Tag: Motley Fool

One of the best performers on the Australian share market on Tuesday was the Kogan.com Ltd (ASX: KGN) share price.

The ecommerce company’s shares rocketed a sizeable 12% higher to finish the day at a record high of $22.99. This means that the Kogan share price is now up 566% from its March low of $3.45.

To put that into context, if you had invested $20,000 into Kogan’s shares at its low, it would now be worth over $133,000.

Why did the Kogan share price rocket higher today?

Investors appear to have been fighting to get hold of Kogan’s shares following a delayed response to its impressive full year results release on Monday.

For the 12 months ended 30 June 2020, Kogan reported a 39.3% increase in gross sales to $768.9 million. A key catalyst for this growth was a 35.7% increase in its active customer base to 2,183,000.

Another positive was its 4.7 percentage point increase in its gross margin to 25.4%. This was underpinned by the growth in commission-based and seller-fee-based revenue across new verticals and Kogan Marketplace.

As a result of this margin expansion, Kogan’s earnings grew at an even quicker rate. Despite a big investment in marketing, Kogan reported a 57.6% increase in adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) to $49.7 million.

This strong form allowed Kogan to declare a fully franked final dividend of 13.5 cents per share. This was up 64.6% on the prior corresponding period and brought its full year dividend to 21 cents per share. Which means that investors that bought shares at $3.45 in March will receive a 6% yield on cost.

Positive start to FY 2021.

Also getting investors excited was Kogan’s strong start to FY 2021.

In July, Kogan achieved unaudited gross sales growth of over 110% and gross profit growth of over 160%. It also revealed that its monthly adjusted EBITDA was more than $10 million during the month.

Annualised, this equates to more than $120 million of adjusted EBITDA, which is over 140% greater than FY 2020’s adjusted EBITDA of $49.7 million.

Is it too late to invest?

Kogan’s shares are now trading at a significant premium to the market average. This means they carry higher than average risk, which may make them unsuitable for many investors.

However, if your risk profile allows it, I feel Kogan could be an excellent long term investment. Though, better entry points may present themselves in the coming months, so it could pay to be patient.

More reading

• Why Cochlear, Kogan, Megaport, & Northern Star shares are charging higher
• New investors should do this before investing in ASX shares
• Why Kogan and these ASX shares just hit record highs
• ASX 200 drops 0.8%, JB Hi-Fi jumps 4.5%
• What recession? These ASX retail shares are raking it in

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 Kogan.com ltd. The Motley Fool Australia has recommended Kogan.com ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Estia Health Ltd (ASX: EHE) share price jumped 4.2% today to close at $1.48 after the company released its full year financial results to 30 June 2020.

Estia Health operates aged care homes in Australia. It listed on the ASX in 2014.

In July, Estia Health announced it was working with authorities in relation to outbreaks of coronavirus at its homes in Heidelberg West and Ardeer, Victoria.

How did Estia Health shape up this year?

Estia Health reported a loss after tax of $116.9 million in FY20. This was after a non-cash impairment charge of $144.6 million. The company said the loss reflected funding and financing challenges faced by the residential aged care sector.

The company reported profit after tax before the non-cash impairment was $25.2 million, which represented a 39.5% decline compared to the 2019 financial year. 

Earnings before interest, tax, depreciation and amortisation (EBITDA) were $79.3 million, down 18.2% on 2019 figures. According to the company, it had cash conversion of greater than 100% of EBITDA.

Estia Health reported average occupancy for FY20 was 93.2%. The company had occupancy of 92.7% at 30 June. Its new 110-bed aged care facility at Southport in Queensland reached 100% occupancy in February 2020 and its new home in Maroochydore, Queensland, reached 81.7% occupancy this month. 

The company invested $80.6 million of capital during the year in new homes, refurbishments, sustainability, asset replacement and improvements.

Coronavirus challenges

At 30 June 2020, Estia Health had net debt of $99.4 million, representing 1.3x EBITDA. It had net liquidity of $226.6 million available at 30 June.

The board chose not to declare a final dividend for FY20 as a result of the net loss for the year and “as a prudent measure in uncertain times”.

Estia Health CEO Ian Thorley said:

COVID-19 will remain a challenge for the foreseeable future. We believe that by continuing to work closely with State and Federal authorities and regulators we will get through this difficult period by providing the best possible care to our residents and support for our staff.

About the Estia Health share price

The Estia Health share price has climbed 66.67% from its 52-week low of 90 cents. However, it is down 37.76% since the beginning of 2020 and down 42.97% since this time last year. The share price closed at $1.48 today after climbing 4.2%.

More reading

• Here’s how to start investing with $5k
• Estia Health share price sinks lower on coronavirus update

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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I think that Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) is the best ASX dividend share for income-seeking investors. It’s commonly called Soul Patts.

A quick overview of Soul Patts

Soul Patts is an investment conglomerate that has been listed in Australia since 1903. It’s one of the oldest businesses on the ASX.

Everything about Soul Patts is set up to be thinking for the long-term. A great example of that is the long-term loyalty of the employees. More than 40 employees have worked for the company for over 50 years. Five generations of the Pattinson family have served the company, as have three generations of the Dixson, Spence, Rowe and Letters families. Soul Patts can point to continuing family leadership: Lewy Pattinson, Fred Pattinson, Jim Millner and current chair, Rob Millner.

The ASX dividend share aims to hold a diversified portfolio of mostly uncorrelated investments across listed shares, private equity, property and loans.

Current investment portfolio

I really like Soul Patts’ portfolio. It owns large positions in shares such as TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), Australian Pharmaceutical Industries Ltd (ASX: API), Bki Investment Co Ltd (ASX: BKI), Milton Corporation Limited (ASX: MLT) and Clover Corporation Limited (ASX: CLV).   

It also owns positions in a number of unlisted businesses like swimming schools, agriculture and resources. Soul Patts will soon be investing into regional data centres which seems to be a long-term growth trend.

The ASX dividend share doesn’t just own private businesses outright. It also has large stakes in unlisted businesses such as Ampcontrol, which is a leading international supplier of electrical and electronic products with a strong presence in providing products and services to the mining sector.

Why the ASX dividend share has a good dividend reputation

Soul Patts has two of the most pleasing dividend record attributes. The company has paid a dividend every year since it listed in 1903. It has increased its dividend every year since 2000, the only ASX share to have done that.

I think it’s critical that any ASX dividend share you consider must be able to continue to deliver reliable dividends.

There are plenty of valid argument points to say investors may as well invest for total returns rather than specifically dividends.

If someone is investing for dividends then that suggests to me that the income provided is important to fund their life expenses. If you’re investing for dividend income then I think that dividend needs to be consistently reliable. An ASX dividend share needs to deliver income through all economic conditions. I think Soul Patts is the best ASX dividend share for its reliability. 

It’s no use having a big dividend one year and then getting no dividend income the next year if there’s a recession. The global COVID-19 pandemic was clearly unexpected. But I think it has shown how some businesses which had a reputation for dividends – such as Westpac Banking Corp (ASX: WBC) and Sydney Airport Holdings Pty Ltd (ASX: SYD) – were unable to continue paying a dividend. They weren’t very defensive.

Soul Patts has delivered consecutive dividend growth over the past 20 years and it has provided dividend guidance for growth in the next result.

Two of Soul Patts’ biggest holdings, TPG and Brickworks, have indicated they are aiming for higher dividends over the next 12 months which should help Soul Patts fund a higher dividend too.

Future growth

You shouldn’t buy an ASX share for dividends alone. It needs to have growth potential over the longer-term. Soul Patts’ holdings are aiming for growth. TPG has merged with Vodafone Australia to create profit growth. Brickworks is expanding in the US and it’s growing the industrial property trust.

Soul Patts is steadily putting money to work into new investment ideas. As I’ve mentioned, the ASX dividend share is investing into regional data centres. In FY20 the company retained around 20% of its net operating cashflow which can be put towards future growth opportunities.

I like Soul Patts as a dependable ASX dividend share. Other investments may deliver more capital growth over the coming years, but Soul Patts could be the most dependable option for dividends. At the current Soul Patts share price it has a grossed-up dividend yield of 4.2%. 

More reading

• 4 ASX shares to profit from booming ecommerce
• 2 ASX shares that every investor should own
• Investors wanting safe income should own these 3 ASX shares
• 3 quality ASX shares to buy in August
• Beat low interest rates with these ASX dividend shares

Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Clover 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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With the cash rate likely to remain on hold until as late as 2023 and then take several years before reaching “normal” levels, if I were a retiree, I would look to the share market to grow my wealth and generate a source of income.

With that in mind, here are three fantastic ASX 200 shares that I believe would be suitable for retirees:

BWP Trust (ASX: BWP)

I think this real estate investment trust would be a great option for retirees. This is due to the quality of its property portfolio, which is predominantly leased to home improvement giant Bunnings Warehouse. Given how Bunnings is arguably one of the best retailers in the country, I believe the risk of store closures and rental defaults is extremely low. Especially given how its sales have been exceptionally strong during the pandemic and government stimulus is supporting the home improvement market.  Combined with periodic rental increases, I believe BWP is well-positioned to deliver consistent income and distribution growth over the next decade. At present I estimate that its units offer a forward 4.5% yield.

Goodman Group (ASX: GMG)

I think Goodman Group would be a fantastic long term option for retirees. This property company owns, develops, and manages industrial real estate across several countries. These include properties with exposure to markets with very favourable outlooks such as ecommerce. In fact, the company has agreements with giants such as Amazon and DHL, which are at the forefront of the ecommerce boom. Given how these assets are likely to be in demand for a long time to come, I feel it bodes well for income and distribution growth in the future.

Rural Funds Group (ASX: RFF)

Another option for retirees to consider buying is agriculture-focused property group Rural Funds. I’m a big fan of the company due to the quality of its portfolio and its long term tenancy agreements. At the last count its properties had a weighted average lease expiry of approximately 11 years. Furthermore, these agreements have rental increases built into them in a way that positions Rural Funds to consistently grow its income and therefore its distribution each year. Rural Funds intends to grow its distribution by 4% to 11.28 cents per share in FY 2021. This equates to a generous yield of 5.2%.

More reading

• The latest 3 ASX stocks to be hit by a broker downgrade today
• Top brokers are urging investors to buy these ASX stocks today
• Why Fortescue’s share price has surged 72% in 2020
• US markets at record highs! Here’s what it means for ASX investors
• ASX 200 up 0.2%: Westpac cancels dividend, Treasury Wine hammered, Coles impresses

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. 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 market may have closed at a high on Tuesday but not all stocks enjoyed a good day as they got slapped by broker downgrades.

So while the S&P/ASX 200 Index (Index:^AXJO) is on track to close near its intraday high of 0.7% today, the same can’t be said for the JB Hi-Fi Limited (ASX: JBH) share price and two other stocks in the index.

The JBH share price slumped 3.4% to $47.93 in the last hour of trade after Bell Potter downgraded the stock to “sell” from “hold”.

Past its peak

While the electronics retailer posted a solid full year profit result that saw underlying net profit surge 33.2% to $332.7 million and double-digit like-for-like sales at Good Guys and JB Hi-Fi’s chain, this could be as good as it gets for the group.

“The 2H20/July sales surge is clearly not sustainable, so the question is what is being priced in for a more normalised sales outlook in FY22,” said the broker.

“On the back of recent share price strength, our BPe FY22 PE has increased to ~20x which we believe is excessive.”

While Bell Potter cut its rating on the stock, it lifted its 12-month price target to $44 from $38.50 a share.

From upgrade to downgrade

Another stock to suffer a sell-off today is the Bendigo and Adelaide Bank Ltd (ASX: BEN) share price. The bank stock lost 1.7% at the time of writing to trade at $6.43 after JPMorgan changed its recommendation to “neutral” from “overweight”.

The broker only upgraded the stock in June but conceded that the tailwinds that drove its bullish change of heart were short-lived.

These tailwinds were the belief that Bendigo Bank had a funding cost advantage over its peers, a defensive loan book that’s better protected from bad debts and less pro-cyclicity of capital.

Can’t bank on tailwinds

However, these bullish assumptions have lost their puff. The bank may have enjoyed an edge when it came to funding cost, but its waning more quickly than expected. This means Bendigo Bank’s net interest margin is likely to come under significant pressure over the medium-term.

The strict second lockdown in Victoria is also posing a big threat as 50% of the bank’s commercial loan deferrals are from that state.

“With BEN’s CET1 ratio sitting at just 9.25%, we think it will struggle to grow its loan book fast enough to offset margin pressures,” said JPMorgan.

The broker’s price target on the stock is $6.70 a share.

In need of topping up

The third stock to fall out of favour today is the Viva Energy Group Ltd (ASX: VEA) share price, which tumbled 6% to $1.70 ahead of the market close.

The weakness may have been triggered by Morgans downgrade of the petrol station operator to “hold” from “add” in the wake of its profit results.

Viva’s profit performance actually wasn’t bad at all given the challenging COVID-19 environment and shareholders were showered in cash from its $500 million plus capital return and special dividend.

Victoria poses a risk

“VEA earnings remain sensitive to a continued recovery in Australian travel, and eventual reopening of Victoria,” said Morgans.

“Although trading near 5x FY21F EBITDA we view this upside as starting to be factored into VEA after recent share price strength.”

The broker’s price target on the stock is $1.95 a share.

More reading

• 3 fantastic ASX 200 shares for retirees to buy
• Top brokers are urging investors to buy these ASX stocks today
• Why Fortescue’s share price has surged 72% in 2020
• Leading brokers name 3 ASX shares to sell today
• US markets at record highs! Here’s what it means for ASX investors

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.

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The Medusa Mining Limited (ASX: MML) share price is on a tear, up 13% in late afternoon trading today. That puts the gold producer’s share price up 22% so far in August and up 48% over the past full month.

By comparison, the All Ordinaries Index (ASX: XAO) has gained 3.6% in August and 2.6% over the last full month.

Year-to-date Medusa’s share price is up 29%. And that’s after plunging more than 42% from 24 February to 19 March during the COVID-19 market panic.

Investors who bought at the March low and held onto their shares won’t have anything to complain about today. Since that low, Medusa’s share price has gained a whopping 164%.

The company has a current market cap of $217 million.

What does Medusa Mining do?

Medusa is an Australian-based gold producer, focused on growth in the Asia Pacific Region. Its current projects are the Royal Crowne Vein Prospect and the Co-O underground mine, both located in the Philippines

Medusa listed on the ASX in December 2003.

Why is Medusa’s share price up 48% in the last month?

While there have been no new announcements today to readily explain Medusa’s 13% intraday share price rise, its monthly gains can be attributed to several factors.

First, as a gold producer, Medusa’s share price obviously stands to benefit from any increase in the price of gold. And over the last month, the yellow metal has gained 10%, currently trading for US$1,991 (AU$2,765) per ounce. Year-to-date gold is up 31% in US dollars.

Another likely driver for Medusa’s fast rising share price is that unlike some of its rivals, including Regis Resources Limited (ASX: RRL) and Evolution Mining Ltd (ASX: EVN), the company did not hedge its gold. This means it didn’t opt to sell the gold it’s producing today several months ago at lower prices. While that may have seemed like a good idea at the time for some gold miners, they’re certainly regretting that with today’s near record gold prices.

Medusa’s share price also received a boost with the release of its quarterly report on July 27. The report noted the company’s operations had been impacted by the pandemic, but total cash and cash equivalent on metal account at quarter end still increased roughly 45% to US$47.1 million.

The company also reported its had achieved production guidance for FY2020, with 95,057 ounces of gold produced for the year at an AISC of US$1,132 per ounce. This came in slightly higher than the top end of guidance.

Medusa’s share price could see more big moves – up or down – when the company releases its production and cost guidance for the 2021 financial year at the end of August.

More reading

• Warren Buffett is dumping banks and buying gold, should you?
• 5 things to watch on the ASX 200 on Tuesday
• Warren Buffett is buying gold shares and top fundies assess ASX share price moves
• Evolution Mining and 1 other ASX gold share in the buy zone
• Why November could be the best time to re-join the gold bull run

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

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We Fools like to occasionally take a peek at which shares have been most popular on the share market boards in recent times. Today, we’ve already checked out the most popular ASX shares, so now let’s have a look at which US shares ASX investors have been chasing recently.

This data comes from Commonwealth Bank of Australia (ASX: CBA)’s CommSec platform, which is the most widely used broker in Australia. As such, I think it gives us a pretty good idea of what the broader trends are. So without further ado, here are the top US shares Aussies were trading last week (10–14 August).

Most popular US shares:

1) Tesla Inc. (NASDAQ: TSLA)

You just can’t keep Elon Musk’s baby in a corner. Tesla, an electric car and battery manufacturer, was once again in the spotlight last week. A likely catalyst for this renewed interest was the company announcing a 5-for-1 stock split, which will see the price of Tesla shares cut 5 ways when it goes through later this month. Seeing as one Tesla share will set an Aussie investor back around $2,540 today (US$1,835), the move to split the shares was evidently welcomed. This company’s share price is now up 327%, year to date. Next stop, Mars?

2) Apple Inc. (NASDAQ: AAPL)

Apple is our second most popular US stock for Aussies this week and I’m sensing a theme here. Apple is another company that has just announced an August stock split — this time 4-for-1. It won’t have the dramatic results of the Tesla share split, seeing as Apple shares were most recently trading for US$458. Still, it wasn’t getting in the way of Aussies picking up shares of the iPhone maker last week.

3) Microsoft Corporation (NASDAQ: MSFT)

No stock split news from Microsoft last week, but that didn’t stop Australian investors giving this giant the bronze medal. Microsoft has been high in demand this year, despite its gargantuan market capitalisation (currently US$1.59 trillion). Microsoft has several facets that are deemed to be ‘pandemic proof’, such as its Xbox gaming division and successful remote working software Teams. It’s traditional products like Office and Windows are also remarkably resilient and give this company a massive stream of recurring revenue. No wonder Aussies are keen to have this giant in their portfolios.

4) Nio Inc. (NYSE: NIO)

Nio is actually a Chinese company that is only listed on the New York Stock Exchange as an ADR (American Depositary Receipt). Even so, it hasn’t stopped Aussies from wanting a slice of this Tesla rival. Nio is China’s answer to Tesla and is striving to showcase a growing portfolio of electric vehicles of its own. It’s been a bit of a rollercoaster for Nio shareholders over the past year, with Nio shares fluctuating between US$1.19 and US$16.44 at various points. Talk about a bumpy road!

5) Novavax Inc. (NASDAQ: NVAX)

Our final US share this week is this Maryland-based vaccine manufacturer. Looking at this company’s share price over 2020 so far is enough to give you a headache – Novavax shares are up more than 3,500% since the start of 2020. Speculation that this company will play a large role in the rollout of a coronavirus vaccine seems to be behind the optimism for this company. Hopefully, it comes to pass — otherwise, it’s Novavax investors who might end up getting a jab.

More reading

• Afterpay and Mesoblast were among the most traded shares on the ASX last week
• Tech shares race to record highs as Bank of America tips BHP and Rio shares
• Why I would buy CBA and this ASX dividend share for income
• Fund managers have been selling these ASX shares
• Is the Commonwealth Bank share price a long-term buy?

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Sebastian Bowen owns shares of Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Apple, Microsoft, and Tesla and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool Australia has recommended Apple. 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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If you’re interested in investing in the mid cap side of the market, then I have good news for you.

At this side of the market, I believe there are a good number of shares that have the potential to grow strongly over the next decade.

Two mid cap ASX shares that I would buy are listed below. Here’s why I think they are top options for investors:

Jumbo Interactive (ASX: JIN)

I think Jumbo Interactive would be a good long term option for investors. It is a $770 million online lottery ticket seller and the operator of the Oz Lotteries website. The latter website is the company’s biggest generator of revenue and resells tickets on behalf of gambling giant Tabcorp Holdings Limited (ASX: TAH). These two companies have worked together for many years and recently signed a new long term reseller agreement. And while this agreement is admittedly on less favourable terms compared to previous agreements, it provides a lot of stability and allows the company to now focus on its Powered by Jumbo SaaS business.

I think this business will be the key driver of growth in the future. Especially given the massive market opportunity it has from the shift to online lottery playing. Management notes that it has a US$303 billion global total addressable market, with only 7% of this market online at the moment.

Nearmap Ltd (ASX: NEA)

Another mid cap share that I would buy is Nearmap. It is a $1.1 billion aerial imagery technology and location data company. Nearmap’s products give businesses instant access to high resolution aerial imagery, city-scale 3D datasets, and integrated geospatial tools. These allow users to conduct virtual site visits, which enables informed decisions, streamlined operations, and meaningful cost savings. For example, instead of having to fly across the country to check out a site, users can use Nearmap instead.

Demand for its services has been growing very strongly and looks set to continue doing so following the launch of new products. This includes an artificial intelligence product which could be a game-changer in the industry. I believe this leaves it well-positioned to win a big slice of a highly fragmented market which is estimated to be worth US$10.1 billion in 2020.

More reading

• Get rich buying and holding these fantastic ASX shares
• These exciting ASX tech shares could be perfect buy and hold options
• 50% off: 2 dirt cheap ASX shares to buy today
• Where to invest $500 into ASX shares immediately
• 3 mid cap ASX shares that could generate strong long term returns

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 Nearmap Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Jumbo Interactive Limited. The Motley Fool Australia owns shares of and has recommended Jumbo Interactive Limited. The Motley Fool Australia has recommended Nearmap 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 Sydney Airport Holdings Pty Ltd (ASX: SYD) share price has unsurprisingly come under a lot of pressure this year because of the pandemic.

Since hitting a 52-week high of $9.30 in December, the airport operator’s shares have shed 42% of their value.

One broker that believes this is a buying opportunity is Goldman Sachs. This morning it retained its buy rating and lifted its price target on the Sydney Airport share price to $6.16.

Why does Goldman Sachs like Sydney Airport?

The broker likes the airport operator due to its strong market position.

Goldman commented: “Sydney Airport is an unregulated monopoly asset and the primary aviation gateway to Australia, a structural position that is not going to change following the Covid-19 pandemic.”

And while it notes that trading conditions will remain tough, it believes Sydney Airport is well-placed to ride out the storm.

“In the interim, we believe the business is positioned to remain in effective ‘hibernation’ (i.e. cashflow neutral and with sufficient cash reserves to cover CY20-22 bond repayments) until such a point that aviation activity recovers,” the broker added.

Goldman Sachs also likes the flexibility the company has to return to growth in the event of a sooner than expected recovery in travel markets.

It commented: “while planning for a worst case, SYD has ensured it maintains the flexibility to pivot back to growth in the event of recovery. While CY21 capex guidance has been lowered to $100-125mn we note that this still includes some growth options, and the business unit leaders remain on the lookout for further potential high returning opportunities to leverage a recovery.”

In light of this, the broker feels Sydney Airport’s shares are undervalued at the current level.

It concluded: “Given the inherent defensiveness of its financial position, we believe the current market discount is unwarranted and maintain our Buy rating on the stock with a post raising 12-month Target Price of A$6.16/share.”

Should you invest?

I agree with Goldman Sachs on Sydney Airport and believe it could be a great long term investment options for patient investors.

I would choose it ahead of fellow travel shares Flight Centre Travel Group Ltd (ASX: FLT) and Webjet Limited (ASX: WEB).

More reading

• 2 ASX dividend shares with yields over 6% today
• Sydney Airport share price down slightly after raising $1.3 billion
• Metcash share price and these ASX stocks just got upgraded by leading brokers
• Telstra just announced its dividend! Are Telstra shares now a buy?
• ASX travel shares stuck in suspended animation

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

The post Why this leading broker thinks the Sydney Airport share price is a buy appeared first on Motley Fool Australia.

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Is the Altium Limited (ASX: ALU) share price a buy? The Altium share price has risen by 6% this week. It reported its FY20 result earlier this week.

There was a lot of interesting information in the Altium FY20 report:

FY20 result

Altium managed to grow its revenue by 10% to US$189.1 million with record growth of 17% of the subscription base to 51,000 subscribers.

Reported expenses only grew by 8% to US$113 million. This combination of higher revenue and slower expense growth meant that its earnings before interest, tax, depreciation and amortisation (EBITDA) managed to grow by 13% to US$75.6 million.

The reported EBITDA margin improved to 40%, up from 38.9% in FY19. However, the underlying EBITDA margin dropped from 36.6% to 35.8%.

Altium’s profit before income tax rose by 12% to US$64.6 million, though net profit after tax (NPAT) fell 42% to US$30.9 million. Taxation had a large effect because of a one-off change, though Altium’s effective tax rate will be lower in FY21 in the US. Excluding that, normalised earnings per share (EPS) rose 5% to 42.45 cents. Over time the Altium share price is going to follow the direction of its EPS.

Operating cash flow fell 18% to US$56.5 million as Altium suffered due to COVID-19 impacts. Altium provided extended payment terms to its clients which helped them afford the switch to Altium’s services.

Many of Altium’s segments saw very limited revenue growth. However, there were two very positive standouts. NEXUS revenue jumped 133% to US$15.5 million and manufacturing revenue rose 328% to US$2.55 million.

The full year dividend was increased by 15% to AU$0.39. A solid increase considering all of the disruption this year.

What to make of the report

Altium wasn’t able to achieve its long-held aspirational goal of US$200 million and it also warned that it could take another six or twelve months to reach its US$500 million goal which it had aimed to hit by 2025. But it’s still looking to reach 100,000 subscribers by 2025. This growth will be a key part for driving the Altium share price higher.

Altium 365 is a bright spot for the ASX share. The online cloud offering is very useful under the current circumstances. The accelerated roll out of Altium 365 is evolving Altium’s revenue away from perpetual licensing and maintenance subscriptions. It’s moving towards term-based licensing and software as a service (SaaS) subscriptions.

The company is still on a path of achieving market dominance during this decade. Altium has a great chance of returning back to solid growth in the second half of FY21 once its payment terms and prices revert back to normal.

It’s not surprising that the Altium share price is lower than it was in February 2020 because plenty of its clients are still suffering in the current economic environment.

But over the longer-term I think Altium’s EBITDA margin and other metrics can continue to rise. It’s still hoping to meet the ‘rule of 50’ target.

I think its balance sheet can continue to strengthen – its cash balance rose 16% to US$93 million. That capital can be used to fund bolt-on acquisitions and fund the growing dividend to shareholders.

Clients tend to be sticky once they change to Altium’s software, so it makes sense to attract customers onto the system during this difficult period at a lower fee and then gain years of full-price revenue from that client. 

Foolish takeaway

Recurring revenue is 60% of total revenue and it could go even higher. I think Altium is a great business with fairly defensive revenue. I think it’s one worth holding for many years. However, at the current Altium share price of $35.60 it’s valued at 54x FY22’s estimated earnings. I’d rather buy Altium shares closer to $30 than $35. Perhaps the US election will throw up volatility and offer another buying opportunity?

More reading

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Tristan Harrison owns shares of Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. 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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