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The Nearmap Ltd (ASX: NEA) share price has been a positive performer on Tuesday.

In morning trade, the aerial imagery and location intelligence company’s shares are up 10% to $1.62.

Why is the Nearmap share price jumping?

Investors have been bidding the Nearmap share price higher on Tuesday following the release of a trading update.

According to the release, the company expects the Annualised Contract Value (ACV) of its North America portfolio to surpass the ACV of its Australia and New Zealand portfolio for the first time in the near future.

In fact, management suspects this milestone could be achieved by the end of the first half. After which, it expects this side of the business to continue its growth and become the majority of Group ACV in the future as that market continues to accelerate.

The release explains that North America ACV has just surpassed US$50 million, taking group ACV beyond US$100 million. This compares to North American ACV of US$44.5 million at the end of FY 2021.

This puts Nearmap on course to achieve its FY 2022 ACV guidance of A$150 million to A$160 million on a constant currency basis, which represents an increase of 17% to 25% year on year.

“Very positive momentum”

Nearmap’s Managing Director and Chief Executive Officer, Dr Rob Newman, commented: “This historical milestone for Nearmap follows the very positive momentum we’re seeing in our business in North America.”

“We purposefully refined our go-to-market strategy in the region at the beginning of FY21 to focus on three core industries: government, insurance, and roofing. This approach was aligned to our strengths and follows strong demand from customers in these sectors. Since that time, we have delivered consecutive record half-year results. We’re also seeing this momentum continuing into FY22, which validates our strategy and our execution.”

This should be supported by the company’s expanding footprint in the key market.

Dr Newman explained: “Nearmap will continue to invest in this strategic market. We are doubling the coverage footprint in FY22 of our US capture program to ~80% of the population up to three times each year. Following a successful pilot, we’re also expanding access to all sectors in North America our ‘Nearmap ImpactResponse’ product to assist disaster relief efforts following catastrophic weather.”

The post Nearmap (ASX:NEA) share price jumps 10% on strong US growth appeared first on The Motley Fool Australia.

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• The Nearmap (ASX:NEA) share price has dived 35% in a month. What now?
• Why these 3 ASX tech shares could plunge this week
• 5 things to watch on the ASX 200 on Monday
• Here are 6 of the worst performing ASX shares of November
• These were the 5 worst performing ASX 200 shares in November

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 Nearmap Ltd. The Motley Fool Australia owns and has recommended Nearmap 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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The Siteminder Ltd (ASX: SDR) share price has been a strong performer since hitting the ASX boards last month.

Since listing with an IPO price of $5.06, the leading open hotel commerce platform provider’s shares have risen 21%.

Can the Siteminder share price keep rising?

One leading broker has given its verdict on the Siteminder share price this morning. And while it isn’t recommending its shares as a buy, it still sees reasonable upside ahead.

According to a note out of Goldman Sachs, its analysts have initiated coverage on the company with a neutral rating and $6.90 price target.

Based on the current Siteminder share price of $6.15, this implies potential upside of approximately 12% for investors over the next 12 months.

What did the broker say?

Goldman notes that Siteminder is operating in 150 countries with a current total addressable market estimated to be A$9.3 billion per annum. This means that the company has penetrated just 1% of this market.

The broker explains that this market “comprises A$2.5bn in its core hotel segment (1mn properties, c.70% using manual solutions), A$4.4bn from transactions (SDR sharing property GMV), and A$2.4bn from alternative accommodation through extending Little Hotelier.”

While Goldman acknowledges that the company’s revenue growth has stalled because of COVID-19, it expects this to change. The broker believes a resumption in global travel, accelerating small/medium business hotel software adoption, and its expanded product offering to underpin a revenue compound annual growth rate of 21% between FY 2021 and FY 2025.

Why neutral?

Given its positive outlook for the company, the broker explained why it is only initiating coverage with a neutral rating.

Goldman commented: “Although acknowledging SDR’s strong growth prospects and positive risk-reward, we initiate at Neutral given: (1) Uncertainty around the phasing of the global travel recovery; (2) Bottom quartile unit economics (even on a normalised basis); (3) Execution and competition risks in SDR growth markets; and (4) Growth adjusted valuation multiples that are in-line with peers. Our 12-month target price of A$6.90 is based on our EV/GP methodology – using 18X our FY23 GP estimate.”

“This multiple is in-line with ANZ peers when adjusting for GP growth outlook and covid-19 impacts on FY22 (-ve SDR, +ve peers). Our NPV sensitivity analysis implies potential LT valuations of A$15.00/A$3.80, suggesting meaningful upside on successful execution,” it added.

The post Top broker gives its verdict on the Siteminder (ASX:SDR) share price appeared first on The Motley Fool Australia.

More reading

• Leading brokers name 3 ASX shares to buy today

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. 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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The Northern Star Resources Ltd (ASX: NST) share price could be a bargain buy following the CEO’s latest purchase.

The Australian gold miner’s shares have fallen by almost 15% in a month as the price of gold continued to sink. And yesterday’s market session didn’t help, with the company’s share price edging 0.66% lower to $9.04 at the closing bell.

CEO buys more Northern Star shares

Last week, Northern Star managing director and CEO, Stuart Tonkin made an on-market transaction buying more of the company’s shares.

In total, 50,000 Northern Star shares were purchased at an average price of $8.86 per share or $443,000 worth. The sale increase Mr Tonkin’s existing holding by 4.2%, taking advantage of the recent share price weakness.

In addition, non-executive director, John Richards also picked up more Northern Star shares, adding 5,000 to his portfolio. Although, Mr Richards paid a slightly higher price at $9.10 per share.

When news broke out on 6 December, investors sent Northern Star shares around 3% higher over the following two days. However, it wasn’t enough to keep the confidence afloat, with the company’s shares erasing those gains since.

While the Northern Star share price is near these levels, it’s clear that the CEO believes this is an attractive investment.

Furthermore, Swiss investment bank, UBS upgraded its outlook on Northern Star shares last week. Its analysts slapped a “buy” rating from “natural”, but cut the price target by 21% to $11.20 apiece.

Macquarie also jumped in but with a more bullish view, raising the price target by 15% to $15 per share.

Based on the last closing price, this implies an upside of 20% for UBS and 40% for Macquarie.

About the Northern Star share price

Over the last 12 months, Northern Star shares have failed to take off, dropping by almost 30%. Investor sentiment weakened following a sharp fall in the spot price of gold this year.

On valuation grounds, Northern Star commands a market capitalisation of approximately $10.53 billion, with roughly 1.16 billion shares outstanding.

The post Are Northern Star (ASX:NST) shares cheap? The CEO must think so, here’s how many he snapped up last week appeared first on The Motley Fool Australia.

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• Macquarie (ASX:MQG) upgraded these ASX gold shares to ‘buy’ for 2022
• 5 things to watch on the ASX 200 on Monday
• 5 things to watch on the ASX 200 on Wednesday
• 5 things to watch on the ASX 200 on Tuesday

Motley Fool contributor Aaron Teboneras owns Northern Star Resources 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 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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This year has been dramatic for AGL Energy Limited (ASX: AGL) and its share price, but is the future looking brighter for the embattled energy provider?

James Gerrish, Shaw and Partners senior investment advisor and author of Market Matters, thinks the worst might be over for AGL shareholders.

As of yesterday’s close, the AGL share price is $5.88. That’s 51.49% lower than it was at the start of 2021.

For context, the S&P/ASX 200 Index (ASX: XJO) has gained 10.4% this year.

Let’s take a look at what this expert tips for the future of the soon-to-be-demerged company.

Will 2022 be the AGL share price’s year?

The AGL share price might not dip much lower than its current share price. In fact, it could be readying itself for future gains, according to Gerrish.

He recently told Livewire that he believes the energy provider’s stock will have a roaring 2022 compared to its performance in 2021. Gerrish commented on the AGL share price’s tumble:

A large portion of that drop is correct, but it now becomes an asset at play…

[At around its current share price] it’s cheaper than its retail business. So that for me is a buy and will do better in ’22 than it did in ’21.

That retail business is expected to be split from the company’s generation business if it undergoes its planned demerger.

AGL’s power generation business will be handed to a new entity, Accel Energy. Meanwhile, its retail business will become AGL Australia.

The company’s chair, Peter Botten, told its annual general meeting that AGL share price’s “disappointing” recent performance was mainly due to low wholesale energy prices and growing demand for decarbonisation.

According to the Clean Energy Regulator, AGL was Australia’s largest carbon emitter over the 2019-2020 year.  It put out 42.2 million tonnes of scope 1 carbon emissions in that time.

All eyes will be on the AGL share price next year, and not just because of Gerrish’s prediction. Plenty will also be eager to learn if the company’s demerger will come to fruition in the final quarter of financial year 2022.

The post Could the worst be over for the AGL (ASX:AGL) share price? appeared first on The Motley Fool Australia.

More reading

• Experts tip 2 beaten up ASX shares for gains in 2022
• Why did the AGL share price outperform the ASX 200 today?
• AGL (ASX:AGL) share price climbs amid Fortescue Hydrogen partnership news
• Own AGL (ASX:AGL) shares? Report finds 73 environmental risks at power plant
• What happened to the AGL (ASX:AGL) share price in November?

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. 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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It’s been a brutal time for buy now, pay later ASX shares – so it must be some relief for Zip Co Ltd (ASX: Z1P) to come first in a league table.

The Zip share price has dipped more than 11% this calendar year, but it’s a shocking 64% plunge since the February peak.

However, when budget trading software Superhero on Monday revealed the most-traded stocks on its platform for the year, Zip won the honour of the stock with the most user transactions:

Top 5 most-traded ASX shares on Superhero

(between 1 January and 30 November 2021 inclusive)

1. Zip Co Ltd
2. Flight Centre Travel Group Ltd (ASX: FLT)
3. Fortescue Metals Group Limited (ASX: FMG)
4. Qantas Airways Limited (ASX: QAN)
5. Afterpay Ltd (ASX: APT)

Not a great time for buy now, pay later

Ever since Afterpay’s blockbuster takeover deal to Block Inc (NYSE: SQ) was revealed in August, the BNPL shares have suffered.

Perhaps the market thinks the sector is maturing? Investors could also be concerned about credit regulation coming in to stifle growth, or that other larger players will simply swallow all the little fish.

Despite the popularity on Superhero, sceptics are lining up to predict Zip shares will be diving even further.

On Monday, Zip stocks were reported to be one of the most shorted on the ASX at the moment.

The Motley Fool’s James Mickleboro reported that 9% of Zip shares have been lent out for shorting, according to the Australian Securities and Investments Commission.

“Intense competition, concerns about rising industry fraud, and increasing costs could be weighing on sentiment.”

The possibility of higher interest rates, combined with thirst for expansion, is also a worry, according to payments consultant Grant Halverson.

“The moment their bad debts go up their cost of funding will go up 3 or 4 times faster than the actual rate rises and the rating agencies will downgrade them, and then they’ll get to junk status,” he said in the Australian Financial Review.

“Because they’re all frantically going at the US, they’re racing to the bottom. And that means probably more bad debts because they’ve gone after customers who haven’t got credit ratings.”

The post Zip (ASX:Z1P) shares just topped these end-of-year rankings appeared first on The Motley Fool Australia.

More reading

• This broker is bearish on the Fortescue (ASX:FMG) share price
• Afterpay (ASX:APT) shareholders vote in favour of Square takeover
• 5 things to watch on the ASX 200 on Tuesday
• Love ’em or hate ’em, Flight Centre (ASX:FLT) shares were the second most traded on Superhero this year. Here’s why
• What has experts worried about ASX BNPL shares in 2022?

Motley Fool contributor Tony Yoo owns Block, Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended AFTERPAY T FPO, Block, Inc., and ZIPCOLTD FPO. The Motley Fool Australia owns and has recommended AFTERPAY T FPO. The Motley Fool Australia has recommended Flight Centre Travel 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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It is a big day for the Afterpay Ltd (ASX: APT) share price.

This morning the buy now pay later provider’s shareholders were given the opportunity to vote on the takeover proposal by Square.

Background

In August, the two parties agreed an all-scrip deal that would see Afterpay shareholders receive a fixed exchange ratio of 0.375 shares of Square Class A common stock for each Afterpay share they hold.

At the time, the Square share price was trading at US$247.26, which implied a transaction price of approximately $126.21 per Afterpay share. It also valued the deal at approximately US$29 billion or A$39 billion.

While this worked out to be an attractive 30.6% premium to the Afterpay share price at the time of $96.66, the Square share price has tumbled materially since then and was fetching $175.39 at Monday’s close.

Based on this and current exchange rates, this means the takeover offer now equates to just $92.67, which is a 4.1% discount to the Afterpay share price prior to the receipt of the offer.

Ahead of the vote, the company released its rationale for recommending the offer.

It commented: “The Board considers that while the future growth prospects of a standalone Afterpay are strong, we believe that the combination of Afterpay with Block will deliver an unprecedented opportunity for both companies. For Afterpay, the combination is expected to further accelerate growth in the US and globally, offer access to a new category of in-person merchants, and provide a broader platform of new and valuable services to its merchants and customers. It also provides an exceptional opportunity for our team members to become part of a high-growth global company.”

Shareholders vote

Despite losing significant value since being tabled, shareholders voted overwhelmingly in favour of the proposal at this morning’s extraordinary general meeting.

While the full results of the vote have not yet been revealed, that won’t matter. The proxy vote revealed that at least 86.35% of total shareholder votes were in favour of the scheme. This is more than the 75% threshold that was required to pass the scheme.

As a result, Afterpay looks almost certain to become part of Square early next year. It is only approval from the Bank of Spain that the companies are now waiting on.

The post Afterpay (ASX:APT) shareholders vote in favour of Square takeover appeared first on The Motley Fool Australia.

More reading

• Zip (ASX:Z1P) shares just topped these end-of-year rankings
• 5 things to watch on the ASX 200 on Tuesday
• What has experts worried about ASX BNPL shares in 2022?
• Afterpay (ASX:APT) shareholders will vote on the Square takeover next week. Here’s what you need to know
• Why Afterpay, AVZ, Irongate, and Santos shares are dropping

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 AFTERPAY T FPO and Block, Inc. The Motley Fool Australia owns and has recommended AFTERPAY T FPO. 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 Fortescue Metals Group Limited (ASX: FMG) share price may have fallen heavily this year but one leading broker isn’t in a rush to invest.

Why isn’t the broker positive on the Fortescue share price?

According to a note out of Morgans, its analysts have retained their hold rating but lifted their price target on the company’s shares to $16.90.

Based on the current Fortescue share price of $18.46, this implies potential downside of 8.5% for investors.

Morgans notes that the company has announced plans to transition to new leadership which will support its shift to becoming a global diversified energy and resources player.

However, the broker suspects the company may struggle to find a new CEO with experience in iron ore and renewables given how different they are.

What else did the broker say?

The note reveals that Morgans believes the next five years will be difficult for Fortescue due to the evolving iron ore market. In light of this and its expectation that the company will remain entirely dependent on iron ore earnings for at least the next decade, it feels management’s bold transition plans are risky.

It commented: “Given the iron ore dynamics, we had expected FMG to diversify actively but had thought a safer option might have been to enter other mature markets (i.e. base metals) where cycles and economics are already well established and understood, allowing for a faster transition.”

“Instead FMG has prioritised diversification through combating climate change in various markets, the projects for which are typically capital hungry with less certain (and often lower) return profiles.”

In light of the above, Morgans’ analysts have maintained their “Hold rating on FMG, but have lost conviction in the overarching strategy and capital framework.”

The post This broker is bearish on the Fortescue (ASX:FMG) share price appeared first on The Motley Fool Australia.

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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. 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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Woolworths Group Ltd (ASX:WOW) may be on the look out for another acquisition to boost and diversify its earnings.

The business is more than just a supermarket business. It also has a business to business segment, which includes PFD Services which it invested in, showing it is willing to expand. PFD Services distributes a wide range of foodservice products.

Woolworths on the hunt

According to reporting by The Australian, the healthy meal delivery business Lite n’ Easy is currently going through a sales process.

It was speculated that the owners, Graham Mitchell of Mitchell’s Quality Foods, are in discussions with one particular group for a potential transaction.

How much could Lite n’ Easy go for? Seemingly around $1 billion if the reporting by the newspaper is correct.

That potential $1 billion valuation compares to the earnings before interest, tax, depreciation and amortisation (EBITDA) of $65 million by Lite n’ Easy.

Some private equity groups have been sniffing around the business, including Kohlberg Kravis Roberts, BGH Capital and Pacific Equity Partners.

KKR’s interest in the business comes from the fact it has an Australian food manufacturing business – Arnott’s Biscuits – which could benefit from a division focused on ready-made meals.

The Australian named Woolworths as a business that shouldn’t be discounted as a contender for Lite n’ Easy.

Could Woolworths afford the deal?

The potential sale of Lite n’ Easy comes at an interesting time.

Whilst Woolworths may be capable of funding a $1 billion acquisition, it is already in the thick of a takeover battle for another business – the ASX pharmacy business Australian Pharmaceutical Industries Ltd (ASX: API).

Woolworths has launched a non-binding bid to buy 100% of API at a cash offer price of $1.75 per API share, equating to a total equity value of $872 million.

This API offer gazumped the bid from Wesfarmers Ltd (ASX: WES) by 12.9%, or $0.20 per share in dollar terms.

It will be interesting to see whether Woolworths tries to pursue both potential options.

Woolworths notes that the board of API has determined that the Woolworths proposal is, or reasonably likely to be, a superior proposal.

What’s the thinking behind the API offer?

The Woolworths CEO Brad Banducci explained why the company is interested in the business:

There is a compelling strategic rationale to support Woolworths Group’s acquisition of API. Health and wellness is a large, fast-growing category and API would be a fantastic addition to our food and everyday needs ecosystem.

If successful, we will continue to support API’s community pharmacy partners to deliver better experiences for both customers and pharmacists. We will also work to strengthen API’s wholesale and distribution business to ensure that all Australians continue to have timely, cost-effective access to a full range of PBS and other medicines, via their community pharmacy, regardless of where they live.

We are strongly committed to supporting the community pharmacy model including pharmacy ownership and location rules to ensure pharmacies are well represented in all communities, especially in regional and remote parts of Australia.

The post Could this tasty morsel be next on the acquisition menu for Woolworths (ASX:WOW)? appeared first on The Motley Fool Australia.

More reading

• Woolworths (ASX:WOW) starts construction of project to double online fulfilment capacity
• Why did the Woolworths (ASX:WOW) share price have such a great month in November?
• Drinking and gambling: 3 ASX shares to buy now
• Top brokers name 3 ASX shares to sell next week
• Could this be a fly in the ointment for Woolworths’ (ASX:WOW) push into healthcare?

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 Wesfarmers 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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The Tyro Payments Ltd (ASX: TYR) share price has had a tough time in recent months. But could the payments business be a buy?

Since the start of 2021, Tyro shares have fallen around 14%. But over the last six months it has actually dropped by 25%.

Why is the Tyro share price suffering?

Whilst only the sellers of Tyro shares know why they sold at the price they did, Jun Bei Liu from Tribeca had a go at explaining what might be going on in an episode of Livewire.

She put the blame on a recent update, with management not giving enough details about the contract with Bendigo and Adelaide Bank Ltd (ASX: BEN) regarding the margins and so on.

Jun Bei Liu also noted that numerous unprofitable technology businesses have been sold off in recent times, with Tyro getting caught up in that. Other payment companies like Zip Co Ltd (ASX: Z1P) have dropped, it’s down 33% over the last six months and Afterpay Ltd (ASX: APT) is down 28% over the last four months.

However, she decided to say that Tyro was a ‘hold’, rather than a buy or a sell, because earnings are still doing “well”, it’s recovering from lockdowns and there are expectations for significant growth.

James Gerrish from Market Matters was more optimistic, saying the Tyro Payments share price was a buy, saying that the current issues are only short-term. He pointed out that the total transaction value is still increasing at a fast rate. Looking ahead for the next year, he sees potential.

How fast is the company growing?

As mentioned by Mr Gerrish, the business is still growing at a quick double digit pace.

Tyro’s latest weekly update showed that December transaction value growth to 10 December 2021 was 40% to $1.17 billion. The FY22 year to date growth had been 30%, with the transaction value in the financial year so far being $13.5 billion.

In a recent presentation, the business said it’s growing its annual transaction value at five times the speed of the total card payments in Australia.

The payments business said it’s well positioned to continue to accelerate growth. Tailored payment solutions are attractive for merchants according to the business and drives transaction value growth.

Looking at new merchant applications, each month between July 2021 to October 2021 showed at least 1,100 merchant applications.

Management said that it has multiple growth levers to materially increase its market share over the medium-term. This may end up helping the Tyro share price in time as well.

Tyro says that future growth drivers includes adding new verticals, increasing its share in existing verticals and increasing the share of its total addressable market. Operating leverage is expected to improve as the platform continues to scale, which will assist and underpin earnings before interest, tax, depreciation and amortisation (EBITDA) growth and margin expansion.

The post Down 25% in six months, is the Tyro (ASX:TYR) share price now a bargain buy? appeared first on The Motley Fool Australia.

More reading

• Here are 6 of the worst performing ASX shares of November

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 AFTERPAY T FPO, Tyro Payments, and ZIPCOLTD FPO. The Motley Fool Australia owns and has recommended AFTERPAY T FPO. The Motley Fool Australia has recommended Tyro Payments. 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, Eley Griffiths portfolio manager Nick Guidera reveals the 2 ASX shares that currently dominate his fund.

Biggest convictions

The Motley Fool: What are your two biggest holdings?

Nick Guidera: Well, since we last spoke, Aussie Broadband Ltd (ASX: ABB) is actually still one of our largest holdings, 6 or 7 months later.

There’s a number of reasons for that. One has been the stock has performed well during that time on the investment thesis that we had, which is this is a small, or probably a medium size telco now, that is taking a significant amount of share from other participants in the NBN world. 

It’s now the 5th largest retailer, having grown substantially and holding around 5% market share. Given this run rate and the ability that it is attracting customers due to its superior customer service offering, that market share will probably continue to grow. 

Probably more interesting for your readers is the recent announcement of an acquisition of Over The Wire Holdings (ASX: OTW), which was another listed company. That allows Aussie Broadband to move out of the retail space, into the business space.

They’ve had a business broadband offering, but this allows them to offer far more comprehensive [services] to businesses seeking voice and data and other technologies that Aussie has historically steered away from. 

The market is interested in this acquisition because there are significant synergies that will come out over time. It’s been flagged somewhere in the vicinity of $8 to $12 million, and they are going to come from things like network costs, improved margins, obviously not having two ASX boards and the costs that come with being a listed company. 

A lot of these synergies look particularly achievable and putting the two businesses together, you are close to a $70 to $80 million EBITDA business heading north of that. Growing at a really impressive rate — 20% to 30% — means that the runway for this business has probably got some way to go. 

MF: It’s dropped a little bit this month. Do you feel like this is a buying opportunity?

NG: I think so. I think it’s actually dropped pretty much in line with a lot of the higher-growth, more expensive stocks in the emerging end of the market, just on this correction that we’ve seen in the last 2 to 3 weeks where investors, having made [a] significant amount of money in this, and many others are taking some profits and reallocating some of that capital into other stocks. 

Since the actual confirmation of the [Over The Wire] deal, the stock has de-rated — so yeah, I would be comfortable buying on the pullback.

MF: Great. And the other largest holding?

NG: The other one is a mining stock. And it’s a stock that we have been on for a very long time. The stock is Capricorn Metals Ltd (ASX: CMM). It is a gold stock. The 3 reasons why it’s in our top 2 holdings is it has the best management track record in the industry, probably for the last 20 years. They have an increasingly large production profile. And we are confident they can double production from here.

They’ve been very good stewards of capital, and in both the development of this mine and further expansionary opportunities, we believe that should there be limited options for them to do with the capital that they have, or the cash that they’re generating, that capital will be returned to shareholders. 

Their gold price is starting to move. More recently I suppose some concerns over both inflation, a higher rate cycle [has led to] the correction we’ve seen in markets in the last 2 or 3 weeks. 

This stock’s been in the portfolio for a long time. It’s not a gold price proxy, but I think that that could draw attention to the name as people look for gold exposure if they’re rotating out of other resource names.

MF: Do you ever worry about the cyclical nature of mining companies?

NG: I think gold typically bucks the cyclical trend. Gold can be out of fashion if the cyclical rotation is ongoing. And I think that’s what you’ve seen in the last probably 18 months… It’s often flocked to for its defensive characteristics. It’s often used as an inflation hedge. 

In the past, in 2018, it was seen as the barbell portfolio that you needed. You needed gold stocks, and you needed tech stocks because growth was hard to come by and people were questioning whether… the market was going to roll over at that point. 

I think mining stocks, as a whole, certainly have a cyclical bend to them. There are some question marks right now as to how elongated this cycle will be.

As a rule, you do need to be careful about investing in mining stocks… You need the expertise from people like Tim Sergeant, who I work with, who spends days looking at mining stocks to make sure you pick the right ones. 

Because at the end of the day, mining stocks are just like an industrial. You need to understand management, you need to understand their strategic plan, how they allocate capital. They just happen to be digging things out of the ground or processing material. Those things are just as important, but the overarching thing you need to consider obviously is the outlet for the commodity.

The post Why these 2 ASX shares are top dogs in our fund: expert appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo owns Aussie Broadband Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Aussie Broadband Limited and Over The Wire Holdings Ltd. The Motley Fool Australia has recommended Aussie Broadband 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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