Day: 11 May 2023

The rise of the exchange-traded fund (ETF) is not a new trend on the ASX. ETFs, particularly index funds, have been booming in popularity for two decades now. Today, the ASX is home to dozens and dozens of ETFs.

There are your index funds, of course. The most popular of these are ASX ETFs, proving our local preference for Australian shares. But there are also index ETFs covering US shares, international markets, and emerging markets too.

Other ETFs, such as those covering specific sectors, trends, or commodities have also flourished. These days, you can invest in funds that track everything from global cybersecurity companies to oil futures, and gold or silver.

But which ETFs will continue to grow the most over the next few years?

ETF expert points to ethical and responsible investing

ETF provider BetaShares has some ideas about that. BetaShares is one of the ASX’s most prolific purveyors of exchange-traded funds.

BetaShares’ boss Alex Vynokur was asked about the future of the ETF sector in a report in The Australian this week.

Vynokur identified the ethical and responsible investing sector as the one he reckons will experience the largest growth rates over the next few years. Vynokur estimates that ethical and responsible ETFs are set to explode by $50 billion by late 2028, and even thinks they could hit $100 billion by the end of the decade.

As of 31 March, these ETFs reportedly accounted for $10.1 billion in funds under management (up from $3.5 billion in 2021).

That’s despite the best-performing ETFs in recent months and years being those that focus on sectors like resources and energy.

Here’s some of what Vynokur said:

There’s no doubt the last 12 to 18 months have been volatile for investors… The reality is that investors increasingly recognise there is no need to sacrifice their investment objectives over the long term to build a portfolio that aligns with their values…

While younger investors are perhaps considered the poster child for adoption of ethical and responsible ETFs, we’re now seeing increasing adoption from a broad range of Australian investors, including self-managed super funds.

Why are ASX investors flooding into ethical ETFs?

Vynokur identified three reasons for his optimism for ethical and responsible ETFs. He named the growing number of investors who wanted to “align their portfolio with their values while also meeting their investment objectives” for one.

Secondly, he pointed to “the cost-effectiveness” of using ETFs in order to pursue a responsible and values-aligned portfolio.

Thirdly, Vynokur argued that the “growing range of asset classes” that an ETF can provide investors access to is also driving interest in exchange-traded funds in pursuing ethical and responsible investing.

BetaShares currently offers eight ethical/responsible ETFs, including the BetaShares Global Sustainability Leaders ETF (ASX: ETHI) and the Ethical Diversified Growth ETF (ASX: DGGF).

Other ASX options in this space include the Vanguard Ethically Conscious Australian Shares ETF (ASX: VETH) and the iShares S&P/ASX Dividend Opportunities ESG Screened ETF (ASX: IHD).

So it will be interesting to plot the rise of ethical and responsible ETFs over the next few years to see if their growth conforms to Vynokur’s strong predictions.

The post Betashares forecasts this ASX ETF sector to boom x5 by 2028 appeared first on The Motley Fool Australia.

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More reading

• I’d invest $10,000 into these excellent ASX shares for the long-term
• 2 ASX ETFs I’d buy for my child and gift again in 15 years

Motley Fool contributor Sebastian Bowen 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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The Appen Ltd (ASX: APX) share price was absolutely smashed on Wednesday.

The artificial intelligence (AI) data services company’s shares sank 28% to $2.29.

Investors were hitting the sell button in a panic after management warned that its revenue and profits would be down “materially” in FY 2023.

This means the Appen share price is now down a massive 65% since this time last year.

Is the Appen share price weakness a buying opportunity?

Often when bad news hits like this, a company’s share price can end up being oversold, creating a buying opportunity for investors.

However, as far as analysts at Bell Potter are concerned, the Appen share price has not been oversold and could still fall further from here.

According to a note out this morning, the broker has reiterated its sell rating with a lowered price target of $2.05.

This implies potential downside of 10.5% from current levels over the next 12 months. Though, it may not take that long to get there based on recent selling!

What did the broker say?

Bell Potter was understandably very disappointed with Appen’s update and has been forced to take an axe to its earnings estimates. It commented:

We have downgraded our 2023, 2024 and 2025 revenue forecasts by 17%, 18% and 18%. We now forecast an underlying EBITDA loss of US$(23.2)m in 2023 – previously we forecast positive US$14.3m – and have downgraded our underlying EBITDA forecasts in 2024 and 2025 by 49% and 30%. We now forecast Appen utilises some of its A$20m debt facility in 2H2023 and assume there is some increase in the size of the facility when the company refinances later this year. This should avoid any need of a capital raising and we have not assumed any in our forecasts.

The broker also explained why it thinks its shares are still not good value despite the crash. It said:

We have updated each valuation used in the determination of our price target for the earnings changes as well as market movements and time creep. We have also rolled forward our EV/EBITDA valuation – largely because underlying EBITDA will be negative this year – and have modestly increased the multiple we apply from 11x to 12x due to the positive cost out story but only relatively modest level of profit. We have also reduced the TGR we apply in the DCF from 4.0% to 3.5%. The net result is a 9% decrease in our PT to $2.05 and we maintain our SELL recommendation.

The post Broker gives its verdict on the Appen share price crash appeared first on The Motley Fool Australia.

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More reading

• Better ASX tech share to buy now that the Nasdaq bear market is over: Altium or Appen?
• Why Appen, Bank of Queensland, Kogan, and Mayne Pharma shares are dropping
• Here are the 3 most heavily traded ASX 200 shares on Wednesday
• Are Appen shares finally cheap enough to buy following today’s nosedive?
• Appen share price crashes 22% amid ‘materially’ declining revenue

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 Appen. 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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It’s fair to say one of the most prominent reasons why more people don’t invest in ASX shares is volatility. Whether someone invests or not, they probably know the share market can indeed be a volatile place. Every time there is a share market crash, or even a big sell-off, it makes headline news. Australians are told of the ‘billions’ wiped off the markets.

Additionally, we are told of the wild success stories of investing, as well as the abject failures. Everyone has heard a story about the person who invested $1,000 into a pharmaceutical or biotech share and pulled $100 million out. Or else of the unlucky soul who lost everything on a would-be gold miner.

Stories like these lead to the misplaced reputation of the share market, in some quarters, as a kind of wild-west casino.

However, the realities of stock market investing couldn’t be further from this perception. Sure, if you want to gamble, you can certainly do so on the stock market. But most investors, at least the successful ones, don’t gamble. They use the share market to invest their money in successful businesses and make money over long periods of time.

But there is no escaping the fact that shares can be, and often are, volatile. We humans like control, especially when it comes to our money. It certainly feels nicer to have your savings in a bank – the capital protected, with the only changes being the steady stream of interest every month.

Why you should embrace volatility when investing in ASX shares

So why even bother with shares then? Well, it’s simple – shares consistently offer far higher rates of return than cash does. That’s a fact that we’ve talked about here at the Fool on countless occasions. Volatility is the price we pay for those higher returns.

Yet volatility, while scary, can be your friend, if you let it be. But why listen to me, when you can earn from legendary investor Warren Buffett?

Back in 1993, Buffett told his fellow shareholders of Berkshire Hathaway the following:

The true investor welcomes volatility. A wildly fluctuating market means that irrationally low prices will periodically be attached to solid businesses. It is impossible to see how the availability of such prices can be thought of as increasing the hazards for an investor who is totally free to either ignore the market or exploit its folly.

Thus, volatility gives all investors the chance to buy their favourite companies for a price that is irrationally lucrative.

I’ll give a personal example. I invest in Apple Inc (NASDAQ: AAPL). The company is part of my portoflio because I believe Apple is one of the best companies in the world, with a phenomenal brand, attractive products, and top-notch management. I fully expect Apple to be around in ten years’ time, as an even larger and more successful company than it is today.

Because of this conviction, I would be delighted if my Apple shares fell by 50% tomorrow. It would give me a rare chance to buy up far more shares than I currently own which, if my thesis proves correct, would boost my wealth considerably in coming years.

It can certainly be terrifying to see the values of our investments decline on paper. But once an investor realises that volatility is an inherent and unavoidable part of investing, they can learn to use it to their advantage.

Remember, shares go up far more often than they go down. That’s why the markets hit new all-time highs every few years.

The post How to make volatility your friend when investing in ASX shares appeared first on The Motley Fool Australia.

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More reading

• Why did Warren Buffett sell this global tech giant after only a few months?
• Invest like Warren Buffett with this ASX share to grow your wealth enormously
• On my ASX watchlist: Is ResMed borrowing Apple’s multi-billion-dollar playbook?
• Worried about a recession? Here’s why these investors are backing Warren Buffett
• 3 things ASX investors should watch this week

Motley Fool contributor Sebastian Bowen has positions in Berkshire Hathaway. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. 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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Telstra Group Ltd (ASX: TLS) shares closed down 0.46% in yesterday’s trading.

Shares in the S&P/ASX 200 Index (ASX: XJO) telco stock kicked off Wednesday trading for $4.33 each and ended the day trading for $4.31 apiece.

For some context, the ASX 200 finished the day down 0.12%.

This came hot on the heels of the 2023 federal budget, released after market close on Tuesday.

While Telstra shares didn’t gain on the first day of trading following the release of the federal budget, the company could be set for some tailwinds from the outlined policies.

Why the 2023 federal budget could spur investor interest

It’s not so much the many billions of dollars in cost of living assistance the federal budget contains that could boost Telstra shares. It’s the budget’s outline for population growth.

That’s according to top broker UBS (courtesy of The Australian), who said the high migration levels could be a boon for the ASX telco.

The federal budget forecasts a net migration increase of 1.5 million people over the next five years. Or an average of 300,000 more migrants entering Australia every year than those leaving.

That represents a whole lot of new potential customers.

Now Telstra won’t bag all of those new arrivals. Some will be young children. A very few may be Luddites. And a fair number will end up with rival telcos.

But Telstra shares could certainly benefit as the company is the largest mobile phone service provider down under. It also holds a majority (more than 40%) of the wholesale market share for NBN services.

It’s difficult to estimate just how many of the 1.5 million expected new arrivals to Australia will sign up with Telstra. But it’s even more difficult to imagine the ASX 200 telco won’t see a lot more customers knocking at the door over the coming years.

How have Telstra shares been performing?

Telstra shares have outperformed the benchmark so far in 2023.

Year to date, the Telstra share price is up 9.1% compared to a 4.4% gain posted by the benchmark index.

The post Top broker says Telstra shares could benefit from 2023 federal budget appeared first on The Motley Fool Australia.

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More reading

• How my ASX share portfolio is ready for a stock market crash
• 5 reasons to love Telstra shares right now
• Morgans names the best ASX 200 blue chip shares to buy in May
• Should I buy this week’s slump on Telstra shares?
• My 5-step plan to achieving $500 in monthly passive income

Motley Fool contributor Bernd Struben 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 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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Lake Resources N.L. (ASX: LKE) shares have been on a steep downward trajectory over the last 12 months.

As you can see below, the lithium developer’s shares have lost a whopping 65% of their value.

Concerns over the viability of its lithium DLE technology, funding, a scathing short seller attack, and falling lithium prices have been to blame.

One thing that certainly could change this trajectory is profit. When a company goes from developing to actually generating cash, perceptions can change quickly and a share price can take off.

But when might Lake Resources become profitable? Let’s take a look.

Profit forecast

Firstly, let’s take a quick look at where the company is in respect to its quest to start selling lithium.

Lake Resources’ most recent announcement revealed a big step forward towards this goal.

That announcement was the production of 2,500kg of lithium carbonate equivalents (LCE) from the pilot plant of the Kachi Project in Argentina.

This milestone means the project is on track to move from its pilot phase into commercial-scale development, which will make it the first lithium brine project in South America to produce lithium at commercial scale without the use of evaporation ponds for lithium concentration.

With that in mind, according to a note out of Bell Potter, its analysts are forecasting Lake Resources to make another small loss in FY 2023 of $13 million.

But then things will start to heat up, which could be good news for Lake Resources shares. Bell Potter is expecting the company to be almost profitable in FY 2024, with a loss of just $2.1 million forecast.

Then in FY 2025, the broker is forecasting a swing to a $30 million profit. This is expected to result in earnings per share of 1.8 cents.

Based on this estimate, Lake Resources shares trade at 28x FY 2025 earnings.

Should you buy Lake Resources shares?

While they are certainly high up on the risk scale, Bell Potter sees huge potential returns from Lake Resources shares with its speculative buy rating and $2.52 price target.

This implies potential upside of almost 400% over the next 12 months. Time will tell if it ever gets there, though.

The post Own Lake Resources shares? Here’s when the lithium miner is forecast to become profitable appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today  
• ASX lithium shares are off and racing today. What’s behind the boost?
• Here are the 10 most shorted ASX shares
• Why did ASX lithium shares dominate the market on Friday?
• Here are the top 10 ASX 200 shares 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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A key measure of a company’s performance is its net profit margin or its ‘bottom line’.

It’s called the bottom line because it’s the final number on a company’s income statement.

The net profit is the total of all the company’s income from sales, investments, and so forth, minus the costs of goods sold and other expenses. That figure is then expressed as a percentage of revenue.

This is important to investors because ASX 200 shares with healthy, growing levels of profitability are more likely to record consistent share price growth and pay strong dividends to shareholders.

According to Westpac’s stock screener, the top two ASX 200 shares for profit margin are Atlas Arteria Group (ASX: ALX) with a profit margin of 228.7% and Macquarie Group Ltd (ASX: MQG) with a profit margin of 70.8%.

Let’s look at the financial performance of these ASX 200 shares and what’s happening with their prices.

Atlas Arteria

Atlas Arteria is a global toll road operator that owns five toll roads in France, Germany, and the United States. It is one of the few ASX 200 shares in the infrastructure space.

The company reported a net profit of $267 million and toll revenue of $116.7 million for full-year FY22. This gave it a profit margin of 228%.

For the record, a company’s profit can be higher than its revenue when it has earnings coming from places other than its primary source of revenue (i.e., the goods or services it sells). These might include interest on cash balances and returns on investments.

Last week, Atlas Arteria CEO Graeme Bevans delivered a presentation at the 2023 Macquarie Australia Conference that revealed rising volumes of traffic as economies around the world recover from COVID.

The Atlas Arteria share price is up 4.3% over the past year and up 1.9% in the year to date.

Macquarie

Macquarie is a diversified international financial services company.

Last week, Macquarie reported a net profit of $5,182 million and revenue of $7,418 million for full-year FY23. This gave it a profit margin of 70.8%.

Macquarie is often referred to as the fifth bank of the big four ASX 200 bank shares. It is known for paying solid dividends, and this year is no different.

Macquarie will pay a final dividend for FY23 of $4.50 per share (40% franked) on 4 July. Its total FY23 ordinary dividend is $7.50 per share (40% franked).

The Macquarie share price is down 1.3% over the past year but up 7.9% in the year to date.

Foolish takeaway

It’s important to note that profit margins vary across industries. A profit margin of 50% to 70% is considered healthy for many ASX 200 shares. But that would be low for technology shares.

ASX 200 shares in the services sector can achieve gross margins in the 90%+ range due to low costs. 

It’s also crucial to look at the history of a company’s profit margin to ensure you’re only buying ASX 200 shares that are healthy, growing businesses, not the one-hit wonders of a particular year.

In your research, you may encounter companies with temporarily high-profit margins caused by external and usually short-term factors. These include things like high commodity prices and the boom in online retail and home food delivery services during the years of COVID-19 lockdowns.

The ideal ASX 200 share for investment is one with a solid history of a consistently rising profit margin.

The post The 2 ASX 200 shares with the highest profit margins right now appeared first on The Motley Fool Australia.

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More reading

• 2 top ASX 200 dividend shares to buy this week: brokers
• Here are the top 10 ASX 200 shares today
• ‘A quality franchise’: Why this broker sees major upside ahead for Macquarie shares
• Why Macquarie, Meteoric Resources, Pointsbet, and Syrah shares are falling
• Is the Macquarie share price good value following the bank’s results?

Motley Fool contributor Bronwyn Allen has positions in Macquarie 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 positions in and has recommended Macquarie 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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Now that interest rate rises may be nearing their end, could there be some relief for much-battered ASX technology shares?

Two examples that have suffered during the growth sell-off over the last 18 months are Appen Ltd (ASX: APX) and Altium Limited (ASX: ALU).

The Appen share price has lost more than 78% since its November 2021 peak, and Altium has dropped 18.5% from the end of 2021.

So if you were a bargain hunter, which one’s the better buy?

Appen struck badly by the spicy flu 

As an artificial intelligence data provider, one would imagine Appen would be riding high on the current hype for that theme.

Unfortunately, the COVID-19 pandemic was the worst thing that could have hit the Sydney company.

The big tech companies that were Appen’s major customers all cut back on spending and the business has not recovered since. Revenue has stalled and a profitable business has switched to a loss-making one.

The total plunge in the Appen share price since its August all-time daily high amounts to 93.5%.

An update to the market on Wednesday did not flatter either.

“​​Appen continues to face headwinds from the broader technology market slowdown. As a result, we expect revenue to decline materially in FY23 compared to FY22.”

However, it did announce a cost cutting and “revenue diversification” drive to improve the business.

Altium turning it around after a hiccup

Believe it or not, Altium has been around since the 1980s making software for designing printed circuit boards.

While the share price has been skittish, it didn’t suffer as much as Appen when the pandemic hit.

Its pains came more from its transition from selling one-off licences to customers to a subscription model.

So while revenue went backwards for the 2021 financial year, growth has returned since.

The Altium share price is up more than 7% year to date, and 23.5% over the past 12 months.

The great positive for its outlook is that circuit boards don’t look like fading into obsolescence any time soon.

Betashares manager Libby Hopper last month declared Altium as one of Australia’s “under the radar success” stories.

“Altium stands to benefit from increased advancements in and adoption of key technologies such as robotics, artificial intelligence as well as electric and autonomous vehicles,” she said.

“Altium has subsequently reaffirmed its guidance for the 2023 financial year, with total revenue anticipated to rise between 15% to 20% to approximately US$255 to 265 million.”

The verdict

While there are reasons to be optimistic about each of these tech shares from this point on, my current pick to buy is Altium.

It seems to be the safer pick for future growth with all its fundamentals heading in the right direction.

Appen, unfortunately, will require much to go right both within and outside the company for investors to flock back to the stock.

The post Better ASX tech share to buy now that the Nasdaq bear market is over: Altium or Appen? appeared first on The Motley Fool Australia.

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More reading

• Why Appen, Bank of Queensland, Kogan, and Mayne Pharma shares are dropping
• Here are the 3 most heavily traded ASX 200 shares on Wednesday
• Are Appen shares finally cheap enough to buy following today’s nosedive?
• Appen share price crashes 22% amid ‘materially’ declining revenue
• 2 exciting ASX growth shares I’d buy and hold to 2030

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 Altium and Appen. 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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On Wednesday, the S&P/ASX 200 Index (ASX: XJO) had another subdued session and edged into the red. The benchmark dropped 0.1% to 7,255.7 points.

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

ASX 200 expected to fall

The Australian share market is expected to have a subdued session on Thursday despite the reasonably strong night on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open the day 13 points or 0.2% lower this morning. In the United States, the Dow Jones was down 0.1%, but the S&P 500 rose 0.45% and the NASDAQ jumped 1%. A lower than expected US inflation reading boosted stocks.

Allkem to merge with Livent

The Allkem Ltd (ASX: AKE) share price will be on watch today after the miner announced plans to merge with lithium giant Livent. Allkem, which was formed through the merger of Galaxy Resources and Orocobre, will combine with Livent in an all-stock merger of equals creating a US$10.6 billion (A$15.7 billion) lithium monster. The release suggests that the agreement values Allkem shares at $13.54 per share. However, recent share price movements could mean a much higher valuation.

Oil prices fall

ASX 200 energy shares Beach Energy Ltd (ASX: BPT) and Santos Ltd (ASX: STO) could have a tough session after oil prices fell on Wednesday night. According to Bloomberg, the WTI crude oil price is down 1.2% to US$72.83 a barrel and the Brent crude oil price is down  1% to US$76.67 a barrel. A surprise increase in U.S. inventories weighed on prices.

Westpac shares go ex-dividend

The Westpac Banking Corp (ASX: WBC) share price is likely to trade lower on Thursday. That’s because the banking giant’s shares are going ex-dividend this morning for its fully franked interim dividend of 70 cents per share. Eligible shareholders can look forward to receiving this dividend towards the end of next month on 27 June.

Gold price edges lower

ASX 200 gold shares Evolution Mining Ltd (ASX: EVN) and Regis Resources Limited (ASX: RRL) could have a soft session after the gold price edged lower overnight. According to CNBC, the spot gold price is down 0.3% to US$2,036.4 an ounce. Gold fell despite the release of US inflation data boosting Fed rate-hike pause bets.

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

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More reading

• Allkem share price on watch amid $15.7b mega lithium merger with Livent
• Here are the top 10 ASX 200 shares today
• Why Appen, Bank of Queensland, Kogan, and Mayne Pharma shares are dropping
• Here are the 3 most heavily traded ASX 200 shares on Wednesday
• Liontown share price cracks yet another all-time high on Wednesday

Motley Fool contributor James Mickleboro has positions in Allkem and Westpac Banking Corporation. 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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Brokers have been busy in recent weeks adjusting their forecasts and recommendations to reflect recent market updates.

Two ASX 200 dividend shares that have fared well are listed below. Here’s why brokers think income investors should be buying these shares:

ANZ Group Holdings Ltd (ASX: ANZ)

The first ASX 200 dividend share that has just been tipped as a buy is banking giant, ANZ.

The team at Citi has been running the rule over its half-year results and has reaffirmed its view that ANZ is the broker’s top pick in the sector.

Citi has a buy rating and $26.50 price target on its shares.

The broker commented that it sees “ANZ’s unique capabilities as set to deliver relative outperformance in the current market conditions. ANZ is our preferred Major Bank exposure.”

As for dividends, Citi is forecasting fully franked dividends of 164 cents per share in FY 2023 and then 166 cents per share in FY 2024. Based on the current ANZ share price of $24.11, this will mean yields of 6.8% and 6.9%, respectively.

Rio Tinto Ltd (ASX: RIO)

Another ASX 200 dividend share that has been given the thumbs up following a recent update is mining giant Rio Tinto.

Goldman Sachs remains very bullish on the miner and has kept it on its conviction list with a buy rating and $136.20 price target. The broker highlights Rio Tinto’s “compelling relative valuation vs. peers” and “strong FCF.”

Its analysts expect the latter to support some very big dividend yields in the coming years.

Goldman is expecting fully franked dividends per share of US$5.36 (A$8.07) in FY 2023 and then US$4.68 (A$7.05) in FY 2024. Based on the current Rio Tinto share price of $110.92, this will mean yields of 7.3% and 6.35%, respectively.

The post 2 ASX 200 dividend shares to buy following recent updates: brokers appeared first on The Motley Fool Australia.

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More reading

• Rio Tinto and this ASX 200 share are strong buys: analysts
• 5 reasons Rio Tinto shares could surge 21%
• Leading brokers name 3 ASX shares to buy today
• If you invest $10,000 in ANZ shares here’s how much passive income you’ll earn
• Brokers say these ASX 200 mining shares are top buys

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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The Allkem Ltd (ASX: AKE) share price will be one to watch closely on Thursday.

That’s because the lithium miner released a major announcement after the market close yesterday.

Why is the Allkem share price on watch?

It might be a case of déjà vu for longer term shareholders after Allkem announced an agreement to merge with lithium giant Livent Corp (NYSE: LTHM).

According to the release, Allkem, which was formed via the merger of Galaxy Resources and Orocobre, plans to combine with Livent in an all-stock merger of equals to create a US$10.6 billion (A$15.7 billion) leading global lithium chemicals producer.

Management expects the transaction to close by the end of calendar year 2023, subject to approvals. After which, upon closing, Allkem shareholders will own approximately 56% of “NewCo” and Livent shareholders will own the balance.

NewCo will have a primary listing on the NYSE and maintain a foreign exempt listing on the ASX.

Why merge?

The release highlights that the merger will combine a highly complementary range of assets, growth projects, and operating skills across extraction and processing under a vertically integrated business model with the scale and expertise to meet the rapidly growing demand for lithium chemical products.

It also highlights that the proximity of certain assets in Argentina and Canada means that significant cost synergies and capex savings, in addition to other anticipated commercial synergies, are expected to be realised from the opportunity to co-develop and de-risk future expansion projects and operations.

NewCo’s run-rate operating cost synergies are estimated to be approximately US$125 million (pre-tax) per annum from SG&A, asset optimisation, and logistics and procurement savings. In addition to operating synergies, NewCo is expected to realise approximately US$200 million in one-time capital expenditure savings.

‘Transformational’

Allkem’s CEO, Martín Pérez de Solay, commented:

The combination of Allkem and Livent is transformational with compelling strategic logic and marks a significant milestone in our efforts to grow the company. We are bringing together two highly complementary businesses to create a leading global lithium chemicals company, building on Allkem’s demonstrated track record of integration.

The vertically integrated NewCo will improve delivery of high-quality, value-added products to our diverse customer base and unlock material synergies. The combination brings together teams with strong expertise in project development, product innovation, and marketing, and sets us up for a faster and de-risked delivery of the next phase of our growth. I believe Allkem shareholders will realize significant benefits from the Transaction as the business transforms into a truly global player with listings in the US and Australia.

What does the transaction mean for Allkem shares?

The release highlights that the transaction implies a premium of approximately 14% to Allkem shareholders measured using volume weighted average share prices over the one-month period from April 10 to May 9, 2023.

This premium is calculated assuming Allkem shareholders contribute their shares to the merged entity at an implied price of A$13.54 per share, calculated using the Livent one month volume average weighted price over the same period of US$21.81 (A$32.17), the agreed exchange ratio of 2.406 NewCo shares per Livent share, and the daily USD:AUD foreign exchange rates over the period.

However, it is worth highlighting that both the Allkem share price and the Livent share price have risen meaningfully from these averages.

At the time of writing, the Livent share price is fetching US$25.05 (A$36.95), which based on that exchange ratio, implies a value of approximately A$15.36 for Allkem shareholders. Based on the current Allkem share price of $12.91, this represents an 18% premium.

The post Allkem share price on watch amid $15.7b mega lithium merger with Livent appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• What’s with ASX 200 lithium stocks today?
• Add these ASX growth stocks to your portfolio today: analysts
• Why did ASX lithium shares dominate the market on Friday?
• Here are the top 10 ASX 200 shares today

Motley Fool contributor James Mickleboro has positions in Allkem. 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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