Month: May 2022

I think the Temple & Webster Group Ltd (ASX: TPW) share price could be worth a buy today, particularly if it has a rough day.

Overnight, the S&P 500 Index (SP: .INX) fell by 4%. There was a painful drop for Target Corporation (NYSE: TGT) which fell by 25% as inflation influenced the 43.3% fall in adjusted earnings per share (EPS).

While the ASX and Temple & Webster are not exactly the same as the S&P 500 and Target, ASX shares do often follow the lead of the US share market. And it appears that’s what happening to the Temple and Webster share price today, which is down 4.26% to $4.385 in early trade.

I like to take advantage of lower share prices of attractive businesses. Shares of the homewares and furniture retailer have fallen by almost 60% in 2022 so far.

While things are looking tough for some retail businesses in the shorter term, I think the large decline of the Temple & Webster share price means it’s an opportunity for a few different reasons.

Building operating leverage

One of the main things I look for in a business is that it can become increasingly profitable as it grows in size. In other words, I want to see that profit margins are increasing, or can increase when its growth investing slows down.

Temple & Webster says that over the longer term it’s planning to leverage its scale and strategic moat to grow its contribution profit margin percentage. The contribution margin is a company’s profit when looking at revenue, minus the cost of sales, distribution, advertising and marketing, customer service, and merchant fee expenses. But it doesn’t include things such as wages and depreciation.

Management says it will benefit from smarter pricing, better supplier terms due to scale, and higher brand awareness. It thinks it will achieve better unit economics. I think this could be a key driver for the Temple & Webster share price later this decade.

It will also be able to slow its investment into fixed costs as it grows.

For now, the business is using its operating leverage to re-invest for growth into marketing, technology development, product range, and the overall customer experience.

Rapid growth

I think one of the things that can help a business produce good long-term compounding of profit and value for shareholders is growing revenue.

Temple & Webster has grown significantly in scale since the beginning of the COVID-19 pandemic. A few months ago, it announced its FY22 half-year result. It showed that the half-year revenue of $235.4 million was up 46% year on year and up 218% compared to the first half of FY20.

Active customers increased by 34% to a total of 906,000. Revenue per active customer increased by 10%, with the sixth consecutive quarter of growth.

Temple & Webster has continued to scale. The FY22 second half has seen revenue growth of 23% for the period of 1 January 2022 to 30 April 2022. It’s this strong growth that makes me believe the business can become one of the big players in the space, and then benefit from that operating leverage I’ve already talked about.

The company points out that the ‘business to consumer’ furniture and homewares category is worth around $16 billion, which is undergoing a structural shift towards online. In 2019, 5.1% of this market was online, which then grew to between 7% and 9% in 2020.

In the US, which could be a long-term potential guide for the Australian market in the coming years, the online percentage of the furniture and homewares market was 15.2% in 2019 and increased to 25.3% in 2020.

Growing addressable market

The company is looking to grow its business in ‘next growth horizon’ areas such as trade and commercial, and home improvement, which further increases its potential growth runway and this could help the Temple & Webster share price over time.

In HY22, the trade and commercial revenue rose 49%, representing 7% of the total group revenue.

Home improvement revenue rose by 95%, representing 4% of group revenue. This is a market worth around $16 billion for the business, with less than 5% of it online. Some products include tools and equipment, garden and landscaping, paint and supplies, window furnishings, flooring, plumbing fixtures, and more.

Temple & Webster has launched a website called The Build to further grow in this area.

The post Why I think the Temple & Webster share price is in the buy zone right now appeared first on The Motley Fool Australia.

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• 3 quality ASX All Ordinaries shares tumbling 10% or more today
• Why Macquarie, REA, Temple & Webster, and Xero shares are sinking
• The Temple & Webster share price is being crushed, down 14%

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 Temple & Webster Group Ltd. The Motley Fool Australia has recommended Temple & Webster Group 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

Shares of Apple (NASDAQ: AAPL) were falling 3.9% heading into noontime trading Wednesday as retail sector earnings have been weaker than expected this week and the Federal Reserve is expected to further tighten the screws on the economy.

There has also been an uptick in cases of COVID-19, which caused Apple to delay implementation of its three-days-in-the-office policy.

So what

While the Dow Jones Industrial Average is tumbling almost 750 points lower, or 2.2%, the tech-laden Nasdaq 100 is down 3.3% so far. 

Even so, Bank of America thinks Apple is one of the companies that ought to perform well in the current inflationary environment. And analysts have noted its strong quarterly earnings report despite supply chain issues and the chip shortage that has weighed on industries of all kinds for at least a year now.

According to TheStreet.com, the bank’s list includes stocks on the S&P 500 whose performance is inverse to its inflation indicator, for which its data goes as far back as 1975.

Now what

Apple employees have long complained about having to go back to work in the office. Ever since they’ve been able to work from home because of the pandemic, they believe they should be allowed to continue doing so.

Apple, though, was preparing to have them return to the office next week and work on site on Mondays, Tuesdays, and Thursdays. But with the rise in COVID cases, it has put the measure on hold for an undetermined period. 

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

The post Why Apple Stock is falling today appeared first on The Motley Fool Australia.

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Rich Duprey has no position in any of the stocks mentioned. Bank of America is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended 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 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 Aristocrat Leisure Limited (ASX: ALL) share price is rising on Thursday.

At the time of writing, the gaming technology company’s shares are up 6.5% to $33.73.

This follows the release of a strong half-year result which has offset the market selloff.

Aristocrat share price tumbles despite strong first half

• Operating revenue up 23.1% to $2,745.4 million
• Earnings before interest, tax, depreciation and amortisation (EBITDA) up 30.3% to $970.3 million
• Normalised net profit after tax before amortisation (NPATA) up 40.9% to $580.1 million
• Operating cash flow increased by 42% to $502.4 million
• Interim dividend up 73.3% to 26 cents per share
• On-market $500 million share buyback announced

What happened during the first half?

For the six months ended 31 March, Aristocrat reported a 23.1% increase in operating revenue to $2,745.4 million.

This was driven by a strong performance from Gaming Operations and Outright Sales, supported by a robust performance from Pixel United. The former reflects customers increasing their capital commitments towards Aristocrat’s high performing products as COVID-19 restrictions eased.

But management isn’t resting on its laurels. During the half, Aristocrat maintained its market-leading investment in game design, development and technology with $313 million invested in design & development (D&D). This represents 11.4% of group revenue. In addition, it revealed that user acquisition (UA) investment remained steady at 28% of Pixel United revenue.

On the bottom line, thanks to a combination of revenue growth and margin improvement, Aristocrat reported an impressive 40.9% increase in NPATA to $580.1 million.

According to a note out of Citi, its analysts were expecting NPATA of $537 million, while the Visible Alpha consensus was $523 million. This means the company has smashed consensus estimates, which goes some way to explaining why the Aristocrat share price is having such a strong start to the day despite the market selloff.

Management commentary

Aristocrat Chief Executive Officer and Managing Director, Trevor Croker, was pleased with the half and notes that the company continues to win market share. He said:

Aristocrat delivered an impressive and resilient performance despite mixed operational conditions and challenges. We took comprehensive action to protect our people and business, while investing strongly to accelerate our growth strategy going forward.

Our sustained investment in talent, technology and product enables us to continue to take share wherever we play and delivered significant top and bottom-line growth in the first half of fiscal 2022.

Mr Croker also revealed that Aristocrat still has its eyes firmly set on the Real Money Gaming market despite its failed acquisition of PlayTech.

We are accelerating the implementation of our ‘build and buy’ strategy to scale in online Real Money Gaming, which provides further channels for us to distribute our world-leading content. Our ambition is to be the leading gaming platform in the global online RMG industry, and we anticipate being live with i-Gaming products in two jurisdictions in the US by the end of calendar year 2022.

Speaking of which, the failed acquisition of PlayTech means the company is sitting on more cash than it requires. In light of this, Aristocrat will shortly undertake a $500 million on-market share buyback. Mr Croker explained:

Aristocrat’s exceptionally robust balance sheet and consistently strong cash flow generation enables us to reinvest in the business, retain our capacity to pursue acquisitions, and return cash via dividends and share buy-backs. We will continue to actively assess growth opportunities, including strategic acquisitions and investment in organic initiatives.

Outlook

While no concrete guidance was given for the full-year, Aristocrat has started the second half strongly and management expects “continued growth.” It also sees opportunities to accelerate its growth strategy. Mr Croker said:

Aristocrat enters the second half with excellent fundamentals and strong operational momentum, a robust balance sheet and an abundance of opportunity to accelerate our growth strategy.

Aristocrat plans for continued growth over the full year to 30 September 2022, assuming no material change in economic and industry conditions.

The post Jackpot! Aristocrat share price jumps on stellar half-year results appeared first on The Motley Fool Australia.

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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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I think plenty of ASX growth shares are looking attractive right now after a period of elevated ASX share market volatility.

Inflation and the expected interest rate rises have helped push down asset prices.

I think these two ASX shares look good, after their declines:

Vanguard Diversified High Growth Index ETF (ASX: VDHG)

This may be one of the most diversified investments on the ASX. It’s an exchange-traded fund (ETF) which is invested in several investment funds across shares and bonds. I think it has a lot of underlying diversification.

The name of the ETF refers to ‘high growth’, meaning that it’s mostly invested in shares. There are other diversified investment funds provided by Vanguard which have higher allocations to bonds.

At the latest disclosure, around 10% of the ASX growth share’s assets were invested in bonds – around 7% in global bonds and 3% in Australian bonds.

On the shares side of things, around 36% is invested in Australian shares, around 6% in global small shares, 5% in ‘emerging market’ shares, and the rest (approximately 43%) in international shares.

Taking a diversified approach could be a way to lower risks during this period of volatility. The ETF makes it easy to get diversification.

It comes with an annual management fee of just 0.27%, which I think is good for the diversification it provides. The VDHG ETF looks better value after dropping 10% since the start of 2022.

Adore Beauty Group Ltd (ASX: ABY)

Adore Beauty is a leading beauty product online retailer.

I think the company has an attractive future in a market that’s worth more than $10 billion and is steadily seeing a shift to e-commerce, which I think provides tailwinds for Adore Beauty.

Despite the impacts of COVID-19 receding (including the e-commerce boom), I think it’s a good sign that this ASX growth share’s revenue keeps rising.

In the three months to 31 March 2022, Adore Beauty reported its quarterly revenue rose by 9% to $42.7 million and active customers rose by 7% to 880,000.

I like that Adore Beauty is working on improving customer loyalty by connecting with customers with its podcasts and mobile app. The loyalty program is also getting traction, with loyalty members contributing more than 60% of revenue.

In the coming years, Adore Beauty can grow its margins by selling private label products. The first private label items are scheduled for launch in the fourth quarter of FY22.

The fact that the Adore Beauty share price has fallen by more than 60% in FY22 offers investors the chance to grab a piece of this growing business at a much cheaper price.

I think it can become quite profitable in the future as operating leverage builds as the business gets back and it isn’t investing such a high percentage of its revenue for growth.

The company won’t need to spend as much on advertising if it can connect through its owned marketing channels, which will also help longer-term profit margins.

The post 2 ASX growth shares I’d buy today with $5,000 appeared first on The Motley Fool Australia.

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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. has recommended Adore Beauty Group Limited. The Motley Fool Australia has recommended Adore Beauty Group 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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Shares in Woolworths Group Ltd (ASX: WOW) have had a rough slog so far in 2022. But not all is dire. The company’s continued work towards net zero is starting to pay off.

A new partnership is expected to see the supermarket giant – responsible for 1% of Australia’s electricity use – flicking the switch on fossil fuels at its South Australian operations, powering them instead with renewable energy from July.

At the time of writing, the Woolworths share price is $37.27. That’s 3% lower than it was at the start of 2022.

That’s a better performance though than that of the S&P/ASX 200 Index (ASX: XJO). The index has slipped 5% this year so far.

Let’s take a closer look at the sustainable milestone about to be surpassed by Woolworths.

Own Woolworths shares? The retailer’s going green in SA

Owners of Woolworths shares, rejoice! The company’s plan to power its operations with 100% renewable energy by 2025 will soon take a major step forward.

The supermarket giant has entered a nine-year multimillion-dollar partnership with Iberdrola Australia to source green energy from the new Port Augusta Renewable Energy Park.

The park houses 50 turbines and 250,000 solar panels. It will be producing around 100,000 megawatt-hours of renewable energy for the retailer each year, starting in July.

That will see nearly 70 Woolworths supermarkets, 17 Big W stores, and the Adelaide Regional Distribution Centre switching off electricity generated by fossil fuels.

It’s just one of many similar partnerships the ASX 200 share is pursuing – Woolworths is looking to draw on new-build renewable energy projects to boost the industry’s growth and the availability and affordability of green electricity.

Woolworths CEO Brad Banducci commented on the upcoming milestone, saying:

South Australia will be the first state where every one of our sites are powered by green energy and we’re excited to use renewable energy generated locally to reduce the footprint of our stores from Roxby Downs to Renmark.

[W]e look forward to building on this in other states over the next three years.

The post Own Woolworths shares? The company’s about to hit a major sustainability milestone appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper 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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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 electric vehicle (EV) kingpin Tesla (NASDAQ: TSLA) dropped sharply in Wednesday early afternoon trading, falling 5.2% through 12:10 p.m. ET.

You can blame two Wall Street analysts for that drop: Piper Sandler and France’s Exane BNP Paribas.

So what

In twin reports this morning, first Piper Sandler cut its price target on Tesla to $1,035 per share (but maintained its overweight rating), and then Exane BNP Paribas cut its price target on Tesla to $600, and reiterated its underperform (i.e., sell) rating.

Of the two reports, I found the Paribas report much more interesting.

Piper’s reason for cutting its Tesla price will come as no surprise to Tesla watchers: The analyst is worried COVID-19 restrictions in China will keep Tesla from hitting its target of producing 1.5 million cars this year. That doesn’t worry me, though, because as soon as those restrictions are lifted, I expect Tesla to race ahead and regain its lost ground like a Model S Plaid with its pedal to the metal.  

But Paribas’ report does worry me — a bit. 

“Tesla … is still among the best [EV stocks], with an impressive combination of range, charging speed and performance still its USP. However … Tesla is no longer the stand-out it once was,” reports StreetInsider.com in its coverage of Paribas’ note today. After surveying 230 different EV models, and comparing the pros and cons of each, the French banker concluded that Volkswagen‘s EVs have now largely caught up with Tesla on product quality, while Lucid Group has better technology than Tesla, and General Motors has a better battery in the Ultium.

Now what

That all sounds like bad news for Tesla, except for one thing: So far, this is an opinion coming solely from Exane BNP Paribas. And when is the last time you asked a banker for car-shopping advice?

Not all readers will be old enough to remember this, but once upon a time there was a saying, “nobody ever got fired for buying IBM.” (Do you remember that one?) The point being, just having the best specs doesn’t guarantee a company will make a sale. Sometimes, if a company’s reputation is good enough, consumers simply assume its products are the best, or buy them regardless, if they’re the most popular or most desirable. So long as Tesla enjoys the halo of being considered the “pioneer” in EVs, having the longest track record making them, and being the prestige product in the category (kind of like an iPhone), I expect Tesla’s sales are going to hold up just fine.  

Granted, impressions can change, and if popular car magazines start saying what Paribas just said, this situation could change, too. But for the time being, I’d consider Paribas’ warning more of a yellow flag than a red one for Tesla investors. 

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

The post Why Tesla stock fell again today appeared first on The Motley Fool Australia.

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Rich Smith 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 Tesla. 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. 

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

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ASX shares are “vulnerable” in the short term, but they’re set to outperform in the long run compared to other countries.

That’s according to AMP Ltd (ASX: AMP) chief economist Dr Shane Oliver, who says there are still many negatives sticking around, pushing stock prices down.

“Relatively calm years like 2021 are often followed by a rough year,” he said on the AMP blog.

“Inflation continues to come in stronger than expected largely due to pandemic related supply disruptions and strong goods demand, but also labour shortages and ‘reopening’ impacting wages — and hence services prices.”

It will be hard slog for the rest of 2022

Kardinia Capital portfolio manager Kritiaan Rehder agrees.

“It looks like 2022 will continue to be a difficult year for equity investors,” he said.

“Inflation is already becoming entrenched. Coles Group Ltd (ASX: COL) recently reported food inflation in the March quarter of 3.3%, and suggested that price rises were only just getting started.”

In addition, Oliver noted the global headwinds that don’t look like abating anytime soon, like the war in Ukraine.

“Fear of an escalation resulting in a cut to Russian gas to Europe and/or including NATO countries in direct fighting have added to market jitters, with Finland & Sweden wanting to join NATO, further annoying Russia,” he said.

“Lockdowns in China under its zero-COVID policy in response to Omicron outbreaks have hit Chinese growth and further disrupted global supply chains.”

Investor pessimism is already “extreme”, according to Oliver, but there’s more to come.

“We have not yet seen levels for indicators like VIX or the ratio of put options to call options seen at major market bottoms.”

But ASX shares will turn around next year

Having said all this, Oliver believes ASX shares will end up higher 12 months from now, as long as the US and/or Australia don’t end up in recession.

And he sees enough evidence that inflation and wages growth may have peaked already, which will help avoid that fate.

“Signs of some peaking are evident in our Pipeline Inflation Indicator reflecting lower freight costs and a slowing in commodity prices,” said Oliver.

“This could enable central banks to slow the pace of tightening later this year or early next in time to avoid recession.”

Compared to international peers, ASX shares are ready to zoom ahead faster.

“While Chinese COVID lockdowns may weigh in the short-term, Australian shares are likely to continue to outperform over the medium-term,” said Oliver.

“The commodity super cycle continues – on the back of constrained supply reflecting low levels of resource investment, decarbonisation and geopolitical tensions.”

After all, even during the current correction, Australian stocks have fared better than their overseas counterparts.

“This is… evident year to date, where global shares are down 13% and Australian shares are down 4%,” said Oliver.

“This reflects their exposure to strong commodity prices and low exposure to tech stocks.”

Betashares associate director Max Minack agrees, saying Australian shares are ready to shake off their “underdog” tag and beat the Yanks.

“The dynamics that have buoyed Australia don’t seem to be going away any time soon,” he said on the Betashares blog.

“As such, Australia again could be cheering another underdog to victory, and investors may continue to see Australian outperformance.”

The post This year will be bad. But ASX shares still the best place to be: economist appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo 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 positions in and has recommended COLESGROUP DEF SET. 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 Webjet Limited (ASX: WEB) share price will be on watch on Thursday.

This follows the release of the online travel agent’s full-year results.

Webjet share price on watch following results release

• Total transaction value (TTV) up 261% to $1,638 million
• Revenue up 258% to $138 million
• Operating expenses up 61% to $153 million
• EBITDA loss improved by $41.3 million to $15 million
• Statutory net loss of $85.4 million (underlying loss of $38.4 million)
• Returned to profit during the second half

What happened during FY 2022?

For the 12 months ended 31 March, Webjet reported a 261% increase in TTV to $1,638 million. This comprises WebBeds TTV of $1,101 million and Webjet OTA TTV of $428 million, and GoSee (Online Republic) TTV of $108 million.

Things were equally strong for its revenue, which jumped 258% to $138 million. This reflects WebBeds revenue of $85.6 million and Webjet OTA revenue of $41.9 million, and GoSee revenue of $10.5 million.

Though, as strong as this growth was, it is still some way behind pre-COVID levels. For example, during calendar year 2019, WebBeds revenue was $226.9 million, Webjet OTA revenue was $151.1 million, and GoSee revenue was $30.8 million.

On the bottom line, Webjet reported another loss for FY 2022. On a statutory basis the company’s loss was $85.4 million and an underlying basis its loss was $38.4 million. However, both are big improvements on the prior corresponding period.

Pleasingly, this appears to be the end of its losses. Management revealed that the company was profitable during the second half and delivered positive cash flow.

Management commentary

Webjet’s Managing Director, John Guscic, was pleased with the progress the company made in FY 2022. He said:

 FY22 was a year of recovery. We are now cash flow positive, our two largest businesses returned to profitability and we are seeing markets rebound strongly as travel restrictions continue to ease. WebBeds returned to profitability in the second half.

Our investment in North America is paying off with booking volumes for that business now already more than double what they were pre-pandemic, and all the work undertaken to drive efficiencies saw costs remain significantly below pre-pandemic levels.

Mr Guscic was also pleased to report that the Webjet OTA business was profitable despite facing very tough trading conditions.

Webjet OTA was profitable for the full year despite widespread lockdowns, border closures and the impact of Omicron from December. Domestic bookings spiked as borders opened, reflecting Webjet OTA’s strength in servicing the domestic leisure market, however international bookings have been subdued with airline capacity still well below pre-pandemic levels.

Profitability for GoSee is highly linked to Australian and New Zealand international border openings and that business continued to be impacted by border closures for the majority of FY22, although we saw Cars TTV exceed pre-pandemic levels in March driven by domestic markets.

The year has also been one of incredible and unprecedented industry challenges consequent upon the chaotic changes in travel plans and restrictions which have put all travel industry service levels under enormous stress.

Outlook

While the company won’t be providing any guidance for FY 2023, it appears confident on its prospects. Management notes that there are strong signs of demand and first quarter trading is tracking well ahead of the fourth quarter of FY 2022.

Based on current bookings trajectory, the company remains on track of be back at pre-pandemic bookings volumes by October 2022 to March 2023.

Despite this positive outlook, Webjet elected not to pay a dividend this year. Webjet’s Chair, Roger Sharp, said:

While Webjet has significant cash reserves, we continue to watch cash, cash flow and debtor risk very closely. We are starting to see strong cash inflows as major travel markets open again, and the Company is back to being cash flow positive. We paid the deferred FY20 interim dividend during the year however given the inherent uncertainty that still remains, we have not declared a dividend for FY22.

The post Webjet share price on watch amid 258% revenue jump in FY22 appeared first on The Motley Fool Australia.

More reading

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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 recommended Webjet 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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Ask A Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In this edition, Glenmore Asset Management portfolio manager Robert Gregory nominates the ASX share he’d rely on for years to come, and shares his biggest regret.

The ASX share for a comfortable night’s sleep

The Motley Fool: If the market closed tomorrow for four years, which stock would you want to hold?

Robert Gregory: The stock I decided on — it’s a great question — is Transurban Group (ASX: TCL).

That’s a company with quite a large portfolio of toll roads. And I, in thinking [the market] would be shut for four years, I tried to think about a company that, firstly, was a high quality business and had really good prospects for earnings growth, but also one that had a pretty low risk of having its earnings being disrupted by industry change, technological change, competitive pressures, that sort of thing.

If Sydney Airport had been listed that may well have been the one, but with Sydney Airport now taken over, Transurban’s the one that I feel would give me the most amount of comfort. It’s got across its portfolio of toll roads, it’s got a weighted average concession life of around 30 years.

It has great optionality with its existing asset base where a toll road might have a concession for, say, 20 years. But then in return for say, Transurban spending growth cap-ex on that toll road to deal with increased population and increased traffic, often the government will extend the concession by five years or seven years or that sort of thing. So in doing that, that’s very NPV [net present value] positive for Transurban and it just pushes, it extends out that length of cash flows that they received from the toll roads. [Transurban] had a history of doing that.

Also with inflation being so high at the moment, one positive is their toll escalations are inflation-linked. That really is: A, it’s very helpful in the high inflation period and B, it’s very supportive of future distribution growth.

Despite some people not being happy to pay to drive on a toll road, I actually think the value proposition is very strong in terms of saving drivers time. Also, toll roads have a history of seeing above GDP traffic growth.

MF: I live in Sydney, where practically everyone is a customer of a Transurban, so I completely understand.

RG: Yes.

Looking back

MF: Is there a move that you regret from the past? For example, a missed opportunity or buying a stock at the wrong timing or price.

RG: Yeah, the one I landed on was Dicker Data Ltd (ASX: DDR), which the fund’s owned for a long period of time. I definitely didn’t exit it completely in the second half of 2020, [but] I did reduce the position recently aggressively on valuation grounds.

It was a stock that had been in the fund really since early 2018, having first invested around $3. And we were trimming around that $9 to $10 range, and really the company’s performing extremely well operationally, but the valuation modules had expanded very significantly since that first point of investment at $3.

So the stock went from probably trading on about nine to 10 times [price to earnings ratio] P/E up to about 26, 28 times. [It’s] still performing very well, but on valuation grounds decided to reduce it.

And look, the company’s just continued to perform extremely well.

It’s a value-added IT product distribution distributor that has a very strong management team, a very strong competitive proposition versus its peers who are often Australian satellite offices of large multinationals and perhaps don’t quite have that strong laser-like focus on Australia and New Zealand that Dicker Data has.

The other thing with Dicker Data, they’ve just benefited from continued sector growth in markets, being the IT software sectors where there’s just this very strong above GDP spending from consumers, small business, medium business, large business. So they’ve definitely had some tailwinds, but yeah, that’s one that in hindsight I regret having trimmed.

The post ‘High quality’ ASX company that has all of Sydney as customers appeared first on The Motley Fool Australia.

More reading

• ‘Too early to brake for the next exit’: What this top broker likes about Transurban shares
• Why I think these are the best ASX dividend shares to buy right now
• Analysts rate these ASX growth shares as buys this month
• What’s with the Dicker Data share price today?
• Everything you need to know about the latest Dicker Data dividend

Motley Fool contributor Tony Yoo 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 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 spotlight is on Fortescue Metals Group Limited (ASX: FMG) shares as word hits the streets that Andrew ‘Twiggy’ Forrest is taking back the reins as chief executive officer.

This marks the first time the billionaire will be running the day-to-day operations of the S&P/ASX 200 Index (ASX: XJO) iron ore giant since stepping down as CEO in 2011.

Forrest will also remain chairman of the company, which is working on developing hydrogen-based clean energy via its offshoot, Fortescue Future Industries (FFI).

Current CEO Elizabeth Gaines is relinquishing the top job in August. Fortescue has been seeking a replacement for some five months now, but to date has come up empty.

What’s the outlook for Fortescue shares with Twiggy at the helm?

With Forest’s strong focus on emissions reduction and commitment to clean energy, Macquarie analysts said his return to the top job (quoted by The Australian), “demonstrates the company’s commitment to advancing its transition to a global green renewables and resources company”.

Macquarie analysts will be keeping a close eye on upcoming dividends from the iron ore major. At the time of writing, Fortescue shares pay the highest dividend yield of any of the ASX 200 miners, a whopping 15.7% fully franked.

According to Macquarie, “FMG’s ability to maintain its dividend payout ratio close to 80% through the transition period presents a key risk and catalyst for the stock… FMG is generating strong cash flow, with the stock trading on FY23 and FY24 free cash flow yields of 16.1% at spot prices.”

How has the ASX 200 iron ore miner been tracking?

Fortescue shares have edged higher over the past week, leaving them down just under 1% in 2022.

That compares to a year-to-date loss of just under 6% posted by the ASX 200.

At the current share price, Fortescue has a market cap just north of $60 billion.

The post What’s the outlook for Fortescue shares with Twiggy at the helm? appeared first on The Motley Fool Australia.

More reading

• Fortescue share price pushes higher following leadership changes
• ASX 200 midday update: BlueScope and Fortescue rise, Boral tumbles
• Why I think these are the best ASX dividend shares to buy right now
• Fortescue share price on watch after Twiggy returns to top job
• Which ASX 200 mining share has the highest dividend yield in May?

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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