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The Purifloh Ltd (ASX: PO3) share price tumbled to a near two-year low today after it announced the sudden resignation of its chairman.

Shares in the water and air purification technology developer crashed 15.3% to $1.61 in the last hour of trade.

In contrast, the All Ordinaries (Index:^AORD) (ASX:XAO) and the S&P/ASX 200 Index (Index:^AXJO) are trading around breakeven.

Purifloh share price rocked by sudden exit

Companies that are involved in decontamination should be well regarded during the COVID-19 pandemic. But investors got spooked when PuriflOH’s chairman Bill Parfet resigned with immediate effect.

“It has been an honour to lead Purifloh over the past 12 months though I now wish to spend more time in retirement with my family,” said Mr Parfet.

“I depart with nothing but good wishes and best regards for the Company, my fellow Board Members and the management team. 

“I plan to continue to support them as best I can through continuing with my shareholding and offering guidance where requested.”

Can’t de-sanitise bad news

Investors haven’t taken the news well despite Mr Parfet’s explanation. The sudden and immediate resignation of any key executive tends to trigger a share sell-off. Shareholders are selling first and asking questions later.

Management tried to cushion the fall in the PuriflOH share price by stating that Mr Parfet doesn’t intend to sell his shares in the company.

Mr Parfet will be replaced by Carl Le Souef, who controls Dilato Holdings Pty Ltd. Dilato is a major shareholder in PuriflOH.

PuriflOH’s new chairman

“All shareholders owe a debt of gratitude towards Bill for his investment in PuriflOH, together with his efforts on behalf of the Company,” said Mr Le Souef.

“We thank Bill for his support and leadership and wish him the very best in his retirement.

“We plan to release a detailed update of activities in the near future.”

Already in strife

One can’t rule out a cap raise. The company holds around $2.4 million in the bank, which management stated in its 4C is enough to last it for a little over two quarters.

Our share market operator ASX Ltd (ASX: ASX) suspended PuriflOH at the start of August after it submitted an incomplete 4C, or quarterly cash flow report.

Talk about a bad look!

Little wonder investors are jittery to any bad news.

More reading

• Why the Beach Energy (ASX:BPT) share price is outperforming its peers today
• Why the St Barbara (ASX:SBM) share price is climbing higher today
• ASX 200 down 0.1%: Tech shares push higher, AMP (ASX:AMP) sinks lower
• The 3 best ETFs for passive investing
• How to make $1 million from ASX shares

Motley Fool contributor Brendon Lau 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 Why the Purifloh (ASX:PO3) share price crashed to a 2-year low today appeared first on Motley Fool Australia.

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The Coppermoly Limited (ASX: COY) share price was up 355.56% today to 4.1 cents. This came prior to the company entering a trading halt this morning.

Why did Coppermoly request a trading halt?

Coppermoly requested a trading halt in order to respond to an ASX price query. The company stated that it was not aware of any reason why a trading halt should not be granted in accordance with listing rule 17.1.

Coppermoly requested that the trading halt remain in place until the commencement of trading on Tuesday 22 September 2020 or when the company has made an announcement to the market in response to the ASX price query.

Trading in shares of Coppermoly was paused at 10.48 am this morning.

About Coppermoly

Coppermoly is a mineral exploration and development company focused on copper, gold, and molybdenum deposits. It operates in Papua New Guinea and has been listed on the ASX since 2007. 

In its quarterly report released in July, Coppermoly announced that it had cash reserves of $4.6 million at 30 June 2020, down from $5,026,000 at the end of the previous quarter.

In April, Coppermoly announced that it had intersected high grade copper and zinc mineralisations at its Mt Nakru project through electromagnetic ground surveys. At the Nakru 2 Northwest prospect, the company identified a strong electromagnetic conductor which returned 11 metres at 4.13% copper, 9.04% zinc and 0.29 grams per tonne of gold.

At the Nakru 3 prospect, the company identified a conductive zone which returned 2 metres at 0.41% copper, 1.45% zinc and 1.11 grams per tonne of gold along with 364 grams per tonne of silver. Another trench at the Nakru 3 prospect returned 2 metres at 0.41% copper, 1.45% zinc and 0.14 grams per tonne of gold. The electromagnetic survey at Mt Nakru revealed drilling targets which the company stated were “highly encouraging”.

The Coppermoly share price is up 925% since its 52-week low of 0.4 cents, and is up 310% since the beginning of the year. 

More reading

• Where to invest $10,000 into ASX shares immediately
• Fonterra Shareholders’ Fund (ASX:FSF) share price higher after annual result
• The Sezzle (ASX:SZL) share price is up 15% this week
• Why the BBX share price has rocketed 93% this month
• Negative rates may be coming to a big four ASX bank near you

Motley Fool contributor Chris Chitty 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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Given the increasingly bleak outlook for interest rates in Australia and globally over the coming few years, if I had $10,000 sitting in a savings account, I would be looking to put it to work in the share market.

But where should you invest $10,000? Three top ASX shares that I would buy with these funds are listed below. Here’s why I like them:

Kogan.com Ltd (ASX: KGN)

The first option to consider investing $10,000 into is this ecommerce company. Although its shares have been on fire this year, I don’t believe it is too late to invest. At 38x estimated FY 2021 earnings, I feel Kogan shares are still good value given its exceptionally positive long term outlook. This is thanks to the popularity of its offering and the ongoing shift to online shopping. In respect to the latter, the pandemic appears to have accelerated this structural shift and Kogan stands to benefit greatly from it.

Pushpay Holdings Group Ltd (ASX: PPH)

Another option to consider investing $10,000 into is Pushpay. It provides a donor management and community engagement platform to the church market. Pushpay has worked hard over the last few years to carve out a leadership position in the market and is reaping the rewards today. In FY 2020 the company grew its operating earnings at a rapid rate and more of the same is expected in FY 2021. Pleasingly, despite this, the company is still only scratching at the surface of its sizeable market opportunity. In light of this, I believe there is a lot more to come from Pushpay over the next decade.

SEEK Limited (ASX: SEK)

A final share to consider investing $10,000 into is SEEK. Although trading conditions are tough for the job listings giant right now because of the pandemic, I think it is worth sticking with it. This is because of its dominant position in the ANZ market and its growing Chinese operations. I believe the latter has the potential to underpin strong earnings growth and help SEEK achieve its aspirational revenue target of $5 billion later this decade. This will be a big increase on FY 2020’s revenue of $1,577.4 million.

More reading

• 3 ASX shares poised for huge growth in FY21
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• Why you should invest $5,000 into these ASX shares right now
• 2 of the best ASX tech shares to buy and hold until 2025
• ASX 200 rises 1%, SEEK (ASX:SEK) jumps 9%

James Mickleboro owns shares of SEEK Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd and PUSHPAY FPO NZX. The Motley Fool Australia has recommended Kogan.com ltd, PUSHPAY FPO NZX, and SEEK 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 Fonterra Shareholders’ Fund (ASX: FSF) share price was up 0.27% at the time of writing to $3.73. This came after the company released its annual result for the year ended 30 June 2020.

What was in the announcement?

The Fonterra Shareholders’ Fund had revenue of NZ$6 million in the year to 30 June 2020 (FY20). Its FY20 net profit was nil. 

According to the fund’s FY20 report, Fonterra Cooperative Group’s reported net profit after tax was NZ$659 million, up NZ$1.3 billion compared to the prior year. The report stated that the underlying business performance improved, with Fonterra’s food service business having a significantly better first half, especially in Greater China. However, this improved performance was partially offset by the disruption caused by COVID-19.

Fonterra’s consumer business performance was down compared to the prior year. This was attributed to business disruptions in Hong Kong and Chile, and impairments to the company’s Chesdale brand and goodwill in the New Zealand consumer business. 

Free cash flow for the Fonterra business increased by NZ$733 million during FY20 to NZ$1.8 billion. This was achieved through a combination of improved earnings, lower capital expenditure and the sale proceeds received from the divestment of DFE Pharma and Foodspring, along with a reduction in the company’s Beingmate shareholding.

The Fonterra Shareholders’ Fund announced a final dividend of 5 NZ cents per unit, which is unfranked. The ex-dividend date is 24 September 2020.

Outlook for FY 2021

According to the report, there is a high level of uncertainty for Fonterra entering the 2021 financial year due to the global recession and the potential for new waves of COVID-19 to affect the dairy industry. However, Fonterra’s CEO, Miles Hurell, has stated that he intends to keep to the group’s current strategy, which includes spreading its reach in global markets.

About the Fonterra Shareholders’ Fund share price

The Fonterra Shareholders’ Fund is a managed investment scheme that allows shareholders to invest in the performance of the Fonterra Co-operative Group, which is listed in New Zealand.

The Fonterra Shareholders’ Fund share price is up 26.87% since its 52-week low of $2.94, however, it is down 7% since the beginning of the year. 

More reading

• Coppermoly (ASX:COY) share price up 355% before trading halt
• Where to invest $10,000 into ASX shares immediately
• The Sezzle (ASX:SZL) share price is up 15% this week
• Why the BBX share price has rocketed 93% this month
• Negative rates may be coming to a big four ASX bank near you

Motley Fool contributor Chris Chitty 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 Fonterra Shareholders’ Fund (ASX:FSF) share price higher after annual result appeared first on Motley Fool Australia.

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The Sezzle Inc (ASX: SZL) share price has been a strong performer on Friday.

Earlier today the buy now pay later provider’s shares were up as much as 4% to $6.86.

When the Sezzle share price hit that level, it meant it was up an impressive 15% for the week.

Why is the Sezzle share price charging higher this week?

There appear to be a couple of catalysts for this impressive gain.

The first is a rebound in buy now pay later provider shares this week following some heavy declines in September.

The shares of rivals Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) are both up 3% today despite the market trading flat.

Investors were selling buy now pay later shares earlier this month due to a tech selloff on Wall Street and news that PayPal is launching a rival product in the United States in the final quarter of 2020.

This increase in competition from one of the biggest forces in the payments industry understandably spooked investors.

Though, I suspect some investors believe the selloff has been overdone and created a buying opportunity. I would certainly say this is the case with Afterpay shares.

What else is supporting the Sezzle share price?

Another catalyst for this strong gain could be something that is happening next week.

On Monday Sezzle will be added to the S&P/ASX All Technology Index (ASX: XTX). This could have led to an increase in demand for shares from index tracking funds or from fund managers with particular mandates.

It isn’t just Sezzle joining the index next week. Dicker Data Ltd (ASX: DDR) is another company joining the S&P/ASX All Technology Index on Monday. Shareholders of the wholesale distributor of computer hardware and software have seen its shares climb 4% this afternoon and 7.5% for the week.

More reading

• How an ASX share turns $100 into $1,000
• Why the Sezzle share price is zooming 8% higher today
• BNPL shares like Afterpay (ASX:APT) and Zip (ASX:Z1P) are soaring today. Here’s why
• The Sezzle (ASX:SZL) share price has now fallen 45% in 2 weeks as air continues to go out of the BNPL sector
• Are higher P/E ratios really here to stay?

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’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia owns shares of and has recommended Dicker Data Limited. 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 BBX Minerals Ltd (ASX: BBX) share price was trading 35% higher this morning before the company entered into a trading halt. Here we explore what has been driving the amazing growth of the BBX share price this month.

What BBX does?

BBX is a mineral exploration and mining company listed on the Australian Securities Exchange. The company’s major focus is Brazil, mainly in the southern Amazon. It is a region BBX believes is vastly underexplored with high potential for the discovery of world-class gold and copper deposits.

The company’s principal focus is on developing a proprietary, transferable precious metals extraction process applicable to its Brazilian exploits. This unique and new hydrometallurgical extraction process is being developed by BBX Minerals using its own staff combined with a group of international experts bringing over 100 years of combined knowledge.

Once the development of this proprietary process is completed and verified through a planned metallurgical test plant, BBX will be able to efficiently extract the precious metals from its Brazilian deposits.

Market update

In early September, the BBX share price exploded as the company released a market update. The BBX share price has surged 92.86% since the update.

BBX announced consistent and repeatable analytical test results in regards to its assay method. Furthermore, the test results were obtained from the highly-regarded São Paulo State Research Institute.

Moreover, the company plans to adopt this assay method, exclusive to BBX, for future assaying of surface and drill-hole samples from both Ema and Três Estados.

To this tune, it was also announced that BBX has signed a contract for a 2500m diamond drill program with Canadian drilling contractor Energold Drilling Corp. The program, scheduled to commence at the end of September, comprises a total of 50 drill holes with an average depth of 50 meters, at both Ema and Três Estados. The holes are designed to infill, extend the previously drill-tested areas and conduct reconnaissance drilling.

What now for the BBX share price?

This is very positive news for the mining company as it provides it with the impetus to continue with the project in Brazil.

Commenting on the news, CEO Andre Douchane said:

On behalf of the BBX team I’m very pleased that Sao Paulo State Research Institute, an independent ISO-certified research and testing institute was able to refine and statistically certify an assay method for our mineralisation. This method allows BBX to begin assaying past drill holes and to begin building a resource model. Additionally, as this phase of our research comes to fruition we can now devote all of our time towards finalising our preferred hydrometallurgical extraction process.

Nonetheless, at the time of writing, the BBX share price won’t be going anywhere. The company has been issued a speeding ticket and is expected to resume trading by 22 September at the latest.

More reading

• Coppermoly (ASX:COY) share price up 355% before trading halt
• Where to invest $10,000 into ASX shares immediately
• Fonterra Shareholders’ Fund (ASX:FSF) share price higher after annual result
• The Sezzle (ASX:SZL) share price is up 15% this week
• Negative rates may be coming to a big four ASX bank near you

Motley Fool contributor Daniel Ewing 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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Speculation that New Zealand may use negative interest rates to reflate its COVID-19 punctured economy could weigh on ASX bank stocks.

The Reserve Bank of New Zealand (RBNZ) asked the big four ASX banks, which dominate the country’s banking sector, to be technically and legally ready to handle a negative cash rate by the end of the year, reported the Australian Financial Review.

Our central bankers have repeatedly voiced their distain for using negative rates to stimulate the Australian economy. But it’s understood that the banking regulator APRA have spoken to the banks on whether their IT systems can support such a dramatic move.

Negative rates and ASX banks

So, what are negative rates and how will that impact on ASX banks? Well, negative rates are when Authorised Deposit-taking Institutions (ADIs) are charged interest for keeping money with the central bank.

It’s the reverse of what we are used to and it’s like Commonwealth Bank of Australia (ASX: CBA) charging customers for keeping money in their savings account.

Having said that, don’t expect the banks to pay you to take out a mortgage. That will never happen, sadly.

How negative rates can impact the economy

The thinking behind the strategy is to force banks to lend out as much as they can instead of sitting on cash. The more readily cheap loans are available, the more it should stimulate the economy.

This sounds like a great plan, so why won’t the Reserve Bank of Australia (RBA) get behind this? The fact is, a negative rate is not a silver bullet and may even have unintended consequences.

Why the RBA is loath to use negative rates

For one, this policy could force banks to issue more risky loans, which isn’t what the RBA wants. Banks being forced up the risk curve could destabilise the financial system.

Further, it’s not so much supply but demand for credit that’s the bigger issue. Rates are already at record low thanks to the RBA holding the three-year government bond yield at 0.25%.

However, consumers and businesses will be reluctant to borrow as joblessness gets worse or remains elevated for a few years.

Profit impact on ASX banks

More importantly to ASX investors is how negative rates can impact on profits of banks like CBA, Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd. (ASX: NAB).

Make no mistake, the big banks will likely feel the pressure from negative rates across the Tasman, and its ANZ Bank that is most exposed.

Some experts warn that negative rates will decimate bank earnings by putting net interest margins (NIMs) under even more strain.

NIMs is the difference between what banks borrow money at and how much interest they can charge from lending the cash out. As banks are very unlikely to charge customers for putting money into their savings accounts, it means their profit margin will shrink with negative interest rates.

Foolish takeaway

But this isn’t a given. The European experience doesn’t always support this hypothesis as NIMs are impacted by a range of factors, not just official interest rates.

For this reason, it will be interesting to see how negative rates in New Zealand will flow through to our big bank earnings when they next give an update.

Watch this space fellow Fools!

More reading

• ASX 200 down 0.1%: Tech shares push higher, AMP (ASX:AMP) sinks lower
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• 3 retirement myths you can’t afford to believe
• ASX 200 up 0.7%: Afterpay (ASX:APT) higher, QBE Insurance (ASX:QBE) lower on UK update
• Not sure about Westpac (ASX:WBC)? Buy these ASX dividend shares instead

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, National Australia Bank Limited, and Westpac Banking. Connect with me on Twitter @brenlau.

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 QuickFee Ltd (ASX: QFE) share price is tumbling lower on Friday after returning from its trading halt.

At the time of writing the professional services payment and lending solutions provider’s shares are down almost 5% to 61 cents.

Why was the QuickFee share price in a trading halt?

QuickFee requested a trading halt on Thursday whilst it undertook a $17.5 million capital raising.

This morning its shares returned to action after successfully completing the institutional component of the capital raising.

QuickFee raised $15 million via a placement of shares to institutional investors at a 9.4% discount of 58 cents per new share.

Management advised that the placement was strongly supported by new and existing institutional, family office, and sophisticated investors.

It will now push ahead with its share purchase plan, which aims to raise a further $2.5 million. These funds will be raised at the lower of the placement price or a 5% discount to the five-day volume weighted average price of its shares on 12 October.

Why is QuickFee raising funds?

QuickFee launched the capital raising after announcing a partnership with buy now pay later provider Splitit Ltd (ASX: SPT).

This agreement will allow the clients of accounting and law firms in the United States and Australia to pay their fees on credit card using Splitit’s instalment solution.

The CEO of QuickFee, Bruce Coombes, believes the partnership will open the door to parts of the market it would not normally service.

He said: “We are hugely excited by the new partnership with Splitit. Having already achieved strong acceptance amongst professional services firms with our online payment portal and existing lending solutions, this new interest free product allows QuickFee to capture a significantly greater share of the professional services market by providing payment plans to clients of smaller firms, by far the largest part of the market, that we would not normally service.”

Commenting on the capital raising, Mr Coombes said he was very pleased with “the strong support QuickFee received from both existing shareholders and new shareholders.” 

He believes this is “a strong endorsement of the significant opportunity for the new interest free product being launched in partnership with Splitit.”

“The funds from the Placement will allow us to add significant scale to our team for customer acquisitions, predominantly in the US, and funding for the anticipated growth of the receivables book following the launch of the interest free product,” he concluded.

More reading

• ASX 200 drops 1.2%, Mineral Resources (ASX:MIN) fell 9%
• Why the Splitit (ASX:SPT) share price is on the move today
• Why De Grey, Scentre, Splitit, & Temple & Webster shares are pushing higher
• ASX All Technology Index swells with new additions
• PayPal scares investors in BNPL shares, time to sell?

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 QuickFee (ASX:QFE) share price lower after capital raising to support Splitit partnership appeared first on Motley Fool Australia.

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The St Barbara Ltd (ASX: SBM) share price has jumped 1.7% higher today as ASX gold shares continue to surge.

Why the St Barbara share price is climbing higher

There are a couple of factors pushing the St Barbara share price higher in the ASX afternoon session.

For starters, the Aussie gold miner released a quarterly production update to the market in the early afternoon.

A recent “fall of ground” at the miner’s Gwalia mine in Western Australia has temporarily halted operations. This will impact on the first quarter result.

However, St Barbara is expecting to recover the shortfall next quarter with full year production guidance maintained at between 175,000 and 190,000 ounces.

It’s not just that announcement that is pushing the St Barbara share price higher today. Fellow ASX gold shares are surging too.

In fact, the Saracen Mineral Holdings Ltd (ASX: SAR) share price is topping the S&P/ASX 200 Index (ASX: XJO) winner boards on Friday.

That has been largely driven by risk-off moves across both global and domestic markets. Investors have been selling down their riskier, growth holdings, particularly in the tech sector, with gold providing a safe haven of sorts.

St Barbara shares are now up 23.6% in 2020 which is welcome news for investors. Many of the ASX gold shares are surging in value this year thanks to the coronavirus pandemic.

Investors have been spooked by the March bear market and subsequent rebound. That means ASX gold shares like St Barbara have been in high demand this year for the precious metal’s perceived safety.

Should you buy right now?

The St Barbara share price has done well this year but I won’t be buying. However, I think it could provide a good hedge against further downside in 2020.

Shares in the gold miner are trading at a price to earnings (P/E) ratio of 21.9 with a 2.4% dividend yield. Throw in some inflation hedging properties for gold and it’s worth a look for concerned investors.

More reading

• ASX 200 down 0.1%: Tech shares push higher, AMP (ASX:AMP) sinks lower
• Why Mineral Resources, Redbubble, Saracen, & Temple & Webster shares are pushing higher
• The 3 best ETFs for passive investing
• How to make $1 million from ASX shares
• Why the Afterpay (ASX:APT) share price could be a buy

Motley Fool contributor Ken Hall 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 Why the St Barbara (ASX:SBM) share price is climbing higher today appeared first on Motley Fool Australia.

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I think that the Brickworks Limited (ASX: BKW) share price is a buy right now.

COVID-19 impacts are currently still being felt across the country, particularly in Melbourne.

However, there seems to have been a shift in mentality about property.

Looking at the recent house price forecast by Westpac Banking Corp (ASX: WBC), the bank’s economists think Brisbane house prices could jump 20% over two years to mid-2023, whilst Sydney prices could rise 14%, according to reporting by the Australian Financial Review. Other cities are also expected to see double digit price rises.

I think that bodes well for property-related businesses such as Brickworks which could benefit from improving sentiment.

In my opinion, Brickworks is a buy for two main reasons:

Current Brickworks valuation is backed up by assets

The existing Brickworks market capitalisation is mostly backed up by the pre-tax asset values of its two key defensive non-construction assets.

The ASX share owns around 40% of investment conglomerate Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which has a value of around $2 billion. Soul Patts owns businesses in a number of different industries including telecommunications, building products (it owns a large chunk of Brickworks shares), resources, pharmacies, agriculture, financial services, swimming schools and property. Soul Patts is steadily growing its dividend and portfolio value, which benefits Brickworks.

Brickworks also owns a 50% stake of an industrial property trust along with global giant Goodman Group (ASX: GMG). Brickworks’ share of the net tangible assets (NTA) was $710 million at the end of the first half. The properties are built on surplus Brickworks building products land.

In the first half of FY20 Brickworks reported that the total return on the lease property assets was 17%, comprising a rental return of 6% and revaluation return of 11%. Brickworks says there is strong demand in industrial land, reflecting structural changes across the industry.

Development land held within the trust will support continued development and “further growth for many years to come.” Indeed, the property trust is currently building two large, high-tech distribution centres for Coles Group Limited (ASX: COL) and Amazon. Once those two warehouses are complete the gross assets value within the trust is expected to be more than $3 billion.

It’s good to buy cyclical shares during difficulties

I don’t think the property trust and Soul Patts shares are cyclical, but building products demand can be very cyclical.

Brickworks is the market leader for bricks in Australia. It also produces and sells a variety of other products like paving, masonry, roofing, precast and so on. The ASX share is also the market leader in the north east of the US after making some acquisitions.

In the four months to May 2020, Brickworks said that Australian building products revenue was down 10% and the North American operations had seen like for like revenue fall 30% in April and May.

The Brickworks share price is still lower than the pre-COVID-19 price, so I think that reflects market uncertainty about construction earnings.

In my opinion, the best time to buy cyclical earnings like construction is when sentiment is low. The best time to have bought shares was during April 2020 and May 2020. Brickworks has rallied strongly since then, but I still think it’s a buy.

Bonus: A good dividend

Brickworks has one of the most reliable dividends on the ASX. It hasn’t cut its dividend for over 40 years. That’s a very strong record in my opinion. The dividends and distributions from Soul Patts and the property trust alone support the current dividend from the ASX share.

Foolish takeaway

At the current Brickworks share price it’s trading with a grossed-up dividend yield of 4.4%. It’s priced at 11x FY21’s estimated earnings, which seems like a very reasonable price to me. I’d be happy to buy Brickworks shares today and buy more on price weakness.

More reading

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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. 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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