The Myer Holdings Ltd (ASX: MYR) share price is on watch today after the department store conglomerate gave an update on trading after the close of market last night. Myer revealed that trading was severely impacted by COVID-19 and that finance with its existing lenders had been extended. The Myer share price is already 61% lower in year-to-date trading.

Stores closures

Myer closed all 60 stores in late March, standing down approximately 10,000 team members. Stores were progressively reopened from 8 May 2020, with a majority reopened by 27 May 2020. Myer has revealed that store closures had a severe impact on sales. In addition, sales have been severely impacted by a significant reduction in foot traffic, especially at CBD locations. In the latest blow, metropolitan Melbourne stores have now been closed for a further period of six weeks under stage 4 restrictions.

Online channel 

Myer says that growth in online sales was strong during 2H FY20, and accelerated significantly during the period of store closures. The retailer will no doubt be hoping for a further boost in online sales during the latest lockdown. But given Myer conducts the majority of sales via its physical stores, online sales are highly unlikely to compensate for revenues lost to store closures. 

Cost measures

Myer says it has instituted disciplined cost control measures in the face of the pandemic. It has also received support from the federal government via JobKeeper and rent relief and deferrals. This means that despite the loss of revenue from store closures, the company expects to report a small cash positive position at the end of FY20. This compared favourably to net debt of $39 million at the end of FY19. 

Agreement has been reached with Myer’s bankers to extend its banking facility until August 2022. The amended $340 million facility is $20 million less than the existing facility, in part reflecting the company’s success in deleveraging its balance sheet. Lenders have agreed no covenant testing will be required in FY20 given the significant impact of COVID-19 on Myer’s operations in 2H FY20.

Turnaround

Prior to the onset of coronavirus, Myer was in the midst of a multi-year turnaround plan which aimed to consolidate store offerings and improve profitability. The retailer saw a 3.8% drop in total sales in 1H FY20 which fell to $1,607.9 million. Online sales grew 25.2% to $168.2 million. This represents around 10% of total sales, meaning it was not enough to offset the decline in in-store sales during the half. 

About the Myer share price

Myer had been experiencing subdued conditions even prior to the pandemic – profit fell 26.9% in the first half and the dividend remained suspended. The company still has considerable work to do to execute its turnaround plan, and must now do so in some of the toughest operating operating conditions in its history. The Myer share price has recovered 90% since its March low of 10 cents but is still down 61.22% over the past year. The Myer share price has not traded over $1 since May 2017.

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Motley Fool contributor Kate O’Brien 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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Is the Australian Foundation Investment Co.Ltd. (ASX: AFI) (AFIC) share price a buy?

There are a number of things to consider.

Quick overview of AFIC

AFIC is a listed investment company (LIC) which has been operating since 1928, it’s one of the oldest listed investment businesses in Australia.

The job of a LIC is to invest in ASX shares on your behalf. It typically owns around 80 to 100 companies in its portfolio across a range of industries. AFIC chooses those businesses for their ability to perform through economic cycles and generate returns over the long term.

Costs

One of the main reasons to consider investing in AFIC rather than other investment managers is AFIC’s extremely low management expense ratio (MER). The MER in FY20 was 0.13%. That’s almost as cheap as the cheapest ASX-focused exchange-traded funds (ETFs) like Vanguard Australian Shares Index ETF (ASX: VAS) and BetaShares Australia 200 ETF (ASX: A200).

The lower the costs to manage the portfolio the higher the net returns are to shareholders. That’s one of the main reasons why the AFIC share price is attractive.

On the costs side of things, AFIC is one of the best value options.

Net return performance

Costs are only part of the equation. It’s the net returns that are the most important attribute.

In the recently-announced FY20 result AFIC announced that its net asset per share growth including dividends (and franking credits) outperformed the S&P/ASX 200 Accumulation Index (including franking credits) by 3.5% over the 12 months to June 2020. However, AFIC has underperformed the index by 0.8% per annum over five years and 0.1% per annum over the past decade.

The FY20 performance is a good start to the recovery of long-term underperformance though. Better long-term portfolio returns would be good news for the AFIC share price.

Dividends

But some investors may be less focused on total returns. Perhaps dividends are more important as long as AFIC delivers long-term capital growth.

AFIC’s dividend has been very reliable this century with no dividend cuts. However, there hasn’t been much dividend growth over the past few years. It’s sticking to an annual dividend of $0.24 each year.

The danger of sticking to the same dividend payment each year is that you can eat into the portfolio value if the total returns aren’t strong enough. We can see that in FY20; AFIC generated almost $0.20 of earnings per share (EPS) but paid $0.24 of dividends per share. That means it paid more than 100% of the FY20 profit out as a dividend.

If AFIC’s underlying ASX share holdings can grow then it isn’t a problem, but if AFIC keeps paying out more than 100% of its profit then the capital value would slowly shrink and make it harder to maintain the dividend. That would be bad news for the AFIC share price.

Many of AFIC’s big holdings are being impacted by COVID-19 at the moment.

AFIC’s biggest holdings

At 30 June 2020 its biggest positions were: CSL Limited (ASX: CSL), Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), Wesfarmers Ltd (ASX: WES), Transurban Group (ASX: TCL), Westpac Banking Corp (ASX: WBC), Macquarie Group Ltd (ASX: MQG) and National Australia Bank Ltd (ASX: NAB).

With such a large focus on financial shares, it’s clear that the AFIC share price is fairly reliant on the Australian economy to perform well. That could be tough with the recent Victorian lockdowns and the expected economic hit.

Is the AFIC share price a buy?

An interesting element of LICs is that sometimes they can trade at a premium to their net tangible asset (NTA) value and sometimes they can trade at a discount.

In the run up to the 2019 federal election AFIC (and many other LICs) were trading at a discount to their NTAs. But now AFIC is trading at a premium again, so it’s not cheap today. It currently offers a grossed-up dividend yield of 5.3% – not bad for retirees. But otherwise I think there are better options for growth and dividends out there for most investors.

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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia owns shares of Transurban Group 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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On Thursday the S&P/ASX 200 Index (ASX: XJO) was back on form and pushed higher. The benchmark index rose 0.6% to 6,042.2 points.

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

ASX 200 to edge lower.

The ASX 200 index looks set to end the week in a subdued fashion. According to the latest SPI futures, the benchmark index is expected to open the day 7 points or 0.1% lower this morning. This is despite a positive night of trade on Wall Street which saw the Dow Jones rise 0.6%, the S&P 500 climb 0.65%, and the Nasdaq index storm 1% higher. This follows the release of better than expected U.S. jobs data.

Oil prices mixed.

Energy producers such as Beach Energy Ltd (ASX: BPT) and Santos Ltd (ASX: STO) will be on watch today after a mixed night for oil prices. According to Bloomberg, the WTI crude oil price has fallen 0.3% to US$42.05 a barrel and the Brent crude oil price is trading flat at US$45.18 a barrel. Demand concerns were weighing on oil prices during overnight trade.

Gold price continues its charge.

Gold miners including Evolution Mining Ltd (ASX: EVN) and Saracen Mineral Holdings Limited (ASX: SAR) could be on the rise on Friday after the gold price continued its charge. According to CNBC, the spot gold price rose 1.4% to US$2,077.70 an ounce. Concerns about global economic growth has supported the precious metal.

REA Group results.

The REA Group Limited (ASX: REA) share price will be on watch this morning when it hands in its full year results. According to a note out of Goldman Sachs, it is expecting the property listings company to report an 8% decline in revenue to $804 million and a 9% reduction in EBITDA to $456 million. It will then be looking for guidance in the range of $525 million for EBITDA in FY 2021.

News Corp result.

Major REA Group shareholder, News Corp (ASX: NWS) is also scheduled to release its results this morning. The same broker note reveals that Goldman Sachs is expecting the media giant to report a 30% decline in EBITDA to $886 million. The broker is also expecting a rebound in its EBITDA in FY 2021. It will be looking for guidance of $1,085 million in FY 2021.

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Motley Fool contributor James Mickleboro 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.

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