate. In addition, I get to hear from Bendigo and re-evaluate my thesis on it as of next week, rather than waiting until October for Bank of Queensland.

More reading

• Why Aurizon, Cochlear, Magellan, & Westpac shares are pushing higher
• Flight Centre and Zip Co were among the most traded shares on the ASX last week
• Why this reporting season is different, and now’s a great time for ‘buy to hold’ investors in ASX shares
• Why Bendigo and Adelaide Bank, CIMIC, James Hardie, & Webjet are storming higher
• Should you buy CBA shares before the dividend announcement?

Motley Fool contributor Toby Thomas 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 Bank of Queensland share price a better buy than Bendigo and Adelaide Bank? appeared first on Motley Fool Australia.

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Due to the quality on offer in the tech sector, I think it is one of the best places to look for long term investments.

Three exciting ASX tech shares that I would buy today are listed below. Here’s why I think they are in the buy zone:

Afterpay Ltd (ASX: APT)

The first tech share to consider buying for the long term is Afterpay. Due to the increasing popularity of the buy now pay later payment method with consumers and merchants, I believe this payments company could be a strong performer over the next decade. Especially given the incredible active customer growth it is experiencing in the United Kingdom and United States markets. Given that the latter market is worth an estimated $5 trillion a year, Afterpay clearly has a long runway for growth there. In addition to this, Afterpay is likely to support its growth by expanding into new markets in the coming years. Canada is coming this financial year and I suspect Europe and even Asia could soon follow.

Appen Ltd (ASX: APX)

Appen is the global leader in the development of high-quality, human-annotated training data for machine learning and artificial intelligence. Through a team of over 1 million crowd-sourced workers, the company is able to collect and label high volumes of data used to build and improve artificial intelligence models. Due to the growing importance of artificial intelligence and machine learning and Appen’s leadership position in its field, I believe demand for its services is likely to grow strongly in the coming years. This could mean further strong earnings growth ahead for the company.

Pushpay Holdings Group Ltd (ASX: PPH)

Pushpay is a donor management platform provider for the faith sector. It has been growing its sales and operating earnings at an explosive rate in recent years thanks to increasing demand for its platform in a church market that is rapidly embracing digital transformation. This has particularly been the case during the pandemic, with churches using its platform to reach their congregation in new ways. This led to Pushpay smashing expectations in FY 2020 and then guiding to further impressive growth in FY 2021. The good news is that it is still only scratching at the surface of its massive market opportunity in the medium to large church market. In light of this, I expect its strong growth to continue for many years to come.   

More reading

• Where to invest $500 into ASX shares immediately
• Is the Afterpay share price a buy?
• MoneyMe share price surges, but is it sustainable?
• If you have $12,000, you should invest in these 3 ASX shares now
• 5 things to watch on the ASX 200 on Wednesday

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 PUSHPAY FPO NZX. The Motley Fool Australia owns shares of AFTERPAY T FPO and Appen Ltd. The Motley Fool Australia has recommended PUSHPAY FPO NZX. 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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Something a little different, today.

I usually write specifically about investing, sometimes with reference to the wider world.

This time, I’m going to do the reverse. Because there are some big macroeconomic changes taking place – and not just the transitory recession we’re currently living through.

Changes that will likely transform the economic and political environment in which we invest.

In short, COVID-19 is rewriting the social contract.

Before the Great Depression, government support, in the form of welfare and other safety nets, was pretty sparse, if present at all.

The Great Depression – and the social disruption (and human misery) it caused – ushered in a new deal.

Quite literally: then-US president Franklin D. Roosevelt used exactly that term, and with capitals: The New Deal.

To quote directly from Wikipedia, it:

“…focused on what historians refer to as the “3 Rs”: relief for the unemployed and poor, recovery of the economy back to normal levels, and reform of the financial system to prevent a repeat depression.”

It was recognition that a prosperous nation, even as it went through tough economic times, could and should do more to look after its least fortunate citizens, and to accelerate recovery.

It was encouraged (even enabled) by the recognition that government balance sheets could run extended deficits during tough times, to be paid off when things improved.

Now, I’m no historian. But the New Deal was remarkable for the speed and size of the response, and it was more remarkable (in hindsight, and probably also at the time) for how it changed the expectation of what the government should do.

The same was true here in Australia of Medicare, some four decades later. Once a partisan and hotly debated issue, it has come to be all-but untouchable, sharing widespread bipartisan support (except for the knuckleheads at the fringes), and we look at other countries (no names, no pack drill, but one of them rhymes with ‘United States’) and wonder how it’s possible their healthcare isn’t more universal, and how such a program could even reasonably be called ‘socialism’ as some detractors suggest.

A dozen years ago, having learned from some of the errors of the Great Depression, the USA and others met the GFC with unparalleled spending, including corporate bailouts, to avoid a repeat of the late 1920s and early 1930s. And, as if to give economists a control group to compare, some countries, notably in Europe, followed an austerity strategy instead.

Newsflash: It didn’t work.

If it wasn’t already clear, it became crystal: Keynesian economics – spend in tough times, and recover it in the good times – was not only a more humane approach, but it was smart economics. 

There really are very few serious scholars who’d tell you that we’d have been better off to let banks and businesses fail in 2008, putting millions more out of work.

Back in 2020, though, and the GFC almost feels both quaint and ancient history, by comparison to our current challenges.

This pandemic, a truly once-in-a-century occurrence when that term is otherwise overused, is a public health emergency. And the response to that emergency was to – knowingly and deliberately – create another emergency; this time an economic one as jobs and businesses were essentially put into a deep freeze.

And the size of the response has been mindblowing.

We’ve seen right-wing governments in the USA, the UK and here in Australia, who are otherwise fiscal conservatives, throw money at the problem like there was no tomorrow.

And we can debate whether that was right or wrong (I’m in the former camp, for the record), but I think the more interesting conversation is about what the decision means for the role of government – both from the politicians themselves, but also what we expect, as citizens.

Along the lines of FDR’s ‘3 Rs’, we’ve seen a radical redefinement of not only what the government should do, but also how much it should do… and spend.

Indeed, the various programs – from the forgiveness of airline landing fees to the $100-plus billion being spent on JobKeeper and JobSeeker – are larger than even the most strident social democrat might have dared hope, only 12 months ago.

And the line between what we expect of government, and what it deigns its role to be, has all but vanished.

As Treasurer Josh Frydenberg said, referencing a conversation he had with John Howard, there is no ideology in a crisis.

Which is as it may be, but more accurately, ideology is actually being rewritten with each passing day.

Big Government – now and in future – is the order of the day. It simply has to be that way, given the size of the stimulus as a share of GDP, and considering how long it’ll take to pay off.

Again, I make no judgement on whether that’s good or bad – it just is, and will be for years.

It goes further, too. With notable exceptions (I’m looking at you, Bunnings Karen), we’ve accepted a huge increase in the role of government when it comes to restricting our movement and, yes, deciding whether or not we cover our faces.

We’ve let them close state borders, for the first (meaningful) time since Federation, as well as closing the country’s borders to all but a limited number of returnees.

It is no small thing to see a conservative government run up a multi-generational debt in a matter of months.

The ‘budget emergency’ and ‘debt and deficit emergency’ are gone.

We’re all Keynesians now.

It is, in some senses, the natural extension (even if created by an unnatural health crisis) of a creeping change in what we’ve increasingly come to expect from our governments.

We’ve always wanted roads, water, electricity and law & order / defence.

Now we want an NBN, low unemployment, industry assistance, JobKeeper, a higher rate of unemployment benefit, healthcare, turbo-charged bushfire protection, a disability insurance scheme and plenty more. Not only that, but governments are also throwing billions and billions of dollars at a cure for COVID-19.

Only just last week, The Economist wrote about:

“…the $7trn which governments across the world have spent or pledged since the pandemic began in order to preserve incomes and jobs”.

Thats $7 trillion. In US dollars.

More than $10 trillion Australian dollars.

And – let me say it again – I make no judgement, here, on any of that.

I simply make the point that it is real. It’s a thing.

As a society (and the same is happening around much of the Western world), the majority actively want more government in their lives (yes, even those who say they want smaller government and more individual freedom and incentive, but who still want support, right now!).

It doesn’t stop there. Plenty of people, including high profile commentators like Alan Kohler, for example, are calling for a ‘jobs guarantee’ – essentially (and this is a necessary simplification, so please take it as such) a job for anyone who wants one.

If you’re of a certain age, that should remind you of a particularly ‘socialised’ approach to economic management. A government that promises a job to anyone who wants one is either appropriate, Utopian, or socialism, depending on your particular economic and social ideology.

But whatever your view, what strikes me is how mainstream these types of approaches have become – something that, despite the partisan views of the culture-warriors, would have been unthinkable only 20 years ago.

Indeed, Josh Frydenberg recently citing Thatcherism, while presiding over a $100-plus billion stimulus package, might just be the most incongruous thing we’ll see this year… and in 2020, that’s saying something!

(And then there’s the rise of ‘Modern Monetary Theory’ which, grossly simplified, says government debt isn’t real. And/or that there should be no limit. Put me down as a capital-S sceptic. Sounds more like MPT – Magic Pudding Theory – to me.)

At the same time, we’re continuing to see an acceleration in the rise of economic nationalism, as populist leaders turn their backs on (imperfect) win-win outcomes in favour of lose-lose outcomes dressed up as ‘protecting [insert nationality here] jobs’.

And, of course, we continue to face a larger and more existential threat in climate change which, though likely given a breather (no pun intended) by the economic impacts of COVID-19, remains an ever-present problem that world leaders are showing little progress in addressing.

I have my own thoughts, but I come with no concrete answers – either to what’s right or wrong, or what will come next. In one version of the future, we all become like the Nordic countries, with higher taxation and acceptance of a larger role for governments. In another, a Trump-like figure rises up in opposition to ‘too much government’.

For businesses, more government might mean more regulation, or higher taxes. It might change the competitive dynamics of industries, and/or the areas in which government sees a new/renewed role for itself.

We might see Australia Post as an alternative bank, for example, or the reversion of aged care, electricity and/or transport into government hands.

And, of course, we’ll need to learn to either live with an astronomical level of debt, or work out how to pay for it with increased taxes and/or lower government spending, each of which will have an impact on the economy, and for jobs and profits, accordingly.

As an investment advisor, you might wonder about my view on the impact for our companies.

The bad news is that the outlook is as uncertain there as it is elsewhere.

But if I was a betting man, I’d be pretty keen to own businesses with scale, and with meaningful pricing power, both of which offer protection against inflation and a fickle consumer.

I’d happily own shares in a disruptive business, but I’d want to know it was producing a product or service that was self-evidently in demand. Creating its own demand could need something very special in a world where growth in discretionary spending might be hard to come by.

So, perhaps as a combination of the two factors, above, I’d want growing sales and healthy profit margins.

The good news is that even if I’m wrong about some of the impacts, businesses that share those characteristics are likely to win in any environment.

In short; resilience – always valuable, in any market – will be especially important in an uncertain economic and social future.

And not just for our investments, but in our finances and employment, too.

Fool on.

More reading

• 2 ASX dividend shares to buy with $5,000 today
• Is the Bank of Queensland share price a better buy than Bendigo and Adelaide Bank?
• 3 stellar ASX tech shares to buy for the long term
• Top brokers name 3 ASX 200 shares to buy today
• Downer share price edges higher on takeover bid

The post How COVID-19 is locking in our economic future… appeared first on Motley Fool Australia.

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Many of Australia’s top brokers have been busy adjusting their financial models again, leading to the release of a large number of broker notes this week.

Three broker buy ratings that have caught my eye are summarised below. Here’s why brokers think these ASX 200 shares are in the buy zone:

A2 Milk Company Ltd (ASX: A2M)

According to a note out of UBS, its analysts have retained their buy rating and NZ$22.00 (A$20.25) price target on this fresh milk and infant formula company’s shares. The broker believes that strong demand for its infant formula, particularly on Chinese ecommerce platforms, will allow a2 Milk Company to outperform the market’s expectations with its FY 2020 result. And while it has concerns that higher infant formula inventory levels could weigh on its performance in the ANZ market during the first quarter, it remains positive on its outlook. I agree with UBS and would be a buyer of a2 Milk Company’s shares.

Challenger Ltd (ASX: CGF)

A note out of the Macquarie equities desk reveals that its analysts have upgraded this annuities company’s shares to an outperform rating with an improved price target of $4.50. Although Challenger’s guidance for FY 2021 was below expectations, the broker believes recent share price weakness has brought it to an attractive level. Especially given its positive long term outlook. While I agree that Challenger’s valuation is reasonably undemanding, I would prefer to wait for its performance to improve before investing.

NEXTDC Ltd (ASX: NXT)

Another note out of UBS reveals that its analysts have retained their buy rating and lifted the price target on this data centre operator’s shares to $14.15. According to the note, the broker believes that the shift to cloud is accelerating and will continue to do so in the coming years. Especially given how many businesses are shifting the internal data centres to colocation centres. This should lead to strong demand for NEXTDC’s services. I agree with UBs on this one as well and feel NEXTDC could be a great long term option for investors.

More reading

• ASX 200 down 0.3%: CBA delivers $7.3bn cash profit, gold miners sink, SEEK’s outlook disappoints
• Should you buy these 2 ASX dairy shares instead of A2 Milk?
• Coronavirus: SkyCity share price falls as NZ restrictions tighten
• Why a new CEO is good for the A2 Milk share price
• 5 things to watch on the ASX 200 on Wednesday

Motley Fool contributor James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia owns shares of and has recommended Challenger Limited. The Motley Fool Australia owns shares of A2 Milk. 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 Top brokers name 3 ASX 200 shares to buy today appeared first on Motley Fool Australia.

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At the time of writing, the Downer EDI Limited (ASX: DOW) share price was up 1.44% to $4.22 as the company released its annual report and launched a takeover bid for Spotless.

What are the details of the takeover bid?

Downer intends to acquire the 12% of Spotless that it does not already own to take its ownership to 100%. As part of the deal, Spotless shareholders other than Downer will be entitled to receive $1.00 in cash for each of their Spotless shares. In addition, for every 17.93 Spotless shares, shareholders will receive one Downer share option with an exercise price of zero. This will allow Spotless shareholders to gain exposure to the Downer share price after the takeover.

Spotless delisted from the ASX in 2019.

Currently, Downer owns an option giving it the right to purchase another 2.99% of Spotless shares. This will take its ownership above 90%, allowing Downer to make a compulsory takeover if shareholders do not accept its current offer.

What were Downer’s annual results?

Downer EDI had revenue of $12.7 billion in the 2020 financial year, this was down 0.5% on the 2019 financial year. Earnings before interest and tax (EBIT) were -$41.3 million in the 2020 financial year versus $462.2 million in the 2019 financial year.

The company posted a net loss after tax of $150.3 million in the 2020 financial year. This compared to a net profit after tax in the 2019 financial year of $261.8 million. Earnings per share were -26.6 cents in the 2020 financial year. 

Downer EDI had impairments on non-current assets of $212 million in the 2020 financial year versus zero in the 2019 financial year. The company had depreciation on leased assets of $151.8 million in the 2020 financial year, this figure was zero in the 2019 financial year.

The company reported that earnings before interest and tax and before amortisation (EBITA) of acquired intangible assets was $30 million.

About the Downer share price   

Downer EDI is a services company that operates in Australia and New Zealand. It operates services including road, rail, power, gas, water, health, education, defence, and government services. Downer EDI is listed on the ASX along with the New Zealand Stock Exchange.

Earlier this year, Downer raised $400 million from shareholders through an entitlement offer at a price of $3.75 per share. The capital raising was intended to support Downer in making a full takeover of Spotless.

The Downer share price is up more than 66% from its 52 week low of $2.54, however, it is down 46.5% since the beginning of the year. The Downer share price is down 41.8% since this time last year.

More reading

• 3 underperforming ASX 200 stocks that could beat earnings expectations
• Downer share price lower despite contract wins
• ASX 200 jumps 2.6% on vaccine hopes and jobkeeper
• What you need to know about Downer’s share price, $400m cap raise and acquisition

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

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If you’re wanting to add some dividend shares to your portfolio this week, then you’re in luck. The Australian share market is home to a number of top options for income investors.

Listed below are two top ASX dividend shares which I think are in the buy zone right now. Here’s why I would buy them:

Aventus Group (ASX: AVN)

The first ASX dividend share that I would suggest income investors consider buying is Aventus. Although retail property shares are having a tough time right now, Aventus appears to have been less impacted than most in the sector. This is because Aventus specialises in large format retail parks and has a reasonably high rental income weighting towards everyday needs. I believe this leaves it better positioned than others in the sector to navigate through the difficult trading conditions. Based on the current Aventus share price, I estimate that it offers an FY 2021 yield of at least 6%.

Fortescue Metals Group Limited (ASX: FMG)

I think Fortescue could be a great option for income investors that aren’t fazed by investing in the resources sector. This is because of the quality of its operations and the high prices that iron ore is commanding at present. These have been caused by supply disruptions and robust demand in China. Given that iron ore prices remain comfortably above US$110 a tonne at present, I believe Fortescue is well-placed to generate high levels of free cash flow in FY 2021. This is likely to be returned to shareholders in the form of dividends. If iron ore prices remain favourable, then, based on the current Fortescue share price, I would expect a forward fully franked dividend of at least 6%.

More reading

• Top ASX dividend shares to buy in August 2020
• Broker sees top returns for iron ore miners BHP and Rio
• Has the ASX 200 finally taken off?
• ASX iron ore miners jump on broker upgrades
• Are ASX lithium shares the next big thing?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended AVENTUS RE UNIT. 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 These high yield ASX dividend shares will help you smash low interest rates appeared first on Motley Fool Australia.

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At lunch on Wednesday the S&P/ASX 200 Index (ASX: XJO) is on course to record a decline. The benchmark index is currently down 0.3% to 6,118.5 points.

Here’s what has been happening on the market today:

CBA delivers robust FY 2020 result.

The Commonwealth Bank of Australia (ASX: CBA) share price is flat at lunch following the release of a robust full year results for FY 2020. The banking giant reported operating income of $23,758 million, up 0.8% on the prior corresponding period. This reflects volume growth in home lending and deposits, which offset a 2 basis point decline in its net interest margin to 2.07%. CBA’s cash net profit after tax from continuing operations was down 11.3% to $7,296 million. This was driven largely by higher COVID-19 loan impairment expense. A 98 cents per share final dividend was declared.

SEEK outlook disappoints.

The SEEK Limited (ASX: SEK) share price has tumbled lower today after the release of its full year results. In FY 2020, the job listings giant’s earnings before interest, tax, depreciation, and amortisation (EBITDA) fell 9% to $414.9 million. This was driven by a 17% decline in AP&A EBITDA to $295 million, which offset a 20% increase in SEEK Investments EBITDA to $151.7 million. While this decline was expected, SEEK’s outlook appears to have underwhelmed. Due to the negative impact of the pandemic, SEEK has suggested that its EBITDA could drop 20.5% in FY 2021.

Gold miners sink lower.

Australia’s leading gold miners are sinking into the red on Wednesday after the gold price crashed almost 6% lower overnight. The likes of Newcrest Mining Limited (ASX: NCM) and Northern Star Resources Ltd (ASX: NST) are all under significant pressure. This appears to have been driven by improving economic data and a potential Russian coronavirus vaccine. The S&P/ASX All Ordinaries Gold index is down 5.5% at the time of writing.

Best and worst ASX 200 shares.

The best performer on the ASX 200 at lunch is the Unibail-Rodamco-Westfield (ASX: URW) share price with a 5% gain. Bargain hunters may be buying the shopping centre operator’s shares after a heavy decline in 2020. The worst performer is the SEEK share price with a 10% decline. This follows the release of its aforementioned full year results.

More reading

• ASX investors have been buying these international shares
• As CBA slashes its dividend, the brutal reality is bank shares have been dogs for 5 years, with more pain ahead
• Why Mesoblast, Northern Star, SEEK, & WiseTech Global shares are sinking lower
• Coronavirus: SkyCity share price falls as NZ restrictions tighten
• SEEK share price on watch after COVID-19 profit hit

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 ASX 200 down 0.3%: CBA delivers $7.3bn cash profit, gold miners sink, SEEK’s outlook disappoints appeared first on Motley Fool Australia.

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The A2 Milk Company Ltd (ASX: A2M) has been the gift that keeps on giving. However, the company’s hefty share price may make it difficult for A2 Milk to continue its exponential growth and capital returns.

Could these 2 ASX dairy shares be suitable A2 Milk replacements? 

1. Bubs Australia Ltd (ASX: BUB) 

ASX dairy share Bubs has a mere $524m market capitalisation compared to the $14 billion A2 giant. However, its products often neighbour A2’s on the shelves of many supermarkets and international sales channels.

Looking at the company’s growth figures, its Q4 FY20 quarterly activities highlighted a 32% increase in FY20 gross revenue and $26m in cash reserves as at 30 June 2020.

I expect Bub’s full year reporting to be consistent with its Q4 commentary, with Bubs Infant Formula driving performance and an expected strong growth trajectory. The company has achieved significant domestic retail distribution gains for a variety of its goat and grass-fed infant formula products across major retailers Coles, Woolworths, Chemist Warehouse, Big W and Baby Bunting. 

The coronavirus pandemic has surfaced as a consistent challenge across most infant formula stocks. A reduction in Chinese tourists and students, increasing costs and longer delivery times for international logistics and pantry stocking in Q3 has curbed the earnings potential of outbound Daigou channels.

These challenges remain a wildcard for the upcoming earnings season as domestic growth may be subdued in this volatile environment. With that said, China consumer demand has remained strong and supported via increased marketing investment across online channels. Bubs has also focused more on emerging markets outside of China to de-risk and meet new consumer demand. 

Bubs is well-capitalised and expects to achieve profitability at normalised EBITDA level in FY21. I believe the risks associated with Bubs applies to all ASX dairy shares in today’s volatile environment. This represents a high risk/high reward play instead of the A2 Milk share price. 

2. Nuchev Ltd (ASX: NUC) 

Nuchev listed on the ASX on 13 December 2019 and sells premium goat nutritional products. Its flagship product is its Oli6 branded goat infant formula.

Despite its initial public offering (IPO) late last year, on 29 July the ASX dairy share initiated a $15m capital raising at an offer price of $2.33 per share. This is quite a significant raise given its ~$100m market capitalisation. The capital will ensure Nuchev can operate effectively in an uncertain environment while leaving it well-placed to capitalise on opportunities and remain nimble in adapting efficiently in these unusual times. 

In Nuchev’s Q4 trading update, its net revenue of $17.8m came slightly below prospectus expectations, achieving 99% of prospectus forecasts. This revenue represents a 98% increase on FY19. It expects a material revenue increase in Fy21, particularly in key CBEC channels. However, the rate of growth is expected to moderate relative to FY20. It believes travel restrictions are likely to impact on the speed the company can develop new business and markets. 

I think Nuchev is too speculative and unpredictable right now. The ASX dairy share does not yet have a roadmap to profitability and still pending the approval of its SAMR brand registration which will enable it to sell products in China.

More time is needed to evaluate whether or not Nuchev can successfully penetate the Chinese market and if new markets can be realised. While the ASX dairy share and its products are niche, I would rather have my money in the A2 Milk share price. 

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Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BUBS AUST FPO. The Motley Fool Australia owns shares of A2 Milk, COLESGROUP DEF SET, and Woolworths 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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