There are some ASX shares that could be great options as strong recovery options from COVID-19 impacts. One idea is Scentre Group (ASX:SCG).
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I think there are some ASX shares that would be good options to consider for the potential of a strong recovery from COVID-19 impacts.
Some businesses have benefited from the necessary COVID-19 life adaptations. Online shopping growth has helped businesses like Kogan.com Ltd (ASX: KGN) and Temple & Webster Group Ltd (ASX: TPW). Working from home has boosted businesses like Zoom and Wesfarmers Ltd’s (ASX: WES) Officeworks.
But there are others that have not recovered, which may be worth buying. I’m going to look at three different ASX share ideas:
National Storage REIT (ASX: NSR)
Australian interest rates are now really low, which in theory should boost asset prices. But the National Storage share price is down 23% from its pre-COVID-19 crash level.
National Storage is the largest provider of self-storage facilities in Australia and New Zealand. Before COVID-19 the ASX share was seeing rising occupancy and increasing rent per square metre.
In FY21 the real estate investment trust (REIT) is expecting underlying earnings to be, at best, flat at 8.3 cents per unit and down as much as 7.2% to 7.7 cents. However, despite the difficulties, its net tangible assets (NTA) per unit increased from $1.63 to $1.65 in FY20.
People will still need to use storage solutions. There has been an increase in recent occupancy according to National Storage. There was combined Australia and New Zealand occupancy of 78.9% in June 2020 and that had grown to 81.5% by August 2020.
The ASX share continues to have acquisition opportunities, so there is still a good growth runway. If it pays out a FY21 distribution of 7.7 cents then it offers a distribution yield of 4.2%.
Scentre Group (ASX: SCG)
The owner of Westfields in Australia and New Zealand has been impacted by COVID-19. There was a period of national store closures earlier this year which hurt the ASX share and the last couple of months has been painful in Victoria.
The Scentre share price is still down 41% from 21 February 2020. Some major tenants like Premier Investments Ltd (ASX: PMV) are arguing for permanently lower rents whilst smaller tenants have been able to lower rent payments earlier this year.
For the six-month period to June 2020, Scentre collected 70% of its gross rental billings. For the months of June 2020 and July 2020, it collected over 80%. Not bad, but not great.
So far in 2020 the shopping centre business has raised or extended $5.8 billion of additional funding. It has/had $4.4 billion of available liquidity. That should see it through this difficult period.
In the recent half-year result the ASX share generated $362 million of funds from operations (FFO), being the rental profit. It can still generate decent money from its properties, with a net operating cash surplus of $261 million. However, Scentre recognised a $4 billion reduction in its property valuations. The REIT didn’t pay an interim distribution.
The underlying properties and land still have good value. It’s just that the cashflow may be disappointing in the short-term.
EML Payments Ltd (ASX: EML)
EML Payments is a business that facilitates payments in various forms. It can be used to disburse payouts, gifts, incentives and rewards.
The ASX share had a decent FY20 with total revenue increasing 25% to $121.6 million and group earnings before interest, tax, depreciation and amortisation (EBITDA) rising by 10% to $32.5 million.
Gift cards are in less demand at the moment. Less people are going to physical shops, so gift cards may not be used as much. If/when physical gift card purchases go back to normal then EML could benefit.
However, it also offers online gift card services, so it has several different avenues to service the customer. The ASX share also said that June and July trading was encouraging.
The EML Payments share price is still down 45% from the pre-COVID price.
EML Payments is the one that has fallen the most from the COVID-19 crash and I think it could be the one worth buying of these three names. I’d be willing to buy the ASX share as a higher-risk idea.
National Storage is showing good signs of a steady recovery. The underlying land will always have its uses – it could be converted into industrial logistics properties with the rise in online shopping, which could mean a good sale price if it’s able to sell to an entity willing to invest for that potential.
Scentre may be a shorter-term opportunity if COVID-19 can be kept under control in Australia. However, with the tenant push to lower rents, I’m not sure Scentre will ever be as good as it was before COVID-19 came along.
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Tristan Harrison 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 and Temple & Webster Group Ltd. The Motley Fool Australia owns shares of and has recommended Emerchants Limited and Premier Investments Limited. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended Kogan.com ltd and Temple & Webster Group 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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