3 Growth Stocks to Build Recession-Proof Portfolio: ALU, NAN, PPH

  • Jun 29, 2020 AEST
  • Team Kalkine
3 Growth Stocks to Build Recession-Proof Portfolio: ALU, NAN, PPH

Summary

  • Speculations are rife that COVID-19 might hinder Australia’s around three-decade-long paradigm of uninterrupted growth.
  • In the June edition, IMF has predicted a lower level of contraction for Australia, better than the previous forecast, indicating that Australia is better positioned to reboot economic prospects.
  • While markets bounced back post March pullback, building sound and resilient portfolio could be key to sailing smoothly across the turbulence.
  • Altium’s strategy of extended payment terms and attractive pricing enabled robust seat growth. Solid revenue growth is expected in FY20, but marginally behind latest analyst consensus.
  • Nanosonics is helping all stakeholders during these unprecedented circumstances, with the importance of infection prevention gaining prominence across the broader community.
  • PHP has performed strongly during the crisis and has released upgraded guidance for EBITDAF FY21.

Australia has an extraordinary economy that has been resilient towards most of the global downturns in the past. A stable political system backs the economy along with an extensive network of robust banks with healthy fiscal balance sheets.

However, COVID-19 is an unprecedented crisis that seems to have brought along recession, globally. And, speculations are rife over Australia’s entry into recession phase, its first in the last 29 years, owing to measures taken to contain the ravaging spread of coronavirus despite coming out of the deadly coronavirus disease much earlier than anticipated.

As per the Australian Bureau of Statistics (ABS) report, Australian economy contracted by 0.3 per cent in seasonally modified chain volume terms in the March quarter. Another report by ABS revealed that unemployment rate in May 2020 increased to 7.1 per cent. 

Ever since the world entered pandemic crisis, the market has been unpredicted with so much uncertainty due to the ongoing pandemic situation. Even though Australia could control the epidemic well, the world’s two largest economies, US and China seem to be struggling with a second wave of coronavirus. The first wave itself has caused much damage to lives and economies, and the second wave is only making the morale down.

Nobody knows the duration of this pandemic, and there are no concrete parameters to predict the same. Still, until an effective treatment or vaccine gets developed, all nations are trying to learn to live with the virus. Businesses are getting re-opened but with lots of restrictions. Also, the US-China tensions add to the investors' woes. Investment in this scenario is indeed a tricky business.

Though Australian markets have not reached closer to levels seen before the March pullback, over the recent months, there has been a decent recovery. Moreover, in the June edition, IMF has predicted a lower level of contraction for Australia at 4.5%, better than the April forecast of a 6.7% contraction.

In that backdrop, let us discuss few growth stocks listed on ASX, covering their market updates. Growth stocks, which usually have high revenue, positive cash flow and solid gross margins, are known for generating capital gains for investors.

Altium Limited (ASX:ALU)

ALU is a multinational IT company based in California. The electronic design software company, on 22 June 2020, stated that its extended payments terms and attractive pricing during the pandemic are driving robust seat growth. However, new lockdowns in China and recent cases in the US are impacting Altium's final sprint to the close of fiscal 2020.

In the wake of new cases and new lockdowns in Beijing, ALU has temporarily shut down its office in Beijing. However, employees continue working from remote environments and closing sales.

Even in the pandemic environment, globally, ALU is aggressively closing sales, with more significant deals in the pipeline, and seat growth is up by 7 per cent on the same period the previous year.

As per Altium CEO, Aram Mirkazemi, the strategy ALU adopted to drive through COVID-19 by offering extended payment terms and attractive pricing has driven robust seat growth and is expected to aid the company in achieving its target of 50,000 subscribers. However, there will be an impact on revenue. The revenue growth is likely to be solid, but it will be slightly below the latest analyst consensus for the full year.

He added that the company would assume new pricing from 1 July 2020 and by 1 September 2020, ALU would return to full Altium Designer pricing with no extended payment terms.

On 29 June 2020, ALU last traded at AUD 32.230, down by 2.628 per cent from its last close. The company has a market cap of AUD 4.33 billion and delivered a return of 22.64% in the last three months.

Nanosonics Limited (ASX: NAN)

NAN is a healthcare sector player, operating as a leader in infection prevention solutions. The company in early April 2020 announced that unaudited sales in Q3 FY20 were up significantly on the same period a year ago. Consumables sales up to the end of Q3 were in sync with the company's pre-pandemic expectations. The staff continuously provides on-site support for the installation of new trophon devices with required security precautions.

To support emergency and ICU departments where trophon is highly relevant, and ultrasound is used, NAN is implementing programs through sales staff where it is possible.

NAN cited that the impact of COVID-19 on revenue and profit for Q4/FY20 can't be predicted at this stage. However, the company has a robust balance sheet with cash reserves of AUD 82 million as on 31 December 2019. Moreover, it has negligible debt.

As per Michael Kavanagh, Nanosonics' CEO & President, the community at large is realising the significance of infection prevention during COVID-19. He also acknowledged the team's efforts during the challenging time and asserted that they are committed to helping the stakeholders during this period.

On 29 June 2020, NAN settled the day’s trade at AUD 6.715, down by 1.25 per cent from its previous close, with a market cap of AUD 2.04 billion.

Pushpay Holdings Limited (ASX:PPH)

PPH is an IT sector player that offers a donor management system to non-profit organisations, faith sector players and education providers in the US and other jurisdictions. The company offers finance and donor tools, in addition to a custom community app. 

Financial Highlights for FY20 ended 31 March 2020:

  • Total revenue stood at USD 129.8 million, up by 32 per cent.
  • Gross profit margin was 65 per cent, up from 60 per cent.
  • EBITDAF noted at USD 25.1 million, an increase of a whopping 1,506 per cent.
  • Profit before tax reached USD 21.7 million, up by 1,631 per cent from a loss of USD 1.4 million.
  • Cash and cash equivalents stood at USD 7.2 million, dipped by 48 per cent.
  • Total customers increased by 42 per cent.
  • Staff headcount increased by 18 per cent
  • Annual revenue retention rate was more than 100 per cent.
  • Total LTV of customer base increased by 46 per cent.

 Impacts of COVID-19

  • Demand for PHP services going up.
  • As services are moving online, there is a shift to the digital platform.
  • PHP’s COVID-19 campaign 'Stay Connected When it's critical' was the most seen content.
  • Alliance with Stream Monkey.

PHP has provided guidance for FY21 ending on 31 March 2021, with EBITDAF expected in the range of USD 50.0 million to USD 54.0 million, up from previously announced EBITDAF of USD 48.0 to USD 52.0 million.

On 29 June 2020, at the end of trading session, PPH settled at AUD 8.360, down by 3.016 per cent from its previous close, with a market cap of AUD 2.38 billion.

 


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