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The Ardent Leisure Group Ltd (ASX: ALG) share price has dropped this morning after the theme park operator revealed a $136 million loss thanks to the impacts of COVID-19. The theme park operator was forced to close its venues in response to coronavirus, blowing a hole in its bottom line.

Ardent operates the popular Dreamworld theme park, as well as Whitewater World, Sky Point, and Main Event centres in the United States. 

What did Ardent Leisure Group report? 

Ardent reported group revenue of $398.3 million for FY20, down from $483.3 million in FY19. The $85 million reduction was due to the temporary closure of venues in response to social distancing and other measures to stop the spread of COVID-19. This was partially offset by a 1.9% increase in Main Event constant centre revenue. Encouraging signs of recovery were observed prior to the onset of COVID-19. But focus quickly turned to capital management and securing capital for the business as the pandemic escalated. 

Main Event revenue declined 21.7% due to the temporary closure of centres, partially offset by new centres openings and revenue growth in existing centres prior to closures. Centres have been progressively reopened in May and June with 38 centres reopened at 30 June 2020. Post opening trading results have been soft as consumers remain cautious of the pandemic. 

The theme parks division reported trading revenue of $54.5 million for the year, down 18.8%. The division incurred an earnings before interest, taxes, depreciation and amortisation (EBITDA) loss of approximately $24 million, compared to an EBITDA loss of $19.8 million in FY19. Ardent received $5.9 million in government support in the form of the JobKeeper subsidy. Overall, Ardent reported an EBITDA loss of $22.8 million after accounting for AASB16 lease adjustments. 

Ardent reported a net loss after tax of $136.6 million, which comes on top of a $60.9 million loss in FY19. Unsurprisingly, no dividend was declared. RedBird Capital recently invested in the US business, giving it $129 million of available cash. The theme parks division has approximately $100 million of funding available to it consisting of cash and a recent $66.9 million Queensland Government loan. 

What is the outlook for Ardent Leisure Group? 

Uncertain and challenging conditions are expected to continue in FY21, but Ardent believes demand for out-of-home family entertainment will be stronger than ever once the pandemic subsides. The funding from RedBird and the government has ensured Ardent is well positioned for future growth once market conditions start to improve.

At the time of writing, the Ardent Leisure share price is down 3.30% to 44 cents per share.

More reading

• Ardent Leisure share price has wild ride following 23% surge last week
• These were last week’s best performing ASX shares
• Ardent Leisure share price on watch following government assistance
• Village Roadshow locked in a capital raise as it secures new $70m facility

Motley Fool contributor Kate O’Brien 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 Australian share market is well into the green today, with the S&P/ASX 200 Index (ASX: XJO) up 0.6% at the time of writing.

The share price gains on the ASX follow on another strong day in the United States. The S&P 500 Index (INDEXSP: .INX) closed up 1.0% and the tech-heavy Nasdaq Composite (INDEXNASDAQ: .IXIC) gained 1.7% yesterday (overnight Aussie time). Both indexes hit new record highs.

That’s a good reminder of why you should consider investing some of your money outside of the ASX. (I explain why in greater detail in this article, penned yesterday.)

Tech companies continue to benefit from the same COVID-19 mitigation measures that are still hampering travel, entertainment and hospitality share prices. The trend of people working, shopping and socialising from home saw the big US tech companies — the ‘FAANG’ stocks — all close at their own record highs.

Having capitalised on the explosive growth in the demand for streaming video during the age of social isolation, the Netflix Inc (NASDAQ: NFLX) share price gained a whopping 11.6% yesterday. That brings Netflix’s year-to-date share price gain to 66%.

But in an encouraging sign that record share market gains aren’t limited to US shares, the global basket of stocks in the MSCI All-Country World Index also hit all-time highs.

Created by MSCI Inc, the All-Country World Index mirrors the performance of more than 2,700 small- to large-cap shares around the globe, from 23 developed and 24 emerging markets.

With all these gains already on the board, it’s fair to wonder how long this bull can keep sprinting.

The answer, according to David Donabedian, chief investment officer of CIBC Private Wealth Management, is quite some time.

As quoted by Bloomberg, Donabedian says: “The continued market juggernaut is certainly impressive. The idea that we’re going to have a rip-roaring rebound in the third quarter has been supported by the data.”

With record low interest rates, government fiscal stimulus, and central bank quantitative easing (QE) likely to remain in place for the foreseeable future, a ‘rip-roaring’ third quarter share market performance certainly looks achievable.

But with momentum investors helping drive companies like Afterpay Ltd‘s (ASX: APT) share price up 185% year-to-date, and competing buy now, pay later (BNPL) company Sezzle Inc‘s (ASX: SZL) share price up 512% this year, you’d be forgiven for wondering if value investing is well and truly dead.

Value investing in the 2020s share markets

As reported by the Australian Financial Review (AFR), research by Morgan Stanley showed the value factor returned -23% for the year to 14 August, while the growth factor returned 10%.

That’s not a good outcome for diehard value investors. But it hasn’t deterred Anthony Aboud, the portfolio manager for Perpetual’s Pure Alpha hedge fund, focused on value investing.

In an investor letter, Aboud wrote (as quoted by the AFR):

Value investing does not mean buying structurally broken businesses because they trade at low price to earnings multiples. It means getting into the weeds and scouring for quality companies which generate sustainable cash flows that aren’t always obvious at first glance.

As fundamental investors, we are trying to identify well-managed, great businesses with a good longer-term growth profile that may not be obvious to the naked eye…

Value investors will minimise risk by waiting and buying those shares at a discount. This discount usually occurs when short-term issues cloud the market’s perspective about the long-term underlying value…

In this market, buying at any price is working and the buying discipline is leaving fundamental (value) investors well and truly behind…

When it comes to some of the ASX best performing shares, like AfterPay and Sezzle, Anthony Aboud believes their moats, or barriers to entry, might not hold back the incoming tide of competitors for long.

“I would argue we will see the competitive landscape become more crowded for BNPL companies or investment platforms over the next five years,” he stated.

AI puts a new spin on value investing

As we march into the 2020s, the definition of value is coming under the microscope.

Specifically, how do you value intangible assets, like expenditures on research and development, over simply adding up a company’s capital. In a world where knowledge is increasingly valuable, even an AI system geared for value investing turned to what many would consider growth plays.

As Bloomberg reports, last week Qraft Technologies filed to create the Qraft AI-Enhanced US Next Value ETF. In back testing, the system had a gain for 13% for the year through July while the S&P 500 Value Index lost 3% over that same time.

So what were the top 3 holdings in the Qraft ETF?

Amazon.com Inc., Alphabet Inc. and Facebook Inc.

Addressing the seeming disconnect between these holdings and traditional value shares, founder Hyungsik Kim wrote in an email (quoted by Bloomberg):

Intangible assets have become a more important factor in the actual value of the company due to the development of information technology. It is easy to tell which of the following is more important in measuring the value of Amazon: warehouses (tangibles) or automated logistics systems (intangibles).

As times change, we investors need to adapt. And when it comes to momentum (growth) investing versus fundamental (value) investing, I believe a flexible strategy could deliver the best share price gains in a diversified portfolio.

More reading

• The Sezzle share price is up a sizzling 52% in August and still going strong
• ASX 200 jumps 0.7%: Afterpay reaches 9.9 million customers, Woolworths strong sales growth
• 3 ASX shares to turn $10,000 into $100,000
• Afterpay share price in focus after stellar FY 2020 result
• 5 things to watch on the ASX 200 on Thursday

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Facebook. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, and 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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Even though many shares have recovered after the 2020 stock market crash, there are numerous risks still present. They include ongoing coronavirus cases, as well as political risks such as Brexit and the US election. As such, the threat of a second downturn for stock prices remains high.

While this may cause challenges for investors in the short run, it may provide buying opportunities for the long run. Therefore, preparing for a period of stock market instability now could pay off via high returns in the coming years.

The potential for a second stock market crash

As mentioned, the threat of another stock market crash remains high. Share prices across multiple sectors have surged higher in the past few months despite a continued rise in coronavirus cases across the world. Therefore, some shares may prove to be overvalued, since there is the potential for additional lockdown measures to come into force to curb the pandemic that could negatively impact on their financial prospects.

Furthermore, political risks in Europe and North America could rise significantly in the latter part of 2020. In the US, the election may cause investors to become more cautious about the outlook for the economy. Fiscal policy changes could shift investors towards less risky assets, and cause them to re-evaluate their valuations of stocks in a variety of industries. Similarly, Brexit could lead investors to demand a wider margin of safety when buying stocks. Brexit is a known unknown that may lead to greater risk aversion among investors that forces stock market indexes lower.

An omnipresent threat?

Of course, the threat of a stock market crash is always present. Some catalysts that cause share prices to decline sharply cannot be foreseen. For example, one-off events can cause investor sentiment to change rapidly. Therefore, investing even when the outlook for the economy and stock market is relatively subdued does not necessarily mean that investors will avoid paper losses in the short run.

However, the scale of risks currently present means that investors may wish to focus their capital on companies and sectors that have a better chance of surviving what could be a difficult economic period. For example, those businesses that have modest debt levels and wide economic moats may be better able to withstand a period of lower sales and profitability.

Through buying such companies, you may be in a strong position to not only overcome a second stock market crash, but to generate high returns in the long run. After all, the stock market’s track record of recovery from even its very worst bear markets suggests that buying high-quality companies while the economic outlook is uncertain can be a logical strategy. Therefore, while the prospect of a downturn may cause fear among some investors, it can allow long-term investors to capitalise on attractive valuations across the stock market.

More reading

• The Sezzle share price is up a sizzling 52% in August and still going strong
• Ardent Leisure share price falls as Dreamworld owner reports $136 million loss
• Where to invest in a ‘rip-roaring’ share market rebound
• Why Appen, Link, LiveTiles, & Zip shares are dropping lower
• Regis share price drops on poor FY20 results

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.

The post Warning: I’d start preparing for stock market crash round 2 today appeared first on Motley Fool Australia.

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The S&P/ASX 200 Index (ASX: XJO) is back on form on Thursday and is charging higher At the time of writing the benchmark index is up 0.5% to 6,146.8 points.

Four shares that have failed to follow the market higher today are listed below. Here’s why they are dropping lower:

The Appen Ltd (ASX: APX) share price is down 11% to $38.71. Investors have been selling Appen’s shares following the release of its half year results. Although the artificial intelligence services company delivered strong sales and statutory earnings growth, investors appear to have been betting on a guidance upgrade. However, management has held firm with its full year guidance of underlying EBITDA in the range of $125 million to $130 million

The Link Administration Holdings Ltd (ASX: LNK) share price has dropped 9% to $4.00. This follows the release of a disappointing full year result for FY 2020. Although Link posted only a 3% decline in revenue to $1.23 billion, things were much worse on the bottom line. The administration services company delivered a statutory net loss after tax of $114 million. This was driven by a $108 million impairment of its corporate markets business in Europe.

The LiveTiles Ltd (ASX: LVT) share price has fallen 3.5% to 22.2 cents. Investors have been selling the intranet and workplace technology software provider’s shares after the release of its full year results for FY 2020. Although LiveTiles almost doubled its revenue in FY 2020 to $44.5 million, its operating costs are still materially higher than revenue at $76.2 million. This led to LiveTiles posting a net loss after tax of $31.6 million.

The Zip Co Ltd (ASX: Z1P) share price is down 5% to $9.13. This is despite the release of a strong full year result this morning. In FY 2020, Zip Co reported a 91% increase in total revenue to $161 million. I suspect that some of this decline can be attributed to profit taking after a very strong gain a day earlier following its eBay announcement.

More reading

• ASX 200 jumps 0.7%: Afterpay reaches 9.9 million customers, Woolworths strong sales growth
• Zip share price plummets 8% despite strong FY 2020 result
• Link Administration share price slides 6% on “challenging” FY20
• LiveTiles share price drops lower on $31.6 million loss
• Appen share price on watch after delivering a strong half year result and reaffirming guidance

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 Link Administration Holdings Ltd, LIVETILES FPO, and ZIPCOLTD FPO. The Motley Fool Australia owns shares of Appen Ltd. The Motley Fool Australia has recommended Link Administration Holdings Ltd and LIVETILES 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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The Regis Healthcare Ltd (ASX: REG) share price has dropped 3.7% today following the release of FY20 results.

Regis Healthcare is an aged care provider. Through its services and facilities, Regis provides residential, respite and dementia care to help residents and home care clients. The company operates 63 facilities with 7,078 aged care places across all states and the Northern Territory.

How did Regis perform in FY 2020?

The Regis share price was hit hard by the COVID-19 pandemic in the second half of FY 2020, suffering a number of coronavirus outbreaks in its aged care facilities. Notably, the second wave of cases in Melbourne has affected 5 Victorian homes, where 74 people were infected and 10 residents have died.

For the year ended 30 June 2020, the healthcare provider saw underlying net profit after tax (NPAT) drop to $21.5 million, a decline of 54.4% on pcp. Regis grew total revenue from services to $677.87 million but this was largely due to additional government funding in June.

The group faced employee and other cost increases in FY2020. In addition, Regis incurred direct COVID-19-related costs of approximately $3.465 million. These included purchase of  additional protective and cleaning equipment. The company said it had incurred more COVID-19 related expenses since 30 June 2020.

Occupancy rates across residential aged care homes have dropped from 91.7% last year to an average of 90.3%. This is a worrying sign for a company already battling with increased costs.

Net cash flow from operating activities were reported at $127 million, down a huge 42% from the year before. Net cash inflows were negatively impacted by reduced earnings, lower contribution from 2019 ramp up homes that have been approaching mature occupancy levels, and the pandemic impact.

During the year, Regis repaid $71.0 million of bank borrowings. In a small positive, the company’s net debt of $236.7 million is a 22% decrease on the previous corresponding period. The company has debt facilities of $520.0 million, of which approximately $278.2 million remains undrawn.

What now for the Regis share price?

Given the current economic environment and the ongoing impact of the Royal Commission into Aged Care Quality and Safety, the Regis board has declined to put forward earnings guidance at this stage. A business update will be provided at the annual general meeting on 27 October.

The Regis share price has tumbled in 2020, falling 48% so far this year. At the time of writing, the Regis share price is trading at $1.30, a 3.7% drop since the market opened today. 

More reading

• Why Appen, Link, LiveTiles, & Zip shares are dropping lower
• ASX 200 jumps 0.7%: Afterpay reaches 9.9 million customers, Woolworths strong sales growth
• Atlas Arteria share price up 5% despite earnings hit
• Why the IGO share price is outperforming the ASX 200 today
• Is the Xero Ltd share price a buy at $100?

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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At lunch on Thursday the S&P/ASX 200 Index (ASX: XJO) is back on form and storming higher. The benchmark index is currently up 0.7% to 6,159.7 points.

Here’s what has been happening on Thursday:

Afterpay delivers more strong growth.

The Afterpay Ltd (ASX: APT) share price is trading flat at lunch following the release of its full year results. The buy now pay later provider was on form again in FY 2020 and delivered a 112% increase in underlying sales to $11.1 billion. This strong result was driven by increased repeat usage and a 116% lift in active customers to 9.9 million. In addition to this, the company spoke about its expansion plans. As well as launching in Canada and Europe, management revealed that it is looking into expanding into select Asian markets in FY 2021.

Woolworths pushes higher on FY 2020 result.

The Woolworths Group Ltd (ASX: WOW) share price is pushing higher on Thursday following the release of its FY 2020 results. Woolworths reported an 8.1% increase in sales to $63,675 million for the 12 months. This was driven by strong sales growth across all businesses but its Hotels business. Online sales were particularly strong, growing 41.8% across its brands to $3,523 million. Pleasingly, Woolworths has reported strong sales growth for the first 8 weeks of FY 2021.

Appen share price sinks on half year update.

The Appen Ltd (ASX: APX) share price is sinking lower today after the release of its half year results. Although the artificial intelligence company delivered strong sales and statutory earnings growth, it only reaffirmed its guidance for the full year. I suspect a recent surge in the Appen share price is an indication that many investors were expecting an upgrade.

Best and worst ASX 200 performers.

The best performer on the ASX 200 on Thursday has been the Steadfast Group Ltd (ASX: SDF) share price with an 8% gain. This may be down to a broker note out of Credit Suisse. This morning it retained its outperform rating and lifted its price target to $3.80. The worst performer is the Appen share price with a 12% decline following its aforementioned half year update.

More reading

• Why Appen, Link, LiveTiles, & Zip shares are dropping lower
• Why the IGO share price is outperforming the ASX 200 today
• Appen share price on watch after delivering a strong half year result and reaffirming guidance
• Why this ASX tech ETF can ride the market gains higher
• Woolworths share price following FY 2020 profit decline

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO, Appen Ltd, and Woolworths Limited. The Motley Fool Australia has recommended Steadfast Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Atlas Arteria Group (ASX: ALX) share price is trading higher this morning following the release of the company’s HY20 results. At the time of writing, the Atlas Arteria share price is up 5.18% from yesterday’s closing price of $6.37.

The group owns, operates and develops toll roads globally which have been significantly impacted by COVID-19 related government restrictions. 

Half year results

Traffic was heavily impacted by government restrictions during the first half of 2020. As a result, net profit after tax (excluding notable items) decreased 90% on the prior corresponding period (pcp) to $9.1 million. 

After notable items, statutory net loss from operations after tax was $123 million, mainly driven by impairments of $152 million. However, the impact of the impairment was reduced somewhat by foreign exchange and income tax benefits leading to the $123 million loss. The boards of Atlas Arteria and Atlas Group decided to impair their investments in Dulles Greenway, located in north Virginia, United States.

Toll revenue fell nearly 32% to $49.61 million, from $72.76 million in the pcp. 

Additionally, the final distribution for 2019 was cancelled and the cash has been used to repay the existing debt facility.

Outlook

Traffic has somewhat recovered in Europe following the easing of government restrictions. As a result, from mid-May, traffic rebounded strongly in France and Germany after restrictions were lifted there. However, traffic on Dulles Greenway continues to be impacted by lower commuter travel.

Atlas Arteria CEO, Graeme Bevans, said:

While traffic in all markets was impacted by government mandated movement restrictions, traffic in France, our key market, has rebounded strongly since lockdown restrictions were eased.

Although we are still in uncertain times, Atlas Arteria’s balance sheet has never been stronger. The corporate balance sheet had around $216 million in liquidity following receipt of the $75 million from the security purchase plan in early July. With no corporate debt, we have ample liquidity, strong cash flows from improving traffic at APRR, and we are well placed to pursue growth opportunities as they arise.

Additionally, following the cancellation of the company’s 2H19 distribution in May 2020, it has reinstated distribution guidance for 1H20 of 11 cents per security. This is as a result of the business cash flows Atlas Arteria expects from APRR, a motorway located in France. However, the distribution is dependant on business performance. 

Currently, the Atlas Arteria share price is trading at $6.70 which is more than 5% up on yesterday’s closing price. The Atlas Arteria share price is down 21.5% from its 52-week high of $8.54.

More reading

• Don’t be blinded by gold fever…consider these ASX dividend shares instead

Motley Fool contributor Matthew Donald 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 IGO Ltd (ASX: IGO) share price is outperforming this morning after its FY20 results broke a few records.

Shares in the nickel miner jumped 2.1% to $4.57 when the S&P/ASX 200 Index (Index:^AXJO) added 0.6% at the time of writing.

IGO isn’t the only one in the sector doing well. The BHP Limited (ASX: BHP) share price, OZ Minerals Limited (ASX: OZL) share price and Rio Tinto Limited (ASX: RIO) share price gained around 1% each.

Breaking records

But the spotlight is on IGO after management reported a 13% jump in FY20 revenue of a record $892 million. Net profit also set a new high as it more than doubled to $155 million, while underlying free cash flow also broke a record at $311 million in the latest financial year past.

What’s also pleasing was that the result was achieved on bigger margins and the amount of cash in its coffers swelled to $510.3 million from $348.2 million.

However, management lowered its final dividend to 5 cents a share from FY19’s 8 cent payout. The news isn’t much of a surprise as its in line with IGO’s flagged capital management policy.

Going Nova

Investors can thank the miner’s Nova nickel project for the sharp improvement in its financial performance.

The mine produced more than management had previously expected and at a cash cost of $2.41 per payable pound of nickel.

IGO also benefitted from the gold surge through its joint-venture Tropicana mine, which met guidance.

The production numbers from the mines were effectively pre-announced in its latest quarterly update, but that didn’t lessen the excitement on IGO’s profit figures.

FY21 guidance

The miner reiterated its FY21 production guidance. It is aiming to produce between 27,000 and 29,000 tonnes of nickel and up to 12,500 tonnes of copper concentrate this financial year for Nova.

However, cash cost could rise as management believes this will range between $2.40 and $2.80 per pound of nickel.

Management is also forecasting Tropicana’s total gold output to range from 380,000 to 430,000 ounces. IGO owns 30% of Tropicana.

M&A could be a feature this year

There could be further upside for IGO this year too. Management is on the lookout for acquisitions and it has the financial muscle to go shopping for assets.

“Our focus into FY21 is firmly on growing the business through both exploration and disciplined mergers and acquisitions,” said IGO’s chief executive Peter Bradford.

“We have committed A$65M to exploration and discovery in FY21 to unlock the mines of the future.

“Our established, belt-scale land positions have been strategically selected to maximise success and we have clear and defined work programs for the coming year.”

More reading

• ASX 200 jumps 0.7%: Afterpay reaches 9.9 million customers, Woolworths strong sales growth
• Why this ASX tech ETF can ride the market gains higher
• Why the CBA share price could surge this morning
• 5 things to watch on the ASX 200 on Thursday
• ASX 200 drops 0.7%, Zip rises 27.5%

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, OZ Minerals Limited, and Rio Tinto Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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It’s happened!

The Xero Limited (ASX: XRO) share price this week burst through the $100 per share mark, closing Wednesday at $100.02 per share. It is a big milestone for the New Zealand tech company with a share price rise of 25% so far in 2020. At the time of writing, the Xero share price is trading at $102.

Let’s put the Xero share price rise into perspective

To put Xero’s share price rise into perspective, the S&P/ASX All Technology Index (ASX: XTX), which includes Xero, has risen 26.9% so far this year. So Xero’s share price rise is similar to its peers.

The All Technology Index, which can be tracked through the exchange-traded fund (ETF) Betashares S&P/ASX Australian Technology ETF (ASX: ATEC), currently includes 50 companies. Xero shares make up approximately 10.4% of the index, while the Afterpay Ltd (ASX: APT) share price makes up a chunky 20.4% of the index. The top 5 companies that make up the index are:

• AfterPay Ltd (ASX: APT), 20.4%
• Xero Limited (ASX: XRO), 10.4%
• SEEK Limited (ASX: SEK), 7.0%
• Computershare Limited (ASX: CPU), 6.6%
• REA Group Limited (ASX: REA), 5.6%

How does Xero’s $14.2 billion valuation compare?

Xero currently trades at a market capitalisation of around $14.2 billion dollars, which means it has a price-to-sales ratio of around 21x. This is certainly well above the company’s own average over the last five years of closer to 12x sales,according to data from ycharts.com. It is also substantially higher than the All Technology Index average price-to-sales ratio of 6.7x.

The price-to-sales multiple alone is not necessarily a fair reflection of the company’s valuation. But it does tell me that an investor buying Xero shares at $100 today is assuming a surge in revenue growth in years ahead to justify paying so much more than in previous years.

Should you buy Xero shares at $100?

I own Xero shares and I’ve written before that I think Xero has the potential to become one of the world’s best companies. The platform that Xero provides is evolving from an accounting service to a full suite of products designed to help small businesses and is growing an incredible switching cost moat.

Still, I can’t help feeling that at $100 per share, there is very little margin for error in the Xero share price. In my view, Xero’s financial performance still has some way to go before justifying the $100 mark and it’s likely that Xero has simply been caught up in the hot demand for consumer-tech stocks. 

As Motley Fool Australia Director of Research Scott Phillips wrote recently about Apple (NASDAQ: AAPL): “Where the ‘safe stocks’ used to be banks and oil companies, they’re quickly being supplanted by big, well known, consumer-tech stocks.”

In this kind of environment, it’s best to proceed with caution.

More reading

• ASX 200 up 0.7%: Big four banks storm higher, Blackmores disappoints, Xero acquisition
• Xero share price hits record high following $80 million Waddle acquisition
• Why the Xero share price can crack $100 per share in 2020
• 2 ASX growth shares to buy with $2,000
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Regan Pearson owns shares of Xero. You can follow him on Twitter @Regan_Invests.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Apple. 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. The Motley Fool Australia has recommended Apple, REA Group Limited, 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 Bega Cheese Ltd (ASX: BGA) share price has soared higher in early morning trade following the release of the company’s results for the financial year ended 30 June 2020 (FY20).

The Bega share price reached as high as $5.30, before pulling back to (at the time of writing) $5.16, up 6.1%.

Let’s take a look at Bega’s results.

How did Bega perform in FY20?

Bega reported solid FY20 results with continued growth and significant cash generation.

For the full year ending 30 June, Bega announced a revenue increase of $1.5 billion, up 5% over FY19. This was underpinned by strong sales in its international grocery market which grew by 15.1%.

Earnings before interest, tax, depreciation and amortisation (EBITDA) came in at $103 million, down almost 2% from $104.8 million.

Net profit after tax stood at $31.8 million, a small increase of 3% compared to $30.9 million the year before.

Earnings per share remained unchanged at 9.9 cents.

Bega revealed an operating cash flow of $137.7 million from its activities, driven largely by customer receipts. This was a jump from $100.3 million in FY19.

The company also managed to reduce its net debt position by $52 million to $236.4 million.

The food company declared a fully franked dividend of 5 cents per share to be paid to shareholders on 7 October.

This takes the total dividends for FY20 to 10 cents per share. Although this is less than the 11 cents per share declared in FY19, Bega is taking a cautious approach to maintain cash management and debt reduction post-COVID-19.

COVID-19 impact

Bega advised that the pandemic is expected to impact its customers and supply chain well into FY21 and possibly longer.

The business has been regularly reviewing its continuity plans to ensure it is able to meet the strong domestic demand for its products, as well as managing and redirecting production destined for export markets.

Management commentary

Executive chair of Bega Cheese Barry Irvin commented:

It has been a year like no other, we began the year in the grips of drought which contributed to a very competitive milk procurement environment and then managed never before seen bushfires. While still managing the impacts of those difficult circumstances COVID-19 was upon us, resulting in a major correction in global dairy commodity prices, a collapse in Australian and international food service demand and an increase in Australian retail demand.

Further to Barry Irvin’s address to the market, CEO Paul van Heerwaarden said:

It has been important to ensure we remain focused on both managing the challenges of the current year and in addition we continue to build the business for future success. The strong cash generation and associated debt reduction combined with a successful process improvement program positions us well. We have continued to invest in new products, markets, technology, infrastructure and our people all of which will contribute to the success of the business in future years.

FY21 outlook

Bega did not provide any guidance in respect to forecasted earnings. However, the company expects improved seasonal conditions going into FY21 as it continues to manage COVID-19 disruptions across its supply chain.

Management is determined to review processes to further reduce working capital and net debt to strengthen its balance sheet. Furthermore, Bega advised it will be focusing on investing in its product range and branded foods portfolio to expand sales opportunities.

With the completion of its new lactoferrin plant at Koriot in Victoria, the execution of the organisational review in 1H FY21, and the optimisation planned for its secondary processing plants, the company advised it is well positioned for future EBITDA growth.

About the Bega share price

The Bega share price has made a strong comeback of 46.5% since falling to as low as $3.52 in March. For the calendar year to date, the Bega share price is up 19.4%, but down almost 7% from its 52-week high at the time of writing.

More reading

• Why Bega Cheese, De Grey Mining, Northern Star, & Reece are storming higher
• Where is the Bega Cheese share price headed in August?

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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