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The Qantas Airways Limited (ASX: QAN) share price will be on close watch when trade opens this morning, follow the release of its full year 2020 financial year results.

A very challenging second half for our national carrier

The Qantas Group reported an underlying profit before tax of $124 million for the 12 months ended 30 June 2020. This was a massive 91% fall on the prior year.

The first half year saw strong growth for Qantas, with a $771 million underlying profit before tax. However, the airline then spiralled into a $4 billion revenue drop in the second half as the coronavirus pandemic wreaked havoc on the travel industry. This pulled down its full year underlying profit before tax into negative territory.

Qantas Group’s revenue fell sharply by 82% between April and June. However, the airline managed to reduce cash costs by 75% during this time, which significantly softened the blow. This saw Qantas’s underlying profit before tax in 2H FY2020 fall to only $1.2 billion.

The group reported a full year loss before tax of $2.7 billion. This loss was mainly due to a $1.4 billion non-cash write down of assets.

Available liquidity amounted to $4.5 billion at 30 June 2020. This includes $1 billion of undrawn facilities

Qantas Group CEO Alan Joyce said COVID-19 was reshaping the competitive landscape and that presented a mix of challenges and opportunities.

“Most airlines will come through this crisis a lot leaner, which means we have to reinvent how we run parts of our business to succeed in a changed market,” he said.

Domestic division shows resilience

Qantas Domestic recorded full year earnings before interest and taxes (EBIT) of $173 million. Jetstar performed relatively strongly, achieving EBIT of $112 million. A strong performance by the domestic division during the six months to December 2019 was more than able to offset a 50% decline in revenue in the second half as lockdown restrictions kicked in.

Qantas International recorded a modest $56 million profit for FY 2020.  This profit was mainly due to a record performance by Qantas Freight as well as a massive increase in e-commerce activity.

Market Outlook for FY 2021

Qantas remains confident it is well-positioned to take advantage of the eventual return of domestic services as the pandemic eases. However, it acknowledges that a high degree of uncertainty remains in the short-term regarding demand.

Qantas has scheduled 20 per cent of pre-pandemic group domestic capacity for the month of August. The carrier noted that its international network was unlikely to recommence before July 2021. However, the Trans-Tasman route could possibly start earlier.

“COVID will continue to have a huge impact on our business and we’re expecting a significant underlying loss in FY21,” Mr Joyce said.

“Looking further ahead, we’re in a good position to ride out this storm and make the most of the recovery. Our market position is set to strengthen as the only Australian airline with a full service and low fares domestic offering as well as long haul international services.”

The Qantas share price was trading at $3.76 at yesterday’s close.

More reading

• The highest paid CEOs in the ASX 200
• 5 things to watch on the ASX 200 next week
• Qantas share price is facing this new challenge in FY21
• Will the Qantas share price fly high again in 2020?
• 3 ASX shares I would buy right now at these prices

Motley Fool contributor Phil Harpur 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 Orora Ltd (ASX: ORA) share price is on watch this morning after the packaging provider delivered increased revenue but decreased profits. Tough trading conditions in North America were exacerbated by COVID-19 which adversely impacted results. 

What does Orora do? 

Orora is a packaging provider supplying customers with glass bottles, aluminium cans, caps and closures, boxes, cartons, and more. Packaging is a modern day necessity, demand for which has not been dented by COVID-19. Orora had previously estimated any negative financial impact from the pandemic would be limited to $25 million. Orora sold its Australiasian Fibre business in April netting some $1,550 million. The company then returned $600 million to shareholders via a special dividend of $450 million and a capital return of $150 million. 

How did Orora perform in FY20? 

Orora reported a 5.2% increase in sales revenue from continuing operations which reached $3,566.2 million. The Australasia sector delivered sales of $785.9 million, in line with the prior corresponding period. North American sales revenue was also steady at US$1,86.4 million, but EBIT declined 29.6% to US$51.8 million due to market weakness and margin pressure. The estimated net impact of COVID-19 on North American EBIT was ~US$15 million. 

Group underlying EBIT fell 14.3% to $224.3 million. This gave underlying NPAT from continuing operations of $127.7 million, a decrease of 22.8% on the prior corresponding period. Earnings per share were 13.2 cents. A final ordinary dividend of 5.5 cents per share (unfranked) was declared. Orora also announced an on-market buyback of up to 10% of issued share capital commencing in September. This is expected to cost ~$230 million. 

Managing Director, Brian Lowe, said, “Despite the near-term impact of COVID-19, the overall Orora business retains its strong balance sheet, which combined with the strong cash generation capability of its business, provides capacity and flexibility to return value to shareholders…and to preserve optionality for future growth opportunities.”

What’s next for the Orora share price? 

Orora expects challenging and uncertain market conditions to persist for the foreseeable future. A review of strategy was completed during the second half which identified actions to address challenges in the existing portfolio and opportunities to improve productivity. This refined strategy is expected to continue to generate strong cash flows from core business operations. Cash flow will be deployed into investments in the core business, distributions to shareholders, and strategic acquisitions that enhance the company’s product and service offerings. 

The Orora share price has fallen 39.5% lower in year-to-date trading.

More reading

• 3 ASX dividend shares for dependable income

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 Mirvac Group (ASX: MGR) share price is one to watch this morning after the real estate investment trust (REIT) reported a 45% drop in net profit after tax (NPAT).

What could move the Mirvac share price?

For the year ended 30 June 2020 (FY20), Mirvac reported a 17% slump in revenue to $2,312 million. 

Operating earnings before interest and tax (EBIT) fell 6% to $796 million as the coronavirus pandemic impacted the result.

That included an $86 million net impact on earnings in the form of provisions and project write-offs. The Aussie REIT reported a further $32 million from delays in development and settlements.

NPAT fell 45% to $558 million, down from $1,019 million the year prior thanks to the pandemic and valuation changes.

That saw basic and diluted earnings per share (EPS) fall to 14.2 cents – down from 27.6 cents in FY19. The group’s full-year distributions fell 19% to $357 million or 9.1 cents per security.

The Mirvac share price will be one to watch as investors process the latest full-year result.

Net tangible asset (NTA) backing per security edged 1.6% higher to $2.54 per share during the year.

On the capital management side, Mirvac reduced its average borrowing costs to 4.0%, down from 4.8% in FY19.

Mirvac’s 22.8% gearing ratio fell within its target range while liquidity increased to over $1.4 billion in cash and undrawn bank facilities.

Segment performance

Mirvac has four main business units: Office, Industrial, Retail and Residential. The Mirvac share price could be volatile in early trade given the mixed performances across the portfolios.

Occupancy rates remained high in the Office portfolio at 98.3% with a weighted average lease expiry (WALE) of 6.4 years.

Net operating income (NOI) totalled $348 million with like-for-like growth of 3.8%. Total office asset revaluations provided a 4.0% ($282 million) uplift with assets under management (AUM) increasing to $17 billion.

The Industrial portfolio reported a 99.4% occupancy rate with a WALE of 7.4 years. The group’s $1.2 billion future development pipeline in Sydney continued to progress with 43,000 square metres of leasing activity in FY20.

Retail occupancy was 98.3% with 92% of gross lettable area (GLA) open and trading as at 30 June. However, moving annual turnover (MAT) fell 4.1% with NOI falling 19% or $33 million due to COVID-19 support.

Mirvac’s Residential operating EBIT climbed 12% to $225 million with 2,563 residential lots settled, including a record number of apartments.

FY21 outlook

The Mirvac share price could be on the move in early trade but management was unable to provide guidance given the current uncertainty.

The REIT will target a distribution payout ratio of 65-75% of operating earnings in line with its policy of up to 80% payout.

Prior to the market open, the Mirvac share price was down 35.7% for the year compared to a 7.8% decline in the S&P/ASX 200 Index (ASX: XJO).

More reading

• Why it may not be too late to chase ASX reporting season record breakers
• Why the Carsales share price is still a buy at an all time high
• Where to next for the McMillan share price following Wednesday’s results?
• 5 things to watch on the ASX 200 on Thursday
• ASX 200 rises 0.7%, CSL soars 6.4%

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.

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The year 2020 has not been kind to ASX bank shares. Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking GrpLtd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) share prices are all still between 20-30% below where they started the year. Commonwealth Bank of Australia (ASX: CBA) is something of a saving grace, but even the yellow diamond is down more than 11% year to date, and more than 22% down from its February peak.

What’s happened?

A chief reason why these shares have been smashed in 2020 is dividends – or more specifically a lack thereof. When the coronavirus pandemic became apparent, it was quickly obvious that the banks’ capacity to pay dividends in 2020 would be strained. Even before the pandemic emerged, the banks were struggling on this front. It seems like a lifetime ago now, but CBA was actually the only ASX bank not to cut its dividend or franking in 2019.

But 2020 has been a whole different ballgame.

In the midst of the initial wave of the pandemic, NAB was the only ASX bank to offer any dividends – a 30 cents per share interim payment that was partially funded through a capital raising. ANZ and Westpac decided to defer the decision on dividend payments, whilst CBA paid out its interim dividend of $2 per share back in February.

Back to the present, and ANZ has decided to pay a 25 cents per share dividend (a substantial decrease from the 80 cents per share investors have been accustomed to). CommBank has announced a final dividend of 98 cents per share (down from $2.31 last year), whilst Westpac has scrapped its interim payment altogether.

So, now all of the banks have dealt their cards, which is the best bank for ASX dividend income?

And the banking winner is…

Well, firstly, it’s difficult to judge the ASX banks on the dividends paid this year alone. NAB did offer 30 cents per share in the midst of the crisis when uncertainty forced Westpac and ANZ to defer their own payments. If the picture was as clear as it is today back in March (relatively speaking), NAB might have offered shareholders more.

But on the face of it, I think we have to give CommBank the crown here. Commonwealth Bank has proven it can fund a substantial payout (again, relatively speaking) without having to launch a capital raise. If CBA’s 98 cents per share dividend is annualised, it works out to be a 2.76% yield on current pricing. If we take NAB’s 30 cents per share and ANZ’s 25 cents per share, it equates to a yield of 3.35% and 2.67% respectively for comparison.

Even though NAB looks to be offering a higher yield on paper, I would still prefer CBA if I were desperate to add a bank share to my portfolio today.

More reading

• Is the Westpac share price a buy for future dividends?
• This ASX fund manager is going back to value in a post-COVID world. Here’s why.
• Top brokers name 3 ASX 200 shares to buy today
• ASX 200 up 0.8%: ANZ to pay dividend, a2 Milk tumbles, CSL impresses
• What you need to know about the ANZ share price and profit result today

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

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Carsales.Com Ltd (ASX: CAR) had a strong day on the markets yesterday after releasing its full-year result. In fact, the Carsales share price jumped 4.2% higher to a new all-time high.

Despite the strong gains, however, I still like the look of Carsales over the next 12-24 months.

What did Carsales report yesterday?

The Aussie online classifieds business reported a solid result, especially in the context of the current climate.

The group reported adjusted revenue up 1% to $423 million with good growth in Australia and South Korea.

Adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) grew 6% to $237 million, with an EBITDA margin of 55%.

Adjusted net profit after tax jumped 6% to $138 million despite reporting a 9% decline in statutory profit to $120 million.

The Carsales share price surged higher following the result to a new all-time high of $20.29 per share before edging back to its current price of $20.23. That means shares in the Aussie business are up 20.5% this year compared to a 7.8% decline in the S&P/ASX 200 Index (ASX: XJO).

Why I like the Carsales share price

The latest full-year result shows that the Carsales business is resilient despite the tough economic conditions.

The coronavirus pandemic continues to weigh on earnings and make it difficult to forecast beyond this year.

However, I think that economic uncertainty may have a silver lining for Carsales. The recent goverment stimulus measures have seen an increase in vehicle purchases as many Aussies splash out with their new dollars.

While the stimulus may subside, I think many will still look to sell vehicles that they now can’t afford, or look to buy second-hand to save some cash.

That’s good news for the Carsales share price which could benefit from increased volumes.

On top of that, we’re also seeing a change in work and commuting dynamics. That means more Aussies could move out of inner city areas and require a car for travel. We could also see a move away from public transport to reduce the danger of contracting COVID-19.

Finally, I think the strong momentum behind the Carsales share price is a good thing for investors. It won’t last forever, but I think it may continue to climb beyond its current all-time high in 2020.

More reading

• Why it may not be too late to chase ASX reporting season record breakers
• Mirvac share price on watch as profit slumps 45%
• Where to next for the McMillan share price following Wednesday’s results?
• 5 things to watch on the ASX 200 on Thursday
• ASX 200 rises 0.7%, CSL soars 6.4%

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has recommended carsales.com 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 WiseTech Global Ltd (ASX: WTC) share price rocketed 34.5% higher yesterday, but is the Aussie tech share overvalued?

Why did the WiseTech share price surge 35%?

The big factor was a bumper full-year earnings result from the logistics software company.

Total revenue for WiseTech grew to $429.4 million, up by 23% on the prior year. That included a 20% jump for its CargoWise core platform with revenue from newly acquired businesses up 29% to $166.4 million.

Earnings before interest, taxes, depreciation and amortisation (EBITDA) grew by 17% to $126.7 million on an EBITDA margin of 30%. 

Impressively, WiseTech’s net profit after tax surged 197% to $160.8 million including a fair value gain of $111.0 million.

The software group also reported a 1.60 cents per share fully franked dividend for shareholders.

That saw investors scramble to buy in with the WiseTech share price rocketing higher in yesterday’s trade.

Is the Aussie WAAAX share overvalued?

Valuing ASX tech shares is difficult at the best of times. However, if the coronavirus pandemic has taught us anything, it’s that tech and gold shares are in high demand.

I think a 35% jump in one day indicates that the WiseTech share price may be overvalued.

It’s rare to see any share surge that much higher and stay at that valuation in the long term. Determining intrinsic value is a tough game and I think we’ll see investors continue to trade WiseTech shares heavily in the coming days.

The WiseTech share price currently trades at a price-to-earnings (P/E) ratio of 96.9. That means you’re paying a lot today for expected growth tomorrow.

Yesterday’s revenue and EBITDA figures suggest that maybe it is worth that much. However, I think I’d rather err on the side of caution and think longer term than get trapped in the current tech mania.

Foolish takeaway

In a difficult earnings season, WiseTech has certainly delivered for its investors. I think the strong WiseTech share price gains indicate that there is still serious growth potential on offer. 

However, given the lofty valuations tech shares are attracting, I think I’ll look elsewhere in the market for undervalued buys.

More reading

• ASX 200 rises 0.7%, CSL soars 6.4%
• 4 ASX tech shares surging higher today on strong FY 2020 earnings
• 4 market experts’ opinions as US shares hit record and WiseTech share price soars 33%
• Why the WiseTech Global share price rocketed 37% higher today
• ASX 200 up 0.8%: ANZ to pay dividend, a2 Milk tumbles, CSL impresses

Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of WiseTech Global. 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 Wesfarmers Ltd (ASX: WES) share price will be on watch on Thursday following the release of its full year results.

How did Wesfarmers perform in FY 2020?

For the 12 months ended 30 June 2020, the conglomerate reported a 10.5% increase in revenue from continuing operations to $30,846 million. This reflects strong sales growth from Bunnings, Kmart, Officeworks, and Catch.

The Bunnings business was the star of the show and delivered a 13.9% increase in sales to $14,996 million. This was driven by demand for products during the pandemic as customers spent more time doing projects at home.

Supporting its growth were its Kmart and Officeworks businesses. Kmart recorded a 5.4% lift in sales to $6,068 million and Officeworks delivered a sizeable 20.4% lift in sales to $2,775 million.

The company also reported strong growth in online sales in FY 2020. They grew 60% for the year to $1.5 billion excluding the Catch business. This lifts to $2.1 billion including the ecommerce business. Management notes that this reflects continued shifts in customer shopping preferences and its enhanced digital offering.

On the bottom line, Wesfarmers reported an 8.2% increase in net profit after tax from continuing operations (excluding significant items) to $2,099 million. This represents earnings per share of 185.6 cents.

This profit excludes $3,570 million of significant items and discontinued operations. This is primarily relating to the Coles demerger, but also includes the writing down of the value of the Target business by $525 million, $110 million in restructuring costs, and a $310 million impairment against the value of its industrial and safety businesses.

Final and Special Dividend.

Wesfarmers has declared a fully franked final dividend of $0.77 per share, bringing its full year dividends to $1.52 per share. This is down from $1.78 per share in FY 2019.

However, the Wesfarmers board has declared a special fully franked dividend of 18 cents per share. This reflects the after-tax profits realised from the sale of some of its Coles Group Ltd (ASX: COL) stake.

Outlook.

Management warned that the outlook for its key Bunnings business remains highly uncertain because of the pandemic.

It commented: “Trading performance likely to moderate as extraordinary growth in the second half likely to have pulled sales forward from FY21 in some categories. Weaker economic conditions expected in Australia and New Zealand with gradual removal of financial support measures from government, banks and landlords likely to impact housing and renovation activity.”

In addition to this, management notes that the outlook for the Officeworks business remains uncertain, with changing customer shopping patterns and COVID-19 measures expected to impact trading conditions in FY 2021.

Things may be a little more positive for the Kmart Group, which management believes is well-positioned to deliver sustainable long-term returns even in an uncertain environment.

It concluded: “The Group will continue to develop and enhance its portfolio, building on its unique capabilities and platforms to take advantage of growth opportunities within existing businesses, recently acquired investments and to pursue transactions that create value for shareholders over the long term.”

More reading

• Why it may not be too late to chase ASX reporting season record breakers
• Low interest rates the new normal? 3 ASX dividend shares to buy today
• Is the Coles share price a post-earnings buy for ASX dividend income?
• Rates on hold until 2023? Buy these ASX dividend shares
• 2 blue chip ASX dividend shares to buy

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Wesfarmers 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 Afterpay Ltd (ASX: APT) share price has been on a tear lately. It has rocketed from $8.90 in late March to a high of $77 yesterday before closing at $74.90. That’s an increase of more than 700%!

This growth is being fueled by strong domestic activity and an aggressive overseas expansion strategy.

In light of such a rapid recent rise in the Afterpay share price, is the buy now, pay later (BNPL) provider still in the buy zone?

Impressive fourth quarter growth

Afterpay has continued to perform strongly in recent months. This is despite growing competition from other BNPL providers such as Openpay Group Ltd (ASX: OPY) and Zip Co Ltd (ASX: Z1P).

The company revealed impressive performance across its entire business in a trading update in July.

Underlying sales came in at $11.1 billion during FY 2020. This was up 112% – more than double the sales – on the prior corresponding period (pcp). Underlying sales during the fourth quarter were particularly high at $3.8 billion, more than 127% higher than in FY 2019.

 Growth in recent months has been fueled by the rapid rise of online shopping during the coronavirus pandemic. Afterpay’s BNPL platform is becoming increasingly popular with online shoppers as an alternative to traditional credit card online payments.

Active customer base continues to soar

Afterpay’s active customer base reached 9.9 million during FY 2020. That’s a 116% increase on the prior year.

Growth is being driven by Afterpay’s growing presence in overseas markets. Afterpay’s US customer base reached 5.6 million in June, while the 1 million customer milestone was reached in the UK. During the first quarter of 2021, Afterpay’s expansion into Canada is scheduled to begin, along with the in-store rollout within the huge US market.

Afterpay has flagged FY 2021 as a year of increased investment as it looks for additional overseas investment opportunities to achieve further global scale. This growth will be partly fueled by a fully underwritten institutional placement to raise $650 million. In addition, a share purchase plan is anticipated to raise approximately $150 million.

Afterpay is yet to achieve the breakeven point in terms of profitability. However the BNPL provider is anticipating that its net transaction loss (NTL) will to be up to 38 basis points for FY 2020.

Foolish Takeaway

Despite a strong recent surge in the Afterpay share price, I believe there is potential for still more strong share price growth in the next few years, fueled by the company’s aggressive overseas growth strategy.

Afterpay’s potential to make strong inroads into the large US market in particular is massive. However, with such a strong  share price rise recently, be ready for some potential share price volatility during the short term.

More reading

• 5 things to watch on the ASX 200 on Thursday
• Afterpay share price on watch after upgrading FY 2020 guidance
• This ASX fund manager is going back to value in a post-COVID world. Here’s why.
• Afterpay share price hits new, all time high
• Afterpay and Mesoblast were among the most traded shares on the ASX last week

Phil Harpur owns shares of AFTERPAY T FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. 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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One of the worst performers on the S&P/ASX 200 Index (ASX: XJO) yesterday was McMillan Shakespeare Limited (ASX: MMS). The McMillan share price closed 6.14% lower at $8.72 on Wednesday, after earlier falling as low a $8.25 per share. This came after the salary packaging, novated leasing, and fleet management company released its FY20 results.

FY20 performance

McMillan reported for the full year ending 30 June, a 10.1% decline in revenue to $494 million and a massive 25.1% fall in earnings before interest, tax and amortisation (EBITA) to $99.5 million.

Underlying net profit after tax and acquisition amortisation (UNPATA) dropped 22.2% to $69 million. Underlying earnings per share (EPS) of 87.4 cents was down 18.5%. The company has declared no final dividend to be paid as it takes a cautious approach due to the uncertainty of COVID-19.  McMillan plans to resume dividends in FY21.

The FY20 results appear to have spooked investors as the McMillan share price has been heavily sold off.

COVID-19 impact

McMillan advised that the coronavirus pandemic caused a sharp and severe hit to Q4 earnings. The company renegotiated contract extensions for 21 customers and granted interest only repayments and payment deferrals for a further 62 customers.

The uncertainty surrounding the pandemic is expected to result in further restrictions and, subsequently, associated impacts on the company’s near-term future performance.

Proactive measures have been taken to reduce costs and extend McMillan’s senior debt maturity to see the company through the current climate. McMillan recorded its net cash position of $66.7 million excluding fleet funded debt. 

FY21 outlook

McMillan advised there have been some encouraging early indications for Q1 FY21 as activity levels start to improve. However, this of course is reliant on the Australian and the United Kingdom economies returning back to normal sooner rather than later.

The company’s Group Remuneration Services segment, Plan Partners, was not affected by COVID-19 and is well positioned for customer and earnings growth in FY21. $669 million of client funds were under administration in FY20.

McMillan’s rapid digital program expansion has been gaining traction as a way to service customers remotely. The program’s digital roadmap is expected to enhance overall customer experience and support growth opportunities.

Should you invest in today’s McMillan share price?

Whilst these results are disappointing, I believe they should have been expected due to the impact the pandemic has had on McMillan’s businesses. I am also confident the company will bounce back for FY21. Furthermore, McMillan has initiated cost-saving measures to help see it through the challenging conditions.

Particularly after yesterday’s falls, I believe the McMillan share price could be a good option for investors with a long-term horizon.

More reading

• Why it may not be too late to chase ASX reporting season record breakers
• Mirvac share price on watch as profit slumps 45%
• Why the Carsales share price is still a buy at an all time high
• 5 things to watch on the ASX 200 on Thursday
• ASX 200 rises 0.7%, CSL soars 6.4%

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Vicinity Centres (ASX: VCX) FY20 annual report released yesterday disclosed a blowout statutory loss of $1.8 billion. The announcement saw the Vicinity Centres share price fall by more than 4%. The major contributor to the loss was property valuation decline of $1,718 million and an impairment of goodwill of $427 million. In July, Vicinity Centres disclosed an 11.4% decline in valuation. Accordingly, the company has cancelled its June distribution. 

The Vicinity Centres report goes on to point out that net property income (NPI) had reduced by $204 million, or 22.96%. $169 million of this was due to the impact from the coronavirus. $109 million due to rent waivers, and $60 million due to rent deferrals. The latter part reflects a heightened collection risk in these times. The company is continuing to negotiate short term lease variations.

Moreover, the company has seen a slide in occupancy rates from 99.5% down to 98.6%. In addition, the real estate investment trust (REIT) finds itself in the firing line again as Victoria has re-imposed restrictions due to the pandemic second wave. 

Vicinity Centres report – the good news

The good news is that most of the country has opened up again, this has provided some positive results. For example, in June the portfolio’s store visitation, as a percentage of FY19, stood at 51%. While 90% of stores were trading as compared with FY19. Moreover, the company has moved from 33.7% gearing to 25.5% after a $1.2 billion institutional placement. And much of this debt is not due until at least 2022. 

To understand the financial performance of a company such as this, you need to know how REITs report, and how it all hangs together. For example, statutory profit, or loss in this case, are derived from following accounting standards. This means inclusion of things like devaluation and the loss of goodwill. However, neither of these issues have anything to do with the level of cash the company has. And in this case it has little to do with the company’s ability to generate revenues. 

REITs also use a method called funds from operations or FFO. For the benefit of the Vicinity Centres report, this is the equivalent of earnings, or earnings per share for a standard company. The company’s FFO for FY20 was $520.3 million. This was a reduction of 24.5% compared with FY19. While this is not a great result, it takes into account the real-world impacts of coronavirus, and is far more informative than a $1.8 billion statutory loss.

Where to now for the Vicinity Centres share price?

The Vicinity Centres report also disclosed the company’s thinking on the move to online shopping. While we are seeing a phenomena of the rapid move to online shopping, we are also seeing many stores become omni channel. That is, to use a multitude of sales and delivery channels. For instance, Michael Hill International Ltd (ASX: MHJ) yesterday announced a move to a range of new sales channels. These have included click and collect, click and reserve, as well as a drop shipping model.

In all of these cases, there is a need for a physical store, both for sales and for the delivery options. The REIT has also been able to review the tenancy mix and will be evolving over time to reflect both non-discretionary stores, as well as in-demand retail. 

Foolish takeaway

I believe the Vicinity Centres report showed a very good company wrapped in a poor FY20 performance due to coronavirus. However, by the REIT’s own admission, recovery of these stores and centres will take a long time. Moreover, while I agree with the omni channel focus, there is still likely to be less retail outlets for any given chain. Moreover, the Victorian experience shows us how rapidly this coronavirus can take off. Until we either learn to live with it, or finally get a working vaccine, then there is a chance for intermittent lockdowns to occur. 

Personally, I feel there is far too much uncertainty around the sector of large format, largely non-discretionary retail centres. In fact, anything requiring regular gatherings of large crowds is hard to foresee happening anytime soon. As such, it’s likely the Vicinity Centres share price will continue to face significant headwinds over the near term.

More reading

• Michael Hill share price falls but targets growth
• Is the Charter Hall share price a buy, post-earnings?
• 3 dirt cheap ASX real estate shares
• What to look for in the Vicinity Centres FY20 report
• Reliable ASX dividend shares still exist

Motley Fool contributor Daryl Mather 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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