Tag: Motley Fool

They say that more millionaires are minted during share market crashes than at any other time. But why is that the case? Most of us think of share market crashes as times where our personal wealth takes a big (but hopefully temporary) dive, at least on paper. It’s a much-dreaded event, to be sure, and one that every ASX investor thinks about quite a lot, I’d wager.

But the reason market crashes can be so lucrative is this very fear itself. See, as value investing legend Benjamin Graham once said, markets are sometimes driven by one of 2 emotions: fear and greed. It’s these emotions that cause markets to become temporarily irrational. And in the case of fear, this is what you see during a market crash. Think back to the nasty crash we saw in March.

Did the intrinsic and rational value of S&P/ASX 200 Index (ASX: XJO) companies really fall 36.5% between 20 February and 23 March? I don’t think so. And yet that’s exactly what the ASX 200 did, which was of course followed by a rapid recovery.

Friends, this temporary divorce from rationality is something we can all exploit. It’s why the most millionaires are minted in these times. That’s why I think all investors should have a small percentage of their portfolios in cash, so you can take advantage of these situations.

But which shares to buy in a crash? Well, that’s a good question.

What are the best ASX shares to buy in a market crash?

You could always simply stick with index funds, like those tracking the ASX 200 for instance. As an example, the iShares Core S&P/ASX 200 (ASX: IOZ) rose around 33% in value between 23 March and 10 June. Not a bad return for 2½ months.

But, after looking at the performance of various ASX shares in March and April, I have concluded that the best area to focus on are cyclical growth shares, in particular, those involved in the tech space.

ASX growth shares are funny things. They tend to outperform the broader share market during bull markets, but underperform during bear markets. That’s because, due to their smaller natures, growth shares don’t tend to be as financially resilient as larger companies in times of trouble. However, because tech companies tend to have fixed costs that are relatively low, tech shares tend to be able to weather these storms far better than others, say a small mining exploration company.

If we look at the companies that have performed the best since 23 March, the list is dominated by tech. We have Afterpay Ltd (ASX: APT), up more than 1,000% going off today’s share prices. Xero Limited (ASX: XRO) is up nearly 100%, Zip Co Ltd (ASX: Z1P) is up 480%, while Sezzle Inc (ASX: SZL) is up a mind-blowing 2,000%.

In fact, the entire S&P/ASX All Technology Index (ASX: XTX) is up 130% since 23 March.

Foolish takeaway

Now I’m not advocating that anyone should start trying to ‘time the market’ here. However, next time a market crash comes around, I am suggesting that the first ASX shares on your watchlist should be growth shares. Especially those in the tech space. Obviously, if a particular company is being disproportionally affected by the cause of the market crash (eg Webjet Limited (ASX: WEB) in March), it might be better to sit on the sidelines.

I made the mistake of buying some value plays in March, instead of focusing on the companies with the biggest upside potential (first world problems). I won’t be making the same mistake again, and I don’t think you should either!

More reading

• The ASX 200 finished 0.1% higher today
• How has COVID-19 shaken up the Sydney Airport share price?
• Are US shares a better investment than the ASX 200?
• What you need to know about the surge in the NSX (ASX:NSX) share price
• Are these shares the next Afterpay (ASX:APT) and Appen (ASX:APX)?

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 Xero and ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Sezzle Inc. 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 S&P/ASX 200 Index (ASX: XJO) finished 0.12% higher today, ending at 6,192 points.

Here are some of the highlights from the ASX today:

Megaport Ltd (ASX: MP1)

Megaport reported its first quarter of FY21 to investors today.

It said that it grew its quarterly revenue to $17.3 million, up 2% from the last quarter. Monthly recurring revenue (MRR) for September 2020 was $5.8 million, up 2% quarter on quarter.

Total installed data centres grew 5% to 385 and total enabled data centres went up 5% to 702 over the quarter.

Megaport had 1,980 customers at the end of the quarter, an increase of 7% compared to the last quarter.

Total ports rose by 10% quarter on quarter to 6,333. Average revenue per port was $913. At the end of September 2020 it had $152.8 million of cash.

Megaport’s CEO, Vincent English, said: “Megaport remains committed to driving value for our customers, partners and shareholders. We are constantly evolving our platform so our customers can more easily connect with the services they need to power their business. MVE will play a fundamental part in our success by allowing our customers to access Megaport’s elastic interconnection platform from locations beyond traditional data centres – including branch offices, corporate campuses, and point of sale locations.

“Profitability remains a company-wide priority. We are focused on achieving earnings before interest, tax, depreciation and amortisation (EBITDA) breakeven on an exit run-rate basis by the close of fiscal year 2021 by driving further customer growth across all regions.”

The Megaport share price fell 13% today, making it the worst performer in the ASX 200.

Temple & Webster Group Ltd (ASX: TPW)

The e-commerce business announced a trading update today.

Year to date revenue for the period from 1 July 2020 to 19 October 2020 was up 138% compared to the prior corresponding period.

Temple & Webster reported that it made $8.6 million of EBITDA in the first quarter of FY21, which was more than the whole of FY20.

October revenue growth was still more than 100%. The company said this was pleasing because it has entered its peak trading months.

Management said the company is committed to a high growth strategy to take advantage of the structural shift towards online, to capitalise on both organic and inorganic opportunities.

However, the Temple & Webster share price sank around 17% today.

EML Payments Ltd (ASX: EML)

Payments business EML announced its first quarter trading update today as well.

EML revealed that its gross debit volume (GDV) was $4.85 billion in the first quarter. Up 20% on the prior quarter (being the fourth quarter of FY20) and up 51% on the prior corresponding period (PCP – the first quarter of FY20).

EML Payments said that its revenue was up 20% on the prior quarter and up 75% on the PCP. This helped drive EBITDA up 69% on the prior quarter and it grew 215% over the PCP.

Management were pleased with this update because historically the first quarter is normally the weakest quarter of the year.

Cost control initiatives by the ASX 200 share reduced cash overheads by $0.7 million compared to the prior corresponding period (excluding the PFS acquisition).

Looking at the PCP for the different divisions. Virtual account numbers’ GDV was in line with the PCP.  Total general purpose reloadable GDV was up 234% largely due to the PFS acquisition – without the PFS acquisition, EML GDV increased 16% and PFS GDV went up 24%. Gift and incentive GDV was down 11% on the PCP because of COVID-19 impacts, however it was up 41% compared to the fourth quarter of FY20.

The EML share price fell 2.4% today. 

More reading

• How has COVID-19 shaken up the Sydney Airport share price?
• Are US shares a better investment than the ASX 200?
• Temple & Webster (ASX:TPW) share price sinks 15% lower: Is this a buying opportunity?
• What you need to know about the surge in the NSX (ASX:NSX) share price
• Will the outlook for ASX 200 shares stay bullish?

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 and recommends MEGAPORT FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia owns shares of and has recommended EML Payments. The Motley Fool Australia has recommended MEGAPORT FPO and Temple & Webster Group Ltd. 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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Shareholders in Recce Pharmaceuticals Ltd (ASX: RCE) have been hitting the sell button today following the release of its quarterly update.

At the time of writing, the Recce share price is trading 7.59% lower at $1.10. This represents a decline of 40% since the price reached an all-time high of $1.87 last month.

Let’s see what Recce achieved for the quarter.

Trading update

For the period ending September 30, Recce reported a cash balance of $25.6 million due to a successful capital raise. Cash out-flows from operations came to $3.3 million with $2.5 million invested in research and development.

The company received a $37,508 grant as part of the Entrepreneurs’ Program run by the Department of Industry, Science, Energy and Resources. The funds are expected to be put towards its Recce 327 SARS-CoV-2 antiviral screening program.

The company said it was well-funded to advance its clinical and commercial programs to date.

Operational highlights

Recce briefly touched on its operational developments over the last quarter, highlighting key achievements.

Recce 327

The phase I clinical study of its flagship drug, Recce 327 is currently being trialled at South Australia’s CMAX Clinical Research. The company said that the program was progressing well with significant volumes of Recce 327 and placebos being produced. The phase I study aims to assess the safety and tolerability of Recce 327 in healthy patients as a single ascending dose.

SARS-CoV-2 International Studies

In addition to the clinical trial, University of Tennessee researchers evaluated the Recce 327 and Recce 529 compounds. Medical professionals are looking into the viability that the company’s products could assist recovery in the respiratory illness.

In response, Recce plans to test the compounds on animals, with data available at the end of the calendar year.

Recce 435

The company has formulated a new oral antibiotic to fight against Helicobacter pylori (H. pylori) bacteria. The Murdoch Children’s Research Institute entered an agreement with Recce to conduct a range of pre-clinical studies assessing Recce 435. The program is being carried out by the Mucosal Immunology Group at the MCRI, Royal Children’s Hospital in Melbourne.

Management changes

During the reporting period, Recce expanded its management and advisory teams with a number of new appointments.

Dr Alan W Dunton joined the board as an independent non-executive director and member of the company’s audit & risk/remuneration & nomination committees. Dr Dunton has previously led clinical research development teams through the regulatory review and commercialisation process.

Professor Phillip Sutton will lead the team working on the Recce 435’s helicobacter pylori stomach development program. Mr Sutton has more than 30 years’ experience of research, having served as the former head of immunology at CSL Limited (ASX: CSL).

And lastly, Mr James Graham was appointed CEO and Michele Dilizia as chief scientific officer. Both have been with the company since inception and will continue their roles as members of the board.

More reading

• The Recce (ASX:RCE) share price has surged up today. Here’s why
• Why the Recce Pharmaceuticals (ASX:RCE) share price is jumping 10% higher
• Why Corp Travel Management, EOS, Evolution, & Recce shares are charging higher
• Why the Recce Pharmaceuticals (ASX:RCE) share price crashed 15% lower today
• Why Kathmandu, New Hope, Recce, & Ramelius shares are dropping lower today

Aaron Teboneras owns shares of CSL Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. 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.

The post Here’s why the Recce (ASX:RCE) share price has fallen 7% today appeared first on Motley Fool Australia.

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The S&P/ASX 200 Index (ASX: XJO) has jumped more than 18% in half a year since the outbreak of the COVID-19 pandemic. This is partly due to the resources sector rally, which saw investors buying into companies such as Silver Lake Resources Limited (ASX: SLR) (+27% in 6 months), Fortescue Metals Group Limited (ASX: FMG) (+54% in 6 months) and Mineral Resources Limited (ASX: MIN) (+56% in 6 months). There has also been a moderate rebound in the infrastructure sector after the Australian Government announced a $1.5 billion infrastructure stimulus package in June.

Infrastructure assets such as Sydney Airport Holdings Pty Ltd (ASX: SYD) have historically delivered excellent returns. Since its inception, Sydney Airport shares have returned more than 300% in 20 years. But in 2020 the airport has underperformed the broader market, with the Sydney Airport share price falling by 27% over the last 12 months.

Let’s look at the way COVID-19 has changed the game for Sydney Airport, and why I am slightly concerned about whether it can return to its former strength.

The nature of infrastructure assets

Pre-COVID, infrastructure assets were considered ‘fortress assets’ due to their strong market positions and high asset quality. These assets are available for use by the public and they usually generate great long-term returns. 

However, the pandemic may prove investors wrong in terms of asset quality when we look at the Sydney Airport share price. Its performance has weakened over the past few months amid the pandemic-fuelled economic carnage. 

Focusing on the fundamentals 

Two important metrics when looking at Sydney Airport’s valuation are its cash flow and the volume of air traffic.

Looking at Sydney Airport’s financial position, it is clear that the management team has piled up some cash in FY20. The net cash flow of the airport as of June 2020 increased by 300% compared with June 2019, according to Sydney Airport’s interim financial report for the half year ended 30 June 2020.

In the same period, the airport’s overall cash position looked positive, but the cash flow cover ratio (an indicator of the ability of a company to pay interest and principal amounts when they become due) went down 33% to 2.4x. This means that its interest expenses went up as the company used extra debt financing to protect its balance sheet.

In addition, since late February, passenger traffic through Sydney Airport has been severely impacted due to the lockdown. In its 2020 half-year result Sydney Airport reported its international and domestic passenger traffic went down 57.3% and 56.1%, respectively, compared to the prior corresponding period.

Foolish takeaway

Amid the looming economic challenges, I have some concerns about the long-term investment return of Sydney Airport in the post-COVID era. Although the lifting of travel restrictions and recovery of business activities may help the Sydney Airport share price in the short run, in my view it has a long road to full recovery.

More reading

• Are US shares a better investment than the ASX 200?
• What you need to know about the surge in the NSX (ASX:NSX) share price
• Will the outlook for ASX 200 shares stay bullish?
• ASX 200 flat: Big four banks push higher, Afterpay drops, Megaport sinks 10%
• 3 ASX shares I’d buy for summer 2021

Motley Fool contributor Miles Wu 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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Here at the Fool, we’re in the business of discussing the S&P/ASX 200 Index (ASX: XJO) and the wonders of the Aussie share market. Over the past 100-plus years, ASX shares have proven to be wealth creation machines. And yet, these days, ASX investors are increasingly turning to the US markets to either supplement or supplant their ASX share portfolios.

On one level, this is understandable. The US is the largest capital market in the world by far. That’s the reason why Aussie tech company Atlassian Inc chose to list on the Nasdaq exchange in America rather than our own ASX. And when you have companies like Apple Inc, Amazon.com Inc, Berkshire Hathaway Inc and Alphabet Inc amongst the US’s biggest players, it’s hard (at least for many investors) to get excited about top ASX 200 shares like BHP Group Ltd (ASX: BHP) and Westpac Banking Corp (ASX: WBC).

But are US shares really a better option to invest in than our own ASX? Let’s look at some numbers.

To compare our 2 markets, we’ll look at the performance of some exchange-traded index funds (ETFs).

US shares vs ASX: a trans-Pacific matchup

The Vanguard Australian Shares Index ETF (ASX: VAS) is an index fund that tracks the S&P/ASX 300 Index (ASX: XKO) – a comprehensive barometer of the Australian share market. Over the past 5 years, this ETF has returned an average of 7.33% per annum, and 6.73% per annum over the past 10.

Let’s compare that with an ETF tracking the US’s S&P 500 Index, the flagship index that most investors use for US markets.

The iShares S&P 500 ETF (ASX: IVV) has returned an average of 13.44% per annum over the past 5 years, and 17.05% over the past 10.

Case closed, right? The US has handily smashed our ASX, so let’s all sell our ASX shares and hop on the American bandwagon.

Well, not so fast. See, the IVV ETF is not hedged against currency movements. And our dollar has spent most of the past decade falling in value against the US dollar (remember the days of parity in 2010 and 2011?). That falling dollar has helped push up the returns of the S&P 500 in Australian dollar terms.

So let’s instead use a currency-hedged version of the S&P 500 – represented by the iShares S&P 500 (AUD Hedged) ETF (ASX: IHVV). This ETF functions exactly the same as IVV, except it takes this currency factor out of the equation.

So, over the past 5 years, IHVV has returned an average of 12.61%. unfortunately, this ETF has only been around since 2014, so we can’t see a 10-year performance. But looking at the US-listed iShares S&P 500 Fund (which is benchmarked to US dollars), we can get a rough idea. Over the past 10 years, that fund has returned an average of 13.68%.

That still looks pretty good against VAS’s 10-year average of 6.73%.

Foolish takeaway

It is incontrovertible that US shares have handily outperformed ASX shares over the past 5 and 10 years. However, it’s worth noting that all countries have their time in the sun, and the US markets have benefitted enormously from the growth of their large tech companies over the past decade – a feat unlikely to be matched over the next decade in my view. Thus, there’s every reason to believe ASX shares will beat the US at various periods in the future. Therefore, I don’t think it matters too much which shares or index you invest in. You could even hedge your bets and go with both.

More reading

• What you need to know about the surge in the NSX (ASX:NSX) share price
• Will the outlook for ASX 200 shares stay bullish?
• ASX 200 flat: Big four banks push higher, Afterpay drops, Megaport sinks 10%
• 3 ASX shares I’d buy for summer 2021
• Warning: Here’s why keeping your savings in the bank is hurting your financial future

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Sebastian Bowen owns shares of Alphabet (A shares). The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Atlassian, and Berkshire Hathaway (B shares) and recommends the following options: long January 2022 $1920 calls on Amazon, short January 2021 $200 puts on Berkshire Hathaway (B shares), long January 2021 $200 calls on Berkshire Hathaway (B shares), short December 2020 $210 calls on Berkshire Hathaway (B shares), and short January 2022 $1940 calls on Amazon. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Berkshire Hathaway (B shares). 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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We are seeing a reversal of fortunes today with the Reject Shop Ltd (ASX: TRS) share price crashing and shopping mall stocks rally.

The Reject Shop share price tumbled 8.3% to $6.49 in the last hour of trade as the discount retailer held its annual general meeting.

But comments from its chief executive Andre Reich should send shivers down the spines of retail property stocks instead.

Reject Shop share price vs. ASX shopping centre stocks

He warned that the retailer planned to renegotiate rents for more than 60% of its stores over the next two years, reported the Australian Financial Review.

This didn’t faze mall owners. The Vicinity Centres (ASX: VCX) share price jumped 2.3% to $1.36, the Scentre Group (ASX: SCG) share price gained 2.9% to $2.30 and the Mirvac Group (ASX: MGR) share price added 2% to $2.28 at the time of writing.

But the turn in share prices today is only a blip. The TRS share price has surged 90% since the start of this calendar year, while ASX shopping centre stocks have crashed by between 16% and 40%.

Reject Shop throws down the gauntlet

Mr Reich is threatening to play hard ball. He will not hesitate to close stores if he can’t get what he wants, particularly shops in larger shopping centres.

This is because stores in neighbourhood centres and strip malls have outperformed those in the big malls and CBD locations.

This is probably the result of COVID‐19 restrictions where foot traffic in large malls and city centres have tumbled.

Cutting its way to growth

While Reject Shop is threatening to close stores on the one hand, it’s on the lookout to open new ones in lower cost locations.

It’s also trying to develop its online shopping portal to capitalise on the structural change in the way consumers shop.

Driving cost down is a key priority for the retailer as it’s on the first phase of its turnaround strategy. The key goal is to stop the slide in earnings and expand earnings before interest and tax (EBIT) margins to 5% from 0.6% that it posted in 2020.

Mr Reich is also looking to reduce range of items sold in stores by as much as 75% to simplify operations, cut costs and increase buying power.

Could supermarkets follow Reject Shop’s lead?

To better capitalise on the post-COVID world, Reject Shop will focus on everyday essentials such as detergent, package foods and pet products.

These items are in hot demand as consumers spend more time at home. Just ask Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL).

Speaking of which, I am sure the giant supermarkets are also thinking of ways to cut their leasing costs for much the same reason as Reject Shop.

More reading

• Top brokers name 3 ASX shares to buy today
• Here’s how much Coles (ASX:COL) and Woolworths (ASX:WOW) are benefiting from COVID-19
• 3 ASX shares I’d buy for summer 2021
• 5 ASX 200 events to watch for this week
• Buy Coles (ASX:COL) and this dividend share before the next RBA meeting

Motley Fool contributor Brendon Lau owns shares of Woolworths Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. 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 Atlas Arteria Group (ASX: ALX) share price has remained relatively flat today, despite the company providing an improved trading update.

At market open this morning, the Atlas Arteria share price reached as high as $6.34. However, the toll road company’s shares have since pulled back to $6.21, down 0.88% at the time of writing.

How did Atlas Arteria track for Q3 FY20?

Atlas Arteria reported a strong recovery following the impact of various international government responses to COVID-19.

For the quarter ending September 30, the company produced a revenue decline of 4% over the comparative period. This was a large improvement on the 44.2% drop of the June quarter compared to the prior corresponding period.

The resurgence of traffic levels was noticed particularly in France and Germany during the European summer months of July and August.

Let’s take a closer look at how each of Atlas Arteria’s segments performed.

France

The company operates APRR toll road networks in France and ADELAC on the A41 motorway between France and Switzerland. Overall traffic volumes for APRR and ADELAC were down marginally for the three months compared to this time last year. The relaxation of travel restrictions coupled with the start of the holiday season underpinned higher traffic volumes.

However, as a second wave of COVID-19 descends on France, government officials have reinstated limitations on social interaction. Thus, Atlas Arteria is experiencing softened traffic volumes and expects this to continue in the coming quarter.

United States

Across the Atlantic, Atlas Arteria’s United States road network saw a massive fall in traffic volumes. The reduction in commuting and a move to remote learning for schools has contributed to a fall of 44.8% over the prior corresponding period.

Pleasingly, the company said a staged-return of kindergarten to Grade 2 students is expected to occur in late October. It is anticipated this will have a positive impact on traffic on the Dulles Greenway in North Virginia.

Germany

Traffic on German toll roads for Q3 was up 0.8% over the same period in 2019. Mecklenburg-Vorpommern, the state in which the Warnow Tunnel is located, has reported few COVID-19 case numbers since the pandemic hit.

Social gatherings have been relaxed since early July, with regional tourism resuming and traffic returning to growth.

Atlas Arteria advised that although Germany was expecting a rise in COVID-19 cases, Mecklenburg-Vorpommern had been relatively unaffected.

About the Atlas Arteria share price

The Atlas Arteria share price fell to a 52-week low of $3.51 in the March COVID-19 crash before recovering to trade at prices over $6 by May. However, the share price remained flat in the following months, failing to recover to its pre-COVID levels.

The company has a market capitalisation of $5.9 billion.

More reading

• ASX 200 flat: Rio Tinto Q3 update, big four banks higher, GUD impresses
• 5 things to watch on the ASX 200 next week
• ASX 200 up 1.5%: Big four banks rocket higher, Premier Investments delivers record profit
• Why Atlas Arteria, Cochlear, Telix, & Treasury Wine shares are dropping lower

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. 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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I think there are a few ASX shares that Warren Buffett would want to have in his portfolio if he focused on Australia.

Warren Buffett has been one of the best investors in the world over the past five or six decades. He may not love many technology shares, but there are plenty of great industrial businesses that I think he’d like, such as these two:

APA Group (ASX: APA)

It owns a vast network of 15,000km of natural gas pipelines around Australia with a presence in every mainland state and the Northern Territory. It also owns or has interests in gas storage facilities, gas-fired power stations and renewable energy generation (wind and solar farms). APA owns, or manages and operates, a portfolio of assets and delivers half the nation’s natural gas usage.

I think Warren Buffett would like APA because it’s somewhat of a combination of Berkshire Hathaway Energy and Berkshire’s railroad divisions.

He likes businesses that most people need for everyday life. Gas is obviously a resource in high demand. The federal government is looking to gas to help provide power for the country’s recovery.

FY20 was a solid result with earnings before interest, tax, depreciation and amortisation (EBITDA) up by 5.1%, operating cashflow up 8.3% and net profit after tax (NPAT) up 10.1%.

The energy infrastructure ASX share continues to invest in new projects which can make more cashflow for APA. It has grown its distribution each year for the past decade and a half. At the current APA share price it offers a trailing partially franked yield of 4.6%.

Brickworks Limited (ASX: BKW)

It’s a building products business. One of Berkshire Hathaway’s larger divisions is Clayton Homes, so I think that shows Warren Buffett is interested in businesses related to the housing sector as a whole.

Brickworks is the biggest brick provider in Australia. It also sells other building products like precast, roofing, masonry and paving. It’s one of the most efficient building products businesses in the country. It strategically picks its time when to do plant shutdowns that require work and, every so often, it builds a top-quality new manufacturing plant.

Excess old land owned by the ASX share can be sold into its property trust which it owns equally with Goodman Group (ASX: GMG). This is a great strategy because it allows Brickworks to recognise the value of its land and then benefit from the long-term returns of industrial properties.

Two huge distribution centres are being built for Amazon and Coles Group Limited (ASX: COL) in Sydney. Once these are completed it will materially push up the net asset value (NAV) of the trust and increase net rental income. That will be good for the underlying value of Brickworks shares as well as its earnings and cashflow.

Brickworks also owns around 40% of ASX share Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which I think is the business that may be the closest thing the ASX has to Berkshire Hathaway because it owns both listed ASX shares and unlisted businesses.

The cross-holding between the two businesses has been there for decades and it has successfully kept corporate raiders away. For Brickworks, the Soul Patts shares help smooth earnings and cashflow during the difficult construction years (such as 2020).

The investment income from Brickworks’ property trust and the Soul Patts shares are enough to fund the Brickworks dividend to investors. Brickworks’ dividend has been maintained or grown every year for 40 years.

At the current Brickworks share price it has a grossed-up dividend yield of 4.5%.

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Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of APA Group and COLESGROUP DEF SET. 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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One of the worst performers on the Australian share market on Wednesday has been the Temple & Webster Group Ltd (ASX: TPW) share price.

The high-flying online furniture and homeware retailer’s shares have come under significant pressure today following the release of a trading update.

In afternoon trade the Temple & Webster share price is down a sizeable 15.5% to $11.88.

How is Temple & Webster performing in FY 2021?

Today’s trading update revealed that Temple & Webster’s strong growth has continued in FY 2021.

As of 19 October 2020, financial year to date, Temple & Webster’s revenue was up 138% on the prior corresponding period.

Growing at an even quicker rate was the company’s earnings thanks to a contribution margin above its 15% target. This is the margin after all variable costs, including advertising and customer service costs.

Temple & Webster reported first quarter earnings before interest, tax, depreciation and amortisation (EBITDA) of $8.6 million. This is more than the entire EBITDA it generated in FY 2020.

How does this result compare to expectations?

Based on the share price reaction, you might think that this update fell short of expectations.

However, a note out of Goldman Sachs reveals that Temple & Webster’s update has significantly outperformed its forecasts.

It commented: “YTD revenue (1 July–19 Oct) is up +138% vs. pcp with October revenue growth still >100% which is positive given TPW has now entered its peak trading months. Current revenue run rates are materially ahead of our forecast for 1H21 (+70.3%, A$126.2mn).”

The same applies to its earnings, thanks to its higher than expected contribution margin.

“Contribution margin continues to run ahead of a 15% target, despite the launch of a second TV campaign at the end of Q1 which we expect would have been slightly dilutive to contribution margins.”

“This compares to our expectation for contribution margin of 14.8%. Operating leverage is strong, and EBITDA is well ahead of our expectations, with 1Q21 EBITDA of A$8.6mn ahead of our 1H21 forecast of A$7.3mn and, for context, we forecast A$18.9mn EBITDA for FY21,” Goldman explained.

Is this a buying opportunity?

At present Goldman Sachs has a buy rating and $11.50 price target on the company’s shares.

However, I suspect that it will revisit its valuation in the coming days and, given its outperformance, is likely to lift its price target higher.

This could make today’s sizeable decline a buying opportunity for investors. Though, it may be best to let the dust settle before jumping in.

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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 Temple & Webster Group Ltd. The Motley Fool Australia has recommended Temple & Webster Group Ltd. 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 St Barbara Ltd (ASX: SBM) share price is edging lower on Wednesday following the release of its first quarter update.

In afternoon trade the gold miner’s shares are down almost 1% to $2.92.

How did St Barbara perform in the first quarter?

St Barbara had a difficult start to FY 2021 due largely to issues at its Gwalia operation in Western Australia.

According to the release, first quarter gold production was 72,990 ounces, down 32.7% on the fourth quarter.

This comprised Atlantic Gold production of 27,226 ounces, Gwalia production of 22,625 ounces, and Simberi production of 23,139 ounces.

Also heading in the wrong direction was its costs. St Barbara reported an all‐in sustaining cost (AISC) of A$1,711 per ounce. This was up 31.5% from A$1,301 per ounce in the previous quarter.

This was driven by a sharp increase in costs at Gwalia due to its lower production. Gwalia’s AISC came in at A$2,592 per ounce, up from A$1,389 per ounce in the previous quarter.

In light of this poor operational performance, St Barbara reported a sharp decline in its cash contribution. It came in at A$27 million for the quarter, down from A$126 million in the fourth quarter.

Outlook.

Despite the poor start to the year, the company’s production guidance implies solid growth in FY 2021 if it achieves the high end of its range.

St Barbara is forecasting production of 370,000 to 410,000 ounces, compared to FY 2020’s production of 381,887 ounces.

And if it hits the low end of its AISC guidance, it will mean a small cut to its costs this year. St Barbara’s AISC guidance is A$1,360 to A$1,510 per ounce, compared to FY 2020’s AISC of A$1,369 per ounce.

The company’s Managing Director & CEO, Craig Jetson, appears confident on the future and notes that St Barbara is working hard to unlock value.

He commented: “Our project pipeline is central to Building Brilliance; this is of particular relevance to our Atlantic Gold and Simberi Operations. Delivering on our potential in a timely, cost‐appropriate way is key to driving deliberate and value‐accretive growth.”

“In the second quarter of FY21, we will elaborate on our aspiration to unlock value in our organisation, improve safety, deliver cost savings and improve our productivity,” he concluded.

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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. 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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