COVID-19 emerged in 2020 and changed the world as we know it. Our lives and habits were disrupted suddenly and without warning, changing the way we live, work, and spend. While the end of the pandemic is hopefully in sight thanks to promising vaccines, COVID-19 will have lasting impacts.
Financial markets were not immune to the effects of COVID. The pandemic laid waste to some sectors of the ASX, but provided an unexpected boost to others. So if you're looking to start investing, or add to your portfolio, how do you invest in a post-COVID world?
Perhaps surprisingly, investing in a post-COVID world involves many of the same considerations that applied pre-pandemic. Fundamentally, share prices should reflect the current value of future earnings. The pandemic has not changed this.
What it has changed is the expected future earnings of a variety of ASX shares. For some sectors, such as travel, the future remains uncertain. But for others, trends which took hold thanks to COVID look set to continue to boost the bottom line.
The rise of digital transacting
With shops shuttered during the height of the pandemic and customers confined to the home, many turned to online shopping to meet their needs. This has provided tailwinds to retailers with a strong online presence as well as those facilitating digital shopping, such as buy now, pay later (BNPL) providers.
The likes of Kogan.com Ltd (ASX: KGN) and Temple & Webster Group Ltd (ASX: TPW) saw a surge in sales during 2020 which in turn lifted share prices. Kogan reported a 39.3% increase in gross sales in FY20, which led to a 55.9% increase in net profit after tax. Temple and Webster saw revenue grow 74% over the same period, with second half revenue up 96% versus the prior corresponding period and fourth quarter revenue up 130%.
Online shopping in Australia has grown tremendously over the past 5 years, with growth accelerating further in 2020. Revenue in the Australia's e-commerce market is expected to grow at a compound annual growth rate of 4.3% between 2021–2025 according to Statista.
All this online shopping requires online payment solutions. Traditionally, customers have used credit cards for online purchases, but in 2020 BNPL providers established themselves as a mainstream alternative. With more people than ever shopping online, many turned to BNPL solutions for convenience as well as to assist with budgeting.
Australia's biggest BNPL provider, Afterpay Ltd (ASX: APT) grew customer numbers by more than 5 million over 2020, reaching 11.2 million customers in September 2020. Other BNPL providers saw similar increases in customer numbers. Zip Co Ltd (ASX: Z1P) grew customer numbers from 1.8 million at the end of 2019 to 5.3 million in November 2020. Sezzle Inc (ASX: SZL) saw customer numbers grow from 644,509 in Q1 FY20 to 1.79 million at Q1 FY21. The pandemic pushed customers towards digital finance solutions, in turn pushing BNPL solutions into the mainstream.
Remote working solutions gain traction
The majority of office workers spent much of 2020 working from home. Many took to it with gusto, enjoying the additional flexibility. Many companies also recognised the potential benefits of supporting flexible working arrangements, including lower office space requirements and a more engaged workforce.
This means demand for solutions that enable remote working is likely to remain heightened. ASX shares like Livetiles Ltd (ASX: LVT), Whispir Ltd (ASX: WSP), and Megaport Ltd (ASX: MP1) are set to benefit from this demand.
Livetiles supplies software used to create employee dashboards and corporate intranets. The company's annualised recurring revenue (ARR) increased 33% between September 2019 and September 2020, reaching $57.1 million. Both customer numbers and average ARR per customer were up, with Livetiles seeing an acceleration in its sales pipeline.
Whispir is behind a software-as-a-service communications workflow platform which automates interactions between business and people. The software was used by the Victorian government to communicate with the population about COVID. Whispir's ARR grew by 26.7% between Q1 FY20 and Q1 FY21 thanks to increased platform use by existing customers and strong new customer growth.
Megaport, which operates in the network-as-a-service sector, saw global revenue increase by 66% in FY20. Megaport provides bandwidth which allows customers to connect to cloud services and data centres. Customer numbers had increased to 1980 by 30 September 2020, and included companies such as Amazon, Facebook, and Disney.
Safety in staples
Consumer staples proved their worth in 2020 as customers rushed to stock up in the face of the pandemic. Regardless of what is happening in the economy, people will always need food and basic groceries.
Supermarket giants Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) continue to offer stable revenues and decent dividend yields. Coles saw sales revenue increase nearly 7% in FY20 to $37.4 billion while Woolworths saw sales rise 8.1% to more than $63 billion.
What will 2021 bring?
Many of the trends that accelerated in 2020 are expected to continue into 2021. Although an end to the pandemic may be in sight, the social changes wrought by the pandemic look set to have a lasting impact.
This will provide tailwinds to some ASX shares which will figure into investment decisions. Expected returns on certain ASX shares will increase, while returns on others will decrease, impacting share prices in 2021.
