Tag: Motley Fool Australia

I like to keep a close eye on ASX shares that brokers are giving buy ratings to and the reasons behind their bullish attitudes for those views.

Here are 3 ASX shares the experts are tagging as outperformers in the coming months.

City Chic Collective Ltd (ASX: CCX)

Leading broker Macquarie has placed a price target of $4.21 on the fashion retailer, which would provide prospective investors with approximately a 25% return at the current price of $3.37.

Macquarie analysts are enthused by its recent capital raising of $90 million to support its balance sheet and the room to manoeuvre for further growth this capital will provide. The additional liquidity will be utilised to finance the acquisition of the eCommerce assets from Catherines  from the Ascena Retail Group.

Citch Chic sagged as low as 79 cents per share when it bottomed out in March due to COVID-19, but has surged as of late due to impressive (unaudited) FY20 revenue growth of 31%.

Despite these recent successes, Macquarie remains wary of extended lockdowns in Victoria and the inevitable store closures this will cause. On the flipside, JobKeeper’s extension is believed to soften the financial blow for City Chic in the meantime.

Alliance Aviation Serviced Ltd (ASX: AQZ)

Credit Suisse rates this ASX share as one set to outperform, placing a target price of $4.05 on the flight charter company. This represents a current upside of 12.5% on Alliance’s share price of $3.60 at the time of writing.

The broker sees the current market for fly-in-fly-out (FIFO) workers as strong due to the continuation of commodities operations, and Alliance’s exposure to chartering flights for the resources industry acts as a major tailwind for its profitability prospects in FY21.

Yesterday Alliance revealed to the market that it had achieved an 18.9% increase in net profits and close to an 8% gain in total revenues for FY20, largely aided by the diversity of its business operations.  

Although it has cut its final dividend for FY20 due to the pandemic, Credit Suisse anticipates shareholders will receive a 2.5% yield in FY21 and remains optimistic the airline will continue to exceed market expectations in the coming 12 months.

Aristocrat Leisure Limited (ASX: ALL)

Fresh analysis from brokers at Citi has categorised the gaming and leisure company in the buy zone.

Citi has upheld its price target on Aristocrat of $30.10, representing a difference of approximately 10% from its current share price of $27.37 at the time of writing.

In May, it was announced that Aristocrat’s operating revenue for the first half of FY20 had increased by 7% compared to FY19, despite net profit after tax decreasing by as much as 14%, year on year.

In its current forecast for FY21, Citi expects Aristocrat to pay a dividend of 35 cents, equating to a yield of 1.3%, as well as earnings per share of $1.05.

More reading

• Are you a growth investor? Then take a look at these exciting ASX shares
• Alliance Airlines reports 24% increase in profits
• ASX marching higher despite COVID-19: Where should you invest?
• Why Alliance Aviation, Cochlear, Kogan, & Netwealth shares are storming higher
• My ASX share of the week

Motley Fool contributor Toby Thomas 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’re a growth investor then you might want to take a look at the ASX shares listed below.

I believe all three are well-placed to grow at a strong rate over the next decade. Here’s why:

Aristocrat Leisure Limited (ASX: ALL)

The first ASX growth share to consider buying is this gaming technology company. Although it looks likely to experience a short term reduction in demand for its poker machines due to the pandemic, I expect it to rebound once the pandemic passes and casinos reopen as normal. In the meantime, the company’s social and mobile gaming apps continue to perform strongly during the crisis. If it can retain these users when casinos reopen and business returns to normal, I feel Aristocrat Leisure’s growth could accelerate over the coming years.

Nearmap Ltd (ASX: NEA)

Another growth share to consider buying is Nearmap. I think the leading aerial imagery technology and location data company can grow materially over the next decade. This is due to the large and growing global market for location intelligence data sets derived from aerial imagery and its leading position within it. Management expects the global aerial imagery market to be worth US$10.1 billion in 2020. Pleasingly for Nearmap, this market is highly fragmented, which I feel puts Nearmap in a great position to capture a growing slice of it in the future.

Zip Co Ltd (ASX: Z1P)

A final growth share to consider buying is Zip Co. It is one of the ANZ region’s leading buy now pay later providers but also has operations in South Africa and the UK. And should the acquisition of QuadPay complete successfully, it will soon be expanding into the massive United States. Management notes that this market is worth $5 trillion a year. If the company can make a success of this expansion, it could be destined for further explosive growth over the coming years.

More reading

• Leading brokers name 3 ASX shares to buy today
• Deepening partnership with Telstra fails to excite the Dubber share price
• Why these ASX tech shares are skyrocketing
• Afterpay and Qantas were among the most traded shares on the ASX last week
• Zip Co share price surges 8.5% higher: Is it too late to buy shares?

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

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The Threat Protect Australia Ltd (ASX: TPS) share price has rallied today after the company provided the ASX with a very positive business update and offered guidance for FY21. Following the update, the Threat Protect share price surged a huge 25%.

What does Threat Protect do?

Threat Protect is a leading security company that supports thousands of customers across Australia. It offers both residential and commercial services on a local and global scale. The company identifies security risks and provides personalised solutions for its clients.

Threat Protect offers three main services which include its safe haven app, home solutions and business solutions. The company claims to be the largest provider of wholesale monitoring services and the largest non-international owned monitoring company in Australia. Threat Protect currently monitors approximately 80,000 accounts through its national infrastructure.

Business update

The Threat Protect share price saw a substantial 25% jump today on the positive news in the business update. The company announced significant improvement in financial outcomes as a result of integration and cost cutting. This was aided by the shutting down of surplus monitoring facilities.

Current projections show the business to be in a positive cash position after payment of interest and principal repayments.

The update also notified the market of the company’s continued product growth. As the largest provider of wholesale monitoring services in Australia, Threat Protect aims to leverage its size to expand into the Duress, Medical and Ageing sectors.

The company also released some key financials. Threat Protect announced revenue of almost $27.8 million for 2020; a huge 41% increase year-on-year. As impressive, was the company’s normalised earnings before interest, taxes, depreciation and amortisation (EBITDA) numbers. Threat Protect reported $4.9 million EBITDA which was an increase of over 70% on last year’s results.

Guidance for FY21

Threat Protect also provided earnings guidance for the financial year ended 30 June 2021. It was announced that the board expects FY21 revenue to be in excess of $27 million, with FY21 normalised EBITDA to be in the range of $7.5 – $8.5 million. However, it was noted that the earnings guidance may be impacted by adverse changes in global economic conditions, including the significant impacts of COVID-19.

What’s next for the Threat Protect share price?

The Threat Protect share price has had a torrid twelve months, losing 46% of its value this year alone. Shareholders will be hoping this news can spur the company higher, with the Threat Protect share price closing the day at 7.5 cents cents.

More reading

• Orocobre share price shrugs off low lithium prices to soar 33% higher in July
• ASX 200 rises 0.7%, ResMed result disappoints
• Embattled Freedom Foods finds its next CEO
• Why the ALS share price leapt 29% higher in July
• Leading brokers name 3 ASX shares to buy today

Motley Fool contributor Daniel Ewing 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 Envirosuite Ltd (ASX: EVS) share price is today soaring higher with the company releasing information regarding a potential acquisition. Envirosuite’s share price is up by 11.54% at the time of writing to a price of 14.5 cents.

What does Envirosuite do?

EnviroSuite is an environmental management technology company that provides services through its SaaS platform. The Envirosuite platform offers environmental monitoring, management and investigative capabilities. The platform is incorporated into a number of diverse operations from waste water treatment to large scale construction, open cut mines and port operations.

The company boasts more than 500 customers worldwide. According to a company presentation, there’s been a 38-fold increase in global environmental laws in the regulation of pollution in recent years. Envirosuite’s clients include organisations in China, airports, and companies such as Rio Tinto Limited (ASX: RIO).

Acquisition news

Envirosuite has today announced a strategic acquisition to boost its offering to global water treatment customers. The deal involves a binding agreement to acquire 100% of water modelling R&D technology software company AqMB Holdings Pty Ltd for a total consideration of $1.35 million.

AqMB’s software is shown to directly reduce water treatment plant operating costs by up to 35%. Thanks to this technology, Envirosuite will now launch its new ‘smart water’ modelling product. Smart Water seeks to address the US$7 billion global water optimisation market.

Prior to committing to the acquisition, the AqMB software was trialled at the Yinghai recycled water treatment plant in Beijing. Prior to the trial, Envirosuite had determined that a reduction of 25% was necessary. The trial exceeded expectations as it indicated a potential reduction of up to 35% or $500,000 in savings. Globally, Envirosuite has so far identified as many as 25,000 applicable sites that could benefit from the technology.

The acquisition will be funded from Envirosuite’s current cash reserves. However there are still boundaries to cross as completion of the acquisition remains subject to the satisfaction of customary conditions. These are expected to be completed by the end of August this year.

What now for Envirosuite

With Australia aiming to achieve zero emissions by 2050 and a global push for sustainability worldwide, shareholders will be wanting to see this trend continue. As the economy becomes more conscious of its carbon use there will be a greater need for environmental consultancy services. This could see Envirosuite experience a positive surge in demand and bring it closer to producing profits for shareholders.

Envirosuite aims to be earnings before interest, tax, depreciation and amortisation-positive by the end of Q3 FY21. It also aims for revenue of $100 million per year by the end of the 2023 financial year.

Envirosuite CEO Peter White spoke to this tune as he claimed that “Envirosuite aims to play an increasingly important role for water asset operators around the world who are looking to solve problems relating to water supply, quality and scarcity via digital transformation.”

This most recent acquisition goes some way towards addresses these needs, resulting in today’s strong gains for the Envirosuite share price.

More reading

• Where I would reinvest my Rio Tinto dividends
• The latest ASX stocks to be hit by broker downgrades today
• This is the only ASX sector tipped to report earnings growth this reporting season
• Monadelphous share price plunges 10% on legal action from Rio Tinto
• ASX 200 up 0.1%: Big four banks tumble, Flight Centre sinks, SEEK cancels final dividend

Motley Fool contributor Daniel Ewing 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 Ramsay Health Care Limited (ASX: RHC) share price could be on the move later this month when it releases its results.

Ahead of the release of the private hospital operator’s results on 27 August 2020, I thought I would look to see what analysts are expecting from the company.

What should you expect from Ramsay Health Care in FY 2020?

According to a note out of Goldman Sachs, its analysts believe Ramsay could fall short of the market’s expectations later this month.

Its analysts are forecasting FY 2020 revenue of $12,021 million, up 3.6% on the prior corresponding period. However, this will be a touch short of the consensus estimate of $12,175 million.

Goldman doesn’t expect this top line growth to flow through to its earnings. It has forecast earnings before interest, tax, depreciation, and amortisation (EBITDA) of $1,273 million. This will be a 20% decline on FY 2019’s EBITDA and compares to the consensus estimate of $1,578 million.

And on the bottom line, the broker is forecasting earnings per share of $1.53 in FY 2020, which will be a 46% decline year on year. As a comparison, the market consensus estimate is for earnings per share of $1.63.

What about FY 2021?

Most investors have accepted that Ramsay’s FY 2020 will be underwhelming because of the pandemic, so their focus will be on the year ahead.

Goldman Sachs is forecasting a 12% increase in revenue to $13,481.1 million in FY 2021. From this, it expects Ramsay’s EBITDA to rebound 25% to $1,589.9 million. This means it will be back in line with its pre-pandemic levels.

Should you invest?

While Goldman only has a neutral rating and $63.00 price target on Ramsay’s shares, I’m a little more bullish and would class them as a buy.

Just as long as you’re prepared to make a patient long term investment. The near term may be difficult, but I believe it has a very positive long term outlook. Overall, I feel it could beat the market over the 2020s.

More reading

• Top brokers name 3 ASX 200 shares to buy today
• Why I would buy and hold CSL and these ASX healthcare shares
• 3 underloved ASX healthcare shares with strong comeback potential
• 2 top ASX dividend shares to buy for income in 2020
• Nanosonics and 2 other ASX healthcare shares to buy

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ramsay Health Care 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 Village Roadshow Ltd (ASX: VRL) share price barely reacted to management’s commitment to undertake a capital raising in the coming months.

Shares in the cinema and theme park operator dipped 1.4% to $2.10 following its latest update when the S&P/ASX 200 Index (Index:^AXJO) gained 0.3% in the last hour of trade.

It’s a tough environment for entertainment facilities operators with the COVID-19 shutdowns and social restrictions.

But Village Roadshow wanted to show it didn’t need a takeover to remain viable as it secured extra debt facilities to last for another 12 months.

Flying with one engine

While its Queensland-based theme parks have reopened given the state’s success in controlling the pandemic, social restrictions remain in force. This means its theme parks can only run at half their capacity and only local visitors have been patronising these facilities.

Its cinemas in Melbourne have also been forced to shut under the state’s new hard lockdown measures, while attendance in other states are curbed to comply with social distancing rules.

Bleeding cash

Management said it continues to run at a loss despite the federal government’s JobKeeper support program.

“With the reopening of several of its operating businesses, VRL’s previous monthly net cash costs of negative $10 -$15m per month has reduced,” said Village Roadshow in its ASX statement.

“However, the Company is still operating on a negative cash basis which it expects will continue for several months.”

Cash runway to last next 12-months

To ensure its survival and to strengthen its bargaining position with suitor BGH Capital, management is taking on more debt.

The group secured an extra $70 million from existing lenders and the Queensland Treasury Corporation and $43 million of this needs to be repaid within 12 months. The balance is due in five-years.

Looming $35m capital raising

As a condition of the new facility, Village Roadshow committed to raising a minimum of $35 million in new equity. This needs to be done before the group’s half year results announcement in February 2021 or three months after BGH withdraws its bid for the company, whichever happens first.

BGH lobbed a non-binding offer for the group and is willing to pay up to $2.40 a share. Village Roadshow and the bidder are locked in exclusive discussions, which are ongoing.

Climbing a mountain of debt

While Village Roadshow is yet to drawn down on the new debt facility, it expects to do so as it only has $5 million in undrawn debt from its existing facility.

The $5 million is part of a $340 million loan, with $230 million of this due in January 2022 and the balance needing to be repaid in January 2024.

Management said it also had unrestricted cash available of around $40 million to help fund operations.

Village Roadshow and its peers have underperformed the market since the start of the year. The VRL share price dropped by 45% over the period, while the Ardent Leisure Group Ltd (ASX: ALG) share price slumped 76% and Crown Resorts Ltd (ASX: CWN) share price lost 23%.

More reading

• Deepening partnership with Telstra fails to excite the Dubber share price
• With global share markets soaring, here’s why it’s still a good time to buy ASX shares
• Expert warns that record-breaking gold price is facing painful correction
• ASX 200 up 0.6%: ResMed & Scentre tumble, big four banks rise
• Overvalued or a strong buy? Nextdc and 1 more ASX growth share to watch

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Crown Resorts 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 Harvey Norman Holdings Limited (ASX: HVN) share price has stormed higher today and is currently trading up 7.60%. It seems investors are taking heart from a positive outlook delivered by fellow furniture retailer Nick Scali Limited (ASX: NCK) this morning. Nick Scali reported that trading in July was extremely buoyant, following strong sales orders in May and June. 

Harvey Norman sales 

Harvey Norman reported a surge in Australian franchisee sales in the second half to early June. Sales were up 17.5% as housebound consumers looked to upgrade their home furnishings and appliances. Company-operated stores in overseas jurisdictions were closed for varying periods due to lockdowns, resulting in a mixed performance for the half year to early June. Sales in Ireland were up 17.5% and Malaysia saw sales growth of 12%, but Northern Ireland saw a fall in sales of 8.6% and Singapore sales declined 13.2%. 

Coronavirus impacts dividends 

Harvey Norman cancelled its FY20 interim dividend of 12 cents a share in April due to the uncertainty around the coronavirus pandemic. This resulted in $149.5 million in cash being retained by the business, providing liquidity during the height of the crisis. As restrictions eased, Harvey Norman elected to pay a special dividend of 6 cents per share in June. 

Full-year results 

Harvey Norman is due to report its full-year results at the end of the month. Given its product range of furniture, bedding, home appliances, and electronics, it is reasonable to assume Harvey Norman may have experienced the same strong sales growth as Nick Scali in recent months. Prior to the onset of the pandemic, company-operated retail operations were growing and increasing in profitability. Half year profit, however, was down 4.6% due to the impact of property valuations and the impact of AASB 16 on leases. 

Harvey Norman’s balance sheet is anchored by real property assets which were valued at $2.97 billion at 31 December 2019. The company says its property ownership is its driving point of competitive advantage in the Australian market. Harvey Norman either owns or leases the properties through which its brands trade, and sub-leases them to franchisors. This enables the group to respond swiftly to evolving consumer needs and quickly adapted to changes in retail trends. 

Foolish takeaway

All eyes will be on Harvey Norman when it reports its full-year results. The Harvey Norman share price is now up 63% from its March low, so investors will be expecting to see strong sales and profits. 

More reading

• ASX 200 up 0.6%: ResMed & Scentre tumble, big four banks rise
• Why BHP, Corporate Travel, Harvey Norman, & Nick Scali shares are pushing higher
• Nick Scali share price bolstered by strong outlook and dividend upgrade
• Super Retail and 2 other ASX retail shares to watch in August
• The ASX stocks hit by Victoria’s stage 4 forced shutdowns

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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I like to keep an eye on substantial shareholder notices. This is because these notices give you an idea of which shares large investors, asset managers, and investment funds are buying or selling.

Two notices that have caught my eye today are summarised below. Here’s what these fund managers have been buying:

BWX Ltd (ASX: BWX)

A notice of initial substantial holder reveals that Eley Griffiths Group has been buying this personal care products company’s shares over the last nine months. According to the notice, the investment management company has been building its position between 23 October and 31 July. During this time it has acquired 6,852,439 shares, which gives it a 5.04% stake.

Eley Griffiths appears to have been buying BWX shares for its EGG Small Companies Fund. As of the end of July, this fund has delivered an average return of 8.24% per annum over the last five years. Judging by its purchases, it appears to believe the addition of BWX could help its market beating run continue.

iSelect Ltd (ASX: ISU)

A notice of change of interests of substantial holder shows that Forager Australian Shares Fund (ASX: FOR) has been topping up its position in this price comparison website company. The notice reveals that Forager has picked up around 5.5 million more iSelect shares between 7 June and 3 August. Its biggest purchase came on the latter date, when it picked up 5 million shares for a total of $1,026,628. This equates to an average of 20.5 cents per share. That purchase lifted its holding to a total of 24,053,874 shares, which equates to an 11.04% stake.

The iSelect share price has been an incredibly poor performer over the last few years, but it appears as though Forager believes the tide is turning. Though, with the fund manager’s key Australian Shares Fund lagging the market by an average of 5.7% per annum over the last five years and 16.6% per annum over the last three years, I wouldn’t be in a rush to follow its lead just yet.

More reading

• Fund managers have been buying these ASX shares
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• Why AGL Energy, Alumina, BlueScope, & BWX shares are dropping lower
• ASX 200 finishes up 0.4%, Rio Tinto grinds higher
• Brokers name 3 ASX shares to buy right now

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. 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 Centaurus Metals Limited (ASX: CTM) share price is up more than 6% after the company announced positive drilling results at its Jaguar deposit in Brazil.

What was in the announcement?

Centaurus Metals said it had identified significant thick semi-massive to massive nickel sulphide intercepts in recent drilling at the Jaguar Central deposit.

The company identified 33.7 metres at 2.23% nickel from 45.6 metres, 15 metres at 2.42% nickel and 8.2 metres at 1.22% nickel at the deposit.

New drilling at the Jaguar North deposit had also intersected semi-massive sulphides 100m beyond the current limits of the existing mineral resource, with assays currently pending.

Centaurus Metals said the company’s recent $25.5 million capital raising would accelerate drilling work significantly. At the time of the announcement, Centaurus Metals had a cash position of around $28 million.

How good is that?

Centaurus Metals managing director Darren Gordon said the latest results included “some of the best drilling results generated from the Jaguar Project to date”.

Mr Gordon said the results boosted confidence in the company’s potential to grow the mineral resource in line with a plan to establish a sustainable high-margin nickel sulphide mine in Brazil within the next 3-4 years.

“These results are now building on the impressive maiden resource estimate we announced in June, which already contains more than 500,000 tonnes of nickel at an average grade of over 1.0% nickel,” he said.

About the Centaurus Metals share price

Centaurus Metals is an exploration company with a focus on the Jaguar nickel project in Brazil. 

In the quarter to June 30, 2020, Centaurus Metals used $2,536,000 cash in operating activities. The company had cash at June 30 of $4,996,000, this was down from $7,539,000 at the end of the previous quarter. 

In July, the company announced a $25.5 million capital raising at $0.42 cents per share, including a cornerstone investment from Canadian-based Dundee Goodman Merchant Partners. The funds are allocated for drilling, a scoping study and a pre-feasability study for the Jaguar project.

The Centaurus Metals share price has skyrocketed 647% from its 52-week low of $0.075 cents. It has returned 211% since the beginning of the year. The Centaurus Metals share price is up more than 6% at the time of writing to $0.52 cents.

More reading

• What sent the Envirosuite share price soaring 11% today?
• Earnings preview: What to expect from the Ramsay Health Care FY 2020 result
• Village Roadshow locked in a capital raise as it secures new $70m facility
• Harvey Norman share price gets a helping hand from competitor’s rosy outlook
• Fund managers have been buying BWX and this ASX share

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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Is the share price of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) or National Australia Bank Ltd (ASX: NAB) a buy right now?

The big four ASX banks have taken a beating since COVID-19 impacted the share market and economy.

Since their February 2020 highs:

The CBA share price is still down 21%.

The Westpac share price has dropped 35%.

ANZ’s share price has fallen 35%.

NAB’s share price has declined 38%.

NAB was the only bank that did a capital raising during this period to strengthen its balance sheet. It raised $3 billion from institutional investors and $1.25 billion from retail investors at a discounted price of $14.15. I suppose it’s not surprising that NAB’s share price is down the most when the profit has to be shared among more shares

COVID-19 provisions

Each major bank has announced credit provisions due to COVID-19. Investors are expecting higher bad debts, it’s one of the main reasons why the share prices of CBA, Westpac, ANZ and NAB are down so much.

CBA provisioned $1.5 billion in relation to COVID-19 in its FY20 third quarter update.

Westpac announced a $1.9 billion of potential impacts from COVID-19 within its FY20 half-year result.

ANZ revealed that its COVID-19 credit provision was around $1 billion

NAB said in its FY20 half-year result that its COVID-19 provision was $807 million.

These provisions were made a few months ago, so we’ll have to see in the next update whether the provisions were too much or too little.

Several regions of Australia are now COVID-19 free – faster than many expected. New Zealand is also COVID-19 free. So that’s good news for the banks with economic activity able to get back to almost full levels.

However, Victoria in-particular is going to cause a hit to the economy, banks and confidence. Prime Minister Scott Morrison said this morning (as reported by the ABC) that the latest round of restrictions in Victoria will cost the economy by $7 billion to $9 billion. About 80% of the economic cost is expected to be caused from directly-affected businesses while the rest of the impact will be due to broader supply-chain effects and the impacts on national confidence. This could be bad news for the CBA share price.

Are the share prices of CBA, Westpac, ANZ or NAB a buy?

You can see that the big banks are going to be impacted at least over the next six to nine months by what’s going on. Maybe longer.

Banks are facing higher bad debts and lower net interest margins (NIM) for a number of financial years. The RBA has said that interest rates will stay lower for longer. Banks earn a lower return on their loans when the official interest rate is lower.

The CBA share price should priced for its medium to long-term earnings. I can’t see earnings getting back to its underlying FY19 profit figure (excluding the customer remediation) for at least 12 months. It may take two or three years.

Dividends were a big part of the returns before COVID-19. But due to the situation (and APRA’s guidance), dividends are going to be a lot lower in 2020 and probably 2021. CBA is going to cut its final dividend by at least 50%, perhaps a lot more, to retain capital. NAB implemented a major dividend cut in its half year result and the other two deferred their dividends.

Perhaps the CBA share price and others were buys during May – before we learned of the jobkeeper overestimation. Under $60 may have been a decent long-term buy price for CBA, but at above $70 I think I would prefer to be patient. But there are plenty of other shares I’d prefer to buy over CBA, even if it were a bit cheaper.

More reading

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Motley Fool contributor Tristan Harrison 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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