Tag: Motley Fool Australia

The Downer EDI Limited (ASX: DOW) share price has edged lower this morning despite the infrastructure company announcing $324 million in contract wins. Downer EDI’s asset services business has been awarded a number of contracts in the power generation, oil and gas, and industrial sectors with a combined value of approximately $324 million.

What does Downer EDI do? 

Downer EDI designs, builds, and maintains assets, infrastructure, and facilities. The leading provider of integrated services in Australia and New Zealand, Downer EDI also owns 88% of Spotless Group Holdings. The company has a solid track record of delivering installation, maintenance, and shutdown services to customers across Australia. 

What did Downer EDI announce? 

Downer EDI announced the award of contracts across a number of markets. In the power generation market, Downer has been awarded contracts to deliver outages and supplementary labour to a power plant in NSW, install a stator at a plant in Victoria, and inspect and rewind generator rotors in Queensland. 

In the oil and gas market, Downer was awarded a contract with Santos Ltd (ASX: STO) for multi-disciplinary works across a number of sites and an extension to a maintenance contract for a natural gas facility in Darwin. In the industrial market, the company has been awarded a contract with BHP Group Ltd (ASX: BHP) for capital projects at iron ore sites and a contract with Wesfarmers Ltd (ASX: WES) for electrical maintenance and shutdowns.  

CEO Grant Fenn said “the contract wins demonstrate Downer’s position as an industry leader in the delivery of major maintenance and specialist services to customers in the resources, energy, and industrial sectors”. He also commented that “…Downer has an excellent track record of delivering installation, maintenance and shutdown services to our customers across Australia”. 

How has the Downer share price been performing? 

The Downer share price fell a massive 69% between its January high and March low. By comparison the S&P/ASX 200 (ASX: XJO) fell 36.5% from its high in February to its low on 23 March. Although the Downer EDI share price has gained 55.6% from its low, it remains 52.2% below its high for the year. The ASX 200 is currently 16.1% below its high for the year. Despite the impacts of COVID-19, Downer EDI reports cash performance improved materially in the second half of the financial year. Underlying EBITDA of $410 – $420 million is forecast for FY20, with NPATA of $210 – $220 million.

More reading

• 5 things to watch on the ASX 200 on Wednesday
• Will Rio Tinto pay a special dividend tomorrow?
• Top broker warns earnings expectations for the ASX reporting season are too high
• Are ASX iron ore shares doomed?
• 3 Warren Buffett quotes to start the week off right

Motley Fool contributor Kate O’Brien owns shares of BHP Billiton Limited. 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 Westpac Banking Corp (ASX: WBC) share price is storming higher today and helping to drive the S&P/ASX 200 Index (ASX: XJO) higher.

At the time of writing the banking giant’s shares are up 3% to $17.98.

Why is the Westpac share price storming higher?

Westpac, Commonwealth Bank of Australia (ASX: CBA), and the rest of the big four banks have been pushing higher today after APRA eased restrictions around paying dividends.

APRA notes that it has had the opportunity to review banks’ and insurers’ financial projections and stress testing results.

And while it still wants the banks to retain at least half of their earnings when making decisions on capital distributions, this is not as bad as some feared.

APRA Chair Wayne Byres said the updated guidance balanced the need for banks and insurers to keep supporting households and businesses, while also maintaining a prudent approach in the face of a very sharp and severe economic contraction.

Westpac brings jobs back to Australia.

In other news, this morning Westpac announced that it will be boosting the economy by bringing back 1,000 jobs to Australia.

It is making the move as it seeks to bolster the strength and resilience of its operations and improve support for customers.

The decision follows a surge in demand for customer assistance at the start of the COVID-19 pandemic, which has created challenging conditions for home lending processing and call centres.

Westpac Chief Executive Officer, Peter King, commented: “While we have added additional resourcing to support unprecedented demand following COVID-19, and I thank our teams who have worked tirelessly helping customers, at times our response rates have been too slow.”

“We will also be returning all dedicated voice roles to Australia to enhance the capacity of our existing call centres. This will mean when a customer calls us, it will be answered by someone in Australia.”

“Bringing jobs back to Australia has been made possible with the changing work patterns in response to the COVID-19 pandemic, as well as the upgrade to our technology infrastructure over recent years. Together these have enabled our teams to operate effectively at home or in other locations when needed,” Mr King said.

This will come at a cost, though. While Westpac expects the change to help to improve productivity, the creation of 1,000 roles is expected to initially increase costs by around $45 million per annum by the end of FY 2021.

More reading

• Are ASX tech shares the only way to protect your portfolio against the coronavirus?
• What would deflation mean for your ASX shares?
• Top broker warns earnings expectations for the ASX reporting season are too high
• ASX 200 jumps 0.75%: Westpac tumbles on AUSTRAC update, Credit Corp surges
• Westpac share price on watch after AUSTRAC money laundering update

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. 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 Wisr Ltd (ASX: WZR) share price has surged 10.4% today after the neolender reported a 38% month on month loan growth yesterday. In its fourth quarter report, Wisr revealed it had delivered a number of growth records for the quarter, including a 50% increase in revenue compared to 3Q FY20. Despite the positive news, the Wisr share price actually edged lower yesterday before today’s early rally.

What does Wisr do?

Wisr is an online lender that originates personal loans of $5,000 to $60,000 to Australian consumers. The company brands itself as enhancing customer financial wellness through a network of products that allow for low cost customer acquisition. These include an app, a workplace financial wellness program, and a debt reduction tool. The Wisr ‘ecosystem’ has continued to attract customers throughout the coronavirus pandemic with the business performing above management expectations.  

What did Wisr report? 

Wisr reported record loan originations of $19.1 million in June. This was up 38% on May’s $13.8 million. The loan origination rate is now 45% above pre-COVID levels, with weekly settled loan volumes exceeding $5 million for the first time. Wisr switched to a warehouse funding model late last year which provided for an approximate tripling of average margin compared to previous loan unit economics. This delivered $2.9 million in operating revenue in 4Q FY20, a 50% increase on 3Q FY20, and a 188% increase on 4Q FY19. 

At 30 June, Wisr had originated $244.9 million of loans, including $42.2 million in new loans originated in 4Q FY20. The loan book is continuing to grow in quality metrics as well as size. In 4Q FY20 the average credit score was 723 versus the Australian average of around 600. The company reports that it is strongly capitalised with $40 million in cash and liquid loan assets at 30 June 2020. 

What is the outlook for Wisr? 

Wisr took a prudent approach to the onset of coronavirus, tightening credit policy and reducing risk tolerance. Nonetheless, the company achieved significant loan origination growth and revenue uplift in the fourth quarter. Some 239,000 Australian have now been introduced to Wisr’s ecosystem. 

CEO Anthony Nantes said, “our unique Wisr Ecosystem strategy provides us with a strong platform to scale and grow, as well as enabling us to really help our customers, which we will continue to do during these rapidly changing times.” Wisr says its agile fintech business model has the company well positioned for growth through current challenging conditions, setting the company up for a strong revenue growth trajectory over coming quarters. 

At the time of writing, the Wisr share price is trading at 26.5 cents which is a 39% increase year to date.

More reading

• These ASX fintech shares are tackling COVID-19 head on

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

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It’s hard to find high-quality ASX shares to buy and hold forever.

Even when we do find them, having the patience and discipline to invest for the long-term can be hard.

Here are 3 ASX shares that I would like to buy and hold as part of a diversified portfolio.

3 ASX shares to buy and hold forever

If I’m buying and holding S&P/ASX 200 Index (ASX: XJO) shares for the long-term then I don’t want anything too speculative.

Ideally, I’d like to have a mix of strong dividend shares and growth. On top of that, diversification across industries would be ideal.

Now, with all of that said, is it possible to find that mix?

I’d start by purchasing a strong ASX blue-chip share like Commonwealth Bank of Australia (ASX: CBA).

Commonwealth Bank shares are down 7.8% this year but that isn’t really the most important factor. If I’m buying and holding forever, today’s or tomorrow’s share price won’t make a huge difference.

CommBank has historically paid (and raised) dividends like clockwork. I also think to a large extent the economic fortunes of the big banks are tied to that of the country.

To me, that says that the ASX bank share is worth buying for the long-term and weathering the various economic and business cycles.

On top of a foundation share like CommBank, I’d also like a bit of defensive exposure. Rather than invest in ASX gold shares, I like industries with non-cyclical earnings.

That means ASX Consumer Discretionary shares are worth a look.

Coles Group Ltd (ASX: COL) shares have rocketed 22.37% higher this year but I think they’re a good buy for pure supermarket exposure.

Aussies have flocked to supermarkets and caused sales to surge in 2020. Clearly, that’s very pandemic-specific, but the Coles share price could still be a good buy.

Supermarkets provide food and other daily essentials. That means even when times are tough, they provide solid earnings and potentially a more stable dividend than other ASX shares.

Finally, a bit of long-term growth would be a good idea. That means a strong tech share like Nextdc Ltd (ASX: NXT) could be in the buy zone.

The Nextdc share price has already surged 339.44% in 5 years but given the important role that data security and off-site management could play in the future, I think that growth trajectory could continue.

NextDC has a clearly-defined growth strategy and has successfully executed it thus far. Despite strong recent gains, I think NextDC has real potential as part of a new frontier of Aussie innovation and data security.

Therefore, a small allocation to NextDC shares may help portfolio diversification.

Foolish takeaway

In the end, portfolio construction is neither an art nor a science.

There is a lot of discretion involved, and the optimal portfolio will vary greatly depending on your individual finances, beliefs and investment objectives.

I still think diversification is vital for strong risk-adjusted returns over many decades. How that is achieved is ultimately up to the investor and where they think the best market buys are right now.

More reading

• ASX investors have been buying Tesla and these international shares
• 3 coronavirus ASX shares to buy right now
• Will Rio Tinto pay a special dividend tomorrow?
• What would deflation mean for your ASX shares?
• Top broker warns earnings expectations for the ASX reporting season are too high

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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’s hard to focus on the long-term when ASX shares are so volatile.

The March bear market threw a real spanner in the works for investors. New investors, in particular, can be the first to head for the exits when their investments are falling.

That means now could be a good time to re-evaluate your investing strategy. Let’s say, hypothetically, that you’ve got an initial sum of $20,000 to invest in the share market and are looking at a long-term investment horizon of 20 years. Here’s how I would invest $20,000 for 20 years in ASX shares.

How to invest $20,000 for 20 years in ASX shares

Well, $20,000 is a lot of money, but you really want to be able to grow that number over time by investing it into the share market. But every time you buy and sell ASX shares there are costs associated, like brokerage fees and taxes.

I would lean towards investing your first $20,000 in a diversified exchange-traded fund (ETF), as ETFs can provide instant diversification with very low management fees.

If you just want to passively track the Aussie share market, a low-cost ETF like Vanguard Australian Shares Index ETF (ASX: VAS) is a good option.

Vanguard Australian Shares Index ETF seeks to track the S&P/ASX 300 Index (ASX: XKO) and currently holds 306 securities. That’s a good chunk of the total share market if you want a passive investment in ASX shares.

It’s not just broad market indexes that you can invest in. If you want targeted exposure, you could try a sector or industry-specific index like ETFS Morningstar Global Technology ETF (ASX: TECH).

This allows you to get broad exposure to ASX (and international) tech shares without betting on individual companies straight away.

Buying shares in these sorts of ASX ETFs can provide diversified exposure to a whole host of underlying companies.

But how does it work in practice?

Let’s use the Vanguard Australian Shares Index ETF as an example.

Since its inception, this fund has returned an average of 8.18% on an annualised basis.

Let’s see what happens if we invest $20,000 at 8.18% per year for 20 years:

As the graph above indicates, that initial capital would grow to be worth a handy $96,376 by the end of a 20-year period.

The story is even better if you make some additional contributions along the way. So, if you invested an additional $1,000 per year, that original $20,000 investment would grow to be worth $143,060 across a 20-year investing horizon.

Of course, this is before you take into account inflation and what $96,376 or $143,060 would buy you in 20 years. However, the proof is in the pudding that investing in ASX shares for the long-term can pay dividends.

Can I only achieve this with ETFs?

Not at all! In fact, many investors would have already seen some strong gains this year. In particular, those who purchased ASX shares in mid-March would have picked some absolute winners.

Aside from Afterpay Ltd (ASX: APT), other top performers include A2 Milk Company Ltd (ASX: A2M) and Fortescue Metals Group Limited (ASX: FMG).

Picking high-quality companies and investing with a long-term view is the key. With a strong investment strategy and a touch of good fortune, you may well have more than $96,376 or $143,060 in 20 years’ time.

More reading

• Should you buy a2 Milk Company shares right now?
• 3 unstoppable ASX shares to buy right now
• Will Rio Tinto pay a special dividend tomorrow?
• Where to invest $500 into ASX shares immediately
• a2 Milk and 1 other quality ASX 200 share to buy and hold beyond 2026

Ken Hall owns shares of Vanguard Australian Shares Index. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ETFS Morningstar Global Technology ETF. The Motley Fool Australia owns shares of A2 Milk and 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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The LiveTiles Ltd (ASX: LVT) share price has come under pressure after the release of its fourth quarter update.

In morning trade the software company’s shares are down almost 4% to 26 cents.

How did LiveTiles perform in the fourth quarter?

During the fourth quarter of FY 2020, the intranet and workplace technology software provider delivered another quarter of record annualised recurring revenue (ARR) and cash receipts.

At the end of the period, the company’s ARR had grown to $58.2 million on a constant currency basis. This was an increase of 45% year on year. Whereas on a reported currency basis, ARR reached $53.8 million, representing year on year growth of 34%.

This was driven by a small quarterly increase in customer numbers to 1,092 and a 3% lift in average constant currency ARR per customer to $53,317. On a reported currency basis, its average ARR per customer grew 13% to $49,248.

Customer cash receipts came in at $11.2 million, which represents a third consecutive record quarter. It brought its trailing twelve-month (ttm) cash receipts to $41 million, up 9% quarter on quarter and 114% on the prior year.

LiveTiles finished the quarter with a cash balance of $37.8 million. This represents a rise of $4 million or 12% on third quarter cash levels.

Management advised that this strengthened financial position reflects its substantially improved operating cashflow, which is largely due to lower cash operating expenses to reduce cash burn, growth in customer cash receipts, and the receipt of government R&D refunds.

Management commentary.

LiveTiles’ Co-Founder and Chief Executive Officer, Karl Redenbach, was pleased with the company’s performance during the quarter.

He said: “We are very pleased with our overall Q4 results, particularly the significant step-change we have made on our operating expenditures and cash flow. We were recently named as Australia’s fastest growing technology company, but we’ve had to make some very difficult, deliberate decisions this quarter to balance this growth with sensible cost controls and expenditure.”

“Our team is hugely energised with the opportunity to help customers supporting their employees to communicate and collaborate in the new world of remote and work from home. We passionately believe LiveTiles is well positioned to flourish and as co-founders, shareholders, directors and executives we take a long-term view in building shareholder value,” he added.

Outlook.

While the company hasn’t provided any guidance for FY 2021, it has spoken about the current operating environment.

LiveTiles advised that the pandemic has created a challenging sales environment for enterprise software, which has led to the company seeking to lower its cash burn materially. It is aiming to be operating cash flow breakeven during calendar 2020, subject to market conditions.

It continues to review additional options to reduce cash burn, including short-term revenue and cost initiatives, in order to achieve this target.

Positively, management does believe there are strong medium and long-term tailwinds supporting the adoption of digital workplace software. As a result, there is no change in long-term strategy or market opportunity for LiveTiles.

Management also notes that the company’s pipeline has been building strongly throughout the last quarter through both direct and partner sales channels.

More reading

• 3 ASX tech shares to leverage the shift to remote working

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 LIVETILES FPO. The Motley Fool Australia has recommended LIVETILES 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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The Afterpay Ltd (ASX: APT) share price seems unstoppable right now.

People have been calling Afterpay overpriced since before its share price even cracked double digits. That was still the case at $20 per share, $40 per share, $50 per share.

As it stands, the buy now, pay later company’s shares are trading at around $68 per share. That’s an impressive growth trajectory given it only listed in June 2017.

However, there’s one major hurdle facing ASX shares right now: the August earnings season.

Let’s take a look at what we can expect from Afterpay in its upcoming announcement.

What to expect from Afterpay’s full-year result?

Let’s do a quick recap before we look to the future. Afterpay’s last trading update was on July 7 and contained some impressive numbers.

Underlying sales came in at $11.1 billion for FY20, up 112% on the prior corresponding period.

The industry leader expects merchant revenue margins for FY20 to be in line or better than 1H FY20 and FY19.

Net transaction loss, a key metric for risk and default losses, is expected to be up 55 basis points for FY20.

Net transaction margin, a profitability measure, is expected to be “approximately 2%” while earnings before interest, tax, depreciation and amortisation is forecast to be $20 – $25 million.

Overall, these are some strong numbers from Afterpay. The release of that trading update earlier this month has taken some of the guesswork out of next month’s full-year result.

Since that announcement, the Afterpay share price has edged 0.8% higher. That says to me that despite strong growth expectations, Afterpay is continuing to match or exceed them.

So, where can we expect the Afterpay share price to finish in 2020?

Where will the Afterpay share price finish the year?

This is a really tough question to answer. I don’t think many in the market thought we would see the Afterpay share price hit over $75 per share let alone amid the coronavirus pandemic.

Yet here we are. I certainly wouldn’t be willing to bet against the company’s growth this year.

If Afterpay posts strong numbers and demonstrates consistently low loss and default rates, I think we could see the Afterpay share price break its current 52-week high.

My ‘base case’ scenario has me thinking Afterpay shares will hover roughly between $60 to $80 for the rest of the year.

I think the big factors from here are unemployment levels, company loss rates and success of international expansion plans.

If Afterpay and the economy can tick those boxes, I think we could see the Afterpay share price edge towards $100 next year.

More reading

• Are ASX tech shares the only way to protect your portfolio against the coronavirus?
• WAAAX shares see mixed recovery from COVID-19
• Afterpay and Immuron were among the most traded shares on the ASX last week
• Latest ASX entrant mixes BNPL with eCommerce
• Is CommBank the BNPL killer?

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. 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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Is the Australian Foundation Investment Co.Ltd. (ASX: AFI) share price good value right now?

Australian Foundation Investment Co (AFIC) is Australia’s oldest and largest investment manager, having been founded in 1928.

Many ASX share investors know AFIC as a reliable ASX dividend share. In fact, the Aussie fund manager did well during the global financial crisis and even maintained its distributions.

However, it doesn’t look so good this time around.

The AFIC share price climbed 0.7% on Monday and another 0.97% yesterday, despite announcing a 40.8% drop in profit.

So, what was driving AFIC’s full-year result and what does it mean for a keen-eyed investor?

What was in AFIC’s full-year result?

The investment group’s net profit came in down 40.8% to $240.4 million. It was a similar story with operating revenue which fell 40.1% to $264.3 million.

Net tangible assets per share before the final dividend came in at $5.96 per share. That’s down from $6.49 per share at 30 June 2020, representing an 8.2% year-on-year decline.

The AFIC share price is currently trading at $6.24 per share, down 13.11% in 2020.

AFIC announced a fully-franked final dividend of 14 cents per share. That’s on par with last year’s distribution, with AFIC shares to trade ex-dividend on 11 August.

A 40.8% drop in profit doesn’t sound like good news. However, there were a number of one-off items that were not repeated this year. That included participation in off-market share buybacks for Rio Tinto Limited (ASX: RIO) and BHP Group Ltd (ASX: BHP) as well as last year’s special dividend from Wesfarmers Ltd (ASX: WES).

What does this mean for ASX investors?

Clearly, shareholders weren’t too disappointed by the news. At the time of writing, the AFIC share price is up 1.8% since Monday and 29.5% since 24 March.

AFIC’s 10-year return now sits at 9.3% on an annualised basis compared to 9.4% for the S&P/ASX 200 Accumulation Index (ASX: XJOA).

I think investors will be keen to see where AFIC is looking for their own portfolios.

Key acquisitions during the year include Goodman Group (ASX: GMG) and Telstra Corporation Ltd (ASX: TLS).

There were several big disposals such as Treasury Wine Estates Ltd (ASX: TWE) and Scentre Group (ASX: SCG).

Among the new companies added to the portfolio were Altium Limited (ASX: ALU) and Netwealth Group Ltd (ASX: NWL).

It’s perhaps unsurprising that a lot of big names from the S&P/ASX 200 Index (ASX: XJO) are present in AFIC’s portfolio. I’ve included the portfolio’s top 25 holdings as at 30 June 2020 in the graph below.

These 25 ASX shares make up 76.3% of AFIC’s portfolio value. That means the performance of shares like CSL Limited (ASX: CSL) will be the key to where the AFIC share price will finish in 2020.

Foolish takeaway

Given the share price movement this week, investors didn’t mind the 40.8% profit drop from the Aussie listed investment company.

AFIC did report that the outlook “remains unclear”. In particular, the company said it was “difficult to reconcile the expansion of market valuations with the pressure on company profits, and dividends are likely to remain under.”

That’s pretty telling from the Aussie fund manager and a potentially ominous warning.

However, I wouldn’t be betting against the AFIC share price climbing higher in the next 12 months.

More reading

• 5 things to watch on the ASX 200 on Wednesday
• ASX 200 down 0.4%, Credit Corp and Temple & Webster impress
• Will Rio Tinto pay a special dividend tomorrow?
• Top broker warns earnings expectations for the ASX reporting season are too high
• a2 Milk and 1 other quality ASX 200 share to buy and hold beyond 2026

Ken Hall 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 Altium. 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 Telstra Limited and Treasury Wine Estates Limited. The Motley Fool Australia owns shares of Netwealth and Wesfarmers Limited. The Motley Fool Australia has recommended Scentre Group. 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 believe some of the more interesting phenomena of the coronavirus shutdowns have been the cancellation of sporting events and the closing of clubs. In particular, what have all the bored sports betters been doing? I have seen two theories on this so far. The first one posits that these people are now trading in ASX shares. Personally, I can relate to this. Several people I know recently told me they have their ‘gambling money’ set aside and want to know which shares to buy.

The second theory, proposed by JP Morgan, is that bored gamblers have drifted to online lotteries. This includes new players entering the sector and current players buying more tickets. Moreover, JP Morgan believes JobKeeper payments are partly fueling this. I have suspected something like this has been going on for the past few months. In fact, I have been watching the two ASX shares below as I think they will benefit from this dynamic, and are likely to surprise on the upside during earnings season.

ASX shares for online lotto

The Jumbo Interactive Ltd (ASX: JIN) share price is currently down by 27.1% in year to date trading. Jumbo is an online lottery company which is very active in Australia and Germany. Prior to the pandemic, the company was expanding into the United States, Latin America, Asia and Europe. In the company’s H1 FY20 report, it disclosed a 25% increase in total transaction value. This resulted in a 14% net profit increase after taxes. 

Jumbo attributed this to a range of factors, however chief among them was customer engagement due to the company’s new software platform. In addition, the company credited its new software-as-a-service (SaaS) platform as contributing to the uptick. This targets charitable organisations and provides them with the means of selling online lottery tickets. At this time, Jumbo had three leading charity lotteries and had acquired a company in the United Kingdom dedicated to ethical lotteries for charities. A fourth SaaS client, MS Queensland (multiple sclerosis), was signed in February.

Something I found very interesting in the H1 report was that only 26.7% of all lottery sales were online. This means that the remainder are sold through newsagents and kiosks. As such, there is a high likelihood of increases in revenue for Jumbo due to the coronavirus lockdown. That doesn’t even take into account any increases from bored sports betters. 

Lastly, and most importantly, the company has re-signed a distribution deal with Tabcorp Holdings Limited (ASX: TAH). I believe this adds a level of security to any investment in this ASX share. The previous distribution agreement with Tabcorp finished in 2022, now it runs until 2030.

Shares for online gambling

Like a few other companies on the ASX, Aristocrat Leisure Limited (ASX: ALL) has an offset financial year. This means it starts in October and finishes in September. The company’s H1 FY20 finished in March 2020.

Although known as a company that manufactures and sells casino machines, Aristocrat today does so much more than that. Of course, it continues to provide casino machines and management systems, as well as digital games. However, the company also provides online gambling games and a range of standard games for PC, Mac, online and mobile devices.

In its H1 report Aristocrat declared a revenue increase of 7% against the previous corresponding period, but a decrease in underlying profit of 12.8%. This was due to the impact on what the company calls ‘land-based’ profits from the pandemic in late February through to the end of March.

This ASX share is in a very strong cash position with $1.8 billion in cash and equivalents on hand. Furthermore, it took a range of measure to ensure financial strength. These included a $100 million reduction in operating costs, and suspension of the interim dividend.

At present, Aristocrat is trading at a price-to-earnings (P/E) ratio of 9.88. This is less than half of the company’s 10 year average P/E of 23.7. Moreover, the company’s 10 year average return on equity (ROE) stands at 28.6%. I think this is a very good metric. It shows that the company buys the right assets and is very effective at using them to generate profits. 

Foolish takeaway

I think both of these companies are worth looking at a lot more closely. In particular, ahead of earnings season which starts in August. I believe Jumbo Interactive is likely to surprise investors and has been very resilient throughout this pandemic. Part of my reasoning for this is that the company did not try to raise capital through a placement or additional debt in any way.

Aristocrat, on the other hand, is a bit of a different story. I believe it is also likely to positively surprise investors at the end of the company’s financial year. However, it will still be down overall even though casinos are starting to open up again globally. The opportunity here is over the medium term as things begin to normalise further. I believe Aristocrat is one of the great value investing ASX shares right now. 

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Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Jumbo Interactive Limited. The Motley Fool Australia owns shares of and has recommended 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 St Barbara Ltd (ASX: SBM) share price has come under pressure following the release of its fourth quarter update.

The gold miner’s shares are down 2.5% to $3.70 at the time of writing.

How did St Barbara perform in the fourth quarter?

During the fourth quarter of FY 2020, St Barbara delivered an 18.6% quarter on quarter increase in gold production to 108,612 ounces. This was achieved at an all-in sustaining cost (AISC) of A$1,301 per ounce, which was a reduction from A$1,405 per ounce during the third quarter.

This led to the gold miner reporting a big lift in its quarterly operational cash contribution to A$126 million, up from A$86 million in the third quarter.

As a result of this strong finish to the financial year, St Barbara’s full year consolidated gold production came to 381,887 ounces. This was in line with its guidance of 370,000 to 400,000 ounces.

Also in line with guidance was its costs. St Barbara reported an AISC of A$1,369 per ounce in FY 2020, compared to its guidance range of A$1,330 to A$1,420 per ounce.

And with an average realised gold price of A$2,127 per ounce for FY 2020 (up 20.7% from A$1,762 in FY 2019), St Barbara’s cash balance is growing nicely.

At the end of the financial year the company had cash at the bank and term deposits of A$405 million. Total debt stood at A$316 million, with A$200 million to be repaid at the end of July.

What to expect in FY 2021.

Management expects its FY 2021 production to be broadly in line with what it achieved in FY 2020.

It has provided consolidated gold production guidance of between 370,000 to 410,000 ounces with an AISC of between A$1,360 and A$1,510 per ounce.

It also revealed that its sustaining capex is expected to be between A$97 million and A$115 million, with growth capex of between A$49 million and A$57 million. It also intends to spend between A$30 million and A$35 million on exploration activities.

St Barbara’s Managing Director and CEO, Craig Jetson, notes that FY 2021 will be an important year for the company.

He explained: “The year ahead is an important one for our business. Our mature operations, Leonora and Simberi, are entering new phases and Atlantic Gold has a strong project pipeline that we intend to realise.”

“We are reviewing our operating model to improve productivity and margins, supported by an enhanced technical expertise. For us, that means being in command of our value chain, optimising operations and, all the while, prioritising safety and ensuring the wellbeing of our people and communities.”

The chief executive also revealed that it is looking at expansion projects and acquisition opportunities.

“We will improve our business and how we work so we can embark on our growth agenda. This includes delivering on current brownfield expansion projects, maintaining a prospective exploration pipeline and identifying suitable assets for future acquisition where it adds shareholder value,” he concluded.

More reading

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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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