Day: 15 March 2023

One area of the market that has come under significant pressure recently is the coal industry.

After delivering sensational gains in 2022, ASX 200 coal shares are firmly in the red year to date.

One leading broker that believes this has created a buying opportunity is Morgans.

Buy ASX 200 coal shares

According to a note, the broker believes some of this weakness has been driven by dividend disappointment in February.

However, its analysts believe that coal miners were holding back in order to preserve capital for potential mergers and acquisitions (M&A) activities. And if no M&A eventuates or capital is leftover, Morgans suspects that these funds will find their way back to shareholders instead. It explained:

February dividends disappointed as feared/flagged as producers mainly appear to be withholding dry powder for M&A optionality. […] Windfall sector dividends have been delayed, not consumed, for most producers in our view. The most disciplined boards should duly reward shareholders with the spill-over of excess capital and/or disciplined growth.

In light of this, the broker sees plenty of value in ASX 200 coal shares at current levels. Here’s a summary of its ratings:

Coronado Global Resources Inc (ASX: CRN)

Morgans has an add rating and $2.50 price target on Coronado Global’s shares, which suggests 43% upside over the next 12 months. It is also forecasting a 12% dividend yield for investors.

New Hope Corporation Limited (ASX: NHC)

The broker currently has an add rating and $6.65 price target on New Hope’s shares. This implies potential upside of 27%. Morgans also expects a massive 20% dividend yield from the miner.

Whitehaven Coal Ltd (ASX: WHC)

Finally, Morgans has an add rating and $10.35 price target on this ASX 200 coal share. This suggests potential upside of 53% for investors. Its analysts expect this to be complemented with a 10% dividend yield.

The post 3 ASX 200 coal shares to buy for big gains and huge yields: Morgans appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Tuesday
• 3 ASX 200 shares trading ex-dividend on Tuesday
• The whopper Whitehaven dividend is being paid today. Here’s what you need to know
• Is the party well and truly over for ASX 200 coal shares?
• Why Fortescue, Lynas, Myer, and New Hope shares are dropping 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 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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If you’re looking for dividend shares to buy this week, then the two blue chips listed below could be worth checking out.

Here’s what you need to know about these dividend shares:

Coles Group Ltd (ASX: COL)

The first ASX dividend share that brokers think is a buy is supermarket giant Coles.

Morgans is very positive on the company and has an add rating and $19.60 price target on its shares. Its analysts were happy with Coles’ half-year results and the stronger than expected performance from its supermarkets segment.

In light of this and its defensive qualities, the broker believe it is a share buy now. It said:

Trading on 22.5x FY24F PE and 3.6% yield, we continue to see COL as offering good value with the company’s healthy balance sheet and defensive characteristics putting it in a good position to navigate through a weaker economic environment. In our view, the unwinding of local shopping trends should continue to be a tailwind and further trading down from consumers will also be positive given COL’s strong Own Brand offering.

As for dividends, the broker is forecasting fully franked dividends per share of 66 cents in both FY 2023 and FY 2024. Based on the current Coles share price of $17.35, this represents yields of 3.8% for both years.

South32 Ltd (ASX: S32)

Another ASX dividend share that has been named as a buy is South32.

It is one of Australia’s largest miners with exposure to a range of commodities including aluminium, copper, manganese, and nickel.

Citi is positive on South32 and has a buy rating and $5.05 price target on the mining giant’s shares. It was pleased with its half-year results and sees plenty of value in its shares at the current level. Citi explained:

1H FY23 profit of US$560m was better than expected. Importantly, FY23 prodn and cost guidance was maintained. FY24 prodn guidance points to modestly higher output in FY24. Dividend was modestly lower than expected at a 40% payout ratio. Buyback was extended with US$158m remaining and net debt of $298m. […] We raise our TP to $5.05 and stay Buy rated. We believe S32 has not yet run to full valuation levels trading on FY24E EV/EBITDA of 4x vs peers at >5x.

As for dividends, Citi is forecasting fully franked dividends per share of 28 cents in FY 2023 and 33 cents in FY 2024. Based on the current South32 share price of $4.16, this will mean yields of 6.7% and 7.9%, respectively.

The post 2 blue chip ASX 200 dividend shares to buy: brokers appeared first on The Motley Fool Australia.

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More reading

• These are the best ASX 200 mining shares to buy in March: Morgans
• Analysts name 2 ASX dividend shares to buy with 4%+ yields
• Coles stock can deliver golden combo of share price growth plus dividends: Citi
• Here are the 3 most heavily traded ASX 200 shares on Thursday
• How can I hope to retire rich when the share market is falling?

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 positions in and has recommended Coles Group. 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 the best in the industry so that you can get an insight into how the professionals think. In this edition, Discovery Fund portfolio manager Chris Bainbridge and Mark Devcich tell us how the planets are aligning for two ASX shares.

Hottest ASX shares

The Motley Fool: What are the two best stock buys right now?

Chris Bainbridge: You mentioned that markets have been difficult overall. That was our experience of reporting season, but we like to think there’s always a bull market somewhere and you just have to find it.

One of those is the offshore service vessel market, as a case in point. So, one stock which we believe is a great buy right now is MMA Offshore Ltd (ASX: MRM). MMA provides offshore service vessels to oil, gas, and wind producers.

There’s been an increase in the number of offshore oil and gas projects, combined with a shortage of the offshore service vessels, [that] has driven up utilisation and day rates for the offshore service vessel operators. MMA had a really strong first half. EBITDA of $32.1 million and management team is very conservative, but NTA [net tangible assets] was upgraded to $1.15 and we still believe that’s conservative. 

Looking ahead, you’re in an environment with a cyclical stock, where if demand is high and supply is constrained, day rates probably need to go up another 50% to justify anyone building a new vessel. And when they build a new vessel, there’s a three-year wait time on that vessel. 

So it’s a really great environment at the moment to be [an] offshore service vessel provider and that’s where MMA is.

Final point, MMA traded up to around two times the NTA. Management has said that they’re targeting 15% return on capital. If that was achieved, based on the potential replacement value of these vessels, they should be achieving $100 million dollars a year just on the vessels alone, and they also provide subsea and project logistic services on top of that. So plenty of upside [to] earnings coming out there.

MF: It’s so funny how it’s all turned, isn’t it? Thirteen or 14 months ago, this type of business would have been so out of fashion, but I see that the MMA share price has doubled in the past year.

CB: Yeah, well, they [were] at 30 cents, which feels not too long ago, and at $1.20 today. 

But they’re in a great position where they have a lot of tax losses, they don’t really pay too much tax, there’s only modest capex requirements, so they’re already generating plenty of cash… and potentially in a place and an environment that demands quality, that is a fantastic way to grow that.

MF: Excellent. What’s your other best buy that you see at the moment?

Mark Devcich: Yeah, the other one is Duratec Ltd (ASX: DUR), which [is] a maintenance and remediation contractor. 

They reported a strong first-half result of $16.2 million EBITDA. However, the first half could have actually been a lot better — there was margin contraction due to some delays with projects, particularly in the northwest. They’ve also taken a conservative view on project margins as well with their new acquisition of Wilson’s Pipe Fabrication. They did that acquisition last year and only got a partial contribution from it in the first half.

However, when you look to the second half, the guidance is $32 to $35 million. If you just double the first half, you’re at the bottom end of the range. That will grow organically into the second half and then also if you include the contribution from Wilson’s, which is expected to be just under $4 million for the full year on a 12-month basis, that should add a couple of million dollars to the second-half result.

So you’re already getting a result that’s towards the top end of the guidance range for FY2023, and if they achieve anything like the organic growth rates they did in the first half, we feel there’s potential to exceed that again. 

It’s a founder-led business. Our flagship fund is the Founders’ Fund where we like investing alongside founders. And because it’s heavily skewed to the maintenance and remediation work, far more predictable. They’ve got lots of formal contracts with smaller tickets of work, so that they’re less likely to run into contract issues.

It’s been a strong investment for us that we listed, basically, since the inception of the fund back in late September.

MF: I see that’s another stock that’s more than doubled in the past year — but you guys feel like there’s more to come.

MD: Yeah, the valuation model is still very low and there’s just so much work out there for these guys that they’re being constrained, really, around labour. So they could take on more work if they had the labour availability. 

The other thing that I didn’t mention was that they do get good insights into projects by doing ECI work, which is the industry acronym for early contract involvement. They get on these sites, do the engineering work, scope out the project design, and then they’re in a good position to win the actual contracting work on the back of that. That gives them potentially up to a 25 times uplift from their initial engineering work to actually executing on the contracting work. So they’re in a good position to see more revenue from getting involved with the project very early on at an engineering and design level.

The post These 2 ASX shares just doubled. But there’s more to come: experts appeared first on The Motley Fool Australia.

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More reading

• Why Block, Liontown, MMA, and Norwest Energy shares are charging higher today

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 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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One lesson out of last month’s reporting season was that cost pressures are persisting for ASX-listed companies.

That’s the analysis from Wilsons equity strategist Rob Crookston, who argued that the biggest pressure for businesses at the moment is labour costs.

“For instance, Cleanaway Waste Management Ltd (ASX: CWY) reported a heightened number of job vacancies caused employee costs to rise +16% due to the need to pay more overtime and use more expensive labour hire contractors,” he said in a Wilsons memo to clients.

While in the longer term, inflation will settle down, according to Crookston, its effects can’t be ignored when deciding which ASX shares to buy at the moment.

“The near-term threat to profitability is… meaningful and we see further downside to margins from here, particularly in more cyclical sectors with less pricing power — e.g. retail, discretionary goods.”

So which are the best ASX shares to buy under such conditions?

Nothing beats setting your own prices

According to Crookston, “the best defence against cost inflation is pricing power”.

“High quality companies with resilient customer demand through the cycle and dominant market positions operating in attractive industry structures are best placed to protect their margins by raising prices.”

He named five such S&P/ASX 200 Index (ASX: XJO) stocks that the Wilsons team holds in its focus portfolio:

• CSL Limited (ASX: CSL)
• Resmed CDI (ASX: RMD)
• Telstra Group Ltd (ASX: TLS)
• Insurance Australia Group Ltd (ASX: IAG)
• Lottery Corporation Ltd (ASX: TLC)

CSL can set its own prices as the “dominant and lowest-cost player” in the international blood plasma industry, said Crookston.

“The market for immunoglobulin (IG) products is supply constrained, while underlying demand is highly defensive given IG is used to treat patients with a range of serious immunologic and neurologic diseases.”

Another medical player, ResMed, already has about 70% of the sleep apnea device market. According to Crookston, it’s on its way to supplying the entire market because its nearest rival, Koninklijke Philips NV (AMS: PHIA), is still hamstrung from a 2021 product recall.

Telstra, whose dominance goes without saying for most Australians, is “committed to raising prices annually (and cutting costs) to offset inflation”.

“Mobile net ads were strong in 1H23 in spite of higher prices, and the competitive setting is increasingly rational.”

In the recession-resilient insurance industry, IAG can name its own prices.

“Number 1 general insurer in Australia, which has been [raising] premium rates strongly to offset rising perils costs (albeit there is a timing lag to margins),” said Crookston.

“Even with higher premiums, customer retention rates remain high.”

He noted that The Lottery Corporation operates in a monopoly in every state except for Western Australia.

“Lottery sales have historically been [highly] resilient in economic downturns, and TLC has a proven ability to incrementally raise ticket prices over time.”

The post 5 ASX 200 shares that inflation can’t touch: expert appeared first on The Motley Fool Australia.

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More reading

• Here’s why experts rate these ASX 200 growth shares as buys
• Here’s how much I’d need to invest in Telstra shares to generate a $200 monthly income
• Warren Buffett is invested in IAG shares, should you be?
• Big lesson from reporting season: STAY AWAY from these ASX shares, says expert
• Here’s how I would secure monthly dividends in the 2024 financial year with these ASX stocks

Motley Fool contributor Tony Yoo has positions in CSL and ResMed. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL and ResMed. The Motley Fool Australia has positions in and has recommended ResMed and Telstra Group. 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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On Tuesday, the S&P/ASX 200 Index (ASX: XJO) had one of its worst days of the year. The benchmark index sank 1.4% to 7,008.9 points.

Will the market be able to bounce back from this on Wednesday? Here are five things to watch:

ASX 200 expected to rebound

The Australian share market looks set to rebound on Wednesday following a solid night on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open the day 28 points or 0.4% higher this morning. In late trade on Wall Street, the Dow Jones is up 0.5%, the S&P 500 is up 1.15% and the Nasdaq is 1.5% higher.

Oil prices crash

Energy producers Beach Energy Ltd (ASX: BPT) and Woodside Energy Group Ltd (ASX: WDS) could have a difficult session after oil prices crashed overnight. According to Bloomberg, the WTI crude oil price is down 4.7% to US$71.29 a barrel and the Brent crude oil price has dropped 4.2% to US$77.39 a barrel. Traders were selling oil after an in-line US inflation reading reignited fears over rate hikes and a potential financial crisis.

Qantas shares are a buy

The team at Goldman Sachs has reiterated its bullish view on Qantas Airways Limited (ASX: QAN) shares. The broker said: “We believe that the -7% share price reaction on results day (and the current share price) does not reflect the group’s improved earnings capacity.” It has a conviction buy rating and $8.30 price target on the airline operator’s shares.

Gold price softens

Gold miners Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) could have a subdued session after the gold price ran out of steam and edged lower overnight. According to CNBC, the spot gold price is down 0.35% to US$1,909.8 an ounce. Rising bond yields halted gold’s recent surge.

ASX 200 shares going ex-div

A number of ASX 200 shares are going ex-dividend on Wednesday and could trade lower. This includes appliance manufacturer Breville Group Ltd (ASX: BRG), auto retailer Eagers Automotive Ltd (ASX: APE), poultry producer Inghams Group Ltd (ASX: ING), and telco TPG Telecom Ltd (ASX: TPG). In respect to Eagers Automotive, last month it declared a record fully franked final dividend of 49 cents per share. This will now be paid at the end of the month on 31 March.

The post 5 things to watch on the ASX 200 on Wednesday appeared first on The Motley Fool Australia.

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More reading

• Here are the 3 most heavily traded ASX 200 shares on Tuesday
• Qantas shares have dumped 7% in 3 days. Should I buy?
• Why has the Newcrest share price leapt 7% in under a week?
• Down 12% in a week, has the Woodside share price got further to fall?
• ASX 200 dives 2%, wiping out last of 2023 gains

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 Tpg Telecom. 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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