Day: February 24, 2023

A first-principles look at the super changes

Australian notes and coins surrounded by a calculator and the word super spelt out.

Australian notes and coins surrounded by a calculator and the word super spelt out.

A couple of short Friday takes…

The Super kerfuffle?

Yeah, I’ve been asked about that – a lot – this week.

And I have some views. Views that might not (or might) be popular among some people. Might not be popular among some of our members.

Now, if I was the average finance type, and The Motley Fool was the average finance company, we’d just read the room, and argue for whatever made the most money for our members.

But I’m not.

And we’re not.

I believe in good policy. I believe in fairness, and reasonableness, and the elevation of the national interest above all.

Lofty? A little full of myself?

Maybe.

But here we are.

And here’s my view on potential changes to Super:

First, tax policy should be implemented fairly. It should raise money from taxpayers based on, among other things, their ability to pay, and the impact on them, once they’d paid it.

Second, ‘framing’ matters.

Starting with the status quo on Superannuation is the wrong framing for a principled discussion

Super was designed to relieve pressure on retirement funding, not as a wealth creation or estate planning tool.

Logically, it makes sense to incentivise saving and investing to build a large enough nest egg to deliver pension-replacing income, plus a little more for the vagaries & risks of investing and to recognise that the money was quarantined during their working lives.

And keeping with that logic, concessionary taxation should cease at a level of both contribution and income/withdrawal that exceeds that level (because after that point, the cost of Super exceeds that of the pension it seems to replace).

It’s also why we shouldn’t focus on the fund balance, but rather the size of the income stream, and tax income accordingly (there’d be an argument for removing concessions on earnings during the accumulation phase once the fund was of a size that made higher incomes likely).

That’s how you’d approach it from first principles, free of either being anchored to the status quo or the self-interest of those who want to use Super as a tax shelter (meaningfully above pension income levels).

So when you consider the arguments for and against ‘changing Super’, remember the framing.

Ask not ‘Should it be changed?’, but rather ‘How should it be set up to achieve the stated aims?’.

(And be careful of others framing the argument differently!)

Now, that’s not going to endear me to some of our readers. They have different views, borne of different philosophies (and maybe, for a few, self-interest).

I hope you’ll at least appreciate the honest, first-principles approach. It should be the least we ask of each other when discussing national policies.

A tale of two…  tails?

I want to share two quotes with you:

Warren Buffett once wrote: “If a far-sighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”

The other, more an aphorism than a direct quote: “The house always wins”.

And yet, this week, we saw a tale of two, well, tails, which seems to make a lie of everything we think we know.

The first ‘tail’ – of the heads and tails gambling variety – was Star Entertainment Group Ltd (ASX: SGR); the casino operator that’s currently without a licence in Sydney, which lost $1.3 billion in the last 6 months of last year, and which has passed the hat around for $800m in new funding, while begging its lenders to give it more time.

So much for the house always winning.

And the capital-destroying airlines? That’s the other ‘tail’ tale – this time a red one with a white flying kangaroo embossed on it.

Qantas Airways Limited (ASX: QAN)  this week delivered a $1.4 billion profit for the second half of 2022, and announced it was returning $500m to shareholders.

(We’ll leave the $2b-plus of taxpayer funds the airline was gifted for another day…)

That’s a helluva juxtaposition, huh?

Not just of two businesses with almost-opposite outcomes, but with outcomes that are largely the opposite of what most of the business world would expect of these two industries.

So… are these the examples that we need to put the accepted wisdom to bed? Or the exceptions that prove the rule?

Or, perhaps, are they points in time when black is white and north is south, destined, eventually, to reverse course?

I’d bet – no pun intended, but it was too good to leave out – on the latter.

And what about the rest?

We are now two business days out from the end of earnings season (trust me, it’s been a long month, so I’ve counted!).

All companies with a December 31 balance date for their half or full financial years have to lodge their financials with the ASX.

And how would I summarise the last month?

Extreme.

The moves, in both directions, frankly seem pretty exaggerated to me. Don’t get me wrong, some of the moves were justified, but a lot of the market reaction struck me as not too dissimilar to the moods of an overtired 5 year-old… variously not just happy, but ecstatic, and not just sad, but inconsolable.

There doesn’t seem any room for nuance, or for thinking past the next 4 or 5 months.

If I’m right, that gives us some opportunities – to buy and to sell – based on the one-dimensional response to these earnings.

But that’s for next week, the next month and the next year.

In the meantime, have a great weekend!

Fool on!

The post A first-principles look at the super changes appeared first on The Motley Fool Australia.

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Motley Fool contributor Scott Phillips 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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Why are ASX 200 mining shares ending the week in the red?

a mine worker holds his phone in one hand and a tablet in the other as he stands in front of heavy machinery at a mine site.a mine worker holds his phone in one hand and a tablet in the other as he stands in front of heavy machinery at a mine site.

ASX 200 mining shares are down on Friday with the S&P/ASX 200 Materials Index (ASX: XMJ) the only market sector in the red at the time of writing, down 1.25%.

Meantime, the benchmark S&P/ASX 200 Index (ASX: XJO) is up 0.23% as the end of trading draws near.

What’s going on with ASX 200 mining shares today?

Let’s take a look at the performance of the top six ASX 200 mining shares by market capitalisation.

The BHP Group Ltd (ASX: BHP) share price is down 1.73% to $45.88. The Big Australian released its 1H FY23 results this week, revealing a consensus earnings miss of 7.5% and a 40% cut to its dividend.

The Fortescue Metals Group Limited (ASX: FMG) share price is down 2.28% today to $22.31. The pure-play ASX iron ore share hit a new 52-week high of $23.33 on Tuesday.

The Rio Tinto Limited (ASX: RIO) share price is down 3.4% to $119.22. Rio Tinto reported its full-year results yesterday, which fell a touch short of expectations. The company slashed its dividend by 46%.

Newcrest Mining Ltd (ASX: NCM) shares are down 2.41% to $22.64 and South32 Ltd (ASX: S32) shares are down 2.22% to $4.41 today.

Mineral Resources Ltd (ASX: MIN) is today’s outlier among the big ASX 200 mining shares.

The Mineral Resources share price plummeted this morning to an intraday low of $79.74, down 6.2% on yesterday’s close. This was despite the company reporting incredible earnings growth in 1H FY23 and an interim dividend of $1.20 per share fully franked.

However, over the day, Minerals Resources shares have retraced and are up 0.04% to $85.06.

What’s going on with commodity prices?

As we all know, the prices of ASX 200 mining shares are fundamentally influenced by commodity values.

Let’s see what’s happening with the commodities relevant to these six top miners at the moment.

The iron ore price fell by 1.13% to US$131.50 per tonne overnight. It’s down 5% year over year (yoy) but up 5.6% over the past month.

This week, top broker Goldman Sachs tipped a 20% bump to the iron ore price to US$135 per tonne due to tighter supply and demand over the next three months.

The gold price is currently trading virtually steady, up 0.2% to US$1,826 per ounce. The gold price is down 6% over the past month and down 3% yoy.

Lithium held steady overnight but is down 15% over the past month and down 14% over the past year.

Copper futures fell to US$4.05 per pound overnight and are down 9% yoy. Half of this drop in value occurred over the past four weeks.

Nickel futures are down 2.2% to US$26,219 per tonne at the time of writing. They’re down 6% over the month but up 5.5% yoy.

Newcastle coal futures traded up 0.2% to US$210 per tonne overnight. Coal has fallen from lofty heights and is down 42% over the past month and down 12% yoy.

The post Why are ASX 200 mining shares ending the week in the red? appeared first on The Motley Fool Australia.

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Motley Fool contributor Bronwyn Allen has positions in BHP Group and Fortescue Metals Group. 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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Jumbo share price slips despite revenue growing 18%

jumbo share pricejumbo share price

The Jumbo Interactive Ltd (ASX: JIN) share price is worse for wear on Friday as investors assess the company’s first-half numbers.

In afternoon trade, shares in the online lottery provider are down 0.6% to $14.50. For comparison, the S&P/ASX 200 Index (ASX: XJO) is inching 0.24% higher today, buoyed by exceptional showings among the tech, industrials, and real estate sectors.

Based on the market’s reaction, it seems Jumbo’s results left more to be desired.

Jumbo share price lowers on sluggish earnings

  • Total transaction value (TTV) up 27.2% on the prior corresponding period to $417 million
  • Total revenue up 18.1% to $62.4 million
  • Underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) up 7.4% to $30.4 million
  • EBITDA margin compressed from 53.7% to 48.8%
  • Statutory net profit after tax (NPAT) up 4.7% to $17.2 million
  • Interim fully franked dividend of 23 cents per share, raised by 4.5%

For Jumbo Interactive, the number of large jackpots during the financial period has a large bearing on the company’s performance. For the six months ending December 2022, 23 large Powerball/OzLotto jackpots occurred — matching that of the prior corresponding period.

While the company was able to recognise increased revenue from its lottery retailing segment (up 7%), EBITDA fell 3% due to the step-up in service payable to The Lottery Corporation Ltd (ASX: TLC).

Meanwhile, the other two areas of the Jumbo business — software as a service (SaaS) and managed services — delivered stronger growth. The SaaS segment recorded ~10% underlying revenue growth, while underlying EBITDA lifted 7.8%.

What else happened in the first half?

Jumbo successfully completed its acquisition of StarVale in the first half.

The company places another UK-based feather in Jumbo’s lottery management services cap for a total consideration of $40.5 million. Yet, the market reacted negatively to the announcement of its completion on 2 November 2022, pushing the Jumbo share price 1.2% lower.

What did management say?

CEO and founder Mike Veverka commended the strength of the Jumbo platform during the record $160 million Powerball draw, saying:

Our platform continues to perform exceptionally well, with 100% uptime for the $160 million Powerball and several records broken in terms of signups, checkouts, and tickets sold per second. This performance is a testament to the work we’ve done in building a best-in-class lottery platform.

In addition, Veverka spoke highly of the potential contained in the company’s recent acquisitions.

We continue to be impressed by the quality and growth potential of these businesses, and the integration process is now well underway. The strength of our balance sheet, strong cash generation profile and debt headroom provide significant flexibility to support further growth.

What’s next?

For those most enthralled with the declared dividend, the ‘what’s next?’ for you is when are the record and payment dates.

According to the release, the record date is 3 March — which means you’ll need to purchase shares a couple of days prior to allow for settlement. Following that, the 23 cents per share dividend will be paid out to eligible shareholders on 17 March.

On a longer timeline, Jumbo provided some guidance for FY23, mostly relating to costs and margins.

Management expects the cost of sales on its lottery retailing to be higher for the year due to the service fee to The Lottery Corporation. Whereas, costs excluding lottery retailing are anticipated to moderate to an increase of 16% to 18% from ~33% in FY22.

Finally, the company’s EBITDA margin — when excluding Stride and StarVale — is expected to be toward the upper bound of the original 48% to 50% guidance.

Jumbo Interactive share price snapshot

It’s been a bumpy old ride for Jumbo shareholders over the last year. Though, the overall trend has been downwards. However, anyone that pulled the trigger between September and December 2022 is still likely in the green.

The Jumbo Interactive share price is down 18.5% compared to a year ago. Based on the current share price, the company trades on a price-to-earnings (P/E) ratio of 29 times.

The post Jumbo share price slips despite revenue growing 18% appeared first on The Motley Fool Australia.

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Motley Fool contributor Mitchell Lawler has positions in Jumbo Interactive. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Jumbo Interactive. The Motley Fool Australia has recommended Jumbo Interactive. 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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Buy these ASX 200 shares following their results: Goldman Sachs

A happy male investor turns around on his chair to look at a friend while a laptop runs on his desk showing share price movements

A happy male investor turns around on his chair to look at a friend while a laptop runs on his desk showing share price movements

It certainly has been another busy week for results releases, with a number of high profile companies unveiling their latest numbers.

Two ASX 200 shares that impressed analysts at Goldman Sachs are listed below. Here’s why the broker believes they are post-results buys:

IDP Education Ltd (ASX: IEL)

Goldman Sachs believes that this language testing and student placement company is an ASX 200 share to buy.

Although IDP’s earnings were a touch short of expectations, the broker was impressed with its strong revenue growth and operating leverage. Its analysts believe there’s plenty more to come and are forecasting strong growth out to at least FY 2025.

In light of this, it has reiterated its buy rating with a $35.70 price target. The broker commented:

While the 1H23 result was modestly below our EBIT forecast (-4%) the company delivered strong revenue growth (+26%) and operating leverage (EBIT margin +476 bps). We expect double digit revenue growth and c.200bps p.a. of EBIT margin expansion to continue over the forecast period, justifying the stock’s premium rating. Our revised $35.70 TP is based on DCF and implies 25% total return to last close. We maintain our Buy rating.

Qantas Airways Limited (ASX: QAN)

Another ASX 200 share that Goldman believes is a buy is airline operator, Qantas.

Goldman was impressed with its performance during the first half and expects more of the same in the second half. And while it suspects that airfares may now have peaked, it doesn’t expect that to prevent strong earnings through to at least FY 2025.

In fact, the broker believes this will position Qantas to undertake an $800 million on-market share buy-back next year.

As a result, the broker has retained its conviction buy rating with an $8.30 price target. It commented:

Fares (and therefore unit revenues) may have peaked (we forecast a 15% yoy unit revenue decline in FY24e representing a c2.5% CAGR vs FY19). However, we believe QAN’s earnings capacity has reset. Declines in unit revenues are tied to and mitigated by higher capacity. This is complemented by roll-off of significant transitional costs ($400m in FY23), reiterated by management. This is the key driver of the 9% uplift in our FY24e PBT forecast. We note that our FY24e EBIT margin of 12.4% compares with an estimated ~13% implied by management’s profitability targets. Beyond this, we incorporate continued capital management ($800m buyback in FY24e), noting that ND would be below management’s target range that is likely to increase over time. This translates into a 13% uplift in EPS to 94c (flat yoy).

The post Buy these ASX 200 shares following their results: Goldman Sachs appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

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Scott just revealed what he believes could be the ‘five best ASX stocks’ for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now…

See The 5 Stocks
*Returns as of February 1 2023

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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 positions in and has recommended Idp Education. The Motley Fool Australia has recommended Idp Education. 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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