Tag: Motley Fool Australia

The S&P/ASX 200 Index (ASX: XJO) went up by 0.3% today as the ASX continued its steady climb upwards. The ASX 200 finished at 5,835 points.

The protests in the US are grabbing the attention with the coronavirus currently not at the forefront of people’s minds. This year has been very eventful so far.

Zip Co Ltd’s (ASX: Z1P) big acquisition

The Zip share price flew higher today by 38.7%. The company announced that it’s going to buy the rest of US-based QuadPay by issuing up to 119 million shares to QuadPay shareholders. The deal implies an enterprise value of US$269 million for Quadpay.

Zip described Quadpay as one of the leading BNPL providers in the US. Based on the first quarter in 2020, QuadPay has annualised revenue of $70 million and annualised total transaction value (TTV) of $900 million. It also has a net transaction margin of more than 2%.

The combined ASX 200 business will have $3 billion of annualised TTV and annualised revenue of $250 million.

Zip has also entered into an agreement with CVI Investments to raise up to $200 million with convertible notes and warrants.

Brickworks Limited (ASX: BKW) trading update

The ASX 200 building products business gave a trading update today. Over the past few months it has managed to make a profit from its Australian building products business, but the US division saw negative earnings.

Australian building product revenue was only down by 10% in the four months to 31 May 2020 compared to the prior corresponding period. Development approval has been received for the new $125 million brick plant at Horsley Park in NSW.

Progress continues at the Oakdale site.

Australia and New Zealand Banking Group (ASX: ANZ) sale

ANZ has finally managed to sell its UDC Finance business for NZ$762 million to Shinsei Bank, a large Japanese business.

The sale will provide around $439 million of level 2 group CET1 capital once settled for the ASX 200 bank. It’ll also released more than NZ$2 billion of funding provided by ANZ New Zealand.

Shinsei intends to preserve UDC’s operations, retain employees and grow the business.

More reading

• This embattled ASX 200 company could be the next M&A target
• Why Coles and Woolworths shares were flat in May
• 3 long-term impacts of near-zero interest rates
• 3 things ASX investors need to know about the RBA’s rate decision today
• These ASX shares were among the best performers in May, surpassing the ASX 200

Tristan Harrison 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 and has recommended Brickworks. 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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Overall, May was an extraordinary month for ASX shares. The S&P/ASX 200 Index (ASX: XJO) managed to bank an increase of 4.2% for the month, helped in large part by the ASX banks like Commonwealth Bank of Australia (ASX: CBA).

But other some ASX shares weren’t really joining in the party.

Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) are 2 examples.

The Coles share price started May at $15.51 per share but ended the month at $15.36, meaning the company actually went backwards by 0.97% over the month.

Meanwhile, Woolworths shares began the month at $35.75 per share and concluded May at $35.34, again, down 1.15%.

So why have Woolies’ and Coles’ share prices lagged so dramatically over May? And perhaps more importantly, does this mean there might be some buying opportunities right now?

Why Coles and Woolies have been lagging lately

It’s worth remembering that both the Woolworths and Coles share prices were holding up remarkably well during the market crash we saw in March. Between 20 February and 23 March, the ASX 200 lost more than 36% of its value. Over the same period, the Coles share price ‘only’ lost 3.53% and Woolworths was down 16.4%.

It’s this defensiveness that is leading Coles and Woolworths to lag the broader market’s recovery in my view.

If a stock isn’t volatile relative to the ASX 200 during bad times, it typically displays similar inertia during good times.

Are Woolworths or Coles shares a buy today?

It’s worth noting that I think Woolworths shares were getting a little overpriced prior to the March crash, which explains why they performed poorly compared to the Coles share price during the crash.

Thus, I would class both Coles and Woolworths shares as ‘fairly valued’ today, despite their recent market performance.

But ‘fairly valued’ is still a long way from being a ‘bargain buy’.

On current prices, Coles is trading on a price-to-earnings (P/E) ratio of 17.44 and Woolworths on 17.7. Given that the broader ASX 200 P/E is sitting at 18.98 on average, I’m not really too compelled to add these shares to my portfolio today.

But there might be some merit in these 2 ASX giants if you’re a dividend income investor. Unlike many other ASX blue chips, I think both Coles and Woolworths will easily be able to fund their dividend payments in 2020. The grocery business is very defensive and should hold up no matter what happens with the economy for the remainder of the year.

So long story short, I would class both Coles and Woolworths as reasonable ‘buys’ today for dividend income, but not for much else.

More reading

• This embattled ASX 200 company could be the next M&A target
• ASX 200 rises 0.3%, Zip rockets higher
• Smash low interest rates with these ASX dividend shares
• 3 long-term impacts of near-zero interest rates
• 3 things ASX investors need to know about the RBA’s rate decision today

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths 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 Bubs Australia Ltd (ASX: BUB) share price has been a strong performer over the last few weeks.

Since this time in May, the infant formula and baby food products company’s shares have risen a massive 23%.

And if we go back a further month, then its performance is even more impressive.

The Bubs share price has stormed a remarkable 65% since this time in April.

Why has the Bubs share price surged higher?

There have been a couple of catalysts for this strong share price performance over the last couple of months.

The first was an impressive third quarter update in April, which revealed record quarterly revenue of $19.7 million. This was a 67% jump on the prior corresponding period and a 36% lift on the second quarter.

But perhaps what was most promising with its quarterly update, was news that Bubs is now generating positive operating cashflow. For the quarter, Bubs recorded positive operating cashflow of $2.3 million.

This appears to demonstrate that it has finally reached a scale which means its operations are profitable. Which is a big positive as it has burned through a significant amount of cash in recent years while essentially selling its products at a loss.

Interestingly, this is similar to what A2 Milk Company Ltd (ASX: A2M) experienced back in 2015. Since then it has gone on to become an extremely profitable business.

What else has got investors excited?

Another announcement that got investors excited was a supply agreement with supermarket giant Coles Group Ltd (ASX: COL).

Last month Bubs revealed that its Bubs Organic Grass Fed Infant Formula will be distributed to 482 Coles supermarkets. Initial orders were to be processed in the middle of May, with its products expected on-shelf early this month.

This is in addition to its existing agreement for Bubs Goat Milk Infant Formula (which is ranged in 561 stores) and Bubs Organic Toddler Snacks (which is ranged in up to 804 stores).

Furthermore, within the same announcement the company revealed that fellow supermarket operator Woolworths Group Ltd (ASX: WOW) has increased its supply agreements. This will see Bubs Organic Grass Fed Infant Formula ranged in 800 Woolworths stores and Bubs Goat Milk Infant Formula in 654 Woolworths stores.

Is it too late to invest?

I don’t believe it is too late to invest with a long term view.

Given the progress that Bubs is making with its margins, its increasing footprint, and strong demand in China, it looks well-positioned to deliver strong earnings growth over the next decade.

More reading

• Is the a2 Milk share price too high to buy?
• Top ASX Stock Picks for June 2020
• 10 top ASX growth shares to buy in June for strong returns
• How to make $1,000 a month in dividends
• Where to invest $10,000 into ASX shares immediately

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 BUBS AUST FPO. The Motley Fool Australia owns shares of A2 Milk, COLESGROUP DEF SET, and Woolworths Limited. The Motley Fool Australia has recommended BUBS AUST FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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While it’s too soon to declare the end of COVID-19, most countries have shown signs of flattening the curve and the relaxation of lockdown measures. This bodes well for the following 2 ASX tech shares that provide payment solutions and value-added business banking products. 

EML Payments Ltd (ASX: EML) 

The EML share price went on a spectacular run in 2019, soaring by more than 200%. However, the business has faced significant headwinds given its dependency on shopping centres and gift card consumption.

EML recently updated the market regarding its third-quarter and April performance. The update outlined challenging business conditions, a more diversified business model and expected improvement in trading conditions moving forward. There are many reasons why EML could emerge as a leading S&P/ASX 200 Index (ASX: XJO) tech share coming out of the coronavirus. 

Renegotiated acquisition 

EML’s acquisition of Irish firm, Prepaid Financial Services (PFS) was said to be a game-changer. PFS provides prepaid card and payments technology that offers some of the most flexible and quick to market services in the prepaid payments industry. It has a broad network of partners including governments, mobile network operators, banks and blue-chip organisations. This acquisition allows EML to diversify its earnings away from gift cards and expands its geographical footprint in the European region. 

The coronavirus pandemic has allowed EML to renegotiate the terms of its PFS acquisition. The upfront enterprise valuation was reduced to £131.5 million, down £94.5 million from £226 million. EML was previously criticised for not completing the acquisition soon enough. I believe investors should be grateful that the terms of the acquisition were renegotiated at a cheaper valuation.

Recent business update

EML highlighted a strong financial performance for the 9 months to 31 March 2020. This performance excludes its PFS acquisition which will be included in financial results from 1 April. EML’s gross debit volume (transaction volumes) increased 55% over the prior corresponding period, while revenue increased by 20%. Earnings before interest, tax, depreciation and amortisation (EBITDA) also jumped 24%.

At the end of April, EML held more than $125 million in cash. The gradual opening of malls in various countries during May and June should see an improvement to EML’s trading conditions moving forward. 

Tyro Payments Ltd (ASX: TYR) 

Tyro Payments has provided weekly updates to the market regarding transaction volumes on its EFTPOS terminals. 

In May, the company saw its transaction volumes fall 18% on the prior corresponding period. This marks a significant improvement against April, where transaction values fell 38%. 

The market appears to be very optimistic about how Tyro will perform moving forward. The Tyro share price has rebounded strongly, up 340% since its March lows and more than 10% already in June. 

Tyro’s client base consists largely of Australian small and medium-sized enterprises in the health, hospitality and retail verticals. Most restaurants, cafes and shopping centres in Australia have been allowed to reopen. This should see a general improvement in Tyro’s transaction volumes and potentially year-on-year growth moving forward. While the Tyro share price has soared in June, it is certainly one to watch. 

More reading

• The 3 ASX tech stocks that helped this fund manager outperform in May
• These 5 exciting small cap ASX tech shares rose by up to 70% in May
• Build wealth for life with these 2 ASX 200 shares
• Grow your wealth with these exciting ASX mid cap shares
• 4 ASX fintech shares to make you rich

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 Emerchants Limited and Tyro Payments. The Motley Fool Australia has recommended Emerchants 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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This afternoon the Reserve Bank decided against cutting the cash rate further and kept it on hold at 0.25%.

While this was a small win for income investors, it certainly doesn’t make life any easier for them.

At present Commonwealth Bank of Australia (ASX: CBA) offers interest rates of 1% per annum on a five-year term deposit. This is broadly in line with what you can find elsewhere with the other big four banks.

This kind of yield makes it very hard for investors to earn a sufficient income from term deposits.

But never fear, because the Australian share market is home to a large number of dividend shares which offer vastly superior yields.

Two which you can use to beat low interest rates are listed below:

Rural Funds Group (ASX: RFF)

The first dividend share to consider buying is this property company. Rural Funds is different to most property companies on the ASX. It has a focus on Australian agricultural assets and owns a diverse portfolio of high quality properties across different industries. These properties have ultra long leases and come with fixed rent increases built into them. This provides Rural Funds with a lot of earnings visibility. As a result, it has been able to provide distribution guidance for FY 2020 and FY 2021. The company plans to pay shareholders a distribution of 10.85 cents per share this year and then 11.28 cents per share next year. The latter equates to a 5.6% distribution yield.

Telstra Corporation Ltd (ASX: TLS)

Another dividend share to buy is Telstra. I think the telco giant is a great option for income investors due to its defensive qualities. These have been on display during the pandemic, with Telstra able to reaffirm its guidance for FY 2020 despite the crisis. In addition to this, with the NBN headwinds beginning to ease, I believe a return to growth is not too far away. In the meantime, I’m confident that its free cash flows are sufficient to maintain its 16 cents per share dividend. This equates to a fully franked 5% dividend yield.

More reading

• How to value the big four ASX banks
• Why I would buy these ASX 200 blue chip shares in June
• 5 winning ASX dividend shares to buy in June
• How bankable are the big four ASX bank shares in 2020?
• This ASX fintech share is up 489% since March

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED and Telstra 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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Interest rates on hold!

Today, the Reserve Bank of Australia (RBA) kept the cash rate steady at its record low of 0.25%. The RBA normally meets on the first Tuesday of every month to decide the direction of the nation’s monetary policy. It can technically either raise, lower or hold interest rates steady. But everyone knew the only real choice of today’s meeting would be whether to cut to zero or not.

So even though interest rates are still not quite at their absolute limit, in my view it doesn’t really make much difference at the end of the day if the cash rate is at 0.25% or zero.  

RBA governor Philip Lowe also flagged that rates will be at record lows for some time, stating, “the Board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band”.

So if low rates are indeed here to stay, here are 3 consequences I see happening for ASX investors.

Low interest rates means cash is no longer king

Cash will continue to be a lousy asset to hold over the long-term. That’s because the interest rates that you can expect to receive on cash investments like term deposits and savings accounts won’t meaningfully rise unless the RBA lifts interest rates. Thus, we can expect cash to continue to generate very little real return when considering the effects of inflation.

ASX 200 share prices will rise

Low interest rates have an indirect effect on the value of ASX shares. That’s because most valuation models use the ‘risk-free return’ of government bonds to figure out how much a share is worth. If interest rates remain low, so will the yield of government bonds.

Therefore, I expect the value of the S&P/ASX 200 Index (ASX: XJO) to be higher over the medium to long-term than they otherwise would be if interest rates were at more ‘normal’ levels (although it looks as though this is the new ‘normal’).

Expect more volatility

As a consequence of the first 2 impacts, I expect volatility to continue to be a feature of the share market while interest rates remain so low.

The fact that there are now very few avenues to building wealth outside the share market means that there will be more capital sloshing around. You will have investors who don’t really want to be in ASX shares but simply have no alternative.

As such, I expect higher loss aversion behaviours to be in play. There are going to be a lot of investors who don’t want to lose capital and are therefore more likely to sell their investments during natural downturns or corrections in the market.

In my opinion, all of this points to an increased level of volatility in shares going forward – as if we haven’t had enough of that this year already!

More reading

• 3 things ASX investors need to know about the RBA’s rate decision today
• These ASX shares were among the best performers in May, surpassing the ASX 200
• Could Goldman Sachs’ 2020 predictions for the US share market spell the end of the ASX 200s remarkable rise?
• The 3 ASX tech stocks that helped this fund manager outperform in May
• Is the a2 Milk share price too high to buy?

Motley Fool contributor Sebastian Bowen 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 Aurelia Metals Ltd (ASX: AMI) share price has taken off today after the small-cap ASX miner released a production update. 

Aurelia Metals is a mining and exploration company with a strategic landholding in the polymetallic Cobar Basin in New South Wales. The company operates 2 wholly-owned gold and base metal operations, Peak Mine and Hera Mine, along with 2 processing plants.

Aurelia is a gold-dominant business and in FY19, produced 117,521 ounces of gold at a group all-in sustaining cost of $1,045 per ounce. 

Why the Aurelia Metals share price is charging higher

This morning, Aurelia provided an update on group production for the June 2020 quarter to date. 

The company decided to provide these interim figures in light of the current absence of guidance due to COVID-19. Aurelia withdrew its guidance back in March given the uncertainty surrounding the spread, duration and impact of the pandemic.

Preliminary group production figures for the June quarter to 31 May 2020 are:

• Gold: 16,300 ounces
• Copper: 1,250 tonnes
• Lead: 3,300 tonnes
• Zinc: 2,300 tonnes

This represents a significant boost to the production figures announced for the March 2020 quarter.

Gold production in the entire March quarter came in at 14,304 ounces, while copper production was 871 tonnes. So in the first 2 months of the current quarter, Aurelia is already beating these production figures by 14% and 44%, respectively.

Lead is tracking along relatively in line with March figures of 4,657 ounces. However, zinc production in the current quarter is notably down from the 5,921 tonnes posted last quarter.

Nonetheless, on the whole, Aurelia is on track for a significantly improved quarter-on-quarter production result.

At the time of writing, the Aurelia share price has jumped 21.69% today to 43.2 cents. This takes the company’s market capitalisation to around $378 million.

More reading

• 3 things ASX investors need to know about the RBA’s rate decision today
• 2 cheap ASX 200 shares to buy right now
• Is the AFIC share price a buy right now?
• These ASX shares were among the best performers in May, surpassing the ASX 200
• 3 founder-led ASX shares to buy for strong long-term returns

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

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No one will be surprised that the Reserve Bank of Australia (RBA) left interest rates unchanged at a record low of 0.25% today. But there are three things that every investor should know.

Before I get into that, it’s worth pointing out that the S&P/ASX 200 Index (Index:^AXJO) failed to react to the news as it continued to hover around breakeven.

But the Australian dollar ticked up slightly to US67.9 cents when the RBA released its monetary policy decision.

Currency traders are probably reacting to the relatively upbeat statement by RBA governor Philip Lowe and reassessing the prospects for negative interest rates.

Sounding upbeat

On the first point, the Governor Lowe is taking a glass half full perspective on the COVID-19 fallout.

While highlighting that we are suffering from the worst economic contraction since the Great Depression of the 1930s and that total hours worked dropped by a record 9% in April as 600,000 Australians lost their jobs, he thinks the downturn won’t be as bad as earlier expected.

The RBA also believes that bond markets are functioning well. So well in fact, that the central bank only had to buy government bonds once in the past month and that total purchases up to date stands at $50 billion.

Negative to negative rates

The second thing to note is that the market may be over estimating the chance of negative interest rates here.

Some believe that the RBA will have to adopt this drastic policy of charging financial institutions to park money with the central bank. Other central banks, like its European counterpart, have used this to stimulate their sagging economies.

Negative rates aren’t so much about lowering borrowing costs for businesses and consumers, but about “incentivising” nervous financial institutions to lend by penalising them for being too cashed up.

Dr Lowe played down the chances of negative rates here on a few occasions, and his statement seems to confirm this even though it didn’t mention negative rates.

Passing the buck to government

For one, his comments on how well bond markets are working suggest that the financial system is working as it should be.

The RBA’s relatively upbeat view on the economy further drives home the point with our central bankers looking to manage the economy with a light touch, in my view.

The RBA doesn’t look like it will be doing much in the interim as it is prepared to sit back to see what happens next.

This could put the federal government under more pressure to support the economy with the Morrison Government tipped to announce housing grants and other fiscal measures to support sectors of the economy that are on their knees.

Don’t feel abandoned

This takes me to the final takeaway from the RBA’s decision. While RBA may be taking a step back, it’s reassuring investors and borrowers that it stands ready to act if and when required.

No one knows how the unprecedented coronavirus crisis will play out, not even the central bank, but as Dr Lowe said: “the Bank is prepared to scale-up its bond purchases again and will do whatever is necessary to ensure bond markets remain functional.”

More reading

• These ASX shares were among the best performers in May, surpassing the ASX 200
• Could Goldman Sachs’ 2020 predictions for the US share market spell the end of the ASX 200s remarkable rise?
• The 3 ASX tech stocks that helped this fund manager outperform in May
• Is the a2 Milk share price too high to buy?
• ASX 200 investor in your 40s? 3 shares to buy now

Motley Fool contributor Brendon Lau 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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Whilst it has been a tumultuous few months for the S&P/ASX 200 Index (ASX: XJO), there are several companies that have benefitted directly from coronavirus-related lockdowns. Companies such as JB Hi-Fi Limited (ASX: JBH) did a roaring trade in work from home equipment. So too did Wesfarmers Ltd (ASX: WES) subsidiary, Officeworks. Yet several others have also benefitted with little or no fanfare. 

An ASX 200 growth giant

Jumbo Interactive Ltd (ASX: JIN) is one of the great growth shares of the past 10 years. It returned investors over 25 times their initial investment on 1 January 2010. Yet year to date, the company’s share price is still 20% down. 

Jumbo predominantly sells lottery games online. Prior to lockdown, 75% of lottery tickets were sold via retail outlets. I believe it’s fair to assume that even if lottery sales declined overall during the lockdown, the volume sold online is likely to have grown. As mentioned, Jumbo Interactive’s share price is 20% down year to date. The company recorded its lowest share price of $6.99 on 16 March, one week earlier than most of the market.

Jumbo is one ASX 200 growth company I particularly like. It has sound financials across most major valuation metrics. Compare this to say, Xero Limited (ASX: XRO), a company that posted its first profit last financial year.

Over the past 8 years, Jumbo has grown its sales volumes by 12.5% on average. Last year’s sales grew by 42% after the company began to license its software to other lottery sales organisations. 

Healthcare benefits

Ramsay Health Care Limited (ASX: RHC) initially appeared to be one of the definite ASX 200 losers of the pandemic. Early bans on elective surgeries were in place to ensure the availability of resources should COVID-19 take hold in Australia. This is the core of Ramsay’s revenue streams. 

However, very smart and agile thinking on behalf of the company has, at least, trimmed those losses. Over the course of the pandemic, Ramsay has done deals with governments throughout Australia and in the United Kingdom. These deals ensure that for the period of the agreements, the company will not lose money on its private hospitals. In return, it has guaranteed the availability of beds for coronavirus patients should they be required. 

We have seen agility across a range of smaller companies during the lockdown. However, it is rare to find an ASX 200 company able to act swiftly enough to mitigate lost revenue to this extent. Ramsay’s share price is down by only 5.8% year to date and is up by 48% since its low point on March 23. 

While it is presently trading at a price-to-earnings ratio greater than its 10-year average, I believe the company is selling at a good price. It has shown consistent growth over the past decade, and I remain impressed by the current management. 

More reading

• Is the AFIC share price a buy right now?
• 2 ASX 200 shares to watch on Tuesday
• 3 ASX shares to buy and hold for the next 2 decades
• 3 strong ASX dividend shares to buy right now
• Buy these ASX growth shares for monster returns

Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Jumbo Interactive Limited. The Motley Fool Australia owns shares of Wesfarmers Limited and Xero. The Motley Fool Australia has recommended Jumbo Interactive Limited and 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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Is the Australian Foundation Investment Co.Ltd. (ASX: AFI) share price a buy? The AFIC share price is recovering after the previous coronavirus market selloff.

It has done particularly well recently after the strong ASX bank rally. That saw AFIC shares go up 7.1% between 25 May 2020 to now.

If you haven’t heard of AFIC it’s the largest listed investment company (LIC). It has been operating for close to 100 years. The job of a LIC is to invest in other shares on behalf of their shareholders. AFIC has been doing a reliable job for decades.

What are some of the shares that AFIC is invested in?

I’m sure you recognise AFIC’s largest investments with shares like CSL Limited (ASX: CSL), Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), Transurban Group (ASX: TCL) and Wesfarmers Ltd (ASX: WES). Essentially, it’s mainly invested in those large Aussie blue chips. 

AFIC isn’t as invested in banks as the ASX index, which would have helped lessen the market selloff a couple of months ago.

How has it performed compared to the ASX 200?

The AFIC share price held up pretty well during the coronavirus selloff. At the end of May 2020 AFIC could show that its net asset performance (including franking) performed 2.6% better than the S&P/ASX 200 Accumulation Index (including franking) over the past year, with a fall of just 3%. Despite that recent outperformance, it still lags the index over the past five and ten years.

However, at the moment the AFIC share price is trading at a 6.9% premium to the May 2020 net tangible assets (NTA). That means you’re buying $1 of AFIC for less than $1 of assets. Not a great deal.

The dividend has been reliable over the long-term – but will it continue to be sustainable if banks are not paying the same dividends as they were before? However, I do like that AFIC’s operating costs are so low at just 0.13% per annum.

AFIC isn’t a bad option. But it’s trading at a noticeable premium right now, so you may as well just go for an ASX 200 or ASX 300 exchange-traded fund (ETF) which you can buy at asset value.

More reading

• 2 cheap ASX 200 shares to buy right now
• Is the CSL share price a buy?
• 2 ASX 200 shares to watch on Tuesday
• 3 ASX shares to buy and hold for the next 2 decades
• 3 strong ASX dividend shares to buy right now

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of Transurban Group and Wesfarmers 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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