Although a company like Ramsay Health Care Limited (ASX: RHC) seems to have been a blue chip share forever, it is worth remembering that it was a small cap at one point.

The private hospital operator hit the ASX boards back in September 1997 and has gone onto become one of the largest companies on the local market.

Given that its shares were trading at $1.15 shortly after listing and are now fetching $66.99, early investors have done incredibly well. I believe this demonstrates why having a little exposure to the small side of the market can be a very good thing for a portfolio.

With that in mind, here are three small cap ASX shares I think have a lot of potential:

Bigtincan Holdings Ltd (ASX: BTH)

Bigtincan is a fast-growing provider of enterprise mobility software. Its Bigtincan Hub’s AI-driven real-time automation enhances the customer experience, and gives sales and marketing teams the tools they need to deliver stronger results. Demand for its software has been growing strongly in recent years and this has continued to be the case during the pandemic. As a result, the company expects to deliver on its 30% to 40% organic revenue growth target in FY 2020.

Mach7 Technologies Ltd (ASX: M7T)

Mach7 is a medical imaging data management solutions provider. Its software helps inform diagnosis, reduce care delivery delays and costs, and improve patient outcomes. It has been a positive performer in FY 2020 and expects to report revenue of at least $18 million and its first positive EBITDA result. Looking ahead, its future looks very bright. Especially after its recent acquisition of leading provider of enterprise image viewing technology Client Outlook. This acquisition has increased Mach7’s total addressable market from US$0.75 billion to US$2.75 billion.

Whispir (ASX: WSP)

A final small cap to look at is Whispir. It is a software-as-a-service communications workflow platform provider. Whispir enables businesses to improve their communications and ensures that people everywhere receive timely, useful, and actionable content in a manner that reflects their individual needs and preferences. Its platform has been experiencing incredible demand during the pandemic. This appears to have positioned Whispir to deliver a very strong full year result this month. Given the quality of its offering and its large market opportunity, I expect more of the same in FY 2021 and beyond.

More reading

• These soaring tech shares are making savvy investors rich
• 2 exciting ASX tech shares to buy and hold till 2025
• Are these small cap ASX shares future stars?
• 2 exciting small cap ASX shares to watch
• Why Sezzle and these ASX shares recorded huge gains in July

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends BIGTINCAN FPO, MACH7 FPO, and Whispir Ltd. The Motley Fool Australia has recommended BIGTINCAN FPO, MACH7 FPO, Ramsay Health Care Limited, and Whispir Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Xero Limited (ASX: XRO) share price was a positive performer on Thursday. This  follows the release of its annual general meeting presentation.

The business and accounting software provider’s shares rose 0.5% to $89.31.

What happened at the annual general meeting?

As well as providing investors with a breakdown on its performance over the last 12 months, Xero provided an update on its recent performance.

According to the release, operating conditions remain uncertain for Xero and it continues to anticipate an impact from COVID-19 on its FY 2021 results.

However, this hasn’t stopped the company from adding to its subscriber count during the pandemic.

Since the start of April and through to 31 July, Xero recorded 96,000 net subscriber additions to its platform. This lifted its subscribers to a total of 2.38 million at the end of the period.

Management notes that its subscriber additions were stronger in the Australia and New Zealand segment compared to the International segment. Though, positively, while these additions and churn trends have varied by region, all geographies achieved positive net subscriber additions during the four months.

No commentary was provided on its financial performance. Though, it has advised that it is deferring price increases to help customers through the crisis.

Outlook.

Xero’s view on FY 2021 hasn’t changed since the release of its full year results. It continues to believe that the COVID-19 uncertainty makes forecasting difficult. As a result, it won’t be providing guidance at this stage and instead is focusing on the future.

It commented: “Xero’s ambition is to be a long-term oriented, high-growth business. We continue to operate with disciplined cost management and targeted allocation of capital. This allows us to remain agile so we can continue to innovate, invest, support our customers, and respond to opportunities and changes in our operating environment.”

More reading

• 2 exciting high-growth ETFs to buy for high returns today
• 4 quality ASX shares to buy in August
• Is BetaShares Australia 200 ETF the best ASX ETF?
• Whatever happened to WAAAX shares?
• Why I think the Xero share price is a futureproof buy

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 Xero. 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 S&P/ASX 200 Index (ASX: XJO) fell by 0.67% today to 6,091 points.

It was a busy day for reports today. Here are some of the main highlights:

Telstra Corporation Ltd (ASX: TLS)

Telstra’s share price fell 7.7% in reaction to the FY20 result announcement.

The telco announced that its total income fell by 5.9% to $26.2 billion and net profit after tax (NPAT) declined by 14.4% to $1.8 billion.

Telstra said that it had another year of subscriber growth. It added 240,000 retail postpaid handheld mobile services, including 154,000 from Belong. It also added 171,000 retail prepaid handheld unique users, 347,000 whole services and 652,000 internet of things services.

Overall mobile revenue for the ASX 200 share declined $461 million in FY20. Reported postpaid handheld average revenue per user (ARPU) declined 8.2%. The fixed business’ revenue continues to be impacted by the NBN migration.

During the year the company reduced its underlying fixed costs by $615 million. It said it’s on track to achieve its $2.5 billion net cost reduction target in FY22.

In FY20 COVID-19 hurt Telstra’s underlying earnings before interest, tax, depreciation and amortisation (EBITDA) by approximately $200 million.

Telstra declared a final dividend of 8 cents per share. The total dividends per share for FY20 was 16 cents, the same as FY19.

For FY21 the ASX 200 telco is expected to be between $23.2 billion to $25.1 billion. Underlying EBITDA is expected to be in the range of $6.5 billion to $7 billion. Free cashflow after operating lease payments is expected to be between $2.8 billion to $3.3 billion.

Treasury Wine Estates Ltd (ASX: TWE)

The biggest rise in the ASX 200 today belonged to Treasury Wine Estate’s share price which grew 12.3%.

Treasury Wine Estates reported that its net sales revenue (NSR) fell 6% to $2.65 billion. This reflected the challenging conditions in the US wine market and the impact of the COVID-19 pandemic which hurt trading in all geographies. However, the NSR per case increased thanks to portfolio premiumisation.

The company’s EBITS dropped 22% to $533.5 million over the year with the EBITS margin dropping to 20.1%, down from 24.1%.

Treasury Wine Estates reported that its net profit after tax (NPAT) fell 25% to $315.8 million and earnings per share (EPS) dropped 26% to 43.9 cents.

The board declared a final dividend of 8 cents per share, bringing the full year payout to 28 cents per share. This equated to 64% of net profit.

Pleasingly, the wine business said there are positive signs of recovery in China. It’s implementing key changes with its US operating model and supply chain which should deliver annualised cost savings of $35 million from FY21 and $50 million by FY23.

Due to the continuing levels of uncertainty across its key markets, the ASX 200 company said it wouldn’t provide earnings guidance.

AMP Limited (ASX: AMP)

The AMP share price rose 10.9% in reaction to the FY20 first half result.

It reported an underlying profit of $149 million, down from $256 million in the prior corresponding period. This drop reflected the impacts of COVID-19. The actual net profit was $203 million.

The diversified financials business said that it had a strong capital position after the sale of AMP Life. It had surplus capital of $1.4 billion at 30 June 2020.

The ASX 200 share is going to return up to $544 million to shareholders. There will be $344 million paid to shareholders with a special dividend of 10 cents per share and there will also be up to $200 million returned to shareholders via an on-market share buy-back during the next 12 months.

However, the AMP board doesn’t expect to declare a final FY20 dividend.

AMP is on track for its target of $300 million of annual run-rate savings by FY22. The client remediation is on track to be 80% complete by the end of FY20 and fully complete in 2021.

More reading

• Why Tabcorp is the latest “conviction buy” recommendation from this top broker
• 2 blue chip ASX dividend shares to buy
• Metcash share price and these ASX stocks just got upgraded by leading brokers
• Earnings: AMP share price soars despite $107 million drop in profits
• Telstra just announced its dividend! Are Telstra shares now a buy?

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited and Treasury Wine Estates 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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Bardoc Gold Ltd’s (ASX:BDC) share price has climbed today after the company announced the start of a major drilling program to boost gold reserves. The gold miner’s share price rose to 8.4 cents, an increase of 7.69% from yesterday’s close.

What does Bardoc do?

Bardoc is an Australian gold company planning to build a substantial long-term gold business in Western Australia’s Eastern Goldfields. The company aims to do this through exploration, acquisition and strategic consolidation.

Bardoc owns multiple gold projects, the largest of which is the Bardoc gold project.

What is driving the Bardoc share price rise?

Bardoc today announced the start of a major drilling program at its flagship Bardoc project to increase gold reserves. This comes as the company’s definitive feasibility study (DFS) makes strong progress.

The new 7,000m resource in-fill drilling program targets additional mining reserves at cornerstone deposits. The drilling will target and unlock potential revealed during recent successful open-pit optimisations conducted as part of the DFS.

In addition, Bardoc reported excellent progress with metallurgical testwork programs. They inform the company about the quality of gold in the area, and give grounds to short-list preferred off takers.

Bardoc’s CEO Robert Ryan said: “The recently completed mining studies show exceptional potential to grow the current reserve and mine plan within the current resource.”

Foolish Takeaway

The gold price has been surging higher, recently topping US$2,000 per ounce recently. With strong demand in the sector, now is a good time to mine gold, and Bardoc is seeking to benefit from this trend. The Bardoc share price has seen a strong resurgence since lows in late March this year, closing today at 8.4 cents, up 7.69%.

While gold miners right now are experiencing serious tailwinds, Bardoc share holders should be aware that like any investment, gold is not a sure thing. Experts have warned that gold may soon face facing a painful correction after its record breaking run.

More reading

• 3 ASX shares that could grow rapidly during the 2020s
• Why Tabcorp is the latest “conviction buy” recommendation from this top broker
• Should you invest in Splitit shares?
• Could these exciting ASX shares be future stars?
• Xero share price higher following AGM update

Motley Fool contributor Daniel Ewing 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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It’s very tempting to invest in the big players because of their perceived safety. However, if you’re wanting to achieve significant share price appreciation, it could be more beneficial to look to the ASX small cap shares. In addition, because of their potential for above-market growth, small cap shares could (over the long term) increase their dividends to the point you could make significant income as well.

Once upon a time, the big caps were small caps, after all.

As a result, I believe the following 3 ASX small cap shares could reward investors now and over the long-term.

Baby Bunting Group Ltd (ASX: BBN)

Baby Bunting stores can remain open in Melbourne’s stage 4 restrictions, as the group is a retailer of maternity supplies and classed as an essential service. As a result, I believe it could be the beneficiary of more demand.

Commenting on the lockdown, CEO and Managing Director Mat Spencer said: “With over 9,000 new babies due in Victoria during the lockdown period, new and expectant parents face many critical and specialised needs and our Melbourne stores remain open to provide the essential products and services for them.”

Additionally, the company is scheduled to release its FY20 accounts tomorrow. On 22 July 2020, Baby Bunting released a FY20 financial results update. In the update, the group indicated it expects proforma earnings before interest, taxation, depreciation and amortisation (EBITDA) of between $33 million and $34 million. This is growth of between 22% and 25% on FY19 EBITDA result. However, the result is subject to audit and excludes the non-cash impact of other expenses.

I have been impressed by the continued growth in sales (in-store and online) and expected gross margin increase of 36.2% which is an increase of 120 basis points against the prior corresponding period.

In the past year, the Baby Bunting share price has rallied 66.23% higher.

Catapult Group International Ltd (ASX: CAT)

Catapult has been kicking goals recently by reaching positive cash flow a year early of $9 million in FY20. This is an improvement of $24.1 million on FY19.

Its EBITDA is expected to be between $11.5 million and $12.5 million. Additionally, total revenue is expected to between $100 million and $101 million. This is assisted by its subscription-based model.

Catapult has also recently been awarded a video exchange contract with the top 130 US college football teams. The partnership will open several new commercial opportunities in the market. I believe Catapult can continue growing as it continues to sign new sporting leagues and clubs around the world.

The Catapult share price has increased 42.98% in the past year.

Marley Spoon AG (ASX: MMM)

A structural change in how people buy groceries now and into the future could see continued rapid share price growth for this ASX small cap share.

In its Q2 2020 market release, Marley Spoon’s highlights included an acceleration in the long-term adoption of online grocery shopping, retention of new customers and decline in acquisition costs, growth in revenue, global contribution margin and positive global EBITDA. It also upgraded its 2020 full year guidance to 70% revenue growth from approximately 30%.

I believe this trend will continue, post-pandemic, as people become accustomed to buying their groceries online. The Marley Spoon share price has soared a whopping 479.44% in the past year.

More reading

• Fund managers have been buying these ASX shares
• Can the Bubs share price go higher in 2020?
• ASX shares that could get a boost from Victoria’s shutdown
• Why Catapult, Perseus Mining, Prospa, & Spark shares are dropping lower
• Why the JB Hi-Fi share price is dropping lower today

Matthew Donald owns shares of Baby Bunting. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Catapult Group International Ltd. The Motley Fool Australia has recommended Catapult Group International Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you’re looking for dividends, then you might want to take a look at the two dividend shares listed below.

I believe both blue chips could be top options for income investors right now:

Telstra Corporation Ltd (ASX: TLS)

The Telstra share price fell heavily on Thursday despite the release of a full year result which was in line with guidance. The telco giant also declared a final dividend of 8 cents per share, bringing its full year dividend to a fully franked 16 cents per share. This was in line with FY 2019’s dividend. However, judging by the Telstra share price weakness, some investors don’t appear to believe it will be able to maintain this dividend in FY 2021.

I”m optimistic it can, based on its guidance for free cashflow after operating lease payments of $2.8 billion to $3.3 billion. While this free cash flow is lower than the $3.4 billion it achieved in FY 2020, Telstra’s free cash flow payout ratio was 74% according to Goldman Sachs. This appears to indicate that it should be able to comfortably maintain its dividend if it achieves its guidance. If this proves to be the case, based on the current Telstra share price, this will mean a fully franked 5% yield in FY 2021.

Wesfarmers Ltd (ASX: WES)

Another blue chip ASX share to consider buying for dividends is Wesfarmers. It is the conglomerate behind popular brands such as Bunnings, Kmart, Target, Catch, and Officeworks. It also has a collection of chemicals and industrial businesses. I’m a big fan of the company due to the diversity and positive outlook for these businesses and my expectation that they will underpin solid earnings and dividend growth over the next decade.

In addition to this, the company is sitting on a mountain of cash following the sell down of its stake in supermarket giant Coles Group Ltd (ASX: COL) earlier this year. I suspect that this could be deployed to make earnings accretive acquisitions in the near future. For now, based on the current Wesfarmers share price, I estimate that it provides investors with an FY 2021 fully franked ~3.1% dividend yield.

More reading

• 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
• Telstra just announced its dividend! Are Telstra shares now a buy?
• Why AGL, Breville, CBA, & Telstra shares are dropping lower today
• ASX down 0.55%: Telstra maintains its dividend, Treasury Wine shoots higher, AMP’s special dividend

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

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Shares in specialist fashion jewellery retailer Lovisa Holdings Ltd (ASX: LOV) have rocketed 18.5% so far in August. In contrast, the All Ordinaries Index (ASX: XAO) went up 2.6% in the same period.

In intraday trading this afternoon, the Lovisa share price was up more than 7% while the All Ords is slipping towards a 1% loss.

Like most Australian retailers, and indeed most Aussie shares, Lovisa was hammered during the COVID-19 market rout in February and March.

From 20 February through to its 19 March low, the Lovisa share price plunged a chilling 79%. Since that low, it has more than tripled, up 202%. But even that meteoric rise hasn’t yet been enough to recoup the losses from the viral sell-off. Year-to-date, the company’s share price is down 38%.

At the current price of $7.37 per share, Lovisa has a market cap of $792 million.

What does Lovisa do?

Lovisa is one of Australia’s leading specialist fast fashion jewellery retailers. Founded by managing director Shane Fallscheer and BB Retail Capital, the first Lovisa store opened in Queensland in 2010.

Today, it has more than 400 stores across Australia, New Zealand, Malaysia, Singapore, Spain, France, South Africa, the United States and the United Kingdom. It also has franchised stores in the Middle East and Vietnam.

The company develops, designs, sources and merchandises 100% of its Lovisa-branded products.

What’s driving Lovisa’s share price gain?

There have been no announcements this month that would directly explain Lovisa’s 18.5% share price gain in August (24.2% since Monday 3 August’s close).

Lovisa did announce some store closures in Victoria and California to comply with lockdown measures following renewed surges in coronavirus infections. It could be that Victoria’s early progress in controlling the spread has encouraged some investors to buy shares at a long-term discount.

Lovisa was also mentioned on several financial news outlets, including Yahoo Finance on 2 and 3 August, mentioning the ‘fantastic 124% total returns’ Lovisa had ‘gifted’ to shareholders.

Lovisa is due to report results for the year ending 28 June to the ASX pre-market open on 26 August. It will be interesting to see how Lovisa’s share price moves following the release of the report.

More reading

• Here’s the best mid-cap growth share to buy on the ASX
• 2 ASX retail shares on my radar in 2020
• ASX 200 Weekly Wrap: Surging commodity prices snap ASX 200’s losing streak
• Why the Senex Energy share price climbed 17% in July
• The Galaxy Resources share price surged 41% in July. Here’s why.

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

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Electric scooter manufacturer Vmoto Ltd‘s (ASX: VMT) share price leapt out of the starting gate today after announcing it had received firm commitments for an equity capital raising of approximately $9.6 million. The Vmoto share price had been in a trading halt since Monday 10 August ahead of this announcement.

The company announced its placement received strong demand from strategic investors, institutions and other professional investors. That included existing shareholders, cornerstoned by Perennial Value Management.

Vmoto led the placement without the appointment of lead managers.

The company will issue 21,411,408 fully paid ordinary shares for 45 cents per share, a 7.4% discount to the volume weighted average price for the last ten trading days prior to its trading halt.

Vmoto expects to issue the new shares on 19 August 2020 with trading commencing on ASX on the same day.

The ASX’s only two-wheeled electric vehicle manufacturer will use the proceeds to increase its international market initiatives and accelerate potential opportunities in the growing B2C and B2B electric two-wheel vehicle markets internationally.

What the Directors said

Vmoto Managing Director, Mr Charles Chen said:

“Recent operational and commercial successes during the current global pandemic highlight that the company has reached an inflection point in its growth. As a result, it was approached by several strategic funds and took decisive action to further strengthen its balance sheet, ensuring it is in as strong a position as possible to capitalise on this success and accelerate its growth going forward.

As a result of the Placement and the additional capital raised, Vmoto is now in an even stronger position for all its shareholders, and very well placed to accelerate its growth and expand its strategy to drive long-term value for investors. We would like to thank all investors who participated in the placement”.

Andrew Smith, Head of Smaller Companies & Micro Caps at Perennial Value Management said:

“We have been monitoring the progress of Vmoto for several years and have seen the company deliver consistent growth in sales. Changes in legislation and the introduction of government schemes has given rise to an increasing trend of consumer preference for lower cost and convenient transport via two-wheel electric vehicles which has been accelerated by COVID-19 – Vmoto’s most recent quarterly sales is a testament to this”.

Vmoto share price soaring on strong sales growth

Vmoto’s sales have seen strong growth over the last 12 months, buoyed by the fast-growing demand for e-scooters. The company is also seeing higher demand from parcel delivery companies, further spurred by COVID-19 lockdown measures.

Last week, Vmoto reported record quarterly sales of 6,389 units in the three months to the end of June. That’s an increase of 55% on the previous quarter and more than double the sales in the same quarter of 2019.

Including today’s 15.4% increase, the Vmoto share price is up 150% year to date. Since its 23 March low, the Vmoto share price has soared more than 360%.

More reading

• The ASX small cap benefitting from COVID that you’ve probably never heard of

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

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The S&P/ASX 200 Index (Index:^AXJO) is under pressure from profit misses from some leading stocks. But it isn’t all bad news as brokers upgraded their call on a number of ASX stocks.

Today’s profit sinners include the likes of the Telstra Corporation Ltd (ASX: TLS) share price and AGL Energy Limited (ASX: AGL) share price.

But the Metcash Limited (ASX: MTS) share price is bucking the downtrend after Citigroup upgraded the stock to “buy” from “neutral”.

Stronger for longer triggers upgrade

Shares in the grocery distributor jumped 0.5% to $2.98 in the last hour of trade when losses on the ASX 200 deepened to 0.9%.

Citi believes the COVID-19 tailwinds that have lifted the Metcash share price, Woolworths Group Ltd (ASX: WOW) share price and Coles Group Ltd (ASX: COL) share price will persist for longer than many are expecting.

Social restrictions and lockdowns to contain the virus triggered panic buying of food and other household goods. Flattening the coronavirus curve or even finding a vaccine is unlikely to change the positive outlook for the sector over the medium term.

“The grocery outlook remains strong across the industry, with elevated sales growth; rational market conditions and earnings/dividend stability warranting an overweight position across Coles/Woolworths/Metcash,” said Citi.

The broker’s price target on Metcash is $3.50 a share.

Cleared for capital raise

Meanwhile, the embattled Sydney Airport Holdings Pty Ltd (ASX: SYD) share price is likely to get some reprieve. JPMorgan upgraded the stock to “neutral” from “underweight” on the back of the airport’s $2 billion capital raise.

The SYD share price was badly hit by the collapse in the travel market from COVID-19, but that doesn’t change the fact that it’s a quality asset with monopolistic power.

Enough runway for a recovery

“The duration of the passenger downturn continues to be pushed out, and international likely requires a vaccine before it can find a new normal,” said the broker.

“Importantly, we believe the raising will ensure SYD doesn’t breach covenants, but we await a turn in passengers and earnings before becoming more bullish.”

The Sydney Airport share price is in a trading halt as it finalises its $4.56 a share cap raise. The stock last traded at $5.39 a share and will likely fall when it returns to the bourse, although I think it will find a base comfortably ahead of the offer price.

Controlled descend

Another stock that got upgraded was the JB Hi-Fi Limited (ASX: JBH) share price. Credit Suisse lifted its rating on the electronics and whitegoods retailer to “neutral” from “underperform” as it takes a more positive view on the fiscal cliff issue.

The JBH share price outperformed during the COVID crisis as work-from-home restrictions fuelled demand for IT equipment.

Smaller than expected drop

The sector was facing a potential cliff as the support measures were initially meant to be withdrawn from September.

But the federal government is extending some of these wage support packages, although it will taper the payments through to March 2021. This means the cliff could turn out to be a relatively gentle slope instead.

Credit Suisse lifted its 12-month price target on the stock to $42.71 from $34.52 a share.

More reading

• 2 blue chip ASX dividend shares to buy
• How to find the rare ASX retail share winners
• If an ASX share announces a demerger, here’s why you should listen
• Fiji Kava share price soars 90% on Blackmores subsidiary agreement, trade paused
• Brokers have upgraded 3 ASX shares to the buy zone. Here’s why

Motley Fool contributor Brendon Lau owns shares of Telstra Limited and Woolworths Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of 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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I think ASX tech shares could be the best businesses to buy and hold until 2025.

Technology businesses have a couple of advantages that most other industries don’t have. The main cost for most technology businesses is simply developing the software. Once the software is made it’s very, very cheap to distribute it with low incremental costs. It means a business that can grow fast can rapidly increase its operating profit margins.

If a business has a large total addressable market then its profit has a much longer growth runway. It’s the ASX shares with international growth which are more likely to do well over time.

However, there are some ASX tech shares like Altium Limited (ASX: ALU) and Appen Ltd (ASX: APX) which are quality but are priced very highly. But there are other ASX tech shares which are priced much more reasonably:

Tech share 1: Citadel Group Ltd (ASX: CGL)

Citadel is a software business which provides essential software to various sectors including education, defence and healthcare. With government organisations being some of its major clients, Citadel has quite defensive earnings.

Indeed, in the company’s COVID-19 update on 24 March 2020 it said that no significant projects or contracts have been delayed or cancelled.

I think the acquisition of Wellbeing could be transformative for Citadel. Wellbeing is a UK healthcare software company that manages patient workflow with recurring revenue being around 70% of its total revenue. Both Citadel and Wellbeing have major private and government clients.

In Australia, Citadel has a 42% market share of the pathology sector and a 27% market share of the oncology sector. In the UK, Welbeing has a 59% market share of the radiology sector and a 22% market share of the maternity sector. These are strong market positions for the ASX tech share to have.

Not only is the earnings of Wellbeing defensive and high-quality, but it opens up the opportunity for cross-selling each software into the other country.

For the overall business, Citadel’s recurring revenue as a percentage of total revenue grows from 41% to 48%. Its health software gross profit will increase from 31% to 52% of overall gross profit and the earnings before interest, tax, depreciation and amortisation (EBITDA) margin will rise from 22% to 26%. Higher margins are very attractive for the ASX tech share.

At the current Citadel share price it’s trading at 12x FY22’s estimated earnings.

Tech share 2: Pushpay Holdings Ltd (ASX: PPH)

Pushpay is a software business which facilitates digital giving to not-for-profits. Currently, its main client base is large and medium US churches.

The ASX tech share is seeing enormous growth at the moment due to the current COVID-19 conditions. In FY20 the company saw revenue grow by about a third to US$129.8 million. In FY21 Pushpay is expecting that EBITDAF (the F stands for foreign currency) can at least double to US$50 million.

Aside from the strong revenue growth potential, one of the main reasons why I really like Pushpay is that its gross margin could keep increasing. In FY20 alone it rose from 60% to 65%. That means more revenue falls to the bottom line.

Pushpay offers churches a livestreaming to connect with its congregation. It’s these types of tools which make Pushpay attractive to its clients.

I think the ASX tech share has a lot of growth potential. It’s aiming for annual revenue of US$1 billion from the US church sector.

Over the long-term, Pushpay could target churches outside of the US or different religions in the US. Other markets would dramatically increase Pushpay’s total addressable market – though it already has a large market to target.

At the current Pushpay share price it’s trading at under 30x FY23’s estimated earnings and 33x FY22’s estimated earnings.

Foolish takeaway

I think both of these ASX tech shares are among the best ideas to beat the overall ASX over the next five years. Citadel looks very good value today and I believe that Pushpay can continue to grow strongly with its rising profit margins.

More reading

• 3 stellar ASX tech shares to buy for the long term
• Where to invest $500 into ASX shares immediately
• If you have $12,000, you should invest in these 3 ASX shares now
• 5 quality ASX shares to buy in August
• 3 exciting ASX growth shares to buy with $3,000

Tristan Harrison owns shares of Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of PUSHPAY FPO NZX. The Motley Fool Australia owns shares of Appen Ltd. The Motley Fool Australia has recommended Citadel Group Ltd and 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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