Potential buys: 2 compelling ASX shares

Adairs is one of the ASX shares that could be a compelling idea.
The post Potential buys: 2 compelling ASX shares appeared first on The Motley Fool Australia. –

The ASX shares in this article could be two of the leading opportunities to think about for the long-term.

Some businesses are taking advantage of growing demand for certain services or products, particularly in this era of increasing digitalisation.

Share prices are always changing and profit is (hopefully) growing, which can mean different ASX shares can opportunities at different times:

Betashares Global Cybersecurity ETF (ASX: HACK)

This is an exchange-traded fund (ETF) that provides investors exposure to the global cybersecurity industry. There is a mixture of businesses in this portfolio, ones that are worldwide leaders and ones that are emerging players.

There are a total of 36 positions in the portfolio. Some of the biggest holdings are: Palo Alto Networks, Accenture, Cisco Systems, Crowdstrike, Okta and Tenable. The smallest positions are: Zix, Tufin Software Technologies, Ribbon Communications, OneSpan and A10 Networks.

Is this industry growing? It is. The global cybersecurity market was $137.63 billion in 2017. It’s expected to grow to $248.26 billion by 2023.

BetaShares notes that Australian investors currently have few local options for getting exposure to this fast-growing cybersecurity sector. With cybercrime on the rise, the demand for cybersecurity services is expected to grow strongly for the foreseeable future.

In terms of geographic diversification, a vast majority (90.7%) of the portfolio is invested in businesses that are listed in the US, though the underlying earnings are geographically diverse. Another four countries have an allocation of more than 1%: Israel (3.4%), the UK (2.7%), Japan (1.5%) and France (1.2%).

Past performance is not an indicator of future performance. However, after including the management costs of 0.67% per annum, the ASX share has returned an average of 23.26% per annum since inception in August 2016.

Adairs Ltd (ASX: ADH)

Adairs sells bedding, homewares and furniture. It operates under two brands, Mocka and Adairs.

Looking at the valuation on Commsec, the Adairs share price is valued at just under 10x FY23’s estimated earnings.

It’s true that in the first seven weeks of FY22, Adairs saw a decrease in sales – it was down 11.7% on the same period in FY21. However, the sales were up 13.5% compared to FY20. Lockdowns are impacting store sales, though online sales continue to increase.

In the first seven weeks of FY22, Adairs online sales were up 12.9% and Mocka sales were up 16.1%.

FY21 saw total online sales of $187 million, which was 37.4% of the total. Total Adairs sales went up 28.5% for the year, with net profit rising 80.7% to $63.7 million.

The ASX share is expecting the gross profit margin to moderate in FY22 from the record highs achieved in FY21, though it’s still much higher than FY20. There are supplier cost increases and increased cost of sea freight.

One thing that is expected to help Adairs become more efficient and reduce costs is the new DHL-operated national distribution centre, which was scheduled to be completed at the end of September 2021. This is a “key component” of its omni-channel strategy to help customers shop how they want to with Adairs. It’s expected to result in annual savings of $3.5 million per annum.

The Adairs managing director and CEO, Mark Ronan, said:

The Adairs and Mocka teams are focused on developing and delivering exclusive products through our vertical supply chains supported by a great customer experience via our integrated omni-channel model. This focus on customer and product, together with our loyal Linen Lovers [membership] and our amazing teams, provide strong mitigants in these conditions and put us in a position to be able to continue to take market share. We have a very large addressable market and being omni-channel means the entire market is open to us.

The post Potential buys: 2 compelling ASX shares appeared first on The Motley Fool Australia.

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More reading

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Motley Fool contributor 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 and has recommended ADAIRS FPO and BETA CYBER ETF UNITS. The Motley Fool Australia owns shares of and has recommended ADAIRS FPO and BETA CYBER ETF UNITS. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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