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S&P/ASX 200 Friday – my take on the APT, WOW & RHC reports

The S&P/ASX 200 (ASX: XJO) is expected to open slightly weaker on Friday according to ASX futures. Here’s what you need to know as we head into the final days of reporting season.

ASX 200 recap

It was a mixed day for the market on Thursday, the ASX 200 finished 0.2% higher despite trading up as much as 0.8% during the day.

It was the materials and consumer sectors driving the market higher, with BHP Group Ltd (ASX: BHP) and Woolworths Group Ltd (ASX: WOW) adding 1.1% and 2.8% respectively.

Woolies delivered a solid top-line result but trimmed its dividend. The standout was the buy now, pay later sector with both Zip Co Ltd (ASX: Z1P) and Afterpay Ltd (ASX: APT) reporting incredible growth and unique pivots for their businesses; shares finished down 4.6% and up 0.6% respectively after yesterday’s all-time highs.

Zip reported a 91% increase in revenue and an 87% increase in transaction volumes, whilst Afterpay delivered 103% in revenue growth.

I discuss these results and the landscape of the ASX BNPL sector more broadly with investment analyst Owen Raszkiewicz in the results recap video below:

Pandemic tailwind to flow into 2021 for Woolworths

Woolworths delivered a weaker than expected result, despite a 6% increase in revenue to $63.6 billion for the financial year. Shares closed 2.8% higher. Net profit fell 57% to $1.166 billion. Sales improved across the board with Australian and New Zealand Food up 8.3% and 10.5% respectively. BIG W’s turnaround continued, growing revenue by 10.5%, whilst Endeavour Drinks added 9.9%. Management declared a slightly lower dividend at 48 cents per share.

My take: Weaker than expected, but defensiveness on show in the dividend.

Operating leverage on show for Afterpay

Afterpay achieved underlying sales growth of 112% to $11.1 billion, while revenue was up 103% to $502.7 million and the net transaction margin came in at 2.3%. Management indicated that annual transaction growth is currently running at $15 billion. The company reported a net loss of $22.9 million, far better than the $52.4 million expected by analysts, supported by another fall in gross loan losses to 0.9% of their book. The incredible growth continues unabated, hitting 9.9 million active users and 55,000 merchants, but barely scratching the surface overseas.

My take: Another great result, but a difficult company to value.

Time to look ahead for Ramsay Healthcare

Ramsay Healthcare Ltd (ASX:RHC) bore the brunt of the pandemic with mass shutdowns of elective surgeries hitting what was a strong year to February 2020. Shares fell 0.5%. Ramsay reported a 43% fall in net profit to $337 million and cancelled its final dividend. Revenue actually increased 7.3% as the European expansion was included in portfolios, but particularly behind strength in its Australian operations, up 2.2% to $5.1 billion.

My take: Difficult year, but well placed for a boom in surgery, waiting lists and treatments post-pandemic.

Another messy result for Link, but PEXA booming

Link Administration Services Ltd (ASX: LNK) shares finished 9.5% lower as recurring revenue fell just 1%. Despite this, operating earnings dropped 17% to $294 million and net profit to $114 million. This resulted in a lower than expected dividend, 3.5 cents per share. The PEXA property settlement platform was the biggest highlight, with transaction volumes increasing 37% and 75% of all Australian property transactions occurring online. This supported revenue growth of 50% to $156 million and a tenfold increase in operating profit to $53 million.

My take: Messy result, dividend disappoints but PEXA remains a key growth engine.

More records overseas, Walmart to buy Tik Tok?

The S&P 500 moved another 0.2% higher overnight, experiencing a broad-based rally as Fed Chairman Jerome Powell outlined a new strategy for the US Federal Reserve and economy in general.

After decades of seeking, but ultimately failing to deliver on an inflation target of 2-3%, the central bank will now be more flexible and focused on stimulating employment, rather than prices. This will be achieved by ‘allowing’ inflation to run higher for periods of time, meaning the bank will not be forced to raise rates at the first signs of price, given the handbrake impact on the economy. The decision was well-received, as it ensures ongoing monetary support and a preference for jobs.

Meanwhile, Walmart Inc. (NYSE: WMT), yes Walmart!, joined Microsoft Inc. (NASDAQ: MSFT) for an official bid for Tik Tok’s US platform, sending both shares higher by 4.5% and 2.5%.

Back home on the ASX, expect reports from the likes of Harvey Norman Holdings Limited (ASX: HVN) and Boral Limited (ASX: BLD) in what will be the second-last day of August reporting season.

This article was written by Drew Meredith, Financial Adviser and Director of Wattle Partners. To get in contact with Drew, click here to visit the Wattle Partners website.

Are you stuck wondering where to invest right now? Have you got cash 'sitting on the sidelines'? Are you looking for dividend income AND growth but don't know where to start? Rask's expert ASX analyst team has just released a full report, detailing where we'd invest $10,000 right now.

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Are you stuck wondering where to invest right now? Have you got cash 'sitting on the sidelines'? Are you looking for dividend income AND growth but don't know where to start? Rask's expert ASX analyst team has just released a full report, detailing where we'd invest $10,000 right now.

Not only are we offering these 11 investment ideas completely FREE, we've also released an in-depth podcast to go with the report!

So, whether you have $2,000 or $50,000, our brand new analyst report could help transform your watchlist. Right now, you can get the full analyst report emailed to you for FREE by CLICKING HERE NOW.

Disclosure: At the time of publishing, Drew Meredith holds shares of Zip Co and Link Administration in his super fund.

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