The retail sector certainly is a tricky place to invest right now. The recently announced six-week lockdown in Melbourne and the decline in forecast immigration are expected to weigh heavily on some retailers.

Analysts at Goldman Sachs have been busy running the rule over the sector and have picked out a few companies which they feel will be winners and losers in FY 2020 and FY 2021.  

What did Goldman Sachs find?

First and foremost, Goldman Sachs favours consumer staples over discretionary retailers. It has buy ratings on the likes of Coles Group Ltd (ASX: COL) and Metcash Limited (ASX: MTS). This is because in the current environment, it feels predictability of earnings is very valuable.

Outside this, here is a summary of how it feels a number of key retailers will perform in the near term:

Domino’s Pizza Enterprises Ltd (ASX: DMP)

Goldman Sachs is positive on Domino’s and has a buy rating and $67.70 price target on its shares. It commented: “While we expect the growth rate for Cafés, restaurants and takeaways foods to be negative in FY21 and stronger at +15.8% in FY22, we believe DMP is unlikely to see these variations due to the higher share of digital sales in the business (72.4% of sales in 1H20). We forecast DMP to see 4% comp growth in FY21 and +4.5% in FY22, after +1.7% in FY20 (due to hard lock downs in NZ in 2H20).”

Harvey Norman Holdings Limited (ASX: HVN) and JB Hi-Fi Limited (ASX: JBH)

JB Hi-Fi and Harvey Norman have been very impressive performers during the pandemic, but the broker doesn’t expect this form to carry over into FY 2021. Next year it expects JB Hi-Fi to report a 3.8% decline in sales and Harvey Norman to post a 1.3% decline in sales. Goldman has a neutral rating and $39.90 price target on the JB Hi-Fi share price, but a buy rating and $4.25 price target on the Harvey Norman share price.

Premier Investments Limited (ASX: PMV)

The broker has a neutral rating and $13.70 price target on this retail conglomerate’s shares. It has “forecast all apparel brands to see double digit declines in FY20 before largely returning to FY19 sales levels by FY21.” However, it does have concerns that the key Smiggle brand might have a slower recovery in its sales. Goldman is predicting 10% growth in FY 2021 after a 20% decline in FY 2020.

Super Retail Group Ltd (ASX: SUL)

Goldman Sachs is bullish on Super Retail and has retained its buy rating and lifted its price target slightly to $10.20. Thanks to the diversity of its businesses, it doesn’t believe the company will have been impacted too greatly during the pandemic. It explained: “We forecast the leisure brands BCF and Macpac to see negative growth at -1.6% and -10% respectively in FY20 while SupercheapAuto and Rebel are forecast to grow at +3.4% and +2.3% respectively. We forecast all four brands to grow at low single digit in FY21.”

Wesfarmers Ltd (ASX: WES)

Goldman has a neutral rating and $42.50 price target on Wesfarmers shares. Its analysts said: “We forecast Bunnings and Officeworks to have seen strong growth at +11.7% and +17.5% respectively in FY20 but forecast FY21 sales to decline by -1.7% and -1.8%. We forecast the department stores (Kmart and Target) to see stronger declines of -3% and -9.5% respectively over FY21.”

More reading

• My bull and bear case for the ASX share market
• Plummeting retail spend puts ASX fashion shares under the microscope
• Why Coles, Kogan, Northern Star, & Splitit are charging higher
• Why I would buy Nanosonics and these ASX growth shares
• These ASX shares are swept up by the new Victorian COVID-19 lockdown

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited and Super Retail Group Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Wesfarmers Limited. The Motley Fool Australia has recommended Domino’s Pizza Enterprises 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 Goldman Sachs names the ASX retail shares to buy and the ones to avoid appeared first on Motley Fool Australia.

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The share market recovery has stalled as Victoria reintroduces lockdowns to combat a new resurgence of the coronavirus outbreak. Businesses are now facing shutting up shop not long after reopening, casting doubt on economic recovery. The impacts of the coronavirus crisis on our lives and spending are becoming entrenched as we work, eat, and spend more leisure time at home. 

Consumption patterns are likely to be impacted over the long term as new habits are formed. This will have a mixed impact on ASX shares, with some set to benefit while others will continue to experience challenges. According to the most recent Deloitte Access Economics Business Outlook, the mining sector has continued largely unabated through the crisis, with resurgent demand from China driving iron ore and coal sales. 

This has benefitted companies such as BHP Group Ltd (ASX: BHP), whose production guidance for 2020 remains unchanged for petroleum, iron ore, and metallurgical coal. Rio Tinto Limited (ASX: RIO) actually reported an increase in iron ore shipments in the March quarter, with shipments up 5% compared to the prior corresponding period. 

But the news is less positive in other parts of the economy, such as the tourism industry. With international travel off the cards and domestic travel severely curtailed, companies like Qantas Airways Limited (ASX: QAN), Flight Centre Travel Group Ltd (ASX: FLT), and Webjet Limited (ASX: WEB) are in limbo. 

In retail, fortunes have been mixed. Consumers are increasingly turning to e-commerce to fulfil their needs. Those with a strong online presence have reported surging digital sales. Those that rely on a physical presence have been more adversely impacted due to store closures. Accent Group Ltd (ASX: AX1) reported a quadrupling of online sales when stores closed. Adairs Ltd (ASX: ADH) saw online sales increase 92.6% over the half year to 14 June and 64% over the year to date.

Pre-COVID-19, strong overseas population growth, international travellers, and students provided stimulus to many industries. This source of growth has now been cut off, and it’s not clear when it will resume. As Deloitte notes, this hurts education and tourism immediately, but also has downstream impacts. It may weigh on economic recovery, impacting on everything from construction to utilities.  

Foolish takeaway

The medium- to long-term impacts of the pandemic will be mixed, favouring some ASX shares over others. Changes to consumer behaviour resulting from the pandemic may alter spending patterns over the long term.  

More reading

• My bull and bear case for the ASX share market
• Top brokers name 3 ASX shares to buy right now
• Plummeting retail spend puts ASX fashion shares under the microscope
• Why Afterpay, Alumina, Magellan, & Webjet shares are dropping lower
• Rio Tinto share price on watch following broker downgrade

Motley Fool contributor Kate O’Brien owns shares of BHP Billiton Limited and Rio Tinto Ltd. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Accent Group and 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.

The post These ASX shares are the winners and losers in the “new normal” appeared first on Motley Fool Australia.

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I think the ASX share market seems to be at a crossroad right now. Should investors be bulls or bears in this environment?

There are arguments for both sides. The S&P/ASX 200 Index (ASX: XJO) is struggling to stay above the 6,000 point level – which is a symbolic market measure. The ASX 200 spent most of the 2010s below 6,000.

Here are my thoughts about the bull and bear case for the ASX share market:

Bull case

I was surprised at how strongly the ASX share market recovered after the initial COVID-19 selloff.

Since 23 March 2020 the ASX 200 has gone up more than 31%. The share prices of the big four ASX banks of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) are still down materially from their pre-coronavirus prices. If you exclude the banks then the ASX share market recovery looks even stronger.

I think the lower interest rates do go some way to justify the higher prices. All assets are meant to be valued compared to the ‘risk free rate of return’, namely government bonds. With the RBA interest rate now down to just 0.25%, I think it’s clear that share prices would rise in reaction to that.

Obviously another key factor for share prices is the earnings and expectations of future earnings.

Listed businesses are bigger and more resilient

You’d expect the ASX share market to fall during a recession. The share market did fall and it’s still down. But remember that the ASX share market isn’t just a collection of random businesses in the economy. ASX shares tend to be among the biggest and best in their respective industries.

ASX shares generally have better balance sheets than smaller unlisted businesses. Listed businesses can get access to capital a lot easier as well.

I think what’s been most interesting during this period is that many ASX shares have actually reported an increase in revenue during the last couple of months because of all of the stimulus provided to the economy. We’ve seen a lot of spending in certain categories like groceries, DIY home projects and home office products.

Some of the shares that have reported strong revenue growth include: Wesfarmers Ltd (ASX: WES), Woolworths Group Ltd (ASX: WOW), JB Hi-Fi Limited (ASX: JBH), Harvey Norman Holdings Limited (ASX: HVN), Adairs Ltd (ASX: ADH), Nick Scali Limited (ASX: NCK) and Accent Group Ltd (ASX: AX1).

If we accept that earnings ultimately decide share price movements, then I think it’s fair to say the ASX share market has behaved quite rationally with the shares that have seen stable or even growing revenue.

Bear case

But arguably this surge of retail spending is going to be short lived. Jobkeeper, jobseeker and the coronavirus supplement have supported households during this difficult period. But the broad government support is scheduled to come to an end in September. What happens after that?

Has most of the country recovered enough for the economy to go back to normal? I’m not sure it has yet, particularly for Melbourne which has gone back into a lockdown.

The OECD warned that if there is a return to lockdowns in Australia then GDP could fall by 6.3% in 2020. Thankfully it’s not the entire country that’s facing a lockdown. But Melbourne is important as it’s Australia’s second biggest city. Hopefully COVID-19 hasn’t escaped from Victoria into another state during the last couple of weeks – that would be bad news for the ASX share market.

US issues

What particularly concerns me at the moment is the prospect of a large second wave in the US – there are now 3 million confirmed cases. Some economically important US states like Texas are now slowing and reversing the lifting of restrictions. More restrictions means less economic activity. Obviously officials must make the right decisions to protect lives, but it does mean earnings hits for people and businesses. The ASX generally follows the US share market in the short-term.

The key for stopping a COVID-19-caused share market fall is some sort of healthcare breakthrough in my opinion. Without a healthcare solution it will mean either extended restrictions or increased infections (and deaths), neither of which is good for the economy or share market. 

I’m also cautious for the global share market with the upcoming US election later this year. I think it could cause a lot of uncertainty over the next six to nine months depending on who wins and what actions they take. Biden may choose to reverse the tax cuts given to US businesses and President Trump is very unpredictable.

Foolish takeaway

I’m bullish about the long-term future of the ASX share market. However, I feel cautious about what may happen over the rest of 2020. I think the recent bull run has mostly been justified because many companies have delivered strong updates and the economy hasn’t been hit as hard as expected. But the last three months of 2020 could cause a lot of share market volatility both in Australia and internationally.

More reading

• Goldman Sachs names the ASX retail shares to buy and the ones to avoid
• These ASX shares are the winners and losers in the “new normal”
• Plummeting retail spend puts ASX fashion shares under the microscope
• ASX 200 down 0.5%: Afterpay completes placement, big four banks tumble
• The Afterpay share price among ASX stocks hit by a broker downgrade today

The post My bull and bear case for the ASX share market 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 shares are in the buy zone:

BHP Group Ltd (ASX: BHP)

According to a note out of Goldman Sachs, its analysts have retained their buy rating and lifted the price target on this mining giant’s shares to $38.20. It likes BHP due to its attractive valuation and commodity mix. It also notes that it prefers BHP to fellow mining giant Rio Tinto Limited (ASX: RIO) due to its stronger operating performance and more growth options in coal and oil. It expects these to create value for shareholders in the long term. I agree with Goldman and would be a buyer of BHP shares.

Cochlear Limited (ASX: COH)

A note out of Morgan Stanley reveals that its analysts have retained their overweight rating and $208.00 price target on this hearing solutions company’s shares. It has been looking at an update from one of its main rivals and notes that it is indicating a quicker than expected recovery by the hearing care market. And while it still expects Cochlear to report a sharp reduction in unit sales in the second half, it sees upside risk to expectations. I think Morgan Stanley makes some good points and continue to believe Cochlear shares would be great long term options.

Sezzle Inc (ASX: SZL)

Analysts at Ord Minnett have retained their buy rating and lifted the price target on this buy now pay later provider’s shares to $5.95. Ord Minnett was impressed with Sezzle’s update this week and has upgraded its estimates to reflect its stronger than expected performance. Earlier this week Sezzle reported underlying merchant (UMS) sales of US$188 million (A$272.3 million) for the second quarter. It also provided full year guidance for an UMS annualised run rate of US$1 billion. While it isn’t my first (or second) pick in the industry, I do think it is worth keeping a very close eye on its progress.

More reading

• ASX buy now, pay later shares leading the recovery
• Rio Tinto share price on watch following broker downgrade
• Why I see good value in the BHP share price today
• ASX 200 drops on return of lockdown in Melbourne
• Why brokers have just downgraded BHP and these ASX stocks today

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 Cochlear Ltd. The Motley Fool Australia has recommended Cochlear Ltd. and 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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The a2 Milk Company Ltd (ASX:A2M) share price has been a bellwether during the coronavirus pandemic. Whilst many companies on the ASX 200 have seen their share prices hammered, a2 Milk has remained largely immune to the widespread volatility and continued its positive upward trend. Here’s why I’m still watching it.

Why watch the a2 Milk share price?

The essential nature of products like infant formula has seen demand for a2 Milk products surge during the pandemic. In a trading update in late April, a2 Milk confirmed its revenue for the 3 months to 31 March were above expectations. According to the company, demand was fuelled by changing consumer behaviour with many consumers looking to stockpile essential products during the height of lockdowns.

The company reported strong revenue growth across all key regions, especially for its infant nutrition products in China and Australia. Revenue from China was also favourably impacted by a depreciation of the New Zealand dollar relative to the US dollar.

Reinforcing the company’s resilience during the pandemic, a2 Milk was recently added to the prominent S&P/ASX 50 Index during the June rebalance.

What is the outlook for the a2 Milk share price?

In the trading update, the company revealed it is expecting revenue for FY20 to be in the range of N$1,700 to NZ$1,750 million. In addition, a2 Milk anticipates full-year EBITDA margins to be above prior expectations at around 31% to 32%. Although a2 Milk expects exceptional revenue growth, the company also flagged the potential for COVID-19 to impact its supply chains and consumer demand in the future.

Citibank analysts have advised a $21.50 target for the a2 Milk share price, suggesting the potential for further upside. According to analysts, a2 Milk is well placed to deliver strong results for the second half of 2020 and could be an indirect beneficiary of the coronavirus pandemic. With consumers continuing to stockpile essential items such as infant formula, the company could see a further surge in revenue.

Should you buy?

In my opinion, any company that performs strongly in current market conditions is one to watch. Not long ago, many analysts had a sell rating on a2 Milk based on the thesis that the company could not sustain its high margins in a more competitive market.

a2 Milk has proven not only that it can sustain growth during these testing times, but that it is also poised to continue delivering in 2020 and beyond. Having said that, the a2 Milk share price is currently trading close to all-time highs at $19.52. Therefore, I think a prudent strategy would be to wait until the August reporting season to ensure that the results have not already been priced in.

More reading

• Do you have $5,000 to invest? Here are the ASX shares I would buy right now
• Why I would buy a2 Milk and this ASX growth share right now
• Here’s how to play China’s V-shaped growth story
• Why I would buy Appen and this ASX growth share right now
• Why I would buy and hold a2 Milk and this ASX 200 share until 2030

Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. 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.

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ASX fashion shares are under the microscope as consumer spending data from the past few months shows fashion retail spend plummeting. Spending on clothing, footwear, and personal accessories was down over 50% in April. Turnover in this market rallied in May but remained 20% down from May 2019. 

According to the most recent Australian Bureau of Statistics employment data, unemployment has risen to 7.1%, its highest level since 2001. Another 13% of workers want more hours. Rates of unemployment are highest among young people and women, who often work in the retail sector. Some retailers who shut stores during the lockdown have vowed not to reopen them.

With this in mind, we take a look at how ASX fashion shares are faring. 

Lovisa Holdings Ltd (ASX: LOV)

The Lovisa share price has climbed 165% from its March low of $2.35 and is currently trading at $6.24. The Lovisa share price saw a dramatic spike of 18% on Monday, after the accessories retailer released a trading update, but has since dropped back slightly.

In the trading update, Lovisa reported that stores have re-opened although the closures in Q4 resulted in a significant reduction in sales during the period. This led to full year sales revenue of $237 million, compared to $249 million in FY19. Comparable sales for the period since re-opening have been down 32.5% on the prior year. With many consumers still spending more time at home, demand for jewellers and accessories has been somewhat subdued. 

Lovisa also announced it has decided to withdraw from the Spanish market. The roll out of Spanish stores was previously put on hold as a result of performance below expectations. Due to a lack of support from Spanish landlords during the COVID-19 shutdown, Lovisa has elected not to reopen stores in Spain. 

Positively, Lovisa reports that its balance sheet remains strong and inventory levels are well managed. The company had net cash at financial year end of $22 million, up from $13 million in December 2019 and $11 million in June 2019. This leaves the company well placed to invest in future growth opportunities as the global economy recovers. 

City Chic Collective Ltd (ASX: CCX)

The City Chic Collective share price has climbed a massive 292% since its March low of 80 cents and is currently trading at $3.14. The rise in the share price saw City Chic join the S&P/ASX 300 (ASX: XKO) in the latest quarterly rebalance. 

The plus size fashion retailer temporarily closed stores in March and reopened in May. Being an omni-channel retailer, online sales already accounted for two thirds of City Chic’s global sales. The company reported strong online sales growth of 57% during the store closure period compared to the same period last year. 

On 5 July, the Australian Financial Review (AFR) reported that City Chic is considering buying a second US-based business this year, following the acquisition of Avenue Stores last year. In response to the media speculation, City Chic confirmed its strategy includes growing its international plus size business and that it is exploring potential acquisition opportunities globally. Nonetheless, no agreement has been reached on any potential acquisition currently. Should an agreement be reached, City Chic advised it will consider funding options, which may include cash, debt, or an equity capital raise. 

City Chic reports it is in a strong financial position with minimal net debt and significant headroom in its $40 million debt facility. To further bolster balance sheet funding the company executed the $5 million accordion agreed as part of the $35 million facility established in February 2020.

Accent Group Ltd (ASX: AX1)

The Accent Group share price is up 128% from its March low of 56 cents with the footwear retailer reporting strong online sales. During the period stores were closed, Accent’s online sales quadrupled, rising from $250,000 a day to between $800,000 and $1.1 million per day. 

In its most recent business update, Accent CEO Daniel Agostinelli commented: “after years of investment by Accent Group in our digital team and technology, I am delighted with the growth in our digital sales.”

Agostinelli believes there has been a seismic and likely enduring shift in consumer behaviour away from traditional shopping centres to online. 

Even though it has reopened stores, Accent Group expects a significant ongoing impact on revenue and profitability of stores. This is a result of decreased foot traffic, reduced tourism, and increased levels of unemployment. The group is negotiating with landlords for lease agreements to reflect market conditions. 

The company has announced it will close stores where ‘sustainable and fair’ rental deals cannot be agreed with landlords. Accent Group has given notice with one major landlord to exit 28 store leases at expiry over the next 6 months, and says it may be forced to take similar action for more stores in future. 

Premier Investments Limited (ASX: PMV)

The Premier Investments share price is up 86% from its March low of $9.49 and is currently trading at $15.99. Premier Investments is behind brands including Peter Alexander, Smiggle, Just Jeans, Portmans, Jacque E, Dotti, and Jay Jays. The company closed stores in March and reopened in May. 

The store closures significantly impacted global sales, with total sales down 74% for the 6 weeks to 6 May 2020. Nonetheless, online sales surged by 99%. Premier’s largest online brand, Peter Alexander, saw online sales increase by 295%. The company has made major investments in online technology over the past decade which paid off during the shutdown period. 

Premier Investments took a hard line with landlords during the coronavirus crisis, vowing to pay rent in arrears as a percentage of gross sales during the recovery period. In Australia and New Zealand, close to 70% of stores are in holdover or have leases expiring in 2020. 

As stores reopened, Premier Investments reported trading activity remained uncertain and unpredictable. Inventory levels and product assortments will be imbalanced until potentially December 2020. The retailer advised that sales and margins would be uncertain and dictated by the manner in which consumers respond to the return of instore shopping in local communities. 

Premier Investments reports it is in a position of financial strength with consolidated cash of $256.2 million. It also maintains access to undrawn facilities of $91.8 million which leaves the company well placed to begin recovery. 

More reading

• Why Lovisa, New Hope, Temple & Webster, & Whitehaven Coal are tumbling lower
• Leading brokers name 3 ASX shares to buy today
• 10 more top broker ASX share picks for FY21
• Lovisa share price up 5% as retailer provides business update
• Why Lovisa, PointsBet, Transurban, & WiseTech shares are racing higher

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool Australia has recommended Accent Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Notwithstanding some of the falls we’ve seen today, ASX buy now, pay later (BNPL) shares have been among those leading the market recovery since the March downturn. All the market’s BNPL shares have recorded significant increases as demand for their services continues rising despite the coronavirus crisis. On that note, let’s take a look at how the ASX’s four favourite BNPL shares are performing.

How are ASX BNPL shares performing?

Afterpay Ltd (ASX: APT)

Afterpay is the largest BNPL provider by market capitalisation. In fact, the meteoric rise of the Afterpay share price has led it to close in on the S&P/ASX 20 (ASX: XTL). The Afterpay share price fell to a low of $8.90 in March but has since gained 649% to currently trade at $66.72 (at the time of writing). In its most recent update, Afterpay reported underlying sales of $11.1 billion in FY20, up 112% on the prior corresponding period.

Afterpay’s underlying sales have definitely been accelerating, with Q4 FY20 sales of $3.8 billion, up 127% on Q4 FY19. Q4 FY20 saw the highest quarterly sales performance ever, reflecting the increasing shift to online spending throughout the pandemic. Active customer numbers also grew to 9.9 million for FY20, a 116% increase on FY19. This also highlights the attractiveness of Afterpay’s budget-focused business model in the current economic environment.

Active merchants reached 55.4k in FY20, a 72% increase over FY19. This was driven by strong merchant acceptance in the United States and United Kingdom, key growth markets for Afterpay. Active merchants in the US increased to 11.5k at 30 June 2020, up from 3.8k at 30 June 2019. Expansion into Canada is also expected in Q1 FY21. The UK exceeded 1k merchants in its first 12 months of operation.

Afterpay announced an $800 million capital raise yesterday. The funds are to be used for investing in growing underlying sales and prioritising global expansion in the short term. Since COVID-19 took hold, there has been a growing shift towards online spending. Furthermore, consumers have increasingly focused on budgeting whilst apparently developing somewhat of an aversion to traditional credit products. These trends organically increase the attractiveness of Afterpay’s business model. As such, the company intends to leverage this momentum to expand customer offerings and potentially launch into new markets in late 2020 or early 2021. This week’s announcement also included advice that the company’s founders would each be selling down 10% of their respective holdings. Afterpay shares were placed in a trading halt yesterday and, so far, have fallen 2.13% since recommencing trade today.

Zip Co Ltd (ASX: Z1P)

The Zip Co share price has gained 414% from its March low and is currently trading at $6.04. In its most recent update, Zip Co reported a strong month in May. This included a 78% year-on-year increase in monthly revenue to $15.6 million. Transaction volumes also increased 63% to $189.3 million. The company reported that it remains on track to hit its FY20 target of $2.2 billion in annualised transaction volume.

Zip Co has also noted the shift away from cash to digital, contactless payments and eCommerce.  The company expects eCommerce penetration to remain at elevated levels post COVID-19. This is largely due to increased numbers of consumers gaining familiarity with shopping online and, as such, more retailers investing in the space. Nonetheless, the economic downturn raises the spectre of bad debts for BNPL providers that extend credit to customers. 

Zip Co reported net bad debts increased to 2.16% in May, up from 1.99% in April. Prudently however, the company did advise it has tightened its onboarding credit requirements. Furthermore, no material change to the number of requests for hardship assistance were reported. These requests peaked at the end of March at less than 0.8% of receivables. Monthly arrears for Zip Co actually declined to 1.47% in May, down from 1.57% in April, an impressive result in the current climate.  

Sezzle Inc (ASX: SZL)

The Sezzle share price has soared an incredible 1256% from a low of 37 cents in March and is now trading at $5.02. The company’s share price was bolstered by its announcement yesterday that annualised merchant sales are expected to reach $1.4 billion by the end of 2020. 

In the June quarter, Sezzle’s active customer numbers rose 28% quarter-on-quarter to 1.48 million. This represents a 243% year-on-year increase. Merchant numbers increased 27% during the quarter to reach 16,112, a 219% year-on-year improvement. These result reflect a trajectory of solid growth across all key metrics, despite global economic headwinds. Customers are also utilising Sezzle’s product more often. The company’s repeat usage rates for the quarter were 87.5% compared to 77.2% in 2Q FY19. Its purchase frequency numbers are also on the rise and are now approaching 15x per annum. 

Sezzle’s Executive Chairman and CEO Charlie Youakim said, “Our performance reaffirms our product’s utility to consumers looking for a smarter way to budget their personal finances and the overall market shift to eCommerce”. Nearly 100% of Sezzle’s transactions are processed via eCommerce, meaning the company is well positioned to benefit from the increasing shift to online. 

Splitit Ltd (ASX: SPT)

The Splitit share price is up nearly 610% from its low of 22 cents in March and is now trading at $1.56. This includes a 13% increase today after Splitit announced record growth in Q2 FY20 this morning. The company’s merchant sales volumes grew to US$65.4 million, up 260% on Q2 FY19 and 176% on Q1 FY20. Splitit reported gross revenue of US$2.4 million for the quarter, which represents a 460% increase on Q2 FY19 and a 246% increase on Q1 FY20. 

This acceleration in Splitit’s growth was thanks to the addition of large, new merchants in Q1 and Q2. Merchant numbers grew to over 1,000, up 104% from Q2 FY19. Total shoppers are now over 309k, up 85% from Q2 FY19. Many of these were first time users, with the number of repeat shoppers expected to increase in future periods. 

CEO Brad Paterson said, “June saw a continuation of the strong business momentum we experienced in April and May. Consumers are making better use of their existing credit to preserve cash, while demand from higher-value merchants is ramping up, supported by the accelerated shift towards eCommerce as a result of COVID-19”. 

Splitit continues to attract larger merchants wanting to provide installment solutions to their credit card customers and improve conversion rates. The company saw its average order value increase 21% over the June quarter to US$893. More than 90% of all the company’s transactions were eCommerce or mobile payments. 

Splitit has a number of partnerships which are expected to drive future growth. These include agreements with Mastercard and Stripe.The partnership with Stripe will accelerate merchant acceptance, with merchants set to be able to on-board in minutes. Under the Mastercard agreement, Splitit’s solution will be integrated with Mastercard’s suite of technology. This will enable a seamless and secure customer experience at checkout.

More reading

• QuickFee share price plummets 10% despite record results
• ASX 200 down 0.5%: Afterpay completes placement, big four banks tumble
• The Afterpay share price among ASX stocks hit by a broker downgrade today
• Why Afterpay, Alumina, Magellan, & Webjet shares are dropping lower
• Why Coles, Kogan, Northern Star, & Splitit are charging higher

Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. 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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