Day: 12 May 2022

Experts have revealed some quality ASX growth share picks that they believe are opportunities at the current valuations.

There has been plenty of volatility on the ASX share market in recent months. Lower prices could mean better value for these two growing businesses:

Serko Ltd (ASX: SKO)

Serko describes itself as a leader in online travel booking and expense management for the business travel market.

In terms of how much of a decline it has seen, the Serko share price has fallen by around 40% in the past six months to its current price of $4.28.

It’s currently rated as a buy by a few different brokers, including Citi. The price target is $5.75, implying a potential rise of more than 34% over the next year. The broker believes the partnership with Booking will be a key area of interest in the upcoming report from the ASX growth share.

Citi is expecting Serko’s volume to keep growing as it recovers from the impacts of COVID-19.

In its February 2022 trading conditions update, the company said the Omicron COVID variant had reduced business travel volumes in key markets and the expected revenue for FY22. Booking.com business volumes were “significantly impacted” in December up until mid-January. However, in the week prior to the update, volumes were back to approximately 90% of October 2021 volumes.

The ASX growth share’s revenue for FY22 is now expected to be between NZ$18 million and NZ$20.5 million.

The company is due to hand in its full-year result on 18 May.

Step One Clothing Ltd (ASX: STP)

For readers that haven’t heard of Step One Clothing before, it’s a direct-to-consumer online retailer for ‘innerwear’. It says that it offers an “exclusive range of high-quality, organically grown and certified, sustainable and ethically manufactured innerwear that suits a broad range of body types”.

The Step One Clothing share price has also seen a hefty decline in recent times. Over the last six months, Step One Clothing shares have dropped by around 82% to 48 cents at the time of writing.

It’s currently rated as a buy by the broker Morgans with a price target of $2.40. That implies a potential rise of around 400% over the next year.

The broker likes the expanding product range of the business, with expectations for a good end to FY22, going into FY23. The broker thought the market had been too harsh on this ASX growth share.

In that FY22 half-year result, Step One reported revenue of $38.1 million, which was up 11.7%. Its gross profit margin improved from 82.1% to 83.1%. The company also boasted of “strong” returning customer order rates. Returning customers increased from 39% to 60%.

The company is looking to grow in the UK and the US. It has launched a women’s line and a sports range.

In FY22, Step One is expecting to grow sales by between 21% and 25%, with pro-forma earnings before interest, tax, depreciation, and amortisation (EBTIDA) of $15 million.

The post 2 ASX growth shares that experts love right now appeared first on The Motley Fool Australia.

More reading

• Why Bellevue Gold, CSL, Endeavour, and Serko shares are pushing higher today

Citigroup is an advertising partner of The Ascent, a Motley Fool company. 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. has positions in and has recommended Serko Ltd. The Motley Fool Australia has recommended Serko Ltd. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

So much for being immune to the tech stock sell-off. The stock of Apple (NASDAQ: AAPL), which earlier this year largely held its value while peer techies fell in price, couldn’t escape the trend on Wednesday. The company’s shares lost more than 5% on some scraps of bearish news.

So what

The first is about a competing product, namely a smartwatch from Alphabet‘s (NASDAQ: GOOG)(NASDAQ: GOOGL) Google. Following rumors that Google would unveil such a product, the company confirmed this today at its annual I/O developer conference. While officials weren’t exactly full of details about the Pixel Watch, they did reveal that it’ll be released later this year.

Apple is the dominant smartwatch maker in the world by far, holding more than 30% of global market share in the product category. The runner-up is notably behind: Samsung (OTC:SSNLF), with barely over 10%. So there’s certainly opportunity here for a determined entrant, like Alphabet, with a snazzy new product.

Another news item that could be considered slightly negative is Apple’s announcement that it will halt production of the iPod. It was a revolutionary product when released as a digital music player in 2001, but it has been replaced over time by smartphones that typically bundle a music app into their native software suites.

The iPod long ago ceased to be a significant product for Apple; most smartphone owners are happy to use their beloved devices as jukeboxes. But maybe the jettisoning of the iPod is an uncomfortable reminder that the company hasn’t introduced a world-shaking, hotly innovative product in quite some time.

Now what

Neither of these developments warranted Wednesday’s sell-off. But in such an environment for tech stocks, sensitive investors react to even the most minor difficulties and challenges…and tend to pull the trigger on big sector names more readily than usual.

Apple remains a solid company that’s still finding ways to grow, however. So for me, it’s worthwhile to hang on to the stock in the hope of riding out this negative wave. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why Apple stock withered on Wednesday appeared first on The Motley Fool Australia.

More reading

• Why Apple, Meta Platforms, and Salesforce stocks plunged today
• Worried about inflation? Here’s what Warren Buffett says Berkshire Hathaway is doing
• What Apple and Amazon said after hours Thursday
• Which ASX 200 shares have historically performed well during rising inflation?
• Why Apple stock could crush the market this earnings season

Eric Volkman has positions in Apple. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Westpac Banking Corp (ASX: WBC) share price is in focus after the bank recently reported its FY22 half-year result.

Could the big four ASX bank now be a smart opportunity for investors to consider?

Before getting to what some investment experts may think, let’s look at what Westpac reported for the first six months of FY22.

Earnings recap

There were two sets of comparisons that Westpac told investors about on Monday – how the FY22 first half compared to the second half of FY21 and the first half of FY21. And it appears the results were well received, with the Westpac share price rising 3.23% on the day.

Compared to the first half of FY21, the HY22 statutory net profit after tax (NPAT) fell by 5% to $3.28 billion and cash earnings declined by 12% to $3.1 billion. Revenue dropped 8% and costs declined 10%.

Compared to the second half of FY21, the statutory net profit was up 63% to $3.28 billion. Cash earnings increased 71% to $3.1 billion. Revenue dropped 3% and costs fell 27%.

Westpac’s board declared a fully franked interim dividend of 61 cents per share. That compares to the FY21 final dividend of 60 cents per share and 58 cents per share for the FY21 interim dividend.

The big four ASX bank said that “asset quality has improved and most credit quality metrics are back to pre-COVID levels, however, we increased overlays in our provisions for supply chain issues, inflation, expectations of higher interest rates, and recent floods”.

Westpac has reduced its headcount by more than 4,000 as it tracks towards the target of an $8 billion cost base by FY24.

Over the half, total lending rose by $8.8 billion and total deposits increased by $20.6 billion.

The company said its Australian mortgage portfolio grew off the back of owner-occupied mortgages, but it wants to lift performance in investor lending. It also said that it has built on its momentum in business lending.

Westpac’s net interest margin (NIM) declined from 1.99% at the end of the second half of FY21 to 1.85% in the first half of FY22.

In terms of the outlook, Westpac noted that “demand for housing has already shown some signs of easing and rising interest rates are expected to contribute to a moderation in house prices next year”.

It also reminded investors that as interest rates rise, it is coming from a low base and the bank is already assessing loan applications on higher rates.

Is the Westpac share price a buy?

The broker UBS thinks that it is, with a price target of $27. That implies a potential rise of around 12% over the next year on the current Westpac share price of $24.11. Its cost reduction plan and asset quality were positives.

UBS thinks Westpac is valued at a decent discount to its big four ASX bank rivals of Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), and Australia and New Zealand Banking Group Ltd (ASX: ANZ).

However, Credit Suisse is currently ‘neutral’ on the bank, with a price target of $24.40. It said there is a question of whether the big bank will be able to reach its cost-cutting goals considering the inflation environment.

The post Is the Westpac share price a smart bank buy today? appeared first on The Motley Fool Australia.

More reading

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• What’s the outlook for ASX 200 bank shares amid rising interest rates?
• Here are the top 10 ASX shares today

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. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. 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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The IDP Education Ltd (ASX: IEL) share price has come under significant pressure on Thursday.

In morning trade, the student placement and language testing company’s shares are down 7% to $23.30.

Why is the IDP share price sinking?

There have been a couple of catalysts for the weakness in the IDP share price on Thursday.

The first is broad market weakness following another poor night of trade on Wall Street. The other is news that the company’s CEO has resigned.

According to the release, IDP’s CEO and managing director, Andrew Barkla, will step down from his current role in September after more than seven years leading the company.

The release notes that during the past two years of disruption to the international education industry, IDP’s leadership team has continued to deliver on the company’s long-term transformation strategy and has added significant revenue through acquisitions while building its people resources across the global network.

With the industry now stabilising and borders reopening, Mr Barkla and the Board have agreed that now is the time for leadership transition.

And while Mr Barkla’s will be stepping down as CEO in September, he will be sticking around for a further 12 months in an advisory capacity to assist with key strategic projects. After which, the IDP Board intend to nominate him as a new non-executive director at its 2023 annual general meeting.

What now?

When the CEO of a growth company steps down it can spook investors. This is because they may fear that the resignation is a sign that the company’s growth runway is coming to an end.

After all, if the company was destined to double in size in the future, why would you not want to oversee this growth?

However, Mr Barkla appears to have dismissed this and remains positive on IDP’s future. He commented:

I am passionate about the opportunities that exist for IDP. It is a special Company with amazing people that deliver meaningful impact. Whilst I believe it is the right time for me to step down, I want to stay strongly connected to IDP so I can contribute to its ongoing evolution.

It was important to me that I worked with the Board and IDP’s leadership team to ensure we had successfully navigated the pandemic before this change was made. Orderly leadership transition is a hallmark of a well-managed business, so I want to make sure I assist the Board as our Directors work to secure the best possible successor for the role.

IDP will now undertake an extensive global search to identify a suitably qualified leader with exceptional skills and global experience in technology driven consumer businesses.

The post Why is the IDP Education share price sinking 7% today? appeared first on The Motley Fool Australia.

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• Top brokers name 3 ASX shares to buy today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Idp Education Pty Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened 

Shares of Coinbase Global (NASDAQ: COIN) plunged 26% on Wednesday after the digital asset trading platform reported an unexpected loss in the first quarter. 

So what

Coinbase generated net revenue of nearly $1.2 billion. That represented a decline of 27% year over year and 53% sequentially. It was also significantly below Wall Street’s estimates, which had called for revenue of almost $1.5 billion. 

The brutal downturn in the cryptocurrency market in recent months has weighed heavily on Coinbase’s business. The exchange operator’s monthly transacting users declined by 19% compared to the fourth quarter. Its trading volume, in turn, fell 44% to $309 billion.

At the same time, Coinbase spent heavily to fund its growth initiatives. Declining sales combined with rising expenses led to the company posting a net loss of $430 million, compared to net income of $840 million in the fourth quarter and $771 million in the year-ago period. That resulted in a net loss per share of $1.98. Analysts had expected Coinbase to report per-share profits of $0.17. 

Now what

With the prices of Bitcoin (CRYPTO: BTC), Ethereum (CRYPTO: ETH), and many other cryptocurrencies declining further so far in the second quarter, Coinbase warned of a continued deterioration in its transacting user and trading volume metrics. Yet the company plans to sustain its investments in the build-out of its non-fungible tokens (NFTs) marketplace and crypto derivatives exchange, so expense levels are projected to remain relatively high. Thus, investors are concerned that Coinbase could rack up more losses in the quarters ahead. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Here’s why Coinbase stock crashed today appeared first on The Motley Fool Australia.

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Joe Tenebruso has no position in any of the stocks or cryptocurrencies mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin, Coinbase Global, Inc., and Ethereum. The Motley Fool Australia owns and has recommended Bitcoin and Ehereum. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Dicker Data Ltd (ASX: DDR) share price edged higher on Wednesday following the company’s first quarter market update.

At yesterday’s market close, Dicker Data shares advanced 1.63% to $12.47 after spending most of the morning in negative territory.

Dicker Data maintains strong dividend payout

The IT distributor announced its equally second biggest ever dividend to investors which helped propel the company’s shares forward.

In its release, the Dicker Data board declared a fully franked interim dividend payment of 13 cents per share. The company pay dividends every 3 months as opposed to a bi-annual basis like most other dividend-paying ASX businesses.

Previously, its quarterly dividends consisted of 9 cents per share before declaring a 15 cent per share final dividend.

Management stated that the proposed rate for the interim dividends for FY22 will also be 13 cents per share. This brings the total proposed dividends to be paid in FY22 to 54 cents per share, up 44% on FY21.

The company’s dividend policy is to pay out 100% of after-tax profits, and thus will retain paying quarterly dividends.

However, to provide consistency and certainty for investors, Dicker Data noted that each interim dividend will be at an equal rate.

The record date for the final dividend falls on 16 May, with payment following on 1 June 2022.

Dicker Data share price snapshot

Over the last 12 months, Dicker Data shares have accelerated by around 35%, however year to date is 16% lower.

It’s worth noting that the company’s shares touched a 10-month low of $11.60 on Tuesday before recovering lost ground.

On valuation grounds, Dicker Data commands a market capitalisation of roughly $2.12 billion, with a trailing dividend yield of 3.47%.

The post Everything you need to know about the latest Dicker Data dividend appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras has positions in Dicker Data Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Dicker Data Limited. The Motley Fool Australia has positions in and has recommended Dicker Data Limited. 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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The Xero Limited (ASX: XRO) share price could be on the move this morning.

This follows the release of the cloud accounting platform provider’s full-year results.

Xero share price on watch following full-year results

• Total subscribers increased by 19% to 3.3 million
• Operating revenue increased by 29% to NZ$1.1 billion (30% in constant currency)
• Annualised monthly recurring revenue (AMRR) grew by 28% to NZ$1.2 billion
• Total subscriber lifetime value (LTV) grew by NZ$3.3 billion or 43% to NZ$10.9 billion
• EBITDA up 11% to NZ$212.7 million
• Net loss after tax of NZ$9.1 million

What happened during FY 2022?

For the 12 months ended 31 March, Xero reported a 29% increase in revenue to NZ$1.1 billion. This was driven by solid growth across all markets, with the Australian and UK segments arguably the standout performers.

In Australia, revenue increased by 26% to NZ$483.3 million. Underpinning this growth were 229,000 net subscriber additions, bringing the total to 1.34 million subscribers.

Over in New Zealand, revenue increased by 15% to NZ$149.4 million. Xero reported 66,000 net subscriber additions, bringing the total to 512,000 subscribers.

In the UK, it delivered a 30% increase in revenue to NZ$291.6 million thanks to 130,000 net subscriber additions. This brought its total subscribers to 850,000. Management notes that subscriber additions were subdued in the third quarter but improved in the fourth quarter.

In the massive North America market, Xero still only has a modest market share. It reported a 28% increase in revenue to NZ$72.6 million after adding 54,000 net subscribers. This brings its North American subs to 339,000.

Finally, the Rest of the World segment reported an 85% increase in revenue to NZ$100 million. This was driven by the addition of 51,000 net subscribers, which took its total to 226,000. This segment was also boosted by the inclusion of the majority of Planday’s revenues, which was acquired at the start of FY 2022.

Xero’s earnings continued to grow during the financial year, albeit at a slower rate than its revenue. The company reported an 11% lift in earnings before interest, tax, depreciation and amortisation (EBITDA) to NZ$212.7 million.

Management advised that this softer growth reflects a balance between further gross margin expansion, which increased to 87.3%, and increased operating costs.

On the bottom line, Xero reported a net loss of $9.1 million and free cash flow of just $2.1 million. Though, this is consistent with Xero’s preference to reinvest capital generated back into the business.

How does this compare to expectations?

Xero appears to have delivered a result largely in line with expectations, though maybe just a fraction short.

According to a note out of Goldman Sachs, it was expecting Xero to report revenue of NZ$1,108 million and EBITDA of NZ$218 million.

Management commentary

Xero’s CEO, Steve Vamos, was pleased with the financial year and remains optimistic on the future. He said:

The value Xero brings to our small business customers and the trust they place in us is illustrated by this result. Our strong revenue and subscriber growth gives us confidence to continue to invest for growth consistent with our long-term strategy.

Our performance reflects the quality of our customer and partner relationships as more people realise the benefits that cloud accounting and digital tools provide.” “We are committed to delivering the world’s most insightful and trusted small business platform by focusing on driving cloud accounting adoption, growing the small business platform and building for global scale and innovation.

We continue to prioritise investment in building products and growing partnerships by investing cash generated to help deliver our strategy, drive long-term growth and meet customer needs.

Outlook

Xero hasn’t provided any concrete guidance for FY 2023.

However, it advised that it will continue to focus on growing its global small business platform and maintain a preference for reinvesting cash generated.

Total operating expenses (including acquisition integration costs) as a percentage of operating revenue for FY 2023 are expected to be towards the lower end of a range of 80% to 85%. This compares to FY 2022’s ratio of 84%.

Looking longer term, management revealed that its aspiration is to see significant improvement in its operating expense ratio “as Xero and the global cloud accounting industry continues to develop.”

The post Xero share price in focus amid strong FY22 revenue growth but full-year loss appeared first on The Motley Fool Australia.

More reading

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• Technophobia? Why ASX 200 tech shares are getting hammered again

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended Xero. 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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Many of us would now be holding ASX shares that have halved in value in just the first five months of this year.

The fact that so many growth stocks have suffered the same inglorious fate will be zero consolation to those everyday investors staring at a massive red percentage on their screen.

However, if you need strength to stay the course during such traumatic times, this might do the trick.

The fact is, many experts are saying, for many of those ASX shares, the stock price drops have nothing to do with the actual business performance.

“There is significant negative sentiment pervading almost all markets,” Cyan Investment Management portfolio manager Dean Fergie said in a memo to clients.

“Unfortunately we cannot control the market’s perception or fear — so we have to concentrate on the results being presented.”

Here is one example that Fergie’s C3G Fund holds:

Share price crashes while revenue rockets

Video games developer Playside Studios Ltd (ASX: PLY) managed to initially survive the rout of technology shares when the plunge started last November.

In fact, the share price hit an all-time high of $1.19 when trading closed on 11 February.

But since then the stock has almost halved, to close Wednesday at just 64 cents.

As far as Fergie’s concerned, that has nothing to do with the health of the business.

“Playside had a huge quarter with revenues up 400% to $13.6 million with a decent contribution coming from their Beans NFT launch.”

And with strong prospects, he’s still backing the stock to bear fruit.

“Playside continues to drive strong results with both its own gaming IP and its work for marquee clients such as Activision Blizzard Inc (NASDAQ: ATVI). 

“The recent acquisition of Activision by Microsoft Corporation (NASDAQ: MSFT) has highlighted the corporate appeal of gaming companies.”

So many buying opportunities out there

Fergie admitted rising interest rates, a federal election, and overseas events are all conspiring against small-cap growth stocks.

“Investors may remain wary for some time yet,” he said.

“However, the very best buying opportunities occur when there is pessimism, fear and overwhelmingly negative sentiment, which appears to be the case currently.”

While his team will not be able to “pick the bottom” better than anyone else, there are many opportunities out there already where the stock price has divorced from reality.

“It’s clear that there are some increasingly evident gaps between price movements and underlying company performance and value.”

The post Revenue up 400%: expert sticks by ASX share that’s halved this year appeared first on The Motley Fool Australia.

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• Analysts say these small cap ASX shares have big futures
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Motley Fool contributor Tony Yoo has positions in Microsoft. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Activision Blizzard and Microsoft. The Motley Fool Australia has recommended Activision Blizzard. 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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The Commonwealth Bank of Australia (ASX: CBA) share price will be on watch on Thursday.

This follows the release of the banking giant’s third quarter update this morning.

CBA share price on watch following third-quarter update

• Operating income down 1% to $6,103 million
• Cash profit flat compared to first half quarterly average at $2,400 million
• Expenses down 2% or 1% excluding remediation costs
• Loan impairment benefit of $48 million
• CET1 ratio down 9 basis points to 11.1% after interim dividend payment

What happened during the quarter?

For the three months ended 31 March, CBA reported a 1% decline in operating income compared to the first half quarterly average to $6,103 million.

Though, this would have been up 1% when adjusted for the two fewer days in the quarter. Management advised that this reflects 3% volume growth and higher non-interest income helping to offset continued margin pressure from elevated swap rates, mix effects, and competition.

In respect to volume growth, household deposits grew 1.1x system, home lending grew in line with system, business lending grew 1.5x system, and business deposits grew 1.4x system. The release notes that home lending was impacted by the bank’s decision to lead the market on fixed home loan interest rate increases (in response to rising swap rates).

Thanks to a 2% reduction in expenses driven by higher annual leave usage and two fewer days, partly offset by increased staffing levels, CBA’s cash earnings came in flat at $2,400 million.

How does this compare to expectations?

The good news for the CBA share price on Thursday is that this appears to have been better than the market was expecting.

For example, Citi was ahead of consensus with its estimate for cash earnings to be down 10% versus the quarterly average of the first half.

It commented: “Our 3Q cash earnings estimate is ~3% ahead of consensus driven by better BDDs (77% lower). Compared to 1H22 quarterly average, we expect 3Q cash earnings to be ~10% lower. Pre-provision profit is expected to be in-line with consensus with slightly higher NIMs and improved OOI, offset by higher costs.”

Management commentary

CBA’s CEO, Matt Comyn, appeared pleased with the bank’s performance during the quarter.

The March quarter underlined the disciplined execution of the Group’s strategy, focused on our core banking franchises, which delivered continued volume growth, sound portfolio credit quality and ongoing support for our customers and communities, in particular to those most affected by extreme weather events in many parts of the country including the catastrophic East Coast floods and WA bushfires.

Continued growth in household deposits, home loans, business lending and business deposits was a feature of the quarter. The Group maintained strong balance sheet settings and paid $3 billion in half-year dividends to shareholders.

The previously announced on-market share buy-back of up to $2 billion will be conducted across the remainder of this calendar year, and last week regulatory approval was obtained from the China Banking and Insurance Regulatory Commission in respect of our previously announced partial sale of shares in the Bank of Hangzhou Co., Ltd.

Looking ahead, we are well positioned to support business investment to build Australia’s future economy. Through disciplined execution of our strategic agenda, we will continue to deliver for our customers, communities and shareholders as we build tomorrow’s bank today.

The post CBA share price on watch following $2.4bn Q3 cash profit appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Thursday
• Why is the CBA share price outpacing the ASX 200 in 2022?
• What’s the outlook for ASX 200 bank shares amid rising interest rates?
• Is it too late to buy big bank ASX shares?
• Own CBA shares? Here’s what to expect when the bank reports next week

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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Ask a Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In part three of this edition, Michael Steele, co-portfolio manager at Yarra Capital Management, highlights a promising ASX small-cap telecom share and explains how the fund is positioned for higher interest rates.

Motley Fool: Yesterday you shared your two top ASX small-cap shareholdings in the outperforming UBS Yarra Australian Small Companies Fund. Are there other ASX small-caps that look particularly strong?

Michael Steele: A position that’s in our top-five and looks attractive is TPG Telecom Ltd (ASX: TPG), an Australian telco company.

In terms of the investment thesis, there’s a large opportunity to increase market share. Now they’ve got the full product offer, with both mobile and fixed telecommunications products post the Vodafone merger. They have a really large opportunity to take market share off the incumbent, Telstra.

TPG now has a large mobile business that is recovering from a cyclical low. So we expect higher mobile pricing and subscriber growth along with the upside of the cost synergies of putting the two businesses together, Vodafone and TPG. They really were a great fit given the network overlap.

TPG will also benefit from having historically had headwinds from NBN access costs. That cost headwind has now peaked and they are going to get some cost-benefit going forward, given they have a fixed wireless product.

And if you look at telecommunications infrastructure, there’s a number of transactions in the market recently. We think those transactions highlight that TPG is undervalued. If you look at their mobile towers and their fibre infrastructure, this really is an amazing infrastructure business.

MF: With the outperformance of your Fund, you’ve clearly gotten a lot right. Are there any moves you regret?

MS: My key regret is a missed opportunity with what happened with the COVID-19 correction.

We saw financial markets sell off very aggressively in the first three to four months. And I do regret not taking on more risk at that point. It was a great entry point in the equity market. I was expecting it to hit a lower low and missed it when it bounced 10% from the bottom. That was a great opportunity.

I guess, my point is, if you see the equity market down 20% to 25%, you should strongly consider averaging in.

MF: Has Russia’s invasion of Ukraine changed your investment approach?

MS: Our investment process hasn’t changed because of the Russia-Ukraine conflict.

There are three takeouts from the investment process that we already capture, but which highlight how important those are.

First is sovereign risk. In the small-cap part of the ASX, we think sovereign risk is undervalued. There’s a lot more risk in some of these developing nations than is generally understood. And that’s something we’re really cautious of. We add a risk premium when investing in companies with exposure to those countries.

The second is the sustainability of supply chains. You’ve seen this with COVID-19 as well. You’ve really got to understand if supply chains are sustainable in terms of sourcing, whether that’s a raw commodity or a manufactured product. That could be anything from where semiconductor chips are sourced from to the sourcing of raw materials.

And the third element is thinking through commodity prices. We invest for the longer term, but we are constantly thinking about the sustainability of commodity prices. When you look at what’s happened with the Russia-Ukraine conflict and also COVID-19, it’s caused a massive spike in commodity prices.

If you take a longer-term view, commodities like wheat and coal are clearly way above fundamental levels. So, we’re not going to invest against that backdrop. When you take a longer-term view, we think those commodity prices are going to be a lot lower.

MF: Are you concerned about the potential impact of rising interest rates on your ASX small-cap shares?

MS: We’ve been positioned over the past 12 months for a more rapid increase in interest rates. Our economist Tim Toohey has done a great job at correctly forecasting that interest rate expectations would be brought forward and they’d have to move higher.

So, the portfolio is underweighted in a number of sectors which typically have underperformed when interest rates have gone up, such as the property sector.

We also own a number of companies that actually benefit from higher interest rates. They have revenues linked to interest income.

We are cautious on what higher rates will do to global economic growth in 2023.

**

If you missed the earlier installations of our interview with Yarra Capital’s Michael Steele, you can find part one here and part two here.

(You can learn more about the UBS Yarra Australian Small Companies Fund here.)

The post How to invest in ASX small-cap shares amid rising interest rates and geopolitical turmoil: fund manager appeared first on The Motley Fool Australia.

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended TPG Telecom Limited. 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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