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Buying cheap shares ahead of a stock market recovery could be a sound means of making a million. A similar strategy has proved successful following previous bear markets. For example, investors who bought a diverse range of undervalued stocks in the aftermath of the global financial crisis are likely to have benefitted from its subsequent rebound.

By investing regularly, it is possible to benefit from any further short-term declines caused by risks such as a weak economic outlook. Doing so could produce a portfolio valued at over a million within an investor’s lifetime.

Cheap shares could deliver high returns in a stock market recovery

Not all cheap shares are likely to deliver successful turnarounds in the coming years. They may, for example, suffer from outdated business models in an increasingly fast-paced economy. Or, they could have weak financial positions that do not provide them with the investment required to adapt to changing consumer tastes.

However, the prospects for a large number of today’s undervalued shares could be relatively positive. The stock market has a long track record of delivering recoveries after even its very worst declines. For example, in the past 20 years, indexes such as the S&P 500 Index (SP: .INX) and FTSE 100 Index (FTSE: UKX) have come back from the dot com bubble and the aforementioned global financial crisis to post high single-digit annual total returns.

As such, buying cheap shares and holding them for the long run could be a means of capitalising on market cyclicality. It may lead to higher returns than the market average over the coming years.

Regularly investing in bargain stocks

Of course, cheap shares could yet experience difficulties in the short run. There may even be a second stock market crash in the coming months. Risks such as political uncertainty in Europe and the ongoing coronavirus pandemic may mean that investors adopt an increasingly cautious stance towards equity markets. This may result in lower valuations across many sectors.

Therefore, investing regularly in a diverse range of shares could be a shrewd move. Regular investing allows an investor to potentially capitalise on falling share prices that may offer wide margins of safety. This may help them to benefit from what could be a volatile period, which may not be the case with a lump sum investment.

Making a million

Even a relatively modest monthly investment in cheap shares could produce a surprisingly large portfolio in a stock market recovery. For example, assuming an 8% annual return that is in line with the stock market’s past performance on a $500 monthly investment could lead to a portfolio valued in excess of a million within 35 years.

As such, while stock prices are low in many cases, now could be an opportunity to start building a portfolio as share prices experience a likely period of growth after the stock market crash.

More reading

• Identitii (ASX:ID8) share price soars 6% on US patent approval
• ASX pot stocks have been skyrocketing in December
• Viva Energy (ASX:VEA) share price rising on $30 million fed package
• These are 10 of the best performing ASX tech shares of 2020 so far
• Paradigm (ASX:PAR) share price drops lower on trial update

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Identitii Ltd (ASX: ID8) share price is 6% higher on Monday following the announcement of a newly granted patent approval in the US. This approval will cover the company’s global ecosystem for secure sharing of financial transaction information, and is a key part of its intellectual property protection strategy. 

What is Identitii? 

Identitii works with financial services businesses to improve how they use data to inform financial crime compliance and risk decisions, without replacing legacy systems. This aims to reduce the regulatory burden and costs for financial institutions while ensuring compliance is complete and accurate.

The company’s approach brings multiple legacy systems together into a single platform, creating a complete and audible record of events related to a transaction. Financial institutions may use this to enhance deliverables such as AUSTRAC reporting, managing correspondent banking relationships, and foreign exchange transaction information. 

US patent approval 

The patent covers Identitii’s secure financial information sharing ecosystem. The company sees this approval as key in increasing its competitive advantage and defensibility in this space, while potentially generating new revenue streams. 

The technology that underpins the patent is the backbone of the company’s correspondent banking solution, which enables institutions all around the world to securely share information for Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance. 

Identitii CEO, John Rayment has described this event as a huge milestone for Identitii, adding:

…it helps safeguard our business from competitive threats and protects our strategy of building a connected ecosystem for financial information, without replacing existing systems. There is also the potential to licence the technology to other players, generating additional revenue.

Identitii share price performance 

The Identitii share price was largely dormant up until 24 August, when the business signed a significant deal with Mastercard. This saw its share price jump as high as 125% to 43 cents before closing at 40% higher at 27.5 cents.

Its shares have trended lower with a $4 million placement taking place on 26 November at 14.6 cents per share. The US patent announcement has pushed the Identitii share price 6% higher to 17.5 cents at the time of writing. 

More reading

• ASX pot stocks have been skyrocketing in December
• Viva Energy (ASX:VEA) share price rising on $30 million fed package
• These are 10 of the best performing ASX tech shares of 2020 so far
• Paradigm (ASX:PAR) share price drops lower on trial update
• Why the Regis Resources (ASX:RRL) share price is pushing higher

Motley Fool contributor Lina Lim 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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Marijuana companies – or “pot stocks” to those who prefer brevity – were all the rage back in late 2017 and early 2018.

California, America’s most populous state and the fifth largest economy in the world, was legalising the recreational use of cannabis, and Canada had announced it would be doing the same. A new, potential multi-billion-dollar global industry in recreational cannabis was basically being invented overnight.

But jump forward a couple of years and the winds have gone out of the sales of most pot stocks. Take AusCann Group Holdings Ltd (ASX:AC8) as an example. In January 2018, it seemed like AusCann could grow into the leading medical marijuana company in Australia, and excitement around its prospects had pushed its share price up towards $2. But since then its share price has trended steadily downwards. Its shares are now valued at just $0.215 and its total market cap has dipped under $70 million.

The share price charts of other once promising companies, like Cann Group Ltd (ASX:CAN) and THC Global Group Ltd (ASX:THC) tell a similar story. Despite all the hype around legalisation, it seemed like market saturation meant that only those few major players at the very top could actually turn a profit. In the US state of Oregon, one of the first states in the country to legalise the recreational use of marijuana, new sellers flooded the market, driving pot prices down.  

However, something curious has been happening over the last month. The share price of Cann Group has doubled in just a few weeks, while that of fellow small-cap Creso Pharma Limited (ASX:CPH) is up an astounding 650% since early November.

What is driving the gains?

A couple of key global events have been behind the surge in ASX pot stock valuations. Firstly, in early December, following recommendations from the World Health Organisation, the UN removed medical marijuana from its list of Schedule IV narcotics. Schedule IV contains harmful and highly addictive drugs like heroin and other opioids.

Many governments look towards these UN schedules for guidance on how to classify drugs, and so this downgrade could potentially lead to further global acceptance of medical marijuana.

The second key event was the passing of the Marijuana Opportunity Reinvestment and Expungement (MORE) Act by the US House of Representatives. While many US states have legalised cannabis, it still remains illegal under federal law. The MORE Act aims to decriminalise weed at the federal level and erase non-violent federal marijuana convictions.AC8

The MORE Act is unlikely to pass a Republican-controlled Senate, but it is still a demonstration of continually changing attitudes towards marijuana in America. And it has ramifications on a global scale, with many investors now renewing their interest in local Australian cannabis companies.

However, the same problems of market saturation and high competition still remain, meaning picking winners in this race is still an incredibly risky enterprise.

More reading

• THC Global (ASX:THC) share price lifts on push into cannabis market
• Why the Creso Pharma (ASX:CPH) share price crashed 33% lower today
• Why the Creso Pharma (ASX:CPH) share price is rocketing 96% higher today
• Why Afterpay, Creso Pharma, Healius, & Resonance Health shares are storming higher
• Why Creso Pharma and these ASX shares just hit 52-week highs or better

Motley Fool contributor Rhys Brock owns shares of Creso Pharma 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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The Viva Energy Group Ltd (ASX: VEA) share price is on the rise this morning following the company’s announcement it has received assistance from the Australian Government.

The company says the assistance will boost its bottom line earnings by $30 million. The Viva Energy share price closed at $2.07 on Friday and, in the opening minutes of today’s trade, has risen 0.97% to $2.09.

What’s driving the Viva Energy share price?

The Viva Energy share price is pushing higher after the company reported the federal government will provide it with an interim refinery production payment for six months from 1 January until 1 July 2021.

This will see the oil refiner receiving a minimum of 1 cent per litre for the production of primary fuels at its Geelong refinery, based on the agreement that it will maintain operations throughout the duration of the payment.

Viva Energy estimates the payment will contribute approximately $30 million to its underlying refining earnings before interest, tax, depreciation, and ammortisation (EBITDA) for the six-month period. This estimate is based on the company’s average historical refining output during the year ended 31 December 2019.

Viva Energy CEO Scott Wyatt said the assistance is a welcome boost to the refinery sector which has been struggling as a result of the COVID-19 pandemic.

He said:

The refining sector has been severely impacted by a significant decline in domestic and global demand for oil products this year, and this is expected to lead to ongoing weakness in refining margins which affects the longer-term viability of our refinery.

The refinery production payment announced today, together with other measures announced in September, provides material support which underscores the importance of domestic refining to the country’s broader fuel security.

Australia’s fuel security

The refinery production payment forms part of the broader, long-term fuel security package previously announced by the federal government in September 2020.

The package is designed to enhance Australia’s fuel security, and improve the viability of the refining sector over the next ten years.

It is expected this week’s mid-year budget review will also include an $83.5 million package to assist oil refineries.

To receive the payment, refineries must agree to continue operating for the duration of the program.

Energy Minister Angus Taylor and his department have recently been working closely with the refining sector to maintain refinery operations during the pandemic.

The ministry said the aim of the package is to help the industry withstand the economic shock of this crisis, protect local jobs and industry, and bolster Australia’s fuel security.

About the Viva Energy share price

The Viva Energy share price has lost more than 9% in value since the beginning of the year. 

Viva shares dropped by almost 40% in April, at the height of the pandemic before rebounding to today’s level.

The company commands a market capitalisation of $3.3 billion.

More reading

• ASX 200 Weekly Wrap: ASX 200 hits a 6! Thank iron ore
• These were the best performing ASX 200 shares last week

Motley Fool contributor Eddy Sunarto 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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2020 has been a year that has brought its fair share of ups and downs, challenges and (for some) rewards on the ASX share market. With the onset of the coronavirus pandemic early in the year, investors had to rapidly adjust to a post-COVID world through their investing.

Some sectors were smashed by the pandemic, while others flourished. One of the sectors that has famously been perhaps the biggest beneficiary of 2020 has been technology – and ASX tech shares in particular.

So let’s have a look at which ASX tech shares have been the best performers of the year so far. Here are the 10 top performers:

ASX Tech Share	YTD share price gain (as of 11 December	Market Capitalisation
Afterpay Ltd (ASX: APT)	229.77%	$28.77 billion
Pushpay Holdings Ltd (ASX: PPH)	84.54%	$2.03 billion
Nextdc Ltd (ASX: NXT)	81.47%	$5.41 billion
Xero Limited (ASX: XRO)	77.22%	$20.73 billion
Dicker Data Ltd (ASX: DDR)	55.33%	$1.81 billion
WiseTech Global Ltd (ASX: WTC)	29.9%	$9.85 billion
Megaport Ltd (ASX: MP1)	29.11%	$2.08 billion
Appen Ltd (ASX: APX)	14.7%	$3.11 billion
Altium Limited (ASX: ALU)	5.3%	$4.74 billion
TechnologyOne Ltd (ASX: TNE)	0.97%	$2.67 billion

As you can see, all of these tech shares have had phenomenal years (although some clearly more than others). As a reference point, the broad-market S&P/ASX 200 Index (ASX: XJO) has returned -0.7% for the year so far, not exactly a high bar to clear.

ASX tech shares and payments

So, although all of these companies are ‘tech shares’ in a broad sense, we do see some common themes here. For one, payments is clearly an area of immense growth. The top 2 stocks in terms of year-to-date returns are both payments companies in Afterpay and Pushpay.

The pandemic has been a clear catalyst for the rise of these kinds of companies, as Australians and people around the world shunned physical cash out of hygiene concerns. Pushpay, which provides a payments platform for religious organisations and charities, and Afterpay, a payments company that facilitates buy now, pay later (BNPL) transactions, have been happy to take up the slack. But the pandemic has, of course, merely accelerated a trend that has been growing for years.

It’s not just the pandemic bolstering these companies’ share prices though. Afterpay, in particular, has had a few very positive developments this year. It welcomed Chinese e-commerce giant Tencent Holdings Ltd (HKG: 0700) as a major shareholder in April. It has also managed to successfully stare down calls for further regulation in the BNPL space so far.

Software-as-a-Service (SaaS) shares

We’ve also seen companies in the software-as-a-service space perform exceedingly well this year so far. These include online accounting company Xero, as well as logistics solutions purveyor WiseTech Global, human dataset company Appen, and electrical engineering software company Altium. These companies are all members of the WAAAX club incidentally (along with Afterpay). We can also throw enterprise software company TechnologyOne into this mix

Investors have flocked to the kind of compounded earnings growth these companies can (and have) delivered in 2020, in the face of the pandemic no less. Take top performer Xero for instance. Last month, it managed to report revenue growth of 21%, earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 86% and a 19% increase in subscribers for the 6 months ending 30 September.

Data services shares

Finally, we see data services providers like Megaport and Dicker Data performing strongly this year as well. These companies provide data centres and other ‘behind the scenes’ digital infrastructure that enable companies to offer cloud-based services, better in-house digital connectivity and other digital platforms.

As ‘the cloud’ and other cutting-edge digital services grow in popularity and scale, these are the kinds of companies that stand to benefit from the hardware required to enable such growth. You can think of them as the ‘pickaxe, pan and shovel’ sellers in the proverbial gold rush.

Foolish takeaway

As you can see, 2020 has been a year of phenomenal gains for many of the ASX’s most well-known tech shares. The pandemic has offered many companies a unique advantage to innovate and disrupt, with many seizing the opportunity with relish. It’s a great reminder that some of the best investing is done with an eye on the horizon.

More reading

• Here’s why the Altium (ASX:ALU) share price is on watch today
• 2 of the best ASX tech shares to buy and hold
• ASX 200 Weekly Wrap: ASX 200 hits a 6! Thank iron ore
• Quarterly rebalance: Afterpay (ASX:APT) added to ASX 20, Kogan (ASX:KGN) joins the ASX 200
• 5 things to watch on the ASX 200 on Monday

Sebastian Bowen 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 Altium and MEGAPORT FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Appen Ltd, PUSHPAY FPO NZX, and Xero. The Motley Fool Australia owns shares of and has recommended Dicker Data Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO and WiseTech Global. The Motley Fool Australia has recommended MEGAPORT FPO and 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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The Paradigm Biopharmaceuticals Ltd (ASX: PAR) share price has come under pressure on Monday morning following the release of an update on its osteoarthritis (OA) clinical program.

At the time of writing, the late stage drug development company’s shares are down slightly to $2.60.

What did Paradigm announce?

This morning the company released an update on its Phase 3 OA clinical program. Paradigm advised that it made the announcement in order to provide clarification to the market on the expected timeline for the proposed clinical program.

According to the release, the company can now confirm that Phase 3 data will be generated by the first quarter of calendar year 2023. After which, the market will be informed of the top-line results once the clinical data has been analysed.

Unfortunately, this is slightly later that expected. Management was previously guiding to the fourth quarter of calendar year 2022. However, COVID-19 related delays in the written response from the US Food and Drug Administration (FDA) Type C meeting are behind this.

Paradigm advised that it submitted its briefing documents to the US FDA Type C meeting on 20 July.

What will the trial consist of?

Management explained that over the past 12 months it has been in regular contact with both the European Medicines Agency (EMA) and FDA regarding the Phase 3 clinical trial design.

In light of these discussions, it advised that the number of clinical trial subjects could be increased to reflect the probable feedback from the FDA Type C response.

Nevertheless, full details of the timing of the Phase 3 data and the numbers in each study will be presented at the company’s upcoming research and development day on 21 December 2020. It notes that this is as soon as possible after it anticipates receiving the Type C meeting feedback.

More reading

• Why the Regis Resources (ASX:RRL) share price is pushing higher
• Electro Optic Systems (ASX:EOS) share price climbs on government contract win
• Here’s why the Alcidion (ASX:ALC) share price is charging 8% higher
• Here’s why the Altium (ASX:ALU) share price is on watch today
• 2 of the best ASX tech shares to buy and hold

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 Regis Resources Limited (ASX: RRL) share price is pushing higher on Monday morning.

In early trade the gold miner’s shares are up almost 1% to $3.74.

What did Regis announce?

Investors have been buying the gold miner’s shares today after it announced that its board has approved the development of a new underground mine under the current Garden Well open pit.

This follows a recently completed positive Feasibility Study (FS) on the Garden Well South (GWS) underground gold project. That study revealed a maiden GWS underground mineral resource estimate of 2.4Mt at 3.6g/t gold for 270,000 ounces.

Management has advised that development will commence in the March 2021 quarter, with the processing of the first underground development ore scheduled for the December 2021 quarter. After which, stope production is scheduled to commence in the June 2022 quarter.

The project has an all-in sustaining cost (AISC) of A$950 to A$1,050 an ounce, with growth capital of A$15 million to A$20 million.

Pleasingly, it may not stop there for Regis. It notes that there is considerable opportunity for additional resources down plunge of the existing GWS resource.

“A major milestone.”

Regis Resources’ Managing Director, Jim Beyer, believes this is a major milestone for the company and its shareholders.

He commented: “The development decision for a second underground mine at our Duketon Operation is another major milestone in the Regis goal of delivering increased shareholder value through organic growth projects.”

“This new underground mine will be a key element in achieving and maintaining our aim for the Duketon Operation to become a reliable 400koz per annum producer. Further, we believe that the approved Garden Well underground is not only a robust investment in its current form but just as importantly has the potential to increase life and value through down plunge exploration,” Mr Beyer concluded.

More reading

• ASX 200 up 0.3%: Premier Investments update, big four banks rise, gold miners tumble
• Why the Regis (ASX:RRL) share price is up today despite sliding gold price

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 Electro Optic Systems Hldg Ltd (ASX: EOS) share price is on the move on Monday after announcing a new contract win.

At the time of writing, the defence, space, and communications company’s shares are up 3% to $6.59.

What did Electro Optic Systems announce?

This morning Electro Optic Systems announced that it has been awarded a $34.4 million contract by the Commonwealth of Australia.

According to the release, the contract is for the Command Control Communications and Computers – Evolutionary Digital Ground Environment (C4 EDGE) program.

The contract sees EOS Defence Systems become the Prime Contractor for an all-Australian industry consortium to demonstrate a sovereign Battlegroup and Below Battlefield Command System (BG-BCS).

Management believes this commitment by the Morrison Government and the Australian Army will support the development of innovative local businesses capable of providing the armed forces with the critical, world-leading communications solutions they will require in the future.

EOS Defence Systems will lead 18 Australian businesses in the C4 EDGE program to demonstrate the local industry’s ability to provide battle critical communications solutions for the land domain.

What is the C4 EDGE solution?

The release explains that the C4 EDGE solution will see EOS Defence Systems incorporate locally sourced combat radios, satellite terminals, cryptography, networking middleware, command applications, user interfaces, batteries, and power management into a coherent system.

The program will utilise Australian design, production, workforce, intellectual property, and supply chain in the development and demonstration of this capability

The CEO of the EOS Defence Systems business, Grant Sanderson, sees a lot of promise in the C4 EDGE solution.

He said: “The C4 EDGE team represents the collaborative effort of world-class Australian companies for the benefit of the Australian Defence Force.”

“The design, development and demonstration of the C4 EDGE solution over the next year will showcase the ability of Australian companies to produce high-tech materiel which EOS will integrate with its own technologies into world-class military systems. The program provides a model to continue growing a capable, connected and resilient sovereign defence industry that employs more Australians,” Mr Sanderson added.

More reading

• Why the Electro Optic Systems (ASX:EOS) share price is shooting higher 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 Electro Optic Systems Holdings Limited. The Motley Fool Australia has recommended Electro Optic Systems Holdings 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 Alcidion Group Ltd (ASX: ALC) share price is on the rise on Monday after the release of an announcement.

At the time of writing, the healthcare technology company’s shares are up 8% to 20.5 cents.

What did Alcidion announce?

This morning Alcidion announced an extension of its contract with South Tees Hospitals NHS Foundation Trust in the United Kingdom.

According to the release, the extension will include cloud hosting on Microsoft Azure, a managed service of the hosted environment, Alcidion’s Smartpage clinical communication solution, and business change management services.

The total contract value (TCV) for the extension is $2 million, which increases the TCV of the entire South Tees contract to $11.3 million.

This follows its milestone $9.3 million deal with South Tees for its flagship product suite Miya Precision and the Better OPENeP electronic prescribing and medicines administration (ePMA) system in November.

South Tees is the largest hospital trust in Tees Valley in the United Kingdom. It has over 1,000 beds, employs approximately 9,000 clinical and operational staff, and provides care for more than 1.5 million people.

What is involved with the new contract?

Alcidion’s Smartpage product will provide South Tees with clinical team communication and collaboration capabilities to the Miya Precision solution. This enables integrated secure alerting and escalation within and between clinical teams at South Tees.

Whereas the proposed cloud hosting and management service will provide South Tees with a secure hosting environment and the skills required to maintain the environment from Alcidion’s technical services team.

In addition, management notes that a program as large as this one requires business change management that focuses on managing the impact of changed systems and business processes. This is to ensure optimal adoption of the technology and the realisation of anticipated business benefits.

In light of this, South Tees has engaged Alcidion to map out the plan for a program of change management across the life of the project to support positive outcomes.

Alcidion’s Managing Director, Kate Quirke, said: “Following the initial announcement of our contract with South Tees for Miya Precision and Better’s OPENeP solution last month, we are pleased to build on our partnership.”

“With the addition of Smartpage, South Tees will now be utilising the complete Alcidion product suite, and we are glad to provide further hosting and managed services to best assist South Tees with the implementation of Alcidion’s technology to address their clinical and operational needs,” she added.

More reading

• The Alcidion (ASX:ALC) share price has rocketed up 9% today. Here’s why.
• This cheap ASX share is supplying US giants: fundie

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 Alcidion Group Ltd. The Motley Fool Australia has recommended Alcidion Group 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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The Altium Limited (ASX: ALU) share price will be on watch today. This comes after the company announced it will divest it non-core TASKING business to shift its full support behind Altium 365.

Last Friday, the Altium share price finished the week at $36.16. It will be interesting to see which way its shares will move today.

Sale of business

According to the release, Altium advised that it has entered a definitive agreement to sell off its TASKING business to FSN Capital.

Established in 1999, FSN Capital is a private equity firm that manages 2.125 billion euros in the northern European region. The company focuses on software and technology investments.

The sale of the assets is for an agreed value of US$110 million, in which US$100 million will be first settled in cash up front. The remaining US$10 million will be received by Altium upon FSN Capital achieving revenue targets for TASKING in FY21.

The deal is expected to be finalised in the first quarter of the 2021 calendar year, subject to standard conditions and regulatory approval.

Transaction impact

Altium noted that the proceeds received will have a one-time positive impact on its earnings per share (EPS) for FY21. The first-half of the fiscal year will include the TASKING business, however the second half will be without.

Looking at the bigger picture, Altium reaffirmed its full-year guidance with its first-half performance on track, although the company said that its traditional 45/55 revenue split for the current financial year will be distorted. This is due to the combined effect of COVID-19 and the divestment of its TASKING business.

The full impact of the sale and its ongoing operations will be released in Altium’s half-year results on 15 February 2021.

What did management say?

Altium chair Mr Sam Weiss commented on the company’s decision to offload its TASKING business: 

We are generating real momentum with Altium 365, the world’s first cloud platform for PCB design and realization, and we believe that Altium 365 is critical to enhance long term shareholder value.

The divestment of TASKING enables us to singularly focus on our transformative vision and to fast track the building and acquisition of complementary assets

Altium CEO Mr Aram Mirkazemi added:

The strategic divestment of TASKING combined with our recent organizational changes and hard pivot to the cloud marks an inflection point for Altium in its pursuit of industry transformation. While TASKING is a great business, it does not play a central role in our design to realization strategy for the electronics industry, which is being delivered through our new cloud platform Altium 365. The divestment of TASKING will free up organizational capacity and allow Altium leadership to focus on our main game, which is to expand Altium 365 and accelerate its adoption.

About the Altium share price

The Altium share price reached an all-time high of $42.76 before COVID-19 hit the global economy in February. In the month following, its shares fell to a 52-week low of $23.11, and then rose steadily back up to the $35 range.

Over the past 7 months, the Altium share price has not moved much, only increasing 7%. In comparison, the S&P/ASX 200 Index (ASX: XJO) has gained 24% over the same period.

More reading

• 2 of the best ASX tech shares to buy and hold
• ASX 200 Weekly Wrap: ASX 200 hits a 6! Thank iron ore
• Quarterly rebalance: Afterpay (ASX:APT) added to ASX 20, Kogan (ASX:KGN) joins the ASX 200
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Aaron Teboneras 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 Altium. 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 Here’s why the Altium (ASX:ALU) share price is on watch today appeared first on The Motley Fool Australia.

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