Tag: Motley Fool Australia

On Wednesday, the Motley Fool received commentary from Saxo Capital Markets by Australian Market Strategist, Eleanor Creagh. The commentary included some grim predictions which could be particularly relevant to the share prices of ASX banks such as National Australia Bank Ltd. (ASX: NAB) and Commonwealth Bank of Australia (ASX: CBA) as well as gold miners such as Newcrest Mining Limited (ASX: NCM).

The risk of a double dip recession

According to Eleanor Creagh, there are risk factors that could see Australia enter a double dip recession.

She suggested that Australian Bureau of Statistics data showed that the jobs rebound seen in June is stalling. This is consistent with a flattening of the recovery curve which means that the economy’s rebound after lock downs earlier this year may be starting to wane and that economic growth could be going sideways rather than upwards. Ms Creagh also suggested that there is a considerable degree of uncertainty surrounding the economic recovery, especially as the economic boost resulting from early superannuation withdrawals fades.

According to the commentator, consumer confidence is also stalling as Melbourne has moved back into lock downs and New South Wales is suppressing smaller coronavirus outbreaks.

The market strategist stated;

“To maintain the trajectory of the recovery and avoid the ‘double dip recession’, confidence amongst businesses and consumers is critical in upholding investment, spending, and jobs and re-asserting a self-sustaining trajectory for economic growth and the labour market.”

She also called for ongoing government stimulus, stating;

“The economy did not enter this crisis from a position of strength and amidst signs the recovery is already beginning to plateau the priority of ongoing fiscal support remains.”

A double-dip recession would mean that the current economic recovery would turn around and the economy would once again begin shrinking. This could be bad news for the big banks including NAB and the Commonwealth Bank of Australia.

NAB raised $3.5 billion from shareholders in May in order to strengthen its capital buffer, along with maintaining a modest dividend. This bank has a significant commercial loan book and could face headwinds if consumer confidence dries up and businesses see lower revenue, which could lead to loan defaults. The NAB share price rose 1.56% on Wednesday to $18.18 as APRA changed its recommendation regarding payment of dividends. APRA had previously warned banks against paying dividends but has now downgraded its advice to recommend payment of reduced dividends. The NAB share price is up 37.8% since its 52 week low of $13.20, however, it is down 36.52% since this time last year.

Commonwealth Bank of Australia also faces risks if there is a double dip recession. This bank is Australia’s biggest lender and had almost $760 billion in loans on its balance sheet at the end of the 2019 financial year. A double dip recession could hit CommBank significantly as it sees more borrowers unable to repay their business loans, consumer loans and mortgages. The CommBank share price was up 1.11% on Wednesday to $73.01. Its share price is up 36.62% from its 52 week low of $53.44, however, it has dropped 12.46% since this time last year.

The outlook for gold mining shares

Eleanor Creagh pointed out that yields on government bonds, after inflation, have collapsed. In addition, the United States dollar index has fallen, showing a weaker US dollar. She pointed out that as geopolitical uncertainties and fear around the pandemic remain elevated, gold has rallied – breaking through its 2011 high and reaching a new record high. The writer suggests that part of the reason for this is that yields after inflation on government bonds are now below zero.

According to the commentator, moves by the US federal reserve to support the US economy are putting upward pressure on the gold price, which she predicts may reach as high as $2000 in spot trading. However, she suggests it is likely that gold has reached a temporary top in the short term. She believes it is likely that long-term prices will increase after a short-term decline as central banks become more and more influential.

The commentator stated;

“Gold has a growing importance within cross-asset portfolios and although tactically, the run higher may be stretched and due for a period of consolidation, long term demand for gold remains.”

This could be good news for miners with low costs that could easily work through a short-term pullback in gold prices. It could also have long-term implications for the share prices of gold miners such as Newcrest Mining. 

Newcrest had an all inclusive statutory cost of $878 per ounce in the June quarter of 2020. This means that it can likely still make a significant profit per ounce even if gold prices temporarily fall. Additionally, if the strategist’s prediction for long-term gold prices is accurate, Newcrest could see significant benefit from a higher gold price in the future. The Newcrest share price was down 0.8% on Wednesday to $36.06. It has also fallen a further 1% so far today and is currently trading at $35.70. The Newcrest share price is up 74.5% from its 52 week low of $20.70 and is up 1.62% since this time last year. 

More reading

• ASX 200 jumps 0.7%: Fortescue impresses, Macquarie’s tough Q1, big four banks rise
• Here are the dividends this broker thinks CBA and the big four will pay in 2020
• ASX 200 drops 0.2%, APRA boosts big 4 ASX banks
• ASX big banks stocks outperform even as APRA caps dividends
• APRA eases dividend restrictions, ASX bank shares rally

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

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The IOOF Holdings Limited (ASX: IFL) share price has dropped by 5.88% at the time of writing, following a business update by the company for the fourth quarter of the 2020 financial year.

What was in the announcement?

According to the announcement, IOOF’s funds under management, advice and administration (FUMA) grew to $202.3 billion at 30 June, an increase of 3.4% during the fourth quarter of the 2020 financial year.

IOOF’s financial advice business had net outflows of $93 million compared to outflows of $853 million in the prior corresponding period (pcp).

The company’s portfolio and estate administration had net inflows of $398 million, excluding early release of superannuation, compared to inflows of $561 million on pcp.

IOOF’s investment management business had a net outflow of $51 million, compared to $181 million on pcp. Its pension and investments business had net outflows of $183 million, excluding early release of super.

The company paid out $743 million in the early release of superannuation from 20 April to 30 June 2020.

Commenting on IOOF’s FUMA result, CEO Renato Mota stated:

The Milestone of over $200 billion in FUMA is testament to IOOF’s increased scale and the benefits of the diversification of our business. The transformative acquisition of the P&I business contributes to our business model resilience and will be important as we look to a  post  COVID-19 recovery and supporting long-term growth in FUMA and earnings.

The recent recovery in equity markets has been the major contributor to the $6.7 billion uplift in FUMA and pleasingly, we have continued to attract strong flows into our platforms. That said, the impacts of the COVID-19 pandemic are continuing.  Our advisers are seeing first-hand client concern and uncertainty around macro-economic conditions. This client sentiment is particularly apparent through withdrawals associated with the Early Release of Superannuation scheme and subdued flows in Financial Advice.

IOOF expects to report underlying net profit after tax of around $128 million to $130 million for the 2020 financial year. Underlying net profit after tax from continuing operations is expected to be $123 million–$125 million.

About the IOOF share price

IOOF is an Australian financial services company with a history dating back to 1846. It offers superannuation, financial advice, investment management and trustee services. 

In July, IOOF announced that a class action brought against the company in relation to a breach of superannuation directors duties was dropped, with no payment made to those bringing the claim.

The IOOF share price is up 82.35% since its 52-week low of $2.72, however, it is down 37% since the beginning of the year. The IOOF share price is down 15.01% since this time last year.

More reading

• Why IOOF, IGO, Janus Henderson, & Qantas shares are dropping lower

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

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The worst performer on the S&P/ASX 200 Index (ASX: XJO) on Thursday has been the Sandfire Resources Ltd (ASX: SFR) share price.

In afternoon trade the copper producer’s shares are down a disappointing 7.5% to $5.14.

Why is the Sandfire share price sinking lower?

Investors have been selling the miner’s shares following the release of its fourth quarter and full year update this morning.

Sandfire actually had its strongest quarter of the year in the fourth quarter. Copper production came in at 19,313 tonnes and gold production reached 13,541 ounces. This was a 7.7% and 44.8% increase, respectively, on its third quarter production.

Another positive was its ultra-low C1 costs for the quarter. Sandfire recorded C1 costs of 51 U.S. cents per pound, down 31% on the third quarter. Management advised that its reduction in C1 costs was due to a combination of record copper production, record gold production, and lower currency.

For the full year, copper production came in at 72,238 tonnes and gold production totalled 42,263 ounces. This was achieved with C1 costs of 72 U.S. cents per pound.

This ultimately led to Sandfire reporting unaudited FY 2020 revenue of $657 million, up 10.9% year on year. The miner finished the year with group cash and deposits of $291 million.

What about FY 2021?

Given this strong finish to the year, investors may have been hoping for more of the same in FY 2021.

Unfortunately, Sandfire’s guidance shows that this will simply not be the case. Which I suspect is the reason for the heavy selling today.

Management expects copper production to reduce to between 67,000 and 70,000 tonnes in FY 2021. The same is expected for its gold production, with management guiding to 36,000 to 40,000 ounces over the 12 months.

But perhaps worst of all, management is expecting its C1 costs to increase at least 25% to between 90 U.S. cents and 95 U.S. cents. That means a double whammy of lower production and higher costs, which is what no mining company shareholder wants to see.

In light of this, I can’t say I’m surprised to see the Sandfire share price tumbling notably lower today.

More reading

• 3 latest ASX 200 stocks to be downgraded by top brokers today
• ASX 200 jumps 0.7%: Fortescue impresses, Macquarie’s tough Q1, big four banks rise
• Fortescue’s share price in focus as it beats guidance on record quarterly shipments
• 2 top ASX dividend shares to buy for income in 2020
• Rio Tinto’s capital return crashes by half on $2.5 billion dividend payout

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 Genworth Mortgage Insurance Australia (ASX: GMA) share price has plunged 6.23% at the time of writing today, after the insurer reported its half-year results.

After reporting a $90.0 million net loss after tax, Genworth has advised it will not pay an interim dividend for 1H20.

What are the key statistics?

I’ve summarised some key financial metrics from Genworth’s results below:

• Gross written premium up 30% to $239.3 million
• Net earned premium up 2.2% to $150.8 million
• Net claims incurred up 26.6% to $101.1 million
• Insurance loss of $128.1 million compared to $77.3 million profit, largely driven by $194.5 million of acquisition costs
• Statutory net loss after tax of -$90.0 million compared to an $88.1 million profit in 1H19.
• Underlying net loss after tax of -$85.5 million versus $43.1 million in 1H19 net profit
• Basic earnings per share came in at -21.8 cents versus 20.6 cents in 1H19.
• Net assets down 8.0% from 1H19 to $1.41 billion.
• Loss ratio increased to 67.0%, up from 54.1% in 1H19.

What did management have to say?

CEO Pauline Blight-Johnston said Genworth’s first half performance reflected “sound fundamentals” and set the company up well to manage the impacts of COVID-19.

A deferred acquisition cost writedown of $181.8 million (pre-tax) hit the company’s bottom line. So too did a $35.5 million increase in loss reserving for the year ahead.

Volume numbers were strong, with new insurance written in its lenders mortgage insurance business up 8.1% to $13.5 billion.

Strong housing market growth in major capital cities (pre-COVID) and the record low-interest rate environment were cited as strong supporting factors.

Those low rates weren’t all good news, however, with 1H20 annualised investment return coming in at 1.7% in 1H20, down from 2.6% p.a. in 1H19.

As at 30 June 2020, 81% of Genworth’s $3.2 billion investment portfolio was in cash and high investment grade fixed interest securities.

What about the capital position?

The $90 million net loss after tax has dropped the Genworth share price by more than 6% today.

However, the insurer’s balance sheet and regulatory capital position remains strong.

Genworth reported a regulatory solvency ratio 1.77 times the prescribed capital amount, well above the board’s target 1.32 to 1.44 times range.

Genworth’s credit rating was also recently affirmed by Standard & Poor’s at ‘A-‘ with Fitch revised from ‘A+’ to ‘A’.

COVID-19 outlook

The Genworth share price is on the move today after kicking off the August earnings season a little early. 

The insurer did report increased estimation uncertainty because of the coronavirus pandemic. 

This uncertainty is driven by disruption to businesses, the expected downturn in gross domestic product (GDP) and the effectiveness of government and central bank measures to support the economy.

Genworth also noted an anticipated increase in future claims “due to the economic impacts of COVID-19”.

How has the Genworth share price performed this year?

The Genworth share price has fallen 55.3% since its full-year earnings result on 5 February and is down 52.3% for the year.

That compares to a 9.7% decline in the S&P/ASX 300 Index (ASX: XKO) over the same period.

That 4 February price has proven to be the high point for the insurer’s share price in the year to date.

Prior to this morning’s market open, the Genworth share price was trading at $1.84 per share. It’s now trading at $1.74 per share (at the time of writing). The company’s price to earnings (P/E) ratio is 6.04 with a market capitalisation of $709.52 million.

More reading

• Results: Marley Spoon share price surges 40% on market update
• Value stocks to rise on strong A$ and broker picks the cheapest ASX stocks to buy today
• 3 tips for investing in ASX 200 shares for beginners
• How to invest $10,000 in ASX 200 shares for growth and dividends
• 3 reasons to buy Vanguard Australian Shares Index ETFs

Motley Fool contributor Ken Hall 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 S&P/ASX 200 Index (Index:^AXJO) big 33% surge in the past four months pushed a number of stocks beyond good value. Broker have just downgraded their recommendations on a number of these outperformers.

The latest clutch of downgrade candidates come from the resources sector after they released their latest quarterly production and profit updates.

Brokers have used this as a trigger to downgrade their recommendations on these stocks after their solid run.

Quality holding but little upside

The most notable is the Rio Tinto Limited (ASX: RIO) share price with Morgans dropping its rating on the stock “hold” from “add”.

Australia’s largest iron ore miner posted its half year result yesterday evening. While Rio Tinto’s earnings were ahead of the broker’s estimates, its interim dividend disappointed.

The miner’s first half underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of US$9.6 billion was ahead of the US$9.0 that Morgans was forecasting. But operational cash flow was weaker than expected.

“As a result RIO announced an interim ordinary dividend of US$1.55ps (53% payout ratio) with no special dividend, which fell short of our US$1.74ps estimate,” said the broker.

But Morgans still regards the stock as a worthy core holding for investors and its 12-month price target on Rio Tinto is $107 a share.

Fool’s gold

Meanwhile, JP Morgan downgraded its recommendation on the IGO Ltd (ASX: IGO) share price following the release of its quarterly production report.

The nickel miner’s joint-venture gold project, Tropicana, is the key reason why the broker cut its rating on IGO to “neutral” from “overweight”.

“We had been expecting a weaker production year but costs were significantly higher than us with ~$560/oz relating to stripping and $65/oz to [underground],” said the broker.

“The significant [year-on-year] increase costs/stripping has snuck up on us. We are not sure if it’s an investment in the future of the past.”

JP Morgan lowered its price target on the stock to $5.45 from $6.10 a share.

Lost its shine

The broker also lowered its call on the St Barbara Ltd (ASX: SBM) share price to “neutral” from “overweight”.

The gold miner’s Gwalia project is to blame with management forecasting production of 175,000 to 190,000 ounces in FY21 at a cost of $1,435 to $1,560 an ounce.

Further, St Barbara also gave a soft guidance for Gwalia for FY22 and FY23, which is significantly weaker than what JP Morgan was expecting.

The broker dropped its price target on the stock to $3.60 from $4.40 a share.

More reading

• ASX 200 jumps 0.7%: Fortescue impresses, Macquarie’s tough Q1, big four banks rise
• Why IOOF, IGO, Janus Henderson, & Qantas shares are dropping lower
• Fortescue’s share price in focus as it beats guidance on record quarterly shipments
• K2Fly share price on watch after update
• 5 things to watch on the ASX 200 on Thursday

Motley Fool contributor Brendon Lau owns shares of Rio Tinto 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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The Mesoblast limited (ASX: MSB) share price is pushing higher on Thursday following the release of its quarterly update.

At the time of writing the shares of the global leader in allogeneic cellular medicines for inflammatory diseases are up 1.5% to $3.71.

What did Mesoblast announce?

During the fourth quarter Mesoblast reported cash receipts of US$2.1 million. These were from royalties it received from JCR Pharmaceuticals for the sales of TEMCELL in Japan for the treatment of acute Graft versus Host Disease (aGvHD).

This was not enough to offset its operating costs during the quarter, leading to a net cash usage of US$19.6 million for the three months ended 30 June 2020.

But thanks to its US$90 million (A$138 million) capital raising in May, Mesoblast finished the quarter in a very strong financial position. At the end of June the company had cash on hand of US$129.3 million (A$188.4 million).

It also notes that over the next 12 months it may have access to an additional US$67.5 million through existing financing facilities and strategic partnerships.

Remestemcel-L update.

In addition to its finances, the company provided investors with an update on its lead product candidate remestemcel-L.

This promising product has two major milestones on the horizon, which could make or break Mesoblast’s financial year.

Mesoblast’s Chief Executive, Dr Silviu Itescu, commented: “Remestemcel-L has two imminent major milestones, the interim analysis in the ongoing Phase 3 trial of remestemcel-L in COVID-19 patients with acute respiratory distress syndrome and the FDA advisory committee panel review of our submission for potential approval of RYONCIL (remestemcel-L) in children with steroid-refractory acute graft versus host disease.”

“Together with the upcoming Phase 3 read-outs in chronic heart failure and back pain, these key milestones will take the Company into the most significant period in its history,” he added.

According to the release, the independent Data Safety Monitoring Board (DSMB) has set a date for early September to complete the first interim analysis of the Phase 3 trial of remestemcel-L in ventilator-dependent COVID-19 patients with moderate to severe acute respiratory distress syndrome (ARDS).

The trial’s first 90 patients will have completed 30 days of follow up during August, after which the DSMB will perform an interim analysis review of the safety and efficacy data.

At that point, the DSMB will inform Mesoblast on whether the trial should proceed as planned or should stop early.

Given that there are currently no approved treatments for COVID-19 ARDS, the primary cause of death in patients infected with COVID-19, this will no doubt be closely watched by investors.

More reading

• 3 junior ASX healthcare shares with explosive growth potential
• ASX 200 drops 1.1%: Big four banks fall, Resolute rockets, Afterpay tumbles
• Why Afterpay, BHP, Cann, & Mesoblast shares are tumbling lower
• Why Mesoblast might be the best ASX healthcare growth share to own right now
• 4 exciting ASX biotech shares surging higher today

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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At lunch on Thursday the S&P/ASX 200 Index (ASX: XJO) has followed the lead of U.S. markets and is charging higher. The benchmark index is currently up 0.7% to 6,050 points.

Here’s what has been happening on the market today:

Fortescue impresses.

The Fortescue Metals Group Limited (ASX: FMG) share price is pushing higher today after its fourth quarter update impressed the market. During the fourth quarter Fortescue shipped 47.3 million tonnes (mt) of iron ore, bringing its FY 2020 total shipments to 178.2mt. This means the miner outperformed the top end of its guidance of 177mt. It is also a 6% increase on the prior year. In FY 2021, management is aiming to ship 175mt to 180mt.

Big four bank rise.

It has been a reasonably positive but subdued day for the big four banks. Although the big four are all pushing higher, they are underperforming the ASX 200 index. The Commonwealth Bank of Australia (ASX: CBA) share price is the best performer in the group with a 0.45% gain. Earlier today Goldman Sachs released its revised estimates for the big four’s dividend payments in FY 2020.

Macquarie update.

The Macquarie Group Ltd (ASX: MQG) share price is pushing higher after the release of its first quarter update at its annual general meeting. The investment bank advised that it has been impacted by mixed trading conditions during the first quarter. As a result, its operating profit during the quarter was slightly down on the prior corresponding period. No guidance was provided for the full year due to the uncertain global economic outlook.

Best and worst ASX 200 performers.

The best performer on the ASX 200 on Thursday has been the WiseTech Global Ltd (ASX: WTC) share price with a 5% gain. A number of tech shares are pushing notably higher today following a positive night of trade on the tech-heavy Nasdaq index. The worst performer has been the Sandfire Resources Ltd (ASX: SFR) share price with a 7% decline. The copper miner’s FY 2021 guidance appears to have disappointed investors.

More reading

• 3 latest ASX 200 stocks to be downgraded by top brokers today
• Why Afterpay, Fortescue, Marley Spoon, & Splitit shares are racing higher
• Here are the dividends this broker thinks CBA and the big four will pay in 2020
• Fortescue’s share price in focus as it beats guidance on record quarterly shipments
• Macquarie share price on watch after Q1 update

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia owns shares of WiseTech Global. 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 Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price had a top day yesterday, along with all of the ASX banking shares.

At the time of market close, ANZ shares were up 2.12% to $18.45 a share. Even after yesterday’s rise, ANZ shares remain a lot closer to the bottom of their 52-week range ($14.10) than the top ($28.79).

At the time of writing, shares are $18.48, so are ANZ shares a buy today?

Is the ANZ share price still cheap?

So why were ANZ shares in hot demand yesterday? Well, it was the Australian Prudential Regulation Authority’s (APRA) relaxing of the rules… sorry, ‘expectations’ surrounding the payment of dividends that got investors riled up for ASX bank shares.

The new ‘expectation’ is that banks and other ASX financial companies must aim to pay out a maximum of 50% of their earnings in dividends. Previously, APRA had told banks to keep a lid on dividend payments until the fog from the current economic outlook cleared. This was done in order to make sure the Australian financial system had enough of a buffer to withstand whatever the coronavirus-induced economic crisis throws its way.

Clearly, APRA is seeing enough certainty that it doesn’t see any problems with modest dividend payments from our major banks. And that’s why ANZ, along with the rest of the ASX banking shares, were on investors’ buying lists yesterday.

Is it time to buy ANZ?

Although the news yesterday will be welcomed by income investors, it is worth noting that it is likely to be some time before dividends from ANZ and the other banks return to the levels investors have become accustomed to.

Prior to 2020, it was common for ANZ and the other banks to pay out as much as 80–90% of their earnings as dividends. A 50% cap will obviously not allow this situation to return. So it will be some time (in my view) before ANZ shareholders start seeing 80 cents per share payouts once more.

Even so, is there still a buy case for ANZ at its current price, which is still historically very low?

I’m not convinced. Economic growth is probably going to be very sluggish for many months, even years. In all likelihood, that means there won’t be any real growth in demand for credit and loans – which is how a bank makes money. Further, once the banks stop allowing deferral of mortgage payments, it’s possible that some distressed loans will be defaulted on. That’s very bad news for a creditor like ANZ.

Finally, it looks as though interest rates will be at record lows for some years yet if the Reserve Bank of Australia’s indications are to be believed. Banks don’t tend to be able to produce healthy profits in a low-rate environment. There’s not much fat on a 2.5% mortgage, after all. And bank customers don’t tend to respond well to receiving interest rates of 1% or less on their savings and term deposits.

Foolish takeaway

I think banks like ANZ will be fine over the long-term as our economy slowly recovers from the pandemic over the next few years. But I don’t think there’s enough upside to justify an investment into ANZ right now. Thus, I’m tipping there are better places to have your capital today than ANZ shares.

More reading

• Here are the dividends this broker thinks CBA and the big four will pay in 2020
• ASX 200 drops 0.2%, APRA boosts big 4 ASX banks
• ASX big banks stocks outperform even as APRA caps dividends
• APRA eases dividend restrictions, ASX bank shares rally
• Top broker warns earnings expectations for the ASX reporting season are too high

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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Travel. It’s not exactly a booming industry in the current climate.

ASX travel shares like Webjet Limited (ASX: WEB) have been smashed this year as the coronavirus pandemic has brought the industry to a halt.

Some investors think travel shares are cheap to buy right now. Others think it’s like trying to catch falling knives.

So, what’s a ‘good price’ to buy ASX travel shares at in 2020?

Pricing in default and solvency risk

I think this is a big issue when it comes to the travel industry.

No matter how well run a company is, most wouldn’t have planned for their industry to totally shutdown for 1-2 years or more.

That’s exactly what has happened in the travel industry. International borders have been slammed shut while even domestic travel is heavily restricted.

That means booking services like Webjet have seen volumes dry up. It’s a similar story for Sydney Airport Holdings Pty Ltd (ASX: SYD).

Sydney Airport traffic numbers have plummeted this year. However, the Aussie airport does have one thing going for it: strong tangible assets.

Sydney is arguably as much of an infrastructure share as an ASX travel share. Many investors would argue that now is a great time to buy high-quality infrastructure assets for a low price.

Of course, buying ASX travel shares relies on them staying afloat. Personally, I think Sydney would be a safer way to get exposure given the tangible asset backing.

Even if earnings dry up, you’d imagine Sydney’s financial backers would want to keep their claim to the underlying assets. That’s harder for a service-based business like Webjet which relies on booking volumes.

The Sydney Airport share price is down 38.4% this year while Webjet shares have slumped 70% in 2020.

So, are they in the buy zone yet or should you be waiting?

When is the right time to buy ASX travel shares?

This is clearly a very individual decision. Every investor will have their own portfolio with different risk exposures and return expectations.

For me, I think it’s still too early to buy ASX travel shares. It’s hard to bet on a company that has very minimal cash flow for the foreseeable future.

I’d rather risk losing some of the upside potential for the safety of waiting to see some more financial numbers and operational forecasts.

There could be some great value in ASX travel shares at the moment but I’m not willing to take the downside risk to get the potential gains.

More reading

• 2 top ASX dividend shares to buy for income in 2020
• Short-sellers are targeting these ASX stocks ahead of the reporting season
• Is the oOh!Media share price set to run higher?
• Why Bubs, IAG, Star Entertainment, & Webjet shares are dropping lower
• These are the 10 most shorted shares on the ASX

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet 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.

The post Are ASX travel shares like Webjet cheap enough to buy? appeared first on Motley Fool Australia.

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The Marley Spoon AG (ASX: MMM) share price has rocketed 40.4% higher in early trade after a strong market update yesterday evening.

Why is the Marley Spoon share price surging?

The big catalyst here was Marley Spoon’s strong quarterly update yesterday afternoon.

Marley Spoon upgraded its full-year guidance to at least 70% revenue growth in 2020, up from ~30% previously.

That has helped propel the Marley Spoon share price to a new record high of $3.32 per share this morning before edging back slightly to $3.30 at the time of writing.

The company delivered 13.2 million meals in Q2 2020 with more than 90% of revenue coming from repeat customers.

Marley Spoon reported its first positive global operating earnings before interest, tax, depreciation and amortisation (EBITDA) last quarter.

The food delivery service is now active in 8 countries around the world across Australia, Europe and North America.

What were the highlights from the market update?

The Marley Spoon share price is on the charge in early trade after reporting ‘very strong performance’ across all top line metrics for the June quarter.

Quarterly net revenue rocketed 129% higher compared to Q2 2019, while active customer and total order numbers rose by 104% and 114% respectively.

On top of that, Marley Spoon reported positive operating EBITDA of 4.5 million euros (A$7.4 million) with a global contribution margin (CM) for Q2 at 30.5%.

Marley Spoon is one example of an ASX share that has actually benefitted from the onset of the coronavirus pandemic. 

It wasn’t just in Australia where the food delivery company saw strong results. Quarterly revenue for Australia rocketed 103% higher to 24 million euros (A$39.4 million).

The United States is the company’s fastest-growing segment. Quarterly segment revenue rocketed 171% to 38 million euros (A$62.4 million) while European revenue surged 83% to 11 million euros (A$18.1 million).

It’s easy to see why the Marley Spoon share price has surged to a new record high in today’s trade. Strong volume numbers and a record contribution margin have propelled quarterly earnings higher.

It also represents the second consecutive quarter of positive operating cash flow for the company. Net cash flow from operations climbed to 7.6 million euros (A$12.5 million) following last quarter’s 0.5 million euros (A$0.8 million) result.

Foolish takeaway

These are some strong quarterly growth numbers from the food delivery company. The Marley Spoon share price has rocketed over 40% to a new record high, with investors clearly impressed by the latest figures.

The S&P/ASX 300 Index (ASX: XKO) has started the day strongly with a 0.66% gain so far.

More reading

• Earnings: Genworth share price plunges 6% after $90 million half-year loss
• Why Afterpay, Fortescue, Marley Spoon, & Splitit shares are racing higher
• Marley Spoon share price on watch after 129% jump in Q2 revenue
• Can the Marley Spoon share price climb even higher?
• Is now the time to sell your ASX shares?

Motley Fool contributor Ken Hall 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.

The post Results: Marley Spoon share price surges 40% on market update appeared first on Motley Fool Australia.

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