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While some Australians are gearing up to take advantage of the government peddling half-price flights as part of its latest stimulus, Standard & Poor’s is watching Australia’s credit rating.

Countries are assigned credit ratings as a reflection of economic stability. A rating downgrade can result in higher interest rates because the country’s government loses access to foreign investors.

GDP forecast not AAA worthy

Today’s The Australian Financial Review cites that S&P’s lead Australia credit analyst Anthony Walker doesn’t think Australia’s current economic outlook will merit the top AAA rating.

Mr Walker predicts that 2021 will see federal and state deficits that equal approximately 14% of GDP. He doesn’t believe a AAA rating will be granted if that’s the case.

To conclude a country’s credit rating, S&P consolidates all government debt to achieve a general estimate. The ratings agency then bases its outlook on that number.

Australia’s current S&P rating is AAA with a negative outlook. The country also boasts the top rating from two other major ratings agencies, Moody’s and Fitch.

Will half-price flights boost our credit rating?

Considering a country’s credit rating is based on its debt, arguable offering half-price airline tickets isn’t likely to address a score axing.

However, rating agencies do take into account the rate of economic growth a country demonstrates. On that note, depending on whether the initiative is effective, Australia may enjoy a spike in consumer spending as the half-price-flights party gets started. In turn, that could help appease S&P.

An editorial in today’s The Australian likes the travel boost concept and thinks the government has made the right decision. It estimates that Australia’s domestic tourism businesses employ 611,000 people and pump over $100 billion into the economy annually.

Foolish takeaway

Credit rating downgrades aren’t the end of the world. Quite often, an entity will put in the necessary work to shape up once it learns an agency has put its rating on watch.

We won’t know if the latest economic stimulus crack is effective until a few months down the road. In the meantime, hopefully, the half-price flight scheme leads to some banger domestic holidays. 

More reading

• Here’s why the Piedmont Lithium (ASX:PLL) share price is jumping 11% today
• Nine (ASX:NEC) share price edges higher on positive update
• Westpac (ASX:WBC) share price higher following APRA update
• ResApp (ASX:RAP) share price jumps 19% on AstraZeneca deal
• Breville (ASX:BRG) share price drops after CEO’s $8.7 million share sale

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Nine Entertainment Co Holdings Ltd (ASX: NEC) shares are edging higher this morning following news the company has signed an affiliation agreement. At the time of writing, the Nine share price is trading 1.65% higher at $3.08

What’s driving the Nine share price?

The Nine share price is on the move today as investors digest the company’s latest update.

According to this morning’s release, Nine has entered into a regional television affiliation agreement with WIN Corporation (WIN).

Founded in 1962, WIN is Australia’s largest regional television network company. The group provides television and radio broadcasting services into 29 markets across six states in Australia.

Terms of the deal

Under the agreement, WIN will broadcast Nine’s metropolitan free-to-air television content from popular channels such as 9, 9Go, 9Gem, and 9Life. This access will be provided across geographical markets in Tasmania, Victoria, Queensland, southern New South Wales, and regional Western Australia.

Nine stated that its television content will now be available across all of metropolitan and regional Australia.

The new agreement will commence on 1 July 2021, and run for a minimum period of seven years.

WIN will pay Nine with an affiliation fee of about 50% of its entire regional advertising revenue. This is expected to positively contribute to Nine’s earnings before interest, tax, depreciation and amortisation (EBITDA) from FY22. Furthermore, WIN will provide airtime to Nine through its television and radio network to promote Nine’s content.

A sales representation service from WIN will also be provided to Nine in northern New South Wales and Darwin for an agreed time.

Management commentary

Nine CEO Hugh Marks welcomed the deal, saying:

While our relationship with Southern Cross has been strong over the last five years, the opportunities presented by the WIN Network to both extend the reach of Nine’s premium content into more regional markets under one agreement, and to work co-operatively with them on a national and local news operation, mean this is the right time for us to return to WIN.

WIN CEO Andrew Lancaster went on to add:

We are pleased to be furthering our already strong relationship with Nine, through this affiliation agreement. Nine has clearly established itself as Australia’s leading media business and we are excited to be returning to carriage of the Nine broadcast content to our regional viewers.

About the Nine share price

Over the past 12 months, the Nine share price has trekked on an upwards slope, with gains of close to 150%. Nine shares are currently within a whisker of reaching their record high of $3.16.

Nine has a market capitalisation of around $5.1 billion, with approximately 1.7 billion shares issued.

More reading

• 2 not-so-obvious ASX shares to cash in on the property boom
• Is Nine Entertainment (ASX:NEC) eyeing up regional broadcaster WIN?
• These 4 ASX shares just got upgraded to a ‘buy’ rating
• Why the Nine (ASX:NEC) share price is up 26% in 2021
• ASX 200 rises, Rio chair will leave, Nine gets a new CEO

Motley Fool contributor Aaron Teboneras 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 is pushing higher on Friday.

At the time of writing, the banking giant’s shares are up 0.5% to $24.65.

Why is the Westpac share price rising today?

This gain appears to have been driven by a positive investor reaction to an announcement this morning.

That announcement reveals that the Australian Prudential Regulation Authority (APRA) has closed its investigation into matters related to the AUSTRAC proceedings.

This follows the conclusion of ASIC’s AUSTRAC-related investigation in December 2020.

What did APRA say?

APRA advised that it commenced its investigation into Westpac in December 2019 to examine prudential concerns arising from allegations by AUSTRAC that the bank had breached anti-money laundering and counter-terrorism laws.

In addition to this, APRA’s investigation examined the bank’s actions to rectify and remediate the issues after they were identified.

This morning APRA revealed that after carefully considering the results of ASIC’s investigation, it has decided to close its investigation.

However, Westpac remains subject to a court enforceable undertaking to implement an integrated risk governance remediation plan. This has been designed to increase risk governance across its business and will be subject to ongoing independent reviews.

Furthermore, the $1 billion operational risk capital add-on, which reflects the bank’s heightened operational risk prole, will remain in place until Westpac completes its remediation under the court enforceable undertaking to APRA’s satisfaction.

APRA’s Deputy Chair, John Lonsdale, commented: “Although the investigation has not found evidence of breaches of the Banking Act or the BEAR, APRA remains determined to ensure Westpac rectifies its risk governance weaknesses effectively and sustainably.

“Under the enforceable undertaking, Westpac has clearly defined Executive and Board accountabilities for the implementation of its integrated risk governance remediation plan. APRA will be holding Westpac to account for the delivery of the required improvements,” Mr Lonsdale said

More reading

• 3 blue chip ASX shares with dividend yields over 5% today
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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. 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 ResApp Health Ltd (ASX: RAP) share price is surging higher after releasing its second announcement in as many days. You can read about the first announcement here.

At the time of writing, the digital health company’s shares are up 19% to 6.9 cents.

What did ResApp announce?

This morning ResApp announced that it has secured a one-year, non-exclusive licensing agreement with the Japanese subsidiary of global biopharmaceutical company AstraZeneca. The agreement will see ResApp license its cough counting technology for use in a program to support asthma patients in Japan.

According to the release, under the agreement, ResApp’s cough counting technology will be integrated into AstraZeneca’s direct-to-consumer asthma management smartphone application. This will then be used to assist patients in monitoring symptoms in the home setting and support them in managing their asthma.

The release notes that AstraZeneca’s asthma monitoring application is currently under development and is expected to launch in the coming months. In the meantime, ResApp will work with AstraZeneca on its integration into the smartphone application. This includes refining it to the pharmaceutical giant’s specifications for use in the Japanese market.

Management notes that this agreement will be the first time ResApp’s cough counting technology is being used outside of a clinical trial setting. It believes this highlights its broad applicability.

Furthermore, as it is the second agreement with AstraZeneca, it feel it provides further validation from an industry-leading pharmaceutical company.

What are the financial terms?

The release explains that AstraZeneca will pay an annual licence fee to ResApp for each patient provided with AstraZeneca’s asthma management smartphone application.

However, while sales of ResApp’s cough counting technology continue to grow, management does not expect this agreement to have a material impact on the company’s operating results.

ResApp’s Managing Director and CEO, Dr Tony Keating, commented: “With its Asthma Monitoring App, AstraZeneca is seeking to empower and support patients to help them take control of their asthma. Over one million people in Japan live with asthma and AstraZeneca’s app aims to help patients better manage their condition and adhere to their management plans, leading to a better quality of life. We are proud to be an integral part of this initiative and look forward to working with AstraZeneca on the integration process and launch of this important patient support program.”

More reading

• ResApp (ASX:RAP) share price jumps on COVID-19 app plans
• Why Flight Centre, Qantas, ResApp, & Volpara are racing higher
• Why the ResApp (ASX:RAP) share price is sinking 5% today
• Why the ResApp (ASX:RAP) share price opened 10% higher today
• Here’s why the Resapp (ASX:RAP) share price closed 5% lower

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.

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The Breville Group Ltd (ASX: BRG) share price is trading lower on Friday morning.

In early trade the appliance manufacturer’s shares are down 1.5% to $26.18.

Why is the Breville share price dropping?

This morning Breville announced that its CEO, Jim Clayton, has sold a large number of shares through an on-market trade.

According to the release, Mr Clayton offloaded a total of 328,338 Breville shares. No sale price has been given, but based on the Breville share price at the close of play on Thursday ($26.53), this stake was worth ~$8.7 million.

Why was the CEO selling share?

Breville has explained that its CEO sold the shares to facilitate the purchase of a residence in Australia.

In addition to this, funds will be used to satisfy personal tax obligations in relation to the vesting of performance and fixed deferred remuneration rights.

The company notes that Mr Clayton retains a significant interest in Breville after this sale. He is left with an interest of 180,393 shares and 427,650 performance and fixed deferred remuneration rights.

This is well in excess of Breville’s guideline of two times base salary included in the Breville ‘Target Shareholding Guideline for KMPs’.

It added that the sale of shares was approved by the company’s Chairman and was conducted in accordance with its Share Trading Policy.

Where next for the Breville share price?

While material insider selling like this rarely goes down well with the market, the CEO cannot be accused of selling at the top. The Breville share price is currently trading 19% below its 52-week high and has been tipped by a number of brokers to go higher.

One of those is Morgans. Last week its analysts put an add rating and $33.90 price target on its shares. Based on the current Breville share price, this price target implies potential upside of almost 28% over the next 12 months.

Morgans believes Breville is well-placed for growth thanks to a number of tailwinds and its investments in growth projects.

More reading

• 4 ASX retail shares that Morgans thinks are a ‘Buy’
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• Top brokers name 3 ASX shares to buy today
• Why the Breville (ASX:BRG) share price is charging 7% higher today

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.

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Big brokers have run the ruler over ASX tech shares after their recent selloff. Here are three that were rated as a buy on Thursday 11 March. 

1. Hansen Technologies Limited (ASX: HSN)

The Hansen share price surged ~20% on Wednesday after the company announced a significant new contract with Telefónica Germany. The agreement is for a fixed initial term of five years and is expected to generate approximately $25 million in revenue. 

Ord Minnett believes this important contract improves Hansen’s organic growth outlook and ability to attract new clients. The deal will also provide a nice lift in FY21 earnings.

The broker rates Hansen as a buy with a $6.00 share price target. This represents a 10.5% premium to the $5.43 at which the Hansen share price closed Thursday’s session.

2. Iress Ltd (ASX: IRE) 

The Iress share price has likely been dragged down by the broader weakness in ASX tech shares, stumbling by 12% year to date. The financial software provider has generated relatively stable earnings for the past decade, albeit with not much growth.

Credit Suisse upgraded Iress to outperform on the basis of its recent share price drop. The broker views the company as one that is more defensible with a solid recurring revenue base. It also noted that, at current share price levels, the company offers a dividend yield of ~4.90%.

The broker believes such a yield is attractive in the current environment. Credit Suisse has an $11.00 price target which represents an upside of 17% on the current Iress share price, excluding dividends. 

3. Nearmap Ltd (ASX: NEA) 

The Nearmap share price came under significant selling pressure on 11 February after the release of a short-seller report by Hong Kong-based J Capital Research. 

The report alleged a number of challenges for Nearmap including a struggling US division, clients dropping the service and weak client churn figures. 

Nearmap has since replied to the short report, claiming, “The report contains many inaccurate statements and makes unsubstantiated allegations of a very serious nature”. While the company has made an attempt to quash the allegations, the Nearmap share price has slumped to near 11-month lows in recent days. 

Citi retained a buy rating for Nearmap shares with a $3.10 share price target, around 48% higher than the current Nearmap share price. But the broker’s commentary was far more neutral and reserved in nature.

It noted that Nearmap competitor Aerometrex Ltd (ASX: AMX) was seeing rising traction with enterprise customers. The broker noted that competition remains a risk and ANZ forecasts could come in at below-trend growth in the near term. 

More reading

• 2 fantastic ASX growth shares to buy immediately
• Why Afterpay, Nearmap, Temple & Webster, & Z Energy are tumbling lower
• These 3 ASX shares have just stormed to record highs
• The Hansen Technologies (ASX:HSN) share price is hitting a 52-week high
• Why Afterpay, Gold Road, Hansen, & Silver Lakes shares are charging higher

Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Hansen Technologies and Nearmap Ltd. The Motley Fool Australia has recommended Hansen Technologies, IRESS Limited, and Nearmap Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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After surging to a new all-time high price of $43.66 in August, Appen Ltd (ASX: APX) shares have now lost almost 60% of their value and are trading at just $17.38.

This is also not far off the 52-week low of $15.15 the Appen share price fell to during the worst days of the COVID-19 crash last March.

It’s a massive about-face for a company that was once considered a must-have growth share. Along with WiseTech Global Ltd (ASX: WTC), Afterpay Ltd (ASX: APT), Altium Limited (ASX: ALU) and Xero Limited (ASX: XRO), Appen was a member of the WAAAX group of stocks – media darlings and supposed disruptive industry innovators.

Simply put, Appen specialises in machine learning and artificial intelligence (AI). The company provides large amounts of data to help its clients ‘train’ their AI applications and improve automation techniques. Using Appen’s platform, clients can improve the functionality of their AI applications and drive better outcomes.

For example, Appen can provide visual imagery data to a company developing self-driving vehicles to train a computer to recognise cars, pedestrians, traffic lights and other road hazards. Or, it could provide large amounts of audio and text data to help a bank’s chatbot recognise all the different ways a customer might ask to open a new account or request personal loan information.

Appen services some of the biggest tech companies in the world, including Google, Facebook, Amazon and Microsoft, and is also growing its presence in China.

Results hit Appen share price

Appen recently released its annual report for the year ended 31 December 2020. The company reported revenues of almost $600 million for the year, an increase of 12% over FY19. Underlying earnings before interest, tax, depreciation and amortisation expenses (EBITDA) was up 8% to $108.6 million, although the underlying EBITDA margin fell 7 basis points to 18.1%.

While this was a solid result in a difficult year, sales fell short of analyst expectations, and the Appen share price slumped on the day the results were released.

Outlook

Uncertainty around the continued impacts of the pandemic, particularly during the first half of 2021, have weighed on Appen’s outlook. The company anticipates underlying EBITDA to be in the range of $120 million to $130 million, which would represent year-on-year growth of between 10% and 20% over 2020.

However, this outlook relies heavily on strong performance over the second half of 2021. Appen concedes that there are many short-term challenges for the company to contend with. These include uncertainty around post-COVID economic trends which may impact clients’ resourcing for AI development projects.

Appen share price snapshot

Despite having plummeted from its 52-week high, the Appen share price has managed to edge 1.4% higher over the past year. It has, however, fallen more than 44% over the last six months. Based on the current Appen share price, the company has a market capitalisation of around $2.14 billion.

Foolish takeaway

The market hates uncertainty, and with so much of Appen’s performance this year dependant on a potential post-pandemic economic recovery, many investors have decided to jump ship early. Only time will tell if they were right.

More reading

• 5 things to watch on the ASX 200 on Friday
• 2 ASX tech shares to buy after the selloff
• ASX tech correction? 10 of the worst-hit shares
• ASX All Technology Index teetering on verge of a bear market
• 5 things to watch on the ASX 200 on Tuesday

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Rhys Brock owns shares of AFTERPAY T FPO, Altium, Appen Ltd, and WiseTech Global. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Altium, Amazon, Facebook, and Microsoft. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Appen Ltd and WiseTech Global and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool Australia owns shares of AFTERPAY T FPO and Xero. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, and Facebook. 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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VanEck Vectors Morningstar Wide Moat ETF (ASX: MOAT) is a high-performing exchange-traded fund (ETF) that could be one of the best to consider.

Why are ETFs useful?

Investing in ETFs allows investors to get exposure to a number, sometimes a big number, of businesses with just one investment.

Whilst there are ETFs that give exposure to over a thousand holdings, other ETFs may only own a few dozen holdings.

About VanEck Vectors Morningstar Wide Moat ETF

It’s an ETF provided by VanEck, one of the larger ETF providers on the ASX, though it’s not as big as others like Vanguard or Blackrock.

At the moment it owns around 50 holdings. These businesses are rated as high quality by the equity research team at Morningstar. The analysts are looking for companies that have wide economic moats. In other words, it means the ETF focuses on businesses that Morningstar analysts believe have sustainable competitive advantages, which can lead to good returns for VanEck Vectors Morningstar Wide Moat ETF.

What’s a moat?

Whilst legendary investor Warren Buffett isn’t the one picking the shares for this portfolio, he has previously said some wise words about moats. Guru Focus has quoted Mr Buffett:

What we’re trying to find is a business that, for one reason or another – it can be because it’s the low-cost producer in some area, it can be because it has a natural franchise because of surface capabilities, it could be because of its position in the consumers’ mind, it can be because of a technological advantage, or any kind of reason at all, that it has this moat around it.

But we are trying to figure out what is keeping – why is that castle still standing? And what’s going to keep it standing or cause it not to be standing five, 10, 20 years from now. What are the key factors? And how permanent are they? How much do they depend on the genius of the lord in the castle?

And then if we feel good about the moat, then we try to figure out whether, you know, the lord is going to try to take it all for himself, whether he’s likely to do something stupid with the proceeds, et cetera.

VanEck Vectors Morningstar Wide Moat ETF’s returns and fees

Not many ETFs are able to outperform the S&P 500 – but this one has.

At 28 February 2021, VanEck Vectors Morningstar Wide Moat ETF had outperformed the S&P 500 over the last month, three months, six months, three years, five years and since inception.

In terms of the actual numbers, VanEck Vectors Morningstar Wide Moat ETF’s net return over the last five years has been an average return per annum of 17.3% per annum. The ETF has an annual management fee of 0.49% per annum.

Over the last decade, the index that the ETF tracks has returned an average of 18.5% per annum.

What are some of the biggest VanEck Vectors Morningstar Wide Moat ETF holdings?

All of the businesses are listed in the US, though plenty of the earnings come from overseas sources.

The positions that currently have a weighting of 2.5% or more include: Charles Schwab, John Wiley & Sons, Wells Fargo, Corteva, Bank of America, Cheniere Energy, US Bancorp, Boeing, Intel, Blackbaud, Berkshire Hathaway, Aspen Technology, Constellation Brands, Raytheon Technologies and General Dynamics.

More reading

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• 2 high quality ETFs for ASX investors to buy in February

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended VanEck Vectors Morningstar Wide Moat 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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An incredible 435,000 share market virgins in Australia bought their first shares since COVID-19 lockdowns hit these shores.

That’s according to new research from Investment Trends, which found the number of active investors in Australia reached a new record of 1.25 million at the end of 2020.

It seems there is now a new generation interested in investing in equities, with 1-in-6 of those new investors aged under 25.

“COVID-induced market volatility and a low interest rate environment were important prompts for first-time investors entering the market,” said Investment Trends head of research Irene Guiamatsia.

“But even more prominent was the desire to learn a new skill, highlighting how many Australians chose to spend their free time during the lockdowns.”

Trading in foreign shares exploded during COVID-19

After the stock market crash in March, US shares rebounded far more spectacularly than Australian stocks. Since 23 March, the S&P/ASX 200 Index (ASX: XJO) has risen 47.7% while the S&P 500 Index (SP: .INX) has shot up more than 74%.

This piqued the interest of many local investors, with the number of Australians actively trading foreign shares doubling from the previous year.

There are now 109,000 Australians that actively dabble in shares outside our borders.

“The spectacular recovery witnessed by US stocks in the second half of 2020 has captured the attention of a global audience, prompting many Australians to consider investing beyond local equities,” Guiamatsia said.

“A greater choice of investment platforms has been a key driver for uptake, with recent new entrants giving investors more choice than ever.”

As well as specialist foreign market services like Stake, mainstream brokers like CMC introduced $0 brokerage trading of US shares for Australians in the past year. 

Newbies need education 

However, the influx of first-time share investors means trading platform providers need to pump up their education efforts.

Low-fee online brokers have lowered the barrier to entry for everyday Australians. But experts last year warned this could lead to social and financial problems similar to gambling.

The suspicion is that trading platforms receive a fee for each transaction, so there is little incentive for them to encourage their customers into a ‘buy and hold’ mindset.

Some modern share trading apps are also “gamified”, increasing the adrenaline rush in the chase for short-term wins.

“[Trading apps] claim that it makes it easier for investors to understand stocks. But at the same time, the simplicity encourages retail investors to trade without undertaking thorough research,” said senior lecturer in behavioural finance at RMIT University, Angel Zhong.

“A big selling point of these apps is the low transactional threshold, which encourages investors to buy low-priced stocks. In finance research, low price [is] a feature associated with what we called the ‘lottery-like’ stocks.”

The Investment Trends study showed Australian share investors are indeed craving information. Strategy education was sought from 27% of investors, while another 20% craved daily newsletters from their broker.

“Too many times we’ve heard stories of investors getting caught up in FOMO, making rash short-sighted investing decisions,” said Guiamatsia.

“But our research highlights that investors are hungry for knowledge, resources and tools to help them build long-term wealth. Investment platforms that effectively support their clients on their investment journey will stand out.”

More reading

• 5 things to watch on the ASX 200 on Friday
• ASX 200 unmoved, Flight Centre soars, Afterpay keeps falling
• 3 blue chip ASX shares with dividend yields over 5% today
• Peter Costello thinks this will spark the next ASX market crash
• Is it ok to buy ASX 200 shares at a 52-week high?

Motley Fool contributor Tony Yoo 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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There are some small ASX shares that reported impressively according to Naos Asset Management. They could be worth watching. 

One of the listed investment companies (LICs) in Naos’ stable is called Naos Emerging Opportunities Company Ltd (ASX: NCC). It targets small stocks with market capitalisations under $250 million. This LIC generally invests in industrial companies.

Since the LIC’s inception, its portfolio’s investment performance after all operating expenses, but before fees and taxes, was 12.3% per annum to the end of February 2021.

Despite a negative impact from its holding of BTC Health Ltd (ASX: BTC), the Naos Emerging Opportunities Company investment portfolio managed to make a return of 4.3% in February 2021.

Naos attributed its good performance to the reports delivered by its holdings, including the below three which it still believes remain undervalued with catalysts that may eventuate during the rest of FY21.

Experience Co Ltd (ASX: EXP)

Experience is an adventure tourism company that offers experiences of tandem skydiving, indigenous experiences and tours to the Great Barrier Reef.

Naos said that the small ASX share released a highly commendable result with the business remaining profitable and cash flow positive in a challenging environment due to COVID-19 effects.

The fund manager has stated numerous times that it believes a significant amount of progress has been made by the current management team and that will have a positive impact on the future profitability of the business with the return of domestic tourism demand.

Initiatives by Experience include gross distribution agreements, corporate cost initiatives, new product offerings and asset base realisation. Naos believes that over the next two years, helped by small acquisitions, it can be a business that generates around $50 million of earnings before interest, tax, depreciation and amortisation (EBITDA).

Saunders International Ltd (ASX: SND)

Saunders International is a small ASX share that provides construction, maintenance and engineering services to the energy, resources and infrastructure sectors. Some of its clients include Sydney Water, the Australian Government, Lendlease Group (ASX: LLC) and Rio Tinto Limited (ASX: RIO).

Naos said that Saunders International probably released the strongest result in the Naos Emerging Opportunities Company portfolio.

The fund manager said that recent half-year results have shown losses or minimal profits. But in this report it made a “significant” profit with earnings before interest and tax (EBIT) of $4 million and declared an interim dividend for the first time in almost three years.

Saunders International managed to exceed its entire FY21 guidance in just the first six months of FY21.

The small ASX share’s management has said that they don’t see any slowdown in the financial performance of the business a with a new revised FY21 revenue target of $110 million to $110 million and EBIT margins of between 7% to 8%, which implies a stronger second half.

Naos believes the guidance may prove to be conservative with several industry tailwinds supporting the business for the next 12 months to three years. The fund manager said there could be opportunities that are the largest in the company’s history.

The tailwinds include the federal government focus on domestic fuel storage capability, infrastructure spend with a particular focus on regional programs including bridge replacement, there are also numerous and significant opportunities within the defence sector.

Big River Industries Ltd (ASX: BRI)

Big River is involved in many different timber operations. It’s a major manufacturer of softwood and hardwood formply and structural plywood products in Australia, a major seller of consumable formwork products in Australia, and it’s a national merchant of timber and associated building products to local trade, medium sized and enterprise sized companies.

The timber business produced a strong result according to Naos, with EBITDA growing by 15% compared to the prior corresponding period, which wasn’t affected by COVID-19.

The fund manager was excited by new information in the half-year result which Naos believes could potentially result in the small ASX share more than doubling its current annualised net profit after tax run rate of $6.2 million.

According to Naos, Big River Industries’ acquisition of Timberwood remains on track with the company trading well and forecast to contribute around $3 million of net profit after tax based on the current run rate.

The net cash inflow resulting from the closure of the Wagga Wagga facility and subsequent relocation to Grafton is expected to be around $10 million with an addition to net profit of around $2.5 million. The fund manager thinks the economic backdrop could also help grow future earnings.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of EXPERNCECO 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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