Tag: Motley Fool Australia

The figure of iron ore magnate Lang Hancock loomed large when I was a child in the Pilbara of Western Australia. In the mid-1970s, I had already seen my family and others build 6 towns and open a number of giant mine sites. I was convinced that anything was possible. During that time, Lang and Queensland Premier Joh Bjelke Petersen had a plan. They wanted a cross country rail line that would take iron ore to the east and coal to the west, with blast furnaces on each side. 

Lang’s view was that we were never going to be able to defend the country. So we had to make ourselves invaluable to every one of the nuclear powers. I still believe he was right. Today, this idea of self sufficiency matters more than ever.

Local steel

One look at the size of our iron ore industry and it becomes very clear just how important steel is globally. As post-pandemic stimulus spending starts to take hold, it is going to be even more important. 

BlueScope Steel Limited (ASX: BSL) has been diligently working away in the background of the Australian economy. This was in a period when its only competitor became insolvent and was acquired by foreign investors. 

The company has managed to achieve a cashflow compound annual growth rate (CAGR) of 15.6% over the past 10 years. At the same time, it has averaged a 4 year average return on capital employed (ROCE) of 13%, which is impressive. It is currently selling at an earnings yield of 18.36% (at the time of writing).

In my opinion the company is clearly undervalued and stands to gain if organisations start to source more steel locally.

Local energy

Australians have often wondered why a country that leads the world in LNG production, has 30% of recoverable uranium deposits and the 3rd largest coal deposits on the planet has such high electricity prices. Naturally, the Prime Minister’s Manufacturing Taskforce has quickly arrived at the truism that high energy and electricity costs are a barrier to growth in manufacturing.

Until a recent long term deal, this was a cornerstone of complaints from Tomago Aluminium, owned by CSR Limited (ASX: CSR). If the government acts on its promise to reduce layers of bureaucracy costs, the LNG producers stand to gain. 

This would include industry giant Woodside Petroleum Limited (ASX: WPL) and Origin Energy Ltd (ASX: ORG).

Local manufacturing

The true beneficiaries of local supply chains would be those companies already manufacturing at home. Of these I have always liked Reliance Worldwide Corporation Ltd (ASX: RWC). Reliance is involved in the design and manufacture of water flow, control and monitoring products and solutions. A lot of this company’s manufacturing plants are still located in Australia and New Zealand. I am hopeful cost reduction and a “buy Australian first” approach will benefit it too. 

More reading

• ASX 200 Weekly Wrap: ASX rallies on mining highs
• 5 things to watch on the ASX 200 on Monday
• 5 things to watch on the ASX 200 on Friday
• 5 things to watch on the ASX 200 on Thursday
• ASX 200 construction share warns of bleak outlook for the sector

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 Reliance Worldwide Limited. The Motley Fool Australia has recommended Reliance Worldwide 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 Flight Centre Travel Group Ltd (ASX: FLT) share price and the Webjet Limited (ASX: WEB) share price are among the best performers on the market on Monday.

In afternoon trade their shares are up an impressive 12% and 14%, respectively.

Why are Flight Centre and Webjet shares zooming higher?

With no news out of either company, today’s gain could be in relation to speculation that a trans-Tasman travel bubble could soon be launched.

According to Nine Entertainment Co Holdings Ltd (ASX: NEC) News, New South Wales Premier Gladys Berejiklian has reconfirmed her support for a trans-Tasman bubble.

Premier Berejiklian wants this to happen sooner rather than later, commenting: “I’d like to see it happen this side of Christmas.”

And while Queensland Premier Annastacia Palaszczuk isn’t keen on opening her borders any time soon, Federal Tourism Minister Simon Birmingham suggested that these plans should not be held back by states.

Mr Birmingham told the Sydney Morning Herald that he wants Australia’s tourism industry to start its recovery from the pandemic with or without the support of the Queensland state government.

He said: “If New Zealand and some Australian states are ready and willing to progress, then the reluctance of other states to open up their domestic borders shouldn’t become an obstacle to progress.”

“The recovery of jobs and small businesses in some states shouldn’t be held back by the decisions of other state governments,” he added.

This potential travel bubble would be a big positive for travel booker such as Flight Centre and Webjet, as well as airline operators Qantas Airways Limited (ASX: QAN) and Air New Zealand Limited (ASX: AIZ).

While a full recovery will take some time, the sooner the market starts its slow recovery the better, as it will limit the cash burn these four companies are experiencing right now.

Should you invest?

While I am a big fan of Flight Centre and Webjet, I think their valuations are a little stretched right now. Especially when you factor in the dilution caused by their recent capital raisings.

However, patient investors might do well by holding onto their shares for the long term. But I’m going to be sitting this one out and focusing on other areas of the market which I think offer better value for money.

More reading

• ASX 200 up 1.7%: Flight Centre and Webjet rocket, Afterpay hits record high
• Why Afterpay, Flight Centre, TPG Telecom, & Western Areas are charging higher
• 5 ASX 200 winners and 4 losers of last week
• Why these ASX stocks will be under the spotlight on Monday
• Brokers name 3 ASX 200 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 Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Afterpay Ltd (ASX: APT) share price has continued its positive run and charged higher again on Monday.

At one stage the payments company’s shares were up as much as 10% to a new record high of $49.00.

Why is the Afterpay share price charging higher?

Investors have been buying Afterpay’s shares on Monday due to a combination of positive investor sentiment and the announcement of board changes.

In respect to the latter, this morning the company announced that Elana Rubin will become its Chair with immediate effect. She had been in the role on an interim basis but has been made permanent now.

Rubin will retire from the ME Bank board following its June 2020 meeting, but remain as a Non-Executive Director for Telstra Corporation Ltd (ASX: TLS) and Slater & Gordon Limited (ASX: SGH).

In addition to this, the company has appointed Sharon Rothstein as an Independent Non-Executive Director. She will formally join the board on 1 June 2020.

Rothstein is based in the United States and presently sits on the board of crowd sourced reviews business Yelp. She is also an Operating Partner at growth equity firm, Stripes Group.

What else is driving the Afterpay share price higher?

Investors have been buying the company’s shares this month after it provided a very positive update on its U.S. operations.

That update revealed that there are now more than five million active customers using its buy now pay later service in the country. This makes it the company’s largest geographic segment by some distance, despite it only launching there two years ago.

Impressively, more than one million new customers joined during a ten-week period at the height of the pandemic.

Nick Molnar, Co-Founder and U.S. CEO of Afterpay, commented: “At a time in which ecommerce has become the primary way people are shopping, there is a growing interest and demand among consumers to pay for things they want and need over time using their own money – instead of turning to expensive loans with interest, fees or revolving debt.”

Can its shares go higher?

I feel Afterpay’s shares are probably fully valued at this point. So, I wouldn’t recommend buying shares if you’re only making a short term investment.

But if you’re in for the long haul, then I certainly would be a buyer. I believe its global expansion and potential new product launches in the future will drive strong earnings growth and returns for investors over the next decade and beyond.

More reading

• ASX 200 up 1.7%: Flight Centre and Webjet rocket, Afterpay hits record high
• Should you invest $1,000 in Altium shares today?
• Why Afterpay, Flight Centre, TPG Telecom, & Western Areas are charging higher
• Why Afterpay and cohorts could confirm the economy bottomed in April
• How these 3 ASX financial shares have proved their doubters wrong

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of AFTERPAY T 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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Recent events indicate we are at the beginning of a silver bull market. The silver to gold ratio is larger than it has ever been in my lifetime. Industrial demand is starting to come back online, and the world is seeing increase industrial use for renewable assets and batteries. Also, I stack (or collect) precious metals and I cannot get any until July. 

Precious metals are not formed on earth. They come from the single most violent event in the universe, when a star goes supernova. They then land on earth and through geological processes end up in various types of deposits over millions of years. So not only are they rare on earth, they are some of the rarest metals in the universe!

I have been stacking precious metals for about 30 years now. In this time, I have learned two things about silver in particular.

First, it is very volatile. In US dollars, the gold price has rise by 11.4%, year to date (at the time of writing). Since the silver bull market started (around late April), the silver price in US dollars has risen 10.1% in a month. Second, it always seems to snap back to an average ratio. In the 48 years since 1970, it averaged 57:1. I buy gold when the ratio is close to average, and I buy silver when it is large. Today the ratio is ~103:1.

The silver bull market

South32 Ltd (ASX: S32) owns the silver and lead producing Cannington mine in Queensland. Cannington is one of the world’s largest and lowest cost silver mines. It produces 6% of the total world silver production. With an earnings yield of 13.6% at the time of writing, South32 appears to be selling cheap. For the 3 years it has been profitable it has achieved an average return on capital expended of 27%. This is a very good user of capital.

BHP Group Ltd (ASX: BHP) started out as a silver miner and still produces a lot of silver as a by-product. In FY2019, it produced around 2.9 Moz of silver. BHP is well placed across a range of commodities including the booming iron ore trade as well as future facing copper and nickel production. 

Of the major producers, Oz Minerals (ASX: OZL) processed approximately 630,421 ounces of silver in FY19 as a byproduct of its gold production. However, Sandfire Resources Ltd (ASX: SFR) is in the feasibility stage of a mineral deposit in Botswana with a known silver reserve of 14.6Moz. Its share price is likely to see a bump as the silver bull market takes hold.

Foolish Takeaway

Australia is well placed for the silver bull market – we have the third largest silver reserves on the planet. Our miners also have access to large deposits of silver across the world. We are very cost effective miners with a demonstrated capacity to bring production online quickly. 

More reading

• 3 commodity trends to watch this week
• ASX 200 Weekly Wrap: ASX rallies on mining highs
• Where to invest $5,000 in ASX 200 shares immediately
• Have $500 to invest? Then buy these 5 ASX 200 shares immediately
• ASX 200 drops 1% on Friday

Motley Fool contributor Daryl Mather 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 think investors need to be smart about which shares they buy at the moment.

The first wave of the coronavirus seems to be passing, but we haven’t seen the full economic pain of it yet. There could still be a second wave.

I think smart growth share investors with $2,000 should go for ideas that which long-term growth potential but could see growth accelerate due to the current situation.

If you have $2,000, I’d be looking at one of these smart share ideas:

Bubs Australia Ltd (ASX: BUB)

Bubs is one of the lucky businesses seeing its growth accelerate during this period. In the update for the third quarter to 31 March 2020, Bubs said its quarterly revenue of $19.7 million was up 67% on the prior corresponding period and up 36% on the previous quarter.

Customers are stocking up on Bubs products. The infant formula business recently announced another impressive distribution announcement which will see more products sold in more shops.

I was pleased to see that the company generated a positive operating cashflow of $2.3 million for the period and ended with a cash balance of $36.4 million. Positive cashflow is an important step for a small cap. 

It may be too bullish of me to expect it to follow in the exact footsteps of other ASX infant formula shares, but it’s making some very promising moves.

Magellan High Conviction Trust (ASX: MHH) 

Many of the world’s best businesses aren’t listed in Australia. You could look to invest in them directly, or you could invest in them indirectly. I like the idea of this listed investment trust (LIT) which is invested in around 10 of the best shares in the world. You don’t need to worry about which individual shares to own.

Its top five holdings include Alibaba, Alphabet, Microsoft, Starbucks and Tencent. It also owns Facebook. Apart from Starbucks, I think the other top four are clearly in a good position to keep earning strong profits during this difficult period because of their digital business models.

We can sometimes buy this LIT at a nice discount when its share price is less than its net asset value (NAV) per share). At the moment that discount is around 5%, not bad.

Pushpay Holdings Ltd (ASX: PPH)

Pushpay is another share I think that can be a strong performer over the next three years. It already has been very good since the start of May.

FY20 was a great result and the earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) is expected to jump again in FY21 by around 100%.

I expect electronic donations to US churches to rise significantly because of the coronavirus. I like that Pushpay’s app also allows those churches to livestream their services to people who can’t be there.

Pushpay is a great share to invest in because its margins are rapidly rising. It’s starting to generate good cashflow and there are still plenty of countries and (non-church) charitable sectors to expand into.

Foolish takeaway

I really like all three of these share ideas. At the current prices it’s hard to pick between them, though I’d put Bubs and Pushpay slightly higher. I think they all have very promising futures.

More reading

• 3 explosive ASX growth shares to buy
• 3 ASX shares that I’d invest $1,000 into EVERY month
• 2 ASX stocks that could replace cash
• Where growth, income, and value investors can invest right now
• 3 top ASX growth shares that could smash the market in the 2020s

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Warren Buffett has long been an advocate of buying back his own stock rather than paying a dividend to shareholders. The reason why? He believes that he can invest the funds better than individual shareholders and, thus, compound their wealth quicker.

That is Buffett and predominantly US shareholders though. He has an amazing track record of allocating capital and creating outperformance for shareholders. Australian investors are much hungrier for and more used to dividends making up a significant portion of their share market investment returns versus their US counterparts.

The argument for dividends

What do Malta, New Zealand and Australia have in common? A full imputation credit system, i.e. franking credits. We are lucky enough to receive a tax credit for income taxes paid by the companies we own shares in. This is a significant benefit and under current law can even lead to a tax refund, depending upon your circumstances.

Dividends also allow investors the choice of where to invest their new capital. This can help with increasing diversification or improving investment returns by redeploying capital into your best idea at the time. Many companies offer dividend reinvestment plans (DRIP) giving you the option (without brokerage) to buy more of the company’s shares, if that’s your best idea.

Dividends are a great way to increase your cash flow. Many retirees hold a diversified portfolio of dividend-paying shares, the income of which they live off.

Another reason dividends may be preferred over buybacks is that management teams often mistime buybacks, buying at high share prices and conserving cash at depressed share prices.

Some great dividend shares include Jumbo Interactive Ltd (ASX: JIN) and Macquarie Group (ASX: MQG).

The arguments for buybacks

Buybacks reduce the number of outstanding shares on the market, meaning that all future earnings are greater on a per-share basis. Theoretically, investors should see greater share price appreciation if everything else was consistent.

Cash is a drag on your investment returns. The same can be said for companies. Buying back shares is a way of reducing cash drag and improving returns. A perfect example of this is Apple Inc. (NASDAQ: AAPL) which has a mountain of cash.

So why didn’t Buffett buy Berkshire during the bear market?

When Berkshire Hathaway Inc. (NYSE: BRK.B) reported its March quarter activity, many investors were shocked to see that Warren Buffett had not put more of his massive cash pile to work. Buffett didn’t make any meaningful buys, including buying back Berkshire’s own stock. This is despite Berkshire trading at a price-to-book value below Buffett’s previously touted buy zone of 1.2 times.

A couple of potential reasons for Buffett not buying back more of his own shares are:

1. Berkshire’s investment portfolio includes a number of wholly-owned businesses, as well as a number of consumer-facing share investments. Buffett has more information about these businesses than anyone else. This would suggest he knows the true economic impacts on these businesses and thinks that the share price is out of line with the business fundamentals.
2. The buy-back program is at the full discretion of Buffett and Munger, vice chairman of Berkshire. A price-to-book valuation isn’t ideal and so in recent times, they have looked more to earnings multiples to value Berkshire.

Foolish bottom line

Both buybacks and dividends can be great for investors when implemented well by management. ASX investors should buy shares in companies with great management teams.

More reading

• ASX 200 Weekly Wrap: ASX rallies on mining highs
• Where to invest $20,000 into ASX shares right now
• How I would build a $130,000 ASX dividend portfolio right now
• 3 ASX dividend shares I would buy to beat low rates
• How to reduce your work to part-time using ASX shares

Lloyd Prout 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 Apple, Berkshire Hathaway (B shares), and Jumbo Interactive Limited 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 owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia has recommended Apple, Berkshire Hathaway (B shares), and Jumbo Interactive 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 potential for a vaccine for coronavirus has flooded news headlines recently, causing some ASX shares to rally. The rush to find a ‘silver bullet’ cure for the pandemic has resulted in a slew of listed companies announcing their intentions to undertake research around a possible cure. 

Despite the optimism and enthusiasm for a vaccine, many scientists have indicated that a well-trialled and tested vaccine for COVID-19 could take much longer than 18 months to develop. The vast majority of vaccines fail somewhere between Phase 1 and Phase 2 trials.

Given the nature of COVID-19 and the trial processes involved in vaccine development, companies that have joined the race to find a cure could face a long and costly journey. As a result, the focus has also turned to alternative methods of treating and testing for COVID-19.

Here are 2 ASX biotechnology companies that have joined the fight against COVID-19.   

2 ASX shares involved the fight against coronavirus

Mesoblast limited (ASX: MSB)

Mesoblast is a world leader in developing regenerative medicines for inflammatory diseases and prides itself on innovation surrounding stem cell research. The company made headlines late last month after announcing promising results for its remestemcel-L treatment for COVID-19. In a US trial, Mesoblast recorded an 83% survival rate in ventilator-dependent COVID-19 patients, while 75% of patients had successfully come off ventilator support within 10 days.

Mesoblast’s remestemcel-L product acts by counteracting the inflammatory processes caused by COVID-19. The company is currently undertaking a $46 million Phase 2/3 trial in the US in order to attain approval from the US Food and Drug Administration.

The promising results from its US trials has seen the Mesoblast share price surge more than 250% from its lows in mid-March.  The company recently completed a $138 million capital raising in order to scale-up manufacturing of its products and is also in the process of conducting clinical trials in Australia.

CSL Limited (ASX: CSL)

CSL is not actively participating in the race to develop a vaccine for COVID-19. The biotechnology giant is, however, working hard to develop a plasma product that may assist in the recovery of patients battling the disease. In collaboration with the Australian Red Cross Lifeblood Service, CSL is collecting plasma from patients who have recovered from COVID-19. The collected plasma, which contains antibodies, will then be used to support a clinical trial aimed at improving the condition of COVID-19 patients and reducing their need for ventilation.  

Should you buy these ASX shares?

Despite the optimism surrounding a coronavirus vaccine, the reality is that a successful solution will not happen overnight. Biotech companies have to undergo arduous and costly approval processes and clinical trails before actually getting a product to market.

As a result, I think investors should exercise caution when companies announce their intentions to fight COVID-19. In my opinion, if you’re keen on investing in the sector, tried and tested performers like CSL would be the best, long-term option as they offer greater risk protection.

More reading

• ASX 200 Weekly Wrap: ASX rallies on mining highs
• 3 ASX 200 shares to watch this week
• 5 ASX 200 winners and 4 losers of last week
• Got $2,000? Here are 2 ASX 200 healthcare shares to buy today
• Have $500 to invest? Then buy these 5 ASX 200 shares immediately

Nikhil Gangaram 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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If you’re looking to make a long term investment in a collection of ASX growth shares, then the three listed below could be worth considering.

I believe all three have the potential to deliver returns that smash the market over the next decade. Here’s why I would invest $3,000 into them:

BetaShares Asia Technology Tigers ETF (ASX: ASIA)

The first option for growth investors to consider buying is the BetaShares Asia Technology Tigers ETF. This exchange traded fund provides investors with exposure to a number of exciting tech shares in the Asian market. These include the likes of ecommerce giants Alibaba and JD.com, search engine company Baidu, and new Afterpay Ltd (ASX: APT) shareholder and WeChat owner, Tencent. Given how these companies are revolutionising the lives of billions of people in the region, I believe they are well-positioned for strong growth over the next decade.

Cochlear Limited (ASX: COH)

Another ASX growth share to consider buying is Cochlear. I like this hearing solutions company due to its exposure to the ageing populations tailwind. As people age, their hearing will often fade and require some form of assistance. I expect this to lead to increasing demand for hearing solutions products over the next couple of decades. Given Cochlear has industry-leading products and a wide distribution network, I expect it to benefit greatly from this.

Domino’s Pizza Enterprises Ltd (ASX: DMP)

Another top ASX growth share to buy could be Domino’s Pizza. I believe the pizza chain operator is well positioned to deliver more than just pizzas over the next decade. I expect a helping of strong returns as well. Especially given its same store sales and store expansion goals. Over the next five years the company is aiming to deliver annual same store sales growth of 3% to 6% and annual organic new store additions of 7% to 9%. If it can maintain its margins, this should support strong earnings growth over the next decade.

More reading

• 3 ETFs perfect for an ASX growth investor
• ASX retail stocks facing new billion-dollar earnings scare during COVID-19 recovery
• How to become a millionaire with a $5,000 investment in ASX 200 shares each year
• 2 top ETFs for high growth
• $3,000 invested in these 3 ASX industries could make you a fortune in the future

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 Cochlear Ltd. The Motley Fool Australia owns shares of and has recommended BetaShares Asia Technology Tigers ETF. The Motley Fool Australia has recommended Cochlear Ltd. and Domino’s Pizza Enterprises 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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With so many shares to choose from on the S&P/ASX 200 Index (ASX: XJO), it can be hard to decide which ones to buy.

The good news is that brokers across the country are doing a lot of the hard work for you.

Three top shares that leading brokers have named as buys this week are listed below. Here’s why they are bullish on them:

Sydney Airport Holdings Pty Ltd (ASX: SYD) 

According to a note out of Goldman Sachs, its analysts have reiterated their buy rating and $7.00 price target on this airport operator’s shares following its annual general meeting. The broker believes that management’s commentary fits with its expectations for a staged recovery in passenger volumes over the medium term. In light of this, it believes Sydney Airport’s shares are cheap at the current level. I agree with Goldman Sachs and would be a buyer of its shares today.

TPG Telecom Ltd (ASX: TPM)

Analysts at Morgans have upgraded this telecommunication company’s shares to an add rating with an improved price target of $9.14. The broker sees a lot of positives in its merger with Vodafone Australia. It expects it to benefit from cost savings and their combined cash flows which can be used for capital expenditure activities. While it isn’t my top pick in the industry, I do think Morgans makes some great points and TPG Telecom could be worth a closer look.

Wesfarmers Ltd (ASX: WES)

A note out of the Macquarie equities desk reveals that its analysts have retained their outperform rating but cut the price target on this conglomerate’s shares slightly to $39.40. According to the note, the broker believes the conversion of Target stores into Kmart stores is a good move and could give its earnings a big boost in the future. It also believes the Catch business is well-positioned for growth after adding Kmart and Target goods to its marketplace. While Wesfarmers’ shares have now pushed beyond this price target, I would still be a buyer with a long term view.

More reading

• ASX 200 up 1.7%: Flight Centre and Webjet rocket, Afterpay hits record high
• Telstra share price down 21% since February. Is it now in the buy zone?
• Should you invest $1,000 in Altium shares today?
• 3 commodity trends to watch this week
• Why Afterpay, Flight Centre, TPG Telecom, & Western Areas are charging higher

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of 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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The City Chic Collective Ltd (ASX: CCX) share price has taken off in early trade this morning on the back of a COVID-19 update. The ASX retail share announced strong online sales growth, profitability through the pandemic, and the staged re-opening of stores across Australia and New Zealand.

City Chic is a global, omnichannel retailer that specialises in plus-size women’s apparel, footwear and accessories. It is a collective of customer-led brands, including City Chic, Hips & Curves, and Avenue, the latter of which was acquired towards the end of last year.

The company’s omnichannel model comprises a network of more than 100 stores across Australia and New Zealand, multiple websites operating in Australasia and the US, and wholesale partnerships with major retailers, including Nordstrom, ASOS, and Macy’s.

What did City Chic announce?

One of the key takeaways from this morning’s announcement is that City Chic has managed to trade profitably through the period of COVID-19-related restrictions.

On 27 March, City Chic made the move to temporarily close its brick-and-mortar stores. However, being an omnichannel retailer with online contributing two-thirds of its global sales, most of City Chic’s business has continued to operate. 

Notably, the company revealed 57% online sales growth during the store closures compared to the same period last year.

City Chic has been adjusting its product mix to suit a change in customer behaviour, with strong buying of intimates, casual and streetwear offsetting weaker demand for ‘better-end dressing’. However, the retailer flagged it has been “more promotional” in order to manage cash flows and inventories, which has led to lower online gross margins.

How has City Chic responded to COVID-19?

Over the past 8 weeks, City Chic has implemented a number of measures to minimise the impact of the closure of its store network. With this, the retailer has driven working capital efficiencies, reduced head office costs, and deferred non-essential capital expenditure.

Additionally, City Chic has negotiated reduced rents with a large majority of landlords, along with “market appropriate go-forward rents” while uncertainty relating to COVID-19 remains.

The retailer notes it is in a strong financial position with minimal debt and significant headroom in its $40 million debt facility.

Over the past 2 weeks, City Chic has trialled a number of stores to ensure it is able to open its store network with the appropriate safety and hygiene measures in place.

After closing on Friday at a price of $2.44, City Chic shares jumped as much as 13.52% this morning to an intra-day high (so far) of $2.77. Pulling back somewhat to sit at $2.65 at the time of writing, the City Chic share price is back in positive territory for the year with a 4.74% gain year-to-date.

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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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