Tag: Motley Fool

On Monday I looked at three ASX shares that brokers have given buy ratings to this week.

Unfortunately, not all shares are in favour with them right now. Three that have just been given sell ratings are listed below.

Here’s why these brokers are bearish on these ASX shares:

Domino’s Pizza Enterprises Ltd (ASX: DMP)

According to a note out of Credit Suisse, its analysts have retained their underperform rating but lifted the price target on this pizza chain operator’s shares to $61.32. Although the broker has upgraded its estimates to account for strong like for like sales growth in FY 2021, it isn’t enough for a change in its rating. Credit Suisse believes the company’s shares are overvalued at the current level. The Domino’s share price is trading at $81.31.

HUB24 Ltd (ASX: HUB)

Another note out of Credit Suisse reveals that its analysts have downgraded this investment platform provider’s shares to an underperform rating with a $16.30 price target. While HUB24 is performing well and benefiting from industry tailwinds, the broker believes this is more than priced into its current share price. Furthermore, the broker appears concerned that its margins could be squeezed if the RBA cuts rates again. The HUB24 share price is changing hands for $18.01 this afternoon.

Reliance Worldwide Corporation Ltd (ASX: RWC)

Analysts at Morgan Stanley have downgraded this plumbing parts company’s shares to an underweight rating with an improved price target of $4.00. Morgan Stanley notes that Reliance has started FY 2021 very strongly. However, it doesn’t believe investors should get carried away and warned that this strong growth is unlikely to persist. In light of this, it feels its shares are overvalued at the current level. The Reliance Worldwide share price is trading at $4.26 on Tuesday afternoon.

More reading

• Where to invest $10,000 into ASX shares next week
• How to generate a passive income of $50,000 with ASX shares
• ASX 200 rises 1%, Reliance Worldwide (ASX:RWC) climbs 11%
• ASX 200 up 1.6%: CBA higher on COVID-19 loan deferrals update, Reliance rockets
• Why BHP, Paradigm, Reliance, & SeaLink shares are charging 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 Hub24 Ltd and Reliance Worldwide Limited. The Motley Fool Australia has recommended Domino’s Pizza Enterprises Limited, Hub24 Ltd, and Reliance Worldwide 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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A common phrase one might hear in the course of their investing journey is the old maxim ‘time in the market beats timing the market’. Whilst this proverb appears simple in nature, it is actually quite a multi-layered concept. Still waters run deep and all that.

So what does this quote actually mean? Well, on the surface, it tells us that investing capital consistently and steadily into the share market is a better strategy than trying to jump in and out of the market when you see a ‘low’ or a ‘high’. In this way, this quote sort of goes against that other famous investing dictum ‘buy low, sell high’.

But why is this the case? Surely, it’s better to ‘buy the dips’ than just focusing on maximising the ‘time in the market’…

Well, theoretically yes it is. Waiting until a quality share hits a low pricing point is a great way to make money. But theory and practice are extremely divergent when it comes to investing. See, we investors just aren’t very good at the whole ‘timing’ thing. It’s psychologically abhorrent to us as humans to sink large amounts of capital into shares when the market is selling off. Doubts start to creep in, like ‘what if it drops again tomorrow?’ or ‘I’ll just wait a little longer’. No one truly knows when the market tops out or bottoms out until after it has happened. As such, any decision to try and ‘find the bottom’ is actually a gamble, a bet on when you think the markets will give you the best deal. If you get this deal wrong, the consequence is usually a permanent loss of capital.

Time vs Timing

So why is time in the market so much better? Well, firstly, it’s because it takes this ‘guess the bottom’ element out of the equation. By focusing on the long term, it’s far easier to ignore the cut and thrust of the markets from day to day. Sure, it’s still scary watching the value of your share portfolio fall from time to time (as we saw back in March). But today, the S&P/ASX 200 Index (ASX: XJO) and ASX shares have recovered substantially from where they were on 23 March. All you had to do to benefit from this was… give it time.

But time in the market is really about harnessing the power of compound interest. Compounding is the best thing about investing in ASX shares, and it’s usually what makes investors like Warren Buffett rich. Why do you think Buffett, at age 90, is as rich as he has ever been? Time in the market of course. If you are able to achieve a consistently high annual rate of return over decades and decades, building wealth is almost inevitable. And Buffett has never tried to time a market in his life. But pushing and pulling your money in and out of the market kneecaps the compounding process. And all it takes is one massive mistime to end up back at square one.

Foolish takeaway

Long story short, I believe time in the market beats timing the market, every time. And it’s easier too. What’s not to like?

More reading

• ASX 200 down 0.2%: Northern Star & Saracen announce mega merger, IAG settles class action
• Meet the latest ASX small cap stock that’s racing ahead during COVID
• Why now is a great time to buy ASX shares
• 5 things to watch on the ASX 200 on Tuesday
• Altium (ASX:ALU) updates market on restructure

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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 wild ride continues for ASX banking shares in 2020. Bank shares like Commonwealth Bank of Australia (ASX: CBA) have had a topsy turvy year, to say the least. Despite yesterday’s massive 3.3% surge, CBA shares are still down more than 17% in 2020 so far. And that’s the best of the bunch.

CBA’s banking brethren have fared far worse. Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking GrpLtd (ASX: ANZ) are all down roughly 50% in 2020 so far. And that comes on top of a conspicuous lack of dividend payments from ASX bank shares this year, something ASX banking investors are not used to seeing from the big four.

Yes, CBA has managed to pay out a respectable $2.98 in dividends in 2020 (down from $4.31 in 2019). But NAB and ANZ have both paid out paltry dividends that pale in comparison to 2019’s levels. And Westpac has yet to even announce a dividend in 2020 after cancelling its interim payment earlier in the year. That nasty $1.3 billion fine won’t help either.

So which ASX bank is looking hot today? Let’s take a look at what the market is telling us about bank shares.

ASX banks – hot or not?

At the time of writing, CBA shares are asking $65.96 each. NAB is trading at $18.16, whereas Westpac is going for $17.25. ANZ brings up the rear at $17.78.

At this share price, CommBank is trading on a price-to-earnings (P/E) ratio of 16.13.

NAB? It’s current P/E ratio stands at 16.31. Westpac is on 12.95x earnings, while ANZ is asking a 12.1 ratio.

So on these simple metrics, it appears CommBank and NAB are the most expensive ASX bank shares today, while the market is heavily discounting ANZ and Westpac by comparison.

On one level, this seems fair. CBA is unquestionably the healthiest ASX bank today. It has been able to keep its dividends flowing while the other 3 majors have struggled. And sheer size is certainly an advantage in this uncertain world. But a P/E ratio of more than 16 is certainly a lot for a bank share. Other major banks around the world don’t normally trade anywhere near this valuation. For example, Bank of America Corp (NYSE: BAC) is one of the largest banks in the US and the world. Yet it is currently trading on a P/E ratio of 11.83

Whilst one might be able to justify CBA at these levels, in my view we can’t say the same of NAB. NAB has already diluted shareholders once this year with a massive $3.5 billion capital raise. As such, I’m not seeing much value in the NAB share price today.

Westpac I am not interested in, not least because Westpac has been one of the worst performing ASX shares this century so far. You could have picked up Westpac shares in the midst of the 2008/09 global financial crisis for around the same price as today. Think about that for a minute!

That leaves ANZ, which I actually think is looking like a good deal at today’s prices. ANZ hasn’t diluted shareholders in 2020 so far, and has paid a small dividend of 25 cents per share. Whilst I’m not personally interested in investing in the ASX banks this year, if I had to, ANZ would probably by my pick of the bunch.

More reading

• ASX 200 jumps 2.6%, big 4 banks surge
• Top broker tipping turnaround in ASX big bank profit margins
• Why today’s NAB (ASX:NAB) share price gains could be just the beginning
• ASX 200 up 2.3%: Big four banks charge higher, Qantas soars, energy shares jump
• Why Costa, Qantas, Santos, & Westpac shares are storming higher today

Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited. 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 Which ASX banking share is the cheapest today? appeared first on Motley Fool Australia.

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Change is afoot.

In fact, change is sprinting at a pace Australians have rarely seen before.

While rapid change can be disconcerting, it also opens the doors to a myriad of new ASX investment opportunities.

That’s not to say you should junk your existing investments. Far from it. Though it’s worth reviewing your share holdings every few months to make sure they’re still aligned with your original investment goals.

With a rapidly changing share market, it can also be tempting to try to time your entries and exits.

Hold onto the shares you’re happy with

But as Perpetual’s Thomas Rice explains, for most people — including himself — attempting to time the market is a mistake.

Rice manages the Perpetual Global Innovation Share Fund, which has returned 27.7% net of fees for the three years to 30 September, including dividends.

When it comes to trying to time the share market’s rapid decline and rebound, Rice says (as quoted by the Australian Financial Review (AFR)):

The recovery was a lot faster than I expected, but that kind of shows why I don’t try to time the market because I think I’d do a worse job. There are very few people that time the decline – and the recovery. So for me it’s all about keeping fully invested, but making sure I’m happy to own everything I own at current prices.

So if he doesn’t jump in and out of shares trying to time the highs and lows, how has his fund managed such market thrashing returns? Rice says:

Everything that actually matters in investing is in the future. Any stock is going to be based on its future cash flows. It’s not observable. It’s entirely theoretical. So it’s all about coming up with theories about how businesses develop, what creates a competitive advantage and why it’s not competed away.

Getting a grip on what the future is likely to look like, and which shares are likely to see their cash flows ramp up, isn’t always straightforward. And, of course, there are no guarantees things will play out as forecast.

But when you get it right, the returns can be highly rewarding.

A $50 billion niche market

One area that’s rapidly evolving in Australia is the banking space.

As the big banks tighten their lending to higher risk assets, this is opening up new opportunities for some smaller players in the commercial real estate debt markets.

According to consultancy Plan1 co-founder Richard Jenkins (quoted by the AFR):

I expect that the four major Australian banks will continue to reweight their commercial real estate debt portfolios in the wake of the pandemic and lower their exposure to the tourism and retail sectors in coming years… They will focus on funding prime assets at low-leverage levels given the impending increased capital requirements to be implemented by APRA.

Jenkins expects non-bank lenders’ share of commercial real estate lending will balloon to more than $50 billion by 2024.

In case you’re not familiar, non-banks function similarly to traditional banks, providing real estate and car loans at competitive rates. However, they do not take deposits and they’re not held to the same capital requirements as traditional banks like Westpac Banking Corp (ASX: WBC) or Commonwealth Bank of Australia (ASX: CBA).

If you’re looking for a loan outside of the traditional banks, there are a number of non-banks to choose from. However, many of these are private companies.

If you’re looking to own shares in one of the non-banks which could capture a growing slice of Australia’s commercial real estate loan market, I suggest you investigate Resimac Group Ltd (ASX: RMC).

Resimac has a market capitalisation of $599 million and has an annual dividend yield of 2.0%, fully franked. It operates in Australia and New Zealand, claiming a distribution network of more than 12,000 mortgage brokers.

The company had a stellar year in 2019, with the Resimac share price gaining 236% over 12 months.

Then COVID-19 angst rippled across the economy and share markets. The Resimac share price was hit particularly hard, falling a stomach churning 76% from 26 February through to 23 March.

The rebound, though, was even more spectacular. Investors lucky enough to have bought shares on 23 March would be sitting on a gain of 245% today (at the time of writing). That rebound sees the Resimac share price up 1.33% year to date.

The CBA share price, by comparison, is still down nearly 18% for the year. And the Westpac share price is down nearly 29%.

While the big banks are likely to see their share prices recover as new government stimulus measures roll through the economy, it’s some of the smaller players, like Resimac, which could offer investors the biggest gains.

More reading

• 3 ASX trends to watch in budget week
• Which shares to buy now with $10,000

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. 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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It has not been a great day for Mayne Pharma Group Ltd (ASX: MYX) shareholders. The Mayne Pharma share price has tanked today following a setback on its new drug application for a generic version of Nuvaring.

At the time of writing, the Mayne Pharma share price is heavily down 15.79% to 32 cents.

What does Mayne Pharma do?

Mayne Pharma is a pharmaceutical company that focuses on the delivery and commercialisation of branded and generic drugs. The technology-driven business provides contract development and manufacturing services to more than 100 clients worldwide. Its global reach spans across Australia, North America, Europe and Asia. The business is supported by over 900 staff and 200 scientists formulating new oral and topical drugs.

What happened?

The Mayne Pharma share price has, to a lesser extent, today mimicked the fall of Mesoblast Limited (ASX: MSB) last week when that company received its own update from the United Stated Food and Drug Administration (FDA). As was the case with Mesoblast, the FDA issued a complete response letter to Mayne Pharma.

The FDA has raised questions in relation to the company’s generic version of the drug Nuvaring. In response, Mayne Pharma advised it was working closely with its development partner, Mithra Pharmaceuticals to address the issues.

Mayne Pharma noted that following its resolution of the FDA’s concerns, a new target action date will be set for its new drug application (NDA).

Mayne Pharma CEO, Scott Richards, remains driven to have the company’s generic Nuvaring drug available to the market. He said:

We are confident we can address the issues raised in the letter in a timely manner. Pleasingly, the FDA has indicated that Mayne Pharma and its development partner Mithra have an acceptable manufacturing process for generic Nuvaring. Furthermore, the market opportunity continues to be highly attractive with only one independent generic approved and an addressable market of US$920m.

In addition to the news, the company also participated in a mid-cycle review meeting with the FDA regarding its Nextstellis drug. Mayne Pharma stated that it did not receive notification of any significant issues or major safety concerns. The company said that the meeting signalled the halfway mark to its NDA review process. It expects to be granted commercialisation rights of the novel oral contraceptive within six months

About the Mayne Pharma share price

The Mayne Pharma share price has risen 60% since falling to its 52-week low of 20 cents in March. Although now materially lower, before the news today, the Mayne Pharma share price was up almost 12% since the start of last month.

More reading

• Why IAG, Mayne Pharma, Mesoblast, & Temple & Webster shares are tumbling lower
• The Mayne Pharma (ASX:MYX) share price leaps almost 8% higher

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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The 2020 stock market crash has caused many income stocks to offer higher yields. This could not only improve their appeal among dividend investors. It may also make them attractive to long-term growth investors due to reinvested dividends making up a large portion of the stock market’s past total returns.

As such, now could be the right time to build an income portfolio. It could outperform other assets and lead to an improvement in your financial situation.

High dividend yields among income stocks

Following the COVID-19-led stock market crash, many income stocks now offer high dividend yields. Their low prices and maintained shareholder payouts mean that, in some cases, they offer income returns that are significantly higher than their historic averages.

As a result, they could offer an impressive income return in an era where low interest rates look set to remain in place for a prolonged period. This could cause increasing demand among investors for those dividend shares that offer a reliable above-inflation return. This may prompt higher prices for dividend shares that produces impressive capital returns alongside their income prospects.

Even though some income stocks have cut their dividends since the start of the year, it is still possible to build a diverse portfolio of dividend stocks. Over time, it could produce a surprisingly high level of total returns.

A lack of income opportunities elsewhere

Another reason to purchase income stocks today is the lack of opportunities available elsewhere. An investor who is seeking to make a generous income return from their capital now has limited choice as a result of low interest rates. Cash and investment-grade bonds, for example, offer returns that are lower than inflation in some cases. This could lead to a loss of spending power over the long run that negatively impacts on your financial outlook.

Meanwhile, other assets such as property may lack the high yields that are available in the stock market due to house price growth over the past decade. Therefore, buying dividend stocks could be one of the few ways to generate an inflation-beating income that grows over the coming years.

Total return potential

Income stocks are not only appealing to those investors who are seeking to live off payouts from their holdings. A large proportion of the stock market’s past total returns have been derived from the reinvestment of dividends. Therefore, investors who are seeking to generate capital growth from their portfolio over the long run could buy a range of income shares in order to generate rising capital values over the coming years.

At a time when some growth stocks are overvalued, this could be a sound means of building a nest egg. It could lead to you enjoying a generous passive income in older age.

More reading

• Mayne Pharma (ASX:MYX) share price dives 16% on FDA update
• A2 Milk and Mesoblast were among the most traded shares on the ASX last week
• Why the Envirosuite (ASX:EVS) share price has rocketed up today
• 3 top small cap ASX shares to buy right now
• ASX 200 down 0.2%: Northern Star & Saracen announce mega merger, IAG settles class action

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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This morning Australia’s leading investment platform provider CommSec released data on the most traded ASX shares on its platform from last week.

A number of familiar faces have made it into the top five again this week, with one company far and away the most traded share on the platform.

Here’s the data:

Mesoblast limited (ASX: MSB)

Mesoblast shares were easily the most traded shares on the CommSec platform last week and accounted for 5.6% of total trades. And while a sizeable 75% of these trades came from buyers, it wasn’t enough to stop the Mesoblast share price from losing 35% of its value. An unfavourable decision by the US FDA led to the share price weakness.

A2 Milk Company Ltd (ASX: A2M)

This infant formula company’s shares were popular with retail investors last week and were responsible for 2.6% of total trades on the platform. It appears as though investors were taking advantage of an 18.5% decline in the a2 Milk share price following a disappointing trading update to pick up shares. Approximately 83% of these trades came from buyers.

BrainChip Holdings Ltd (ASX: BRN)

This artificial intelligence technology company’s shares are in the top five again. BrainChip shares accounted for 2.4% of trades on the CommSec platform last week, with 62% coming from buyers. This buying support couldn’t stop the BrainChip share price from losing almost 23% of its value over the five days.

Zip Co Ltd (ASX: Z1P)

Investors were trading this buy now pay later provider’s shares in large numbers last week. Approximately 2.2% of trades on the CommSec platform were attributable to Zip’s shares. And although the company’s shares rose almost 9% during the week, just 38% of these trades came from the buy side.

Flight Centre Travel Group Ltd (ASX: FLT)

Finally, reductions in COVID-19 numbers in Victoria and news that a travel bubble would soon be opening between Australia and New Zealand gave the travel sector a boost last week. This led to Flight Centre shares accounting for 1.8% of trades on the CommSec platform. Buyers accounted for 56% of these trades, helping drive its shares 6% higher for the week.

More reading

• Why IAG, Mayne Pharma, Mesoblast, & Temple & Webster shares are tumbling lower
• Why this ASX tech share could be better than BNPL stocks 
• Could the Zip share price be ready to have a crack at $10 again? 
• Should you buy the A2 Milk Company Ltd (ASX: A2M) share price dip? 
• Afterpay vs Zip, which is the better investment?

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 ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool Australia has recommended Flight Centre Travel Group 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 Envirosuite Ltd (ASX: EVS) share price has surged today following the release of its Q2 FY21 update.

The Envirosuite share price rocketed up 11.1% to 20 cents in earlier trade before dropping to 19 cents, up 5.56% at the time of writing. This compares to the All Ordinaries Index (ASX: XAO) which is down 0.1% at 6,130 points.

Let’s take a look at how Envirosuite is tracking for the quarter.

Strong start to Q2

The global leader in environmental intelligence announced three contract sales of more than $1 million in the first week of Q2.

The new contracts include Envirosuite’s first ever sale of its new Smart Water software product suit with GHD Group Australia. The software is designed to assist GHD engineers in the modelling, design, calibration and validation of water, wastewater treatment and desalination plants. Envirosuite advised of potential for further software licence sales to GHD customers.

Envirosuite said that its Water Designer suite was the first of several new software solutions being rolled out globally. It is estimated that there are around 25,000 water treatment sites that could benefit from Envirosuite’s Smart Water products.

In addition, the company signed a new minimum 6-year odour management contract with Veolia France. The agreement is the sixth Veolia site to become an Envirosuite customer across 4 countries. The new deal will see Envirosuite’s product be used by the plant’s operators to help manage the detection and prediction of odour.

Lastly, Istanbul Airport committed to a 5-year arrangement for a noise management solution. Turkey’s newest airport which accommodates more than 200 million passenger per year, stated that Envirosuite’s best in class products was a deciding factor.

What did management say

Envirosuite CEO Peter White was excited about the new contracts. He said:

EVS’s Water solutions have demonstrated they can make a positive environmental and cost impact in the global water sector, while the new contract with Istanbul Airport underscores the value of EVS’s noise and vibration monitoring technology to airports as flight volumes begin to increase around the world.

Istanbul is a new airport customer in a new country for EVS. It has ambitions to become the biggest airport in the world. The initial term is for five years and we look forward to a long association.

Mr White said the company was also excited to have commercialised the first of its new Smart Water products with GHD Australia and to extend its global relationship with Veolia, adding:

These new contract wins so early in Q2 FY21 highlight both the attractiveness of Envirosuite’s solutions to global operators in water and airports and also the strength of our sales pipeline across all the sectors in which we operate.

Envirosuite share price summary

The Envirosuite share price has made strong comeback since falling to a 52-week low of 7 cents in March. With a market capitalisation of $199 million, the positive start for Q2 FY21 may push the Envirosuite share price close to its multi-year high of 39 cents.

More reading

• Why the Image Resources (ASX:IMA) share price is rocketing higher today
• Why the Envirosuite (ASX:EVS) share price is zooming up 26% today
• Why the Droneshield (ASX:DRO) share price has rocketed higher
• Starpharma (ASX:SPL) share price tumbles on oversubscribed placement
• Why the Paradigm (ASX:PAR) share price has rocketed 8% higher today

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 that small cap ASX shares could be great buys right now.

Small caps have a lot of potential. They are a lot earlier on in their overall growth journey compared to a blue chip. ASX small caps could deliver a lot of growth. Sometimes they are valued lower than larger peers because many investors haven’t discovered them yet.

I believe a small cap has a market capitalisation of less than $1 billion. You could argue that small caps are ones worth less than $500 million or $300 million, but I think $1 billion is a good milestone.

With that in mind, here are three small cap ASX shares I’d be willing to buy today:

BWX Ltd (ASX: BWX)

BWX is a natural beauty business with a variety of growing brands. It’s generating strong performance at the moment – in FY20 net revenue rose 26%, the gross margin increased to 58%, earnings before interest, tax, depreciation and amortisation (EBITDA) climbed 30% and statutory net profit increased 59%.

A pleasing aspect of BWX is that its multiple brands have multiple growth avenues. Sukin is largely based in Australia, but it’s now expanding overseas. Andalou Naturals and Mineral Fusion are American brands that are now growing internationally as well.

Sukin, the most important brand, is becoming increasingly available to mass channels in the USA and Europe, which led to revenue growth of 55% last financial year.

The small cap ASX share is looking to build a new manufacturing hub which will help future growth. It’s expecting revenue and EBITDA growth of at least 10% in FY21.

At the current BWX share price it’s trading at 34x FY21’s estimated earnings.

City Chic Collective Ltd (ASX: CCX)

City Chic is another Aussie business growing globally.

It’s a retailer of plus-size clothing, footwear and accessories for women. FY20 was a disrupted year with COVID-19 causing store closures. This is during a period of significant growth and investment for the company.

The small cap ASX share’s focus on providing a good online experience has really helped over the past seven months. In FY20, 65% of its total sales were online, and online sales grew by 113.5% compared to FY19.

It’s no longer just an Australian bricks and mortar retailer. The company is seeing growth of its northern hemisphere business thanks to organic growth as well as targeted acquisitions. The northern hemisphere accounted for 42% of its global sales, up from 20% in the prior year.

It was recently unsuccessful with its bid for Catherines, a US competitor which was in financial difficulty. However, I like the strategy of trying to buy competition during this period because it means it can get it for a cheap price and turn that brand into an online-only offering. I’m sure management are looking for another target to try to buy.

At the current City Chic share price it’s trading at 23x FY22’s estimated earnings.

Australian Ethical Investment Limited (ASX: AEF)

Australian Ethical is one of the most promising fund managers on the ASX.

The small cap ASX share is consistently growing its funds under management (FUM), whereas other fund managers are seeing mixed FUM performance and a regular outflow of funds.

In FY20 it saw net profit increase by 46% to $9.5 million with underlying profit after tax growing by 42% to $9.3 million. Excluding the impact of a $3.6 million performance fee, revenue and underlying profit after tax both increased by 15%.

Two of the most promising statistics related to its FUM. It experienced net inflows of $660 million (up 100%) and 19% growth of FUM to $4.05 billion.

There is a growing trend of people looking for ethical investments, ones that do good for the world, or at least don’t have negative impacts on the world. A key factor of Australian Ethical is that it’s a superannuation provider. That means it’s exposed to the useful mandatory contributions and tax-advantaged system. As it scales it can reduce fees for investors, making it more attractive and could attract further FUM. 

The Australian Ethical share price has fallen by around 50% since 19 June 2020. I think now is a good opportunity to buy it at a much cheaper price than before despite the small cap ASX share’s growth prospects still being strong.

More reading

• 3 small cap ASX shares I’d buy with $3,000 right now
• The BIG problem with ASX ethical investing
• I waited 10 years before pouncing on this stock
• 3 ASX shares you’ll regret not buying during this correction
• 3 ASX growth shares I’d buy today for growth and income

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 Australian Ethical Investment Ltd. The Motley Fool Australia owns shares of and has recommended BWX Limited. The Motley Fool Australia has recommended Australian Ethical Investment 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.

The post 3 top small cap ASX shares to buy right now appeared first on Motley Fool Australia.

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At lunch on Tuesday the S&P/ASX 200 Index (ASX: XJO) is on course to end its winning streak. The benchmark index is currently down 0.2% to 5,928.7 points.

Here’s what is happening on the market today:

Northern Star-Saracen Mineral mega merger.

Both the Northern Star Resources Ltd (ASX: NST) share price and the Saracen Mineral Holdings Limited (ASX: SAR) share price are storming higher on Tuesday after the gold miners announced a mega merger to create a $16 billion gold mining giant. Management notes that the merger will create a top 10 global gold company targeting production of 2 million ounces of gold per annum exclusively in tier-1 locations. It also expects the merger to result in unique pre-tax synergies of $1.5 billion to $2 billion.

IAG announces class action settlement.

The Insurance Australia Group Ltd (ASX: IAG) share price is dropping lower on Tuesday after announcing that it has settled a class action brought against it by Johnson Winter & Slattery. According to the release, the class action related to add-on insurance products sold through motor vehicle and motorcycle dealers. Insurance Australia has agreed to pay $138 million, which remains subject to approval by the Federal Court of Australia. Inclusive of all related costs and after insurance recoveries, IAG anticipates a net after tax impact from this settlement of less than $50 million.

BHP increases Shenzi stake.

The BHP Limited (ASX: BHP) share price is trading lower today after announcing an agreement to acquire an additional 28% working interest in the Shenzi development in the deepwater Gulf of Mexico. BHP has agreed a purchase price of US$505 million. This deal will increase the mining giant’s working interest to 72% and immediately add approximately 11,000 barrels of oil equivalent per day of production.

Best and worst ASX 200 performers.

The best performer on the ASX 200 on Tuesday has been the Northern Star share price with a 7% gain following its merger announcement. The worst performer has been the Mirvac Group (ASX: MGR) share price with a 3.5% decline on no news. A number of property companies have come under pressure today.

More reading

• Why Baby Bunting, Northern Star, Oil Search, & Telix shares are storming higher
• Why IAG, Mayne Pharma, Mesoblast, & Temple & Webster shares are tumbling lower
• Meet the latest ASX small cap stock that’s racing ahead during COVID
• Northern Star (ASX:NST) and Saracen (ASX:SAR) announce mega merger
• BHP (ASX:BHP) share price lower after US$505 million Shenzi oil investment

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.

The post ASX 200 down 0.2%: Northern Star & Saracen announce mega merger, IAG settles class action appeared first on Motley Fool Australia.

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