The prospect of capital growth is a major attraction when investing in shares. Capital growth occurs when share prices increase in value and in 2019, we have seen some shares soar to new heights.
Here, we take a closer look at 3 ASX shares that have doubled in value in 2019.
Fortescue Metals Group Limited (ASX: FMG)
The Fortescue share price is up 135%, trading at $9.76 from $4.15 in January. The miner has seen its share price soar on the back of strong iron ore prices in 2019.
The price of iron ore rose this year due to strong Chinese demand and supply disruptions in Australia and Brazil. Iron ore prices are currently hovering around the US$88 a tonne, up from US$75 at the start of the year but well down from highs of over $120 seen mid year.
Fortescue delivered a record net profit after tax of US$3.2 billion in FY19, up 105% on FY18. The miner shipped 167.7 million tonnes of ore during the financial year, 1% lower than FY18. Average revenue per dry metric tonne was US$65, 48% up on FY18, which resulted in a $10 billion increase in revenue. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) were US$6 billion, up 90% on FY18.
Earnings per share of $1.47 were delivered with dividends of $1.14 per share paid, up 396% on FY18 dividends of 23 cents per share. Dividends in FY20 are estimated to be $1.15 with earnings per share of $1.86. The sustainability of Fortescue’s dividends, however, are largely dependent on iron ore prices.
A slowing Chinese economy could subdue demand. Chinese real GDP growth has slowed as the Chinese economy has matured, and is predicted to fall to 5.5% by 2024. Offsetting this is increasing demand from the property and infrastructure sectors – according to the National Bureau of Statistics in China, property investment rose 10.3% in the first 10 months of 2019.
In the first quarter of FY20 Fortescue reported shipments of 42.4 metric tonnes, up 5% on 1Q19. Costs were reported as US$12.95 per wet metric tonne, 2% lower than 1Q19. Average revenue received was US$85 per dry metric tonne, 89% higher than the US $45 received in 1Q19. Net debt was $500 million at 30 September, down from $2.1 billion at 30 June.
Afterpay Limited (ASX: APT)
Afterpay is currently trading at $29.06, up 142% from $11.98 in January. Afterpay shares soared to over $36 in October on the strength of the buy-now, pay-later (BNPL) trend before recent regulatory concerns tempered highs.
BNPL services have experienced exponential growth in demand over the past several years. An estimated 1.95 million Australians used a BNPL service in the year to September 2019, up from 1.38 million in the previous 12 months.
Afterpay operates in Australia, New Zealand, the United States and the United Kingdom. The group reported 6.1 million customers as at 31 October, up 137% from the previous year. Underlying sales in the 4 month period to 31 October were $2.7 billion, up 110% on the prior corresponding period and 23% compared to the 4 months ending 30 June.
Current annual underlying sales are in excess of $8.5 billion and growing, with Afterpay onboarding 15,000 customers a day. Customer lifetime value is also improving as customers stay on the platform longer. Australian and New Zealand customers who joined in FY15–17 now purchase on average 22 times per year. FY18 and FY19 cohorts are purchasing on average 14 and 7 times per year, respectively.
But 2019 hasn’t been entirely smooth sailing for Afterpay. Towards the end of the year, regulatory concerns poured cold water on the share price. In October, in the annual report of its Payments System Board, the Reserve Bank of Australia (RBA) announced that next year’s review would examine “no-surcharge” rules imposed by BNPL operators.
BNPL forbid merchants from passing on the cost of the service to customers. By contrast, debt and credit card providers cannot legally prevent merchants from adding a surcharge to cover payment costs. According to the RBA, “an issue for the bank is whether policy action in relation to these no-surcharge rules should be considered.”
An independent review into the Afterpay’s compliance with anti-money laundering laws last week concluded the company had committed historic breaches. By not collecting customers’ dates of birth in 2015 and 2016, Afterpay was not in compliance with anti-money laundering requirements.
Afterpay’s non-compliance was attributed to incorrect legal advice, with Afterpay having since taken steps to retrospectively address concerns. More exacting checks to verify the identity of customers have been put in place in the interim.
The review concluded that Afterpay was at low risk of exploitation by money launderers and terrorist financers, praising the company for its strong compliance culture. Investors celebrated the findings, sending the share price surging over 7% to $32.64 on 25 November.
Nanosonic Ltd (ASX: NAN)
Nanosonic is currently trading at $6.45, up 132% from $2.78 in January. The share price has increased fairly steadily over 2019, shifting sharply upward in August when the healthcare company released its full year results.
Nanosonic manufactures a disinfection device for ultrasound probes, trophon, that is used globally. In FY19 Nanosonic reported revenue of $84.33 million, up from $60.69 million in FY18. EBITDA was up 200% to $17.64 million from $5.86 million the previous year. Operating profit after tax was $13.60 million up from $5.75 million the previous year.
Sales increased by 39% in FY19, which saw the launch of the next generation trophon2. Nanosonic expanded into a number of new markets, including Spain, Portugal, Switzerland, and Israel. The number of installed trophon units increased 18% to 23,930 units. This means that approximately 18 million patients a year are protected from the risk of cross contamination by decontamination using trophon.
Nanosonic’s strategic growth agenda includes expanding the adoption of trophon and expanding the product portfolio through investment in research and development to bring new infection prevention products to market.
Investment in R&D will be continued in FY20 to develop a pipeline of product opportunities. The cash balance at the end of the financial year was $72.2 million, which will support ongoing investment in growth. It is anticipated that the first non-trophon related product will be brought to market by the end of FY20, subject to regulatory approvals.
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Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. The Motley Fool Australia owns shares of and has recommended Nanosonics 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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