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The Tyro Payments Ltd (ASX: TYR) share price has fallen almost 20% this month, despite the company releasing weekly figures showing increases in monthly transaction volumes.

It seems the payment solution’s share price has also underperformed compared to other payment providers. For example, the Zip Co Ltd (ASX: Z1P) share price is down 7.5% for the month, while the Sezzle Inc (ASX: SZL) shares are down 10% for the same period.

Market darling Afterpay Ltd (ASX: APT) on the other hand, is an outlier in the buy now, pay later sector, up 13% in the past month as its inclusion in the S&P/ASX 200 Index (ASX: XJO) looms.

So does this mean the current Tyro share price presents a good entry point for investors? Let’s take a look.

Why are Tyro shares underperforming?

The Tyro share price performance is somewhat baffling for investors.

For one, the company should have benefited from the full reopening of the economy, as the possibility of an early vaccine rollout has gained momentum over the past month.

This is because Tyro provides payment solutions to small-business merchants through its physical Tyro Eftpos terminals, and the full normalisation of retail businesses would be the ideal situation for the company.

The Tyro share price should also have been boosted by the recent surge in Australian consumer spending, as the Australian Bureau of Statistics reported a 3.3% growth in spending in the three months ending September.

The company also should benefit from the recently announced proposed merger of major Australian domestic payment systems – Eftpos, BPay and NPP Australia. That merger would expedite Tyro’s foray into the online payments segment as it rides on Eftpos’ online infrastructure. 

In addition, Tyro reported upbeat results at its annual general meeting in October, where it revealed solid growth continuing in FY 2021 despite the pandemic.

The company reported that its payments business had maintained its merchant acquisition momentum, with 33,200+ merchants on its platform at 30 September 2020. This is up 8% on the prior corresponding period. Despite lockdowns and restrictions, the company delivered growth in transaction value year to date, with transactions standing at $6.8 billion, up 5% on the same period last year.

So after all that, the question remains: why has the Tyro share price been underperforming in the past month? 

About the Tyro share price

The Tyro share price closed at $3.22 today, up 1.26%. As mentioned, the Tyro share price is down 20% for the month. On a year-to-date basis, the share price is down 8%, and is still a long way off from its 52-week high of $4.53.

The company commands a market value of $1.6 billion.

More reading

• Openpay (ASX: OPY) share price rockets up 8% after major announcement
• ASX 200 falls on Tuesday
• Creso Pharma and Nuix were among the most traded shares on the ASX last week
• ASX 200 down 0.1%: APRA removes bank dividend restrictions, Fortescue slides, Zip higher
• Zip (ASX:Z1P) share price rises on Harvey Norman (ASX:HVN) partnership

Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Tyro Payments. 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 ELMO Software Ltd (ASX: ELO) share price will be one to watch on Thursday following the release of a big announcement after the market close today.

What did ELMO announce?

This afternoon ELMO announced that it has made another acquisition in the United Kingdom.

This follows the acquisition of UK-based human resources platform provider, Breathe, in October for an initial payment of 18 million pounds (A$32.4 million).

On this occasion, ELMO has announced the acquisition of Webexpenses, a high growth, cloud-based expense management solution.

Management notes this acquisition provides ELMO with highly complementary technology, as well as a large customer base, accelerating its mid-market expansion in the UK.

Furthermore, the transaction adds to ELMO’s revenue, customer base, and its market opportunity.

What is Webexpenses.

Webexpenses is a cloud-based expense management solution with annualised recurring revenue (ARR) of £4.5 million (A$7.9 million) at the end of November.

It has a large and growing customer base in the UK, with over 1,000 customers and a high customer retention of 90%.

The business has a gross profit margin of over 90% and generated EBITDA of £0.6 million (A$1.0 million).

Webexpenses’ owner and Chairman, Michael Richards, will continue on as a strategic advisor to the UK business. The company’s CEO, Adam Reynolds, will continue on in his current role.

According to the release, this acquisition increases ELMO’s Total Addressable Market (TAM) by A$1.4 billion to A$12.8 billion across the UK and ANZ markets.

It also opens up a significant two-way cross-sell opportunity for ELMO. The expense management solution will be sold to new and existing ELMO customers in Australia and New Zealand, whereas ELMO’s existing product suite will be sold to Webexpenses’s UK customers.

How much is ELMO paying?

The release explains that the purchase consideration consists of an initial payment of £20 million (A$35.3 million) using a combination of cash (51%) and scrip (49%).

In addition to this, there is an earnout consideration estimated to be £13 million (A$23.0 million). It is payable in cash (51%) and scrip (49%), subject to the achievement of financial targets.

Despite the Breathe and Webexpenses acquisitions, ELMO remains well capitalised and has over A$70 million in cash on its balance sheet.

ELMO’s CEO and Co-Founder, Danny Lessem, commented: “The acquisition of Webexpenses is an exciting and significant step in ELMO’s growth journey. The Webexpenses platform is highly complementary to ELMO’s existing offering. Customers will have the ability to manage employee expenses effectively and efficiently as part of our convergent HR and payroll solution.”

“The cross-sell opportunity for ELMO’s comprehensive product suite into Webexpenses’ large customer base is substantial. ELMO’s market opportunity has increased markedly, and our strategic positioning is further strengthened,” he concluded.

Guidance upgrade.

In light of this acquisition, the company has lifted its guidance for the full year.

It now expects ARR of $81.5 million to $88.5 million (up from $72.5 million to $78.5 million) and an EBITDA loss of $2.4 million to $7.4 million (compared to a loss of $3.5 million to $7.5 million).

More reading

• 3 ASX growth shares to buy for 2021
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• 2 exciting ASX tech shares to buy right now

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 Elmo Software. The Motley Fool Australia has recommended Elmo Software. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Most of us, investors and otherwise, had mentors tell us at one time or another to “never say never.” While that adage may also apply to stock investing, I think an exception should be made for Square (NYSE: SQ).

Despite its name, this financial services and mobile payments specialist is anything but boring or conventional. The way the company is shaking up finance, investors could square away gains in this fintech stock for years to come. Let’s examine three reasons why. 

1. The (more) cashless society

Indeed, many investors want to cash in on the so-called “cashless society.” They base this on a perception that physical currency will disappear.

Despite my bullishness on Square stock, I would not go so far as to assert that. However, cash has significant limitations, most of which Square’s products help address. Individuals have gravitated toward these options in increasing numbers.

This is particularly true of Square’s Cash App. It allows users to square up their payments, banking, and even their stock or bitcoin purchases on the application.

The success of the Cash App is even exceeding management’s expectations. In the third quarter, Cash App drove gross profit growth of 212% over the prior year. As of June, usage had grown to more than 30 million monthly active users.

2. The Square ecosystem

Moreover, beyond Cash App’s versatility, Square has built a full finance ecosystem.

In the previous century, finance companies did not venture into multiple financial operations. One might have turned to a Bank of America for personal banking and a mortgage. An enterprise like Charles Schwab would have handled stock trading. For those who owned a business, a company like ADP might have managed payroll. That enterprise may have also collected money in a cash register made by NCR.

Square can perform all of those functions within one ecosystem. This has led to fundamental changes in the public’s relationship with the finance industry.

Due to these changes, people may decide they simply need Cash App and will close their bank and brokerage accounts. Businesses could also drop payroll and cash management companies in the same manner.

Consequently, Square could send its detractors running in circles. Due to this one-stop-shop for all things money, some may charge the company with “taking over finance.” Although I would stop short of making that prediction, such a belief could cement Square’s place in the fintech industry.

3. The state of Square stock

More importantly to investors, such a perception will inevitably help Square stock. Indeed, its performance has already driven massive shareholder value. Its stock price has risen by nearly 250% year to date. 

SQ data by YCharts

With that level of growth, few would describe it as a “cheap stock.” Nonetheless, it is not as expensive as it appears.

Indeed, a forward P/E ratio of 175 seems pricey. After all, diluted earnings per share rose by only about 17% year over year in the most recent quarter. That may not appear high enough to support such a valuation.

However, revenue surged by almost 140%, driven in part by an 11-fold increase in bitcoin revenue. The bitcoin revenue comes with razor-thin profit margins.

Still, most of the increased profits came from transaction and subscription-based revenue. Square invested most of that profit increase back into the business. This move should lead to higher shareholder returns in the long run.

Furthermore, its price-to-sales (P/S) ratio stands at only about 13. This compares well to its rival, PayPal. Also, its P/S ratio is about one-third that of what some have called the “Square of Brazil,” StoneCo. 

The bottom line

No matter what happens with the stock in the near term, Square continues to change how individuals and businesses interact with money.

Through the Cash App, it connects individuals to the cashless society. Additionally, with the Square ecosystem, more customers could drop bank accounts and other financial products that were once considered essential.

The company’s successes have taken the stock to new highs. Investors who buy Square and square it away will probably see the shape of their stock portfolios continue to improve.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• How the 21st century actually started in 2020
• Better Buy: Square vs. Visa
• These stocks would have doubled your money last year

Will Healy owns shares of Square. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends PayPal Holdings and Square and recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool Australia has recommended PayPal Holdings. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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There are a number of reasons why growth investors might like Kogan.com Ltd (ASX: KGN) shares.

What does Kogan.com do?

As the name might suggest, Kogan.com is an internet-based business. Specifically, it’s an e-commerce company that sells a wide variety of products and services through its platform.

In terms of retail, it sells things from categories like TVs, computers, phones, cameras, heating and cooling, appliances, home and garden, furniture, office supplies, toys, video games, clothes and shoes, health and beauty, sports, tools, cars, alcohol, groceries and more.

In terms of services, it offers things like car insurance, home insurance, credit cards, home loans, internet, mobile and energy.

Here are some positives about the e-commerce ASX share:

Kogan First

Kogan First is a membership program that gives members free delivery on 1,000s of products. Members can also be upgraded to express shipping at no extra cost. It offers priority customer service and exclusive member-only deals and discounts.

The ASX share says that this membership program creates a large and growing community of loyal customers who access free shipping and a range of exclusive benefits.

According to data from the company, Kogan First members purchase on average much more often than the non-members, demonstrating loyalty to the platform, and also demonstrating the significant savings available through the loyalty program.

Kogan.com is also hoping that these members will be more likely to sign up to the extra services that the company offers, which would make those members even more valuable to the business.

Rising margins

A business that can increase profit margins is likely to be able to increase its bottom line profit, which may be able to help the Kogan.com share price.

Kogan.com’s gross margin was 17.9% in FY17, 19.5% in FY18, 20.7% in FY19 and 25.4% in FY20. That is steady progression for the business over consecutive years.

The earnings before interest, tax, depreciation and amortisation (EBITDA) margin has also been increasing with the company’s improving operating leverage. The EBITDA margin was 4.3% in FY17, 6.3% in FY18, 6.9% in FY19 and 9.3% in FY20.

One of Kogan.com’s preferred profit measures is adjusted EBITDA, which excludes unrealised foreign currency gains or losses, equity-based compensation and one-off non-recurring items. The adjusted EBITDA margin has also been improving – it was 5.2% in FY17, 6.3% in FY18, 7.2% in FY19 and 10% in FY20.

Diversifying earnings

Kogan.com is constantly working to add to its earnings. It’s adding more products on its main site. But it has also been making acquisitions to grow the business as well.

It wasn’t too long ago that Kogan.com acquired quality furniture business Matt Blatt and continue it as an online-only offering.

Kogan recently announced that it was expanding into New Zealand by buying the online retailer Mighty Ape for AU$122.4 million. It specialises on gaming, toys and other entertainment categories.

Before the impact of synergies, Mighty Ape has FY21 forecast revenue of AU$137.7 million, forecast gross profit of AU$45.7 million and forecast EBITDA of AU$14.3 million. This would represent year on year growth in revenue, gross profit and EBITDA of 43.7%, 58.1% and 254.1% respectively for Mighty Ape.

Kogan.com is expecting to generate significant revenue and cost synergies across plenty areas of the business after the acquisition.

How expensive is the Kogan.com share price right now?

Using Commsec earnings projections, it’s valued at 25x FY23’s estimated earnings.

In the AGM trading update it said that in the first four months of FY21 to October 2020 it had seen gross sales grow by 99.8%, gross profit went up 131.7% and adjusted EBITDA jumped 268.8%. Management said that ‘product divisions’ and the Kogan marketplace is generating a strong performance as customers continue to shop online.

More reading

• 3 exciting ASX tech shares to buy in 2021
• These 2 companies join the ASX 200 next week
• 5 things to watch on the ASX 200 on Monday
• 10 highly rated ASX shares to buy in 2021
• 5 things to watch on the ASX 200 next week

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 Kogan.com ltd. The Motley Fool Australia has recommended Kogan.com ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post 3 reasons why Kogan (ASX:KGN) shares could be a buy appeared first on The Motley Fool Australia.

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The Archer Materials Ltd (ASX: AXE) share price was off to a great start this year, gaining more than 52% in January.

By 17 April, though, Archer had given all those gains back and was again trading at 16 cents per share.

With hindsight as our guide, that would have been an excellent time to pick up some shares. Since 17 April (and thus since 2 January) Archer’s share price is up 222% to 52 cents per share at close of trade today. By comparison the All Ordinaries Index (ASX: XAO) is up just under 2% so far in 2020.

What’s next for Archer Materials?

In a progress report released to the ASX today, Archer reported that the South Australian government has given the green light on its Program for Environment Protection and Rehabilitation (PEPR) for the company’s Campoona Graphite Project.

Archer revealed it can collect a bulk sample up to 60 tonnes. The sample will be processed off-site, including into graphite and graphene materials. This will enable small-scale initial testing of the company’s graphite materials for end-uses such as lithium-ion batteries.

Commenting on PEPR approval, Archer Materials chair Greg English said:

The approval of PEPR is a significant achievement and another step forward in the de-risking of the Campoona Graphite Project. With the forecast near-term growth in lithium-ion battery demand and forecast increase in graphite prices, the timing of the PEPR approval could not have been better. The next steps towards production involve finding a partner or buyer of the Campoona Graphite Project.

According to the company, the graphite at Campoona is “structurally near perfect” and it can be integrated in scalable lithium-ion batteries.

After gaining 2% earlier today, Archer Materials’ share price closed flat.

Archer Materials company snapshot

Archer Materials develops and integrates materials to address complex global challenges in quantum technology, human health, and reliable energy. The company works to develop advanced materials to build disruptive technology. Its materials include carbon-based qubits for quantum computing, graphene-enhanced biosensors and graphitic battery anodes.

Archer’s Australian-based mineral exploration projects span critical minerals like graphite, copper, tungsten, cobalt, and more. Archer Materials’ shares first began trading on the ASX in August 2007.

More reading

• Why the BSA (ASX:BSA) share price has surged 7% higher today
• Why the Uniti (ASX:UWL) share price is on watch today
• Why Meteoric Resources (ASX:MEI) share price is soaring 6% higher
• Why the Cardiex (ASX:CDX) share price, up 73% in 2020, is gaining again today
• Why the Immuron (ASX:IMC) share price is rocketing up 10% today

Motley Fool contributor Bernd Struben 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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ASX dividend shares have rarely been of more importance to investors. With interest rates at virtually zero, there are few other asset classes that will deliver a real, inflation-beating yield. Term deposits, you might ask? Good luck finding one that’s offering anything close to 1% per annum today. Something like 0.6% is more likely. 

With that in mind, here are 2 ASX dividend shares that today offer yields far higher than those paltry rates of return.

Woolworths Group Ltd (ASX: WOW)

Woolworths probably needs little introduction as the largest supermarket chain in the country. The company also owns a vast network of national bottle shops as well, including the popular BWS and Dan Murphy’s chains. It also owns the oft-overlooked Big W discount chain.

Woolies shares have been drifting sideways for months now, and are trading at $39.56 at the time of writing. That’s still nearly 10% off of the all-time highs the company was asking in February though.

Unlike many ASX blue chips, Woolworths has kept the dividends flowing in 2020. The company paid out an interim dividend of 46 cents per share back in April, and a final dividend of 48 cents per share in October.

At the current share price, that gives Woolies shares a trailing dividend yield of 2.38%, or 3.4% grossed-up with full franking credits.

Telstra Corporation Ltd (ASX: TLS)

Telstra is another ASX blue chip that has managed to keep the dividend taps open in 2020. This company is the ASX’s largest telco, with a formidable market position in both fixed-line and mobile telecommunications services. Yes, Telstra has been struggling through the impact of the nbn rollout over the past few years. This has seen its share price crater from almost $6 back in 2016 to the current price of $3.04.

Saying that, Telstra has recently all-but-committed to keeping its current annual dividend at 16 cents a share going into 2021. That 16 cents per share consisted of 10 cents in ordinary dividends, as well as 6 cents in special dividend payments that are funded through nbn payments. Telstra has said it will aim for this payout going forward, even if it means temporarily exceeding Telstra’s payout ratio target of 75% of earnings.

On current pricing, that would give Telstra a trailing (and forward) dividend yield of 5.26%, or a whopping 7.51% when grossed-up with Telstra’s full franking credits.

More reading

• Why the Uniti (ASX:UWL) share price is on watch today
• Woolworths (ASX:WOW) buyout makes ACCC anxious
• Wesfarmers (ASX:WES) share price is on fire, up 3% to reach all-time high
• ASX 200 Weekly Wrap: ASX 200 hits a 6! Thank iron ore
• Beat negative interest rates with these ASX dividend shares

Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of Woolworths 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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We’re not out of the global pandemic woods just yet.

But with Moderna Inc‘s (NASDAQ: MRNA) vaccine given the green light by United States’ regulators, it could gain emergency authorisation clearance within days.

That will see Moderna’s vaccine join the jab developed by Pfizer Inc. (NYSE: PFE) and BioNTech SE (NASDAQ: BNTX). And it will give the world 2 highly effective vaccines in the last month of the same year that spawned the coronavirus outbreak.

Of course, it will still be many months before those vaccines, and others, are delivered to the billions of people waiting to be immunised. The Australian government is now forecasting its vaccine rollout will commence in February.

But with the light at the end of the COVID tunnel growing steadily brighter, investors are increasingly looking ahead to which shares are likely to see the biggest gains as the world reopens.

“The cheapest of all reflation assets”

According to Amrita Sen, co-founder of London-based consultant Energy Aspects Ltd (as quoted by Bloomberg): “Oil is the cheapest of all reflation assets. With vaccines slowly rolling out, we expect investors to start returning to the oil sector and for prices to continue firming.”

Indeed, optimism on the eventual lifting of global travel restrictions has seen Brent crude oil hit US$50.75 (AU$67.20) per barrel at time of writing. That’s the highest price for the international crude benchmark since 4 March. And it’s up 163% from the 21 March low of US$19.33 per barrel.

Here’s more, from Bloomberg:

The enormous glut of fuel that accumulated this year on everything from tiny barges to giant supertankers is being steadily depleted…  In a world that’s expecting to see travel recover sharply next year, crude has become a hot Covid-vaccine trade.

Not that oil and gas demand is ramping up everywhere in the world just yet.

With new infections surging, a number of European nations introduced strict lockdown measures this week, set to last through mid to end of January. And travel restrictions in some US states are also forecast to impact short-term petrol demand.

Meanwhile, petrol consumption has returned to or even exceeded late 2019 levels in Japan and China. China consumes the world’s second largest amount of oil (behind the US), while Japan is the fourth largest consumer. And in the world’s second most populous nation, India, its largest refiner reported that its back to processing at full capacity.

Brace for setbacks

With the positive mid to longer-term outlook outlined above, investors in energy shares should be prepared for a bumpy ride. Particularly in the first half of 2020.

Bart Melek, the head of global commodity strategy at TD Securities, cautions about the impact of the ‘second wave’ (quoted by Bloomberg):

Oil’s reacting to pretty significant increases in risk appetite. But with the second wave probably continuing to damage demand growth and inventories likely staying at somewhat elevated levels, the market is having second thoughts about going materially higher.

Stewart Glickman, energy equity analyst at CFRA Research points out that oil demand won’t rocket overnight:

People are forgetting that there’s a couple of triggers that have to happen before oil demand really comes back. The first half of the year we’re going to see some resurgence of weakness in oil demand, because it’s going to take time before everybody feels comfortable enough for things to start reopening fully.

Victor Shum, vice president of energy consulting at IHS Markit Ltd. in Singapore adds, “Right now, oil has priced in that promising future. While we have to deal with the immediate dark COVID winter.”

Despite the spectre that a dark COVID winter is coming, long-term investors appear to be looking beyond that gloom to a time when vehicles, planes and boats will again move freely across state and international borders. As witnessed by the data from JPMorgan Chase & Co, indicating that energy contract holdings soared by US$3.6 billion through early December.

Aussie gas piggybacks on rising crude prices

And it’s not just crude oil prices rebounding to early March levels.

As the Australian Financial Review reports:

Prices for LNG – Australia’s second most valuable export – also rose at the end of last week, with demand due to the northern hemisphere winter pushing prices in Asia to their highest level in more than two years, according to Refinitiv.

Citing trade sources, the average LNG price for January delivery into north-east Asia was estimated about $US11.10 per million British thermal units, Refinitiv said, up $US3 on the prior week, or 37 per cent.

Two ASX energy shares closely tied to the price of oil and gas

The ASX has no shortage of oil and gas shares.

You’ll find the largest listed on the S&P/ASX 200 Index (ASX: XJO).

With a market cap of near $22 billion, Woodside Petroleum Limited (ASX: WPL) is Australia’s largest oil and gas producer. It also pays an annualised dividend yield of 5.1%, fully franked.

As you’d expect, Woodside’s share price took a beating when crude prices crashed. Shares tumbled more than 57% from late January through to mid-March. Since the first trading day of November, however, shares have leapt 31% higher. Year-to-date, Woodside’s share price remains down 33%.

Then there’s Santos Ltd (ASX: STO). One of the leading independent oil and gas producers in the Asia-Pacific region, Santos has a market cap of roughly $13.3 billion and pays an annualised dividend yield of 1.6%, fully franked.

Santos’ CEO Kevin Gallagher, for one, has no doubt that the demand for fossil fuels isn’t going away anytime soon, saying, “Electrification will grow, it may grow to 35 per cent but it ain’t going to go to 50 or 70 or 80 per cent. The world is going to need fuels for a very, very long time.”

Despite a 132% surge since 19 March, the Santos share price remains down 22% year-to-date.

More reading

• 5 things to watch on the ASX 200 on Wednesday
• 5 things to watch on the ASX 200 on Tuesday
• Why ASX oil stocks could replace the ASX tech boom in 2021
• Why energy shares Woodside (ASX:WPL) and Santos (ASX:STO) plan to go green with gas
• ASX 200 Weekly Wrap: ASX 200 hits a 6! Thank iron ore

Motley Fool contributor Bernd Struben 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 Are ASX energy shares the best pandemic recovery play in 2021? appeared first on The Motley Fool Australia.

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The S&P/ASX 200 Index (ASX: XJO) went up by approximately 0.7% to 6679 points.

Here are some of the highlights from the ASX today:

Aussie Home Loans to merge with Lendi

Commonwealth Bank of Australia (ASX: CBA) announced today it has agreed to merge mortgage broker Aussie Home Loans with Lendi, an online home loan portfolio.

CBA said that the complementary capabilities of Aussie and Lendi are expected to support the growth of the existing businesses and to deliver a range of additional benefits over time for customers and brokers, including enhanced digital capabilities and improved operational efficiencies.

Upon the deal’s completion, CBA will hold a 45% shareholding in the combined business, with existing Lendi shareholders holding the remaining 55% shareholding. CBA will also receive deferred consideration and a pre-completion dividend of $105 million in aggregate, subject to adjustments. CBA said the transaction is not expected to have a material financial impact on CBA’s capital position.

Matt Comyn, the CEO of CBA said: “We believe that the combined business will have a stronger platform to offer enhanced digital capabilities for Aussie brokers and a superior experience.”

David Hyman, the co-founder and CEO of Lendi said: “The role of digital technology in strengthening customer outcomes, compliance and operational agility is only growing in importance and by coming together with a robust and trusted business like Aussie, we will be able to drive even stronger outcomes for more homeowners and brokers alike.”

This transaction is subject to ACCC approval and other conditions. It’s expected to occur by the middle of the 2021 calendar year.

The CBA share price rose 0.9% today.

Service Stream Limited (ASX: SSM)

The network services business announced that it has secured a long-term agreement with NBN Co to provide service activations, operations and maintenance services to the multi-technology NBN.

Under the new unified field operations agreement (Unity Services), Service Stream will be providing services across fibre to the node (FTTN), fibre to the premise (FTTP), fibre to the basement (FTTB), fibre to the curb (FTTC) and hybrid fibre coax (HFC).

The agreement is for an initial period of four years, and two two-year extension options, each at the NBN’s election. The agreement replaces the existing operations and maintenance master agreement (OMMA) that has been held by Service Stream since it started in 2015.

Unify Services is expected to generate approximately $70 million of revenue for Service Stream in the first year, with subsequent years dependent on annual work volumes.

Service Stream Managing Director Leigh Mackender said: “As a leading provider of operations and maintenance across services to the telecommunications industry, we are pleased to secure another long-term maintenance agreement with NBN and to continue providing vital support to its customers.

“Following the recent signing of the Unify Networks agreement in August across a similar term, Service Stream will effectively be providing nbn with operations and maintenance support across all mainland and territories under either the Unify Networks or Service agreements. We look forward to continuing to support NBN’s maintenance programs for many years to come.”

The Service Stream share price fell 12% today. 

APA Group (ASX: APA)

Energy infrastructure business APA announced today that it was going to increase its FY21 interim distribution by 4.3% to 24 cents per security for the six months ending 31 December 2020.

The APA distribution will be fully covered by operating cash flows. The components of the interim distribution including its tax deferred status and allocated franking credits will be confirmed after the finalisation of its half year results on 23 February 2021.

The APA share price went up 1.2% today.

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Tristan Harrison owns has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of APA Group. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Costco Wholesale (NASDAQ: COST) has been one of the biggest retail winners during the COVID-19 pandemic. Its growth accelerated last quarter, as comparable sales skyrocketed 17.1%, excluding the impacts of currency fluctuations and gasoline price deflation.

For a second consecutive quarter, this double-digit sales growth drove a huge jump in Costco’s earnings. The company’s accelerating earnings growth suggests that Costco stock still has plenty of upside for long-term investors, despite carrying a lofty valuation after a 27% rally year to date.

Costco Wholesale year-to-date stock performance, data by YCharts.

Margin expansion continues

In the fourth quarter of fiscal 2020 — the period ending in late August — Costco posted adjusted comp sales growth of 14.1%. The uptick in sales allowed the company to leverage its normal operating expenses, while higher sales of fresh foods led to higher labor productivity and reduced spoilage. This drove substantial margin expansion, notwithstanding $281 million of incremental wage and cleaning costs related to the pandemic. Operating income jumped 31.9% on a 12.4% increase in total revenue.

Costco’s results followed a similar trajectory last quarter. Total revenue increased 16.7% to $43.2 billion. Gross margin improved by approximately 0.5 percentage points, driven primarily by the same tailwinds of higher labor productivity and lower spoilage for fresh foods. Selling, general, and administrative expenses also declined modestly as a percentage of sales.

As a result, operating income surged 34.8% year over year to $1.43 billion, even though Costco incurred another $212 million of pandemic-related premium pay. Adjusted earnings per share reached $2.30, excluding various one-time tax benefits: up from $1.73 a year earlier. On average, analysts had expected adjusted EPS of $2.05.

Are Costco’s gains sustainable?

Management has acknowledged that some of Costco’s 2020 sales gains may prove temporary. With many restaurants offering limited service (or closed altogether), people are cooking more at home. That’s boosting food-related sales at Costco. Meanwhile, high-income shoppers make up a substantial proportion of Costco’s customer base. Many of these people have dramatically increased their spending on home-related items, using money they might have otherwise spent on vacations. Lastly, Costco is benefiting from its status as a one-stop shop where people can buy a wide variety of essentials and discretionary items in a single trip.

That said, Costco has cultivated extremely high customer loyalty. Membership renewal rates routinely exceed 90% in the U.S. and Canada (Costco’s mature markets). The uptick in sales during the pandemic also appears to be encouraging more customers to upgrade to Costco’s executive membership, which costs twice as much but offers 2% cash back on most purchases.

Thus, the retail giant has a good chance to retain many of the new members who have signed up this year, while the 2% cash reward will encourage newly minted executive members to shift more spending to Costco over time. Looking ahead, Costco will also benefit from an eventual revival in its hard-hit ancillary businesses, including its food courts, gas stations, and travel business. The March acquisition of logistics company Innovel Solutions should also help Costco increase its sales of big-ticket items in the years ahead.

A terrific business worth its premium valuation

Despite the strong Q1 results, Costco stock has barely budged since the earnings report. It now trades for a little more than 37 times Costco’s projected fiscal 2021 earnings. That’s certainly pricey: The S&P 500 as a whole is valued at 26 times forward earnings.

However, the 2021 analyst consensus implies EPS growth of just 11% for the rest of fiscal 2021. That seems extremely conservative in light of Costco’s recent earnings trend. Furthermore, Costco’s industry-leading prices should help it continue to gain market share for many years, driving strong sales growth. And with a pre-tax margin of just 1.2% excluding membership fee income last year, even modest margin improvements over time could turbocharge Costco’s earnings growth.

Costco stock may not be a bargain anymore. But considering the company’s massive long-term growth opportunities, it still holds plenty of potential for patient investors.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Adam Levine-Weinberg 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 Costco Wholesale. 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 Costco’s big earnings beat points to further upside appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The BSA Limited (ASX: BSA) share price is climbing higher today on news of a new significant contract with NBN Co.

At the time of writing, the BSA share price is trading up 6.9% at an intraday high of 31 cents. In comparison, the All Ordinaries Index (ASX: XAO) is up 0.8% to 6,922 points.

New multi-year contract

In today’s release, BSA advised it has secured a major contract with nbn to provide activation and assurances services.

The unified field operations agreement will see BSA work on fibre to the premise (FTTP), fibre to the node (FTTN), fibre to the basement (FTTB), fibre to the curb (FTTC), and hybrid fibre coax (HFC) network infrastructure.

Scheduled to begin in early March 2021, the new deal will see BSA increase its base market share. Revenue generated in the first year of the contract is estimated to be in the range of $85 million. However, the company noted that further opportunities could arise in the future, allowing it to increase its earnings.

The initial term of the deal will be for a 4-year period. This can be extended on nbn’s behalf for an additional two 2-year options.

Furthermore, under nbn’s regional allocation model, BSA will be able to operate in regional areas across New South Wales and Victoria. Additional regions will be assigned at nbn’s discretion.

What did management say?

Commenting on the deal, BSA managing director Tim Harris said:

We are extremely proud to have secured this contract and continue our long-standing collaborative partnership with nbn. This contract positions BSA ideally to be able to assist nbn deliver on their strategic goals moving forward, utilising our exceptional track record of service delivery and customer experience.

How has the BSA share price performed?

This has been a turbulent year for the BSA share price, reflecting ups and downs throughout the year. The company’s shares reached a 52-week high of 41 cents in February before falling to a low of 23 cents in March.

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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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