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The S&P/ASX 200 Index (ASX: XJO) has lost about 3% from its most recent high about a month ago.

That would be 5% if it weren’t for a mini-rally the past couple of days.

AMP Capital chief economist Dr Shane Oliver reckons “it’s too early to say” whether the market has passed the bottom or if this is just the start of a correction.

The potential for giant Chinese real estate development company Evergrande to collapse had even brought out talks about it becoming a “Lehman Brothers moment” like in the global financial crisis.

“The wobbles in shares reflects a long worry list that has been building for a few months now,” he said on the company blog.

“Sharp market falls with talk of ‘Lehman moments’ are stressful for investors as no one likes to see their investments fall in value.”

Oliver does see the possibility of share markets suffering a correction this year, which is defined as a pullback of 10% or more from recent highs.

However, he reminded investors to keep an even-keeled mind during such times. Don’t panic. 

In fact, he presented 7 things to remember to avoid getting caught up in the doom-and-gloom hype:

Corrections are ‘healthy and normal’

According to Oliver, share market corrections happen regularly and they’re nothing out of the ordinary.

“While they all have different triggers and unfold differently, periodic corrections in share markets of the order of 5%, 15% and even 20% are healthy and normal.”

In fact, he presented a chart that showed the ASX 200 has had 10 dips of 5% or more in the past 10 years. Six of those were 10% or more.

“While share market pullbacks can be painful, they are healthy as they help limit complacency and excessive risk taking.”

The second reason not to worry excessively is that a correction rarely turns into a major bear market unless it is accompanied by a recession.

Oliver did not think this was likely.

“While global growth is likely to slow in 2022 business surveys remain strong and global growth is still likely to be strong at around 4%,” he said.

“In Australia, the delayed but now rapid vaccination program looks on track to allow a gradual reopening as we learn to live with higher levels of coronavirus through next quarter, avoiding recession ahead of much stronger growth next year.”

Don’t lock in your losses

Getting spooked by a correction and selling your shares is always a bad idea.

All that does is turn a paper loss into a real one, which has no chance of recovering.

“The best way to guard against deciding to sell on the basis of emotion after weakness in markets is to adopt a well thought-out, long-term strategy and stick to it.”

Also, when stock prices have fallen that’s a great chance to pick up some bargains.

“Look for opportunities’ pullbacks provide,” said Oliver.

“It’s impossible to time the bottom but one way to do it is to average [them] over time.”

The fifth reason to not overreact to a correction is that the market will often head opposite to how you feel.

“Shares and other related assets often bottom at the point of maximum bearishness, that is, just when you and everyone else feel most negative towards them. 

“So, the trick is to buck the crowd.”

ASX yields are pretty good at the moment

OIiver said that ASX shares are handing out some excellent dividends this year, which will offset the pain from falling stock prices.

“The income flow you are receiving from a well-diversified portfolio of shares is likely to remain attractive, particularly against bank deposits.”

And lastly, Oliver suggested “turning down the noise”.

“In times of uncertainty, negative news can reach fever pitch. But it often provides no perspective and only adds to the sense of panic,” he said. 

“All of this makes it harder to stick to an appropriate long-term strategy let alone see the opportunities that are thrown up.”

The post An ASX correction could be coming: Here’s what to do appeared first on The Motley Fool Australia.

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• ASX 200 (ASX:XJO) midday update: Transurban falls, Premier Investments jumps

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 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 Premier Investments Limited (ASX: PMV) share price was on form on Thursday.

The retail conglomerate’s shares rose 3% to $27.63 following the release of its full year results.

What happened in FY 2021?

For the 12 months ended 31 July, Premier Investments reported an 18.7% increase in retail sales to $1,443.2 million and a 97% jump in statutory net profit after tax to $271.8 million.

A key driver of this growth was its Peter Alexander brand, which reported a 34.7% increase in sales to $388.2 million. This offset weakness in the Smiggle brand, which has been impacted by lockdowns.

Where next for the Premier Investments share price?

Brokers appear divided on where the Premier Investments share price is going next.

According to a note out of Goldman Sachs, its analysts have put a sell rating and $23.40 price target on its shares.

Based on the current Premier Investments share price, this implies potential downside of 15% over the next 12 months before dividends.

Goldman commented: “We upgrade our NPAT forecasts by +13.5% and +12% respectively over FY22/23e. We introduce our FY24 estimates. However, valuation still remains elevated vs. the peer group and on an associates adjusted basis. We maintain our Sell rating on PMV with a revised 12m Target Price of A$23.40, offering a total return downside of -12.4% to the current trading price.”

Bullish broker

However, the team at Bell Potter don’t agree with this view and are recommending its shares as a buy.

According to the note, the broker has upgraded Premier Investments’ shares to a buy rating and lifted its price target on them to $31.25.

Based on the current Premier Investments share price, this implies potential upside of 13% over the next 12 months before dividends. This stretches to 16% including dividends.

Bell Potter commented: “There is no material EPS changes, although given the improving outlook for Smiggle & continued strength in PMV’s other brands, we have improved the risk parameters used in our model. Including roll-forward our PT increases to $31.25 (previously $26.10).”

“While we expect a rebase in FY22 earnings, we believe this is already priced in & we now look beyond this and see the resumption of solid growth from FY23 onwards. With an implied Just Group EV/EBITDA (pre-AASB16) ~10x, we upgrade from Hold to Buy,” it added.

Time will tell which broker makes the right call.

The post Brokers give their verdict on the Premier Investments (ASX:PMV) share price appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Friday
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• ASX 200 (ASX:XJO) midday update: Transurban falls, Premier Investments jumps
• Premier Investments (ASX:PMV) share price surges on FY21 results, NPAT up 97%

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 recommended Premier Investments 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 Insurance Australia Group Ltd (ASX: IAG) share price has plunged in the past month amid a series of negative announcements.

Yesterday, the insurance giant’s shares encountered further losses, falling 0.62% to $4.84. In comparison, the S&P/ASX 200 Index (ASX: XJO) lifted 1.01% to 7,370.2 points.

Below, we take a closer look at IAG’s most recent result and how its shares have performed since.

What did IAG report for FY21?

IAG delivered its full-year results for the 2021 financial year to investors before market open on 11 August. The IAG share price closed the previous day at $5.28, just 4% off its 52-week high of $5.51.

Across the board, IAG recorded a mostly positive performance with growth in several key metrics:

• Gross written premium (GWP) improved 3.8% to $12,135 million
• Insurance profit jumped 35.9% to $1,007 million
• Underlying insurance margin fell 130 basis points to 14.7%
• Reported insurance margin grew 340 basis points to 13.5%
• Net loss after tax of $427 million
• Cash earnings up 170% to $747 million
• Unfranked final dividend of 13 cents per share bringing full-year dividend to 20 cents apiece

IAG managing director and CEO Nick Hawkins commented:

… I have put in place a new, more customer aligned operating model, reset our strategy for growth, and appointed a leadership team with deep insurance and customer expertise, and clear accountability for success. We are already seeing results from these changes and have momentum behind our strategy.

How did the IAG share price respond?

In the weeks following IAG’s result, its shares moved sideways before starting to descend on 7 September. Over that period, its shares have fallen almost 20%.

When looking at the last 12 months, the IAG share price is up by around 7.5%, with a smaller increase of just over 2.5% year to date. It’s worth noting however, the company’s shares have lost about 40% of its wealth since August 2019.

In contrast, the ASX 200 has gained 25% from this time last year and is up around 10% in 2021. The ASX 200 also reached a record high of 7,632 points in mid-August.

This shows that IAG shares have been outperformed by the benchmark, which historically tracks about 6% higher each year.

IAG commands a market capitalisation of roughly $11.93 billion and has approximately 2.47 billion shares on its books.

The post How has the IAG (ASX:IAG) share price been performing since reporting results? appeared first on The Motley Fool Australia.

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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 owns shares of and has recommended Insurance Australia 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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The Woodside Petroleum Limited (ASX: WPL) share price has been one to watch in recent weeks. Shares in the Aussie energy giant climbed 2.4% higher on Wednesday to arrest a recent slide.

However, the company’s shares remain down 7.1% year to date in what is quickly becoming a formative year for the petroleum producer. So, how can investors focus on valuing the Woodside Petroleum share price in the current environment?

How do you value the Woodside Petroleum share price?

As with any energy or resource share, underlying commodity prices play an important part in valuation. It’s important for investors to understand the macro environment that underpins the outlook for ASX companies like Woodside.

Oil prices have been up and down throughout 2021. However, both WTI and Brent crude oil prices jumped more than 2% overnight in a good sign for the Woodside Petroleum share price.

It is worth noting that valuation is more of a long-term game. Investors are mostly concerned about their future cash flows from an investment, hence why the share market is often said to be forward looking.

In general, there are a few different ways to value ASX companies like Woodside. A commonly used measure of fundamental value includes a discounted cash flow (DCF) analysis. This involves modelling out key value drivers like forecast commodity prices, cost of debt and equity (to get a weighted-average cost of capital or “WACC”) and underlying expenses like operating and capital expenditure.

Discounting these back to today’s figures, and calculating a terminal value in the final year of the model, is one way investors can assess the intrinsic value of the Woodside share price.

What if I don’t want to use a full cash flow model?

Given the imprecise nature of valuations, it often pays to use multiple methodologies. Other common valuation techniques include relative value analysis, using metrics such as the price-to-earnings (P/E) ratio, and comparable transactions approach.

The Woodside Petroleum share price currently trades at a P/E ratio of 41.6 times earnings. What investors can do is assess how that compares to the P/E ratio of peers like Santos Ltd (ASX: STO) and a broader group. For reference, the Santos share price currently trades at a P/E ratio of 33.6 times. This helps to give a sense of where the Woodside share price sits relative to similar companies in order to assess value.

The comparable transactions approach is simple but can be tricky to find meaningful results. It involves finding recent mergers and acquisitions, gaining an average transaction multiple, discounting the value for a control premium by the acquirer, and applying that adjusted multiple to the Woodside Petroleum share price.

This is useful as it estimates what players in the market would actually be paying and can give a good market value guide. The downside is that there is often a limited set of truly comparable transactions relevant to the company.

Foolish takeaway

There’s no doubt it’s difficult to value the Woodside Petroleum share price right now. The group’s shares are down 7.1% in 2021 amid its BHP Group Ltd (ASX: BHP) merger, as well as changing oil prices.

Investors looking to value the company need to look at the long-term prospects for both crude oil and liquid natural gas (LNG). This could help inform the cash flows required to reach an intrinsic valuation in a DCF model.

Another option is to assess the relative value of the company’s shares. This can be done by using metrics such as the P/E ratio or comparable transactions in the market.

The post How do you value the Woodside Petroleum (ASX:WPL) share price? appeared first on The Motley Fool Australia.

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Motley Fool contributor Ken Hall 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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This month has not been kind to the Woolworths Group Ltd (ASX: WOW) share price.

Shares in the supermarket giant have tumbled more than 6.5% since the start of September.

By comparison, the broader S&P/ASX 200 Index (ASX: XJO) has dipped 2.09% since the start of the month.

Let’s take a look at what’s been weighing down Woolworths shares.

Why is the Woolworths share price struggling?

There have been many catalysts that have added pressure on the Woolworths share price this month.

In addition to general market volatility, the supermarket giant has also had its own developments to deal with.

Most recently, Woolworths reported shortages in its latest collectables promotion called Woolworths Bricks.

Earlier this month, the supermarket giant also made headlines after reducing its holdings in food box delivery company Marley Spoon AG (ASX: MMM).

Woolworths also released its Sustainability Plan 2025 in early September, noting several goals for the future.

How did Woolworths perform in FY21?

Late last month, shares in Woolworths received a boost after the company reported strong full-year results for FY21.

With COVID-19 lockdowns forcing many Australians to stay at home, a marked increase in consumption was noted.

This was reflected in the supermarket giant’s Australian food sales, which increased 5.4% to $44.4 billion for FY21.

Highlights from the company’s report included:

• Group sales rose 5.7% to $67,278 million
• eCommerce sales surged 58.1% to $5,602 million
• Group earnings before interest and tax (EBIT) increased 13.7% to $3,663 million
• Group net profit after tax up 22.9% to $1,972 million

Thanks to an expansion in its margins, Woolworths shareholders were rewarded with a 14.6% increase in final dividend of 55 cents per share.

Snapshot of the Woolworths share price

Despite tumbling this past month, shares in Woolworths remain more than 12% higher since the start of the year.

In addition to its full-year report, the company also made headlines earlier this year following the demerger of its Endeavour business.

The Woolworths share price closed yesterday’s session slightly lower at $39.06.

The post September hasn’t been a great month so far for the Woolworths (ASX:WOW) share price appeared first on The Motley Fool Australia.

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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Marley Spoon AG. The Motley Fool Australia owns shares of and has recommended Marley Spoon AG. 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 has been well and truly out of form in September.

Since the start of the month, the mining giant’s shares have lost approximately 12% of their value.

Why is the Rio Tinto share price falling?

Investors have been selling down the Rio Tinto share price this month after the iron ore price went into free fall.

This was driven by demand concerns in China following curbs on steel production and fears that property giant Evergrande could collapse. The latter could have a huge impact on Chinese construction and ultimately demand for the steel making ingredient.

And while prices have rebounded in recent days after Evergrande made a bond repayment, the property giant is far from out of the woods.

Where next for its shares?

Unfortunately, one leading broker believes Rio Tinto’s shares could be heading lower from here.

A recent note out of UBS reveals that its analysts have retained their sell rating and cut their price target on the mining giant’s shares by 16% to $86.00.

Based on the current Rio Tinto share price of $98.86, this implies potential downside of 13% over the next 12 months.

UBS made the move following a quicker than expected correction by iron ore prices. This has led to a sharp downgrade to the broker’s iron ore price forecasts, which has led to an equally sharp reduction in its earnings estimates for Rio Tinto.

In addition, the broker has concerns over longer term iron ore prices due to an expected increase in supply from Africa and the availability of scrap steel in China.

All in all, UBS doesn’t believe the Rio Tinto share price has found its bottom just yet and appears to be cautioning investors against jumping in at this point.

The post Top broker sees Rio Tinto (ASX:RIO) share price sliding another 13% appeared first on The Motley Fool Australia.

More reading

• Iron ore price surges 17% as Evergrande fears ease further
• Bank of America flags more headwinds for ASX 200 iron ore shares
• AMP Capital’s chief economist on Evergrande and ASX 200 resource shares
• Evergrande on investors’ minds and miners in focus. Scott Phillips on Nine’s Late News
• ASX 200 jumps as Evergrande confirms it will meet next interest repayment

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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Are you looking for growth shares to buy? If you are, you may want to consider the two listed below.

Here’s why these growth shares are highly rated by analysts:

Bapcor Ltd (ASX: BAP)

Bapcor is the Asia Pacific region’s leading provider of vehicle parts, accessories, equipment, service and solutions.

It has been growing at a solid rate in recent years and this continued in FY 2021. For example, last month Bapcor released its full year results and reported a 20.4% increase in revenue to $1,761.7 million. Things were even better on the bottom line thanks to margin expansion. The company’s pro forma net profit after tax increased 46.5% to $130.1 million.

This was underpinned by growth across each of Bapcor’s business segments, driven by increased demand from consumers.

And while its guidance for FY 2022 was cautious because of lockdowns, its longer term outlook remains very positive. This is due to its strong market position and domestic and international expansion plans.

Credit Suisse is a fan of Bapcor. The broker currently has an outperform rating and $9.20 price target on its shares.

Hipages Group Holdings Ltd (ASX: HPG)

Hipages is Australia’s largest online tradie marketplace and software-as-a-service (SaaS) provider connecting tradies with residential and commercial consumers across Australia.

It was also a strong performer in FY 2021. Last month Hipages released its results and revealed a 22% jump in revenue to $55.8 million and a 27% increase in its monthly recurring revenue (MRR) to $5.2 million.

This was underpinned by a 12% increase in job volumes to 1.53 million, a 12% lift in subscriptions to 31,200, and a 29% increase in average revenue per tradie to $1,536.

The good news is that Hipages has a significant market opportunity to grow into. The company commissioned further market research in FY 2021 to find the size of the total addressable market (TAM) of the tradie ecosystem. This research confirmed the TAM to be over $110 billion across the residential and commercial sectors.

Goldman Sachs is very positive on Hipages. It currently has a buy rating and $4.35 price target on the company’s shares.

The post 2 fantastic ASX growth shares tipped as buys appeared first on The Motley Fool Australia.

More reading

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• Why Bapcor, Brickworks, News Corp, & Premier Investments are rising
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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. owns shares of and has recommended Hipages Group Holdings Ltd. The Motley Fool Australia owns shares of and has recommended Bapcor. 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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Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) (Soul Patts) released its FY21 report yesterday. There were a few different highlights for investors to be aware of. The Soul Patts share price rose almost 6% on Thursday after the released numbers.

Looking at the headline profit numbers, regular net profit after tax (NPAT) increased by 93% to $328 million. This was driven by Brickworks Limited (ASX: BKW), Round Oak and New Hope Corporation Limited (ASX: NHC).

However, the statutory NPAT fell 71% because the $1 billion one-off gain on changing how it accounts for its TPG Telecom Ltd (ASX: TPG) holding was not repeated.

Here are some of the three main highlights from the result:

Dividend growth continues

Soul Patts is the only company in the ASX All Ordinaries Index to have increased its dividend every year since 2000. ‘

The total dividend for FY21 was $0.62 per share, an increase of 3.3% on FY20.

Soul Patts pays for its dividend from its net cash from investments. That includes things like dividends, distributions, interest and profit from its privately-owned businesses.

FY21 net cash from investments decreased by 29% over the year to $180 million. The FY20 cash from operations included $92 million from TPG as a pre-merger dividend. But, the FY21 cash generation was 6% higher than FY19.

The total dividends paid in FY21 represents 82% of net cash flows from its investments. That leaves the 18% in the business for re-investment back into more opportunities.

Investing strategy

As part of the result, Soul Patts re-iterated its investment philosophy, but it also revealed where management are currently looking for opportunities.

It wants the portfolio to be diversified, with a range of uncorrelated investments across listed shares, private equity and venture capital, property, structured credit and cash.

Soul Patts notes that it’s unconstrained. A flexible mandate allows the company to invest in and support companies from an early stage and grow with them over the long-term.

The investment style is long-term, with a disciplined and value-focused approach to investing through market cycles to deliver returns over the long-term.

It also wants its portfolio to offer capital protection. Management believe the investment conglomerate has a portfolio of assets that generate reliable cash through market cycles which aims to protect against the downside in market corrections.

With the merger with Milton Corporation Limited (ASX: MLT) nearly complete, Soul Patts is looking at few different key investment themes including health and ageing, energy transition, agriculture, financial services and education. It invested a further $60 million in agriculture in FY21.

New chief investment officer

Milton’s CEO and managing director Brendan O’Dea will become Soul Patts’ chief investment officer.

He spent over 22 years in Citigroup’s equities division, including as a managing director, across a broad range of roles including trading, investing and business/risk management in Sydney, Hong Kong, New York and Tokyo. Some roles included being the chief operating officer of pan-Asian equities, head of Japanese equities and head of US equity proprietary investments.

This may be interesting and perhaps signals Soul Patts’ greater intent on finding global equities to add to its portfolio for long-term growth.

At the moment, the limited international exposure that Soul Patts has includes Pengana International Equities Ltd (ASX: PIA) and Apex Healthcare. Apex is a “leading healthcare group with operations in Singapore, Malaysia, Vietnam and Myanmar.” Pengana International Equities is a listed investment company (LIC) that invests in global shares.

The post 3 highlights from the Soul Patts (ASX:SOL) FY21 report appeared first on The Motley Fool Australia.

More reading

• Soul Pattinson (ASX:SOL) share price jumps after 93% profit growth in FY21 results
• 2 top quality ASX dividend shares offering reliable income growth
• The Soul Patts (ASX:SOL) share price is down 3% on Friday
• ASX 200 (ASX:XJO) midday update: Telstra unveils T25 strategy, Wesfarmers’ API offer
• These were the best performing ASX 200 (ASX:XJO) shares last week

Motley Fool contributor Tristan Harrison owns shares of Pengana International Equities Limited and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Brickworks. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended TPG Telecom 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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Fortunately for income investors, there are a large number of dividend shares to choose from on the Australian share market.

To help narrow down your options, I have picked out a couple that a leading broker is very positive on. They are as follows:

Adairs Ltd (ASX: ADH)

Adairs is a leading retailer of homewares and home furnishings in Australia and New Zealand through both retail stores and online channels. This includes via the eponymous Adairs brand and also the online-only Mocka brand.

The team at Morgans are positive on the company. They currently have an add rating and $4.20 price target on the company’s shares. The broker is also forecasting some generous fully franked dividends in the near term. The broker expects dividends per share of 22 cents in FY 2022 and then 27 cents in FY 2023.

Based on the current Adairs share price, this will mean yields of 5.4% and 6.6%, respectively.

Morgans commented: “ADH has a strong BS [balance sheet], loyal customer base and various growth options. There is of course a question mark over whether elevated GMs are sustainable long term, like most retailers. However, at this valuation, we see enough safety in the numbers.”

Australia and New Zealand Banking GrpLtd (ASX: ANZ)

This banking giant could be another dividend share for income investors to consider right now.

A note out of Morgans reveals that ANZ is the broker’s favourite big four bank, partly for valuation reasons. It has an add rating and $34.50 price target on the company’s shares.

Morgans has also forecast fully franked dividends per share of $1.45 in FY 2021 and then $1.65 in FY 2022. Which, based on the current ANZ share price, will mean yields of 5.3% and 6%, respectively.

The broker explained: “We believe ANZ is the most compelling of the major banks on a valuation basis. We expect ANZ to continue to focus on absolute cost reduction over the medium term. ANZ has de-risked its loan book over recent years – particularly its institutional loan book – such that the quality of its loan book has improved. While ANZ’s Australian home loan book has been growing below system over recent months, we expect a disciplined margin performance from ANZ.”

The post Broker names 2 high yield ASX dividend shares to buy 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. owns shares of and has recommended ADAIRS FPO. The Motley Fool Australia owns shares of and has recommended ADAIRS 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 Audinate Group Ltd (ASX: AD8) share price is currently rated as a buy by the broker UBS.

What does Audinate do?

This is an ASX tech share that provides an offering called Dante, which is audio over IP networking. The company claims it’s a worldwide leader and is used extensively in the professional live sound, commercial installation, broadcast, public address and recording industries.

It replaces traditional analogue cables by transmitting synchronised audio signals across large distances to multiple locations at once, using just an ethernet cable.

Why does UBS rate the Audinate share price as a buy?

The broker rates Audinate as a buy with a price target of $11.75. That suggests that Audinate shares could rise by almost 20% over the next 12 months if analysts at UBS are right.

An important part of the potential growth story for UBS is the fact that Audinate is now offering video as well, to complement the audio service.

To enable the video offering, it recruited a team in Cambridge (in the UK) to accelerate its product rollout. Six new OEM (original equipment manufacturer) Date video products have been launched. New software video products are expected in FY22.

One of the company’s objectives for FY21 was to expand its training offerings to include Dante video and a wider range of languages. The ASX share said that 12,000 people have been trained on Dante video. There have been 59 non-English webinars and more than 13,000 non-English speaking professionals trained. There has also been a 47% increase in non-English speakers in the ‘contact’ database.

Audinate also revealed that it’s exploring acquisition opportunities for the potential to supplement the Cambridge team to increase and improve the video business.

The combined Dante video and audio combined offering has seen a “good number” of design wins, with a growing pipeline, but COVID has been a headwind.

FY21 result profit numbers

The Audinate share price is currently up around 15% since first giving investors an insight into its expected FY21 growth numbers in July.

In the FY21 report, Audinate said that it grew revenue by 22.5% to US$25 million, with gross profit growing 23.1% to US$19.2 million.

Looking at operating profit, the earnings before interest, tax, depreciation and amortisation (EBITDA) climbed by 50.1% to A$3 million. The net loss after tax improved by 17% to a loss of A$3.4 million. Operating cashflow was a positive A$6.7 million, up from A$4.8 million.

Outlook for growth and the Audinate share price

Investors often like to consider the upcoming year when thinking about a valuation for Audinate shares (or any business).

In FY22 the ASX share is expecting to drive further design wins for Dante video and next generation software products, launch more products, improve non-English speaking adoption, increase cyber protection and implement business scalability initiatives.

The Audinate co-founder and CEO Aidan Williams said:

The strong demand for our technology as the AV industry recovers from COVID is particularly encouraging for Audinate’s longer-term outlook. In the short-term, we expect continued supply chain uncertainty throughout the remainder of the 2021 calendar year and whilst this may limit revenue growth in the near term, we remain confident that Audinate can deliver US dollar revenue growth in the historical range for FY22. The launch of Dante video products, record numbers of design wins and the establishment of an engineering team in Cambridge, UK are significant milestones as we execute our strategy to revolutionise the AV industry.

The post Why the Audinate (ASX:AD8) share price is rated as a buy 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. owns shares of and has recommended AUDINATEGL FPO. The Motley Fool Australia owns shares of and has recommended AUDINATEGL 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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