Tag: Motley Fool Australia

One of the best performers on the Australian share market on Thursday has been the Recce Pharmaceuticals Ltd (ASX: RCE) share price.

This morning the pharmaceutical company’s shares rocketed a massive 31% higher to a record high $1.50.

When its shares hit that new record high, it meant they were up a whopping 315% since the start of the year.

Why did the Recce Pharmaceuticals share price rocket higher?

Investors have been fighting to get hold of the company’s shares after it announced an agreement with Path BioAnalytic.

According to the release, the agreement will see the U.S. based precision medicine company study its RECCE 327 and RECCE 529 compounds against SARS CoV-2 – the virus causing COVID-19.

Researchers at Path BioAnalytic will evaluate RECCE 327 and RECCE 529 against SARS-CoV-2 in an ex vivo respiratory organoid model system at the state-of-the-art Biosafety Level 3 containment laboratories of a leading US research university.

Management advised that preliminary data is anticipated to be available in September 2020.

What are these compounds?

RECCE 327 is a broad-spectrum synthetic antibiotic formulated using synthetic polymer technology to treat blood infections and sepsis.

Whereas RECCE 529 is a new synthetic polymer formulation, built upon the company’s anti-infective expertise.

Recce Pharmaceuticals’ Non-Executive Chairman, Dr. John Prendergast, commented: “The current pandemic underscores the need for more effective treatment approaches to prevent infectious diseases. Over the past few months Recce has received a number of expressions of interest from several universities and research organisations to collaborate on the development of potential new therapies to address the unmet needs of patients with COVID19.”

“We’re excited to be working with experts at Path BioAnalytics to investigate the potential effectiveness of Recce’s compounds in treatment of SARS-CoV-2 infection using their advanced respiratory organoid model system,” he added.

Is this the real deal?

While this is promising news, the company has warned investors not to get excited just yet.

It explained: “While Recce is delighted that its compounds have been selected for potential investigational therapies, such selection is not an indication that the compounds are safe or effective for use in treatment of SARS-CoV-2.”

I would suggest investors keep their powder dry and wait for data to be released from the trials before considering an investment.

More reading

• Why PointsBet, Recce Pharmaceuticals, Vocus, & Webjet shares are storming higher
• 2 ASX shares that could be 10-baggers

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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Market research firm Ibisworld recently published its report on the top 10 fastest growing industries in Australia by revenue growth. This list was published for free on their website and measures the revenue growth of more than 750 industries in Australia from 2019–2020. 

Taking out the number one spot on the list, with a massive 12-month revenue growth of 65.8%, is the buy now, pay later sector, or BNPL. We take a closer look at some of the major ASX buy now, pay later shares below. 

Who are the major ASX buy now, pay later players?

Afterpay Ltd (ASX: APT)

Afterpay is arguably the most well known BNPL brand in Australia. Founded in 2017 in Melbourne, Afterpay is a local legend. There aren’t many shop windows left that are missing the Afterpay sticker!

With a market cap of $18.84 billion at the time of writing, Afterpay is a heavyweight. The BNPL giant wasn’t immune to the COVID-19-induced market crash in March this year, however, Afterpay shares have since increased by a staggering 780%+ since their March low. An even larger number is the 2,500% share price gain since Afterpay’s IPO in July 2017 – that’s an impressive 3-year run.

Between March and April this year, Chinese fintech giant Tencent Holdings acquired approximately 5% ownership in Afterpay. Tencent holds a wide variety of positions across many companies with internet-related products. If the share price increase in Afterpay following this substantial holding announcement is anything to go by, investors in Afterpay were pleased with the Chinese interest.

Zip Co Ltd (ASX: Z1P)

There’s a difference between Afterpay and Zip from a consumer point of view. Whilst Afterpay is static on a payment schedule (similar to layby and strictly over 4 fortnight periods), Zip allows consumers to determine their own schedule. This can be an important point of difference for shoppers on a budget.

Additionally, Zip splits its business model into 2 pieces: Zip Pay, for accounts with a limit of $1,000; and Zip Money, for accounts with limits above $1,000. Customers can purchase multiple items across multiple stores and then receive a single monthly invoice from Zip. From here, they can choose to pay the full amount or make custom instalments.

With a market cap of $2.47 billion at the time of writing, Zip Co is much smaller than Afterpay, however still considered a major player in the BNPL industry. Since its IPO in September 2015, Zip Co has provided shareholders with growth to the tune of 2,400%. 

Who are the BNPL ‘up and comers’?

There are a number of smaller BNPL companies listed on the ASX. Too many, in fact, for the confines of a single article, but here’s a look at one that is challenging the big players:

Sezzle Inc (ASX: SZL)

A market cap of $567 million at the time of writing and similar product offerings to Afterpay means that Sezzle is an up-and-coming competitor in the BNPL space. However, a key difference between Afterpay and Sezzle is market share. According to SimilarTech, Afterpay has more website coverage than Sezzle across all categories. 

Market share is not only important to revenue but also simply for brand recognition, so, although Sezzle has experienced impressive growth recently in its share price, in my view it still needs a little more market dominance before it can seriously challenge Afterpay and Zip.

Foolish takeaway

With subtle differences between the BNPL providers and new players coming on the scene, it makes sense to spread an investment in the industry across a few names. While Afterpay might appeal to the younger crowd, Zip offers monthly payment scheduling, which can be the point of difference needed for a salaried consumer.

With BNPL being named this year’s highest revenue growth industry by Ibisworld, the money will likely continue to flow into the sector. I believe investors in ASX buy now, pay later shares can expect pleasing results for the second half of this year and beyond. 

More reading

• 2 ASX shares I’d buy if the market crashes again
• 3 reasons the Openpay share price is better than Afterpay
• ASX 200 jumps almost 2% today, Afterpay rises
• 3 things millennial investors should do in this ASX bull market
• Broker warns Afterpay and these ASX stocks are caught in an overcrowded trade

Motley Fool contributor Glenn Leese 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 owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Sezzle Inc. 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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Over the last few months I’ve been looking at ASX shares with different kinds of moats. There are four main moats outlined by Pat Dorsey in his book The Little Book That Builds Wealth;

• Intangible assets
• Customer switching costs
• The network effect
• Cost advantages

It turns out that there are a lot of fantastic ASX shares that fall into these categories, so I have picked out my five favourite companies with huge moats to own today.

1. Wesfarmers Ltd (ASX: WES)

Almost all of the businesses in the Wesfarmers group are beautiful examples of the low-cost advantage. These include large-scale hardware chain Bunnings and big retail stores Kmart and Target. Bunnings, in particular, is fascinating because it has enormous purchasing power supported by the more than 370 stores it had at 31 December 2019.

The scale of Bunnings stores and their low-cost product offerings means that the sheer volume of sales in the 2019 financial year resulted in a monster return on invested capital (ROIC) of 50.1%!

2. Xero Limited (ASX: XRO)

I already own shares in accounting platform Xero, but would love to own more. Why? Because I think it is a perfect example of a product with high switching costs. Once a customer is set up with Xero, the software becomes deeply embedded into the daily running of their business. It becomes a daunting task to consider shifting to a competitor.

This is reflected in Xero’s customer retention rates. The number of customers that leave Xero is known as ‘churn’ and in the 12 months to 31 March 2020, Xero had an average monthly churn of just 1.13%. This strong customer retention gives Xero a pricing power that it can deploy to counter cost inflation.

3. CSL Limited (ASX: CSL)

At the core of blood product company CSL lies a strong intangible asset moat. Through research and development, as well as acquisitions, CSL holds the rights to produce and sell lifesaving medicines and immunotherapies. The company’s diverse portfolio of products makes the moat far more robust because patents can be challenged and have a finite life.

4. Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) 

Breathing device manufacturer Fisher & Paykel Healthcare is another company supported by a moat of patents which protect its highly sought after masks and CPAP devices. In addition, the company’s low-cost Mexican manufacturing operation increases sales margins to maintain strong profits. No wonder the Fisher & Paykel Healthcare share price has surged more than 130% in the last 12 months.

5. Pushpay Holdings Ltd (ASX: PPH)

Similar to Xero, faith software company Pushpay has created a service which is characterised by strong switching costs. Once Pushpay’s church customers are set up with the software, and the congregation has downloaded the app, it is a time-consuming and disruptive process to change to a competing product. PushPay has been growing strongly and has a revenue retention rate of 97.5%.

More reading

• 3 outstanding ASX 200 shares for retirees to buy today
• Is the Xero share price heading to $100?
• 4 excellent ASX growth shares to buy in FY 2021
• Why these are the top performing ASX 200 shares over the past year
• What moved the Wesfarmers share price in June?

Regan Pearson owns shares of PUSHPAY FPO NZX and Xero.

You can follow him on Twitter @Regan_Invests.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd., PUSHPAY FPO NZX, and Xero. The Motley Fool Australia owns shares of Wesfarmers Limited. 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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In late morning trade the S&P/ASX 200 Index (ASX: XJO) has given back its early gains and is dropping slightly lower. At the time of writing the benchmark index is down a few points to 6,050.2 points.

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

The PointsBet Holdings Ltd (ASX: PBH) share price is up 3% to $5.83 after providing an update on its U.S. business. This morning the sports betting company revealed that it has been issued a temporary operating permit by the Illinois Gaming Board. This approval allows PointsBet to commence retail and online sports betting operations in Illinois. Though, this still remains subject to the company’s partner, Hawthorne Race Course, receiving a Master Sports Wagering Licence.

The Recce Pharmaceuticals Ltd (ASX: RCE) share price has jumped 22% higher to $1.39. This morning the pharmaceutical company announced that it has entered into an agreement with Path BioAnalytics for the study of RECCE 327 and RECCE 529 against SARS CoV-2. Researchers at Path BioAnalytics will evaluate these compounds against the virus causing COVID-19 in an ex vivo respiratory organoid model system.

The Vocus Group Ltd (ASX: VOC) share price is up almost 5% to $3.04. This is despite there being no news out of the telco on Thursday. However, this could be a delayed reaction to a broker note out of UBS released late last week. Its analysts upgraded Vocus’ shares to a buy rating with a $3.60 price target. The broker made the move on valuation grounds.

The Webjet Limited (ASX: WEB) share price has risen 3% to $3.04. Investors appear to have been buying Webjet and fellow travel shares on Thursday after positive coronavirus vaccine news. According to CNBC, peer reviewed data published by the New England Journal of Medicine showed Moderna’s coronavirus vaccine produced a robust immune response in all 45 patients in its early stage human trial. The development of a successful vaccine would be a major positive for travel markets.

More reading

• Why the Recce Pharmaceuticals share price just rocketed 31% higher to a record high
• Should you buy Webjet and these beaten down ASX 200 shares?
• COVID-19 second wave concerns just sent these ASX shares to record highs
• Is the Webjet share price a buy after falling 40% from its June high?
• 2 ASX shares that could be 10-baggers

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 Pointsbet Holdings Ltd. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Pointsbet Holdings 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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Online furniture retailer Temple & Webster Group Ltd (ASX: TPW)’s share price spiralled upwards in June, hitting highs of over $6.50 and closing the month at $6.31 per share. This represents a 37% increase across the month and a whopping 302% up from its lows in March this year.

Since the end of June, the Temple & Webster share price has further accelerated, hitting all-time highs of above $8 on news that it recently completed a $40 million placement and currently trading around $7.75 at the time of writing

The Temple & Webster share price is up almost 192% for the year, impressive considering the 10% drop in the All Ordinaries (INDEXASX: XAO).

What does Temple & Webster do?

Temple & Webster is one of Australia’s largest online retailer of furniture and homewares. The company has seen a spectacular rise since Covid-19 has forced customers to ditch traditional retailers and turn to online-focused businesses like Temple & Webster. The business uses drop shipping, whereby products are sent directly to customers by suppliers.

What drove the Temple & Webster share price up in June?

Temple & Webster has seen its market cap soar to more than $900 million thanks to the company’s impressive growth, which saw the share added to the All Ordinaries Index in its most recent rebalance.

In June, the rebounding market (as Covid-19 cases continued to fall) helped lift the Temple & Webster share price higher. Additionally, the strong trading the online retailer had enjoyed in April and May continued, with its June revenue tracking 100% higher.

A business update released on 18 June was another factor that drove the Temple & Webster share price higher. Some highlights from the release include:

• YTD revenue up 68% to $151.7 million
• YTD earnings before interest, tax, depreciation and amortisation up 668% to $7.1 million
• Active customers up 68% to 440,257.

What now for the Temple & Webster share price

The company has been going from strength to strength in 2020, with Temple & Webster CEO Mark Coulter stating in the June update that he is “bullish about the longer-term shift from offline to online.”

This is encouraging news for shareholders, who will no doubt be sitting happy with the Temple & Webster share price seeing a gain of close to 400% since this time last year.

More reading

• Which ASX shares will benefit from the second lockdown?
• 3 ASX shares to buy before earnings season
• These 2 ASX retail shares have surged higher in 2020
• A surprise ASX share that’s doubled since March
• Why Lovisa, New Hope, Temple & Webster, & Whitehaven Coal are tumbling lower

Daniel Ewing has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia has recommended 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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The S&P/ASX 200 Index (ASX: XJO) and All Ordinaries (ASX: XAO) soared on Wednesday despite continued COVID-19 woes in Victoria and New South Wales. The market remains in a vulnerable state which may present bargain opportunities over the coming weeks or months. Here are two ASX shares I would love to get a hold of at cheaper prices. 

1. Electro Optic Systems Holdings Ltd (ASX: EOS) 

EOS is a leading space and defence player with products and technologies spanning laser, electronics, optronics, telescopes, beam directors and precision mechanisms. The company announced back in April that its pipeline expectations amidst COVID-19 remain unchanged, with increased momentum of acquisition activity in key customer programs. The timing of revenue remains a challenge as $70 million of export revenue and $9 million of EBIT has been deferred relating to contracts with assumed disruption to delivery and payment. 

I believe space and defence are consistent sectors with large clients and which are often backed by significant government projects. On 3 July, EOS announced that it had entered into contract negotiations with the Commonwealth of Australia for its 251 Remote Weapon Stations and related materials. This forms part of the Federal Government’s $270 billion capability upgrade for the Australian Defence Force, under the new 2020 Force Structure Plan. 

In FY19, EOS delivered a 91% increase in revenue driven by customer demand and 194% increase in EBIT. Moving forward, it anticipates FY20 revenues to increase 38% and EBIT to increase 25% on FY19. From a valuation perspective, the company trades at a price-to-earnings (P/E) ratio of approximately 27.9 which I believe is relatively cheap given its growth potential. I feel the company’s continues M&A activity and advancements in space and communication systems businesses make it an exciting ASX share to consider buying.

2. Zip Co Ltd (ASX: Z1P) 

The Zip Co share price has fallen nearly 20% this week following a significant lift in share prices for all buy now, pay later (BNPL) players over recent months. The company provided a quarterly update on Wednesday with solid figures across the board. Zip Co demonstrated its resilience amid the COVID-19 crisis with transaction values increasing 10% on Q3 and strong credit performance from its customers.

Perhaps more importantly, the company’s Quadpay acquisition processed over 1.4 million transactions, up 982% on the same period in 2019. This delivered total transaction volume of US$163 million for the quarter, up 9% QoQ and up 800% YoY. The United States opportunity is very exciting for Zip Co and positions it as a leading ASX growth share. I believe its current market capitalisation and footing in the US market makes it a more reasonable buy than the likes of Afterpay Ltd (ASX: APT). 

More reading

• 3 reasons the Openpay share price is better than Afterpay
• Where to invest your first $500 into ASX shares
• ASX 200 jumps almost 2% today, Afterpay rises
• 3 things millennial investors should do in this ASX bull market
• Broker warns Afterpay and these ASX stocks are caught in an overcrowded trade

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 Electro Optic Systems Holdings Limited and ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Electro Optic Systems Holdings 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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The BWX Ltd (ASX: BWX) share price won’t be going anywhere on Thursday after the personal care products company requested a trading halt.

Why are BWX shares in a trading halt?

BWX requested a trading halt this morning in order to undertake a $50 million equity raising.

Management advised that these funds will be used primarily to develop and construct a new manufacturing facility and support office to support its future growth.

The new facilities, which are expected to cost ~$33.7 million, are expected to be completed in December 2021. After which, management expects them to have a four-year payback period and be earnings per share accretive in FY 2023 and onwards.

BWX Group Chief Operations Officer, Rory Gration, is very positive on these new facilities.

He commented: “This future world-class facility is expected to significantly boost BWX’s in-house manufacturing capacity, capability and competitive advantage; provide up-skilling opportunities for our team; and enhance the ways in which we serve our retail partners, customers, and consumers all over the world.”

“We believe this is an ambitious plan but one that creates further earnings potential to deliver sustainable returns and long-term value creation to shareholders.” he added.

BWX is aiming to raise the funds via a $40 million fully underwritten institutional placement at $3.40 per share (a discount of 7.1% to its last close price) and a $10 million share purchase plan.

Trading update.

In addition to announcing its equity raising, BWX released an update on its performance during FY 2020.

According to the release, BWX delivered a 25% increase in unaudited revenue to $187.6 million, a 30% lift in EBITDA (pre-AASB 16) to $27.5 million, and a 48% jump in statutory net profit after tax to $14.1 million. This was in line with its guidance for FY 2020.

BWX’s CEO and Managing Director, Dave Fenlon, explained: “All core brands performed well and we continued to gain market share, buoyed by their embedded connection with consumers and non-discretionary attributes.”

The chief executive remains positive on the future. He added: “We remain confident in the long-term growth upside across our engine markets of APAC, North America and International, entering FY21 from a position of strength to leverage the wider retail and economic recovery and exploring increased access to China and South East Asia via a direct to consumer model.”

Mr Fenlon also spoke positively about its partnership with supermarket giant Coles Group Ltd (ASX: COL).

“Our exclusive partnership with Coles is one we are proud of and has delivered both considerable growth to Sukin and brought new consumers into our brand,” he concluded.

More reading

• Leading brokers name 3 ASX shares to buy today
• 3 ASX shares that could make a big turnaround
• ABS reveals which industries (and ASX shares) may rebound hard after COVID-19
• 3 top ASX growth shares to buy for FY21
• Top fund manager reveals some of the best ASX shares to own

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BWX Limited. 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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The Zoono Group Ltd (ASX: ZNO) share price has been a poor performer this morning following the release of its fourth quarter.

At the time of writing the biotech company’s shares are down 6% to $2.78.

How did Zoono perform in the fourth quarter?

Zoono’s strong form continued in the fourth quarter thanks to the increasing demand for its antimicrobial solutions during the pandemic.

According to the release, unaudited fourth quarter revenue came in at NZ$20.9 million. This compares to negligible sales in the prior corresponding period and sales of NZ$15.7 million in the third quarter of FY 2020.

During the quarter the company generated positive operating cash flow of NZ$5.3 million, lifting its cash at the bank to NZ$10.3 million.

What were the drivers of its growth?

This impressive quarter was driven partly by strong sales in both the B2B and B2C markets in the ANZ region.

During the period, Zoono signed agreements with Johns Lyng Group Ltd (ASX: JLG) and Qantas Airways Limited (ASX: QAN). The latter has seen Zoono individual wipes become part of the Qantas “Fly Well” programme.

Management also notes significant sales into the childcare and educations sectors and opportunities in aged care and public transport.

Also contributing to its growth was its UK & Europe segment. It generated quarterly revenue of NZ$7.8 million in these markets thanks to channel partners working across facilities management, transport, and healthcare sectors.

The company’s Asia & China segment is also making progress. It recently signed a direct deal with ecommerce giant Alibaba and will open an online store shortly. This will be followed by a TMall flagship store later this year.

Finally, the company has bought out its U.S. distributor and is now selling directly in the country. Its primary goal over the coming years is to grow its North American business. It hopes to replicate the success of its UK business in the lucrative market.

Should you invest?

I’ve been very impressed with Zoono’s transformation over the last 12 months. It has gone from a business fighting for survival to one with explosive sales growth.

However, at this point I believe it is unclear whether these sales will be sustained once the pandemic passes.

In light of this, I think there are too many uncertainties with Zoono for an investment. Especially given its lofty ~$500 million market capitalisation.

More reading

• Millionaire maker increases share price 28 times in FY20

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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The better than expected surge in Goldman Sachs Group Inc’s (NYSE: GS) revenue could lift sentiment and expectations for the Macquarie Group Ltd (ASX: MQG) share price.

But the good results may have the opposite effect on our big four ASX banks. I’ll explain later.

The US investment bank posted a 41% jump in quarterly revenue to US$13.3 billion ($19 billion), it’s second highest on record, reported CNN.

While there’s a risk in extrapolating one offshore bank’s results to an ASX entity, a breakdown of Goldman Sachs’ earnings drivers in the June quarter bodes well for our home-grown millionaire factory.

The tale of two banks

Goldman’s top-line figure was 36% ahead of consensus, while its earnings per share of US$6.26 was nearly double what the market was expecting.

This stands in sharp contrast to many of its peers that have posted weak results, including JPMorgan Chase.

The key difference is that Goldman is more leveraged to capital markets and less to the so called “Main Street” business, which includes loans.

Leverage to capital markets

The surge in the share market and volatile trading conditions across a wide range of securities ranging from credit to commodities gave the bank a big lift.

You could say Goldman’s chief executive David Solomon owes the US Federal Reserve a big one. Record low interest rates and vast amounts of liquidity that’s pumped into financial markets have been credited for the sharp rebound in risk assets since the COVID-19 mayhem.

However, the real economy continues to tank and consumers and businesses are struggling to repay loans.

It’s a good thing that Goldman has little exposure to the weak areas of the economy.

Positive signs for Macquarie’s share price

Coming to Macquarie, I think there’s a chance the bank could overdeliver when it hands in its earnings report card in August.

While it’s expansion into home loans looks poorly timed with the benefit of hindsight, its capital markets and trading businesses should more than offset any weakness in its loans business.

Let’s also not forget the wave of capital raisings on the ASX, which investment banks like Macquarie collects lucrative fees off.

Good for Macquarie, bad for big four banks

Also, I believe the big four banks have been more aggressively winning share of the local home loan market at the expense of their smaller rivals with generous offers. This could have capped Macquarie’s exposure to this market.

The risk of rising bad debts is a key reason why the Westpac Banking Corp (ASX: WBC) share price, Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price and National Australia Bank Ltd. (ASX: NAB) share price have been underperforming.

The Commonwealth Bank of Australia (ASX: CBA) share price is also under pressure although it’s holding its ground better due to its stronger balance sheet.

CBA is the only one of the big four domestic banks that will report its full year results next month. Investors will be keenly watching both CBA and Macquarie.

More reading

• Why I would buy BHP and CBA shares for dividends
• Amplia Therapeutics share price up 16% in 2 days as former Macquarie CEO takes substantial stake
• ASX 200 jumps 1.3%: Big four banks drop lower, Afterpay up after U.S. update
• Biggest dividend cuts in 10 years to hit ASX investors next month
• This could be a problem for the Afterpay share price

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, Macquarie Group Limited, National Australia Bank Limited, and Westpac Banking. Connect with me on Twitter @brenlau.

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

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The Data#3 Limited (ASX: DTL) share price is on watch this morning after the technology company reported it expects another record full year result. Data#3 advised that consolidated net profit before tax for FY20 is expected to be approximately $34 million, up from $26.6 million in FY19. 

What does Data#3 do? 

Data#3 delivers technology solutions spanning cloud, mobility, security, data and analytics, and IT life cycle management. It offers services across consulting, procurement, projects, resourcing, and managed services. Headquartered in Brisbane, the company has facilities across 12 locations in Australia and Fiji. Now the largest enterprise software supplier in the Asia Pacific, Data#3 targets enterprise and government customers. 

How has Data#3 been performing? 

In 1HFY20, Data#3’s sales revenue increased 11.6% to $718.9 million with gross profit up 7.7% to $88.6 million. Sustained revenue growth was boosted by digital transformation projects and cloud-based solutions. Total revenue included $251.9 million in public cloud revenues, a 76.5% increase on the prior corresponding period. 

Net profit after tax increased 41.5% to $8.7 million in the first half of FY20. This led to a 41.5% increase in earnings per share, which reached 5.65 cents. The board declared an interim dividend of 5.1 cents per share, an increase of 41.7% on the prior corresponding period. This represented a payout ratio of 90.3%. 

Data#3 has seen sustained earnings growth since FY18, with NPAT increasing from $2.7 million in 1H FY18 to $8.7 million in the most recent half. Over the same period, the interim dividend has increased from 1.6 cents per share to 5.1 cents. The company reports it has a strong balance sheet with no material borrowings. 

What’s next for the Data#3 share price?

Today, Data#3 announced it is expecting a record full year result, with consolidated net profit before tax expected to grow 28% to $34 million. A solid pipeline of integration projects across hardware, software, and services contributed to the result. Data#3 sees strong growth in the Australian IT market, with digital technologies leading business transformation in both commercial and public sectors. The company believes it is well positioned to capitalise on these opportunities. 

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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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