Tag: Motley Fool Australia

Do you have $4,000 to invest? I think that there are a few ASX shares that could be perfect buys right now in the current economic conditions.

Some shares are back to their pre-coronavirus highs even though they’re facing some potential troubles this year. I think these shares could be good opportunistic buys today:

iShares S&P Global 100 (ASX: IOO)

This is an exchange-traded fund (ETF) which invests in 100 of the biggest businesses in the world, no matter which country they come from. It’s invested in shares like Microsoft, Facebook, Alphabet, Amazon, Nestle, LVMH, Novartis and so on.

Many of the best businesses are located outside of Australia, we can’t directly invest in them on the ASX like we can with ASX shares. But it’s still possible to indirectly buy them on the ASX.

As a group I think the biggest 100 businesses, whichever names make up that list, will get bigger and more economically powerful over time.

I think it could be a good time to buy this ETF because the Aussie dollar has gotten a lot stronger. It’s good to buy international shares when Aussies have stronger buying power.

Brickworks Limited (ASX: BKW)

Investors are very pessimistic about the construction industry right now. And rightly so – a downturn is expected in the coming months. But I don’t think construction will be permanently be in the doldrums. So I believe it’s a good time to be a contrarian investor for this side of the ASX share’s business.

However, I think Brickworks is a very dependable business because of its other assets. The value of its Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares and its 50% stake of the industrial property trust more than makes up the Brickworks market capitalisation. Those two assets provide solid cashflow, will allow Brickworks to pay a reliable dividend to shareholders until construction returns.

Pushpay Holdings Ltd (ASX: PPH)

Pushpay is one of the most promising growth ASX shares right now. The electronic donation business predominately services large and medium US churches. At the moment there is an accelerated shift to digital giving away from cash giving. This is really benefiting Pushpay.

The company is now expecting that earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) to double in FY21. That’s impressive growth in just one year. And there could be plenty of growth in the years ahead for this ASX share.

Over the longer-term it’s targeting a $1 billion revenue opportunity. That’s a large market for an ASX share.

Bubs Australia Ltd (ASX: BUB)

Bubs is another infant formula business which is starting to grow strongly overseas. It has a growing portfolio of products to sell to customers. Quarter on quarter revenue is growing at very impressive double digit numbers.

What I’m particularly attracted to at the moment is how much growth there is in ‘other markets’. In other words, markets away from China. Vietnam alone is proving to be an exciting market for Bubs. The huge Chinese market can be a blessing or a curse depending on how companies play it, and how they’re treated by China. 

Bubs generated a positive operating cashflow in the March 2020 quarter. If it can keep generating a positive cashflow each quarter from here then it’s an even more attractive ASX share than it was a few months ago.

Foolish takeaway

I’m a fan of all four of these ASX shares. I believe Bubs and Pushpay have great prospects for the next few years. Meanwhile, Brickworks looks very cheap for a recovery buy. I’d buy all of them for my portfolio. 

More reading

• If the ASX 200 crashes again, which shares should you sell?
• Should you ever buy into an ASX IPO?
• 3 ASX dividend shares to diversify your income
• 3 exciting ASX growth shares to buy in June
• 2 ASX shares that are absurdly cheap right now

The post Have $4,000? Invest in these 4 ASX shares right now appeared first on Motley Fool Australia.

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The PolyNovo Ltd (ASX: PNV) share price has been one of the best performers on the S&P/ASX 200 Index (ASX: XJO) over the last 12 months.

Since this time last year the medical device company’s shares have climbed a massive 120%.

If we go even further back, the returns get even more impressive.

Three years ago, PolyNovo’s shares were changing hands for 21 cents. Whereas today they are worth 12 times that at $2.60.

Why has the PolyNovo share price been on fire?

Investors have been buying the company’s shares due to the potential of its NovoSorb product, which was developed by CSIRO.

NovoSorb is a dermal scaffold for the regeneration of the skin when lost through extensive surgery or burn.

While this itself is a lucrative ~$1.5 billion market, the company is looking to extend the use of NovoSorb into the hernia device and breast augmentation markets. Combined, these three markets have an addressable opportunity worth an estimated $7.5 billion per year.

If it can successfully penetrate these markets, then the sky could be the limit for its sales and ultimately its shares.

But that hasn’t stopped one of its directors from cashing in some of his shares this week. On Wednesday Non-Executive Director Dr David McQuillan sold 441,687 shares on market for approximately $1.18 million.

The company advised that the sale was made to fund the purchase of property ahead of Dr McQuillan’s move from the United States to Melbourne. Dr McQuillan still holds 770,317 PolyNovo shares.

Should you be selling shares?

While insider selling is rarely good news, the purpose of this sale seems more than reasonable. So, I wouldn’t be panicking just yet.

Though, given that PolyNovo has a market capitalisation of $1.7 billion and first half sales of just $10.18 million, I also wouldn’t be opposed to taking some profit off the table.

PolyNovo clearly has a massive market opportunity, but only time will tell whether it captures a sufficient slice that justifies its current valuation.

More reading

• 5 things to watch on the ASX 200 on Thursday
• 3 easy rules for building a massive ASX share portfolio
• Where to invest $5,000 in ASX growth shares today
• Got $2,000? Here are 2 ASX 200 healthcare shares to buy today
• Here are all the ASX 200 shares that have doubled or more since the bottom of the bear market

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 CSL Limited (ASX: CSL) share price had a rare off day on Wednesday.

The biotherapeutics company’s shares finished the day 6% lower at $288.00.

Shareholders will no doubt be hoping for better on Thursday. Especially after the release of an announcement after the market close yesterday.

What did CSL announce?

According to its announcement, CSL has entered into a long term strategic partnership with the world leader in serving science, Thermo Fisher Scientific.

This partnership is for the lease of CSL’s state of the art biotech manufacturing facility, which is currently under construction in Lengnau, Switzerland.

The company made the move following a strategic review to determine a pathway that would fully optimise the capabilities of the facility once construction is completed next year.

How will CSL benefit?

Thermo Fisher will lease and operate the facility and is responsible for providing production to support CSL’s biologics portfolio. It will also provide other contract manufacturing services such as packaging and fill-and-finish for a number of CSL products.

CSL Chief Operating Officer Paul McKenzie commented: “As part of the strategic review, we are in the process of transforming our end-to-end supply chain with a view to ensuring the company’s global manufacturing network is operating at a best-in-class level. This includes balancing internal investment with access to capabilities and capacities that are available with an experienced partner.”

“CSL will now be able to access a wide range of capabilities provided by a leading pharma services provider, and we are confident that the management of the facility and the team will be in the very best of hands,” he added.

This isn’t the first time the two parties have worked together.

For some time now, Thermo Fisher has been a key provider of third-party services to CSL. This includes fill-and-finish, cell culture growth media, single-use technologies, and laboratory instruments and supplies.

There was no update in relation to its guidance for FY 2020. I would interpret this to mean the company remains on track to achieve it. Management has previously guided to a profit of ~US$2,110 million to US$2,170 million this year.

More reading

• ASX 200 edges down, bank share prices fly
• Is now the right time to be buying ASX bank stocks?
• 2 outstanding ASX 50 shares to buy today
• Why Afterpay, CSL, Fortescue, & Newcrest shares are dropping lower
• Where to invest $5,000 in ASX 200 shares today

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 CSL Ltd. 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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On Wednesday the S&P/ASX 200 Index (ASX: XJO) fought hard but fell just short at the close. The benchmark index dropped 5 points to 5,775 points.

Will the market be able to bounce back from this on Thursday? Here are five things to watch:

ASX 200 expected to storm higher.

It looks set to be a very good day of trade for the ASX 200. According to the latest SPI futures, the benchmark index is expected to open the day 51 points or 0.9% higher this morning. This follows a great night of trade on Wall Street which saw the Dow Jones rise 2.2%, the S&P 500 climb 1.5%, and the Nasdaq push 0.8% higher.

Oil prices crash lower.

Energy producers including Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) could come under pressure after oil prices crashed lower. According to Bloomberg, the WTI crude oil price fell 6.8% to US$32.00 a barrel and the Brent crude oil price dropped 5.8% to US$34.08 a barrel. Concerns over U.S.-China trade tensions weighed on prices.

Gold price edges higher.

Gold miners such as Northern Star Resources Ltd (ASX: NST) and St Barbara Ltd (ASX: SBM) will be on watch after a subdued night for the gold price. According to CNBC, the spot gold price is up slightly to US$1,711.00 an ounce. The precious metal fell to a two-week low on Wednesday.

PolyNovo insider sale.

The PolyNovo Ltd (ASX: PNV) share price could come under pressure today after it revealed that one of its directors has been selling shares. Non-Executive Director Dr David McQuillan sold 441,687 shares on market on Wednesday for approximately $1.18 million. The director made the share sale to fund the purchase of property ahead of his move from the United States to Melbourne. Dr McQuillan still holds 770,317 PolyNovo shares.

Blackmores shares to return.

The Blackmores Limited (ASX: BKL) share price will be on watch when it returns from its trading halt this morning. Blackmores requested the trading halt while it undertook a capital raising to raise up to $117 million. This comprises a fully underwritten $92 million institutional placement and a non-underwritten share purchase plan of up to $25 million. The company also provided a trading update which revealed that it was on track to achieve its guidance in FY 2020.

More reading

• Where next for the PolyNovo share price?
• ASX 200 edges down, bank share prices fly
• Is the Ampol share price in the buy zone?
• New to investing? Put $500 into these top ASX 200 shares
• Top broker says this ASX stock is a better buy than Afterpay

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Blackmores 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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One sure-fire way to generate wealth in the share market is by investing successfully in quality companies for long periods.

Take for example, property listings company REA Group Limited (ASX: REA).

If you had invested $10,000 into its shares 10 years ago, your investment would be worth $105,000 today.

But success is by no means guaranteed when you invest. Though, I believe you can put the odds in your favour by investing wisely.

Which shares would be good buy and hold options? I believe the two top ASX shares listed below could help you grow your wealth in the 2020s. Here’s why I like them:

Bravura Solutions Ltd (ASX: BVS)

One area of the market which I think has strong growth potential is the financial technology industry. One of my favourite options in this industry is Bravura Solutions, which is a provider of software products and services to financial institutions. These include major institutions such as BNP Paribas, Fidelity, and Mercer.

The key product that appears to be attracting these giants to Bravura Solutions is its Sonata wealth management platform. It allows users to connect and engage with clients anytime, anywhere, through computers, tablets, or smartphones. It also simplifies legacy client systems into one unified customer-centric solution. I believe Sonata and recent bolt on acquisitions leave the company well-placed to deliver strong earnings growth over the next decade.

ResMed Inc. (ASX: RMD)

ResMed has been a very strong performer over the last 10 years, but I believe it could do it all again in the 2020s. This is because the sleep treatment focused medical device company has a massive and growing market opportunity due to the proliferation of obstructive sleep apnoea.

Given the quality of its mask products and software solutions, I believe it will capture a growing slice of this market over the next decade. This should drive solid earnings growth and potentially market beating returns for investors.

More reading

• Got $1,000 to invest? These quality ASX shares could be the ones to buy
• Invest like Warren Buffett and buy these ASX 200 shares
• Which is the best ASX entertainment media share?
• Where to invest $20,000 into ASX shares right now
• Is the REA Group share price a buy?

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 Bravura Solutions Ltd. The Motley Fool Australia has recommended Bravura Solutions Ltd, REA Group Limited, and ResMed 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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The S&P/ASX 200 Index (ASX: XJO) edged 0.1% lower today to 5,775 points.

Investors are gaining confidence that the Australian economy is going to do better than previously expected with the big difference in the cost of jobkeeper.

Big ASX banks fly higher

The big four ASX banks make up a large part of the ASX 200 index. If it wasn’t for the ASX banks the ASX may have had a pretty bad day today.

The share price of Commonwealth Bank of Australia (ASX: CBA) rose almost 5%. The share price of Westpac Banking Corp (ASX: WBC) went up 8%. Australia and New Zealand Banking (ASX: ANZ) saw its share price drop by 8.6%. The share price of National Australia Bank Ltd (ASX: NAB) went up 7.8%.

Blackmores Limited (ASX: BKL) capital raising

Blackmores announced this morning that it was doing a capital raising of up to $117 million. The company is aiming for $92 million from institutional investors and another $25 million from retail investors.

Management still think it can hit its underlying profit guidance of between $17 million to $21 million.

Whilst immunity products are seeing more demand, the ASX 200 business is seeing less demand for other products. 

CSL Limited (ASX: CSL) drops

The huge ASX 200 healthcare company suffered a valuation setback today. Australia’s dollar is getting stronger, which makes CSL less attractive in Australian dollar terms.

The CSL share price fell by 6.4% in one of the worst days since the coronavirus sell-off started. Not too long ago CSL reaffirmed its profit guidance for the year in constant currency terms.

More reading

• Is now the right time to be buying ASX bank stocks?
• 2 outstanding ASX 50 shares to buy today
• Soaring share price: Is CBA a buy?
• ASX 200 up 0.1%: Big four banks rocket, Afterpay sinks lower
• Why the NAB share price is surging higher today

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 and has recommended Blackmores 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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It has been an oddly disappointing month for the A2 Milk Company Ltd (ASX: A2M) share price.

Since the start of May the infant formula and fresh milk company’s shares are down 4.5%.

This compares to a gain of 4.5% month to date by the benchmark S&P/ASX 200 Index (ASX: XJO).

Why is a2 Milk Company underperforming?

With no news out of the company this month, this decline appears to have been driven by profit taking after strong gains over the last few months.

After all, although a2 Milk Company’s shares have underperformed this month, they are smashing the market in 2020 with a 22% year to date gain.

Should you be selling your shares?

I wouldn’t be a seller of a2 Milk Company’s shares right now. In fact, I would be tempted to take advantage of this share price weakness to buy more shares.

This is because I think the company is one of the best growth shares on the local market and a great long term option.

Especially given the massive opportunity it has in the China market. At the end of the first half of FY 2020 its products were in 18,300 stores in the country and generated revenue of NZ$146.7 million over the six months. This gave it a modest China consumption market share of 6.6%.

Can it continue to grow its sales in China?

Based on its sales and distribution network at the end of the first half, a2 Milk Company was averaging approximately NZ$8,000 sales per store per six months.

We can extrapolate this to NZ$16,000 a year, which is the equivalent of just over NZ$300 per week per store or NZ$60 per working day.

I don’t think it is hard to imagine a2 Milk Company selling a greater volume of units per store in the China market over the coming years. Especially with the company investing heavily in marketing in the country.

Furthermore, while 18,300 stores is a large number, it is by no means the entire market. I expect further growth in its distribution in the coming years to also support its sales growth over the next decade.

Combined with its expanding fresh milk footprint and strong demand for infant formula from other channels, I believe the future is very bright for a2 Milk Company. In light of this, I would buy a2 Milk Company shares and hold onto them for the long term.

More reading

• 3 outstanding ASX growth shares to invest $3,000 into today
• 3 timeless investing lessons from 2020 (so far!)
• Where to invest $5,000 in ASX growth shares today
• 3 ASX 200 shares to watch this week
• 3 ASX 200 growth shares I want to buy for my portfolio

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

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Warren Buffett – usually regarded as one of the best investors of all time – hasn’t had a particularly good 2020.

Financially speaking, it’s been a difficult year for Buffett and his famous holding company Berkshire Hathaway Inc. (NYSE: BRK.A)(NYSE: BRK.B).

Not only has Berkshire not deployed a cent of its estimated US$137 billion cash pile (even on Berkshire stock buybacks), Buffett also sold Berkshire’s significant positions in 4 US airline companies at a hefty loss.

Adding to that, Berkshire shares have not recovered nearly as much as the broader US markets. For some context, since 23 March, the Dow Jones Industrial Average has risen by just under 35% – whilst Berkshire’s Class A shares have only recovered ~12.6%. The Berkshire Class B shares have fared even more poorly, banking only 11.23%.

According to the Australian Financial Review (AFR), Warren Buffett owns around 16% of Berkshire Hathaway, which means that his net worth has plunged around US$20 billion in 2020 to roughly US$69 billion.

The AFR also noted that Buffett is now worth considerably less than Facebook founder Mark Zuckerberg, whose 13% ownership of Facebook puts him at a net worth of US$86.5 billion.

Should Buffett fans be worried?

Not in my opinion. This is a man who has proved he knows how to take advantage of the share market over a very long period of time to build massive wealth.

In the past, such as during the dot-com bubble of the early 2000s, Buffett’s investing style has been out of favour for periods of time. Some new investors have dismissed him as ‘too old’ or ‘out of touch with technology’. Whilst it’s true Buffett hasn’t invested in some of the biggest US growth companies over the past decade, he has still generated meaningful returns for his shareholders at the same time as amassing one of the largest war chests on the market.

If I were a shareholder in Berkshire Hathaway, I would feel very comfortable knowing Buffett has over US$130 billion ready to go in these uncertain times.

Yes, Warren Buffett’s net worth (on paper) has fallen in 2020, but that doesn’t mean he’s a spent force or a ‘has been’. On the contrary, I think he’s one of the best investors to watch right now, and when he finally starts putting that US$137 billion to work, it’s a good hint to take!

More reading

• Why didn’t Warren Buffett buy more shares in the recent bear market?
• Should ASX 200 investors want share buybacks or dividends?
• 3 top Warren Buffett quotes to start off your week
• Start your week off with these 3 top Warren Buffett quotes
• 3 takeaways from Warren Buffett’s Berkshire Hathaway meeting

Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares). 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 think that having a little exposure to the small cap side of the market can be a good thing for a portfolio.

After all, if you unearth the next Afterpay Ltd (ASX: APT) when it is just starting out, you could generate significant returns.

With that in mind, I have picked out three small cap ASX tech shares which I think could be worth a closer look. They are as follows:

Audinate Group Limited (ASX: AD8)

Audinate is a digital audio-visual networking technologies provider. It was growing at a rapid rate prior to the pandemic thanks to the significant expansion of its Dante product offering and the increased adoption by Original Equipment Manufacturers. While the pandemic will put a dampener on its growth, given the benefits it offers end users, I expect demand to pick up once the crisis passes. In addition to this, the company has recently expanded its offering into the audio-video category and could soon revolutionise this market.

ELMO Software Ltd (ASX: ELO)

ELMO Software is a provider of cloud-based human resources and payroll software. Its increasingly popular unified platform allows users to streamline processes for everything from employee administration, recruitment, and payroll. It has been growing very strongly in the ANZ market and delivered a 42.8% increase in annualised recurring revenue (ARR) to $52 million during the first half. The good news is that the company has still only captured a small slice of the local market. I believe this provides it with a long runway for growth. In addition to this, as its platform is jurisdiction agnostic, I believe an international expansion is a real possibility in the future.

Serko Ltd (ASX: SKO)

Serko is a technology company with a focus on developing innovative solutions to address the challenges of corporate travel and expense management. It is a market leader in its category and has over 6,000 corporations and travel management companies using its platform. While Serko’s business has been negatively impacted by the pandemic, it is well-funded and appears to be positioned for a return to growth when travel markets normalise.

More reading

• Top broker says this ASX stock is a better buy than Afterpay
• After hitting $50, the Afterpay share price has pulled back. Is it good value?
• ASX 200 up 0.1%: Big four banks rocket, Afterpay sinks lower
• Why Afterpay, CSL, Fortescue, & Newcrest shares are dropping lower
• 3 easy rules for building a massive ASX share portfolio

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 Serko Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Elmo Software. The Motley Fool Australia owns shares of and has recommended AUDINATEGL FPO and Elmo Software. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Serko 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 Ampol Ltd (ASX: ALD) share price has faced a turbulent past 12 months. Formerly known as Caltex Australia, the company’s recent change to its original name Ampol has meant the fuel convenience brand has largely flown under the radar in recent weeks.

Earlier this year, the Ampol share price nudged $36 per share as the prospects of a takeover by Canadian firm Alimentation Couche-Tard Inc appeared likely. However, the double-whammy of COVID-19 and the unprecedented oversupply of oil have put pressure on this blue-chip company in recent months. This pressure led to the Ampol share price halving in value to a low of $18.32 on 23 March.

With its shares having now rebounded to around the middle of their 52-week high/low range at $26.42, here are 3 reasons I believe Ampol may be heading back to the high 30s in the near future:

Greater fuel demand

The winding down of COVID-19 lockdowns across Australia will inevitably mean more cars on the road and domestic planes in the skies. That’s a good thing for Ampol.

In his presentation to the 2020 Macquarie Conference in early May, Interim CEO Matt Halliday confirmed that retail fuel volumes had decreased by 16% in 2020 alone. At the same time, demand for jet fuel had shrunk by a staggering 80–90%. In response to these downward pressures, the company has implemented rigorous cost-cutting measures. These include a reduction of retail staff hours and executives’ compensation, and limiting its capital expenditure (capex) to below $250 million in 2020.

Despite this challenging environment and the negative implications this may have for Ampol’s short-term cash flow, the company will benefit from the easing of restrictions. In particular, it is likely that people will use a private vehicle in their daily activities rather than take public transport, especially due to the lingering health threats of COVID-19. Additionally, the impending resumption of domestic air travel will positively impact jet fuel demand. This will allow Ampol to claw back some of its recent losses.

Overall, the renewed demand for fuel compounded by easing COVID-19 restrictions may result in a short-term spike in the company’s share price, seeing Ampol’s shareholders benefit from the gains of the S&P/ASX 200 Index (ASX: XJO) more broadly.

Strong future earnings outlook  

Although FY20 will likely see Ampol underperform due to the challenging economic environment, I believe the company’s strong financial position makes it likely to outperform in FY21 and beyond.

In its 2019 annual report to shareholders, the company showcased its robust balance sheet, featuring $35 million in cash, $2.1 billion in inventories and $1.4 billion in receivables. This substantial liquidity pipeline was also supported by the paying of 83 cents per share in fully-franked dividends, representing a handy 3.13% yield to shareholders. Whilst this yield may be on the smaller side, investors may be comforted to know the company hasn’t skipped a dividend payment since 2009.

In addition to its strong balance sheet, Ampol’s proposed initial public offering (IPO) of a 49% stake in 250 of its service stations represents a significant opportunity for shareholders. By placing these sites in a real estate investment trust (REIT) and maintaining a majority interest in the sites, the company estimates that rental payments of $80–$100 million in the first year alone will notably improve returns. These rental payments, projected to be in the form of long-term lease agreements, will likely provide a consistent stream of capital to shareholders, perhaps in the form of an increased dividend.

It appears as though Ampol’s management is looking to reduce its costs and provide innovative profitability opportunities – a good sign the company is heading in the right direction.

Lingering acquisition speculation

COVID-19 and the increased volatility of oil prices derailed a cash takeover of Ampol earlier this year. However, I believe re-negotiations between the company and Alimentation Couche-Tard appear likely in the coming months.

Alimentation had previously offered $35.25 per share for the company. It also assured the market on 20 April that no material issues had been revealed throughout due diligence. Despite being the wrong time and place for a major deal like the one proposed, the Canadian buyer continues to see Ampol as a “strong strategic fit” as part of its Asia-Pacific business. Consequently, I wouldn’t be surprised if both parties looked to re-negotiate a deal in the coming 12 months. A buyout would facilitate a premium return for shareholders.

Foolish takeaway

I think the Ampol share price will experience tailwinds from an easing of lockdown restrictions and its property IPO in the coming months. The company has tightened its belt and effectively conserved capital during COVID-19. This may allow it to emerge from the pandemic relatively unscathed.

More reading

• New to investing? Put $500 into these top ASX 200 shares
• Top broker says this ASX stock is a better buy than Afterpay
• If the ASX 200 crashes again, which shares should you sell?
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Motley Fool contributor Toby Thomas owns shares of Caltex Australia Ltd. 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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