Tag: Motley Fool Australia

The Archtis Ltd (ASX: AR9) share price has more than doubled in the past week.

Shares in Archtis are trading more than 15% higher for the day, capping an extraordinary week for the company. The Archtis share price closed at 28.5 cents last Tuesday and hit an all-time high of 60 cents earlier today.

Here’s why the Archtis share price is soaring.

What is fuelling the Archtis share price?

Archtis is an Australian-based cyber security technology company that specialises in the safe and secure sharing of classified information. In a bid to commercialise its services, Archtis launched its software-as-a-service (SaaS) Kojensi platform last year to service government, defence and commercial clients.

The company’s quarterly report released in late July has fuelled momentum in the Archtis share price.

In the report, Archtis noted important contract wins for the quarter. The company was able to secure its first defence industry contract for its Kojensi platform with global military system integrator Northrop Grumman. Archtis also secured its first contract in the education and space sector after closing a deal with Curtin University in May.

Archtis management said the new contracts highlighted the demand for the company’s Kojensi platform and demonstrated the commercialisation potential for its products.

The company has also renewed its $400,000 contract with the Australian Government.

Bullish outlook for Archtis

Analysts painted a bullish outlook on the Archtis share price in a recent research report from Lodge Partners. The report said the company was well-positioned to benefit from a range of domestic and international tailwinds such as the growing focus on cyber security.

One potential tailwind is the growth in defence and cybersecurity spending. Analysts noted the Federal Government’s $1.35 billion Cyber Enhanced Situational Awareness and Response package.

In addition, Archtis has also endeavoured to streamline the company’s board to push revenue growth in the future.

Foolish Takeaway

There’s plenty of momentum behind the Archtis share price, which is trading at 54 cents at the time of writing after hitting a record and intraday high if 60 cents earlier today.

More reading

• Analysts back archTIS share price to outperform

Motley Fool contributor Nikhil Gangaram 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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At lunch on Tuesday the S&P/ASX 200 Index (ASX: XJO) is on course to record another strong gain. The benchmark index is currently up 1% to 6,168.8 points.

Here’s what is happening on the market today:

Challenger result and guidance disappoints.

The Challenger Ltd (ASX: CGF) share price has come under pressure on Tuesday after the release of its full year results. For the 12 months, the annuities company posted an 8% decline in normalised net profit before tax to $507 million. This excludes a significant negative investment experience relating to the COVID-19 pandemic market sell-off. Including this, Challenger recorded a statutory loss after tax of $416 million. Looking ahead, in FY 2021 Challenger expects to record a normalised net profit before tax in the range of $390 million to $440 million. This represents a 13.2% to 23% decline year on year.

A2 Milk Company shares lower on after announcing new CEO.

The A2 Milk Company Ltd (ASX: A2M) share price is trading lower on Tuesday after naming its new chief executive officer. The infant formula and fresh milk company has appointed David Bortolussi. He will replace interim CEO Geoffrey Babidge early in the 2021 calendar year. Mr Bortolussi was previously the Group President – International Innerwear, at HanesBrands. He has experience in the China market and also with M&A activities during his time with Fosters.

Sydney Airport to raise $2 billion.

The Sydney Airport Holdings Pty Ltd (ASX: SYD) share price is in a trading halt today after launching a fully underwritten pro rata accelerated renounceable entitlement offer to raise $2 billion. Eligible securityholders will be able to acquire one new Sydney Airport share for every 5.15 shares held at a price of $4.56 per new share. The airport operator is raising funds to strengthen its balance sheet while it navigates an uncertain aviation market. Sydney Airport also revealed a loss after tax of $53.6 million for the first half.

Best and worst ASX 200 shares.

The James Hardie Industries plc (ASX: JHX) share price is the best performer on the ASX 200 on Tuesday with a 5.5% gain. This morning the building materials company posted an adjusted net operating profit (NOPAT) of US$89.3 million for the first quarter. This was in line with the prior corresponding period. The worst performer by some distance has been the Mesoblast limited (ASX: MSB) share price with a massive 20% decline. Investors may be nervous ahead of its meeting with the FDA on Thursday evening.

More reading

• ASX iron ore miners jump on broker upgrades
• Why Bendigo and Adelaide Bank, CIMIC, James Hardie, & Webjet are storming higher
• James Hardie share price jumps 5% after quarterly result
• Why Afterpay, Challenger, IVE Group, & Mesoblast shares are dropping lower
• Sydney Airport to raise $2 billion after COVID-19 profit collapse

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Challenger Limited. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Reckon Limited (ASX: RKN) share price has jumped 8.8% this morning after the software business released its half year results and announced a merger involving its legal group. The rise in the Reckon share price was prompted by resilient results for the six months to 30 June 2020 which reflected growth despite the impact of the COVID-19 pandemic. 

What does Reckon do? 

Reckon’s Business Group provides accounting, payroll, and point of sale software to businesses on a subscription basis. The Practice Management Groups provide practice management software to accounting and legal firms. Running a software-as-a-service (SaaS) business model, Reckon reports that 94% of revenue is now subscription revenue. 

How did Reckon perform? 

Reckon recorded resilient results for 1H20. Group revenue grew by 2% over the prior corresponding period driven by strong growth in the Business Group. The Business Group saw a 6% increase in revenue for the half, with cloud revenue growing strongly. Cloud revenue was up 23% with the number of cloud users reaching 87,000, up 41%. A free payroll app was launched in May and already has over 35,000 users. The paid app launched at the same time has over 2,000 users. Other mobile apps are planned for launch in the second half to continue the cloud/mobile strategy. 

In the accounting Practice Management Group, the customer base showed great stability with Reckon’s product entrenched as a product of choice among major accounting firms. New revenue growth was hampered by the pandemic as the division relies on on-site sales and installation activity. It was a similar situation for the legal Practice Management Group – the customer base was stable but new revenue growth was flattened by COVID-19. Nonetheless, Reckon says the sales pipeline remains strong. 

What about the merger? 

Reckon has announced it will by merging its Legal Group with Zebraworks, a United States based start up developing an integration platform to move legal firms to the cloud. The combined business will target the US legal practice management industry, providing Reckon with the opportunity to expand the smallest part of the group. Reckon will own 70% of the merged entity with all Zebraworks IP and other assets rolled into the merged entity. Reckon CEO Sam Allert said, “We have given serious consideration to the future strategy for the Legal Group and we now are excited to see this come to fruition… We look forward to executing on the potential of the merged entity in a substantial global market.” 

About the Reckon share price

At the time of writing, the Reckon share price is trading at 74 cents which is an 85% increase on its March low of 40 cents. The Reckon share price is, however, still 3.9% down in year-to-date trading.

More reading

• Is the Telstra share price a buy?
• 3 quality ASX shares to buy in August
• The Archtis share price has doubled in a week! Here’s why
• ASX 200 up 1%: Challenger disappoints, Sydney Airport to raise $2bn, a2 Milk names new CEO
• ASX iron ore miners jump on broker upgrades

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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Shares in the major ASX iron ore miners are jumping this morning after brokers upgraded their forecasts for the commodity.

The Rio Tinto Limited (ASX: RIO) share price rallied 1.8% to $103.80, BHP Group Ltd (ASX: BHP) share price added 1.3% to $40.36 and the Fortescue Metals Group Limited (ASX: FMG) gained 1.2% to $18.72 at the time of writing.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) jumped 0.7% as the profit reporting season started a little better than expected.

Iron ore forecasts upgrade

The outperformance of the iron ore miners today comes on the back of an ever-brightening outlook for iron ore.

Bank of America (BoA) upgraded its forecast for the steel-making ingredient through to 2024, reported the Australian Financial Review.

The bank lifted its calendar 2020 estimates to US$96.70 a tonne from US$86 and its 2021 forecast to US$85 from US$71.30.

BoA’s forecast was also increased to US$75 from US$65 in 2022, while its estimates for 2023 and 2024 were revised up to US$71.70 (from US$65.10) and US$68.50 (from US$65.10), respectively.

The price of the ore is currently trading around US$118 a tonne.

What’s driving iron ore upgrade

The two key reasons for the more bullish outlook. The drop in production at Brazilian miner Vale SA due to COVID-19 and robust demand for steel in China.

Meanwhile, JP Morgan turned even more bullish on the commodity as it upgraded its 2021 forecast by 19% to US$100 a tonne. It also upped its 2022 estimates by 10% to US$86.

The broker’s initial worries that the iron ore price will ease as Vale overcomes its production issues have been put aside.

Demand outpacing supply increase

The miner managed to increase output to around one million tonnes a day but JP Morgan thinks this is as good as it will get for the next 12 months.

“The Vale recovery was previously seen as a catalyst to see iron ore prices trade lower,” said the broker.

“However, with the production now back in the market, and iron ore continuing to rally.

“We are now starting to think prices could remain well above cost curve support levels until Simandou comes to market, which could be 5-7yrs away.”

Valuation upgrades for ASX miners

This led to valuation upgrades for the three big ASX miners, although the broker thinks BHP and RIO represents better value than Fortescue.

The FMG share price outperformed with around a 70% jump since the start of the calendar year while the BHP share price and RIO share price are largely flat.

JP Morgan is recommending BHP and RIO as “overweight” (or buy) with a price target of $43 and $120 a share, respectively.

Fortescue is rated “neutral” with a price target of $18.60 a share.

More reading

• ASX 200 up 1%: Challenger disappoints, Sydney Airport to raise $2bn, a2 Milk names new CEO
• Are ASX lithium shares the next big thing?
• 3 tips for beginners investing in ASX shares
• Where is the Bega Cheese share price headed in August?
• Is the Origin Energy share price cheap or will it keep falling?

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. Connect with me on Twitter @brenlau.

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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In late morning trade the S&P/ASX 200 Index (ASX: XJO) is pushing higher again. At the time of writing the benchmark index is up 1% to 6,170.1 points.

Four shares that have climbed more than most today are listed below. Here’s why they are storming higher:

The Bendigo and Adelaide Bank Ltd (ASX: BEN) share price is up 4.5% to $7.18. Investors have been returning to the banks again on Tuesday and driving their shares higher. In addition to this, Bendigo and Adelaide Bank was the subject of a broker note out of Goldman Sachs on Monday. Although the broker only retained its neutral rating, its price target of $8.14 is notably higher than where it trades today.

The CIMIC Group Ltd (ASX: CIM) share price has climbed 4% to $23.65. This follows the second contract update in as many days by the engineering company. According to the release, CIMIC’s CPB Contractors business has been awarded two contracts for resources and water projects located in Western Australia and Queensland. These contracts are worth approximately $128 million in revenue.

The James Hardie Industries plc (ASX: JHX) share price has stormed 5% higher to $31.61. This follows the release of the building materials company’s first quarter update. James Hardie reported an adjusted net operating profit (NOPAT) of US$89.3 million, which was in line with the prior corresponding period. For the full year, James Hardie expects an adjusted NOPAT of US$330 million to US$390 million.

The Webjet Limited (ASX: WEB) share price has jumped 7% to $3.47. A number of travel companies have been pushing higher on Tuesday. Investors may believe the recent weakness in the sector has brought them down to attractive levels. It won’t be long until this is proven to be the case or not. Webjet is scheduled to release its eagerly anticipated full year results on Wednesday 19 August.

More reading

• James Hardie share price jumps 5% after quarterly result
• Earnings preview: What to expect from the Bendigo and Adelaide Bank FY 2020 result
• Why CIMIC, oOh!Media, ResMed, & Resolute shares are dropping lower
• These are the 10 most shorted shares on the ASX
• Is there a bull trap ahead for ASX shares like Webjet?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended 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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At the time of writing, the James Hardie Industries plc (ASX: JHX) share price is up by 5.77% to $31.90 after the company released its quarterly results to 30 June 2020.

What was in the announcement?

According to James Hardie, net sales from ordinary activities were down 5% on the prior corresponding period to US$626.3 million. Net profit after tax was down 89% versus the June quarter of 2019 to US$9.4 million. This came as the company recorded restructuring expenses of $11.1 million and asbestos adjustments of $63.7 million. Operating cash flow was $189.2 million, an increase of 35% on the prior corresponding period.

James Hardie’s earnings before interest and tax for the quarter were US$124.9 million, which was flat compared to the June quarter of 2019. The company also announced adjusted net operating profit of US$89.3 million which was in line with the prior corresponding period. 

James Hardie CEO, Dr Jack Truong, commented on the result:

In February 2019 we launched a global strategy to transform James Hardie from a big, small company to  a small, big company that is capable of delivering growth above market with strong returns, consistently. This is now our fifth consecutive quarter of delivering strong results in-line with the core goal of that strategy: growth above market and strong returns. I am very pleased to note that not only do we remain on-track with our transformation, but we are also accelerating our transformation during the pandemic.

During the first quarter we strengthened our liquidity and financial flexibility, delivering US$189.2 million of operating cash flow, an increase of 35% versus the prior corresponding period. This outstanding cash performance was driven by our strong, profitable sales and significant improvement in our working capital. We increased our liquidity to US$693.1 million and lowered our leverage ratio to 1.65x. We expect to continue to improve liquidity and  the robust execution of our strategic plan during the pandemic.

Dr Truong also admitted that the coronavirus had interrupted markets in which James Hardie operated and had created uncertainty in economies and housing markets. Despite this, he expects adjusted net operating profit after tax to be between US$330 million and US$390 million.

About the James Hardie share price

James Hardie is a global building materials company and is the world’s largest manufacturer of fibre cement products. It is listed on both the New York Stock Exchange and the ASX.

In May, James Hardie suspended its dividend until further notice in order to strengthen the company’s liquidity and to manage market volatility.

The James Hardie share price is up 154% since its 52-week low of $12.54 and has returned 14.45% since the beginning of the year. The James Hardie share price is up 43.23% since this time last year.

More reading

• Why Bendigo and Adelaide Bank, CIMIC, James Hardie, & Webjet are storming higher
• Is the Boral share price next to be hit by M&A action?

Motley Fool contributor Chris Chitty 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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S&P/ASX 200 Index (ASX: XJO) and All Ordinaries (ASX: XAO) lithium shares have been in a progressive downtrend since 2018. The sector is, however, showing signs of life with the Galaxy Resources Limited (ASX: GXY), Orocobre Limited (ASX: ORE) and Pilbara Minerals Ltd (ASX: PLS) share prices all up more than 40% since July. Could this be another one of those disappointing lithium rallies or could they be the next ASX shares to buy? 

Different rally, same story? 

Many ASX lithium shares have more than halved in value since the industry’s peak in 2018. Their fall from grace was driven by increasing concerns of a saturated market, weak consumer demand and a tumbling lithium spot price. ASX lithium shares experienced similar rallies to what we’ve seen recently back in early January and mid May of 2020. Following these sharp share price spikes, however, lithium miners got back to doing what they seem to do best – trending lower. 

Lithium is indeed a very exciting space that’s linked to renewable energy, lithium-ion batteries and, of course, electric vehicles. It’s this excitement that could drive short-term share price increases. However, the ultimate determinant of medium to long-term value is the lithium spot price. This is no different than the importance of the iron ore prices for ASX shares such as BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG). 

Weak lithium demand 

In the Galaxy Resources June quarterly activities report, the company highlighted that the lithium market continues to experience weak demand across the entire lithium value chain. Furthermore, Galaxy Resources advised that the full impact of COVID-19 on sales remains uncertain. Looking over at the Orocobre June quarterly report, the company’s cash costs for the quarter were at a three-year low of US$3,920 per tonne and down 13% on the prior corresponding period (PCP). This signals the company’s focus on efficiency and a reduction of fixed costs. However, the average price received had fallen 19% quarter-on-quarter and 52% on PCP to US$3,920 per tonne. Despite a reduction of costs, the company is selling its lithium at breakeven. Orocobre did comment that the medium to long-term outlook remains positive and continues to be further reinforced with increasing government regulation and funding. Notwithstanding weak spot prices, I believe ASX lithium miners are well capitalised to survive. Galaxy was debt free with cash and financial assets of US$108.6 million and Orocobre had available cash of US$154.9 million as at 30 June. 

Foolish takeaway 

I believe there will be a turning point for this industry in the future. However, until spot prices start improving and demand picks up there are more reliable and consistent ASX growth shares to buy. 

More reading

• 3 tips for beginners investing in ASX shares
• BHP and 2 more ASX dividend shares for beginners
• These were last week’s best performing ASX shares
• These are the 10 most shorted shares on the ASX
• ASX 200 Weekly Wrap: Surging commodity prices snap ASX 200’s losing streak

Motley Fool contributor Lina Lim 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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If you have a spare $2,000 available to help build your ASX share portfolio, there are 2 quality companies that I think are worth considering.

Here’s why Blackmores Limited (ASX: BKL) and Ansell Limited (ASX: ANN) are in my buy zone right now.

Blackmores

Blackmores is a quality ASX share with a familiar brand name. The company’s range of vitamins, minerals and herbal and nutritional supplements now extend beyond Australia and New Zealand to Asia.

The Blackmore’s share price has not performed particularly well in the past 12 months. In fact, it has gone slightly backwards during that time.

Blackmores has experienced strong demand for its immunity products in recent months. However, this has been offset by weaker demand in other areas of its business business. In particular, its Chinese operations have not performed as well as expected.

However, Blackmores now has a new Asian expansion strategy is place. Hopefully, this will better position the company for stronger growth in the year or two ahead. With its share price well below pre-COVID 19 levels in February, now could be a good time for patient investors with a long-term investment horizon to purchase shares in Blackmores. 

Ansell

Ansell manufactures gloves and protective personal equipment in the industrial and medical markets. The company has seen strong demand for its hand and body protection products during the coronavirus pandemic. This product range has been been industry-certified for protection against a range of infections and viruses such as COVID-19.

The strong demand is reflected in a positive upward trend in the Ansell share price in recent months. The Ansell share price has risen from $21.43 on 23 March to $39.84 in mid-morning trade today. That’s an increase of more than 85%.

Despite this strong recent rise, I believe there is still potential for above average shareholder returns in the the next few years. The demand for protective personal equipment in the healthcare segment is only going to rise over the next decade. And Ansell is well-positioned to serve a number of regional markets with its product range. Ansell has an entrenched market position, with sales operations in more than 50 countries around the globe.

Foolish Takeaway

Blackmores and Ansell are both quality ASX shares that I believe would be good additions to your share portfolio right now. Both companies have strong market positions in their operating market and strong growth potential over the next 3 to 5 years.

More reading

• Why Kogan and these ASX shares just hit new record highs
• The ASX stocks that could enjoy a consensus earnings upgrade this reporting season
• Leading brokers name 3 ASX shares to buy today
• CSL and 1 other ASX 200 growth share to buy for long-term growth
• Top ASX Stock Picks for August 2020

Motley Fool contributor Phil Harpur owns shares of Blackmores Limited. The Motley Fool Australia owns shares of and has recommended Blackmores Limited. The Motley Fool Australia has recommended Ansell 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 S&P/ASX 200 Index (ASX: XJO) is on course to record another solid gain on Tuesday. At the time of writing the benchmark index is up 0.7% to 6,152.9 points.

Four shares that have failed to follow the market higher today are listed below. Here’s why they are dropping lower:

The Afterpay Ltd (ASX: APT) share price is down over 3% to $70.13. This decline may have been driven by one of its substantial shareholders selling down its stake. According to a notice, Lone Pine Capital sold around $35 million Afterpay shares during the month of July. Lone Pine Capital appears to have made a large profit on these sales after investing heavily near the bottom in March.

The Challenger Ltd (ASX: CGF) share price is down 3% to $4.20 after the release of its full year results. The annuities company posted an 8% decline in normalised net profit before tax to $507 million and a statutory loss after tax of $416 million. In FY 2021 Challenger expects to record a normalised net profit before tax in the range of $390 million to $440 million. This represents a 13.2% to 23% decline year on year.

The IVE Group Ltd (ASX: IGL) share price has crashed 17.5% lower to 66 cents. This morning the commercial printing company advised that Coles Group Ltd (ASX: COL) will be cease the distribution of its weekly catalogue. This is expected to hit IVE’s revenue by approximately $35 million to $40 million per annum.

The Mesoblast limited (ASX: MSB) share price has plunged 21% lower to $3.85. The biotechnology company’s shares have been sold off today despite there being no news out of it. This could be down to profit taking after some stellar gains over recent months. Alternatively, it could be due to nerves ahead of a meeting with the FDA later this week.

More reading

• 3 tips for beginners investing in ASX shares
• Challenger share price on watch after full year results and FY 2021 guidance
• Up 377% since March: Is the Mesoblast share price a buy?
• If you invested $10,000 in Afterpay shares last year, you’d have this much today…
• Why Kogan and these ASX shares just hit new record highs

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Challenger Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO and 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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The Sydney Airport Holdings Pty Ltd (ASX: SYD) share price won’t be going anywhere on Tuesday after the airport operator requested a trading halt.

Why is the Sydney Airport share price in a trading halt?

This morning Sydney Airport requested a trading halt while it launched a fully underwritten pro rata accelerated renounceable entitlement offer to raise $2 billion.

According to the release, the offer will allow eligible securityholders to acquire one new Sydney Airport stapled security for every 5.15 securities held on the record date at a price of $4.56 per new security.

The offer price will be the same for both institutional and retail securityholders and represents a 13.2% discount to the theoretical ex-entitlement price of $5.26. This is based on the $5.39 closing price of the Sydney Airport share price on 10 August 2020.

Why is Sydney Airport raising funds?

The airport operator is raising funds to strengthen its balance sheet while it navigates an uncertain aviation market.

Sydney Airport Chief Executive Officer, Geoff Culbert, commented: “The equity raising will position Sydney Airport for the future. Sydney Airport took pre-emptive action at the start of the COVID-19 pandemic, putting in place significant liquidity which gave us the flexibility to monitor how the situation evolved. Six months into the pandemic, there remains uncertainty as to how long it will take for aviation markets to return to pre-COVID-19 levels.”

“Accordingly, Sydney Airport is taking further decisive action to strengthen its balance sheet and to help ensure it remains well capitalised to meet the challenges presented by an uncertain COVID-19 operating environment, and to ensure it is positioned for growth in the future,” he added.

Mr Culbert also explained the rationale for raising equity through a renounceable entitlement offer.  

He said: “It is important to note that we chose to raise equity via a renounceable entitlement offer as that is the fairest structure for all securityholders, particularly retail securityholders. Securities will be offered on a pro-rata basis and securityholders who participate will not be diluted, which is important to us given many have been long term investors in Sydney Airport.”

Following the entitlement offer, Sydney Airport’s pro forma net debt position will be significantly reduced from $9.1 billion to $7.1 billion. This means its pro forma net debt to FY 2019 EBITDA will be reduced from 6.8x to 5.3x.

Interim results release.

In addition to the equity raising, Sydney Airport has released its interim results for FY 2020 earlier than planned. 

Sydney Airport posted a loss after tax of $53.6 million for the half year. This was of course driven by a material decline in passenger volumes due to the COVID-19 related traffic restrictions which were implemented progressively from February 2020. For the six months, Sydney Airport welcomed 9.4 million passengers through its gates. This was a 56.6% decline on the prior corresponding period.

One positive was its sizeable reduction in operating costs. They reduced by 20.5% during the first half, with savings tracking in line with its cost reduction plan.

CEO Geoff Culbert said: “We announce our half year results today in a challenging environment. Whilst we delivered a solid start to 2020, the subsequent spread of COVID-19 saw the aviation industry deteriorate dramatically from late February.”

“As an organisation we have adapted rapidly to a new environment and worked hard to tightly manage our costs, strengthen our balance sheet, reach fair and equitable outcomes with our tenants and aviation partners, and implement COVID-safe protocols to protect our passengers and staff,” he concluded.

More reading

• ASX 200 Weekly Wrap: Surging commodity prices snap ASX 200’s losing streak
• Is the Wesfarmers or Rural Funds share price a buy for dividend income?
• Are ASX travel shares like Webjet cheap enough to buy?
• 2 top ASX dividend shares to buy for income in 2020
• Is the oOh!Media share price set to run higher?

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

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