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Every six months or so, I write about ‘expectations season’.

I did just that, last week.

The short version: while everyone talks about ‘earnings’ as if the most recently reported profits (and their growth or decline) are the biggest impact on share prices, it’s actually expectations:

First, not whether those profits grew or fell, but whether they were higher or lower than the market expected.

Then, it’s about the company’s stated expectations of the future, usually informed by the first 6 – 8 weeks of trading in the new financial year.

So yes, earnings matter.

Just not in the way many think.

But — and stick with me — it also goes one level deeper.

See, let’s assume we’re chatting about Woolworths Group Ltd (ASX: WOW).

And, because round numbers are easy, let’s assume the share price is $40. (It’s currently $40.01, but stick with me.)

Now given all of the expectations stuff, above, we can reasonably assume that $40 is the market’s valuation, given what it thinks it knows.

And let’s say Woolies reports earnings tomorrow morning.

If they’re much better than expected (and if the outlook is good) shares might start trading at $42.

If they’re worse (and the outlook is concerning) they might start trading at $38.

Now, other than how happy or unhappy you might be, respectively, did you notice there was a common word in both scenarios?

That’s right, ‘start’.

See that’s the other thing. For all of it’s faults, the ASX is pretty efficient.

You and I won’t get a chance to buy at $40, in either scenario.

They’d close the day before earnings at $40.

And, in our example, the very first trade would be at $42 or $38.

There’s no free lunch, here.

No-one gets to buy before the price rises. Or sell before it falls.

So what?

Well, nothing. And everything.

It means that there’s little sense in rushing to judgement… or action.

The market has already ‘priced in’ the new news before a single share changes hands.

So ‘What should investors think about the news’ is a good question, but — if and when the market is efficient — also moot.

If $40 was fair yesterday, and $38 (or $42) is fair today, then you’re richer or poorer, but there’s not much in the way of ‘so what’.

Unless…

See, that ‘if’, above, assuming the market is efficient. And paying attention.

And — and this is the big one for most investors — truly understanding the long term risks and opportunities for a business.

On Monday morning, brick company Brickworks Limited’s (ASX: BKW) shares fell 5.5% in early trade because the company announced its NSW business (in particular) was struggling because of restrictions on construction activity, related to COVID rules.

Now, I don’t know about you, but I find it hard to believe the market really had no idea of what was happening in NSW until the company’s announcement this morning.

Now, sure, maybe it was worse than people were expecting.

Maybe.

But the market took $200 million off the company’s market capitalisation, based on something it ought to have at least guessed.

Here’s the other side, though:

This impact is going to be temporary.

Brickworks’ market cap is about $3.8 billion.

If you had an asset worth that amount, and you thought it was worth $4 billion yesterday, would you really offer it for sale for $200 million less, today?

Based on some news that might have been expected.

That is almost certain to be transitory?

If so, can I ask that you run any potential fire sales by me, first, next time?

In the event, investors seem to have recovered from their shock.

Rather than down 5.5% as shares were, earlier, they’re now down only 1.5%.

Someone owned shares yesterday, sold them for a 5.5% loss today, presumably in panic, only to see most of that gain erased by mid-afternoon.

Remember that ‘efficient market’ I mentioned?

Yeah… so much for that.

It’s not just those short-term over-reactions, either.

Look at the share prices of retailers and travel companies, in March and April 2020.

The market lost its, well, stuff, driving prices down 60, 70, and 80% at some points.

Even the now re-loved Afterpay Ltd (ASX: APT) fell from $40 to $8 in the panic.

See, the ‘efficient market’ theory suggests that you can’t beat the market, because everything we know is baked into share prices.

And, in that sense, the academics are right — we won’t beat others by knowing more facts.

Nor can we trade faster than their supercomputers.

But we have two weapons at our disposal:

Our emotions, and our time horizon.

Yes, it can be hard to buy when the herd is selling. But if you can master it, well, you can take advantage of its pessimism — like in March 2020 across the market, or Brickworks, today.

And while others are focussed on today’s earnings (or this week’s or this month’s), we have the luxury — should we choose it — of looking through these numbers and at the long term, instead.

Both, together, is even more powerful.

Was Brickworks long term value meaningfully and permanently impacted by the announcement of what we already knew, and only for a limited time?

I doubt it.

Were the travel and retail industries really dead and buried in 2020? We already know that answer.

So, yes, pay attention this earnings (or expectations) season.

But not to share prices.

Pay attention to company strategies. To growth. To trends. And to the people running your businesses.

And then, if the market offers you an opportunity, take it.

But, as Warren Buffett reminds us, we shouldn’t be swayed by the market’s moods.

We should remember that successful investors make the market their servant, not their master.

Fool on!

The post Want to beat the market? Don’t play its game appeared first on The Motley Fool Australia.

More reading

• The City Chic (ASX:CCX) share price is up over 30% in 2021
• James Hardie (ASX:JHX) share price jumps to record high after Q1 update
• Megaport (ASX:MP1) share price higher on FY21 results and acquisition
• What do the best performing ASX shares this year have in common?
• Top broker gives its verdict on the Westpac (ASX:WBC) share price

Motley Fool contributor Scott Phillips 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 AFTERPAY T FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO and Brickworks. 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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In morning trade, the James Hardie Industries plc (ASX: JHX) share price is surging higher following the release of its first quarter results.

At the time of writing, the building materials company’s shares are up 6% to a record high of $50.72.

James Hardie share price hits record high after strong Q1 update

• Sales up 35% over the prior corresponding period to US$843.3 million
• Adjusted earnings before interest and tax (EBIT) jumped 45% to $180.5 million
• Net income up 50% to US$134.2 million
• Operating cash flow down 3% to US$184.1 million
• Full year net income guidance upgraded

What happened in the first quarter for James Hardie?

As you might have guessed from the performance of the James Hardie share price today, the company has started FY 2022 in a very positive fashion.

Strong sales growth across its North American Fiber Cement, Europe Building Products, and Asia Pacific Fiber Cement segments drove a 35% increase in group sales for the quarter. Management notes that all three regions are starting to build momentum on executing the global strategy of driving high value product mix penetration.

And thanks to a 150-basis points expansion in its adjusted EBIT margin, its earnings growth was even stronger. Net income rose 50% over the same period last year.

What did management say?

James Hardie’s CEO, Dr Jack Truong, was pleased with the company’s performance during the first quarter.

He said: “I am very pleased that this first quarter marked our ninth consecutive quarter of delivering growth above market and strong returns. In our investor day at the end of May, we described our three critical initiatives for fiscal year 2022 through fiscal year 2024: (1) market directly to homeowners to accelerate demand creation, (2) penetrate and drive profitable growth in existing and new segments and (3) commercialize global innovations by expanding into new categories. Further, we discussed our focus on driving a high value product mix in all three regions.”

“We are making good progress on our stated global strategy. Globally, we continue to enable our customers to make more money by selling more James Hardie products. Our high value product mix provides homeowners with products that combine long lasting beauty and endless design possibilities, with trusted protection and low maintenance.” Dr. Truong added.

What’s next for James Hardie?

Also giving the James Hardie share price a boost today was the company’s outlook for FY 2022.

Based on the continued, strong execution of its global strategy across all three regions and the expectation for continued residential and market growth in the USA, James Hardie has lifted its FY 2022 earnings guidance.

Management now expects FY 2022 adjusted net income to be between US$550 million and US$590 million in FY 2022. This compares to its previous guidance of US$520 million and US$570 million. It will also be an increase of 20% to 29% on FY 2021’s adjusted net income of US$458 million.

The James Hardie share price is smashing the market in 2021

Following today’s gain, the James Hardie share price is up a massive 31% in 2021. This means the company’s shares are outperforming the ASX 200 by an impressive 28%.

The post James Hardie (ASX:JHX) share price jumps to record high after Q1 update appeared first on The Motley Fool Australia.

More reading

• James Hardie (ASX:JHX) share price hits new all-time high on Thursday
• Forecast crash in Aussie dollar to under US70 cents to boost these ASX 200 shares

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 Megaport Ltd (ASX: MP1) share price is on the move on Tuesday morning following the release of its full year results.

In early trade, the network as a service (NaaS) solutions provider’s shares are up 1% to $17.60.

Megaport share price higher after FY 2021 results and acquisition announcement

• Revenue increased 35% year on year to $78.28 million.
• Monthly recurring revenue (MRR) jumped 32% to $7.5 million (annualises to $90 million)
• Customers increased 443 or 24% to 2,285
• Ports grew 1,922 or 33% to 7,689
• Average revenue per port down $2 to $978
• Net loss of $55 million but cash position of $136.3 million
• US$15 million acquisition of InnovoEdge

What happened in FY 2021 for Megaport?

Another year of strong growth was reported today, which is helping drive the Megaport share price higher.

For the 12 months ended 30 June, the company reported a 35% increase in revenue to $78.3 million and a 32% jump in MRR to $7.5 million. This was driven by the expansion of its data centre footprint, customer and ports growth, strong demand for Megaport Cloud Router, and the launch of Megaport Virtual Edge.

Positively, the company achieved the milestone of becoming EBITDA break-even in June. Though, on the bottom line, Megaport still recorded a $55 million loss for the period. Nevertheless, the company remains in a very strong financial position, with a cash balance of $136.3 million at the end of the year.

What did management say?

Megaport’s Chief Executive Officer, Vincent English, said, “Our investment in innovation and products supported big growth in Fiscal Year 2021. Megaport Cloud Router, our virtual routing service that creates cloud-to-cloud connections on demand, grew 64% in the period.”

“MCR drives greater service adoption across our platform and provides our customers the agility they need to power their digital transformation. Our revenue numbers were also bolstered by strong new customer growth as a result of investments made in our commercial team and focus in growing our channel,” he added.

What’s next for Megaport?

Mr English is positive on the year ahead but provided no real guidance for FY 2022.

He commented: “The Megaport mission for the coming year is to ‘Scale Up, Scale Out’. This is a commitment by everyone at Megaport to accelerate our growth and our innovation cycle to increase our lead in the NaaS space. With a proven business model, the trust of partners and customers, and a leading platform built for innovation, we are well positioned to achieve this. We will invest in revenue growth by making investments in further market expansion, product and service innovation, and most critically, the people responsible for making Megaport the transformational technology company that is changing the way IT services are built today and tomorrow. “

InnovoEdge Acquisition

Also giving the Megaport share price a boost today was a separate announcement. That announcement reveals that Megaport has signed an agreement to acquire InnovoEdge for US$15 million in cash and scrip. It is an AI-powered multicloud and edge application orchestration company.

Vincent English said: “Empowering our customers and partners with greater agility is a priority for Megaport. The acquisition of InnovoEdge aligns well with that priority and will help us drive greater functionality across our leading Network as a Service platform. By integrating the InnovoStudio service with our portal and software defined network, we will provide customers and partners with greater visibility and control of networking, cloud, and service resources.”

Megaport share price continues to outperform

Following today’s gain, the Megaport share price is now up a sizeable 24% in 2021. This means it is outperforming the ASX 200 by approximately 11%.

The post Megaport (ASX:MP1) share price higher on FY21 results and acquisition appeared first on The Motley Fool Australia.

More reading

• Megaport (ASX:MP1) share price rises on strong Q4 update

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 MEGAPORT FPO. The Motley Fool Australia has recommended MEGAPORT 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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Explorers and producers of critical metals for the battery and renewables industry have topped the ASX shares leaderboard in terms of year-to-date returns.

The red hot sector has been supported by factors including higher commodity spot prices, major economies making firm commitments towards net zero emissions and a steady increase in electric vehicle sales.

A major headline for the industry came about last Thursday when US President Joe Biden signed an executive order targeting 50% of new vehicles sold in 2023 to be electric, according to Reuters.

Top performing ASX shares in 2021

Lake Resource NL (ASX: LKE)

The Lake Resources share price has rallied an extraordinary 728% year-to-date. This is thanks to the ASX share’s position as an emerging clean lithium producer.

The company operates its flagship Kachi project as well as three other lithium brine projects in Argentina. The projects cover 200 square kilometres in a location known as the “Lithium Triangle”. This is where 40% of the world’s lithium is produced at the lowest cost.

Furthermore, a drilling campaign is currently underway at Kachi to support the expansion of future production and reserves.

A definitive feasibility study is in progress for Kachi, with completion anticipated in Q1 2022.

Ecograf Ltd (ASX: EGR)

This ASX share is focused on becoming a supplier of eco-friendly anode material to customers in sectors such as lithium-ion batteries.

The company has made a number of positive recent announcements. These include its fourth-quarter results, a land reservation agreement in Sweden and an update on funding facilities.

The Ecograf share price has lifted 444% year-to-date.

Podium Minerals Ltd (ASX: POD)

This ASX share plans to become Australia’s first Platinum Group Metals (PGM) producer.

PGMs are a family of six chemically similar elements — ruthenium, rhodium, palladium, osmium, iridium and platinum — used in a wide range of industrial, medical and electronic applications.

Podium Minerals is undergoing aggressive drilling activities to accelerate its resource estimates.

The Podium Minerals share price is up an impressive 420% this year.

The post What do the best performing ASX shares this year have in common? appeared first on The Motley Fool Australia.

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• Why the Lake Resources (ASX:LKE) share price is up 80% in a month
• Why the EcoGraf (ASX:EGR) share price has soared 50% in a month
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Motley Fool contributor Kerry Sun 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 Westpac Banking Corp (ASX: WBC) share price was on the rise on Monday.

The banking giant’s rose 1% to $25.36 after announcing the sale of its Australian life insurance business to TAL.

This latest gain means the Westpac shares price is now up an impressive 29% in 2021.

Can the Westpac share price rise further?

The good news is that one leading broker still sees a lot of value in the Westpac share price.

According to a note out of Goldman Sachs this morning, the broker has retained its buy rating and $29.03 price target on the bank’s shares.

Based on the current Westpac share price, this represents potential upside of 14.5% over the next 12 months before dividends.

And with Goldman forecasting a fully franked 4.9% dividend yield in FY 2022, this means there’s an almost 20% total return on offer for investors.

What did Goldman say?

Goldman doesn’t see the sale of its Australian life insurance business as material but rather an incremental positive.

It commented: “Given the size of the accounting loss, we estimate the net assets in the business amounted to c. A$1.9 bn, so the A$900 mn sale proceeds are a large discount to the net assets of the business. However, the sale is relatively immaterial, releases capital and continues WBC’s strategy of focusing the operations back towards Australia and New Zealand Banking, which we see as a positive. Maintain Buy on WBC.”

Why does the broker like Westpac?

Goldman Sachs is positive on Westpac due to its improving fundamentals and supportive valuation.

It notes that the balance of risk to its earnings remains skewed to the upside, with its FY 2024 cost forecast about 10% above management’s target of $8 billion.

Goldman highlights that if management were to achieve these targets, this would drive its FY 2024 cash earnings estimates up by ~7%.

The broker also notes that the Westpac share price is trading at a significant discount to the sector compared to historic pre-provision operating profit (PPOP) multiples.

Overall, it believes this makes it a top option for investors at present.

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

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking Corporation. 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 SelfWealth Ltd (ASX: SWF) share price could be a mover on Tuesday after the company announced two major operational milestones for its investing platform.

Why the SelfWealth share price is on watch

SelfWealth revealed that it will achieve 100,000 active traders this week, up 5.1% from 95,189 on 30 June 2021.

The company says that its customer base is “highly engaged” and continues to translate into “high levels of new customer acquisition through member referrals”.

In addition, independent market research firm, Investment Trends reported SelfWealth as the number four player in the online broking market in Australia.

SelfWealth believes that it can continue to drive future revenue growth from product development, underpinned by a growing customer base and track record of market share expansion.

Technology and product roadmap

SelfWealth has been changing a lot in the background, hiring heavily in tech and product teams to drive new features for its now 100,000 active traders.

According to the company’s fourth quarter results and recent capital raising presentation, it is currently negotiating with several cryptocurrency exchanges to provide access to cryptocurrencies.

The company said that it wanted to be the “first investment platform to offer CHESS-sponsored share trading on the ASX, US trading and cryptocurrency access to Australian investors”.

In addition, the company is looking to add additional international markets through its partner, Phillip Capital by the end of the year.

Why the SelfWealth share price has fallen off a cliff

The SelfWealth share price has tumbled 35% year-to-date despite its financial and operational achievements.

SelfWealth shares took an 11.96% tumble on 12 July following the release of its fourth quarter results.

Interestingly, the results flagged negative quarter-on-quarter growth for number of trades executed by clients.

Trade figures for the June quarter were ~357,000, down from a record high of ~514,000 in Q3 FY21.

Adding further insult to injury was a $10 million capital raising at an issue price of 39 cents on a 9.3% discount to its last closing price on 14 July.

The post SelfWealth (ASX:SWF) share price on watch after achieving 100,000 active traders appeared first on The Motley Fool Australia.

More reading

• Why the SelfWealth (ASX:SWF) share price is lifting today
• SelfWealth (ASX:SWF) share price sinks 9% on capital raising efforts
• SelfWealth (ASX:SWF) share price on watch next week after $10 million capital raising
• Why is the SelfWealth (ASX:SWF) share price frozen today?
• SelfWealth (ASX:SWF) share price dives 11% after fourth quarter results

Motley Fool contributor Kerry Sun 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 Challenger Ltd (ASX: CGF) share price is one to watch this morning after the Aussie financial group’s full-year results release.

Challenger share price on watch as underlying profit slumps

The Challenger share price will be in focus on Tuesday after the company released its results for the year ended 30 June 2021 (FY2021) to the market this morning. Some of the key points are highlighted below:

• Net income down 14% to $682 million.
• Normalised net profit before tax down 22% to $396 million.
• Normalised net profit after tax down 19% to $279 million.
• Challenger Life excess regulatory capital of $1.6 billion.
• Normalised cost-to-income ratio of 41.2% (down 5.5 percentage points on FY2020).
• Group assets under management (AUM) up 29% to $110.0 billion.
• Fully franked, full-year dividend of 20.0 cents per share, up 2.5 cents per share on FY2020.

What happened for Challenger in FY2021?

Challenger reported record sales growth and “strong business momentum” in this morning’s results. That helped the company record net profit before tax within guidance and a strong capital position.

The Challenger share price is one to watch after the company’s funds management division reported a 30% increase in funds under management while the Challenger Life book grew 14% during the year.

Challenger completed the acquisition of MyLife MyFinance bank during the year. The group hopes to deliver a “more holistic offering” as part of its overall retirement planning package following the acquisition.

What else did Challenger announce?

Financial and operating results aside, there is another good reason to watch the Challenger share price this morning. Managing Director and CEO Richard Howes announced his intention to step down in March 2022, saying:

I am exceptionally proud of what we have accomplished at Challenger, both in my time as CEO and as part of the leadership team.

With the certainty that the business is primed for growth, I feel that now is a good time to step aside and begin the process for a new leader to drive Challenger’s exciting next chapter.”

Challenger share price snapshot

The Challenger share price will be in the spotlight today following the company’s full-year results release, the resumption of dividends and the CEO retirement announcement.

Shares in the Aussie financial group are down 10.8% this year prior to the market open but have rebounded 33.2% in the last year.

The post Challenger (ASX:CGF) share price on watch after results, CEO retirement appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Tuesday
• Which ASX 200 shares helped deliver record profits and a 4.5% dividend?
• ASX 200 Weekly Wrap: COVID wobbles ASX as shares retreat

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 owns shares of and has recommended Challenger 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 Commonwealth Bank of Australia (ASX: CBA) share price has almost doubled from its March 2020 lows of $54.

There appears to be considerable momentum currently behind CBA shares. They topped both their pre-COVID and 2015 highs in May this year and traded above $100 for the first time on record in June.

However, the stellar performance of CBA shares could warrant higher earnings expectations, especially given the current circumstances of a strong recovery in credit growth and the red-hot property market.

With the August 2021 earnings season gearing up, let’s take a step back and look at how the CBA share price performed during the last reporting season.

What happened last earnings season?

The CBA share price experienced a strong rebound following the initial March 2020 selloff – as did most ASX 200 shares.

Between March lows and 11 August, the day before the bank delivered its full-year FY20 results, the CBA share price had rallied 37.7% from $54.26 to $74.70.

When CBA’s results landed, the company’s shares would open 1.70% higher to $75.97 but failed to hold their gains, closing the day down 0.48% to $74.34.

Some key highlights from Commonwealth Bank’s FY20 results included:

• Operating income of $23,758 million, up 0.8% on the prior corresponding period.
• A net interest margin decline of 2 basis points to 2.07%.
• Home lending growth at 1.3x system and household deposit balance growth of 9.8%.
• Cash net profit after tax from continuing operations down 11.3% to $7,296 million, driven by higher COVID-19 loan impairment expenses.
• Final fully franked dividend of 98 cents per share, or a dividend payout ratio of 49.95%. This was in line with APRA’s guidance that banks should retain at least 50% of earnings.
• CET1 ratio of 11.6%, well ahead of APRA’s ‘unquestionably strong’ benchmark of 10.5%.

Despite what looked like a well-rounded result, the CBA share price would continue to slide, slumping to 4-month lows of $63.07 by 22 September.

It wasn’t until mid-November that the CBA share price would climb back to the $70 level.

What should investors watch out for this earnings season?

The CBA share price has been supported in 2021 by a strong uplift in credit growth and property prices.

Lending indicators from the Australian Bureau of Statistics for July highlighted a 1.6% month-on-month decline in new loan commitments for housing but these were still 82.7% higher when compared to a year ago.

National housing values have continued to advance, surging 16.1% over the past year according to CoreLogic.

However, investors will likely be keeping an eye out for the impact of recent lockdowns across the country.

According to National Australia Bank Ltd (ASX: NAB), Australia’s economy might be double dipping into another recession this year.

CBA is scheduled to release its FY21 full-year results on Wednesday 11 August.

CBA share price snapshot

CBA shares are up 5.30% in August and have rallied 25.30% year to date.

After closing at $104.94 on Monday, the CBA share price is less than 2% away from its 17 June record high of $106.57.

The post How did the CBA (ASX:CBA) share price respond last earnings season? appeared first on The Motley Fool Australia.

More reading

• Why the CBA (ASX:CBA) share price will be on watch today
• The economy and ASX earnings in focus. Scott Phillips on Nine’s Late News
• The CBA (ASX:CBA) share price is edging higher. Here’s why
• CBA (ASX:CBA) share price history: What caused the biggest ups and downs?
• ASX 200 Weekly Wrap: Blockbuster Afterpay deal turbocharges ASX to new record highs

Motley Fool contributor Kerry Sun 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 Brickworks Limited (ASX: BKW) share price could still be worth looking at despite the company’s recent COVID-19 NSW update.

What was in the update?

The building products business said that the restrictions are now having a “significant” impact across its operations.

In June and early July, its brick sales in NSW were approximately in line with local production capacity, however dispatches abruptly reduced by 80% during the pause in construction activity across Sydney in late July.

Brickworks noted that it’s facing the most severe restrictions that the business has faced since the onset of the pandemic, with sales limited to the ACT and regional areas only.

The company said that the partial re-commencement of construction activity in August has resulted in some improvement, however brick sales remain at only 50% of pre-lockdown levels, resulting in a number of storage yards reaching full capacity. It has been forced to temporarily lower production at two of its five kilns across the state, representing 30% of total production capacity.

Significant production volume is being transported south, to meet continued strong demand in Victoria.

Brickworks also said that it’s experiencing a similar impact across its other building products businesses, with operations at its precast facility in Wetherill Park significantly reduced.

The Brickworks share price fell 1.5% after this update.

Brickworks noted that NSW is its largest and most profitable market, so the NSW restrictions are now having a material impact on earnings for its Australian building product businesses.

The company also pointed out that various capital projects are being affected and delayed due to restrictions.

Development activity within the property trust has also been affected, with various Oakdale Estates being impacted by numerous closures and reduced workforce numbers.

Brickworks said that the timing of the restrictions meant the NSW lockdown only impacted the last two weeks of FY21 and would not be material for the financial year that has just finished.

FY21 Australian building product earnings before interest and tax (EBIT) is expected to be 35% higher than FY20.

In North America, trading in July was slightly softer than expected, leading to FY21 EBIT expected to be below last year, in local currency terms.

‘Property’ will deliver a record EBIT result of $250 million according to management.

However, looking ahead, management said that with the outlook across the entire country becoming increasingly uncertain, things could change at any moment for parts of Australia where demand is still largely unaffected – like Brisbane and Melbourne.

Are there any positives to look forward to for the Brickworks share price?

Firstly, NSW has announced that “unoccupied construction sites across Greater Sydney, including the Central Coast, Blue Mountains, Wollongong and Shellharbour, will operate at 50 per cent capacity from this Wednesday with enhanced COVID safe measures helping to sustain industry, boost the economy and keep workers safe.”

This could mean that demand for Brickworks products is somewhat reignited. It may also mean an acceleration of the work for the industrial property trust.

Brickworks has two key assets that are not its building products divisions and perhaps aren’t being as affected as the construction industry.

There’s the shareholding of investment house Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which Brickworks owns around 40% of. This business has resilient earnings and has a commitment to stable and growing dividends for shareholders. Its biggest holding, TPG Telecom Ltd (ASX: TPG), continues to provide telecommunications services.

The industrial property trust that Brickworks owns half of is probably still generating rental profit. The long-term outlook still seems positive with demand for logistics and distribution properties rising, particularly with the trend towards e-commerce. Once the latest warehouse projects are completed, a large rise of the value and net rent is expected.

At the current Brickworks share price it has a trailing grossed-up dividend yield of 3.5%.

The post Why the Brickworks (ASX:BKW) share price could still be a buy appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company 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 owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company 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 been on somewhat of a rollercoaster ride over the past 12 months. This has been characterised by the insurance giant’s ongoing challenges to navigate its way through COVID-19.

At Monday’s market close, IAG shares finished the day up a healthy 4.61% to $5.22. Despite the fact the company’s shares have gained more than 6% in the past week, when comparing to this time last year, IAG shares are just 4% higher.

With the August 2021 reporting season now heating up, we take a closer look to see if investors can learn anything from the performance of the IAG share price last earnings season.

What happened in the first half of FY21?

In February 2021, IAG delivered its half-year results to the market, reporting growth across the board.

This surprised investors as gross written premiums (GWP) grew 3.8% to $6,188 million and the level of claims declined. The company’s bottom line delivered a 33.1% increase in insurance profit to $667 million. Clearly, the market had been anticipating that IAG would report a significant loss for the period. This is because the company had previously announced $1.15 billion in pre-tax charges for business interruption claims.

Consequently, the IAG share price rose by more than 6% to an intraday high of $5.38 on the day, and then to $5.49 the day after. However, this rise was short-lived, with IAG shares tumbling soon after for a number of weeks. In mid-March, the company’s share price hit a low of $4.30, reflecting a 22% decline from its intraday high on 10 February.

What should investors look out for?

With IAG due to report its full-year results tomorrow, investors may be wondering what to expect.

In late July, the company released a preliminary FY21 result which was underscored by some interesting numbers that missed the mark with Goldman Sachs.

According to the update, GWP is expected to grow at 3.8%, while net earned premium is forecast to increase 1.5% to $7,473 million.

The underlying insurance margin is also predicted to come in at 14.7% for FY21. This metric recorded a 16% fall in the first half but is projected to bounce back by 13.5%.

Cash earnings is anticipated to be $747 million, reflecting a 168% jump on the prior corresponding period (FY20).

In line with the earnings, analysts at Goldman Sachs believe the company will pay a full-year dividend of 22 cents per share. When factoring in the FY21 interim dividend payment of 7 cents, this equates to 15 cents for the second half.

IAG share price snapshot

In 2021, the IAG share price has moved 11% higher thanks to its recent run since early August.

Based on valuation grounds, IAG commands a market capitalisation of around $12.8 billion, with more than 2.4 billion shares outstanding.

The post How did the IAG (ASX:IAG) share price respond last earnings season? appeared first on The Motley Fool Australia.

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• Should you buy IAG (ASX:IAG) shares in August 2021 for the dividend yield?
• The IAG (ASX:IAG) share price has dropped this last week. Here’s why

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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