Stock Pick

  • Millennials be warned! Signs of dangerous ASX share trading grow

    Banknotes floating in front of a graphic representation of the share market

    It’s a tale as old as time. Good times breed great times that bring exuberance, followed by pain. It’s your classic asset bubble that we’ve witnessed through the centuries. No asset, be it shares in 1999, bitcoin in 2017, or tulips in 1636, are exempt.

    Now, just to be clear, I don’t think the S&P/ASX 200 Index (ASX: XJO) or, indeed, the US markets like the Dow Jones are anything close to true ‘bubble’ territory.

    But I do think we are starting to see signs of what former Federal Reserve chair, Alan Greenspan would call “irrational exuberance”.

    According to reporting in the Australian Financial Review (AFR), ASX share trading surged on investment platforms like Commonwealth Bank of Australia (ASX: CBA)’s CommSec over the past few months. Millennials also displayed the highest activity on the platform. And it’s not just Aussies getting amongst it. The AFR reports that American users of the popular-with-millennials US brokerage company, Robinhood surged by 70% in March.

    It’s an interesting phenomenon to see. Conventional wisdom dictates that market crashes translate into a rise in despondency towards stocks as an asset class – with investors burnt by falling prices reluctant to jump back in.

    ASX shares in a bubble

    Why is this? Well, in my opinion, it’s the nature of the market swings we have seen this year. The bear market we saw between 20 February and 23 March was almost perfect in the way it was consistent and steep. The bull market that has been in play ever since 23 March has been equally perfect in that share prices have gone up in almost a straight line.

    This, in turn, has made it relatively easy to jump back into shares at any time over the past 2 months and make money.

    The AFR reports that the top shares traded on CommSec over 9-10 June were Flight Centre Travel Group Ltd (ASX: FLT) and Zip Co Ltd (ASX: Z1P). Forget about the ASX blue chips. Apparently these businesses are the companies investors want in their long-term portfolios. Any coincidence that Flight Centre shares were up more than 100% between April and 10 June? Or that Zip Co shares were up more than 470% between March and 10 June? Probably not.

    In the US we have seen far worse signs of exuberant, ‘bubbly’ behaviour. For example, shares of US car rental company, Hertz Global Holdings Inc (NYSE: HTZ) have ballooned more than 800% between 26 May and 8 June – despite Hertz filing for bankruptcy in between. There’s a similar story going on with Nikola Corporation (NASDAQ: NKLA), a potential rival to the electric car maker, Tesla Inc (NASDAQ: TSLA). Nikola shares shot up more than 400% between 1 May and 10 June for no solid reason.

    This data tells us that these ‘new traders’ entering the market are looking for easy money, which has been delivered to them in spades so far. Making 470% in 2 months is enough to give anyone a healthy dose of irrational exuberance, in my view. 

    Foolish takeaway

    Yes, market crashes do give investors a phenomenal opportunity to pick up shares at great prices. But the wise words of Warren Buffett come to mind in this situation: “don’t even think about owning a stock for 10 minutes if you don’t plan on holding it for 10 years”.

    So, I would caution any investor out there to avoid these ‘hype-train’ stocks and keep a long-term investing mindset present at all times.

    History shows us that bubbles and irrational exuberance always ends in tears – and I’m seeing signs of some very irrational behaviour right now. 

    For some shares that I’m watching, make sure you check out the report below!

    5 ASX stocks under $5

    One trick to potentially generating life-changing wealth from the stock market is to buy early-stage growth companies when their share prices still look dirt cheap.

    Motley Fool’s resident tech stock expert Dr. Anirban Mahanti has identified 5 stocks he thinks are screaming buys. And you can buy them now for less than $5 a share!

    Learn More

    *Extreme Opportunities returns as of June 5th 2020

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    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 has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

    The post Millennials be warned! Signs of dangerous ASX share trading grow appeared first on Motley Fool Australia.

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  • Are Zip Co shares too expensive?

    man hitting digital screen saying buy now pay later

    The Zip Co Ltd (ASX: Z1P) share price has soared 64.5% in June. The company is undergoing a $200 million capital raising to acquire United States-based buy now, pay later (BNPL) provider, QuadPay. But is the Zip Co share price getting too expensive? 

    Q3 highlights 

    Zip Co provided the market with an update for the month ending 31 May 2020. The company highlighted a 78% year on year increase in monthly revenue and a 63% increase in active customers to 2.1 million. Furthermore Zip Co reported a 46% increase in active merchants to 23,600. I think these numbers are pretty impressive. I also think the company’s strong performance should continue due to the change in consumer behaviour resulting from COVID-19. 

    Zip Co’s business update commented on the shift away from cash to digital payments that has occurred throughout the pandemic. The company also anticipates eCommerce penetration to remain at elevated levels post COVID-19 as more consumers gain familiarity with shopping online and retailers invest significantly in this space. These trends represent considerable tailwinds for BNPL and digital payment operators like Zip Co.

    QuadPay highlights 

    I believe the QuadPay acquisition is a game changer for the Zip Co share price. This is a compelling investment proposition that transforms Zip Co from a domestic BNPL player to a global BNPL leader. Post completion, the combined group will have operations across Australia, New Zealand, the US, the United Kingdom and South Africa. Zip Co will have a combined annualised total transaction value of $3.0 billion and annualised revenue of $250 million. It will also boast 3.5 million customers and 26,200 merchants. 

    The QuadPay acquisition will immediately elevate all of Zip Co’s key reporting metrics and its existing scale. It will also ramp up the company’s growth potential in the world’s largest retail market. QuadPay currently has an existing customer base of 1.5 million, over 3,500 merchants and annualised revenue of $70 million for the quarter ending March 2020. QuadPay allows customers to split their purchase into 4 instalments spread over 6 weeks, interest free. The merchant gets paid upfront with risk and fraud liability absorbed. What makes QuadPay unique is its ‘Anywhere App’ that enables customers to pay in instalments in store or online at any merchant.

    Zip Co’s acquisition will be funded with $100 million in convertible notes and up to $100 million in warrants. This will mean Zip Co shares will be progressively diluted by $10 million every six months as the notes convert into shares. The capital will be provided by an affiliate of Susquehanna International Group, one of the largest privately-held financial services firms in the world. The company has an established track record of investing in high-growth companies including the parent company of Tik Tok, Bytedance. 

    Foolish takeaway 

    I believe QuadPay is a transformational acquisition that takes the growth potential of the Zip Co share price to the next level. Zip Co has entered the largest retail market in the world with a genuinely innovative product. While investors could wait for its share to possibly become cheaper, I would certainly be watching it closely. 

    If you feel Zip Co shares are overpriced, check out our free report below for some high quality, cheap shares.

    5 stocks under $5

    We hear it over and over from investors, “I wish I had bought Altium or Afterpay when they were first recommended by The Motley Fool. I’d be sitting on a gold mine!” And it’s true.

    And while Altium and Afterpay have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $5 a share!

    Learn More

    *Extreme Opportunities returns as of June 5th 2020

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    Lina Lim 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 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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  • Afterpay share price hits record high on Apple Pay partnership

    afterpay share price

    Earlier today the Afterpay Ltd (ASX: APT) share price continued its meteoric rise and stormed higher again.

    The payments company’s shares rose 3% to hit a record high of $59.64.

    Why is the Afterpay share price rising again?

    There have been a couple of potential catalysts for Afterpay’s share price rise on Thursday.

    The first is a broker note out of Ord Minnett this morning which reveals that its analysts believe the buy now pay later provider’s shares can go higher from here.

    According to the note, the broker has retained its buy rating and almost doubled its price target to $64.70.

    It believes that Afterpay could end the financial year with almost 10 million active customers.

    Apple Pay integration.

    Another possible catalyst is the company’s integration with Apple Pay.

    Although it has been a couple of weeks since the company actually partnered with Apple, it was only today that it emailed customers to advise them of the integration.

    This appears to be good timing by the company ahead of its push into the U.S. bricks and mortar retail market.

    While the Afterpay app is easy enough to use for transactions, it is still no comparison to using Apple Pay, which is effortlessly simple. I feel making the process as easy as possible when entering the offline U.S. market could be key to increasing its adoption and usage.

    Is the Afterpay share price in the buy zone?

    I still believe Afterpay is a buy for investors that are intending on holding its shares for the long time.

    Given the increasing popularity of the payment method, its massive opportunity in a $5 trillion U.S. retail market, and possible expansions into mainland Europe and Asia in the future, I feel Afterpay has the potential to grow enormously over the next decade and become a real force in the payments industry.

    Though, given its high valuation, I think it would be prudent to limit an investment to just a small part of a balanced portfolio.

    Missed out on Afterpay’s gains? Then you won’t want to miss the top shares recommended below…

    5 stocks under $5

    We hear it over and over from investors, “I wish I had bought Altium or Afterpay when they were first recommended by The Motley Fool. I’d be sitting on a gold mine!” And it’s true.

    And while Altium and Afterpay have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $5 a share!

    Learn More

    *Extreme Opportunities returns as of June 5th 2020

    More reading

    Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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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  • Start your investment journey with a $2,500 investment in these ASX shares

    Making a decision at a crossroads

    If you’re just starting out with investing, you may not have tens of thousands of dollars to invest into the share market.

    But I wouldn’t let that put you off starting your investment journey. This is because even small investments can grow into something meaningful over a long enough timeframe thanks to compounding.

    For example, $2,500 invested in the share market each year for 20 years and earning a 10% return would grow into almost $160,000.

    And if you’re able to increase your level of investments as the years go by and your earnings increase, you could grow your wealth materially more.

    But which shares should you start with? I think you would be best looking long term and at companies which have the potential to grow their earnings strongly.

    Two that tick a lot of boxes for me are listed below. Here’s why I would invest $2,500 into them:

    Nearmap Ltd (ASX: NEA)

    I think this growing aerial imagery technology and location data company could be a great place to invest $2,500. Nearmap provides high resolution aerial imagery, city-scale 3D datasets, and integrated geospatial tools to businesses. It has a massive opportunity in a highly fragmented market and looks well-placed to grow it market share significantly over the next decade thanks to its high quality product offering.

    Pushpay Holdings Group Ltd (ASX: PPH)

    Another ASX share to consider investing these funds into is Pushpay. It is a donor management platform provider which is well-positioned to benefit from the digitisation of giving and the shift to a cashless society. It is aiming to capture a 50% share of the medium to large church market in the future, which represents a US$1 billion opportunity. If it delivers on this target, which I suspect it will, then it should drive strong earnings growth over the next decade.

    And here are more exciting shares which could be stars of the future and great options for that $2,500…

    5 stocks under $5

    We hear it over and over from investors, “I wish I had bought Altium or Afterpay when they were first recommended by The Motley Fool. I’d be sitting on a gold mine!” And it’s true.

    And while Altium and Afterpay have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $5 a share!

    Learn More

    *Extreme Opportunities returns as of June 5th 2020

    More reading

    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 Nearmap Ltd. The Motley Fool Australia owns shares of and has recommended PUSHPAY FPO NZX. 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.

    The post Start your investment journey with a $2,500 investment in these ASX shares appeared first on Motley Fool Australia.

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  • Torpedoed by the Corona Crisis, Can Cruise Lines Recover?

    Torpedoed by the Corona Crisis, Can Cruise Lines Recover?It’s no great secret that cruise line stocks have been some of the biggest victims of the COVID-19 pandemic.From a mid-January high near $52 a share, Carnival Corporation (CCL) stock lost nearly 82% of its value through mid-March! Royal Caribbean (RCL) was about as hard-hit, falling 83% the same time period. And Norwegian Cruise Line (NCLH), perceived to be the weakest of the three big publicly-traded cruisers, lost a staggering 87%.More than just victims of consumers unable to cruise because they were stuck at home under stay-at-home orders, or unable to serve patrons because individual state governments had told them to close their doors, cruise lines were actually forbidden to do what they do — cruise — by order of the federal government, and subjected to a blanket “no sail” order from the U.S. Centers for Disease Control (CDC), instructing them not to leave port before late July.And yet, as state governments across the U.S. began gradually to reopen, investors have begun regaining hope that these cruise lines will in fact resume sailing at some point in the future, even as capital raises by the companies have raised hopes they can remain solvent long enough to wait that long. Thus, since mid-May, observes J.P. Morgan analyst Brandt Montour, “cruise shares are up ~75% vs. the SPX +11%.”Is this a reasonable expectation? And what are the chances that cruise line stocks will go up some more?In Montour’s estimation, the answers to these questions depend on a whole series of factors, chief among them “load factors.” Given the high fixed costs of the cruise business (luxury liners cost a lot of money to build, and then more money to maintain, fuel, and staff), Montour admits that the timing of the CDC lifting its no sail order matters, and the prices cruise lines charge for their tickets matter, and profit margins matter, too — but because it takes a lot of passengers renting a lot of cabins to cover a cruise line’s fixed costs, occupancy rates matter most of all.Currently, cruise lines appear to be betting on a resumption of sailing by late summer (Montour estimates “August/September”) and a return to “near-full occupancy” by 2021. Montour thinks this, too, is a reasonable assumption, given consumers’ demonstrated “surprisingly high risk-tolerance” (see any newspaper headline on summer crowds from the past few weeks) and the apparent “pent-up demand for vacationing … broadly.”Granted, “common sense indicates” that getting back to 100% occupancy rates “will be difficult without a vaccine.” But with more than 100 different coronavirus vaccines now in development, and governments around the world pushing vaccine developers to accelerate their work, the chances look good that something should be available on the vaccine front relatively early next year. And in that case, it’s at least plausible that cruising will resume in 2021, and that occupancy levels could approach 100% as consumers gain more confidence in its effectiveness.Just to be safe, though, Montour is predicting 100% occupancy won’t be reached “across operators” before 2022, and advising investors to “accumulate shares below current levels.” He doesn’t hold out much hope that stock prices will get too much cheaper, however, setting a price target of $20 on Carnival stock (which currently costs $19 and change), $24 price target for Norwegian Cruise (which costs $19.20 now), and $72 stock-price forecast for Royal Caribbean (which currently costs $58).Given these guesstimates, it’s unsurprising that he says J.P. Morgan prefers “RCL and NCLH over CCL.”To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights. More recent articles from Smarter Analyst: * HSBC Resumes Plans To Cut 35,000 Jobs Postponed By Pandemic * Oracle Sinks Post-Earnings As Cloud Push Drags On * Novartis Scores FDA Ilaris Approval For Rare Type Of Arthritis * KKR-Led Consortium Buys 6% Stake In Vietnam’s Vinhomes For $650 Million

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  • Top brokers name 3 ASX 200 shares to sell today

    On Wednesday I looked at three ASX shares that brokers have given buy ratings to this week.

    Unfortunately, not all shares are in favour with them right now. Three ASX 200 shares that have just been given sell ratings by brokers are listed below.

    Here’s why these brokers are bearish on them:

    Fisher & Paykel Healthcare Corp Ltd (ASX: FPH)

    According to a note out of UBS, its analysts have retained their sell rating but lifted their price target on this medical device company’s shares to NZ$18.20 (A$17.09). While the broker acknowledges that Fisher & Paykel Healthcare will have been benefiting during the pandemic, it doesn’t appear convinced it will be as much as its share price implies. In light of this, it has retained its sell rating, largely on valuation grounds. The Fisher & Paykel Healthcare share price is trading notably higher than this price target at $26.84 this afternoon.

    InvoCare Limited (ASX: IVC)

    A note out of the Macquarie equities desk reveals that its analysts have downgraded this funerals company’s shares to an underperform rating and cut the price target on them to $10.20. Macquarie believes there is a risk of InvoCare falling short of expectations in FY 2020. It notes that its research is indicating that the company is losing market share. In addition to this, it suspects there will be lower deaths during the current flu season because of social distancing initiatives. The InvoCare share price is trading at $11.12 at the time of writing.

    Regis Resources Limited (ASX: RRL)

    Analysts at Ord Minnett have downgraded this gold miner’s shares to a sell rating with a $4.10 price target. According to the note, the broker made the move on valuation grounds after a strong share price gain over the last three months. Prior to today, the Regis share price was up over 130% in the space of just three months thanks to a strong gold price. Regis’ shares are currently changing hands for $5.08.

    Those may be the shares to sell, but these are the shares that analysts have given buy ratings to…

    3 “Double Down” Stocks To Ride The Bull Market

    Motley Fool resident tech stock expert Dr. Anirban Mahanti has stumbled upon three under-the-radar stock picks he believes could be some of the greatest discoveries of his investing career.

    He’s so confident in their future prospects that he has issued “double down” buy alerts on each of these three stocks to members of his Motley Fool Extreme Opportunities stock picking service.

    See the Double Down Stocks

    *Extreme Opportunities returns as of June 5th 2020

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    Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended InvoCare 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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  • Lili CEO on the future of digital banking

    Lili CEO on the future of digital bankingLili, an all-in-one-banking app designed for freelance workers, recently announced that it raised a $10M seed funding round, which was led by Group 11, with major participation from Foundation Capital, AltaIR Capital, Primary Venture Partners and Torch Capital. Founder and CEO Lilac Bar David discusses what’s next for her company, as well as the future of digital banking.

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  • ASX stock of the day: The AFG share price surged 16% after merger clearance

    model house and reducing stacks of coins with percentages, house prices asx

    The Australian Finance Group Ltd (ASX: AFG) share price has leapt 16% this morning following the announcement the ACCC will grant clearance for its merger with rival Connective. Both businesses will become better positioned to invest in digital technologies and innovation in the face of digital disruption faced by the sector. 

    What does AFG do?

    AFG is one of Australia’s largest mortgage broking groups and was established in 1994. It began as a mortgage aggregator which provides mortgage brokers access to products and support. It now offers business finance, insurance products, and AFG-branded and securitised products throughout Australia. 

    What is the Connective merger?

    AFG proposed to merge with competitor, Connective. The combination would create Australia’s largest mortgage aggregator by a significant margin, accounting for almost 40% of Australia-operating mortgage brokers. More than half of all home loans written each year are initiated through the broker channel. 

    After the merger, the AFG and Connective brands intend to operate separately. The transaction is also subject to court approval with a final decision likely in the second half of FY20. 

    How is the AFG share price performing?

    The AFG share price has more than doubled from its March low of 92 cents with shares currently trading at $1.96. AFG entered the S&P/ASX 300 (ASX: XKO) in the most recent quarterly rebalance due to this increase.   

    AFG announced in its most recent update that April operating results had been strong. However, COVID-19 is expected to create some economic uncertainty. Lodgements and settlements could experience adverse effects on 1H FY21. Lodgements in the March quarter were up 33% on the previous corresponding period, driven by record-low interest rates. 

    Nonetheless, residential settlements are expected to fall in coming months driven by a slowdown in broader economic activity. This will result in upfront commissions payments softening. Operating cash flow from existing trail commission arrangements on AFG’s $151.7 billion trail book will, however, continue. 

    Foolish takeaway 

    AFG’s merger will provide a strong base to benefit from an eventual recovery, despite the Australian mortgage market being expected to feel a downturn as a result of COVID-19. 

    Looking for cheap shares to consider for your portfolio? Have a read of the below report.

    3 “Double Down” Stocks To Ride The Bull Market

    Motley Fool resident tech stock expert Dr. Anirban Mahanti has stumbled upon three under-the-radar stock picks he believes could be some of the greatest discoveries of his investing career.

    He’s so confident in their future prospects that he has issued “double down” buy alerts on each of these three stocks to members of his Motley Fool Extreme Opportunities stock picking service.

    See the Double Down Stocks

    *Extreme Opportunities returns as of June 5th 2020

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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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  • Why the Infinity Lithium share price is skyrocketing 92% today

    share price higher

    The Infinity Lithium Corporation Ltd (ASX: INF) share price is skyrocketing today after the company provided a European funding update.

    At the time of writing, Infinity Lithium shares are flying 91.67% higher to 11.5 cents per share. With this rise, Infinity Lithium’s current market capitalisation stands at around $27 million.

    Infinity Lithium is a minerals company focused on developing its 75%-owned San José Lithium Project and produce battery-grade lithium hydroxide in Spain.

    The San José deposit is an advanced, previously mined brownfield development opportunity located in Extremadura, Spain. It is the second-largest JORC hard rock lithium deposit in the European Union (EU).

    Why is the Infinity Lithium share price skyrocketing?

    This morning, Infinity Lithium announced it has executed binding agreements for multi-stage funding from the EU-backed public-private partnership EIT InnoEnergy.

    While Infinity Lithium revealed details of the funding in March, back then the deal was only at the memorandum of understanding stage.

    Infinity’s San José Lithium Project is the first lithium project in Europe to secure funding from EIT InnoEnergy. The funding includes a staged amount of up to €800,000 to support the project’s first phase of feasibility study test work.

    Following this, EIT InnoEnergy will leverage the European Battery Alliance (EBA) network to facilitate the funding for phase two, with an investment of up to €2.4 million. Phase two involves the construction of the pilot plant at San José.

    This funding also comes with an assistance agreement to support fundraising activities for up to €300 million in debt and equity to fund the development of the San José project.

    Commenting on today’s update, managing director Ryan Parkin said:

    “The Board of Infinity is delighted to announce the completion of these multi-level agreements, highlighted by the financial endorsement of the San José Project through the funding by EIT InnoEnergy.”

    “This multi-level collaboration will see San José benefit through exposure to EIT InnoEnergy and the EBA’s vast European network as the EU focuses on the essential requirement to secure lithium chemicals and develop an integrated lithium-ion battery value chain.”

    With a market cap less than $30 million, if you’d rather invest in larger and more liquid companies, check out the highly-recommended ASX growth shares in the report below.

    3 “Double Down” stocks to ride the bull market higher

    Motley Fool resident tech stock expert Dr. Anirban Mahanti has identified three stocks he thinks can ride the bull market even higher, potentially supercharging your wealth in 2020 and beyond.

    Doc Mahanti likes them so much he has issued “double down” buy alerts on all three stocks to members of his Motley Fool Extreme Opportunities stock picking service.

    See the Double Down Stocks

    *Extreme Opportunities returns as of June 5th 2020

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    Motley Fool contributor Cathryn Goh 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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  • Why the Boral share price could be set for more growth in FY21

    model construction workers working on increasing pile of coins, asx 200 building shares, boral share price

    The Boral Limited (ASX: BLD) share price is on the move again this week, continuing the resurgence of the blue-chip building material and construction juggernaut since it bottomed out at $1.68 in March. Despite being down 2.79% at the time of writing, Boral’s current share price of $3.66 represents a 117% gain on its March low.

    There’s no denying the company has underperformed in recent years, exemplified through multiple earnings downgrades and the ‘financial irregularities’ scandal of its American windows business. Despite this, here are 3 reasons why I remain bullish that Boral will turn the corner in FY21.

    Management shake-up

    In my opinion, the role management plays in the overall success or failure of a business is crucial. This is strongly endorsed by Jim Collins in his renowned management book Good to Great. Collins argues that getting the right people in the right seats on the bus – and getting the wrong people off the bus – is essential for a company’s broader financial success.

    Boral is going through significant changes in management, as the old guard under current CEO Mike Kane departs and a new era is ushered in. Various changes to the management team of its troubled North American operations were announced last month.

    This week, the highly anticipated appointment of Zlatko Todorcevski as the incoming CEO was also confirmed. In its statement to the market, the company revealed Todorcevski has 3 decades of experience in finance, business planning and strategy across several industries, and has maintained senior positions in Brambles Limited (ASX: BXB), Oil Search Limited (ASX: OSH), and BHP Group Ltd (ASX: BHP).

    Furthermore, the recent 10% stake taken in the company by Seven Group Holdings Ltd (ASX: SVW) is likely to include a fresh face in Boral’s boardroom. Overall, I’m optimistic these changes may provide the company with reinvigorated energy to navigate the present economic environment. To extend the Jim Collins’ metaphor, Boral seems to be making the necessary management changes to get the bus back to full speed, and that will likely enhance the company’s financial performance in the coming years. This period of transition may be an ideal buying opportunity for prospective investors.

    Shoring up its liquidity

    The COVID-19 pandemic has reiterated the importance of robust company cashflow in all industries, but the construction and materials sector has been one of the hardest hit. Consequently, Boral’s liquidity has faced substantial scrutiny, leading to the company bolstering its balance sheet through various debt mechanisms.

    These encompass a US private placement note issue of US$200 million, as well as various bilateral bank loan facilities including a $365 million, two-year debt obligation. These additional debts have allowed the company to bolster its balance sheet, which now holds $1.3 billion of cash and undrawn funds combined. Coupled with its expanded debt-financing campaign, Boral has been proactive in mitigating its capital expenditure by 15–20% this financial year, a strategic decision estimated to save up to $330 million.

    With debt at relatively inexpensive levels due to the low interest-rate environment in Australia and globally, I like Boral’s decision to increase its cash on hand and improve its liquidity on the books. And as an added bonus for shareholders, the company’s decision not to utilise an equity capital raising has ensured no further dilution of its share price.

    Having boosted its short-term cash flow, Boral seems well-placed to emerge from COVID-19 relatively unscathed financially. This should enable the company to maximise its profitability from new government projects heading its way.

    Government-led infrastructure projects

    Having recognised the lull in the construction industry, the federal government’s new JobMaker economic recovery plans will arguably send the Boral share price higher yet.

    Earlier this week, prime minister Scott Morrison announced 15 key infrastructure projects that are being prioritised to facilitate jobs growth and spur economic productivity. According to an ABC article, these projects include the Snowy Mountains 2.0 scheme and a $10 billion inland rail project from Melbourne to Brisbane.

    The government has also provided a $25,000 incentive for people to build or renovate their homes. This will further boost a national construction sector lagging in 2020 thus far.

    As the premier supplier of construction materials, I think plenty of government and household work might be heading Boral’s way in FY21. At a time when large-scale projects are drying up left and right, Morrison’s infrastructure plans may be the lifeline the company needs to increase its revenue and unlock further returns for shareholders in the year ahead.

    Foolish takeaway

    Having watched this company’s share price claw back the majority of its losses in the past month or two, some prospective investors may feel they’ve missed the chance to get on the Boral bus.

    Nonetheless, I think the shake-up in management may bring with it new ambition to take the company in a new direction, and this may favourably coincide with post-COVID government infrastructure projects being accelerated.

    Overall, I think Boral has the necessary liquidity and successful track-record to deliver for shareholders in FY21 and beyond.

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    Motley Fool contributor Toby Thomas owns shares of Boral Limited. 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 the Boral share price could be set for more growth in FY21 appeared first on Motley Fool Australia.

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