I wrote last week about the impact of the government’s COVID response on the future of the federal budget (and our expectations of those who govern us).

In short, the government is going to get bigger, both because we have a mammoth debt to service and because we, as a nation, expect our governments to provide increasing levels and breadth of service. And that’s not to mention the growing burden of the aged pension and health budget as our population continues to age!

But there’s something else that’s been getting big for a while now.

Companies.

Australia has long been the land of the duopoly (two dominant players) and oligopoly (a handful of dominant players).

Actually, when I say it has ‘long been the land of the duopoly’, it’s probably more accurate to say ‘has steadily become the land of the duopoly’. 

When I was a kid there were many, many competitors in most industries. Now? There are lucky to be more than three serious national players in any of them. To wit:

We have two national airlines.

Two major supermarket chains.

A small handful of service station brands.

There are three pharmaceutical wholesalers, and only one wholesaler for independent grocery stores.

And there are four big banks (with profit margins and returns on assets that often dwarf international competitors).

We have two major newspaper groups, one of which is owned by one of only three commercial television businesses.

There’s only a handful of radio proprietors.

Three telcos.

Now, as an avowed capitalist, I can appreciate the success of these businesses. To be able to be so successful that you get bigger and bigger — buying or killing the competition along the way — is a feat that shouldn’t be ignored.

But where are we now?

And how much is too much?

See, to function properly, capitalism must feature strong, robust competition, where abnormally high profits entice new competition and ensure the market delivers the benefits of that competition.

Now, here’s where things can get ideological. Those on one side say ‘well, if competition dries up, companies will get lazy and eventually get disrupted by a new competitor’. Those on the other side will point to the ability of large incumbents to squash any potential challengers.

For example, the effective duopoly of Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL) wasn’t enough to stop Aldi and Costco from turning up and shaking up the industry. On the flipside, the independent supermarkets are suffering, and would-be international competitor Kaufland actually spent a small fortune establishing a beachhead here, before deciding it was all too hard and scuttling its own plans.

Which, by the way, is why closed-minded ideology isn’t very useful. If you come to the situation sure that one or the other opinion is unquestionably right, you miss the nuance!

And yet, as an economy, it seems very clear to me that the number of serious competitors in almost every industry is reducing, sometimes markedly.

There was a time when Woolies and Coles had less than half of their current market share, and there were multiple independent grocery wholesalers (and supermarket brands) from which to choose.

I can rattle off maybe half a dozen long-gone financial institutions, which either closed or were merged into larger and larger entities. At least half of those were in the main street of the suburb I grew up in.

There’s nothing wrong with that, per se. In the ‘creative destruction’ of capitalism, the small, old and slow tend to be usurped by the young, disruptive and better.

Except, the big, today, seem bigger than ever.

And competition — judged by the evidence — seems harder and harder to come by.

It’s not just here, either.

There are only two mobile phone OS’: iOS from Apple (NASDAQ: AAPL) and Android from Google (I own shares in Google’s parent, Alphabet Inc (NASDAQ: GOOGL)).

When once America was worried about the dominance of Wal-Mart, that concern looks almost quaint and completely overshadowed by the rise of Amazon.com Inc (NASDAQ: AMZN) (I own shares in that company, too).

Movie studios are merging. Bookstores, video rental places, and even cinemas are falling victim to one or two behemoth replacements.

Google Pay and Apple Pay (plus Paypal Holdings Inc (NASDAQ: PYPL)) have designs on global domination of payments.

Epic Games, maker of the hit new(ish) game, Fortnite, has lashed out at the size of the cut taken by Apple (and Android) whenever anyone pays to buy something inside the game.

Uber and Lyft are in a two-horse global race to usurp local and national taxi companies.

Apple and Amazon are locked in a race to be the first company to be worth US$2 trillion. And that’s not investors getting carried away — these guys are cash generating machines.

Bigger is often better: better products, cheaper prices, more interoperability (imagine if each country had its own computer operating system) and more features. Indeed the only way Netflix can produce some relatively niche content is because it knows it has a global audience to sell to.

Indeed, it’s hard to argue that, in most cases, the growth of the behemoths has been anything but positive. In general, prices are lower, quality is better and we’re getting more than we could have imagined.

And yet…

That’s always been true… until it wasn’t.

The growth of the US railroads brought huge benefits to much of America. It opened up transportation routes for goods and passengers. It’s a simplification, but much of America’s growth in the late 1800s can be attributed, at least partly, to that boom.

Similarly, the successful drilling for oil greased the wheels (often literally) of American commerce, providing cheap fuel and making rail and automotive innovation possible (because it could run on economically-priced fuel).

And the steel industry provided the framework — again literally — for US growth and prosperity.

Except these three industries came to also have something else in common: they ended up having — and exercising — power that was significantly anticompetitive; raising prices and making demands that laid bare their essential monopoly/oligopoly power.

So much so that the US government broke up each of those three industries, to make sure they became more competitive.

I hope you can see the similarities with modern commerce.

Yes, the gorillas of today are bringing benefits. But are those benefits too costly? Or, more simply, would they cost less if the market had more, hungrier competitors?

It wasn’t just the 1800s, either.

In the 1970s, US telco giant AT&T was a monopoly provider of telecommunications services in the US, and it was subsequently split up to improve the competitiveness of its products, services and — importantly — prices.

Now, I’m no lawyer. Nor am I a judge, regulator or politician.

But at one point, Woolworths had the highest net profit margin of any supermarket in the world.

Our banks are some of the most profitable in the world (depending on the measure you use. In one study, they came out as number one). 

Should we be proud of those numbers? We’re used to politicians wanting us to be the best at everything, but if our banks and supermarkets are more profitable here than elsewhere, who do you reckon is supplying that profit?

Yep, us.

And it suggests that those sectors aren’t as competitive as they should be.

Should Apple be able to arbitrarily take a 30% cut of every dollar that goes through one-half of the app-store duopoly? Should Google?

30% seems like a lot, doesn’t it? Would that sort of margin be possible if there were more competitors in the sector?

Should Amazon be able to use data from its retail operation to compete with its own suppliers by introducing cheaper home-brand alternatives as soon as the supplier creates enough demand?

Those aren’t rhetorical questions. They’re policy questions that deserve serious debate.

And we, as investors (and consumers), are going to end up with the results of those policies.

Would Woolies be as profitable if the government made it divest half of its stores (a la AT&T). 

What happens to Apple and Google if they’re forced to open their App Stores to competition?

Can our banks continue their dominance, if overseas competitors turn up and start competing hard?

Do we trade off (potentially) worse search results to protect news organisations here in Australia?

Maybe those questions never get asked.

But right now, Google and the Australian Government are at loggerheads over media regulation and fair payment.

Uber and California are at war, which could see the former stop offering its rideshare services in America’s richest (by GDP) state.

And plenty of people are calling for the break-up of big tech.

There are smart, serious, well-meaning people on both sides of all of these debates. Policies are being discussed, which could change the competitive landscape.

And it’s not anti-business, either. Imagine how many new innovative companies could be unleashed by lower barriers to entry, and less-entrenched incumbents. How much faster innovation might happen, and what flow-on effects there might be for other businesses.

Indeed, there’s an argument that smaller, broken-up companies could actually perform better than their larger, whole, parents. That’s what happened to AT&T, the breakup of which one author called the ‘Deal of the Century’.

They’re hard questions to grapple with.

When does consumer benefit trump supplier cost? (For example, Apple’s ecosystem delivers huge benefits to its users, so maybe the 30% cut of app sales and less competition for app developers is worth it).

Indeed, what is the reason for competition law? Does the end justify the means?

Are consumer benefits more important than supplier benefits? Does it matter that there are only two airlines, if flights are cheap enough? Or does that stifle competition for their suppliers?

These are difficult questions. But they’re being asked, increasingly, among academics, policy wonks, regulators and politicians.

The answers, if they come, will determine the playing field for companies throughout the 2020s and beyond.

Investors need to watch closely.

Fool on!

More reading

• How will the University of Oxford’s COVID-19 vaccine impact ASX share prices?
• Northern Star share price drops lower despite record profit and special dividend
• The REA Group share price is closing in on its record high
• Is this ASX biotech share the next CSL?
• I think the A2 Milk share price is a buy

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Scott Phillips owns shares of Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Amazon, Apple, and PayPal Holdings. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Costco Wholesale and recommends the following options: short January 2022 $1940 calls on Amazon, long January 2022 $1920 calls on Amazon, and long January 2022 $75 calls on PayPal Holdings. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. The Motley Fool Australia has recommended Alphabet (A shares), Amazon, Apple, and PayPal Holdings. 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 Northern Star Resources Ltd (ASX: NST) share price was out of form on Wednesday despite announcing a record full year profit.

The gold miner’s shares ended the day 3.5% lower at $14.45.

How did Northern Star perform in FY 2020?

For the 12 months ended 30 June 2020, Northern Star delivered a record underlying net profit after tax of $291 million, which was an impressive 69% year on year increase.

Also growing exceptionally strongly was its underlying free cashflow. It lifted 190% or $277.3 million to $423.1 million during the year.

This led to the miner ending the period with $769.5 million in cash, bullion and investments. This is despite the company investing $1.3 billion in acquisition and growth opportunities in FY 2020.

In light of this, the company declared a final fully franked dividend of 9.5 cents per share. This was up 27% on the prior corresponding period and brings its full year dividend to 17 cents per share. The board has also decided to reward shareholders with a special fully franked dividend of 10 cents per share.

What were the drivers of Northern Star’s strong result?

Northern Star’s strong result was driven by a 7% increase in gold sold to 900,388 ounces and a 25% lift in average gold price per ounce to $2,208. The latter more than offset a 15% lift in its all-in sustaining cost (AISC) to $1,496 an ounce.

The good news is that the spot gold price is currently trading notably higher than FY 2020’s average gold price. As a result, management is confident that FY 2021 will be another year of bumper free cashflows. Especially given its production guidance over the 12 months.

It is forecasting production of 760,000 to 840,000 ounces from its Australian operations and 180,000 to 220,000 ounces from its US-based Pogo operation. The means total production in the range of 940,000 to 1,060,000 ounces in FY 2021. This compares to 984,675 ounces in FY 2020.

Northern Star’s Executive Chair, Bill Beament, commented: “We are on track to generate further significant increases in cashflow thanks to our substantial leverage to the gold price, our growing production profile and having one of the lowest capital intensity in the industry.”

“We also have a pipeline of future growth opportunities in and around our other assets and infrastructure, which will help us drive ongoing increases in cashflow while maintaining our superior financial returns,” he added.

More reading

• The latest ASX stocks upgraded by brokers to “buy” today
• Why Cochlear, Kogan, Megaport, & Northern Star shares are charging higher
• Warren Buffett is dumping banks and buying gold, should you?
• Why the Saracen share price is shooting higher today
• 5 things to watch on the ASX 200 on Tuesday

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

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The REA Group Limited (ASX: REA) share price is testing the heights again today as the company closes in on its all time high of $119.

Trading at around $118.65 at the time of writing, REA Group shares are once again surging to levels we saw only 7 days ago.

The share price fell around 4% on 12 August, following the release of its financial results for FY20. But only a week later, the multinational digital advertising giant is gaining back all lost ground to test previous highs.

With such strength in the REA Group share price, could this present a buying opportunity?

About REA Group

REA Group is a multinational digital advertising business specialising in real estate.

The company runs realestate.com.au, realcommercial.com.au and flatmates.com.au. Between them, these three websites operate Australia’s top residential, commercial and share property advertising businesses.

In addition to these well-known brands, the company owns an Australian ‘co-working’ space website called spacely.com.au.

Overseas, Asian operations in the property space are extensive and stretch across Malaysia, Hong Kong, Indonesia, Singapore, China and Thailand. 

Not only does the REA Group own and operate this large portfolio, but it also owns significant share portfolios in related companies in the United States and India.

In 2019, REA Group assumed 100% ownership Australian mortgage broker Smartline Personal Mortgage Advisors. 

The group had acquired more than 80% of the mortgage broker back in 2017, so a full takeover was always on the cards. This is a strategic acquisition for the group and now allows them to offer even more services to their clients. Its makes sense that a customer looking to buy a house online will likely also need a mortgage broker. 

Recent Results

Some high level points from the recent reporting are:

• Revenue declined by 6% to $820 million
• Net profit down 9% to $269 million.
• Media revenue down 19%
• Financial services revenue down 15%

Considering the COVID-19 pandemic has drastically restricted the ability to operate in the real estate space, these results really aren’t too bad in the scheme of things.

REA Group share price performance

The company’s share price took a serious hit in March this year, falling almost 50%. The COVID-19 pandemic has presented a real challenge for the group.

However a strong recovery has occurred since then. From a low price in March of around $62, the REA Group share price has rocketed back up to challenge previous highs, trading past $118 today.

This represents a staggering 90% price increase in less than half a year. 

For investors interested in long-term performance, the REA Group share price is up more than 7,700% since listing in 1999. A healthy return by any measure.

Foolish Takeaway

REA Group is a digital advertising giant. The company has been on the market for more than 20 years and is still going strong. The recent acquisition of a mortgage broking company is a strategic play and creates a situation where it has multiple revenue streams from a single customer.

If the group can push past its all time high price of $119, we may see the company reach much higher levels in the near future. Considering it has achieved this strong recovery while the pandemic still threatens the economy, I have no doubt REA Group will be stronger than ever on the other side of a vaccine. 

More reading

• 2 ASX dividend shares with yields over 6% today
• Why I would buy CSL and these ASX 200 blue chip ASX shares
• 4 quality ASX shares to buy in August
• Results: News Corp share price on watch as net income drops 919%
• Why I would buy Goodman Group and these blue chip ASX shares

Motley Fool contributor glennleese has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA 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 The REA Group share price is closing in on its record high appeared first on Motley Fool Australia.

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I think that every portfolio should have some exposure to the healthcare industry, including 1 or 2 small-caps that make up less than 5% of the total portfolio’s value. Emerging ASX biotech companies such as Opthea Ltd (ASX: OPT) and Polynovo Ltd (ASX: PNV) could be possible inclusions.

Mesoblast Limited (ASX: MSB) has been gaining a lot of investor attention over the past few weeks. A raft of announcements regarding the FDA’s position on the company’s hero-drug candidate has led the Mesoblast share price on a wild ride.

Choosing a medical business that can develop a drug from lab to commercialisation without hiccups is akin to finding the holy grail.

As healthcare shares can be hit or miss, here is why I believe Mesoblast should be on everyone’s watchlist.

What does Mesoblast do?

The biotech company is a world leader in developing regenerative medicines for inflammatory diseases such as advanced heart failure, chronic back pain and graft versus host disease (GvHD).

Mesoblast has leveraged its cell therapy technology to establish a broad portfolio of commercial products and late-stage product candidates.

The applications for its products provide an exciting potential pipeline for future sales.

What’s been fuelling the Mesoblast share price?

Early last week, a report came through from the US Food and Drug Administration (FDA) raising questions on the effectiveness of Mesoblast’s product candidate remestemcel-L. The Mesoblast share price tanked on the news to hit a low of $2.98 on the day.

The following morning, the Oncologic Drugs Advisory Committee of the FDA had a meeting and voted 8 to 2 in favour supporting the efficiency of remestemcel-L in children with steroid-refractory acute graft versus the host disease. Indeed a quick turnaround from the FDA’s prior decision.

The positive announcement saw the Mesoblast share price surge to as much as 57% at one stage, reaching as much as $5.30.

Yesterday, the Mesoblast share price hit a multi-year high of $5.37, before finishing the day at $5.20 – a gain of 5.91%. Today it has lost a little of those gains, down 1.15% to $5.14 per share.

The FDA will now decide on the formal approval for remestemcel-L on 30 September.

Mesoblast’s balance sheet

In its most recent quarterly activity report, the company advised cash on hand was at US$129.3 million and its total operating activities was US$19.6 million. A capital raise was completed in May this year for US$90 million to institutional investors at $3.20 per share.

Mesoblast is expected to release its preliminary report on 28 August.

Foolish takeaway

Mesoblast has an opportunity for potentially huge revenue should the FDA approve its drug next month. The company has plans to launch in the United States to capture the world’s largest healthcare market.

I think that the Mesoblast share price will stabilise in the near-term pending its prelim results and the outcome of its remestemcel-L drug from the FDA. It would be best to wait on the side lines for now and add Mesoblast to your watchlist.

Looking Mesoblast’s market capitalisation (at the time of writing) of $3 billion, I would say it’s fairly valued.

I will be keeping a close eye on the Mesoblast share price over the next few weeks before making an investment decision.

More reading

• Afterpay and Mesoblast were among the most traded shares on the ASX last week
• Tech shares race to record highs as Bank of America tips BHP and Rio shares
• The Starpharma share price jumps on new partnership deal
• Up 230% in a year! Is the Mesoblast share price a buy?
• Take a look at last week’s best performing ASX shares

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

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I believe that the A2 Milk Company Ltd (ASX: A2M) share price is a buy after the infant formula company reported its FY20 result.

The highlights

There were a number of impressive financial numbers reported by the company.

Total revenue increased by 32.8% to NZ$1.73 billion. Earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 32.9% to NZ$549.7 million.

Net profit after tax (NPAT) rose by 34.1% to NZ$385.8 million with operating cash flow of $427.4 million.

The business finished with a closing cash balance of NZ$854.2 million.

Segment growth

Infant nutrition revenue rose by 33.8% to NZ$1.42 billion, which is impressive considering this came after years of strong growth.

Liquid sales revenue across the business rose by 29.7% to NZ$222 million.

One of the main reasons I think that the A2 Milk share price is a buy is due to the international growth potential.

Chinese label infant nutrition sales more than doubled to NZ$337.7 million and the distribution was expanded to 19,100 stores. The China label infant formula brand now accounts for 24% of the total infant formula business.

In October the company launched a new Hong Kong label range of infant formula and in December it launched stage 1 to stage 3 infant formula in South Korea with its partner YuhanCARE. In March A2 Milk entered into a licensing agreement with AgriFoods in Canada to produce, market and distribute the A2 Milk fresh milk brand. These are promising moves. 

A2 Milk is growing strongly in the US with revenue growth of 91.2% to $66.1 million. Distribution has now reached 20,300 stores, up from 17,500 stores at the end of December 2019. Interestingly, the company said the economic environment has led the company to reduce its focus on broadcast advertising and emphasise the in-store price and activation to drive demand. It’s expecting an improved EBITDA result here for FY21.

Guidance

The company said there continues to be uncertainty due to COVID-19, but overall in FY21 it’s expecting “continued strong revenue growth” supported by continuing investments in marketing and operational capability.

It’s expecting the FY21 EBITDA margin to be between 30% to 31% due to higher raw material and packaging costs (partly offset by price increases), more marketing spending, foreign currency and pantry stocking benefits unlikely to be repeated. Over the longer-term A2 Milk is still aiming for a 30% EBITDA margin – I think that strikes the right balance of profitability and investing for growth.

The A2 Milk share price fell heavily during the second half of 2019 when the company was guiding that its EBITDA margin would decline due to investing more for growth. 

Growing balance sheet

I thought the comments on its capital allocation were particularly interesting. A2 Milk said that due to the growing scale of its business, it considers it appropriate to assess participation in its manufacturing capacity and capability to complement its existing supply chain relationships. The company is evaluating the options.

There is potential for returns to shareholders after the company said it was reviewing its capital requirements for the future. It needs to keep enough capital to remain robust, but I think A2 Milk could (and should) start to reward shareholders with a reasonable dividend, or perhaps share buybacks if it’s at a good share price to do so. It may soon have NZ$1 billion of cash on the balance sheet to decide what to do with.

At this share price I think A2 Milk is a buy

At the time of writing the A2 Milk share price is down around 5%. But that’s just today’s reaction. Since the start of 2020 the A2 Milk share price has risen by 32%.

The company has enormous international growth potential. It’s early days in the US and it’s only just getting started in Canada. There are legitimate China worries, but don’t forget that A2 Milk is a New Zealand company, not an Australian one.

It’s currently trading at 28x FY22’s estimated earnings. I think that seems much more reasonable than many other growth shares that are trading much more expensively, even though the profit growth rates aren’t that different. I’d be happy to buy A2 Milk shares for the long-term today. 

More reading

• Why a2 Milk, Kogan, Nearmap, & Resolute shares are dropping lower today
• ASX 200 up 0.8%: ANZ to pay dividend, a2 Milk tumbles, CSL impresses
• a2 Milk Company share price on watch after delivering more strong growth in FY 2020
• 5 things to watch on the ASX 200 on Wednesday
• Where to invest $20,000 into ASX shares immediately

Motley Fool contributor Tristan Harrison 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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The tech sector has been one of the top performing sectors on the ASX today. A number of ASX tech shares have surged higher, on the back of full year earnings releases that were well received by the market. Here we look at four of the those companies and highlight why the market responded so positively. 

4 ASX tech shares climbing higher today

Vocus Group Ltd (ASX: VOC)

The Vocus Group share price has surged by 8.2% so far today, despite the company reporting a 1% decline in total recurring revenues for FY 2020. The telco provider’s retail division was particularly hard hit by the impact of the further migration of legacy fixed line services to the National Broadband Network (NBN). On a positive note however, the company’s Network division has been on fire. It recorded earnings before interest, taxes, depreciation and amortisation (EBITDA) growth of 10% for the full year. What really appeared to impress the market was Vocus’ positive FY 2021 market outlook. Underlying EBITDA is expected to be between $382 million and $397 million, an increase on $360.5 recorded in FY 2020.

Carsales.com Ltd (ASX: CAR)

Leading Australian online automotive classifieds portal Carsales.com reported today adjusted revenue of $423 million during FY 2020 . This was only a modest 1% increase on FY 2019. However, this appeared to be a very solid result considering the sizeable impact of the coronavirus pandemic. Adjusted EBITDA grew by 6% to $218 million, while reported EBITDA declined by 6% to $202 million. The company noted a strong turnaround in demand for vehicles across a number of international markets as lockdown measures have eased. The Carsales share price is up by 3.7% at the time of writing.

Megaport Ltd (ASX: MP1)

The Megaport share price has surged by nearly 6% so far today as the company released an impressive set of financial numbers. The ‘network-as-a-service’ provider reported total revenues of $58.0 million. This was an increase of 66% over the prior year. The company’s monthly recurring revenue (MRR) had reached $5.7 million at the end of June. That was a very strong increase of 57% year on year on an annualised basis. The ASX tech share is now confident that it is well on the path to become EBITDA breakeven in the near future.

WiseTech Global Ltd (ASX: WTC)

The ASX tech share with the strongest share price gains today has been WiseTech Global. The WiseTech share price is up by a whopping 33.7% so far today. The logistics solutions provider reported reasonably strong revenue growth, despite the challenges of the coronavirus pandemic. Total revenue came in at $429.4 million during FY 2020. That was up 23% on the prior year. WiseTech Global has forecast FY 2021 revenue growth to be in the range of 9% to 19%. It also declared a fully franked dividend of 1.60 cents per share. 

More reading

• 4 market experts’ opinions as US shares hit record and WiseTech share price soars 33%
• Why the WiseTech Global share price rocketed 37% higher today
• ASX 200 up 0.8%: ANZ to pay dividend, a2 Milk tumbles, CSL impresses
• Why Corp Travel, CSL, Domino’s, & WiseTech Global shares are storming higher
• Carsales share price climbing higher on resilient results

Phil Harpur owns shares of carsales.com Limited, MEGAPORT FPO, and WiseTech Global. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends MEGAPORT FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of WiseTech Global. The Motley Fool Australia has recommended carsales.com Limited and MEGAPORT 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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The Woolworths Group Ltd (ASX: WOW) share price is pushing higher on Wednesday after announcing a major strategic investment.

At the time of writing the conglomerate’s shares are up 1.5% to $40.77.

What did Woolworths announce?

This afternoon Woolworths announced that it intends to extend its strategic partnership with leading foodservice supplier PFD Food Services by acquiring a 65% equity interest. This will leave its founders, the Smith family, with a 35% stake.

According to the release, Woolworths will also acquire 100% of PFD Food Services’ freehold properties, which primarily comprise 26 distribution centres.

However, PFD Food Services will continue to operate as a standalone business, retain its senior leadership team, and partner with Woolworths to deliver better experiences for customers.

The parties have agreed a total purchase price of $552 million for the 65% equity interest and freehold properties. This will be funded from existing cash reserves and available debt facilities and is not expected to affect the company’s existing credit metrics.

Why is Woolworths making this investment?

Woolworths Group CEO, Brad Banducci, believes this is a logical investment for the company to make.

He commented: “This investment is a logical adjacency for Woolworths Group and further supports the evolution of the Group into a Food and Everyday Needs Ecosystem. It will build on our existing partnership with PFD, the number two player in the large and fragmented out-of-home foodservice and non-retail business-to-business markets.”

 Mr Banducci also expects the investment to unlock synergies and support its growth.

“The investment will also unlock synergies for both businesses across the combined network and fleet. We will help to support PFD’s growth through access to our logistics, digital and data analytics and operational capabilities. For Woolworths Group, it will enhance store range localisation and provide fleet synergies through better route and capacity optimisation across our combined network,” he explained.

What now?

Management notes that like many other businesses, PFD Food Services has been impacted by the pandemic.

Nevertheless, the investment is expected to be earnings per share accretive in the first full year of ownership and deliver a strong return on investment to Woolworths.

The transaction is subject to an earn-out at the end of FY 2022 and FY 2023 if earnings growth materially exceeds the business plan. In addition to this, put and call options have been granted to the Smith family and Woolworths Group respectively over the remaining 35% shareholding. These are exercisable from the third anniversary of completion.

The transaction remains subject to ACCC approval and the satisfaction of customary closing conditions, with completion expected by the end of calendar year 2020.

More reading

• These 3 ASX stocks just got upgraded by top brokers to “buy” today
• Why I would buy Woolworths and this ASX share for a retirement portfolio
• Metcash share price and these ASX stocks just got upgraded by leading brokers
• If an ASX share announces a demerger, here’s why you should listen
• Coles shares vs Woolworths shares. Which is a better buy?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of 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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It’s no secret that the coronavirus pandemic has had an extremely negative impact on the S&P/ASX 200 Index (ASX: XJO) and the broader share market.

As of today, the ASX 200 is still down around 7.5% in 2020 so far. That’s after falling more than 32% between 20 February and 23 March earlier this year.

ASX 200 shares are up more than 36% off of the March lows. Even so, one ASX fund manager sees further upside for at least some ASX shares.

Simon Mawhinney is the portfolio manager at Allan Gray – a contrarian-style fund manager. Rather than chasing the ASX shares like Afterpay Ltd (ASX: APT) that have already recovered strongly from their March lows, this fundie is instead looking elsewhere.

Mawhinney said the companies to watch were the ones trading at levels very close to, and in some cases below, their March 2020 lows. He said:

These companies have been affected by COVID-19. Their earnings are depressed, if they even exist at all. But this needs to be seen in context. The true economic impost for a company that would have traded at 20 times earnings, which loses one year of earnings in a market where things revert to normal after a year, is one-twentieth or five per cent of that company’s value.

One area Mawhinney is not looking right now are companies with “a combination of operating and financial leverage”.

That would include the ASX banks like Commonwealth Bank of Australia (ASX: CBA). Mawhinney sees the greatest downside risk with these companies, which he believes may face permanent loss of capital.

Can we take a lesson from this fund manager’s views?

I think so. Many investors are, in my opinion, still giddy from the eye-watering returns that ASX shares like Afterpay and Zip Co Ltd (ASX: Z1P) delivered over April, May and June. Hoping for a repeat performance in the months ahead is wildly optimistic in my view. As Mawhinney puts it: “Our stock market strength is dominated by an ever-narrowing group of companies that have done extraordinarily well, but they are not the ones on which to focus.”

I think returning to a long-term lens, as described by Mawhinney above, would benefit many ASX share investors today. It might be time for a value investing strategy along these lines to shine in the months and years ahead after a few years of growth investing-style dominance. Whatever happens, this sure is an unprecedented time to be navigating the ASX share market.

More reading

• 4 market experts’ opinions as US shares hit record and WiseTech share price soars 33%
• A LIT time: LITs, LICs prove popular with ASX investors
• Can the US election impact the ASX? You bet!
• Top brokers name 3 ASX 200 shares to buy today
• Nearmap share price slides 13% on release of financial results

Sebastian Bowen 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. 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 Nasdaq Composite Index (NASDAQ: IXIC) hit another new record high yesterday (overnight Aussie time). The tech-heavy index closed up 0.7%. That’s up 23% year-to-date and 63% from its March 23 low.

More remarkably, yesterday the S&P 500 Index (INDEXSP: INX), which had yet to fully recover from its COVID-19 selloff, hit its own new record. The S&P 500 gained 0.2%. Year-to-date that’s a gain of 4.0%. And it’s up 51.5% from the March 23 low.

Australian shares are gaining too. In today’s trade the S&P/ASX 200 Index (ASX: XJO) is up 0.9%. That’s still down 13.7% from its 20 March all-time high. But the top 200 companies on the ASX have now gained an average 34.7% since March 23.

Leading the charge on the ASX 200 today is WiseTech Global Ltd (ASX: WTC).

The WiseTech share price is up 33% in late afternoon trading following the release of its 2020 financial year results. WiseTech reported its revenue was up 23% and earnings before interest, taxes, depreciation and amortisation (EBITDA) leapt 17%.

What these 4 market experts are saying about rocketing share prices

Indeed, the pace of recovery since the March lows has been sizzling, with many companies seeing their share prices double, or more.

Market analysts are almost unanimously pointing to record low interest rates as the primary driver for the rapid rebound.

Here’s what 4 leading market analysts have to say about share prices, as quoted by Bloomberg:

Jonathan Krinsky, chief market technician at Bay Crest Partners, commented:

While a new all-time closing high would certainly be encouraging, it’s not always the pedal to the metal trade that it would seem. There is lot of optimism out there, which often makes breakouts harder to sustain.

Tobias Levkovich, chief US equity strategist at Citigroup, wrote in a note last week:

Takeaways from discussions with institutional investors indicate significant comfort with central banks’ willingness to keep rates low for an extended period. This is a marked shift from commentary heard a month or two ago and reflects both complacent/ebullient investor sentiment and a sense of rationalization for the relentless bull run.

Goldman Sachs’ David Kostin (who recently lifted his 2020 target for the S&P 500 by 20% to 3,600) wrote in a note:

Share prices reflect not just the expected future stream of earnings but also the rate at which the profits are discounted to present value. A plunging risk-free rate partially explains why equities have performed so well despite downward revisions to expected earnings.

Peter Cecchini, founder of AlphaOmega Advisors LLC, sounds a note of caution, saying that investors are putting too much faith in the US Federal Reserve:

The equity markets are now like an old elevator way over capacity. It’s just a matter of time before the cable snaps and its passengers end up in the basement. That’s where the Fed will be waiting.

While the Australian share market tends to follow the general trends of the US share markets, it’s worth remembering that the ASX 200 is still well off its March highs. That could leave Aussie share prices with more room to run higher before overloading the old elevator.

More reading

• 4 ASX tech shares surging higher today on strong FY 2020 earnings
• This ASX fund manager is going back to value in a post-COVID world. Here’s why.
• Why the WiseTech Global share price rocketed 37% higher today
• A LIT time: LITs, LICs prove popular with ASX investors
• Can the US election impact the ASX? You bet!

Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of WiseTech Global. 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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S&P/ASX 200 Index (ASX: XJO) healthcare shares have been a major benefactor of the COVID-19 pandemic. While the containment of COVID-19 cases continues to be a challenge around the globe, here are two ASX 200 healthcare shares to watch closely in August. 

2 ASX 200 healthcare shares I’m watching closely

1. Nanosonics Ltd (ASX: NAN) 

There could be some nerves around Nanosonics’ FY20 full year results that are due later this month. The last market sensitive announcement from the company was its business update back in early April. This business update highlighted that unaudited sales for Q3 FY20 were significantly up on the prior corresponding period (pcp) and sales of consumables were in line with the company’s pre-COVID-19 expectations. However, limited direct access to hospitals may extend the time needed for hospital departments to adopt the company’s ultrasound disinfection products. This may result in lower than anticipated overall growth for its installed base in Q4 and therefore FY20.

I believe in today’s COVID-19 world, where there is a heightened focus on hygiene, Nanosonics plays an ever important role in the disinfection of ultrasound probes. However, mobility restrictions are likely to impact its ability to further penetrate new markets across Europe, the Middle East and Asia Pacific. Notwithstanding the inherent risks in its FY20 result, Nanosonics is a leading ASX 200 healthcare share to watch closely this earnings season.

2. Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) 

The Fisher & Paykel share price has soared more than 50% this year following COVID-19 tailwinds for its business. August, however, had appeared to be a challenging month for the company with its shares tumbling 10% from the all-time record highs set in July. This was the case until the business provided an upbeat FY21 trading update on Tuesday that saw the Fisher & Paykel share price jump by 4%. 

This trading update highlighted strong demand for the company’s hospital respiratory care products. Managing Director and CEO, Lewis Gradon, said that “Hospital hardware sales have continued to steadily increase over the first four months of FY21 with +390% constant currency revenue growth to the end of July compared to pcp”. He also noted that “Global sales of both invasive ventilation and Optiflow consumables in July have returned to similar levels to the peak we saw in April”. The company is seeing that revenue by geography tends to follow the incidence of COVID-19 cases.

Fisher & Paykel estimates that FY21 operating revenue will be approximately $1.61 billion and net profit after tax will be approximately $365 million to $385 million (or an increase of 27-34% on FY20). I believe the company is delivering phenomenal growth figures for a large cap ASX 200 healthcare share. While its share price has pushed to extraordinary highs, I would be watching closely for a pullback buying opportunity. 

More reading

• Fisher & Paykel share price on watch following FY21 trading update
• 3 ASX shares that could grow rapidly during the 2020s
• 5 quality ASX shares to buy in August
• 3 ASX shares fighting COVID-19 and rewarding shareholders
• 3 quality ASX shares to buy in August

Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Nanosonics 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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