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The AGL Energy Limited (ASX: AGL) share price was out of form on Tuesday despite the release of a major announcement.

After initially storming higher, the energy company’s shares ended the day 3.5% lower at $9.81.

What did AGL Energy announce?

On Tuesday AGL announced provisional plans to split into two businesses – New AGL and PrimeCo.

New AGL will be Australia’s largest multi-product energy retailer, leading the transition to a low carbon future. Whereas PrimeCo will be Australia’s largest electricity generator, supporting the economy as the energy market evolves.

Management believes the proposed separation will give each business the opportunity to execute their own respective strategies and growth agendas.

What’s the word on the street?

Goldman Sachs has been looking over its plans. And while it acknowledges that the announcement lacked detail, the broker doesn’t appear convinced by the proposal.

Goldman believes that the proposed demerger could result in downside risks for seven reasons. These include:

“1. Increasing capital intensity of ‘New AGL’ as (i) the NSW Energy Plan likely drives an acceleration of the closure of black coal generation in NSW, and with (ii) an increasing requirement for carbon offsets to achieve a carbon neutral position on Scope 1 & 2 emissions for ‘New AGL’ from separation;

2. Likely lower gearing capacity required as lenders/bondholders manage risks;

3. Cost duplication from a new management team and likely trading team;

4. Declining vertical integration and a new competitor;

5. Corporate appeal may increase for ‘New AGL’, but ‘PrimeCo’ has potential to be considered critical infrastructure limiting foreign ownership options for the business, while this carbon intensity of the portfolio will also likely limit appeal for Australian institutional/pension fund investors.

6. Cribb Point LNG import terminal has been rejected, and likely requiring a repositioning of the gas strategy. We expect Viva’s Geelong Energy Hub to proceed with LNG imports in Victoria in the medium term; and

7. Asset sales and dividends: Silver Springs and Newcastle gas storage are flagged as for sale, while declining earnings weaken distributions.”

In light of this, the broker sees increased uncertainty for investors and continued downside risk to earnings.

As a result, it has retained its neutral rating and cut its price target to $10.45.

More reading

• Why an AGL Energy (ASX:AGL) demerger might be a problem
• ASX 200 dips, AGL to split in two, NAB’s neobank acquisition approved
• Is the Amaysim (ASX:AYS) share price really tumbling 70% today?
• AGL Energy (ASX:AGL) share price slides after latest announcement
• ASX 200 down 0.15%: AGL to split into two, NAB’s 86 400 acquisition receives ACCC approval

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post 7 reasons the AGL (ASX:AGL) demerger might be bad for its share price appeared first on The Motley Fool Australia.

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The penny has dropped for investors around the world that the shift from petrol to electric vehicles (EVs) is inevitable.

This epiphany has been massive for the market leader in the electric segment, Tesla Inc (NASDAQ: TSLA). Its shares are up more than six-fold in the past 12 months, despite a significant pull back the past few weeks.

But for Antipodes portfolio manager Alison Savas, there is a better bet in this field. 

She said that Volkswagen Group (ETR: VOW3) is making “aggressive” strides towards competing with, and overtaking, Tesla.

“Last year the German automotive giant sold around 230,000 EVs. This is expected to more than double to over 600,000 this year. In comparison, Tesla is expected to sell around 800,000 EVs,” she said on an Antipodes blog post.

“Next year, Antipodes projects both Tesla and VW will sell around 1 million EVs each, then in the years beyond VW will outsell Tesla.”

Here comes ‘Voltswagen’

On Tuesday, Volkswagen ‘accidentally’ released a media announcement one month early.

According to CNBC, it revealed that it was rebadging its US operations to “Voltswagen” — to emphasise its electric credentials. The clearly incomplete announcement, dated April, was withdrawn very quickly. 

The rebadge was later revealed to be a marketing stunt.

All the petrol car makers are currently playing catch up to mass-produce EVs. But Savas reckons Volkswagen is way ahead of the pack.

“If we look to 2025 – which is when industry experts expect EVs will really take off – VW could be selling more than 2 million EVs, or around 20% of VW’s total volumes,” she said. 

“But more significantly, VW could have over 20% of the global EV market with the number one position in Europe and China, which are expected to be the two fastest growing electric vehicle markets.”

While Tesla revolutionised the movement, Savas said traditional car makers have the economies of scale and know-how to “produce and sell great cars”.

“Any first mover advantage Tesla had is arguably vanishing.”

Embarrassingly, VW’s push into electric was prompted out of a 2015 scandal when it was caught red-handed cheating on its diesel emissions tests. The current drive for full electrification of its catalogue is arguably an attempt to wipe the significant damage from that episode.

Tesla share price is dependent on perfection

The rise in the Tesla share price has seen it now valued as much as the 8 largest legacy car makers put together.

“Tesla’s valuation today – some $630 billion – dwarfs Volkswagen’s $150 billion, yet VW is likely to sell more EVs than Tesla in the coming years and on similar economics,” said Savas.

“As a pragmatic value manager, the difference in valuation ascribed by the market for these two companies is interesting.”

Tesla bulls say that the brand is more than just a maker of vehicles — it is developing technologies like autonomous driving and driverless taxis.

But Savas reckons about $500 billion of capitalisation is dependent on those innovations, and that’s far too much.

“The hurdles to fully autonomous vehicles on public roads are immense. Notwithstanding the hardware and software challenges, there are significant legal and regulatory hurdles,” she said.

“Tesla hasn’t solved these issues – no one has – but ascribing half a trillion dollars of value to the company suggests success is guaranteed.”

Volkswagen is at an attractive PE ratio

As well as the booming EV outlook, Volkwagen’s other headwinds are strong.

“We have a company that’s already made the investment to develop an electric range and will benefit from a cyclical rebound in economic activity and pent-up demand in the auto cycle,” said Savas.

“VW is also a great way to get exposure to the strong recovery we’re seeing in China, the largest auto market in the world where VW has the leading share.”

Therefore Volkswagen shares look very cheap compared to Tesla, which is currently trading at a roughly 950x price-to-earnings (P/E) ratio.

“At just 8x forward earnings and generating free cash flow of over $10 billion per annum – that’s post the investment in the electrification offensive – it’s hard to imagine how VW won’t transition to a secular growth winner as it dominates electrification.”

Battery prices have long been the hurdle for the electric car industry, as it is easily the biggest cost in producing a vehicle.

But like any tech, battery prices have been coming down — and are about to reach a significant milestone soon.

“By the end of the decade, VW is expecting battery costs to fall 30% to 50% from today’s $140/kwh — taking battery costs below the $100/kwh threshold at which industry experts believe cost parity between EVs and combustion engine vehicles can be achieved.”

By the middle of the 2020s, Antipodes predicts VW’s margins on electric cars will overtake what they make on equivalent petrol and diesel vehicles.

“For us, the EV race is one in which the spectators are fixated on the current front-runner, while ignoring the giant emerging from the pack,” said Savas.

“In plain investment terminology – a case of unwarranted multiple dispersion.”

More reading

• Did the Bitcoin (CRYPTO:BTC) price fly too high too fast?
• At today’s Bitcoin price that’ll be 2 Bitcoin for a Tesla Model S
• Here’s an ASX tech share flying under the radar: fundie
• How to counter the ASX 200’s Achilles heel
• 4 reasons ARK recently increased its Tesla share price target to US$3,000

Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. 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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There are a few different reasons why the Westpac Banking Corp (ASX: WBC) share price could be a buy right now.

That’s despite the Westpac share price rising by 44% over the last six months.

The big four ASX bank has risen a lot, but there are a few reasons why the broker Morgan Stanley thinks that Westpac could still be a compelling ASX share to own:

Share buyback

A year ago during the crash it might have been hard to believe that the big four banks of Westpac, Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group Ltd (ASX: ANZ) would end up with such high levels of capital. But here we are.

In the first quarter of FY21, Westpac reported that its common equity tier 1 (CET1) capital ratio had increased to 11.9% as at 31 December 2020 – that was up 74 basis points over the quarter and 111 basis points over the year. The strength of the bank balance sheets was materially better than what the broker was expecting.

Morgan Stanley thinks that Westpac will launch a share buyback. This is when a business buys back its own shares from shareholders. It can be a way to increase the ownership and per-share profit statistics for existing shareholders without the shareholder having to take any action.

A better dividend

Westpac shareholders suffered a huge dividend cut during 2020 because of the impacts of the COVID-19 pandemic on its profitability.

There was also the $1.3 billion civil penalty that Westpac had to pay in relation to the admitted contraventions of the Anti-Money Laundering and Counter Terrorism Financing Act.

But those issues are now fading into history. In the first quarter of FY21, Westpac reported cash earnings of $1.97 billion, which was more than double the FY20 second half quarterly average profit of $808 million – up 54% excluding notable items.

Morgan Stanley believes that a large dividend increase is coming for those suffering Westpac shareholders.

The broker thinks that Westpac could pay an annual FY21 dividend of $1.10 per share, which equates to a grossed-up dividend yield of 6.4% at the current Westpac share price.

Lower costs

It’s a difficult income environment for banks at the moment. With the official RBA interest rate at close to 0%, it makes it hard for banks to earn as high of a profit margin, or net interest margin (NIM), as they used to.

But banks can still take action on costs, which is what the broker Morgan Stanley is looking at Westpac to do.

The broker thinks that the big four ASX bank can cut its expenditure by approximately 10%, which would help deliver stronger profitability.

What’s the Westpac share price valuation?

According to the Morgan Stanley earnings estimate for FY21, the Westpac share price is valued at 16x FY21’s estimated earnings.

The broker rates Westpac as a buy, with a price target of $27.20.

More reading

• ASX stock of the day: Moneyme (ASX:MME) shares in the spotlight
• ASX banks are facing millions of cyber attacks each day
• Leading brokers name 3 ASX shares to buy today
• More Aussies now think shares are better than real estate
• ASX 200 Weekly Wrap: ASX 200 gets its mojo back

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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 REA Group Ltd (ASX: REA) share price edged lower on Monday after the company announced news of its acquisition of Mortgage Choice Limited (ASX: MOC). 

The deal will see REA acquire 100% of outstanding Mortgage Choice shares for a $1.95 cash per share offer or approximately $244 million. 

The company highlighted the following points on how the acquisition aligns with its financial services strategy to create a leading broking business: 

• Leveraging REA’s digital expertise, high intent property seeker audience and unique data insights across a larger network.
• Providing a compelling opportunity to establish a leading mortgage broking business with increased scale.
• Complementing the existing Smartline broker footprint resulting in greater national broker coverage.

The proposed transaction is expected to be immediately earnings per share (EPS) accretive with the potential for future cost and revenue synergies. Mortgage Choice reported net revenue of $22.2 million and net profit after tax of $4.1 million for the 6 months to 31 December 2020. 

REA share price review 

Big brokers were quick to provide coverage for the household real estate advertising company on Tuesday. 

Credit Suisse upgraded its rating to neutral from underperform with a $136.70 target price. The broker estimates that the acquisition will more than triple the market share of REA in the mortgage broking channel to approximately 7%. The note suggests that the combined group will be able to benefit from increased scale as well as the ability to negotiate better rates and generate leads from the REA platform to Mortgage Choice.

Despite the positive tone, the broker warns that mortgage broking is cyclical in nature, and the scale of the investment is not enough to change its earnings profile. With the REA share price closing at $139.22 on Tuesday, the broker’s target price represents a downside of 1.81%. 

Ord Minnett had a similar view in that it maintained its hold rating and $145 price target. Its analysts highlight the acquisition as EPS accretive with potential upside in both revenue and cost benefits. The target price represents an upside of 4.15% at the current REA share price. 

UBS also retained a neutral rating with a $155 target price. This represents an upside of 11.33%. The broker notes that the acquisition is small in the overall scheme of the company, but provides opportunities for additional synergies. It believes possessing a larger scale mortgage broking business could help REA negotiate better rates with its lenders. 

More reading

• 3 of the best ASX shares to buy in April
• Why AGL, Digital Wine, REA Group, & Xero shares are charging higher
• ASX 200 dips lower, Webjet drops, REA bids for Mortgage Choice
• Why Immutep, Inghams, REA Group, & Synlait shares are sinking
• ASX 200 down 0.1%: Computershare raises $500m, REA Group announces acquisition

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post What brokers think of REA (ASX:REA) share price following acquisition appeared first on The Motley Fool Australia.

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The Newcrest Mining Ltd (ASX: NCM) share price will be on watch on Wednesday.

This follows the release of an update on its Red Chris operation in British Columbia, Canada.

What did Newcrest announce?

This morning Newcrest announced its initial mineral resource estimate for the Red Chris mine. This mine is operated by Newcrest under a 70:30 joint venture agreement with Imperial Metals.

The company notes that since becoming operator in August 2019, Newcrest has embarked on an extensive work program to define the potential of block cave mining beneath the existing open pit operation.

These activities have included additional exploration and resource definition drilling, resource optimisation for both open pit and underground mining scenarios, and the commencement of a pre-feasibility study (PFS) to support the potential development of an underground block cave.

What was the initial mineral resource estimate?

Newcrest advised that its initial mineral resource estimate for Red Chris assumes bulk open pit mining and bulk block cave underground mining.

Based on this, its measured and indicated mineral resources are estimated to be 980Mt @ 0.41 g/t gold and 0.38% copper for 13Moz contained gold and 3.7Mt contained copper. Approximately two-thirds is underground, with the balance in the open pit.

Newcrest’s Managing Director and Chief Executive Officer, Sandeep Biswas, commented: “The announcement of our initial Mineral Resource estimate marks another milestone in our transformation of Red Chris. We remain on track to release the findings of our block cave Pre-Feasibility Study by the end of September 2021 and continue to evaluate a number of early mining options which could enable an acceleration of cash flows prior to the development of a block cave.”

Exploration plans

Newcrest notes that its resource definition drilling at Red Chris has been focused on the East Zone. However, it sees opportunities to explore outside this area to potentially expand its mineral resource.

It explained: “The Brownfields Exploration program is focused on the discovery of additional zones of higher grade mineralisation within the Red Chris porphyry corridor, including targets outside of the Mineral Resource. A total of 109,177m of drilling from 92 drill holes have been drilled since Newcrest acquired its interest in the joint venture. Drilling continues to return significant intercepts across the entire porphyry corridor.”

While today’s update could be good news for the Newcrest share price, it may not be enough to offset a pullback in the gold price overnight. We’ll soon find out at the market open.

More reading

• 5 things to watch on the ASX 200 on Wednesday
• ASX 200 Weekly Wrap: ASX 200 gets its mojo back
• 5 things to watch on the ASX 200 on Monday
• 5 things to watch on the ASX 200 on Friday
• Some of the ASX 200 companies that drove Australian exports to record levels

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Why the Newcrest (ASX:NCM) share price is on watch today appeared first on The Motley Fool Australia.

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27% of Australians are actively investing in the ASX, a new report by website Finder claims. The report found Australians saved an extra $113 billion during the coronavirus pandemic but low-interest rates drove Aussies to invest that money in the stock market, rather than their bank accounts.

Over the past year, the S&P/ASX 200 Index (ASX: XJO) increased 30.05%, making 2020 a rather fruitful year to enter the stock exchange game. Of course, the market over a year ago had just crashed due to the pandemic. The one-year anniversary of the crash was last week.  

Let’s take a closer look at the details.

More Australians are taking risks with their money

The number of Australians investing who own shares, like in the ASX, lags compared to other nations. Comparatively, 33% of Britons and 35% of Americans are shareowners. However, the number of Aussies who became shareholders did jump over the past year. The number of Australians investing in the ASX increased by 48.2% during the pandemic.

Shares are the most popular form of investment for Australians, followed by exchange-traded funds (ETFs) (10%), additional super contributions (8%), and foreign currency exchange (6%).

One likely factor fuelling the retail trader boom is Australia’s historically low-interest rates. Minutes from the last RBA meeting reveal the central bank doesn’t expect to raise the official cash rate until 2024 at the earliest.

According to Kylie Purcell, investments product expert at Finder, Australian attitudes to investing money are changing.

“Traditionally, Australia has been a fairly risk-averse nation when it comes to investing,” she said.

“But with most people now earning record-low returns on their savings, the stock market has become a more appealing option given its tendency to outperform cash in the long run.”

“Although Australia is quite conservative with investing compared to other countries, Finder’s research shows that we’re starting to catch up as more Aussies look beyond cash to maximise their returns.”

The ASX was has been very volatile over the last 5 years

If there’s one thing we learnt in 2020, it’s to expect the unexpected. Just between February and March last year, the ASX collapsed by 33%. This wiped out 8 years’ worth of gains in just 28 days.

While the pandemic was bad for most companies, some sectors thrived. Consumer staples like Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) thrived. Additionally, so did medical equipment companies like CSL Limited (ASX: CSL) and Ansell Limited (ASX: ANN).

One of the best-performing companies over the last 5 years, according to the Finder report, was Domino’s Pizza Enterprises Ltd. (ASX: DMP). Its value grew by 44% over the period. Some funds are still rating Domino’s as a buy.

The report also found micro-investing becoming increasingly popular with young Australians. Micro-investing is when someone makes very small investments over time with the expectation it will add up to a sizeable nest egg.

More reading

• 5 things to watch on the ASX 200 on Wednesday
• Why an AGL Energy (ASX:AGL) demerger might be a problem
• ASX 200 dips, AGL to split in two, NAB’s neobank acquisition approved
• ‘A COVID sized shock every year’. What climate change could mean for the Australian economy
• ASX stock of the day: Moneyme (ASX:MME) shares in the spotlight

Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. The Motley Fool Australia has recommended Ansell Ltd. and Dominos Pizza Enterprises 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 PointsBet Holdings Ltd (ASX: PBH) share price was out of form on Tuesday and tumbled notably lower.

The sports betting company’s shares sank over 9% to $12.27.

This latest decline means the PointsBet share price is now down 32% from its 52-week high.

Is this a buying opportunity for investors?

According to a note out of Goldman Sachs, the recent weakness in the PointsBet share price could be a buying opportunity.

This morning the broker initiated coverage on the company’s shares with a buy rating and $17.50 price target.

Based on the latest PointsBet share price, this implies potential upside of almost 43% over the next 12 months.

What did Goldman Sachs say?

Goldman has been impressed with the company’s progress in the Australian market over the last few years and notes that it is now making inroads into the rapidly growing US sports betting market.

The latter is being underpinned by a 20-year partnership with Penn for market access into a number of states and a five-year exclusive media partnership with the largest sports broadcaster in the US, NBCUniversal.

It is the US market that Goldman sees as the key driver of growth for PointsBet in the future.

Goldman explained: “We see PBH as well-placed to carve out a niche share of the burgeoning US sports betting market, which we forecast to reach US$39 bn at maturity, implying a robust 40% CAGR out to 2033.“

“We are bullish on the US TAM opportunity ahead and PBH, given i) exposure to significant growth opportunities in the US and upside from adjacent/cross selling, ii) scalability benefits over time driving efficiencies, iii) upside risk to long-run sustainable margins, iv) early adoption of owning its proprietary tech stack which we see as highly important in the US context, and v) strong management and board, with a proven execution track record.”

And while the PointsBet share price trades on sky high multiples compared to the rest of the market, the broker believes its growth profile justifies this and notes that its shares are actually cheap in comparison to its peers.

It concluded: “On valuation, we highlight our forecast of >90% revenue CAGR over the next three years, yet on an EV/sales basis PBH screens as the cheapest among a basket of peers.”

More reading

• 5 things to watch on the ASX 200 on Wednesday
• Why Blackmores, Cleanspace, PointsBet, & Treasury Wine shares are sinking
• Should you be concerned about the PointsBet (ASX:PBH) share price?
• ASX 200 down 0.15%: AGL to split into two, NAB’s 86 400 acquisition receives ACCC approval
• Up 13% this year, the Pointsbet (ASX:PBH) share price reflects expansion into new markets

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 recommends Pointsbet Holdings Ltd. The Motley Fool Australia has recommended Pointsbet Holdings 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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There are some great exchange-traded funds (ETFs) on the ASX that could be worth owning in your portfolio for the long-term.

ETFs are a great way to get long-term exposure to the growth of an index or certain sectors over the long-term.

These two ideas could be some of the best ETFs to have over the next few years:

iShares S&P 500 ETF (ASX: IVV)

Buying an S&P 500 fund is one Warren Buffett’s preferred investment picks to say to people as advice.

It’s easy to see why. The long-term returns have been really good, the fees are low and it offers really good diversification.

The businesses in this portfolio are among the best in the world in their respective sectors. The largest 10 positions are: Apple, Microsoft, Amazon, Facebook, Alphabet, Berkshire Hathaway, Tesla, JPMorgan Chase, Johnson & Johnson and Visa.

As I’m sure you can guess, there is a total of 500 holdings inside this investment. Looking at the sector allocations of more than 10%, IT has a 26.4% weighting, healthcare has a 13% weighting, consumer discretionary has a 12.2% weighting, financials has a 11.3% weighting and communication has a 10.9% weighting.

It’s important to note that businesses like Facebook and Alphabet are classified as communication, not IT.

This ETF has an annual management fee of just 0.04% per year, which is one of the lowest on the ASX.

Over the last five years, this ETF has produced an average return per annum of 14.5%.

Betashares Nasdaq 100 ETF (ASX: NDQ)

This ETF features many of the same names that the S&P 500 fund does. However, the exposure is larger because there is a smaller number of holdings.

Apple, Microsoft, Amazon, Tesla, Facebook, Alphabet, NVIDIA and PayPal alone account for almost half of the portfolio.

There are also plenty of other quality US shares in the portfolio such as Netflix, Adobe, Broadcom, Texas Instruments, Qualcomm, Applied Materials, Advanced Micro Devices and Intuitive Surgical.

Despite the ETF have a higher annual management fee of 0.48% per annum, Betashares Nasdaq 100 ETF has delivered average returns per annum over the last five years of 23.7%.

The NASDAQ is tech-heavy – almost half of this ETF’s portfolio is weighted to IT, with another 19.2% invested in communication services. Remember, ‘communication’ includes businesses like Facebook, Alphabet and Netflix.

BetaShares says that this investment gives exposure to many of the world’s most revolutionary and innovative companies that are changing our lives, such as Zoom.

More reading

• Which is the better investment: An ASX share portfolio or an index fund?
• 3 stellar ETFs for ASX investors to buy
• 2 tech ETFs delivering strong long-term returns
• Afterpay and Zip were among the most traded ASX shares last week
• How to counter the ASX 200’s Achilles heel

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 BETANASDAQ ETF UNITS. The Motley Fool Australia has recommended BETANASDAQ ETF UNITS and iShares Trust – iShares Core S&P 500 ETF. 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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Director buys can be a sign that those with the most insight into a company view its shares as undervalued. We take a look at four ASX shares with recent director buys. 

What is insider buying?

Insider buying is the purchase of shares in a company by an officer or executive of that company, such as a director. Insiders usually have insights into the companies they manage and are more likely to purchase shares when they view them as undervalued.

Insiders must only buy based on publicly available information and must inform the ASX of the trade by lodging an Appendix 3Y. Depending on the circumstances, the purchase by an insider of shares can be seen as a vote of confidence in a business. Buys by multiple insiders can act as a stronger signal, as can larger, rather than smaller, share purchases.

Which ASX shares have had recent director buys?

We have studied recent insider buys to bring you four ASX shares with recent insider buys.

Zip Co Ltd (ASX: Z1P)

Two Zip Co directors acquired shares in the company this month. Zip is a buy now, pay later (BNPL) provider with 5.7 million customers. The Zip share price was trading as high as $13.92 last month but has fallen by around 46% since and is currently trading around $7.35. The company released its half-year results in late February reporting record transaction volumes of $2,320.6 million, a 141% year-on-year increase. 

Zip Co earned revenue of $160 million for 1H FY21 with more than 38,500 merchants across the United States, Australia, New Zealand, and the United Kingdom. During the half, Zip completed its acquisition of Quadpay, accelerating growth in the US. The company also raised $176.7 million via an oversubscribed placement and share purchase plan. According to managing director and CEO Larry Diamond, the December half was transformational, and saw Zip position itself as a “truly global BNPL leader.”

As of December, Zip was annualising over $7.5 billion in transaction volume with strong momentum as it expands in the US and launches in the UK. Diamond says global BNPL adoption remains in its infancy, with penetration of global e-commerce spend only 1.6%. Zip is looking to accelerate growth across the globe in FY21 with a strong pipeline of retail partnerships. 

Ardent Leisure Group Ltd (ASX: ALG)

Two Ardent Leisure directors bought shares in the company early this month. Ardent Leisure is the company behind Dreamworld and White Water World and also runs a bowling entertainment business with 43 venues in America. The Ardent Leisure share price has bounced in March, gaining 49% over the month to trade above 90 cents. The company released its half-year results at the end of February which were significantly impacted by COVID-19. But the roll-out of the COVID-19 vaccine, which is gathering pace, offers cause for optimism. 

During 1H FY21 revenue fell 44.3% as trading and travel restrictions resulted in reduced visitation to venues. Dreamworld and WhiteWater World were closed until mid-September 2020. They have since reopened and seen a shift in sales in favour of annual passes as access to international and interstate markets remains restricted. Attendance between reopening and late January was approximately 70% of the prior corresponding period, which is considered a good result given the restrictions. Nonetheless, Ardent Leisure finished 1H FY21 with a net loss after tax of $83.6 million.

The company has warned that 2H FY21 trading is expected to be challenging due to ongoing uncertainty associated with COVID-19 and the end of the JobKeeper subsidy. But the vaccine program has improved the outlook and Ardent says it is ready to accept the challenges of the changing landscape. 

Sonic Healthcare Limited (ASX: SHL) 

Three Sonic Healthcare directors have acquired shares in the company this month. Sonic Healthcare is a healthcare provider with specialist operations in pathology and laboratory medicine, radiology, general practice and corporate medical services. The Sonic Healthcare share price hit a low of $30.55 on 10 March, but has since rallied and is now trading above $35. 

Sonic Healthcare released its half-year results in mid-February which revealed revenue growth of 33% for the year ended 31 December 2020. The healthcare provider reported a statutory net profit for the half-year of $678 million on revenues of $4.4 billion. The strong financial results reflect the millions of COVID-19 tests performed as part of combating the pandemic. The laboratory division achieved organic revenue growth of 39% while the imaging division grew revenue by 14%, higher than long-term industry averages. 

Prospa Group Ltd (ASX: PGL) 

Two Prospa Group directors have acquired shares in the company this month. Prospa Group is an online small business lender that listed on the ASX in 2019. The Prospa share price has been largely flat this year although the lender reported strong growth in originations in 1H FY21. This is a recovery from FY20 when loan originations fell due to the challenging economic conditions brought on by the COVID-19 pandemic. 

FY20 loan originations were $450.9 million, down from $501.7 million in FY19. But volumes have since picked up with originations increasing 265.3% from 4Q20 to 1Q21 and a further 25.9% from 1Q21 to 2Q21. 1H21 loan originations of $180.7 million remain below pre-pandemic levels, down 41.1% on the prior corresponding period. Prospa, however, says recovery is accelerating with December and January origination volumes reaching 69% and 75% of the prior corresponding periods.

Foolish takeaway

While a single director buy may not be telling, several can provide a good indication that those best placed to know consider shares good value. These four ASX shares all had multiple director buys in March which could indicate an optimistic outlook. 

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Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia has recommended Sonic Healthcare 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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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Kate O’Brien owns shares of Apple and Rio Tinto Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), and Apple. 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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