Tag: Motley Fool Australia

The Afterpay Ltd (ASX: APT) share price is on course to end the week with a day in the red.

At the time of writing the payments company’s shares are down almost 3% to $70.00.

Why is the Afterpay share price dropping lower?

Investors have been selling Afterpay’s shares on Friday after a disappointing night of trade on Wall Street’s technology-focused Nasdaq index.

US-China tensions and worse than expected jobless claims data hit sentiment and weighed on U.S. tech shares overnight. This led to the famous index dropping 2.3% lower.

It isn’t just Afterpay that is dropping lower today. The likes of Altium Limited (ASX: ALU) and Nearmap Ltd (ASX: NEA) are also in the red. This has dragged the S&P/ASX 200 Information Technology index 1.6% lower.

What else is weighing on Afterpay’s shares?

There is also a spot of industry news that could be weighing on the Afterpay share price today.

Fellow buy now pay later company Affirm, which is run by PayPal co-founder Max Levchin, has just announced a partnership with Canadian e-commerce giant Shopify on a new interest-free, zero-fee payments program for online customers.

According to CNBC, the new “Shop Pay Installments” offering will give approved Shop Pay customers the option to split the total purchase cost into four equal, bi-weekly payments, which will be processed and handled by Affirm. This is identical to the Afterpay model.

While this is certainly going to increase competition in the industry, one broker that isn’t concerned is Goldman Sachs.

What did Goldman say?

Goldman commented: “Clearly alternatives are emerging to APT. SHOP has a merchant and consumer reach which could allow them to acquire a user base more rapidly than most of APT’s other US competitors (especially the likes of Quadpay, Sezzle and Klarna).”

“However, if APT has a large enough consumer base which is transacting frequently (which is what is occurring), merchants may be prepared to adopt both services. In addition, SHOP’s BNPL product will be limited to merchants who use SHOP.”

In light of this, the broker advised that it is leaving its “forecasts unchanged as we believe this announcement is unlikely to impede the company’s achievement of our forecasts.”

I agree with this view and continue to believe Afterpay would be a fantastic long term investment option.

More reading

• Value stocks to rise on strong A$ and broker picks the cheapest ASX stocks to buy today
• What to do if your ASX shares hit a record high
• Why the Zip share price is a better buy than Afterpay
• Are ASX tech shares in a bubble?
• Kanye West – ASX shares for his US presidential campaign

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 and recommends Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Nearmap Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Nearmap Ltd. and Sezzle Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Insurance Australia Group Ltd (ASX: IAG) share price is dropping lower on Friday after the release of an announcement.

At the time of writing the insurance giant’s shares are down 4% to $5.54.

What did IAG announce?

This morning IAG provided the market with an update on its expectations for FY 2020.

According to the release, the insurer expects to report gross written premium (GWP) growth of ~1.1%. This is consistent with its ‘low single digit’ guidance.

IAG also expects to report an insurance margin of approximately 10%, which has fallen short of its prior guidance of 12.5% to 14.5%. This is due largely to adverse natural perils, prior period reserving, and credit spread factors.

On an underlying basis, its insurance margin is expected to be 16%, compared to 16.6% in FY 2019. This was driven by a tough second half, which saw its margin fall to 15.1% because of higher reinsurance costs, lower investment returns, and a deterioration in the performance of some Australian commercial long tail portfolios.

This is ultimately expected to lead to a pre-tax loss on shareholders’ funds income of $181 million. While this is down sharply from a profit of $227 million in FY 2019, it is better than its previously indicated year-to-date loss of approximately $280 million at the end of April.

Dividend cancelled.

In light of its poor performance, there will be no final dividend in FY 2020.

The company explained: “While IAG recognises many shareholders will be disappointed with no final dividend, it believes it is important to adhere to its long-established dividend payout policy and to maintain a strong capital position in the current uncertain environment.”

IAG’s Managing Director and CEO Peter Harmer, commented: “We have experienced an immensely challenging second half to the 2020 financial year, characterised by severe natural peril activity, the disruption caused by the COVID-19 pandemic to our people, customers and suppliers, and the marked volatility in investment markets which has adversely impacted our results.”

“We have seen some softening in our underlying margin in the second half. This stems from the combination of lower investment returns from diminishing interest rates, an increased reinsurance expense as we bolstered our protection following heavy perils incidence early in the calendar year, and some deterioration in Australian commercial long tail loss ratio,” he added.

However, the chief executive appears cautiously optimistic on the year ahead.

He concluded: “We enter FY21 with a strong balance sheet and enhanced reinsurance protection, and are well equipped to negotiate the challenges and opportunities that a post-COVID environment will present.”

More reading

• Fund managers have been snapping up Sonic and these ASX 200 stocks

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 Bank of Queensland Limited (ASX: BOQ) share price has come under pressure on Friday morning and is dropping lower.

At the time of writing the regional bank’s shares are down by just over 2% to $6.29.

This latest decline means the Bank of Queensland share price is now down a disappointing 37% from its 52-week high of $9.98.

Why is the Bank of Queensland share price dropping lower?

This morning Bank of Queensland released a very revealing quarterly APRA Basel III Pillar 3 report for the period ending 31 May 2020.

This update shows that the bank has experienced a sharp increase in bad and doubtful debts because of the pandemic.

According to the release, Bank of Queensland’s +90 days past due loans has increased by $112 million during the quarter.

This $112 million includes $58 million of customer loans where banking relief package applications have been processed subsequent to 31 May 2020.

Management advised that the balance of the increase relates to customers who have not elected to enter into a relief package or who were ineligible.

Increased provisions.

In light of the above, Bank of Queensland has decided to increase its COVID-19 provisions.

It has taken a further collective provision of $61 million during the third quarter, bringing the total COVID‐19 related collective provision to $71 million.

This provision is at the top end of the range of $49 million to $71 million which was detailed in the half year results.

But whether it stops there, only time will tell. Management warned that there remains considerable economic uncertainty and it will continue to monitor the impacts of COVID‐19 on its portfolio and the collective provision prior to finalising its year end position.

No comments were made in respect to its dividend plans. A further update will be provided with its full year results later this year.

More reading

• These are the 10 most shorted shares on the ASX
• Here are the 10 most shorted shares on the ASX
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• Here are the 10 most shorted shares on the ASX
• ASX beware: RBA warns on bank loan deferrals

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 Australian dollar is holding at a more than one-year high and it could be heading even higher. This will create winners and losers on the S&P/ASX 200 Index (Index:^AXJO).

The Aussie battler jumped over US71 cents and is holding around its highest level since April 2019.

This means our dollar has surged by around 24% since the COVID-19 low in March when it plunged to under US58 cents.

Is the Aussie heading to US73 cents?

The fightback may not be over. Macquarie Group Ltd (ASX: MQG) believes it can climb higher in the near-term.

“With Australian yields higher than the US, we think rising commodity prices will continue to support AUD,” said the broker.

“A model of commodity prices and AU/US interest rates suggests the Australian Dollar should already be closer to [US]73 cents.”

Losers from the stronger A$

If the Aussie continues to build on its recent gains, this will create a headwind for larger cap stocks as most of our largest companies are significantly exposed to the US dollar.

These includes our high-flying tech stocks like Afterpay Ltd (ASX: APT) and healthcare giants like CSL Limited (ASX: CSL).

However, there are exceptions among the ASX 200 stocks. Macquarie believes the weakening greenback will provide a tailwind to value stocks.

ASX value stocks are winners from US dollar weakness

Value stocks are those that trade at a discount to the market and to historical averages for their respective sectors. Despite spots of outperformance, this group is largely underperforming growth stocks, which trade on high price-earnings (P/E) multiples.

“The value rally in May/June corresponded with a period of US dollar weakness,” said Macquarie.

“As the weak USD partly reflects rising risk appetite, we prepared an updated list of Stocks to buy in the value rally.

“we target stocks where FY22 earnings have been cut since the pandemic, and the stock has also de-rated (we call them decliners).”

Best ASX picks for value

Three ASX sectors stick out. They are real estate, banks and industrials. The stocks in the property space the broker believes will outperform in the next value rally include the Stockland Corporation Ltd (ASX: SGP) share price, Lendlease Group (ASX: LLC) share price and GPT Group (ASX: GPT) share price.

In the industrials sector, Macquarie’s picks are the Worley Ltd (ASX: WOR) share price, Incitec Pivot Ltd (ASX: IPL) share price, Emeco Holdings Limited (ASX: EHL) share price and Genworth Mortgage Insurance Australia (ASX: GMA) share price.

The National Australia Bank Ltd. (ASX: NAB) share price is the only ASX bank to make the list.

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More reading

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• Buy NAB and this ASX dividend share for income
• Up 38% in July! Is the Orocobre share price a buy?
• Why the Polynovo share price could climb in August

Brendon Lau owns shares of National Australia Bank Limited, Emeco Holdings Limited and WorleyParsons Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. 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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The Gold Road Resources Ltd (ASX: GOR) share price is on watch this morning after the miner announced record gold production during the quarter ended June 2020. Gold Road Resources’s Gruyere mine produced 71,865 ounces of gold during the quarter and remains on track to meet annual guidance. 

What does Gold Road Resources do? 

Gold Road Resources is a mid-tier Australian gold producer with a mine and exploration projects in the Yamarna Greenstone Belt in Western Australia’s north-eastern Goldfields. Gold Road owns 50% of the Gruyere gold mine, which was developed in a joint venture with Gold Fields Limited. The mine produced its first gold in June 2019 and is forecast to produce an average of 300,000 ounces annually for at least 11 years. 

What did Gold Road Resources announce?

Gold Road Resources released its most recent quarterly production report this morning showing Gruyere produced 71,865 ounces of gold during the quarter at an all-in sustaining cost (AISC) of $1,233 per ounce. AISC for 2020 is now expected to fall between $1,150 and $1,250 an ounce, up from previous guidance of $1,100 to $1,200 an ounce. The company made gold sales of 28,700 ounces during the quarter at an average price of $2,498 an ounce. 

The Gruyere mine celebrated its first 12 months of gold production on 30 June 2020. In that time the mine has produced 230,590 ounces of gold. This was delivered at an average AISC of $1,155 per ounce attributable to Gold Road Resources. The company ended the June quarter in a strong position with cash and cash equivalents of $109.1 million, giving a net cash and equivalents position of $84.1 million. The company became debt free this month after having repaid its remaining $25 million in debt. 

How has Gold Road Resources been performing?

The Gold Road Resources share price is up 41% over 2020 and 139% since its March low. The miner has been helped by the rising gold price, which has gone from $2,200 at the start of 2020 to closer to $2,600 currently.

The company experienced no material production impacts as a result of COVID-19 and is a relatively low cost gold producer. In 2020, Gold Road Resources has provided production guidance of 250,000 to 285,000 ounces of gold.

More reading

• 3 ASX gold shares to hedge against uncertainty
• These were the best performing ASX 200 shares last week
• The top 10 performing ASX shares over the past year

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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Exchange-traded funds (ETFs) can be a great financial tool to build your wealth with a simple investment plan.

I have a lot of respect for investors that put in a lot of research and can identify market-beating opportunities. But not everyone has the ability, time or patience for investing in individual growth shares.

However, there are ETFs that I think can produce good returns over the long-term for a very reasonable cost. There are some very cheap ETFs like iShares S&P 500 (ASX: IVV) which have performed well. But there plenty of businesses in there that I wouldn’t want exposure to.

I think these three ETFs are good candidates for simple long-term wealth building:

BetaShares NASDAQ 100 ETF (ASX: NDQ)

When you look across the global share market, there are few shares as good as the technology giants on the NASDAQ.

This ETF gives exposure to 100 of the largest businesses on the NASDAQ for an annual management fee of just 0.48% per annum.

I’m sure you’ve heard of many of the NASDAQ’s largest businesses including Apple, Microsoft, Amazon, Facebook, Alphabet, Tesla, Intel, Nvidia and Netflix.

These businesses are doing very well despite the tough COVID-19 conditions. Businesses like Microsoft and Netflix are seeing higher demand for services due to people working at home and consuming more video entertainment at home.

The ETF has performed very strongly for long-term investors. After fees, over the past year it has returned 35.5%, over the past three years it has returned an average of 26.6% per annum and over the past five years it has returned an average of 21.5% per annum.

I am a bit concerned what may happen to the US share market over the next six to nine months. However, the higher Australian dollar compared to the US dollar makes it a bit cheaper to buy US shares at the moment.

BetaShares Global Sustainability Leaders ETF (ASX: ETHI)

Ethical investing is rising in prominence. This ETF now has net assets of $717 million.

Everyone has different ethics when it comes to investing ‘ethically’, but this ETF ticks a lot of the ethical boxes you may want ticked. It invests in businesses which are identified as ‘climate leaders’ and excludes businesses involved in alcohol, junk foods, human rights and supply chain concerns and so on.

But I’m not telling you about this ETF because it’s just ethical. The shares in it are quality and high-performing. It owns around 200 names. The top 10 holdings are: Apple, Mastercard, Nvidia, Visa, Home Depot, Adobe, Paypal, Netflix, Tesla and Toyota.

The annual management fee is just 0.59% per annum. The returns have been very good. Over the past three years it has returned an average of 21.5% per annum.

I think that shows that ethical businesses can do very well for investors.

BetaShares Global Quality Leaders ETF (ASX: QLTY)

This ETF looks to give investors exposure to 150 quality global companies.

These businesses have to rank strongly on a few factors: return on equity, debt to capital, cash flow generation ability and earnings stability.

Most quality businesses should be able to perform well even through recessions like COVID-19.

The management fee for this high quality ETF is just 0.35% per annum, which is cheap for what you get. The top holdings are names like: Nvidia, Accenture, Intuitive Surgical, L’Oreal, Adobe, Apple, Cisco Systems, Alphabet, Unitedhealth and Johnson & Johnson.

Quality businesses have produced good returns. This ETF is still relatively new. Its inception date was November 2019, since then it has returned an average of 19.75% per annum.

Foolish takeaway

I think each of these ASX shares are exciting long-term ideas. They have already proven they’re able to produce strong returns and I think they can do well over the next five years as well. At the current prices I think I’d probably go for the quality ETF, though I’d also be happy to invest in the ethical ETF.

More reading

• Are ASX tech shares in a bubble?
• Kanye West – ASX shares for his US presidential campaign
• 3 quality ETFs I would be adding to my ASX portfolio
• Where to invest $5,000 into ASX shares right now
• How to create a yearly income of $65,000 in dividends

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of BETANASDAQ ETF UNITS. The Motley Fool Australia has recommended BETANASDAQ ETF UNITS. 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 Catapult Group International Ltd (ASX: CAT), FlexiGroup Limited (ASX: FXL) and Nextdc Ltd (ASX: NXT) are 3 exciting ASX growth shares to buy and hold for the long term.

In my view, an investment in these ASX growth shares could lead to substantial returns over the long run.

Catapult Group

Due to its market-leading position in sport technology, I believe this is a company to watch. This week, Catapult advised the market it had achieved positive cash flow a year earlier than forecast, largely driven by its subscription-based business model.

Catapult works with 39 sports worldwide, including teams in the National Basketball Association (NBA), Australian Football League (AFL) and National Football League (NFL). The group provides analytics to help elite sports teams assess their performance. Additionally, with sporting competitions around the world restarting, there could be further upside for this growth share. 

In the past year, the Catapult share price has increased by an astonishing 46.9% and is currently trading for $1.66 per share.

FlexiGroup

What I like about FlexiGroup is its differentiated strategy in the buy now, pay later (BNPL) space. Through its humm platform, Flexigroup offers a BNPL option for larger purchases such as IVF and fertility services. It also recently signed well known retailers Temple & Webster, Amart Furniture, Snooze and luxury brand Bally, according to its Q4 2020 retailer update.

The company reported strong online growth in Q4 2020, with ecommerce volumes up 315% and total transactions up 447% on the prior corresponding period (pcp). Additionally, last month the business saw a record number of merchants sign up to instore and online.

With substantial funding from undrawn facilities, I think FlexiGroup has the cashflow flexibility to use the funds to grow its business. It is also one of the few BNPL companies delivering a profit. According to its recent February half year result, it generated a cash profit of $34.5 million, up 8% on pcp.

Despite the Flexigroup share price performance being down 21.02% in the past year, it bounced a staggering 247% from its March low of 40 cents to be trading at $1.39 currently.

In addition, I see great potential for this company because of its diversified product ecosystem. Its product lineup includes credit cards and business financing products, as well as BNPL services. 

Nextdc

Successful capital raises and demand for data centres both play a big part in why the Nextdc share price has taken off this past year. Additionally, the company has secured several new contracts in the past year to deliver data centres to customers. 

Cloud computing is becoming more a part of our lives and this change has enabled businesses to become more efficient. This shift has been further fuelled by the coronavirus pandemic and the associated increase in remote working arrangements across many sectors. As a result, the need for servers to store all this data could drive strong demand for Nextdc now and well into the future. In my view, the data centre business is a growth industry and an investment today could deliver significant returns to investors.

The Nextdc share price has increased 68.44% in the past year. Despite this phenomenal growth, I believe it could have further to run.

More reading

• The Catapult share price has surged 33% in 3 days
• Where to invest $20,000 into ASX shares right now
• Why Kogan and these popular ASX shares just hit record highs
• This is how the Hungarian Grand Prix affects you as an ASX investor
• Market close: ASX 200 falls 0.5%

Matthew Donald 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 Catapult Group International Ltd. The Motley Fool Australia has recommended Catapult Group International Ltd and FlexiGroup 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 CSL Limited (ASX: CSL) share price has been a disappointing performer on the ASX 200 in recent months.

Recent weakness means the CSL share price is currently trading at $282.42, which is approximately 18% lower than its 52-week high of $342.75.

Why is the CSL share price out of form?

Investors have been selling CSL’s shares this year amid concerns that the pandemic will have a negative impact on its plasma collections.

The biotherapeutics giant sources the majority of its plasma from the US and European markets, which have been hit hard by the pandemic. This is particularly the case with the US market, which is believed to account for around three-quarters of its plasma supply.

Why does this matter? This is a potential headwind for the CSL Behring business as this plasma is used for immunoglobulin and albumin production. Supply issues could lead to increasing production costs and weigh on margins.

Should you be concerned?

I don’t think investors should be concerned and continue to believe that the pullback in the CSL share price is a buying opportunity.

I don’t believe things are as bad as some fear. Furthermore, I’m confident that any headwinds from plasma collections can be offset by increasing demand for flu vaccines.

One broker that isn’t concerned is Goldman Sachs. This morning the broker retained its buy rating and trimmed its price target slightly to $326.00. This price target implies potential upside of 15% for its shares.

What did Goldman Sachs say?

Goldman notes that the CSL share price has underperformed since April. It feels this is due largely to the aforementioned plasma collection concerns.

However, it has been looking into its collections and believes there is nothing to worry about.

Goldman commented: “Whilst plasma collections are inevitably lower this year, there are several factors which will soften the impact, notably inventory draw-down, regulatory support and, potentially, price.”

“The 8/9-month plasma production cycle means a material disruption is unlikely in either 2H20 or 1H21. Our new monthly plasma supply/demand model suggests that CSL is only likely to incur material supply challenges from 2H21 if collection volumes decline -30% during CY20. At this stage, we forecast -12% yoy in our base case (1Q: -1% yoy; 2Q: -40% yoy; 3Q: -15% yoy; 4Q: -1% yoy),” it explained.

Though, the broker did warn that this is a fluid situation which will need to be monitored closely.

Nevertheless, its “analysis implies a reasonable margin of safety, particularly because some modest softening of demand was likely in 4Q20” and “other operators may choose to manage/ration volume themselves through an abundance of caution.”

In light of this, it continues to believe the CSL share price is in the buy zone right now and I completely agree.

More reading

• Value stocks to rise on strong A$ and broker picks the cheapest ASX stocks to buy today
• 5 things to watch on the ASX 200 on Friday
• What to do if your ASX shares hit a record high
• How you can take advantage of the surging Australian dollar
• Why Mesoblast might be the best ASX healthcare growth share to own right now

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

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I believe there are a good number of shares at the small end of the Australian share market that have the potential to grow into much larger entities in the future.

Three small cap shares which I think ought to be on your watchlist are listed below. Here’s why I think they have very promising futures:

Bigtincan Holdings Ltd (ASX: BTH)

Bigtincan is a fast-growing provider of enterprise mobility software. Its software allows businesses to increase their sales win rates, reduce costs, and improve customer satisfaction. This is achieved through improvements in mobile worker productivity. Demand for Bigtincan’s software has been growing strongly in recent years and this has continued to be the case during the pandemic. As a result, the company advised remains well-placed to deliver on its 30% to 40% organic revenue growth target in FY 2020. I expect more of the same in FY 2021.

Mach7 Technologies Ltd (ASX: M7T)

Mach7 is a medical imaging data management solutions provider which offers software that helps inform diagnosis, reduce care delivery delays and costs, and improve patient outcomes. Its software is being used by healthcare institutions across the world, including in markets such as Hong Kong and Qatar. Demand for its software has been very strong in FY 2020, leading to Mach7 reporting a 158% increase in first half revenue to $9.1 million. Since then the company has announced the acquisition of Client Outlook. The acquisition of this leading provider of enterprise image viewing technology increases Mach7’s total addressable market from US$0.75 billion to US$2.75 billion.

MNF Group Ltd (ASX: MNF)

A final small cap to watch is MNF Group. It specialises in Voice over Internet Protocol (VoIP) technology, which is used to convert analogue audio signals into digital data that can be sent over the internet. Demand for its services has been very strong during the pandemic. This is because as more people work or study from home, the demand for information and connectivity through technology has increased. In fact, demand has been so strong, in April MNF Group was able to reaffirm its full-year guidance for earnings before interest, tax, depreciation and amortisation (EBITDA). It expects EBITDA of between $36 million and $39 million in FY 2020, which represents 32% to 43.4% year on year growth.

More reading

• Add these ASX small cap shares to your watchlist immediately
• Why Nearmap and 2 other ASX tech shares are surging higher today
• How to get rich by investing in small cap ASX shares
• Bubs and 1 other exciting small cap ASX share to buy
• 4 top small cap ASX shares to watch in FY 2021

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 and recommends BIGTINCAN FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of MACH7 FPO. The Motley Fool Australia owns shares of and has recommended MNF Group Limited. The Motley Fool Australia has recommended BIGTINCAN FPO and MACH7 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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Yesterday, the Australian Government announced an $86 billion budget deficit. Just 12 months ago the government was forecasting a $5 billion budget surplus in FY20.

Well, the coronavirus pandemic has hammered ASX shares lower and thrown those plans out of whack.

Let’s unpack Treasurer Josh Frydenberg’s budget update and what it means for your favourite ASX shares in 2020.

What were the key budget takeaways?

To be honest, it makes for some grim reading. The government’s deficit for FY20 is forecast to be $85.8 billion. That’s a big turnaround from a forecast $5 billion surplus in the pre-pandemic world.

Not only that but the FY21 deficit is forecast to grow to $184.5 billion the following year. These are some big numbers that reflect both a slowdown in government revenue (i.e. taxes) and increase in government expenditure.

The unemployment rate is expected to hit 9.25% by Christmas, despite an extension of the JobKeeper program, and Australia’s net debt is forecast to reach $677.1 billion by the end of June 2021, or 35.7% of GDP.

It’s important to note that budget deficits are not necessarily a bad thing. In fact, more government spending and strong fiscal policy can help drive economic growth. There’s been an obsession with surpluses over the last decade or so but budget deficits can actually be good for ASX shares and the economy.

What does all of this mean for ASX shares?

I don’t think there’s much good news for hard-hit industries like travel or hospitality in the budget update. Treasury is forecasting an easing of border restrictions by January but that seems very optimistic. That would be good for travel shares like Webjet Limited (ASX: WEB), but also residential REITs like Stockland Corporation Ltd (ASX: SGP), both of which benefit from immigration. However, that forecast appears at odds with what we’re seeing in the market, so I’d take it with a grain of salt.

I think infrastructure could be one sector that benefits from the current conditions. The pandemic has forced a re-think of working and living arrangements. It’s also given cities a chance to see how impact well-planned infrastructure is for everyday life.

More government infrastructure spending seems like a real possibility to boost economic growth. Multi-billion-dollar government contracts provide: a) big dollars, and b) reliable work for chosen companies.

That could boost economic activity and future-proof our cities, which could in turn help boost ASX infrastructure shares higher. If that’s the case, I’d be watching Transurban Group (ASX: TCL) and Atlas Arteria Group (ASX: ALX) shares in 2020.

In the end, much of the impact of the budget deficit on ASX shares will really come down to how the ballooning government debt will be deployed. 

More reading

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• 4 trends to invest in before August earnings season
• Warning: Investors are betting against these 3 ASX shares
• Why the Transurban share price could be a buy today
• TPG and 1 other quality ASX 200 share to buy right now

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. The Motley Fool Australia owns shares of Transurban 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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