Tag: Motley Fool

The Xtek Ltd (ASX: XTE) share price has surged higher today on the back of a positive market update. At the time of writing, the Xtek share price is up 3.45% to 60 cents. This compares to the All Ordinaries Index (ASX: XAO) which is down 0.42% to 6,051 points.

About Xtek

Defence company, Xtek specialises in a range of products for government agencies, law enforcement, military and space and commercial sectors. Its key products include ballistic armour, lightweight and tactical human load carriage equipment, robotic mechanical systems and unmanned crafts.

International delivery

The Xtek share price was on the move after the company announced it has completed delivery of the first batch of its XTclave manufactured plates to CPE Production OY in Finland. The company said that the shipment of 250 plates will be used by the Finnish Defence Force.

The delivery follows the initial commercial purchase in May and subsequent upsized order in June. The total value of the deal is $2 million.

The company said the acceptance of the plates is one of five Xtek products that are already qualified. The next deliveries are to be fulfilled in the near term, which will complete the contract.

Xtek Managing Director, Mr Phillipe Odouard, commented that the company is confident of continuing to make tailwinds. Mr Odouard said:

We are proud to be able to complete this initial delivery on the back of a long-standing relationship with Finnish Defence. The delivery provides validation of our technical capabilities and products, as well as our international commercialisation strategy.

We continue to make strong progress with other potential customers, including in a range of different channels in the US.

Should you invest in the Xtek share price?

I think that Xtek is an exciting company along with other players in the defence sector such as Electro Optic Systems Holdings Ltd (ASX: EOS). While Xtek is a much smaller company, valued at around $41 million, the potential use for its applications is enormous.

In light of this, I will be adding the Xtek share price to my watchlist and keeping a close eye on its performance over the coming months.

More reading

• 3 booming ASX shares for the new space age

Aaron Teboneras owns shares of Electro Optic Systems Holdings Limited. 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. 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 Collins Food Ltd (ASX: CKF) share price has inched higher today after the company provided an update on its Sizzler stores. At the time of writing, the Collins Food share price is up 0.77% to $10.46. This compares to the S&P/ASX 200 Index (ASX: XJO) which is down 0.48% to 5,852 points.

What does Collins Foods do?

Collins Foods operates dine-in and takeaway restaurant franchisees in Australia, the Netherlands, Germany and Asia. The group’s brands include KFC, Taco Bell and Sizzler.

Sizzler Australia

Earlier today, Collins Foods announced that it will close its nine remaining Sizzler restaurants in Australia by 15 November. The company said that its network chain of Sizzler has been under constant performance review since 2015. In addition, the group advised it no longer considered Sizzler Australia to be in its core brand portfolio.

Until the start of this year, trading continued in remaining stores with forward lease obligations and cash flow positive earnings. However, since COVID-19 impacted social norms, Sizzler has been slow to recover as compared to Collins Foods’ other brands. Revenue and earnings have effectively been performing at a loss since the onset of the pandemic.

The remaining restaurants are all company-owned leasehold sites, which are due for renewal over the next four months. Costs associated with lease breaks are expected to be minimal.

Collins Foods stated it will continue to licence the Sizzler brand in Asia, and does not see any forthcoming changes to those operations.

Commenting on the closure of the Sizzler Australia restaurants, CEO Drew O’Malley said it had been a difficult decision for the company. He said:

Closing restaurants is not something we do often and not a decision we take lightly, especially for a brand as beloved as Sizzler which has been such an important part of the Collins Foods’ history.

Furthermore, Mr O’Malley pointed to the slight impact on the group’s revenues for FY20 and beyond. He said:

In FY20, Sizzler Australia revenues accounted for less than 3 percent of Collins Foods’ total revenue. While the Sizzler Australia closure will allow us to minimise current-year and future losses, there will be some one-off closure costs that will be reflected in the upcoming half-year results.

Collins Foods share price summary

The Collins Foods share price performed strongly late last year before plummeting to a 52-week low of $3.50 in March. Since then, the Collins Food share price has recovered, sitting just below its 52-week high of $10.96. Collins Foods has a market capitalisation of $1.2 billion and a price-to-earnings (P/E) ratio of 39, indicating investor appetite for its shares.

More reading

• 2 strong ASX shares I’d buy today for growth and income
• ASX 200 down 0.9%: Tech shares push higher, gold miners sink, New Hope results
• Why Collins Foods, ResMed, Regional Express, & Xero shares are pushing higher
• 2 stellar mid cap ASX shares to buy in September

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Collins Foods 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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Is the WAM Global Limited (ASX: WGB) share price a buy for dividends?

Over time it could become one of the most useful ASX dividend shares to own in my opinion.

A quick overview of WAM Global

WAM Global is a listed investment company (LIC) with a focus on international shares. It was set up by Wilson Asset Management (WAM) in June 2018.

The job of a LIC is to invest in other shares which management believe are exciting opportunities.

The WAM investment team have a particular investment style. They try to find undervalued growth businesses where there is a catalyst which could send the company’s share price higher.

The lead portfolio manager of WAM Global is Catriona Burns.

Dividend yield and growth

At the current WAM Global share price it has a grossed-up dividend yield of 4.7%. That may not seem that high, but it’s the dividend growth that is particularly compelling. The WAM Global board decided to declare a final dividend of 4 cents per share, which was a 100% increase compared to FY19.

I think WAM Global can steadily increase its dividend and yield for investors as it generates returns and builds its profit reserve.

However, I’m not sure that investors can expect WAM Global to have as high of a dividend yield as WAM Capital Limited (ASX: WAM) because international shares obviously don’t attach franking credits to their dividends to WAM Global. Besides, not every LIC needs to a have a huge yield – I’d prefer a healthy mix of capital growth and dividends. 

Current investments

ASX shares only represent around 2% of the total global share market. There are plenty of high-quality investment opportunities outside of Australia which WAM Global can give investors access to.

At the end of August 2020, some of its largest investments included: Tencent, Arista, Aon, Avantor, Auto Zone, CME Group, Dollar General, EA, Edwards, Hasbro, Intuit, Lowe’s, Microsoft, Nomad Foods, Stroer, Software One and Thermo Fisher Scientific.

As you may be able to tell by the holdings, there is a noticeable weighting to US shares, but that’s just where a lot of the global share market is based. Just under two thirds of the portfolio was listed in the US, 7.9% was listed in Germany, 3.4% in Switzerland, 3.3% in the UK, 2.7% in Australia, 2.6% in Hong Kong and 2.1% in Japan with another 9.7% listed elsewhere.

It also had 5.2% of the portfolio as cash, which gives it an opportunity to buy other shares if it sees an opportunity.

Is the WAM Global share price a buy?

Aussies, particularly retirees, may be too focused on ASX shares for their portfolios. Particularly large cap ASX shares. Many of those large ASX names don’t offer much growth or global earnings diversification.

WAM Global offers investors a decent starting dividend yield, which is pretty good considering how low interest rates are at the moment.

Over the long-term I think this LIC will be good for dividend income because of the diversification that it offers and its focus on growth.

At the current WAM Global share price it’s trading at a 10% discount to the net tangible assets (NTA) at 31 August 2020 of $2.37.

One sign of whether something is a good buy is whether management are buying shares. It was announced today that WAM founder Geoff Wilson AO has bought $383,846 worth of WAM Global shares this week at an average price of $2.12 per share. He actually sold a similar amount of WAM Research Limited (ASX: WAX) shares to fund the acquisition of shares.

If Geoff Wilson thinks that the shares are worth buying this week then I think it’s worth paying attention.

I’d be happy to buy a parcel of WAM Global shares and buy more if the discount to the share price widens, or if there is a widespread selloff of global shares.

More reading

• 2 ASX shares I would buy for growth and income
• Is the new WAM Alternative Assets LIC a buy?
• 2 ASX dividend shares with fully franked yields over 4%
• ‘We could be heading for a lot of pain’

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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High yield stocks have lost out to high growth momentum stocks. But this could be the time to be buying this generous ASX dividend paying stock.

The stock in question is the Alumina Limited (ASX: AWC) share price and Citigroup just upgraded the miner to “buy” from “neutral”.

This is in part due to the broker’s belief that its dividend yield is set to surge to 13.6 cents a share by FY22. This puts the stock on a forecast yield of around 14% for that year – which will make it one of the best yielders on the S&P/ASX 200 Index (Index:^AXJO).

Time for ASX high-yield dividend stocks to shine

I know ASX income stocks have lagged their growth counterparts over the past year or two. Just look at the Afterpay Ltd (ASX: APT) share price and Kogan.com Ltd (ASX: KGN) share price.

We really don’t need to talk about popular dividend stocks either given where the Westpac Banking Corp (ASX: WBC) share price and Telstra Corporation Ltd (ASX: TLS) share price are currently sitting.

But where valuations stand at the moment, I prefer high yielders and value buys in the current environment.

Value and yield play

According to Citi’s analysis, Alumina is both! The stock tumbled by around 6% over the past six months when the alumina price is up 2% to around US$270 a tonne.

“The market has been reassessing its view on the pace of alumina price recovery and commodity analysts have been trimming nearer term alumina price estimates,” said Citi.

But the downgrade cycle has run its course. The AWC share price is trading at a substantial discount given Citi’s long-term alumina price forecast of US$325 a tonne.

What’s more, the 12-month forward consensus earnings revisions are no longer negative and this could be an early sign that sentiment towards AWC is turning.

Yearly dividend increases

The improving prices for aluminium and alumina will underpin dividend increases over the next few years too.

Alumina is expected to pay a US6 cents-a-share full year dividend for FY20, and this increases to US7.6 cents in FY21 before more than doubling the following year to US13.6 cents (18.9 cents).

Citi’s 12-month price target on the stock is $1.80 a share, which implies a 30% return if you included the dividend.

But Alumina isn’t the only stock that’s well placed to outperform in 2021. The experts at the Motley Fool have picked some of their favourite buys for the year ahead.

Follow the free link below to find out more.

More reading

• The Telstra (ASX:TLS) share price is at a new 52-week low
• ASX 200 down 0.95%: Mesoblast crashes lower on FDA update, Afterpay surges higher
• Why Afterpay, Genetic Signatures, Qube, & Serko shares are charging higher
• Why WAAAX shares like Afterpay (ASX:APT) and Xero (ASX:XRO) are surging
• Why the Domain (ASX:DHG) share price is hot property today

Brendon Lau owns shares of Telstra Limited and Westpac Banking. Connect with me on Twitter @brenlau.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Kogan.com 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 Telstra Corporation Ltd (ASX: TLS) share price is at a new 52-week low. Today, Telstra shares have fallen another 0.71% and are trading at $2.78 at the time of writing. That’s a new low for Telstra and quite a remarkable move, considering Telstra shares didn’t even fall below the $3 mark during the share market crash back in March and April. The Telstra share price hasn’t touched levels under $2.80 since December 2018.

Telstra shares are now down 22% year to date, and nearly 30% off of the current 52-week high of $3.94 that was made back in January. That doesn’t look too crash hot against the performance of the broader market.

The S&P/ASX 200 Index (ASX: XJO) is now down 12.9% year to date, meaning Telstra has significantly underperformed the ASX 200 in 2020 so far. That’s pretty astounding, considering Telstra is one of the more stable ASX blue chip shares and has been relatively unaffected by the coronavirus pandemic, at least compared with other ASX blue chips like the big four banks.

So what’s going on with the Telstra share price?

Why Telstra shares are at a new 52-week low

In my opinion, what we are seeing with the Telstra share price is an institutional (read: pension funds and fund managers) rotation of capital out of the company. Put another way, no one wants to own Telstra shares right now, or at least no one with enough money to move the markets. This often happens when an ASX share is on the nose and its outlook isn’t too exciting for at least the next year.

This all comes down to Telstra’s full-year earnings report for FY2020, in my view. In the report, Telstra hit its earnings guidance but also implied that its current dividend of 16 cents per share would come under pressure next year if the company sticks with an earnings payout ratio dividend policy. Currently, Telstra aims to pay out 70–90% of underlying earnings as dividends. Since Telstra is forecasting earnings to come in at below 16 cents per share in FY2021, many investors are assuming that this means a dividend cut is on the cards next year.

Is the market right on this one?

However, I’m not despairing. If Telstra moves to a free cash flow policy rather than using earnings, I think the company could comfortably cover the dividend in FY2021. I think investors are unnecessarily panicking with Telstra right now, and thus, we could be seeing a decent buying opportunity.

Consider this: if Telstra keeps its 16 cents per share payouts next year, the shares at today’s prices are offering a forward dividend yield of 5.76%, or 8.23% grossed-up with Telstra’s full franking. That’s not a guaranteed yield, of course. I could well be wrong on Telstra’s dividend for next year. But I’m not even considering selling my Telstra shares, for whatever that’s worth.

More reading

• Meet the ASX 200 stock with a dividend yield that’ll hit ~14% in FY22
• ASX 200 down 0.95%: Mesoblast crashes lower on FDA update, Afterpay surges higher
• Why WAAAX shares like Afterpay (ASX:APT) and Xero (ASX:XRO) are surging
• Why the Domain (ASX:DHG) share price is hot property today
• 5 things to watch on the ASX 200 on Friday

Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra 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 Over the Wire Holdings Ltd (ASX: OTW) share price has been a very strong performer on Friday.

In afternoon trade the telecommunications, cloud, and IT solutions provider’s shares are up 14% to $4.87.

At one point today, the Over the Wire share price was up as much as 17% to a record high of $5.00.

Why is the Over the Wire share price rocketing higher?

Investors have been buying the company’s shares after it announced a binding agreement to acquire all of the shares in Digital Sense Hosting.

According to the release, Over the Wire has agreed an upfront consideration of $27 million. This comprises $21.6 million in cash and $5.4 million in Over the Wire shares.

It is worth noting that these shares are priced at a sizeable discount of $3.64 per share. Management explained that this was the 10-day volume weighted average price when it first signed a letter of intent.

The cash component will be fully funded by an institutional placement of $20 million and a $5 million share purchase plan. These will be priced at $4.00 per share, which represents a 6.1% discount to its last close price.

In addition to this, Digital Sense is entitled to receive further deferred consideration of up to $12 million (up to $7 million in FY 2021 and up to $5 million in FY 2022) based on achieving agreed targets.

For the 12-month period to 30 June 2020, Digital Sense Hosting recorded revenue of approximately $18.3 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of approximately $5.4 million.

This means the upfront consideration of $27 million represents a valuation of 5 times historical FY 2020 EBITDA.

What is Digital Sense Hosting?

Digital Sense Hosting is a high-quality cloud business that provides a customisable and scalable cloud offering to Enterprise and Government customers.

Management notes that it introduces further solution capability in the areas of Infrastructure as a Service (IaaS), Desktop as a Service (DaaS), Storage as a Service (STaaS), and Data Protection as a Service (DPaaS).

Furthermore, its extensive cloud offering gives the company cross sell opportunities to existing Over the Wire customers. It also offers cross sell opportunities of its own solutions to Digital Sense customers.

In light of this, its high levels of recurring revenue, and strong margins, the acquisition is expected to be earnings accretive.

More reading

• Forget the tech boom, these ASX shares are primed for the recovery trade
• Why Beach, Fortescue, Mesoblast, & SeaLink shares are tumbling lower
• Is the Carsales (ASX:CAR) share price a good buy?
• ASX 200 down 0.95%: Mesoblast crashes lower on FDA update, Afterpay surges higher
• Why Afterpay, Genetic Signatures, Qube, & Serko shares are charging higher

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 Over The Wire Holdings Ltd. The Motley Fool Australia has recommended Over The Wire Holdings 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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Even if you only sporadically catch up on the financial news, you’ll know the headlines in 2020 have been dominated by stories of booming ASX tech share prices.

And for good reason.

The measures we’ve taken to mitigate the spread of COVID-19 — working, shopping and socialising from home — have turbocharged the adoption of new technologies. In fact, the experts tell us, developed nations like Australia have embraced 5 years’ worth of technology changes in just a matter of months.

Little wonder then that the tech-heavy Nasdaq Composite (NASDAQ: .IXIC) is up 65% since 23 March. And that the S&P/ASX All Technology Index (ASX: XTX) — which tracks 50 of Australia’s leading and emerging technology shares — is up an eye-popping 107% since 23 March.

And these gains come despite both indexes retracing some over the past month. The Nasdaq is down 6% from 2 September. And the ASX All Tech index down 4% since 25 August. Though both are again trending higher this past week.

Now despite these strong gains, well-placed tech shares almost certainly will see more share price gains over the mid to long term. And if you don’t already own some, you should strongly consider adding some to your portfolio.

But with all the focus on technology companies, many investors have been turning a blind eye towards a group of shares that I believe are well-positioned for strong gains during the recovery trade.

Romano Sala Tenna, portfolio manager at Katana Asset Management, had this to say on the rather lopsided recovery to date (as quoted by the Australian Financial Review):

I’m surprised it hasn’t been more widespread to some of the cyclical laggards – some of the REITs, some of the industrials, travel, retail… [W]e are going to see some of these laggards recover. Barring a third wave, that’s probably the big trade for next quarter: the recovery trade.

Follow the money trail

Like in most every other developed nation across the world, Australia’s government is pulling out all the stops to keep the economy afloat during the global pandemic. And to have it primed for a strong rebound once the coronavirus is vanquished, or at least brought under global control.

Spending on new infrastructure projects is high on governments’ lists. The Canadian Government, for example, just promised a new C$10 billion (AU$9.5 billion) infrastructure program. This includes C$2 billion for large-scale, energy-efficient building retrofits.

Balanced budgets be darned.

We’ll have to wait until Tuesday 6 October for confirmation on some of the finer details for Australia’s new stimulus plans. That’s when Prime Minister Scott Morrison will address the National Press Club on the upcoming budget. But between government spending packages and new private investment, there are going to be billions of new dollars flowing into fast tracking Australia’s digital economy and billions more flooding into ‘shovel ready’ infrastructure projects.

While the new funding for digital technologies is sure to offer a tailwind for ASX tech shares, it’s the lagging infrastructure shares that I believe deserve your attention today.

Two ASX shares to ride the recovery trade

There are a number of companies, exchange-trade funds (ETFs) and real estate investment trusts (REITs) you can invest in to capture the share price gains they’re likely to enjoy on the back of massive new government infrastructure spending and accommodative tax policies.

Two that I believe are particularly well positioned are James Hardie Industries plc (ASX: JHX) and Brickworks Limited (ASX: BKW).

James Hardie develops, manufactures and distributes fibre reinforced cement building products. The company pioneered the modern fibre cement product that today is used throughout the global building industry. Its wide range of products are used across new housing constructions, renovations, manufactured housing and many industrial applications.

The James Hardie share price took a sharp fall on 11 February, from what was then an all-time high. The share price plunged 52% by 19 March. But the rebound has been even more remarkable. Since that low the share price is up 118%, at the time of writing. And year to date, the share price is well into the green, up 21% and trading just below yesterday’s new record highs.

With a likely boom coming in residential and commercial construction over the mid term, I believe the James Hardie share price could run much higher from here.

Brickworks finds itself in a similar sweet spot. The company specialises in property, investments, and building products for the residential and commercial markets here in Australia as well as in the United States. It also has a major holding in Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), which in turn has a significant stake in Brickworks. Brickworks also owns 50% of an industrial property trust with Goodman Group (ASX: GMG).

The Brickworks share price has been trending higher for decades, hitting an all-time high on 24 January. From there, it plunged 41% through to 22 April before rebounding 59% from that low. While still below its record high, year to date the Brickworks share price is up 4.5% at the time of writing. The company also pays an annualised dividend yield of 3.0%, fully franked.

The Motley Fool’s own Scott Phillips has been keen on Brickworks since May 2015, when he first recommended it to members of his Share Advisor service. Since then, the share price is up 78%. Scott again recommended Brickworks shares in May 2019. The share price is up 18% since that second recommendation.

And, in case you’re wondering, Scott maintains an active buy recommendation at the current Brickworks share price.

More reading

• 2 ASX shares to buy for rock solid retirement income
• 3 strong and reliable ASX dividend shares for October
• 5 ASX shares held by leading fund managers
• These are the ASX blue chip shares I’d buy today
• 2 outstanding ASX shares to add to your retirement portfolio

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company 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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In early afternoon trade the S&P/ASX 200 Index (ASX: XJO) is on course to end the week on a disappointing note. At the time of writing the benchmark index is down 0.9% to 5,819 points.

Four shares that are falling more than most today are listed below. Here’s why these shares are tumbling lower:

The Beach Energy Ltd (ASX: BPT) share price is down 4% to $1.28. Investors have been selling Beach and other energy shares on Friday after a sharp pullback in oil prices overnight. Concerns that rising coronavirus cases could impact demand has been weighing heavily on oil prices. In addition to this, news that OPEC’s production was stronger than expected added to the selling pressure.

The Fortescue Metals Group Limited (ASX: FMG) share price has fallen over 2% to $16.33. This iron ore producer’s shares have come under pressure today after the price of the steel making ingredient weakened overnight. According to CommSec, the spot iron ore price dropped just over 2% to US$123.98 a tonne.

The Mesoblast limited (ASX: MSB) share price has crashed 34.5% lower to $3.33. This follows an announcement which reveals that the US FDA has not approved its remestemcel-L (RYONCIL) product for paediatric patients with steroid-refractory acute graft versus host disease (SR-aGVHD). Instead, the FDA has requested that Mesoblast undertake at least one additional randomised, controlled study in adults and/or children. This is to provide further evidence of the effectiveness of remestemcel-L for SR-aGVHD.

The SeaLink Travel Group Ltd (ASX: SLK) share price has dropped 2.5% lower to $5.72. The catalyst for this decline appears to be a broker note out of Macquarie this morning. According to the note, the broker has downgraded its shares to a neutral rating with a $5.37 price target. It made the move on valuation grounds after a strong gain recently.

More reading

• ASX 200 down 0.95%: Mesoblast crashes lower on FDA update, Afterpay surges higher
• Mesoblast (ASX:MSB) share price tumbles 32% lower on update
• 5 things to watch on the ASX 200 on Friday
• Why the Mesoblast (ASX:MSB) share price is in a trading halt
• ASX 200 up 1.6%: CBA higher on COVID-19 loan deferrals update, Reliance rockets

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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Carsales.Com Ltd (ASX: CAR) is easily the premier platform for selling both used and new cars. In fact, over the past year, it has increased its lead over its competitors in several key metrics, which I believe, has helped make the Carsales share price a good buy right now. For example, according to the company’s FY20 report, Carsales has 2.15 times more daily unique visitors than its nearest competitor. Furthermore, the monthly average time on site is twice that of its nearest competitor. 

Carsales share price tailwinds

Carsales.com markets and sells both new and used cars, with used cars being the larger segment. Right now, used car prices are approximately 25% higher than they were at this time last year. Meanwhile, new car sales are dwindling. This appears to be part of a global phenomenon stemming from a reluctance to take public transport due to the coronavirus. This trend may slow, but I do not expect it will reverse any time soon. 

While online real estate marketing company REA Group Limited (ASX: REA) has to compete with a growing field of top flight competitors, including Domain Holdings Australia Ltd (ASX: DHG), Carsales has no such competition. Moreover, the company saw international revenues increase by 13% in FY20, raising it to more than 24% of revenues. 

Lastly, and I think very importantly, car classifieds is an area likely to be impacted by responsible lending laws. Specifically because expanding a housing loan to include the purchase of a new or used car is not uncommon. 

So is this a good share to buy now?

Carsales has local dominance, growing international sales, and is operating in a market of growing demand for used cars. However, this alone doesn’t necessarily make the Carsales share price a good buy right now. The company has, however, delivered increases in its operating margin from 52% to 55% and, over the past decade managed to achieve an average return on equity of 46%.

Carsales is also not willing to rest on its laurels. In FY20, it has improved its technology platform considerably. For example, it is seeing strong take up of new video products. In addition, it has allowed dealers to integrate finance offerings with their car listings. 

Foolish takeaway

Although the current Carsales share price is selling at a reasonably high price-to-earnings (P/E) ratio of around 43, I believe this is a good share to buy now. COVID-19 is the main cause of high P/E values due to low FY20 earnings. Between the company’s performance and the future outlook, I think Carsales is a very good share to buy and hold for years to come. 

More reading

• 3 profitable October ASX 200 trends
• ASX 200 jumps 2.4% higher, numerous shares rise
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Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has recommended carsales.com Limited and REA 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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At lunch on Friday the S&P/ASX 200 Index (ASX: XJO) is on course to end the week with a day in the red. The benchmark index is currently down 0.95% to 5,816.3 points.

Here’s what is happening on the market today:

Mesoblast share price crashes lower.

The Mesoblast limited (ASX: MSB) share price has returned from its trading halt and crashed lower on Friday. This follows the earlier than expected announcement relating to its quest to have remestemcel-L (RYONCIL) approved for paediatric patients with steroid-refractory acute graft versus host disease by the US FDA. As you might have guessed from the share price weakness, Mesoblast wasn’t given approval. Instead, it will have to undertake another trial and prove it is worthy of FDA approval.

Tech shares storm higher.

One area of the market which is on form on Friday is the tech sector. The likes of Afterpay Ltd (ASX: APT) and Xero Limited (ASX: XRO) are charging higher following a positive night of trade on Wall Street’s technology-focused Nasdaq index. At lunch, the S&P/ASX All Technology Index (ASX: XTX) is defying the market weakness and is up a sizeable 1.3%. This is roughly in line with the gains made by the Nasdaq index overnight.

Breville acquisition.

The Breville Group Ltd (ASX: BRG) share price is pushing higher today after the appliance manufacturer announced an acquisition. According to the release, Breville has completed the acquisition of Seattle-based coffee grinding company Baratza for approximately US$60 million. This comprises US$43 million of cash and US$17 million of shares. These shares will be subject to a three-year trading lock. Management notes this acquisition brings together two of the world’s leading companies in the design and global distribution of coffee products.

Best and worst ASX 200 performers

The best performer on the ASX 200 on Friday is the Janus Henderson Group (ASX: JHG) share price with a 10% gain. This follows reports that activist investor Trian Fund Management has taken a big stake in the company. The worst performer is unsurprisingly the Mesoblast share price. It is down 34% at lunch following its FDA update.

More reading

• Why Afterpay, Genetic Signatures, Qube, & Serko shares are charging higher
• Why WAAAX shares like Afterpay (ASX:APT) and Xero (ASX:XRO) are surging
• Mesoblast (ASX:MSB) share price tumbles 32% lower on update
• Why the Domain (ASX:DHG) share price is hot property today
• Breville (ASX:BRG) share price higher on US$60m Baratza acquisition

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 Xero. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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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