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Some leading ASX growth shares could be worth considering in April 2022.

There has been significant volatility on the ASX share market since the start of the year. But sometimes, the ups and downs of the stock market can open up opportunities.

With that in mind, here are two possible contenders that have compelling growth potential:

Bailador Technology Investments Ltd (ASX: BTI)

Bailador describes itself as a technology expansion capital fund. It says it provides investors with exposure to “expansion-stage” technology companies at attractive valuations before going public and listing on a stock exchange.

Some of its previous investments have been Lendi, Siteminder Ltd (ASX: SDR), and Straker Translations Ltd (ASX: STG).

The Bailador share price has fallen by almost 20% since the start of the year. But the company can point to several financial metrics that show the strength of the underlying businesses.

In December 2021, the ASX growth share had 10 investments which had 43% revenue growth for the 12 months to December 2021, or 81% revenue growth excluding travel. Around 91% of the revenue is recurring. Those investments had a gross profit margin of about 66%.

Despite the pain that technology businesses have experienced on the share market, Bailador has continued to report gains.

It has entered into an agreement to sell its investment in Standard Media Index for $20 million, representing an uplift of approximately 67% to the carrying value. This valuation uplift represented an $8 million increase.

Bailador also recently completed an additional $7.7 million investment in InstantScripts, a digital healthcare platform that enables Australians to conveniently access high-quality doctor care and routine prescription medication. It saw 109% revenue growth in the three months to January 2022. The valuation of the investment round resulted in a 15% uplift to the valuation of Bailador’s existing investment in InstantScripts.

Bubs Australia Ltd (ASX: BUB)

Bubs is an Australian infant formula business that specialises in goat milk products. The company claims to be the fastest-growing infant formula manufacturer in Australia.

In its recent FY22 half-year result, it reported several achievements. It said that it achieved positive earnings before interest, tax, depreciation and amortisation (EBITDA) for the first time, with positive cash flow in the half (and both quarters being cash flow positive).

It doubled its infant formula sales, which helped “significant” gross profit margin improvement. Bubs saw “strong” growth in domestic retail scan sales with market share gains. Corporate daigou sales were also at a record high.

The ASX growth share has also launched ‘Bubs Supreme’ featuring A2 beta-casein protein milk, with ranging secured in 500 Coles Group Ltd (ASX: COL) supermarkets nationally. It will be on the shelves from May 2022.

Corporate daigou partner Willis Trading has made an opening purchase order of $32.9 million. This will be delivered in the fourth quarter of FY22 and the first quarter of FY23.

Bubs boasts that it now has a presence across all key premium segments: goat, organic, and A2 beta-casein protein.

The post Are these 2 compelling ASX growth shares buys in April 2022? appeared first on The Motley Fool Australia.

More reading

• Broker gives its verdict on the Bubs (ASX:BUB) share price
• Why is the A2 Milk (ASX:A2M) share price falling today?
• Bubs (ASX:BUB) share price on watch amid A2 product launch
• These 2 ASX shares are growing rapidly, are they unstoppable?
• 3 reasons why Soul Pattinson (ASX:SOL) is a strong ASX dividend share idea

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Bailador Technology Investments Limited and SiteMinder Limited. The Motley Fool Australia owns and has recommended COLESGROUP DEF SET. The Motley Fool Australia has recommended BUBS AUST FPO, Bailador Technology Investments Limited, and Straker Translations. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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March was a dramatic month for AGL Energy Limited (ASX: AGL), but its share price didn’t join in on the commotion.

AGL’s stock gained just 2.66% over the course of last month. That’s despite the company being hit with a sweetened takeover offer and the coming together of some of its renewable energy plans.  

As of the final close of March, the AGL share price was trading at $7.72, just 20 cents higher than it was at the end of February.

For comparison, the S&P/ASX 200 Index(ASX: XJO) gained 6.39% last month. That means the AGL share price underperformed the broader market by 3.73%.

Let’s take a closer look at how AGL performed last month.

What happened to AGL last month?

The AGL share price sunk earlier this month on the back of an increased – and quickly rejected – takeover offer.

The offer was posed by the private investment firm of Mike Cannon-Brookes – co-founder and co-CEO of software company, Atlassian – in partnership with Brookfield Asset Management.

Previously, the pair posed a $7.50 per share takeover bid for AGL in February. It was quickly rejected, with the AGL board stating it undervalued the company.

The takeover offer also highlighted an alternative future for the energy producer and retailer, with Cannon-Brookes vowing to stop AGL’s planned demerger and fast track the closure of its coal-fired power stations.

On 7 March, the pair’s bid for AGL was bumped to $8.25 per share. That was an 11% premium on the AGL share price’s previous close.

However, Cannon-Brookes and Brookfield were once again shot down, with AGL’s board believing the bid was still a lowball. Though, some of the company’s major shareholders argued that more consideration should have been given to the sweetened offer.

The AGL share price slumped 1.75% the day the second bid was posed and rejected.

In non-market sensitive news, AGL announced it will build a $41 million battery in Broken Hill last month.

The battery will be partly funded with a grant from the Australian Renewable Energy Agency (ARENA). It is expected to help support the switch to renewable power.

Additionally, AGL was given the green light to install a grid-scale battery at the site of its Liddell coal-fired power station.

Liddell is expected to be shuttered in 2023. The process of closing the station began on Friday when the first of 4 units was powered down.

Finally, AGL made progress on its goal to better integrate electric vehicles (EVs) into Australia’s electricity grid last month.

AGL share price snapshot

March wasn’t a great month for the AGL share price. However, it’s still outperforming in 2022.

At the end of last month, the energy company’s stock was up 22% year to date.

Though, it’s slipped 19% since this time last year.

The post How did the AGL share price perform in March? appeared first on The Motley Fool Australia.

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• The AGL (ASX:AGL) share price has jumped 5% in a week. What’s been happening?
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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Atlassian. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Altium Limited (ASX: ALU) is one of the bigger tech shares on the ASX, with a market capitalisation of around $4.5 billion. But could it also be building a reputation as an ASX dividend share?

For readers who haven’t heard of Altium before, the company describes itself as a multinational software business that focuses on electronics design systems for 3D design and embedded system development. Its products are everywhere, “from world leading electronic design teams to the grassroots electronic design community.”

Some of its more well-known offerings include Altium Designer, Altium 365, NEXUS, and Octopart.

What are Altium’s dividend credentials?

The company has provided information about its dividend policy.

Altium says it is “committed to a progressive increase of long-term shareholder value.”

It has grown its dividend every year since October 2012, so it is close to a decade of consecutive annual dividend increases. In October 2012, it paid a dividend of 5 cents per share. In September 2021, the company paid a dividend of 21 cents per share.

Altium says it will determine the appropriate dividend payment to achieve dividend growth by considering three factors.

The first factor is its growth prospects and development profile.

Second, Altium will consider available cash flow and funding requirements.

The final factor is capital management and needs.

Altium’s board aims to pay ordinary dividends each year between 50% to 80% of net profit after tax (NPAT).

In the recent FY22 half-year result, it grew the interim dividend by 11% to 21 cents per share.

How is Altium planning to dominate its industry?

The ASX tech share says that its software tools empower and connect PCB (printed circuit board) designers, part suppliers and manufacturers to develop and manufacture electronic products faster and more efficiently.

A key focus of the business in recent times has been Altium 365, its cloud platform offering. The idea is that it can create “seamless collaboration” across the entire PCB design process.

The ASX tech share thinks that its industry has a long-term growth outlook.

The company notes that electronics are at the heart of ‘intelligent’ systems, while PCBs are central to the design and realisation of electronics and smart connected products.

Financial and operational goals

Altium is focused on the ‘rule of 50’. This is where the percentage of revenue growth plus the current earnings before interest, tax, depreciation and amortisation (EBITDA) margin is at least 50 each year. The company is committed to achieving double-digit revenue growth each year.

Over the next few years, the company is planning to scale significantly. By 2025, it is targeting $500 million of revenue and 100,000 Altium Designer subscribers.

In the six months to 31 December 2021, Altium grew revenue by 28% to US$102 million. The company said that it had 56,200 Altium Designer subscribers as of 7 February 2022.

Altium share price snapshot

Over the last year, the Altium share price has risen by more than 25%. However, that includes a decline since the start of 2022. This calendar year to date, Altium shares have dropped 23%.

The post Is Altium (ASX:ALU) building a reputation as an ASX dividend share? appeared first on The Motley Fool Australia.

More reading

• 2 ASX tech shares expecting a lot of long-term growth
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• The Altium (ASX:ALU) share price has leapt 7% in 2 weeks. Could it be heading higher?
• 3 beaten-down technology ASX shares to buy right now: expert
• Here are 3 ASX growth shares analysts are tipping as buys

Motley Fool contributor Tristan Harrison owns Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Altium. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Woolworths Group Ltd (ASX: WOW) share price has seen volatility since the start of 2022. But what is the outlook for April?

It’s hard to know what a share price is going to do on any given day, week, or month. But analysts often give their opinion on what they think of a company’s current valuation.

Woolworths shares are now down 3% in 2022, but does this mean that the supermarket business looks good value?

Analyst opinions on the Woolworths share price

Brokers are mixed on the business.

On the optimistic side is Citi, which rates the supermarket company as a buy, with a price target of $40.30. The broker thinks that the recently-announced federal budget will help Woolworths because it means that Aussies will be able to more easily afford to pay for products that have risen in price.

Ord Minnett also rates Woolworths as a buy, with a price target of $39.50. It thinks that Woolworths can grow sales quicker than the competition.

Speaking to Livewire, the fund manager Raaz Bhuyan from WaveStone Capital also called Woolworths a buy, citing food inflation and its digital offering as reasons to be positive about the business.

However, there are also analysts out there that aren’t optimistic either. UBS rates the company as a sell with a price target of just $34. After seeing the FY22 half-year result, UBS thought that the Woolworths share price was too expensive when compared to Coles Group Ltd (ASX: COL) and also because investor expectations are too high for the business.

How strong was the half-year result?

Woolworths reported that in the first six months of FY22, its continuing operations sales increased by 8% to $31.9 billion.

However, before significant items, the continuing operations half-year earnings before interest and tax (EBIT) fell 11% to $1.38 billion, while net profit after tax (NPAT) fell by 6.5% to $795 million.

The company highlighted its e-commerce sales growth as one of the drivers of total sales growth. Total e-commerce sales increased by 48% to $3.49 billion.

Profitability was hurt by higher operating costs caused by COVID-19 and a delay in implementing productivity initiatives.

Growth prospects

Investors can consider growth plans when thinking about the Woolworths share price.

Woolworths said that in the first seven weeks of 2022, Australian food total sales increased by around 5%, driven by the impact of the Omicron variant of COVID-19.

The company has a medium-term annual target of 10 to 25 new full range supermarkets, between five to 15 new Metro Food stores and three to four new Countdown supermarkets in New Zealand.

Woolworths expects inflation to continue to intensify because of industry-wide cost increases, though it said it would work hard to ensure “great value and affordable alternatives”.

Woolworths share price valuation

One of the latest opinions came from Citi. Using the broker’s numbers, the Woolworths share price is valued at 30x FY22’s estimated earnings.

The post What’s the outlook for the Woolworths share price in April? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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ASX tech shares may have the potential to deliver long-term growth. The world is becoming more technological, which can provide a tailwind.

Some businesses are looking to tap into the growth of this technological trend.

Here are two businesses expecting to become much bigger in the coming years:

Nextdc Ltd (ASX: NXT)

NextDC describes itself as an innovative data centre-as-a-service provider. It says that it’s building the infrastructure platform for the digital economy, delivering the critical power, security and connectivity for global cloud computing providers, enterprise and government.

The business continues to grow. In the first half of FY22, its data centre services revenue increased by 19% to $144.5 million, while underlying earnings before interest, tax, depreciation and amortisation (EBITDA) grew 29% to $85 million.

The ASX tech share is working on a number of developments including the S3 data centre in Sydney and the M2 and M3 data centres in Melbourne. In December 2021, it acquired its first edge data centre on the Sunshine Coast. New sites have been secured for D1 in Darwin and A1 in Adelaide.

NextDC says that its expansion potential continues to grow, with a total planned capacity of over 400MW, before S4, new regions in Darwin and Adelaide, as well as future planned ‘edge’ locations.

The NextDC CEO Craig Scroggie said:

With liquidity over $2 billion, combined with record operating cash flow, NextDC is in an outstanding position to take advantage of current and future customer opportunities and to press its advantage into new regions and edge locations.

Altium Limited (ASX: ALU)

Altium is a global electronic PCB software provider. The ASX tech share also has other offerings, including Octopart, which is a search engine for electrical parts. The company says that it’s pursuing dominance and transformation.

The company has a goal of reaching US$500 million in revenue and 100,000 Altium Designer subscribers by 2025. It also wants 95% of its revenue to be recurring, excluding China.

Altium says that printed circuit boards are central to the design and realisation of electronics and smart connected products. Management said that Altium 365 and Nexar are connecting electronic design to manufacturing and the wider engineering software ecosystem. Nexar is a cloud-based integration platform, while Altium 365 is Altium’s cloud offering connecting the ‘fragmented’ value chain.

The ASX tech share is planning to build strategic partnerships for the benefit of customers who are highly motivated to pursue digital transformation but who have low organisational capability to implement enterprise software for electronics.

It has a number of leading clients including Tesla, Space X, NASA, Boeing, Google, Siemens, Honeywell, Microsoft, HP, Lenovo, Amazon, Disney, Apple, Fitbit, Broadcom, Qualcomm, Bosch and iRobot.

The post 2 ASX tech shares expecting a lot of long-term growth appeared first on The Motley Fool Australia.

More reading

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• Why this top broker tips 30% upside for the NextDC (ASX:NXT) share price
• The Altium (ASX:ALU) share price has leapt 7% in 2 weeks. Could it be heading higher?
• 3 beaten-down technology ASX shares to buy right now: expert

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tristan Harrison owns Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Alphabet (A shares), Altium, Amazon, Apple, Microsoft, Qualcomm, Tesla, and Walt Disney. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Alphabet (C shares) and has recommended the following options: long January 2024 $145 calls on Walt Disney, long March 2023 $120 calls on Apple, short January 2024 $155 calls on Walt Disney, and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Walt Disney. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The S&P/ASX 200 Index (ASX: XJO) materially outperformed the S&P 500 Index (SP: .INX) in the three months to March 2022.

In the first quarter of 2022, the ASX 200 rose by 0.7%. The S&P 500 fell by around 5%. That means the ASX 200 outperformed by almost 6% over the three months.

Why is the ASX 200 outperforming?

The performance of an index is dictated by the underlying holdings.

Not only are the names in the portfolios different, but the sector weights are also markedly different.

The ASX 200 is dominated by banks and resource businesses including BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), Macquarie Group Ltd (ASX: MQG), Australia and New Zealand Banking Group Ltd (ASX: ANZ), Rio Tinto Limited (ASX: RIO), and Fortescue Metals Group Limited (ASX: FMG).

Resource companies have helped deliver outperformance in the first period of 2022.

The Australian Financial Review reported comments from co-head of mining research at UBS Lachlan Shaw explaining why ASX 200 shares are doing well:

Commodities are seen traditionally as a bit of an inflation hedge, and commodity prices are certainly doing their part right now. For now, they are getting a lot of interest from investors in terms of the inflation hedge, in terms of what’s showing up in the headline price.

But if I weigh that against where prices are, the potential windfall cash flow for names like BHP is astonishing. Even if they’re having to give some of that windfall cash back in cost inflation, it’s still an environment where there are strong results and very strong dividends.

BHP is trading on a dividend yield of 11%. That’s exceptionally strong in its own right, but exceptionally strong relative to other parts of the market and other assets in general.

It is also believed that higher interest rates can help bank margins which, in turn, can help ASX 200 bank shares.

Interest rates are expected to increase in both the US and Australia this year.

Why are potential higher interest rates hurting the S&P 500?

The legendary investor Warren Buffett said at the 1994 Berkshire Hathaway annual general meeting:

The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature…its intrinsic valuation is 100% sensitive to interest rates.

The S&P 500 is dominated by global tech names like Amazon, Apple, and Microsoft, which have higher price/earnings ratios (P/E ratios) and more growth expectations built into the valuation. A higher interest rate can mean some investors increase the discount rate they apply to growth shares.

The post Here’s why the performance of ASX 200 shares is smashing the S&P 500 appeared first on The Motley Fool Australia.

More reading

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• What boosted the Whitehaven Coal (ASX:WHC) share price on Friday?

Motley Fool contributor Tristan Harrison owns Fortescue Metals Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited and Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Rio Tinto Limited (ASX: RIO) share price edged 1% higher last month after struggling to gain form early on.

In comparison, the S&P/ASX 200 Index (ASX: XJO) surged more than 6% following a rebound across the broader market.

Let’s take a look below at what’s the latest with the mining giant’s shares over the past month.

What happened to Rio Tinto shares in March?

Investors appeared mixed on Rio Tinto shares last month despite the company announcing the completion of the Rincon lithium project.

Rio Tinto acquired the project from Rincon Mining for $825 million, following approval from Australia’s foreign investment review board (FIRB).

Rincon is a large undeveloped lithium brine project located in the heart of the lithium triangle in the Salta Province of Argentina.

With the lithium revolution continuing to keep pace, Rio Tinto is looking to get in on the action.

In addition, the company’s largest commodity, iron ore rose 11% in March after a bumpy ride earlier on.

It seems that markets are expecting demand to pick up again in China when COVID-19 restrictions are lifted.

Nonetheless a couple of brokers weighed in on Rio Tinto’s shares with varying price points at the end of March.

Analysts at Morgan Stanley raised its price target by 7% to $130.50 for the Rio Tinto share price. Based on Friday’s closing price of $120.34, this implies an upside of roughly 8.4% for investors.

The team at UBS also changed it assessment, upgrading its rating to “neutral” from “sell”. Although the price target was lifted by 15% to $104 apiece, this represents a downside of around 15%.

Rio Tinto share price snapshot

Since the beginning of 2022, the Rio Tinto share price has gained 20% and is up around 7% for the last 12 months.

The company’s shares reached a 52-week low of $87.28 in November, before zipping 38% higher to Friday’s closing price.

Rio Tino has a price-to-earnings (P/E) ratio of 15.35 and commands a market capitalisation of roughly $44.67 billion.

The post What happened to the Rio Tinto share price throughout March? appeared first on The Motley Fool Australia.

More reading

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• Are these ASX 200 mining shares in trouble?

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Airtasker Ltd (ASX: ART) has now been on the ASX for just over a year. How have the first 12 months been for the business?

For readers that haven’t heard of this company before, it provides a platform to connect households and businesses who need work done to people willing to do that work (for a fee).

IPO with a bang

Just over a year ago, Airtasker went through the initial public offering (IPO) process.

It listed with a price of 65 cents. But on the day of listing, it jumped 78% to $1.16. It went even higher in March, rising to $1.43. But it hasn’t been that high since.

Airtasker share price declines

By late July, Airtasker shares had fallen below $1.

At the end of 2021, they had fallen to 85 cents.

But, wait for it, the Airtasker share price has fallen another 27% in 2022.

Over the last year, the Airtasker share price has fallen by around 55%.

Why have Airtasker shares fallen so much?

The company has been hitting its guidance.

In fact, the FY21 result was ahead of guidance. In FY21, its revenue of $26.6 million was ahead of the prospectus forecast of $24.5 million and up 38% year on year. Gross marketplace volume (GMV) of $153.1 million beat the prospectus forecast of $143.7 million and was up 35% year on year.

The company suffered during the COVID-19 lockdowns for most of the first quarter of FY22. This led to FY22 first quarter GMV only increasing 6.2% year on year.

However, there has also been a broad sell-off with many ASX growth shares.

For example, since the start of 2022, the Zip Co Ltd (ASX: Z1P) share price has fallen by 66%, the Xero Limited (ASX: XRO) share price has dropped 31%, the Nanosonics Ltd (ASX: NAN) share price has declined 40% and the REA Group Limited (ASX: REA) share price has fallen 24%.

There has been a lot of talk about interest rates and inflation in recent months. Central banks are lining up interest rate increases to try to dampen inflation.

Warren Buffett has previously spoken about why interest rates can affect asset valuations:

The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature… its intrinsic valuation is 100% sensitive to interest rates.

How has Airtasker been performing recently?

It was not long ago that Airtasker reported its FY22 half-year result. Airtasker revealed a recovery of volume in the second quarter as lockdowns ended.

The bounce-back saw second-quarter GMV increase 39% quarter on quarter to $48.6 million and achieve a record weekly GMV run rate of $4.5 million in December 2021. This led to the second half GMV guidance being increased to a range of $107 million to $110 million, up from $105 million.

Airtasker is seeing rapid growth internationally. In the second quarter, its United States marketplace saw task growth of 71% quarter on quarter. United Kingdom GMV was up 121% year on year in the second quarter.

The company is investing significantly in marketing channels for core organic growth.

Based on the current share price, Airtasker has a market capitalisation of $258 million.

The post Airtasker (ASX:ART) has been listed for a year. Has it been up to the task? appeared first on The Motley Fool Australia.

More reading

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Nanosonics Limited, Xero, and ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Airtasker Limited. The Motley Fool Australia owns and has recommended Nanosonics Limited and Xero. The Motley Fool Australia has recommended REA Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Once a week I like to look at ASIC’s short position report to find out which shares are being targeted by short sellers.

This is because I believe it is well worth keeping a close eye on short interest levels as high levels can sometimes be a sign that something isn’t quite right with a company.

With that in mind, here are the 10 most shorted shares on the ASX this week according to ASIC:

• Flight Centre Travel Group Ltd (ASX: FLT) remains the most shorted ASX share with its short interest rising to 17.7%. While the outlook for the travel market is improving, short sellers appear to believe investors are too optimistic.
• Betmakers Technology Group Ltd (ASX: BET) has seen its short interest rise slightly to 12.9%. Concerns over rising cash burn in the sports betting industry and tech valuations appear to be weighing on sentiment.
• Nanosonics Ltd (ASX: NAN) has short interest of 11.8%, which is down slightly week on week. Short sellers have been targeting this infection prevention company’s shares after it made a big (and risky) change to its sales model in the United States. It remains unclear if the change was forced by its long term distributor in the market.
• Webjet Limited (ASX: WEB) has short interest of 10.3%, which is down slightly week on week. Concerns over the travel market recovery continue to weigh on sentiment.
• EML Payments Ltd (ASX: EML) has seen its short interest rise to 9.5%. Short sellers may have concerns over regulatory risks and its valuation as rates rise.
• Polynovo Ltd (ASX: PNV) has seen its short interest rise again to 9.5%. This medical device company’s mixed performance and dwindling cash balance appear to have got investors worried.
• Zip Co Ltd (ASX: Z1P) has seen its short interest jump to 8.9%. Rising competition, increased marketing costs, and significant cash burn have been weighing on investor sentiment.
• Kogan.com Ltd (ASX: KGN) has seen its short interest ease to 8.8%. Short sellers may be targeting this online retailer due to its weakening sales and changes to Apple’s privacy settings. The latter has made it harder to advertise effectively to consumers, which has led to increased marketing costs in the industry.
• AMA Group Ltd (ASX: AMA) has 8.3% of its shares held short, which is up slightly week on week. Short sellers have been going after this crash repair company since it reported a half year loss of $46.3 million.
• Omni Bridgeway Ltd (ASX: OBL) has seen its short interest ease to 8.2%. Short sellers could be targeting this litigation funder’s shares due to the Government wanting to overhaul class action laws.

The post These are the 10 most shorted ASX shares appeared first on The Motley Fool Australia.

More reading

• Top brokers name 3 ASX shares to buy next week
• These were the worst performing ASX 200 shares during the first quarter
• Zip share price backtracks ahead of share purchase plan closure
• Why is the Betmakers (ASX:BET) share price having such a lousy week?
• Discounted bargain? The Kogan (ASX:KGN) share price is down 3%

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Betmakers Technology Group Ltd, EML Payments, Kogan.com ltd, Nanosonics Limited, POLYNOVO FPO, and ZIPCOLTD FPO. The Motley Fool Australia owns and has recommended EML Payments, Kogan.com ltd, and Nanosonics Limited. The Motley Fool Australia has recommended Betmakers Technology Group Ltd, Flight Centre Travel Group Limited, and Webjet Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Ask A Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In this edition, Atlas Funds Management chief investment officer Hugh Dive explains why the ASX shares that are his two biggest holdings are so fantastic.

Investment style

The Motley Fool: How would you describe your fund to a potential client?

Hugh Dive: I’m Hugh Dive from Atlas Funds Management, here to talk to you about the Atlas High Income Property Fund. This is an income-related property fund. We’re owning a bunch of real assets and are executing a covered-call strategy over the assets that we hold. So this allows us to collect dividends. 

We’ve chosen real assets, namely listed infrastructure and listed property, in that their distributions aren’t particularly volatile, and so they’re much easier to write calls over. Unlike, for example, the banks or miners, where the distributions can be very volatile. [Real estate ASX shares] don’t move around that much. That’s a great thing for us. 

Secondly, we’re selling a covered call strategy over this, allowing us to harvest extra income for our investors. Systematically, we’d see that investors overestimate the blue sky, and that results in close to 80% of our calls that we sell expiring worthless, and that’s a good source of income for our investors. This allows us to pay investors 7%, or 1.75%, every quarter. 

The fund has been running since early 2017. It’s listed on the ASX under code AFM01. 

It’s a growing one that’s doing quite well at the moment, in that real assets are viewed as quite popular, and the covered-call strategy is working well.

Biggest convictions

MF: What are your two biggest holdings?

HD: The two biggest holdings are Shopping Cntrs Austrls Prprty Gp Re Ltd (ASX: SCP) and Arena REIT No 1 (ASX: ARF). 

SCA Property Group is a group that owns 91 shopping centres, and these are not the glitzy Westfield centres you see in the centre of the city, but generally a Woolworths Group Ltd (ASX: WOW) or Coles Group Ltd (ASX: COL) with a Dan Murphy’s or a BWS right next to it. So, very consumer staples sort of retailing. 

[It had] done very well during [COVID-19]. People still had to eat. People still enjoy drinking alcohol. 

The 91 shopping centres are worth around $4.4 billion, and the part we like about it is they’re very long lease terms. The average lease term is close to 10 years, and it’s all linked to inflation. So, this would be a beneficiary of further inflation, particularly food inflation, in that the landlords of shopping centres, like SCA, have base rent plus a turnover rent component, so they get a bit of extra when more money’s going through. So, food inflation is a very good thing for this company.

The second-biggest holding we have in the portfolio is a company called Arena REIT. That is a company that owns 256 childcare and healthcare centres across Australia. Again, a very long lease term. We like long lease terms. The lease term there is even greater, at 20 years — all linked to inflation. 

We saw during March 2020, Arena REIT fell very heavily, thinking that people weren’t going to go to childcare centres. Then the government stepped in. Despite the fact it was down close to 40% in March, [there was] absolutely no change to their earnings. All tracking along. It’s all linked to inflation. 

One of the great parts about Arena REIT is their lease structure’s quite different to most property trusts in that they’re triple lease backed. That means the person renting the centre has to pay maintenance costs, any ongoing taxes, and any improvement costs into it. So it means there’s a very clean pass-through, whereas the likes of Dexus Property Group (ASX: DXS) or Scentre Group (ASX: SCG) actually have to pay to upgrade their assets. 

So very stable, very high visibility on earnings, and very long-running earnings. They’re two companies that are our two biggest holdings, and we’re very, very happy with how they’ve been going. 

MF: Is the fact that Arena’s agreement with its tenants a little bit different, is that a consequence of the childcare industry, is it? 

HD: Correct. There’s often quirks in the different sectors. For example, one of the quirks in the office property trust area is tenants get offered incentives, and that incentive moves around from 10% [to] 30% of the lease, and that’s generally structured in terms of fit-outs or even just straight out cashback. So, you pay a headline rate of $1000 a square metre, but you really might only be paying $700. 

MF: I see the Arena share price has done really well. It’s now well above its pre-COVID high? 

HD: Yeah. It was quite a wild time during COVID for a lot of these property trusts, where the market viewed that anything to do with a real asset or real estate was suddenly worthless and it was all going to go down. 

But what’s shown over the last couple of years is that that is not to be true. 

There was a view that toll roads were going to be stranded assets. No one’s ever going to use a toll road. Certainly, no one’s going to an office again. Shopping centres were going to be cavernous, empty houses filled with pigeons, and childcare centres and medical centres weren’t going to get used. 

And it’s all proved to be false. 

One of the benefits of experience and having done this a long while is that these extreme situations rarely play out, and you have to attach a low probability to fundamental changes in human behaviour. 

When I look at disasters for real estate, in 480 BC, the Persian king Xerxes sacked the agora in Athens, and that impacted Athenian retail sales, as shoppers were put to the sword and the city was burnt. But a mere 10 years later, it was all rebuilt, and Athenian retail sales continued to increase. And indeed, I was actually at this several-thousand-year-old shopping centre about a year or two ago and bought some items there. 

Human beings will bounce back. It didn’t turn out to be that human beings would permanently sit in their caves and never come out again because that’s just against human nature. We like to dine out. We like to buy things. And in offices, we like to congregate together in order to increase productivity. 

MF: Even caves are real assets, so someone’s got to rent those. 

HD: Ha ha ha, yeah.

The post Humans don’t change: Expert names 2 ASX shares that exploit our urges appeared first on The Motley Fool Australia.

More reading

• Top brokers name 3 ASX shares to buy next week
• Federal budget: Goldman Sachs names 4 ASX shares to buy
• Analysts name 2 ASX dividend shares with fully franked yields to buy
• 5 ASX shares that could be primed for takeovers in 2022: Wilsons
• The Coles (ASX:COL) dividend is being paid today. Here’s what you need to know

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended COLESGROUP DEF SET and Shopping Centres Australasia Property Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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