Tag: Motley Fool

If you’re a growth investor, then you’re in luck. The ASX is home to a number of companies that could grow strongly in the future.

Two to consider buying are listed below. Here’s why they are highly rated:

Altium Limited (ASX: ALU)

The first ASX growth share to look at is Altium. It is an electronic design software provider aiming to dominate the market it operates in.

And thanks to the quality of its Altium Designer software and cloud-based Altium 365 platform, which give it a clear lead over the competition, it looks well-placed to achieve this.

Due to the proliferation of electronic devices because of the Internet of Things and artificial intelligence markets, this is a great market to dominate. It is expected to grow materially over the next decade.

One broker that is a fan of Altium is Credit Suisse. It has an outperform rating and $35.00 price target on its company’s shares.

Pushpay Holdings Group Ltd (ASX: PPH)

Another ASX growth share to look at is Pushpay.

This leading donor management and community engagement platform has a focus on the niche but lucrative faith sector. For example, in FY 2020, it delivered a 32% increase in revenue to US$129.8 million.

But management isn’t settling for that. It has set itself a target of winning 50% of the medium to large US church market in the future. This equates to US$1 billion in revenue, which is almost 8 times greater than FY 2020’s revenue.

Pushpay looks well-positioned to achieve this thanks to its industry-leading platform, which was bolstered by the acquisition of US$87.5 million church management system provider Church Community Builder last year.

This has led to the launch of ChurchStaq, which is the combination of its Pushpay and Church Community Builder software. It brings together digital giving, donor development, church apps, and church management software (ChMS) to deliver a fully integrated engagement platform.

Goldman Sachs is positive on Pushpay and believes it is well-placed for long term growth. The broker has a buy rating and ~$2.59 price target on its shares.

More reading

• 3 explosive ASX growth shares to buy next week
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• One year on and 50% up, the All Technology Index is booming
• Top brokers name 3 ASX shares to buy today
• 3 outstanding ASX growth shares to buy today

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 PUSHPAY FPO NZX. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Altium. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended PUSHPAY FPO NZX. 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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Negative leads from Wall Street are likely to pressure our market on Monday and outperforming ASX resource shares could take the brunt of the sell-off.

The S&P 500 Index closed the week with a 0.5% loss while the Dow Jones Industrials Index fell 1.5%. The  S&P/ASX 200 Index (Index:^AXJO) will probably kick off the trading week on a negative footing but it’s commodities-linked shares that will be in the hotseat.

This is because metals and oil took a big hit on Friday as the US dollar jumped, reported Bloomberg.

US dollar jump to knock ASX resource shares

The impact of the strengthening greenback can be seen against the Australian dollar, which tumbled from over US79 cents on Thursday to around US77 cents.

The Bloomberg Commodity Index that holds a basket of 23 commodities dropped the most since April.

A stronger US dollar is typically bad news for commodity prices, which as set in the US currency.

Another headwind hitting ASX shares

But the exchange rate isn’t the only headwind buffeting commodities. The rise in government bond yields due to inflation worry is also being blamed.

If inflation does become a problem as credit markets are anticipating, then central banks may be forced to restrict the flow of cheap capital into the financial system.

It’s the flood of near-free cash that has sent risk assets skyrocketing through 2020. This doesn’t only include shares but commodities like copper.

Early signs of panic-selling

In fact, the copper price is trading at a more than eight year high and some experts believe it could hit a new price record.

While there’s more than a tinge of panic-selling across the board, these latest developments spell trouble for ASX mining and energy shares.

This spells trouble for the BHP Group Ltd (ASX: BHP) share price, Fortescue Metals Group Limited (ASX: FMG) share price, Woodside Petroleum Limited (ASX: WPL) and OZ Minerals Limited (ASX: OZL) share price – just to name a few.

Many of these stocks have been outperforming of late on the belief that high commodity prices will leave them flushed with cash. Some of this enthusiasm is likely to unwind on Monday.

3 reasons to buy ASX resource shares during the sell-off

However, the bigger question is whether ASX resource shares have hit a peak and its time for investors to cut and run.

I believe any sell-off represents another opportunity to top us, as it has been for a while now. My optimism is premised on a few factors.

Firstly, the rise in inflation expectations is due to economic growth. Growth is never a bad thing for equities.

Secondly, if inflation does become a problem, hard assets like commodities tend to be a good hedge against rising prices. After all, the costs of goods can’t rise sustainably if raw material prices are falling.

Finally, ASX resource shares are not generally overvalued. I am not saying they are cheap as several are trading at one-year highs of more, but they are certainly not in bubble territory.

As long as the volatility doesn’t scare you, the next few weeks could be a good buying opportunity.

More reading

• These were the best performing ASX 200 shares last week
• These were the worst performing ASX 200 shares last week
• Forget the ASX 200! Another market crashed this week
• ASX 200 sinks 2.4%, Afterpay plunges, AMP jumps
• Here are 3 ASX 200 diamonds in the spotlight while the market sank today

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and OZ Minerals Limited. Connect with me on Twitter @brenlau.

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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We’re about to enter the final month of the first quarter of 2021. There are some ASX shares that a number of brokers like.

It can be worth paying attention to what brokers think because they’re constantly looking at all the stocks on the share market to decide if they can find opportunities.

Sometimes one broker might think that BHP Group Ltd (ASX: BHP) is a buy whilst another might believe that it’s a sell.

If several brokers think that an ASX share is a buy then it could be worth thinking about:

Baby Bunting Group Ltd (ASX: BBN)

Baby Bunting is an ASX retail share that sells a wide variety of baby and infant products. It’s currently liked by at least five brokers.

One of the brokers that likes Baby Bunting is Ord Minnett, which was impressed with the retailer’s FY21 half year result – it was stronger than the broker was projecting.

The next few months of earnings are likely to be good, but with a slower growth rate compared to the prior corresponding period.

Ord Minnett is excited by the ASX share’s organic sales growth and growing online sales. It also likes the potential of the store rollout in the coming years. Baby Bunting also recently announced that it was planning to expand to New Zealand with a physical store network.

In the actual report, Baby Bunting reported total sales growth of 16.6% to $217.3 million, with comparable store sales growth of 15%. Total online sales from the ASX share went up 95.9%.

The gross profit margin improved by 41 basis points to 37.4%. The pro forma earnings before interest, tax, depreciation and amortisation (EBITDA) rose 29.7% to $18.5 million, pro forma net profit after tax (NPAT) grew 43.5% to $10.8 million and statutory NPAT rose 54.7% to $7.5 million.

Comparable store sales growth for the first six weeks of the second half of FY21 was 18.5%.

Idp Education Ltd (ASX: IEL)

IDP Education describes itself as a global leader in international education services.

This ASX share is liked by at least five brokers.

One of the brokers that likes IDP is UBS. The recent result was much stronger than the broker was expecting and it believes that IDP definitely now counts as a high-quality business.

Whilst COVID-19 restrictions impacted earnings, the broker was impressed with the amount of remote learning with elevated levels of online enquiries.

UBS thinks that the structural theme that the ASX share benefits from is still on track and it will become stronger by the end of the year.

In the actual result, IDP Education reported that total revenue fell 29% to $269.1 million, EBITDA fell 33% to $68 million, EBIT dropped 43% to $47.3 million and NPAT declined 45% to $29.7 million.

The board of directors declared an 8 cents per share unfranked dividend, representing approximately 75% of the first half net profit after tax (NPAT).

The company said that it’s well positioned internationally as an industry leader with further investment planned in student placement, data science and international English language tests (IELTS).

More reading

• ASX 200 drops, Appen sinks, Nine jumps
• Why Bega, Blackmores, IDP Education, & SeaLink shares are zooming higher
• ASX 200 down 0.45%: Woolworths rises, Blackmores jumps, Appen sinks
• Why the IDP Education (ASX:IEL) share price is rocketing 17% higher
• 2 ASX shares rated as strong buys by brokers

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 Idp Education Pty Ltd. 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 were some small ASX shares that released their results at the end of reporting season, revealing some big upcoming dividend payments.

Businesses that are small are sometimes priced at a lower earnings multiple than if they were large, despite being earlier on in their growth journey. A lower earnings multiple/share price boosts the dividend yield for investors.

Here are two small ASX shares that just reported big dividends:

360 Capital REIT (ASX: TOT)

This business is a real estate investment trust (REIT) that’s operated by 360 Capital Group Ltd (ASX: TGP). 360 Capital REIT just reported its FY21 half-year result.

It was previously generating earnings by making real estate loans, but all direct real estate loans ($42.4 million) have now repaid as a result of active management.

360 Capital REIT revealed that it has sold a further six apartments in Gladesville, 19 of 23 apartments have now been sold at an average premium of 21.3% to the purchase price.

The small ASX dividend share has made a number of equity investments into real estate related assets including Peet Limited (ASX: PEET), Irongate Group (ASX: IAP) and PMG in New Zealand. The PMG investment may find New Zealand investments that can be pursued.

As a result of COVID-19, the REIT ceased its lending activities and shifted management’s focus to converting outstanding loan positions and assets to cash. Management decided to be conservative with the cash to preserve capital, which impacted earnings.

It said that its operating earnings per share (EPS) was down 76% to 1.1 cents.

After the end of the reporting period, the majority of the business’ available capital had been deployed into investments that provide recurring income in line with 360 Capital REIT’s strategy and objectives.

The small ASX dividend share has forecast a FY21 distribution guidance of 6 cents per security, which translates to a yield of 6.9% at the current 360 Capital REIT share price.

Pengana Capital Group Ltd (ASX: PCG)

Pengana is a fund manager that just reported its funds under management (FUM) increased by 15% in the six months to 31 December 2020.

It reported that underlying profit before tax grew 17.1% to $9.2 million and normalised EPS grew 13% to 5.96 cents per share.

The small ASX dividend share said that there was a significant improvement in net flows. Pengana also said that there was also strong investment performance, with all strategies outperforming their respective benchmarks for the period.

As part of the result release, management said that it still has significant further capacity in its various international equity strategies and a major growth opportunity in the Pengana Private Equity Trust (ASX: PE1). It also said it has an opportunity to diversify further over time by adding new strategies.

In terms of the dividend, the board of Pengana decided to declare a fully franked interim dividend of 5 cents per share, which was an increase of 25%.

At the current Pengana share price, that means that the grossed-up dividend yield is now 6.8%.

More reading

• Pengana (ASX:PCG) share price on watch on 25% growth of HY21 dividend
• 2 small ASX dividend shares with big yields
• 3 ASX dividend shares with higher yields
• 2 secret ASX dividend shares with large yields
• 3 small ASX dividend shares with big yields

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 Bubs Australia Ltd (ASX: BUB) share price could be worth looking at after reporting its FY21 half-year results to the market.

What is Bubs?

Bubs is a business that sells a number of different dairy products. A key division is the goat milk infant formula. It also has a growing organic cow milk infant formula range. It sells adult goat dairy products as well as a vitamins and minerals range for children.

FY21 half-year result

Bubs reported that its total revenue declined by 33% to $18.3 million, whilst statutory earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 174% to a steeper loss of $14.4 million.

There was an inventory provision of $3.1 million and the need to sell excess bulk powder inventory at a loss due to COVID-19 driven softening demand and the prioritisation to conserve cash.

Bubs said that the Bubs goat infant formula product gross margin was 34%, which was consistent with FY20.

The infant formula business said that there was significant COVID-19 disruption to the daigou channel caused by international border closures and increased air freight costs. However, it said that the corporate daigou sales momentum continues to recover.

How is Bubs trying to grow the share price and profit?

Whilst Bubs is seeing a decline in sales with daigou, there are other areas that are growing strongly:

1: Local sales in supermarkets and pharmacies

Bubs highlighted that it’s the clear lead challenger in domestic supermarkets and pharmacies. Total infant formula category scan sales in the Australian grocery and pharmacy retailers have been heavily impacted by the demand shock in the daigou channel. Despite that contraction for the entire industry, Bubs is still achieving high scan sales growth itself.

Looking at scan value sales data, the sales across Coles Group Ltd (ASX: COL), Woolworths Group Ltd (ASX: WOW) and Chemist Warehouse were up 55% for the 26 weeks to 3 January 2021.

The company tripled its market share compared to the prior corresponding period, rising to 3.5% of the total infant milk formula category for the period. It has a 28.6% market share of the total goat infant formula segment.

2: Direct Chinese sales

Whilst daigou channel sales were lower, the Bubs goat formula total direct sales to China rose 36% in gross revenue terms.

Management said that this demonstrated there was strong Chinese demand for Bubs premium products.

Bubs said that integrated social marketing campaigns were successfully driving consumer engagement, e-commerce traffic and user acquisition on cross-border e-commerce marketplaces. One example of this success is the Bubs goat milk formula gross merchandise value (GMV) on Tmall, operated by Alibaba. There was a 121% increase in offtake sales on Tmall Global year on year.

The was a 24% year on year increase of Bubs goat infant formula gross revenue to the Chinese CBEC channel.

Bubs said it plans to enter more than 1,000 online-to-offline stores in the second half of FY21.

3: Non-Chinese exports

The infant formula business said that there is significant sales momentum across new Asian markets, with export gross revenue outside of China increasing 44% year on year.

Countries where it’s now being sold include Hong Kong, Vietnam, Malaysia and Singapore. It’s planning to launch in South Korea in the second half of FY21.

South Korea is an important market because it’s the world’s second largest goat infant formula market. It has selected YP Corporation as the nominated distribution partner. It has deep experience in the mother and baby category. It also has a high market penetration in major online e-commerce platforms as well as offline stores.

Bubs share price movement

The Bubs share price has more than halved since the 52-week high in May 2020.

Bubs has a number of strategies to drive growth further in the second half of FY21 and it is targeting a return to a more aggressive growth profile in FY22.

More reading

• The Bubs (ASX:BUB) share price is rising today on solid results
• Why AMP, Bubs, BWX, & Lynas shares are pushing higher
• 2 small cap ASX shares that are growing quickly
• Got cash to invest? Here are 3 ASX shares to buy
• Leading brokers name 3 ASX shares to sell today

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 BUBS AUST FPO. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. The Motley Fool Australia has recommended BUBS AUST FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The A2 Milk Company Ltd (ASX: A2M) share price has been pummelled since releasing its FY21-half year result.

As part of the update, the company gave the market its latest thoughts about where the revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) margin will end up by the end of the year.

FY21 expectations

Management said that revenue is going to be at the low end of its previous estimation range because of the impacts to the daigou channel sales and the fact it’s taking longer to recover than expected.

As a consequence of lower revenue, higher levels of brand investment/marketing, longer daigou/reseller support, movements in foreign currency and an adverse channel mix relative to what was anticipated in December.

Accordingly, the company is now expecting group revenue to be “in the order of $1.4 billion” and the group EBITDA margin for FY21 of between 24% to 26% (excluding Mataura Valley Milk acquisition costs).

Despite lowering guidance, A2 Milk said that this new guidance assumes the actions being taken to re-activate the daigou/reseller channel will deliver a significant improvement in quarter on quarter from the FY21 third quarter to the fourth quarter.

What did some brokers think of the A2 Milk share price?

Quite a few of the brokers said that the result was disappointing and below their expectations.

Broker Citi is particularly bearish about the infant milk company with an A2 Milk share price target of $7.15. The HY21 net profit of $120 million was 8% lower than what Citi was estimating it would be.

Citi has decreased its profit expectations for FY21, FY22 and FY23 by between 25% to 30% with demand adding to numerous ongoing issues confronting the company. The main reason for Citi’s profit expectation decrease is due to a slower daigou recovery as well as lower margins because of higher levels of incentives to reactivate the channel.

Other issues that Citi pointed to included higher production costs and adverse foreign currency movements, which is likely to affect margins. The broker thinks that margins are going to be hurt.

Ord Minnett is another broker that has turned more negative on the infant formula business because of the various challenges and longer recovery.

One broker does have a slightly more positive outlook for A2 Milk, though it fully acknowledges the difficulties. Morgans has a share price target for A2 Milk of $10.40. The broker thinks that A2 Milk can still deliver over the longer-term once channels can return to normal.

Looking at Morgans’ estimate for FY22, the A2 Milk share price is valued at 27x FY22’s estimated earnings.

At the current value, Ord Minnett thinks that A2 Milk shares are priced at 31x FY22’s estimated earnings.

More reading

• 3 ways A2 Milk (ASX:A2M) is planning a share price recovery
• ASX 200 rises 0.8%, A2 Milk sinks, Zip drops
• Why a2 Milk, Service Stream, TPG, & Zip shares are tumbling lower
• Why the a2 Milk (ASX:A2M) share price is crashing 20% to a multi-year low
• ASX 200 up 0.85%: A2 Milk & Zip shares hammered, Afterpay to raise $1.25bn

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. 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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On Tuesday the Reserve Bank will meet to discuss the cash rate once again. According to the latest cash rate futures, the market is pricing in a 69% probability of a rate cut to zero.

Whether this transpires or not, time will tell. But one thing that is for sure, is that it will be a long time before interest rates return to normal levels again.

In light of this, the share market looks like it will remain the best place to earn a passive income for a while yet.

Fortunately, there are plenty of dividend shares out there with generous yields. One to consider buying is as follows:

Accent Group Ltd (ASX: AX1)

Accent is the leading leisure footwear retailer behind retail brands such as HYPEDC, The Athlete’s Foot, and Platypus brands.

Last week it released its half year results and revealed solid increases in sales and profits. Accent reported a 6.6% increase in total sales to $541.3 million and 57.3% lift in net profit after tax to $52.8 million. The latter was its seventh consecutive half year of record profit. It was driven by strong like for like and online sales growth and the opening of new stores.

This positive form allowed the Accent board to increase its interim dividend by 52% to 8 cents per share.

Looking ahead, analysts at Morgans expect the company to declare a final dividend of 4 cents per share in August. This will bring its full year dividend to a fully franked 12 cents per share. Based on the Accent share price, this will mean a 5.5% yield.

While Morgans only has a hold rating on its shares, its price target of $2.60 is 20% higher than the current Accent share price of $2.16. This could potentially mean an upgrade on valuation grounds isn’t far away.

In the meantime, Citi is positive on the company. It has a buy rating and the same price target of $2.60 on its shares. Citi is currently forecasting an 11 cents per share dividend in FY 2021.

More reading

• Accent (ASX:AX1) share price on watch following earnings release
• 2 buy-rated ASX dividend shares for your income portfolio
• ASX retail shares in focus as Aussies spend big in January
• 2 ASX dividend shares to boost your income
• 2 high quality ASX dividend shares you can buy right now

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Accent Group. 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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Rising bond yields spooked global markets last week and led to the S&P/ASX 200 Index (ASX: XJO) sinking notably lower. The benchmark index lost 1.8% of its value to end at 6,673.3 points.

Fortunately, not all ASX 200 shares dropped with the market, with some even recording strong gains. Here’s why these were the best performers last week:

Sandfire Resources Ltd (ASX: SFR)

The Sandfire share price was the best performer on the ASX 200 last week with an 18% gain. Investors were fighting to buy shares after the copper producer posted a big increase in its first half profits. For the six months ended 31 December, Sandire almost doubled its net profit to $60.8 million. This allowed its board to lift its interim dividend to 8 cents per share from 5 cents per a year earlier. A strong rise in the copper price was the key driver of its growth and offset a slight reduction in production.

Corporate Travel Management Ltd (ASX: CTD)

The Corporate Travel Management share price wasn’t far behind with a gain of 15.9%. The rollout of vaccines across Australia and a positive reaction to its half year results from a week earlier appear to have been behind this gain. One broker that was pleased with its performance was UBS. At the end of last week, it retained its buy rating and increased its price target to $21.10. The broker suspects the company could win market share when trading conditions return to normal.

Flight Centre Travel Group Ltd (ASX: FLT)

The Flight Centre share price was on form and charged 14.2% higher over the five days. Investors were buying the travel agent giant’s shares following the release of its half year results. For the six months ended 31 December, Flight Centre reported a material drop in revenue to $160 million. This compares to the revenue of $1,546 million it achieved in the prior corresponding period. And while this led to Flight Centre recording an underlying loss of $247 million for the half, it has more than enough liquidity to weather this storm. At the end of the period, the company had a cash balance of $1,670 million.

Costa Group Holdings Ltd (ASX: CGC)

The Costa share price was a strong performer and recorded a gain of 13.7% last week. The catalyst for this was the horticulture company’s stronger than expected full year result. For the 12 months ended 27 December, Costa reported an 11.2% increase in revenue to $1,164 million and an impressive 108.4% jump in net profit to $59.4 million. Morgans, for example, was forecasting a profit of $52.2 million. Strong demand and pricing were key drivers of its growth. In response to the result, Goldman Sachs upgraded its shares to a buy rating with a $5.35 price target.

More reading

• These were the worst performing ASX 200 shares last week
• Forget the ASX 200! Another market crashed this week
• ASX 200 sinks 2.4%, Afterpay plunges, AMP jumps
• Here are 3 ASX 200 diamonds in the spotlight while the market sank today
• The big themes from ASX reporting season

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited and COSTA GRP FPO. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The S&P/ASX 200 Index (ASX: XJO) was well and truly out of form last week after rising bond yields spooked global markets. This led to the benchmark index losing 1.8% over the five days to end at 6,673.3 points.

While a large number of ASX 200 shares dropped with the market, some fell more than most. Here’s why these were the worst performers last week:

Service Stream Limited (ASX: SSM)

The Service Stream share price was the worst performer on the ASX 200 last week with a 32.5% decline. Investors were heading to the exits in their droves last week following the release of a disappointing half year result. In the first half the essential network services provider reported a 17.7% reduction in revenue to $409.9 million and a 40.5% decline net profit after tax to $16.2 million. Unfortunately, management was expecting a much stronger second half, but warned that this is unlikely now due partly to COVID-19 related and client-initiated delays to work programs.

Appen Ltd (ASX: APX)

The Appen share price was out of form last week and recorded a decline of 22.7%. The catalyst for this decline was the artificial intelligence services company’s full year results. For the 12 months ended 31 December, Appen posted a 12% increase in revenue to $599.9 million and an 8% lift in EBITDA to $108.6 million. Looking ahead, Appen is forecasting EBITDA growth of 18% to 28% in FY 2021. While this doesn’t look bad on paper in the current environment, it fell well short of the market’s expectations. Analysts now appear concerned that increasing competition could put pressure on pricing and weigh on its growth.

Afterpay Ltd (ASX: APT)

The Afterpay share price was an uncharacteristically poor performer and sank 21.3% over the five days. A selloff in the tech sector due to rising bond yields was largely to blame for this share price weakness. But also impacting the payments company’s shares was its upsized convertible notes offering. Afterpay raised a total of $1.5 billion from investors via the issue of convertible notes with a due date of 2026 and an initial conversion price of $194.82. In addition to this, the company revealed that its Co-CEOs have each sold ~$60 million worth of shares. The funds from its offering will be used to increase its interest in its US business and support its growth.

Perenti Global Ltd (ASX: PRN)

The Perenti share price had a disappointing week and dropped 17.4% over the period. The catalyst for this was the release of the mining services company’s half year results. Although Perenti posted a 4.8% increase in revenue to $1,056.2 million, it wasn’t able to grow its earnings. The company reported a 25.8% reduction in underlying net profit to $44.6 million. Furthermore, on a statutory basis, things were even worse. Perenti recorded a statutory net loss after tax of $63.8 million.

More reading

• Forget the ASX 200! Another market crashed this week
• ASX 200 sinks 2.4%, Afterpay plunges, AMP jumps
• Here are 3 ASX 200 diamonds in the spotlight while the market sank today
• The big themes from ASX reporting season
• Why this ASX tech ETF is in the buy zone

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 Appen Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Service Stream 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 S&P/ASX 200 Index (ASX: XJO) did not have a great week this week. From Monday to Friday, the ASX 200 went backwards by roughly 1.5%.

That was pretty much caused by more than a 2% loss on Friday alone as investors responded to a sharp sell-off on Wall Street on Thursday night (our time). The ASX 200 has now wiped out all of its year-to-date gains at these levels, and then some.

But another market had an even worse week than the Aussie share market. And it might have more of an impact on the world of investing that you may realise.

According to reporting in the Australian Financial Review (AFR) last week, the bond markets had “a bloodbath”. The report called it “one of the worst bloodbaths long-duration bond lovers have endured since the great crash of 1994”.

Now, if that sounds like boring gobbledygook to you, let me explain before you leave.

Bonds and ASX shares

Yes, bonds don’t have the kind of heart-stopping drama that the share market gives us in spades. But it is still a very important market to watch if you own ASX shares.

The global bond market is actually orders of magnitude bigger than the global share market. That has been helped in recent years (and over the past year in particular) by the record amount of government deficits and money printing/quantitative easing (QE) programs that have proliferated in response to the coronavirus pandemic.

So what has triggered this ‘bloodbath’? Well, the report states that it’s a “massive jump in 10-year Australian interest rates, which have more than doubled since November [and] hammered the price of fixed-rate… bonds”.

The government issues bonds to fund government spending. Think of a bond as essentially a loan to a government.

That loan comes with interest, of course. These bonds are sold on the ‘bond market’, which operates in a very similar manner to the share market. Buyers and sellers work together to determine the price of bonds. Well, that’s what used to happen, anyway.

These days, the bond market is rife with government intervention. Our own Reserve Bank of Australia (RBA) has an official policy to keep government bond yields at around 0.1%. To do this, it buys bonds when the yield gets too high.

Earlier this month, the RBA announced another $100 billion in bond purchases, which means the RBA will be buying about $5 billion worth of government bonds every week until at least April.

This is supposed to help the economy by keeping other interest rates around the economy (like those on mortgages and business loans) very low.

So why are yields rising?

Despite the RBA efforts, the AFR report tells us that long-term interest rates have doubled since November. And that’s because investors are starting to look ahead of the pandemic to possible inflation.

Over in the United States, Congress is currently debating whether to pass a mammoth near-US$2 trillion stimulus package. That equates to around 15% of the USA’s annual gross domestic product (GDP), which could easily result in inflation if the US economy responds to the stimulus more enthusiastically than expected. That could, in turn, spill over into the Australian economy.

The AFR also asserts that Australia’s better than average handling of the pandemic, together with our late-to-the-show embrace of QE, is also partly to blame for the rise in bond yields.

But how does this affect ASX share market investors?

Well, government bonds are considered a ‘risk-free’ asset. Since a government can’t really go bankrupt, a bondholder is virtually guaranteed to get their money back when the bond expires.

But the price of the 10-year government bond, as a risk-free asset, is what’s normally used to judge the valuation of risk-on assets. Like ASX shares.

Put simply, it’s usually the case that when Australian government bond yields rise, the value of ASX shares fall. Generally speaking, of course.

So this rise in Australian government bond yields over the past few months or so could well be partly to blame for the ASX 200’s rather lacklustre start to the year.

So, as boring as it may be for some, this is a market worth keeping an eye on over the next few weeks and months!

More reading

• These were the worst performing ASX 200 shares last week
• ASX 200 sinks 2.4%, Afterpay plunges, AMP jumps
• Here are 3 ASX 200 diamonds in the spotlight while the market sank today
• The big themes from ASX reporting season
• Why this ASX tech ETF is in the buy zone

Motley Fool contributor Sebastian Bowen 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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