Tag: Motley Fool Australia

The WAM Global Limited (ASX: WGB) share price is up around 3% after announcing a larger-than expected FY20 final dividend for investors.

Overview of WAM Global

WAM Global is a listed investment company (LIC). It’s operated by Wilson Asset Management. The job of a LIC is to invest in other shares on your behalf. As the name may suggest, WAM Global invests in global shares. It’s meant to be the international version of WAM Capital Limited (ASX: WAM). It provides geographic and currency diversification compared to the domestic WAM LICs.

One of the benefits of LICs is that they can make investment returns from capital gains as well as receiving investment income from shares. LICs can then pay out some of those investment returns as steady dividends or retain the profit for more growth.

WAM Global looks for international shares where there’s a catalyst that would cause the share price to rise. It’s particularly looking for what it describes as ‘undervalued international growth companies’.

For shareholders it wants to provide a stream of fully franked dividends, provide capital growth over the medium-to-long term and preserve capital. As WAM Global’s investments grow in value, hopefully the WAM Global share price will rise as well.

FY20 dividend

The board of WAM Global decided to declare a fully franked final dividend of 4 cents per share, bringing the FY20 final dividend to 7 cents per share. This is a 250% increase on FY19’s total dividend and a 100% increase on the final FY19 dividend.

To pay future dividends WAM Global needs a profit reserve to pay from. WAM Global said that it had a profit reserve of 24 cents per share as at 30 June 220, which is 3.4 years of dividend coverage. WAM Global said it wants to pay a growing stream of fully franked dividends.

FY20 investment performance

The WAM Global share price and dividends are influenced by the investment performance of the LIC.

Before fees, expenses and taxes, the WAM Global investment portfolio increased by 3.1% during FY20, it outperformed the MSCI World SMID (small/mid) Cap Index in Australian dollar terms by 5%. However, it unperformed the MSCI World Index (AUD) which rose by 4.8%, it was driven by large cap tech companies which performed strongly during COVID-19 such as Amazon.

What shares does WAM Global own?

WAM Global revealed some of shares it owned at the end of June 2020.

Its biggest 10 positions included: Nomad Foods, Tencent, Lowe’s, Dollar General, Thermo Fisher Scientific, Kobe Bussan, Microsoft, Aon, AutoZone and Hasbro.

The next biggest 10 holdings were: Intuit, CME, Intercontinental Exchange, CDW, HelloFresh, Logitech, Edwards Lifesciences, Electronic Arts, Fidelity National Information Services and Arista Networks.

This is a diversified group of shares that should be able to perform well regardless of what the global economy does in regards to COVID-19.

Is the WAM Global share price a buy?

At the current WAM Global share price it’s trading at a 14% discount to the net tangible asset (NTA) despite today’s rise. I think that’s an attractive discount. The LIC that is well managed and has the potential to keep outperforming the MSCI small and medium cap index.

With the bigger than expected final FY20 dividend, WAM Global now offers an impressive dividend yield. Using an annual dividend payment of 7 cents per share, it offers a grossed-up dividend yield of 5.1%. If WAM Global pays another 4 cents per share dividend in six months then the forward grossed-up dividend yield could be 5.8%.

The management fees are certainly a drag on the net performance of the LIC, but if your focus is dividend income then I think this is a good time to buy WAM Global shares at an attractive NTA discount with a growing dividend.

More reading

• 3 blue chip ASX 200 dividend shares to buy in the next market correction
• 2 ASX shares I would buy for growth and income
• 3 ASX dividend shares growing their payouts fast
• ASX income stalwart WAM Capital announces 8.2% dividend
• Safe ASX 200 dividend shares to buy today

Motley Fool contributor Tristan Harrison 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 ASX is home to a dynamic and fast growing tech market. Here we look at 2 ASX tech shares that I believe could be worthy additions to your share portfolio: Bravura Solutions Ltd (ASX: BVS) and Megaport Ltd (ASX: MP1).

Bravura

Bravura is a locally based fintech company. It provides mission-critical enterprise software solutions to both the wealth management and funds administration industry. Since it was founded in 2015, Bravura has seen impressive revenue growth. In FY19, Bravura’s overall revenue increased strongly by 16% to $257.7. million and its earnings before interest, tax, depreciation and amortisation were up by 27%. 

The Bravura share price was hit hard during the early phase of the coronavirus pandemic. It has seen a partial recovery since then, and has been trading in the $4–$5 zone since late April. Over the next few months, I see potential for further share price gains from pre-COVID 19 levels as Bravura has not reported any major decline in demand during the pandemic.

Over the longer term, I believe Bravura is well positioned for continued strong revenue and profitability growth, driven by a growing product set and increased demand for wealth management software solutions globally.

Megaport

Megaport provides a ‘network as a service’ offering to enterprises. It is also commonly referred to as an elastic interconnection service. This enables enterprises to increase or decrease their fixed broadband bandwidth. The service is enabled via a network of cloud providers, data centre operators, and network service providers.

Megaport continues to grow its customer base across Asia Pacific, Europe and North America. This ASX tech share reported a whopping 70% increase in revenue to $25.9 million in the first half of FY 2020.

The Megaport share price has also performed strongly recently, increasing by more than 100% over the past year.

I believe that Megaport is well placed to continue its growth story over the next few years, driven by the continued rise of cloud computing and the need for rapid connectivity. 

Foolish takeaway

Both Bravura and Megaport are 2 of my top ASX tech share picks right now. Both have strong entrenched market positions in their respective tech niches. Both tech companies also continue to grow their international presence, which in my opinion is likely to lead to strong revenue growth in the years to come.

More reading

• Buy and hold these mid cap ASX shares for strong potential returns
• 5 of the worst performing ASX shares from last week
• ASX 200 Weekly Wrap: Blue chip shares pull ASX 200 back over 6,000 points
• Want to beat the market? Try these 3 ASX growth shares
• These were the worst performing ASX 200 shares last week

Phil Harpur owns shares of MEGAPORT FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of MEGAPORT FPO. The Motley Fool Australia owns shares of and has recommended Bravura Solutions Ltd. The Motley Fool Australia has recommended MEGAPORT 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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It has been a very positive day for the S&P/ASX 200 Index (ASX: XJO). In late morning trade the benchmark index is up almost 1% to 6,059.2 points.

Four shares that have failed to follow the market higher today are listed below. Here’s why they are dropping lower:

The AGL Energy Limited (ASX: AGL) share price is down 2% to $17.10. As the energy company is regarded as a safe haven asset, investors may be selling its shares and rotating back into risk-on assets due to improving investor sentiment. In addition to this, earlier this month Macquarie downgraded AGL’s shares to an underperform rating with a $15.91 price target.

The Alumina Limited (ASX: AWC) share price is down 4% to $1.71. Investors may be taking profit after some strong gains this month following its quarterly update. One broker that still thinks the Alumina share price can go higher is Morgan Stanley. On Monday it retained its overweight rating and price target of $2.00.

The BlueScope Steel Limited (ASX: BSL) share price is down almost 1.5% to $11.43. This could have been triggered by another note out of Morgan Stanley on Monday. It slapped an underweight rating and $10.00 price target on this steel producer’s shares. This follows the recent release of its guidance for FY 2020.

The BWX Ltd (ASX: BWX) share price has fallen 4% to $4.10. This may be a case of profit taking from investors after some very strong gains by the personal care products company’s shares this month. Prior to today, BWX’s shares were up 22% since the start of the month. This follows the release of its unaudited full year result which revealed strong sales and earnings growth. The company is also currently raising funds to enhance its manufacturing capability and future-proof its supply chain.

More reading

• Why the BlueScope share price is outperforming today
• 5 top performing ASX 200 shares from last week
• ASX 200 down 0.5%: Sydney Airport and South32 updates, HUB24 delivers record Q4
• ASX 200 Weekly Wrap: Blue chip shares pull ASX 200 back over 6,000 points
• These were the best performing ASX 200 shares last week

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BWX 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.

The post Why AGL Energy, Alumina, BlueScope, & BWX shares are dropping lower appeared first on Motley Fool Australia.

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The Immuron Limited (ASX: IMC) share price is up by 89.80% to 46 cents per share this morning on news that Immuron’s product IMM-124E has neutralising activity against the severe acute respiratory syndrome coronavirus-2 (SARS-CoV-2), the virus that causes COVID-19.

This follows on from another positive announcement yesterday that the U.S. Food and Drug Administration (FDA) provided guidance about the development pathway for Immuron’s new oral therapeutic drugs.

What sent Immuron’s share price skyrocketing?

The Immuron share price has shot higher in early trade following news that IMM-124E, which is used in the manufacture of Immuron’s flagship drugs Travelan and Protectyn, demonstrates antiviral activity against COVID-19 in laboratory testing.

Trevelan is Immuron’s only drug that currently generates revenue and is predominantly used to reduce the risk of traveller’s diarrhoea and minor gastro-intestinal disorders. It is licensed in Australia, Canada and sold as a dietary supplement in the US.

The company reports that the cytopathic effect inhibition cell-based assay was established and performed by 360 biolabs, a Melbourne-based contract research organisation. All 4 of the tests performed saw inhibition of Covid-19 of at least 50%. Higher concentrations of IMM-124E stemmed the virus replication by up to 90%. None of the tests demonstrated any cell toxicity.

Commenting on the early results, Immuron CEO Dr Jerry Kanellos stated: 

The preliminary data set we have generated potentially offers a new oral therapeutic approach to target and directly inhibit the virus in the Gastrointestinal tract and warrants further evaluation to identify the inhibitory substances in our products. The company has filed a provisional patent application in respect of the findings.

What now for Immuron?

Immuron is an Australian biopharmaceutical company focused on developing and commercialising oral immunotherapeutics for the prevention and treatment of gut-mediated pathogens such as campylobacteriosis and E. coli (ETEC).

After languishing around the 12 cent mark over the past year, the Immuron share price has seen a stark reversal in fortunes, jumping 275% on 9 June alone, in response to news of briefing documentation being submitted to the FDA. The Immuron share price is up 253% year to date, and currently sits at 46 cents per share.

More reading

• Immuron share price shoots 6% higher after receiving FDA guidance for new drug

Motley Fool contributor Daniel Ewing 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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For the many new investors that have hit the markets since the start of the coronavirus pandemic, it can be quite difficult to find good value shares to buy. On one hand you have the skyrocketing valuations of companies like Afterpay Ltd (ASX: APT) which, at the time of writing, has a valuation marginally less than Santos Ltd (ASX: STO) and Origin Energy Ltd (ASX: ORG) combined. On the other hand you have companies like Ansell Limited (ASX: ANN) which is a great company, but trading at 10 points above its 10-year price-to-earnings (P/E) average.

I think the companies below represent very good ASX shares to buy right now. They are both in the real estate space, and each one has a market cap less than its book value. Book value refers to total assets minus intangible assets and liabilities. It is also called the net asset value.

Theoretically, this means that if you had a spare billion dollars lying around, you could buy one of these companies and immediately sell all of its assets for a profit. 

A great office share to buy

Centuria Office REIT (ASX: COF) is a great ASX share to buy and Australia’s largest ASX-listed pure play office REIT. I believe that office real estate has been the least impacted by the coronavirus pandemic thus far. A report on residential real estate from the Australian Bureau of Statistics (ABS) shows that new approvals for total dwellings was down by 16.4% compared to April. In addition, GPT Group (ASX: GPT) reduced the value of its retail assets by $476.7 million, or approximately 8.8%, in response to a re-valuation. This was before the second wave of the virus hit Victoria. I expect retail assets to be even more devalued due to the current uncertainty.

Centuria Office has an occupancy of 99.2%. Importantly, the company has a weighted average lease expiry, or WALE, of 5.1 years. In addition, it manages a portfolio of high quality office assets worth $2.1 billion. At the time of writing, the company has a market cap of $1.05 billion – half of the value of its real estate portfolio. 

At its current price, Centuria Office has a trailing 12-month dividend yield of approximately 8.73% and is trading at a P/E of 13.42. This is lower than it has traded in the past five years. I think this is a great share to buy and I am contemplating investing in it personally. 

Storage assets are king

Abacus Property Group (ASX: ABP) is another ASX share to buy that is undervalued, in my opinion. It is an Australian real estate investment trust, or A-REIT, like Centuria, however it is diversified. According to the company’s portfolio statement, it has a balance sheet of $3.3 billion in total property assets as at H1 FY20, a significant increase from FY19.

This breaks down into approximately; 50.6% in office buildings, 34.4% in storage space, 6.8% in small convenience shopping centres, and about 8.2% in non-core assets.

While I remain concerned over the impact to retail, it is only a small percentage of the company’s portfolio. Both office assets and storage assets have been resilient in the current pandemic. Furthermore, Abacus has begun to show a growing interest in accumulating storage assets. Recently it increased its holding in rival National Storage REIT (ASX: NSR) to 8.09%. This is part of the organisation’s move to a recurring annuity type income stream, instead of its previous value-add model. An approach that will result in less volatility in earnings.

At the time of writing, Abacus has a market cap of $1.81 billion. This is 45.2% lower than its stated portfolio value. In terms of net asset value, it is worth $3.41 per security, while the current share price is $2.77 per security. The company also has a trailing 12 month dividend yield of 6.68%.

I think this is one of the better value shares to buy on the ASX today.

Foolish takeaway

Finding cheap shares to buy is difficult, however the price to book ratio is a good starting point. To illustrate further, compare the value of the company’s net tangible assets, against its current market capitalisation. However, this is only the beginning. You also need to make sure that the business has a solid operating model, and that management is making good decisions. This is more important than ever as we find ourselves in an unprecedented level of uncertainty. 

More reading

• ASX 200 flat: Westpac class action, Rio Tinto Q2 update, travel shares sink
• Top ASX dividend shares to buy in July 2020

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

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The Downer EDI Limited (ASX: DOW) share price went into a trading halt as it’s rattling the can for $400 million in loose change.

The engineering group is tapping investors on the shoulder for extra cash as it downgraded its guidance, announced a big write-down and looked to acquire all of Spotless Group Holdings Limited.

No one can accuse management of not keeping busy. The group now expects FY20 underlying net profit after tax but before amortisation (NPATA) of $210 million to $220 million.

Profit downgrade and impairment charge

This is below its previous NPATA guidance of $300 million, according to the Australian Financial Review. The new guidance also represents around a 40% fall from FY19’s figure of $340 million.

The group also expects to take a $386 million hit to earnings due to goodwill impairment, restructuring and portfolio review costs, payroll remediation, legal settlements and historical contract claims adjustments.

Acquisition of Spotless

But Downer is putting a positive spin on the situation. It wants to take full control of Spotless to fulfil its strategy of offering “urban services” which will provide consistent earnings and cash flow.

Spotless provides cleaning and maintenance services to government, utilities and healthcare customers.

Downer capital raising details

To achieve this goal, it’s looking to sell new shares to raise cash via a 1-for-5.58 fully underwritten accelerated non-renounceable pro-rata entitlement offer. The offer price of $3.75 a new share is a 12% discount to Downer’s last closing price of $4.26 yesterday.

Downer joins a long list of S&P/ASX 200 Index (Index:^AXJO) companies that have raised capital during the COVID-19 market shake-up.

This includes the Flight Centre Travel Group Ltd (ASX: FLT) share price, the National Australia Bank Ltd. (ASX: NAB) share price and Cochlear Limited (ASX: COH) share price – just to name a few.

Offer for Spotless Group

To win over Spotless minority shareholders, Downer will pay $1 per share of the unlisted company and issue one share option in Downer for every 17.92741 Spotless shares.

The acquirer also entered into a call option agreement with one of Spotless’ minority shareholders, Coltrane Master Fund. This gives Downer the right to purchase 2.99% of Spotless shares, which will increase Downer’s ownership above the 90% if exercised.

A bidder can move to compulsory acquire a company once it holds more than 90% of the target.

Downer believes it can extract $10 million to $15 million in synergies a year from the merger through restructuring, integrating operations and consolidating the Group’s debt platform.

One hand taketh, the other giveth away

On the flipside, Downer is looking to divest what it deems as non-core assets as it tries to reinvent itself.

This includes its mining and laundry services businesses, on top of its Engineering and Construction (E&C) and Spotless’ Infrastructure and Construction (I&C) divisions.

More reading

• 3 tips for investing in ASX 200 shares for beginners
• Where to invest $10,000 into quality ASX 200 shares
• This is how the Hungarian Grand Prix affects you as an ASX investor
• Is the Super Retail share price cheap today?
• Down 5% in 1 day: Are Bendigo and Adelaide Bank shares a buy?

Brendon Lau owns shares of National Australia Bank Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia has recommended Cochlear Ltd. and Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post What you need to know about Downer’s share price, $400m cap raise and acquisition appeared first on Motley Fool Australia.

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Investing in ASX 200 shares as a beginner is exciting. There are endless companies to research and a lot of media content to read.

The S&P/ASX 200 Index (ASX: XJO) has rebounded strongly since March and many investors want in on the action.

However, amidst all the market noise, it can be hard to know the dos and don’ts with ASX 200 shares.

Here are a few top tips I wish I had known before I began my investing journey.

1. Diversify across ASX 200 shares

It’s easy to see a hot stock like Afterpay Ltd (ASX: APT) and be tempted to go all-in. However, this is not a wise, long-term strategy.

There are always hot ASX 200 shares but this growth will come and go. It’s best to spread your risk across a number of shares rather than putting all your eggs in one company’s basket.

This can be done in a number of ways. For instance, you could buy a handful of top shares that you like in different industries or sectors.

Another approach is to gain instant diversification by using exchange-traded funds (ETFs).

ETFs invest in a portfolio of shares, and you can buy units in that diversified fund on the ASX.

A couple of examples are Vanguard Australian Shares Index ETF (ASX: VAS) or ETFS FANG+ ETF (ASX: FANG). These funds seek to track the S&P/ASX 300 Index (ASX: XKO) and the NYSE FANG+ Index, respectively.

2. Invest, don’t gamble

According to ASIC, many first-time investors were buying and selling ASX 200 shares in the March bear market.

On the one hand, that’s fantastic news. That means more Aussies are investing their money and building their future wealth. However, that also means many are likely making short-term trades.

To be clear, good investors like Warren Buffett buy and hold companies for the long term. Short-term investors are essentially gambling on each day’s ASX 200 share price moves.

Be more like Buffett and less like the gambler.

3. Trust your strategy

Once you’ve decided on your strategy, try not to worry too much. It’s easy to stress about the daily moves in your portfolio as a beginner.

However, you have to remember that you’re investing in your long-term future. That means you can ignore the day-to-day noise and focus on buying high-quality ASX 200 shares that can perform for the decades ahead.

Don’t waste money trying to time the market, or buying and selling out of your positions. That will cost you a lot of time, effort, taxes and transaction costs.

Instead, just sit back, relax and enjoy the ride.

More reading

• What you need to know about Downer’s share price, $400m cap raise and acquisition
• Where to invest $10,000 into quality ASX 200 shares
• This is how the Hungarian Grand Prix affects you as an ASX investor
• Is the Super Retail share price cheap today?
• Down 5% in 1 day: Are Bendigo and Adelaide Bank shares a buy?

Motley Fool contributor Ken Hall owns shares of Vanguard Australian Shares Index. 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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If you are fortunate enough to have $10,000 sitting in your savings account and have no immediate use for it, I would suggest you consider putting it to work in the share market.

This is because the potential returns on offer are vastly superior to the interest rates of 0.05% per annum that most bank accounts offer right now.

But where should you invest these funds? I would be buying one of these high quality ASX 200 shares:

a2 Milk Company Ltd (ASX: A2M)

The first place to consider investing $10,000 into is a2 Milk Company. It is one of the leading infant formula and fresh milk companies in the ANZ region and has been growing very strongly in recent years. The good news is that I believe it has the ability to continue its strong growth for a long time to come thanks to increasing demand for its infant formula products in China and the expansion of its fresh milk footprint in North America.

In addition to this, I like the company due to its extremely strong balance sheet, high levels of return on equity, and strong brand power in China. The latter should help the company when competition in the a2-only market increases. Whereas its strong balance sheet gives a2 Milk Company the firepower to make earnings accretive acquisitions to boost its future growth.

Appen Ltd (ASX: APX)

Another quality option for that $10,000 could be Appen. It is the global leader in the development of high-quality, human annotated datasets for machine learning and artificial intelligence (AI). The company has a crowd-sourced team of over 1 million skilled contractors powering the industry’s most advanced AI-assisted data annotation platform.

I believe a testament to the quality of this platform is its customer base. It has helped the likes of Facebook, Microsoft, and Apple with their AI models. The latter includes work on the tech giant’s smart assistant, Siri. Pleasingly, spending on machine learning and AI is expected to continue growing significantly over the next decade. Given its leadership position, I feel this bodes very well for its future growth.

More reading

• What you need to know about Downer’s share price, $400m cap raise and acquisition
• 3 tips for investing in ASX 200 shares for beginners
• This is how the Hungarian Grand Prix affects you as an ASX investor
• Is the Super Retail share price cheap today?
• Down 5% in 1 day: Are Bendigo and Adelaide Bank shares a buy?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk and Appen 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 Where to invest $10,000 into quality ASX 200 shares appeared first on Motley Fool Australia.

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ASX 200 consumer discretionary shares are known to be cyclical. That is, they are companies selling non-essential products and services – things we like to have but can survive without. This sector often suffers in economic downturns. But the COVID-19 downturn appears to be different. 

Lockdown restrictions mean people are spending more leisure time at home, and frequently working from home too. This has increased demand for some typically discretionary items. Here we take a look at three consumer discretionary ASX 200 shares that are outperforming despite the downturn. 

Breville Group Ltd (ASX: BRG)

The Breville Group share price has increased more than 130% since its March low of $10.80 and is currently trading at $24.97. Breville manufactures and sells home appliances such as blenders, toasters, microwaves, and kettles. This ASX 200 share saw revenue grow strongly in March and April – climbing 14% and 18% respectively in the company’s Global segment. The Distribution segment saw revenue growth of 25% in March and 15% in April. 

Strong Australian sales 

Australia and the United Kingdom recorded strong sales in April and May. The United States and Europe lagged other regions due to store closures and the temporary shut down of Amazon Prime. A strong shift to online channels was observed, both via third party sellers and from Breville direct to consumers. Despite its strong growth, Breville moved swiftly to implement measures to reduce cash expenses with the onset of the pandemic. 

Expenses down 

Employee expenses were reduced via salary cost reductions and marketing expenses temporarily reduced by 45%. Discretionary spending has been reduced or deferred and a freeze on non-essential capex implemented. R&D investment has, however, been maintained to protect the product development pipeline. 

Earnings growth and expansion 

Breville has delivered growth in earnings before interest and tax (EBIT) since FY16, with EBIT increasing 15.6% in 1H FY20. Since FY16, Breville has been steadily expanding into new international markets. It entered Eastern Europe in FY16-17 and Germany and Austria in April 2018. In early 2019 Breville entered Belgium, the Netherlands, Luxembourg, and Switzerland, followed by Spain and Turkey later in the year. The company expanded to France and the Middle East this year and is in advanced planning for entry into further markets in FY21. 

Wesfarmers Ltd (ASX: WES)

The Wesfarmers share price has climbed steadily since its March low. It is now up 50% from a low of $31.02 and trading at $46.48. Wesfarmers is the company behind Bunnings, Officeworks, Kmart, and Target. Bunnings and Officeworks saw a serious acceleration in sales during the first lockdown as consumers set up home offices and tucked into DIY projects. 

Strong sales growth 

Bunnings saw sales growth of 19.2% in 2H FY20 to May, while Officeworks’ sales grew 27.8%. This growth was attributable to people spending more time at home as lockdowns took effect. Given the change in customer shopping patterns, it is uncertain whether this growth will continue. 

Sales momentum at Kmart and Target improved in May with a general increase in customer footfall in shopping centres. A recovery in demand for apparel, particularly winter clothing, was noted. Nonetheless, weekly sales performance remains highly variable. For Kmart, significant growth in demand for home and living ranges resulted in some availability issues which are expected to impact June sales. 

Online sales surge

Over the calendar year to early June, the ASX 200 share saw total online sales growth of 89%, reflecting the COVID-19 shift to digital. Wesfarmers has invested significantly in its eCommerce capabilities in recent years, an investment that paid off. Over the financial year to early June, total online sales across Wesfarmers’ business increased 60% to $1.4 billion, or $1.9 billion including Catch. Online bargain site Catch reported sales growth of 68.7% in the second half, and 43.7% over FY20 to early June. 

Costs also up 

Increased sales came at a cost, with Bunnings investing approximately $20 million in additional cleaning, security, and protective equipment to respond to COVID-19. Bunnings will also incur costs of approximately $70 million associated with trading restrictions in New Zealand, the accelerated roll-out of the online offering, and the closure of seven small format stores in the second half. Additional costs associated with COVID-19 and the temporary closure of New Zealand stores will also impact Kmart’s earnings in the FY20 financial year. 

Domino’s Pizza Enterprises Ltd (ASX: DMP)  

The Domino’s share price has recovered strongly from the March downturn and surpassed previous highs. Now trading at $74.05, Domino’s share price is up 37% over 2020 and 65% from its March low. Domino’s is behind the ubiquitous pizza franchise, which has seen a material shift to food delivery in its markets as customers follow stay at home orders. 

Domino’s reports takeaway orders are being replaced by orders for zero contact delivery. CEO Don Meij said, “Many have told us they are doing the right thing by staying home… Their Domino’s delivery is helping them to stay home as well as providing a welcome moment of normalcy in challenging times.” 

Store sales performance  

Same store sales remained consistent in Australia post COVID at a national level. There were, however, significant changes in individual store performances reflecting local trading conditions. This means sales growth has been distributed unevenly across the business. In New Zealand and France, stores have reopened with 1,000 additional delivery drivers sought in New Zealand in anticipation of customers opting for delivery rather than takeaway. 

Japanese and German stores have maintained their strong sales performance. Sales performance in Germany continues to lead the region, while demand has significantly increased in Japan. Japanese management is focused on ensuring operations can meet increased demand from both delivery and takeaway customers. 

Medium-term outlook 

Domino’s does not provide short-term guidance but has advised its balance sheet remains strong, with significant headroom in committed debt facilities and covenants. Over the medium term, Domino’s intention is to continue to open new stores (+7 to 9% per year), and grow same store sales (+3% to 6% per year). COVID-19 has caused some uncertainty which delayed the opening of some stores planned for FY20. Store openings in FY21 will depend on local market conditions relating to COVID-19. 

Foolish takeaway

The COVID-19 downturn is different to previous downturns because it’s accompanied by lockdowns and social distancing restrictions. These have impacted on consumer spending patterns, increasing demand for some discretionary items. These ASX 200 consumer discretionary shares are seeing the results in their sales figures. 

More reading

• You probably shop at these 7 ASX retailers. Should you buy shares in them too?
• Top fund manager names favourite ASX growth shares
• ASX 200 Weekly Wrap: Blue chip shares pull ASX 200 back over 6,000 points
• Cash rate on hold until 2022? Buy these ASX dividend shares
• 3 five-star ASX shares to buy

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

The post These ASX 200 consumer discretionary shares are bucking the economic cycle appeared first on Motley Fool Australia.

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With earnings season just around the corner, I thought now would be a good time to look at what the market is expecting from Commonwealth Bank of Australia (ASX: CBA) next month.

Australia’s largest bank is scheduled to release its full year results on 12 August 2020. Here’s what to look for:

Cash earnings.

According to a note out of Goldman Sachs, it is expecting Commonwealth Bank’s FY 2020 cash earnings from continued operations (pre-one-offs) to come in at $7,815 million. This will be an 8% decline on the prior corresponding period.

As a comparison, the consensus analyst estimate is for cash earnings of $7,620 million in FY 2020.

Net interest margin.

Goldman is expecting the bank to report a net interest margin of 2.1%.

Its analysts commented: “While CBA’s 3Q20 NIM was lower than its 1H20 average, we think the operating environment on the margin front will have been supportive for CBA and the sector more broadly in 4Q20.”

It notes favourable deposit pricing trends, supportive funding spreads, and the introduction of the Term Funding Facility by the RBA.

Final dividend.

One of the hottest topics in investment communities right now is what (if any) dividend Commonwealth Bank will pay for the second half.

Goldman Sachs is forecasting a 100 cents per share fully franked final dividend. This will be a 56.7% reduction on last year’s final dividend. The consensus analyst estimate is for a slightly higher dividend of 119 cents per share.

Commenting on the final dividend, Goldman Sachs said: “We think CBA remains well-placed to pay a final ordinary DPS of A100¢, implying a c. 50% 2H20 payout, with a 1.5% discounted 2H20E DRP.”

This is thanks to its superior capital position, strong levels of provisioning, and its healthy level of pre-provision profitability.

However, the broker warned: “We expect the market to focus heavily on CBA’s dividend and any capital management commentary at the upcoming result and concede there is a wide range of potential outcomes with respect to both the size of the dividend and level of the DRP.”

Looking ahead, the broker is forecasting a dividend of 303 cents per share in FY 2021. This represents a fully franked forward 4.2% dividend yield.

Should you invest?

While Goldman Sachs has retained its sell rating and $65.00 price target on Commonwealth Bank’s shares, I still see value in them and would be a buyer at the current level.

Its shares may not be as cheap as Australia and New Zealand Banking GrpLtd (ASX: ANZ) and the rest of the big four, but I think it deserves to trade at a premium due to the quality of its business.

More reading

• Down 5% in 1 day: Are Bendigo and Adelaide Bank shares a buy?
• 5 things to watch on the ASX 200 on Tuesday
• ASX investors were buying these 5 international shares last week
• Why CBA and Macquarie shares could be in the buy zone
• ASX 200 Weekly Wrap: Blue chip shares pull ASX 200 back over 6,000 points

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.

The post What to expect from the Commonwealth Bank FY 2020 result appeared first on Motley Fool Australia.

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