Investors search for quality companies. Customers search for quality goods and services. All investors are also customers. This is why many investors look to their own spending patterns to identify potential investment opportunities. Have you started using buy now, pay later (BNPL) services such as Afterpay Ltd (ASX: APT)? Do you shop at one of the major supermarket outlets?
Looking at your own spending habits can lead you to the ASX shares behind the products and services you use. If you love a particular brand or product, take a look at the company behind it – it could be a fruitful investment opportunity. In fact, you're probably already a customer of multiple ASX shares. Here we take a look at 3 of them.
Afterpay
Afterpay is the largest of the BNPL providers on the ASX by market capitalisation. The Afterpay share price dropped to a low of $8.90 in the March correction, but has since posted a huge comeback, gaining 658% to trade at $67.50. Based on recent share price rises, the company is close to joining the S&P/ASX 20 (ASX: XTL).
Operating in Australia, Zealand, the United States and the UK, Afterpay extends credit to customers, allowing them to make purchases that are paid off in fortnightly instalments. According to research by Roy Morgan, BNPL services such as Afterpay had been used by nearly 2 million Australians in September last year, double the number the previous year.
According to a report by Worldpay, the BNPL sector will have doubled its market share to 4 million users, or 1 in 5 Australians by 2023. Afterpay reported it had 3.2 million active customers in Australia and New Zealand in March 2020, a 21% increase over the 2.6 million it had in March 2019. The United States and UK are considered key growth markets for the company. In May Afterpay reached 5 million customers in the US and last month it hit 1 million customers in the UK.
Despite its massive market capitalisation, it is worth remembering that Afterpay is not yet profitable. In 1H FY20 Afterpay recorded $4.8 billion in underlying sales, which gave it a total income of $212.2 million, a 105% increase on 1H FY19. Nonetheless the company recorded a statutory loss after tax of $31.6 million, although this was impacted by one-off and non-cash items. Profitability should come as Afterpay increases active customers numbers and transaction volumes. By FY22, Afterpay is aiming for +$20 billion in transaction volumes.
Coles Group Ltd (ASX: COL)
Coles is ubiquitous as the second largest supermarket group in Australia. If you don't shop at Woolworths Group Ltd (ASX: WOW), chances are you shop at Coles. The company is behind some 2,500 retail outlets nationally, including 800 supermarkets, 900 liquor stores, and more than 700 fuel and convenience retailers.
Given the essential nature of the goods Coles sells, its share price was relatively resilient in the March downturn. The Coles share price fell 17% from a February high of $17.17 to a low of $14.21 in March, but has since recovered and is currently trading at $17.16. The onset of coronavirus resulted in panic-buying and stockpiling, which boosted Coles' sales. Beyond this, Australians continue to spend more time living and working from home, resulting in increased demand for household products.
Coles reported a 12.9% increase on third quarter sales with revenue rising to $8.32 billion. Supermarket sales increased by 13.8%, the division's 50th consecutive quarter of comparable sales growth. Liquor sales rose by 7.2% and express sales by 4.3%. Coles Online sales revenue grew by 14% in the third quarter, despite home delivery being temporarily suspended in March.
According to Roy Morgan, Coles has 26.6% market share of the Australian grocery market. This makes Coles shares a defensive staple, despite operating in one of the most competitive industries in Australia. Revenue for the grocery industry is predicted to grow by 4.6% in 2019–20, up from 2.3% thanks to the COVID-19 pandemic. Nonetheless, price competition from competitors such as Aldi had led Coles to expand its private-label product range, with more than 260 products added in the third quarter.
Adairs Ltd (ASX: ADH)
Adairs is a leader in the Australian homewares space, a sector that has benefitted from consumers spending more time at home. Adairs retails everything from bed linen to houseplants, with a strong online presence that customers took advantage of during lockdown.
Many Australians are upgrading home furnishings and manchester as a result of spending more time at home. This was evident in Adairs latest trading update, which saw sales growth despite the closure of stores between March and May. In the 24 weeks to 14 June 2020, store sales increased 5.3% and online sales by a massive 92.6%. The surge in online sales saw total sales growth of 27.4% for the half year to 14 June and 15.7% for the 50 weeks to 14 June.
In the update, Adairs managing director Mark Ronan stated:
Our omni channel strategy and focus on the home decorating and furnishings category has served us well during this period where our customers have spent significantly more time at home. Since Adairs stores re-opened we have seen strong sales across both the store network and online channel as customers return for the in store service and experience they expect from Adairs.
Last year, Adairs acquired online furniture retailer Mocka, which also saw a surge in sales during lockdown. Mocka's sales were up by 52.1% in the 24 weeks to 14 June 2020. Over FY20, Mocka is expected to contribute $27–$28 million in sales, representing sales for the 30 weeks it has been under Adairs ownership.
The Adairs share price was rocked in the March correction but has since staged a strong recovery. The share price fell 80% from a high of $2.62 in February to a low of 50 cents in March, but has since surged 388% and is currently trading at $2.44. Full year results will be released next month, however Adairs has provided sales guidance of $385 million to $390 million.
