In late morning trade the S&P/ASX 200 Index (ASX: XJO) is following the lead of U.S. markets and tumbling notably lower. At the time of writing the benchmark index is down 1.35% to 5,824.3 points.

Four shares that have not let that hold them back today are listed below. Here’s why they are charging higher:

The De Grey Mining Limited (ASX: DEG) share price has continued its sensational run and is up over 3% to 92.2 cents. The gold-focused mineral exploration company’s shares have been on fire this year thanks to some impressive drilling results from the Hemi prospect. These results appear to indicate that the company is sitting atop a major resources.

The Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) share price has climbed almost 5% to $31.03. Investors have been buying the medical device company’s shares after the release of its full year results. For the 12 months ended 31 March 2020, the company delivered an 18% lift in operating revenue to NZ$1.26 billion and a 37% jump in net profit after tax to NZ$287.3 million. Further growth has been forecast for FY 2021, thanks largely to its Hospital products segment.

The Perseus Mining Limited (ASX: PRU) share price is up over 3.5% to $1.27. Investors have been buying the gold miner’s shares after the price of the precious metal jumped higher on Friday night. Investors were buying gold after a spike in coronavirus cases led to increased demand for safe haven assets. The S&P/ASX All Ordinaries Gold index is up 1.8% at the time of writing.

The Polynovo Ltd (ASX: PNV) share price has stormed over 4.5% higher to $2.64. This is despite there being no news out of the medical device company. However, as I mentioned here last week, one leading fund manager believes that PolyNovo’s shares are undervalued at the current level. This could have given them a boost today.

More reading

• Up 2,700% in 5 years: can the a2 Milk share price continue to climb?
• ASX 200 Weekly Wrap: ASX retreats as confidence wanes
• Fisher & Paykel Healthcare share price on watch after COVID-19 drives record profit result
• 5 things to watch on the ASX 200 on Monday
• $10,000 invested in De Grey Mining shares in January would be worth $165,000 today

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of 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.

The post Why De Grey, Fisher & Paykel Healthcare, Perseus, & PolyNovo shares are charging higher appeared first on Motley Fool Australia.

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The S&P/ASX 200 Index (ASX: XJO) has followed the lead of U.S. markets and is on course to record a sizeable decline. At the time of writing the benchmark index is down 1.4% to 5,819.9 points.

Four shares that have fallen more than most today are listed below. Here’s why they are sinking lower:

The Galaxy Resources Limited (ASX: GXY) share price is down 2% to 77.5 cents. Investors have been selling the lithium miner’s shares after analysts at Credit Suisse downgraded them to a neutral rating and slashed their price target to 84 cents. It made the move due to weakening lithium prices.

The Jumbo Interactive Ltd (ASX: JIN) share price has crashed 8% lower to $10.52. This follows the announcement of a 10-year lottery ticket reseller extension with Tabcorp Holdings Limited (ASX: TAH). While this removes a lot of uncertainty, it has come at a cost. Jumbo will pay Tabcorp an upfront fee of $15 million and increasing royalties on ticket sales. Eventually Jumbo will pay Tabcorp a service fee of 4.65% of the ticket subscription price.

The Webjet Limited (ASX: WEB) share price has tumbled 5% lower to $3.21. Webjet is one of a number of travel shares that are tumbling lower on Monday. Investors appear concerned that the domestic travel market could take longer to recover following a spike in coronavirus cases in Victoria. In addition to this, valuation concerns could be weighing on the online travel agent’s shares.

The Zip Co Ltd (ASX: Z1P) share price has fallen almost 4% to $5.24. With the market tumbling notably lower today, investors appear to have been taking a bit of profit off the table. Prior to today, the Zip Co share price was up 45% since this time last month. Investors have been buying the payments company’s shares after it announced its expansion into the United States.

More reading

• Jumbo Interactive share price sinks lower on new Tabcorp agreement
• ASX 200 Weekly Wrap: ASX retreats as confidence wanes
• Here are the 10 most shorted shares on the ASX
• Could the Afterpay share price really be good value right now?
• These were the worst performing ASX 200 shares last week

James Mickleboro owns shares of Galaxy Resources Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Jumbo Interactive Limited. The Motley Fool Australia owns shares of and has recommended Jumbo Interactive Limited and Webjet 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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E-commerce business has been the great success story of the pandemic. The lockdown has accelerated the trend towards online sales. In fact, Australia Post data shows that e-commerce growth rose by 80% in the 8 weeks following the World Health Organisation’s (WHO) announcement. They believe that this year online sales will reach 15% of all retail sales. That is 3–5 years ahead of previous forecasts.

Furthermore, we saw evidence of this among many of the revenue reports companies have posted throughout the pandemic. 

Traditional e-commerce business

It sounds strange to be talking about traditional e-commerce. However, Kogan.com Ltd (ASX: KGN) definitely fits that mould.  Kogan is an online marketplace similar to that of Amazon.com (NASDAQ: AMZN) and started out selling home electronics. Since Kogan listed on the ASX in 2016, it has purchased the old Dick Smith electronics business and recently purchased furniture retailer, Matt Blatt.

In a recent business report, Kogan announced an increase in online sales by 100% in 4Q FY20 to date. The company’s profit for the same period also grew by 130%. Kogan currently sells at a price to earnings (P/E) ratio of 73.83. 

A surprise entrant in this space is the online marketplace purchased by Wesfarmers Ltd (ASX: WES). Catch is a general marketplace the same as Kogan. Wesfarmers recruited former Amazon executive, Peter Sauerborn to run the company. Catch reported growth in gross transaction value of 68.7% for 2H FY20 to date, compared to 21.4% for H1 FY20. 

Wesfarmers also owns other retailers like Bunnings, Kmart and Officeworks. Financial year to date, total online sales across the Group increased by 60% to $1.4 billion or $1.9 billion.

Wesfarmers current holds a P/E ratio of 22.55. 

Store-specific sales

City Chic Collective Ltd (ASX: CCX) is a multi-branded women’s fashion apparel retailer. I think this is a red hot small-cap share to keep an eye on with its P/E ratio currently sitting at 33.91. The company prides itself on being an omnichannel retailer with online retail contributing two-thirds of the company’s global sales.

During the period of store closures during the lockdown, the company saw an increase in sales of 57%. City Chic states they achieved this increase by quickly adjusting their product offering to cater to customer demand during the lockdown. The company is looking to maintain high online sales revenues as stores begin to open after the pandemic. 

Temple & Webster Group Ltd (ASX: TPW) is a furniture company that has an e-commerce business with a ‘drop-shipping’ operations model. For the uninitiated, this means that products are shipped directly to customers from the providers. Temple & Webster also have their own branded products.

For 2H FY20 up to the end of May, the company reported a 68% increase in revenue and a 68% increase in active customers. In addition, the company reported a +100% increase in June revenue thus far verse the previous corresponding period. This all plays into the company’s current P/E ratio which sits at 199.93.

Foolish takeaway

This shortlist is just some of the e-commerce highlights across the market right now. I haven’t included the impressive sales increases by other recognised brands such as JB Hi-Fi Limited (ASX: JBH) or Harvey Norman Holdings Limited (ASX: HVN). However, the overall online shopping trend is clear. 

With e-commerce business rapidly racing towards 15% of total retail sales, it has become an essential element of retail. Of the companies listed here, the high P/E ratios show that the market thinks there is a big future in these sales channels. 

More reading

• 3 top ASX growth shares to buy for FY21
• ASX 200 Weekly Wrap: ASX retreats as confidence wanes
• 3 fantastic ASX dividend shares to buy next week
• 3 ASX shares to own for the next 10 years
• ASX shares vs property: which is a better investment?

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Daryl Mather 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 Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended Amazon and Temple & Webster Group 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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Many investors are are feeling the inevitable recession may present some buying opportunities among ASX 200 shares but are uncertain which ones to target.

Whilst I still believe in buying and holding for the long term, there are definitely some ASX 200 shares I’d have my eye on in the event there is another downturn this year.

3 ASX 200 shares to buy in a recession

The first Aussie company on my buylist should we experience another bear market would be Fortescue Metals Group Limited (ASX: FMG). 

Fortescue is one of the world’s leading iron ore miners and could benefit from a mining and infrastructure boom. When the GFC hit in 2008-09, it was Chinese demand for iron ore that helped pull the Aussie economy through.

While that is unlikely to be the case in 2020, surging demand for iron ore could still help boost economic activity. 

That’s good news for the ASX 200 mining share if demand continues to climb higher.

Other than Fortescue, I also like the look of Coles Group Ltd (ASX: COL) in a downturn.

The Coles share price has rocketed 13.3% higher this year and was one of the gainers in the recent bear market.

ASX 200 supermarket shares did well in March and I could see them experiencing strong demand again if there is another downturn. Those defensive qualities and non-cyclical earnings could definitely make Coles shares worth buying in 2020.

I think National Storage REIT (ASX: NSR) could also perform well if the S&P/ASX 200 Index (ASX: XJO) falls lower.

National Storage derives its income from rent paid by its self-storage unit users. A big economic downturn could hit residential real estate hard and mean more downsizing and ‘rightsizing’ from Aussie households.

This could be good news for the ASX 200 REIT share and its dividends on the back of strong earnings.

Foolish takeaway

No one knows if, or when, the next share market downturn will hit. These are just a few of the ASX 200 shares that I’ve got my eye on if the market turns south.

Of course, I believe it’s essential to consider investing for the long term rather than just trying to capitalise on a downturn. But if you can pick up some defensive shares to diversify your portfolio at decent prices, then I see that as an added bonus.

More reading

• Why you probably won’t buy stocks in the next market crash either
• Comments from CUA brings hope to COVID-19 stricken ASX banking stocks
• Are Coles and Woolworths shares back in the buy zone?
• Tassal and 2 more ASX 200 shares to watch this week
• ASX 200 Weekly Wrap: ASX retreats as confidence wanes

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Time after time, investors have seen the same scenario play out. A crisis arises, and stocks sell off hard. Things look bad. There doesn’t seem to be any bottom in sight.

Then, all of a sudden, the market starts to rebound. It seems too good to be true, as the situation outside the financial markets still looks sketchy at best. Yet stocks keep rising and rising. Before you know it, a new bull market has started.

That’s what’s happened so far in 2020, and it’s a playbook that experienced investors have seen countless times before. Yet even with all that experience, many of those seasoned investors didn’t pull the trigger to buy more stocks when the market was plunging. A lot of them are kicking themselves right now, because once again, they’ve missed out on a golden opportunity to make what could be some of the most lucrative investments of their careers.

But if you’re angry at yourself for missing out on the March lows, cut yourself some slack. There are very good reasons why it’s so hard to buy stocks during market crashes. Here are two of the biggest.

1. It always feels different this time

It’s easy to say that the next time the stock market crashes for no apparent reason, you’ll be the first to take your cash and buy stocks on the cheap. But when the crash actually comes, the reason behind it always seems to be new. The bearish arguments for what the future will bring seem extremely compelling.

During the financial crisis in 2008 and 2009, there was a very real chance that the global financial system would collapse. It took extraordinary effort to keep it afloat. Those who took the chance and invested optimistically got rewarded, but to say that it was a sure thing is to let hindsight cloud what it was actually like during the crisis.

This year, the pandemic has led to similarly unprecedented actions, including the suspension of nearly all business activity for months. Tens of millions are unemployed. A market crash seemed warranted, and the magnitude of the decline reflected how much concern there was. Now, risk-tolerant investors have once again identified that it’s likely that things will work out and that the drop was exaggerated. However, there’s still no certainty that the pandemic won’t get worse, and that’s kept many people on the sidelines during the ensuing rally.

If you’re going to buy during a market crash, you have to be willing to invest when it feels like the absolutely worst idea in the world. Don’t expect to build a mindset where you’re comfortable or even eager to buy into crashes. That’s a rarity — and it’s why there are so many truly great investors out there.

2. You’ll settle for nothing short of perfect timing

Even if you have the discipline to buy stocks when the market drops, the odds of your picking the absolute bottom are nearly zero. What’s more likely is one of the following outcomes:

• You’ll identify bargains when the market is down 5% or 10%, and use up all your available cash just in time to see stocks drop another 10% or 20%.
• You’ll wait until the market stops falling, and then when share prices start to jump, you’ll nitpick over whether you should really pay 5% or 10% more than you would’ve paid if you’d just picked the day of the market lows to buy. Then, the stock will rise another 10% or 20% while you sit shaking your head.

One strategy to avoid this problem is to buy partial positions rather than investing all at once. You might invest a portion when the market’s down 5%, another when it’s down 10%, and a bigger part when it’s down 20% or 25%. Even then, you’ll sometimes invest all your money before the market hits bottom. But when the market recovers, you’ll see some of those positions turn profitable early on in the rally. You also run the risk of not investing all your cash at bargain prices if the market turns out not to fall that far, but that at least leaves you with opportunities to capitalize on future downturns.

The best way to keep investing during a market crash

Knowing that these influences are out there is helpful. But even knowing them won’t make it any easier to pull the trigger in the next market crash.

Perhaps the easiest way to avoid having to worry too much about investing during crashes is simply to have an automatic investment program. If you take the same amount of money month after month and put it to work in the stock market, then you’ll end up buying more shares of stocks or ETFs  in the months when the market has dropped. That’ll give you an edge — and if it’s automatic, you won’t even have to think about it.

Taking advantage of market crashes is harder than it looks. Rather than responding emotionally, you have to find a way to overcome anxiety and make the choices that seem so obvious when markets aren’t under stress. Do whatever it takes to put yourself in that rational state, and you’ll see your long-term results improve.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Fortescue Metals and 2 other ASX 200 shares to buy in a recession
• Comments from CUA brings hope to COVID-19 stricken ASX banking stocks
• Are Coles and Woolworths shares back in the buy zone?
• Tassal and 2 more ASX 200 shares to watch this week
• ASX 200 Weekly Wrap: ASX retreats as confidence wanes

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

The post Why you probably won’t buy stocks in the next market crash either appeared first on Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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If you’re looking to invest $10,000 into the share market in July, then I think the two ASX shares listed below could be the ones to buy.

Here’s why I would snap up these ASX shares next month:

Nearmap Ltd (ASX: NEA)

Nearmap is an aerial imagery technology and location data company providing high-resolution aerial maps and 3D maps for governments and businesses. While its performance in FY 2020 has been a touch disappointing because of several churn events, I remain very positive on its long term outlook.

For example, this year the company is aiming to deliver annualised contract value of $102 million to $110 million. This is only a fraction of the global aerial imagery market which is estimated to be worth US$10.1 billion in 2020. And thanks to its high quality software (including its new artificial intelligence product) and geographic expansion opportunities, I believe Nearmap will continue to win a greater share of this fragmented market over the coming years and drive strong recurring revenue growth.

NEXTDC Ltd (ASX: NXT)

Another top option for a $10,000 investment could be NEXTDC. It is a leading and innovative data centre operator which operates a portfolio of world class operations in key locations across Australia. Demand for its services has been growing very strongly in recent years and particularly in 2020 during the pandemic.

This is because the pandemic has accelerated the shift to the cloud and driven very strong demand for data centre capacity. So much so, NEXTDC recently announced the construction of its third data centre in Sydney and brought forward planned capacity additions in other markets. I’m confident there will be more of the same in the coming years, which should drive strong earnings growth as it scales. This could make it a great buy and hold option for investors.

More reading

• Here are the 10 most shorted shares on the ASX
• Do you want to get rich by investing? Then do this
• 3 stellar ASX tech shares to buy in July
• Here are 3 top ASX tech shares to buy with $5,000 today
• How ASX 200 shares like Xero could help you retire early

James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Nearmap Ltd. The Motley Fool Australia has recommended Nearmap 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 Pushpay Holdings Ltd (ASX: PPH) share price has rocketed up by 224.2% since its year to date low point on 16 March. The question for growth investors is, of course, can this company that provides donor management systems continue surging in value? If so, by how much?

The target market

Based in New Zealand and operating predominantly in the United States, Pushpay sells donor management tools to faith-based organisations, nonprofits, and education providers. So the entire company is set up to help facilitate donations and therefore assist organisations to fund charitable works. This is what initially sparked my interest in the Pushpay share price. 

The company operates through two primary verticals: a donor management system, including applications, and the Church Community Builder platform, the latter being a leader in church management systems. The Church Community Builder provides insights into congregations and helps drive engagement. It also provides scheduling functions for voluntary work.

Pushpay currently has over 10,000 customers and, during the height of COVID-19 lockdowns, its revenues actually increased. 

Pushpay’s financial position

At its annual meeting on 18 June, Pushpay announced it had achieved an amazing US$5 billion in total processing volumes for the year ended 31 March 2020. In addition, the company increased operating revenue by 33% to US$127.5 million while increasing its gross margin from 60% to 65%. That is an impressive margin. Moreover, the company has increased its sales by an average 45% per year over 4 years.

Over the past two years, Pushpay has delivered a positive return on equity (ROE). That is, the net income divided by the shareholders equity, or the total assets minus debt. The average ROE for the past two years has been 38.2%.

Of the company’s total revenues ~$91.9 million came from processing, while ~$35 million came from subscriptions. Both of these revenue streams contain large recurring revenue content. 

The Pushpay share price

As a growth company, the Pushpay share price is currently trading at a price to earnings ratio of >90. The share price has risen ~42% per year, on average, for 4 years. Furthermore, the company only generated its first profit in FY19. 

Foolish takeaway

Personally, I think the Pushpay share price still has a long runway ahead of it. The company has managed to eke out a profit over a relatively short period of time and has built a company based largely on recurring revenue streams. 

On its current growth rate, I expect Pushpay to process more than $5 billion in total transactions in FY21. While it is presently focused on the church sector in the US, which is a very large sector, I feel there is still significant growth opportunities for the company to realise through other donation-driven organisations. 

I believe it’s very possible the Pushpay share price could double two or three more times from its current value over the next 3 – 5 years. 

More reading

• 10 high quality ASX shares to buy in FY 2021
• Why Xero and these ASX tech shares just hit record highs
• 3 high quality ASX shares I would buy if there were another market crash
• 3 star ASX shares to buy for the rest of 2020
• Australian businesses are running out of cash

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

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Good news will be in short supply on our market today. But feedback from Brisbane-based credit union CUA could shine a ray of hope for coronavirus-afflicted ASX banking stocks.

The S&P/ASX 200 Index (Index:^AXJO) 1.8% in early trade. Rising fears of a second wave of COVID-19 cases as the world records 500,000 deaths and 10 million infections will give market bears the upper hand today.

Those desperately searching for some sliver of good news may be encouraged by what Australia’s largest customer-owned lender told the Australian Financial Review.

V-share bank recovery?

CUA undertook a survey of its borrowers. Its chief executive Paul Lewis said more than three-in-five of its customers on COVID-19 assistance are ready to restart payments now.

That’s encouraging as it supports hope of a V-shape economic bounce back given that we are only at the half-way mark for the pandemic assistance packages offered by banks and the government.

Banks offered its customers affected by the pandemic lockdown to defer loan repayments for six months until October.

Bad debt a big thorn in the side

But the move also heightened worries about bad debts when the government’s wage assistance ends at the same time as the loan relief program.

This is one key reason why the Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking GrpLtd (ASX: ANZ) and National Australia Bank Ltd. (ASX: NAB) share prices have tumbled.

The findings by CUA stand in contrast to the feedback that NAB received a few weeks ago. As reported back then, NAB’s boss Ross McEwan said as many as 90% of its customers on loan deferral can’t restart paying their mortgages.

Emerging from the COVID-19 freeze

But as the Australian economy is continuing to emerge from the COVID-19 deep freeze (apart from Victoria), perhaps things are looking brighter now.

However, before you get too excited, there are some caveats to CUA’s upbeat findings. Firstly, credit unions tend to have more conservative lending practices. This means their borrowers tend to be in better financial shape heading into the crisis.

Further, its borrowers are usually older. This is important as the massive job losses have hit younger Australians harder as they are concentrated in industries most affected by the lockdowns, such as hospitality.

CUA also has limited exposure to small business lending, unlike the big four – particularly NAB. Some economists are predicting a wave of small business closures when the government’s JobKeeper and JobSeeker programs end on September 24.

Foolish takeaway

Bad debt is a bigger issue for ASX banks than for credit unions, although it’s the Big Four that wields the market power.

The big banks can outprice smaller lenders as they have a funding advantage and the balance sheet strength (assuming bad debts don’t lift significantly from forecasts).

I believe coming out of the crisis, the big four will have the upper hand. That’s why I own shares in all the big banks.

Now all they have to do is to get through this shorter-term volatility.

More reading

• Are Coles and Woolworths shares back in the buy zone?
• Tassal and 2 more ASX 200 shares to watch this week
• ASX 200 Weekly Wrap: ASX retreats as confidence wanes
• ASX beware: RBA warns on bank loan deferrals
• The best placed ASX stocks for the August reporting season

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, National Australia Bank Limited, and Westpac Banking. 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 Jumbo Interactive Ltd (ASX: JIN) share price has returned from its lengthy suspension and is sinking notably lower this morning.

At the time of writing the lottery ticket seller’s shares are down 9% to $10.39.

Why is the Jumbo share price sinking lower?

Investors have been selling Jumbo’s shares this morning after it announced a new 10-year reseller agreement with Tabcorp Holdings Limited (ASX: TAH).

According to the release, Jumbo and Tabcorp have extended their reseller agreements for New South Wales, Victoria, South Australia, Northern Territory, ACT, and Tasmania (as well as international jurisdictions) until July 2030.

However, given the enlarged scale of Jumbo and the fundamental value of Tabcorp’s lottery licences to it, these agreements will come at a cost.

Jumbo has agreed to pay an upfront extension fee of $15 million for the 10-year term and a service fee of 4.65% of the ticket subscription price.

The latter will be introduced in phases, initially with a service fee of 1.5% in FY 2021. After which, its service fees will increase to 2.5% in FY 2022, 3.5% in FY 2023, and then 4.65% thereafter. Though, should the value of its ticket sales be in excess of $400 million for each applicable financial year, it will pay a pay a service fee of 4.65% on ticket sales beyond that amount.

Western Australia update.

Jumbo also revealed that it is in discussions with Lotterywest in relation to arrangements for its Western Australian customers. These represented approximately $33 million or 10.5% of ticket sales in FY 2019.

Though it warned that there is no guarantee that these discussions will result in any agreement being reached with Lotterywest. Furthermore, if an agreement with Lotterywest cannot be reached, Jumbo will seek alternative options for maximising the value of its Western Australia customer base.

FY 2020 guidance.

Jumbo has reaffirmed its guidance for FY 2020 despite a lower than expected number of large jackpots.

It expects to report ticket sales of $335 million to $341 million and revenue of $68.5 million to $69.9 million. In respect to earnings, it is forecasting earnings before interest, tax, depreciation, and amortisation (EBITDA) of $38.7 million to $40 million and net profit after tax in the range of $24.4 million to $25.3 million.

More reading

• Tassal and 2 more ASX 200 shares to watch this week
• Share price winners and losers of the pandemic
• 5 things to watch on the ASX 200 on Monday
• Where to invest $5,000 in an irrational market
• 5 things to watch on the ASX 200 on Wednesday

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Jumbo Interactive Limited. The Motley Fool Australia owns shares of and has recommended Jumbo Interactive 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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