Day: 15 May 2023

The Elders Ltd (ASX: ELD) share price is deep in the red after the company dropped seemingly disappointing earnings for the first half of financial year 2023.

Right now, stock in the S&P/ASX 200 Index (ASX: XJO) agribusiness company is trading for $7.675, 7.53% lower than its previous close.

Elders share price tumbles 7% amid industry challenges

Here are the key takeaways from the company’s first-half results:

• Revenue jumped 9% on the prior comparable period (pcp) to $1.66 billion
• Profit after tax tumbled 47% to $48.8 million
• Underlying earnings before interest and tax (EBIT) slumped 38% to $82.8 million
• Underlying earnings per share (EPS) dropped 45% to 32.3 cents
• Operating cash flow dropped 57% to an $86.9 million loss
• 23 cents per share, 30% franked, interim dividend declared – an 18% drop on that of the pcp

Last half was volatile for the agriculture industry, with Elders among those bearing the brunt. The six months ended 31 March saw softer livestock trading conditions, weaker crop input prices, and wet weather.

Comparatively, the prior period was a ripper one for the industry, helped by livestock prices, real estate, and positive supply chain impacts.

What else happened last half?

Turning to the company’s business segments, its wholesales products leg saw a $10.2 million jump in sales, thanks to its expanding footprint and backwards-integration but offset by falling crop input prices.

Softening crop input prices and sales mix composition also weighed on margins in its retail products segment. That was despite increased sales across fertiliser, animal health, and crop protection products.

Its agency services leg saw earnings fall 22.1% amid lower prices for cattle and sheep while higher property management earnings at its real estate services segment were offset by lower broadacre turnover.

Finally, revenue continued to grow in its financial services business, helped by demand for insurance products and rising premiums.

What did management say?

Elders CEO and managing director Mark Allison commented on the results weighing on the company’s share price, saying:

Financial year 2022 was unusual with EBIT greater in the first half than the second, primarily because clients brought forward their winter crop procurement due to supply concerns and rising input prices.

The freeing up of supply chains, lower freight costs and more sustainable fertiliser prices are a great benefit to the agricultural industry but make comparison between [the first half of financial year 2023] and [the first half of financial year 2022] challenging.

Consequently, Elders has taken the decision to provide full year guidance to reinforce our expectation that second half earnings are likely to exceed the first half, a more typical earnings profile for Elders.

What’s next?

As Allison noted, the company expects the current half to be a better one for its bottom line.

It’s forecasting its full-year EBIT to come in between $180 million and $200 million. That would mark an 18.1% fall on that of financial year 2022 and a 13.8% jump on that of financial year 2021.

The company is also searching for Allison’s successor and expects to release a further announcement next month.

Elders share price snapshot

The Elders share price has been suffering as of late.

Today’s fall included, the stock has tumbled 24% since the start of 2023. It’s also 45% lower than it was this time last year.

For comparison, the ASX 200 has gained 4% so far this year and 2% over the last 12 months.

The post Elders share price plummets as half-year profit dumps 46% appeared first on The Motley Fool Australia.

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More reading

• Goldman Sachs says buy these ASX 200 shares for passive income
• 5 things to watch on the ASX 200 on Tuesday
• Here are 2 ASX 200 dividend shares to buy with 6%+ yield: analysts

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 recommended Elders. 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 not keen on stock picking, but want to invest, then exchange traded funds (ETFs) could be the answer.

That’s because ETFs allow investors to buy large groups of shares through a single investment.

But which ASX ETFs could be worth considering this week? Three high-quality ETFs to look at are listed below, here’s what you need to know about them:

BetaShares NASDAQ 100 ETF (ASX: NDQ)

Alphabet, Amazon, Apple, Microsoft, and Tesla, to name just five, are among the ultra high-quality companies that you will be owning a slice of when buying this ASX ETF. That’s because the BetaShares NASDAQ 100 ETF gives investors access to the 100 largest non-financial shares on the famous NASDAQ index in one fell swoop. Given how positive their long-term outlooks are as a whole, this ETF could be a smart choice for buy and hold investors. 

iShares Global Consumer Staples ETF (ASX: IXI)

Another high-quality ASX ETF for investors to consider buying is the iShares Global Consumer Staples ETF. It could be a top option if you’re concerned that a recession is looming. That’s because the companies included in this ETF are likely to remain well-placed to navigate any crisis given how demand for their products remains consistent whatever happens in the economy. Among the global consumer staples companies held by the fund are Coca-Cola, Nestle, PepsiCo, Procter & Gamble, Unilever, and Walmart.

iShares S&P 500 ETF (ASX: IVV)

A final ASX ETF for investors to consider buying is the iShares S&P 500 ETF. This ETF gives investors access to 500 of the top listed U.S. companies. This is a more diverse group of shares compared with the tech-heavy Nasdaq 100 ETF. So, if you’re not overly bullish on the tech sector, this ETF could be a great alternative. Among its holdings are the likes of Amazon, Apple, Disney, Facebook, JP Morgan, Johnson & Johnson, Microsoft, Tesla, and Visa.

The post Here’s why these high-quality ASX ETFs could be buys this week appeared first on The Motley Fool Australia.

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More reading

• 5 ASX shares I’d buy for a US recession
• How to invest $5,000 in ASX shares today like Warren Buffett might
• 3 excellent ETFs for ASX investors to buy right now
• I’m a dividend investor. Should I buy the Betashares Nasdaq 100 ETF (NDQ)?
• Could buying iShares S&P 500 ETF (IVV) shares at under $45 make me rich?

Motley Fool contributor James Mickleboro has positions in BetaShares Nasdaq 100 ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended BetaShares Nasdaq 100 ETF. The Motley Fool Australia has positions in and has recommended BetaShares Nasdaq 100 ETF and iShares International Equity ETFs – iShares Global Consumer Staples ETF. The Motley Fool Australia has recommended iShares S&P 500 ETF. 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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S&P/ASX 200 Index (ASX: XJO) share Goodman Group (ASX: GMG) has a very attractive future in my opinion, which I’ll outline below.

Goodman describes itself as an integrated property group with operations in Australia, New Zealand, Asia, Europe, the UK and the Americas. It owns, develops and manages these industrial properties around the world.

The Goodman share price has dropped over 20% since December 2021, as we can see on the chart above, however, I think the business is as strong as it has ever been. The following reasons are why I think the ASX 200 share is good value for the long term.

Strong rental performance supporting the ASX 200 share’s asset prices

Interest rates have jumped higher around the world, including in Australia and the US. In theory, this is meant to push down on asset prices like property.

In global markets, there is concern about commercial real estate categories like office buildings and shopping centres amid the growth of work-from-home online shopping, respectively.

But, industrial property may be able to endure much better, with strong demand for logistics and distribution properties. Goodman said that rental occupancy in the FY23 third quarter was 99% and that its 12-month rolling like-for-like net property income (NPI) growth was 4.4% thanks to “scarcity of assets and the “complex planning and delivery environment for new space”.

In Goodman’s FY23 third quarter update, boss Greg Goodman said:

The group is in a strong position, with high occupancy, rental growth and profitable developments largely mitigating the impact of higher capitalisation rates on valuations.

But, the market is now valuing the Goodman Group share price at over 20% less than the peak, so it seems much better value to me. If Goodman’s rental income keeps growing at a good rate, it can offset a lot of the damage of higher interest rates.

Impressive operating profit growth

The ASX 200 share can’t really control what happens with property values. However, the business is doing very well at growing its operating profit each year thanks to rental profit growth and completing developments.

In the FY23 third quarter, it pointed to development activity, high occupancy and growth in rents as the reason for increasing its guidance for FY23 operating earnings per share (EPS) to growth of 15%.

The business saw total assets under management (AUM) increase to $80.7 billion at 31 March 2023. I think the increase of AUM increases the underlying value of Goodman as it helps underlying earnings.

If operating EPS continues to grow, I think this would also be a support for the Goodman share price.

Excellent development pipeline

Future property completions can drive the value of Goodman shares higher, with a development profit when the building is ready for the tenant(s) and the start of rental income.

Goodman says that the quality and location of its sites “continue to underpin the strength of the development workbook”. The ASX 200 share targets “tightly held, strategic, large scale sites that display infrastructure-like characteristics, and sites that can be rezoned to higher and better use, or value-add opportunities.”

At 31 March 2023, the business had work in progress (WIP) of $13 billion. The yield on cost is 6.4%.

It said that the average annual production rate for WIP in FY23 is expected to remain at around $7 billion. I think the next two years are very promising for the ASX 200 share with the development pipeline and ongoing demand.

The post I think this ASX 200 share is heavily underrated by the market appeared first on The Motley Fool Australia.

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More reading

• Here are 3 ASX 200 blue chip shares that analysts love
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• Strengthen your ASX portfolio with these blue chip blockbusters: analysts

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Goodman 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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The ANZ Group Holdings Ltd (ASX: ANZ) share price has started the week in the red.

In early trade, the banking giant’s shares are down 3.5% to $23.65.

Why is the ANZ share price under pressure?

The good news is that today’s decline has nothing to do with a broker downgrade, another bank collapse, nor fears that a recession is coming.

The even better news is that this decline is, in many respects, actually a positive for shareholders.

That’s because the pullback in the ANZ share price is in response to the rights for the bank’s upcoming dividend payment becoming settled after its shares traded ex-dividend.

When a share trades ex-dividend, it tends to drop in value with the amount of the dividend. This is to reflect the fact that new buyers won’t be receiving this payment. Instead, the rights to the dividend will remain with the seller come pay day.

The ANZ dividend

When ANZ released its half-year results earlier this month, the bank reported record first-half cash earnings of $3,821 million. This was up 12% on the second half of FY 2022.

In light of this solid earnings growth, the ANZ board decided to increase its fully franked interim dividend by 9.5% to 81 cents per share.

Eligible shareholders can now look forward to receiving this dividend in their nominated accounts in a little over six weeks on 3 July.

What’s next?

More good news for shareholders is that a similar dividend is expected in the second half by analysts at Citi.

According to a note from last week, the broker has pencilled in a full-year dividend of $1.64 per share.

If this estimate is on the money, it will mean a fully franked 83 cents per share final dividend later this year. It will also mean a very attractive 6.7% dividend yield based on where the ANZ share price closed on Friday.

The post Why is the ANZ share price sinking on Monday? appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Monday
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• Want to score the boosted ANZ dividend? You better hurry!

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 Telstra Group Ltd (ASX: TLS) share price has risen by around 9% in 2023 to date, beating the S&P/ASX 200 Index (ASX: XJO) return which has seen a 4.5% gain. I’m going to explain why I’m optimistic about this ASX telco share.

It has been a volatile few years for the ASX share market as the COVID-19 pandemic, inflation, and interest rate increases impacted market sentiment.

The last eight or so years have been tricky for the telco sector as it adjusted to the NBN providing internet infrastructure, leading to lower margins. We can see on the chart below how far the Telstra share price has dropped since 2015. But it’s recovering, and I think it’s going to keep recovering.

Revenue growth

One of the most important drivers of profit growth is usually revenue growth.

Cost cutting can help increase margins, but there’s only so much that costs can be reduced before it starts harming the long-term performance of the business. For example, cutting customer service expenses wouldn’t be smart for customer loyalty, while reducing marketing might hurt future growth.

Telstra is demonstrating revenue growth in a number of different ways with growing subscriber numbers and rising subscription prices. In turn, this is helping increase the average revenue per user (ARPU).

In the FY23 half-year result, Telstra reported its mobile division saw postpaid services increase by 68,000, while prepaid unique users increased by 137,000. The postpaid ARPU improved by 4.5%. These are useful tailwinds for the Telstra share price.

I think revenue could continue to grow with the return of international roaming, further subscriber growth, and price increases. As well, Australia’s population continues to grow so this could be a natural boost for the company’s potential revenue,

Profit margin growth expected

Telcos can be fairly scalable businesses. Once the network infrastructure has been created, additional users can be a boost for profitability because there’s not much additional cost to service those users. As I’ve already mentioned, Telstra is seeing ongoing user growth.

As part of the company’s T25 strategy, it’s trying to increase profit faster than revenue. The FY23 first-half result saw the company delivering on this goal. Total income went up 6.4% to $11.6 billion, earnings before interest, tax, depreciation and amortisation (EBITDA) went up 11.4% to $3.9 billion, net profit after tax (NPAT) grew by 25.7%, and earnings per share (EPS) rose 27.1%.

Investors often like to focus on profit to decide how to value the Telstra share price. The ASX telco share’s profit could keep rising thanks to a combination of rising revenue and improving profit margins as it keeps costs under control. It’s trying to remove $500 million of costs by FY25.

I’m not sure how many other ASX blue chip shares are likely to grow profit in FY24 and FY25 – resource prices are unpredictable while banking lending is facing a lot of competition.

Bigger dividends

Some investors are particularly attracted to higher shareholder payouts, which could provide further support for the Telstra share price and boost the cash returns of the company. Higher profits could fund bigger dividends.

In the FY23 first-half result, Telstra grew its interim dividend by 6.3%. Commsec numbers suggest that Telstra could pay a full-year dividend of 17 cents per share – this would be a grossed-up dividend yield of 5.6%.

By FY25, the business could be paying an annual dividend per share of 19 cents per share, which would be a grossed-up dividend yield of 6.3%.

The post 3 reasons I’m tipping the Telstra share price to keep rising in 2023 appeared first on The Motley Fool Australia.

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More reading

• Up 17% in 2023, are Woolworths shares still worth buying?
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• Green skies ahead: These 2 ASX 200 stocks upgraded their earnings guidance this week
• How to invest $10,000 in ASX dividend shares in May

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has 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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The Westpac Banking Corp (ASX: WBC) share price has drifted towards $21. The lower valuation could mean that the ASX bank share is better value.

Since the start of 2023, Westpac shares have declined by 7%, compared to the S&P/ASX 200 Index (ASX: XJO) which has gone up by 4.5% over the same time period.

That’s a fair amount of underperformance over a short time period. But, that could also mean that it’s a good time to consider the bank if it’s at a good price.

First, we’ll consider the recent FY23 half-year result because that gave us a lot of insights into its operations.

Earnings recap

The ASX bank share reported that its net profit after tax (NPAT) grew by 22% to $4 billion. That’s a lot of profit growth for such a large blue-chip ASX share.

It also declared a fully franked dividend per share of 70 cents, which was up by 15% year over year.

There were two elements that I was very interested to see.

The first was the reduction of operating expenses – Westpac had been targeting cost cuts to improve profitability. Westpac reported that its operating expenses had reduced by 7% to $5 billion. This was due to businesses sold, reduced use of third-party service providers and lower remediation costs. But, it did absorb inflationary pressures on wages and third-party vendor costs.

The other thing that I wanted to see was how much the net interest margin (NIM) had improved amid the higher interest rate environment. Higher lending profit is helpful for Westpac shares. The reported group NIM was 1.96%, up 5 basis points (0.05%) year over year. Westpac’s core NIM, which excludes notable items, treasury and markets increased by 20 basis points (0.20%) year over year to 1.90%.

Westpac put the NIM increase down to average interest-earning assets (loans).

The bank remains “well capitalised” with its common equity tier 1 (CET1) ratio of 12.3% being above its target range of 11% to 11.5%. This meant it had $3.6 billion of capital above the top end of the target range.

Time to buy Westpac shares?

The ASX bank share is at a six-month low and getting closer to its 52-week low, as we can see on the chart above.

I think it’s quite possible that the FY24 half-year result may not be quite as profitable as the HY23 result with potentially lower lending margins (due to elevated competition) and possibly higher bad debts if the higher interest rate environment is hurting households.

But, I think the Westpac share price valuation now reflects the seemingly-weaker situation with it down 11.6% from 14 February 2023 to today.

The Westpac share price is currently valued at under 11 times FY24’s estimated earnings.

Having such a low price/earnings (P/E) ratio also means that the dividend yield is high. Westpac could pay a grossed-up dividend yield of 9.6% in FY23 and 9.75% in FY24.

The low valuation, high dividend yield and strong balance sheet lead me to believe that this is a good time to consider Westpac shares. But, I’d go into the investment not expecting strong capital growth over the medium term because of the competitive environment which could be here to stay, with so many lenders out there.

The post Could buying Westpac shares around $21 make me rich? appeared first on The Motley Fool Australia.

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More reading

• Up 17% in 2023, are Woolworths shares still worth buying?
• 5 things to watch on the ASX 200 on Monday
• These are the best ASX 200 bank shares to buy now: analysts
• Broker warns that ‘our conviction has waned’ on Westpac shares
• Green skies ahead: These 2 ASX 200 stocks upgraded their earnings guidance this week

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The ASX share market has seen significant volatility since the end of 2021. We may be entering a new investment environment with higher inflation and higher interest rates than in the 2010s. But this could be an exciting time for stock picking, according to two fund managers.

The previous decade saw interest rates steadily decline, which provides a natural boost for asset values. As Warren Buffett has explained, interest rates are like gravity – the weaker interest rates are, the stronger that asset prices can bounce.

Most asset prices, including the share market, benefited from that low interest rate environment, providing a tailwind for passive investing in index funds.

However, some fund managers think the investment environment has now changed.

Fund manager views on the outlook for investment markets

Contrarian fund manager Allan Gray’s chief investment officer Simon Mawhinney recently said:

The chances of the S&P/ASX 300 Index (ASX: XKO) delivering close to 10% returns each year for the next 10 years are slim. The market environment has changed, and blindly investing in the share market is unlikely to yield results from here. Investors will need to be more selective in where they allocate their capital in future.

This doesn’t mean that there aren’t opportunities though, provided you can adopt a contrarian mindset.

Interestingly, fund manager L1 also backed this broad view. It recently said in an investor presentation:

We believe passive and index hugging strategies will no longer be able to deliver 10%+ returns.

Going forward, active stock picking will be required to generate attractive returns.

For L1, the fund manager is targeting ASX shares with a low price/earnings (p/e) ratio, an attractive free cash flow yield, and are expected to generate above-market earnings per share (EPS) growth.

What to make of this?

It’s perhaps unsurprising that stock pickers are going to say that the current investment environment is a stock pickers’ market.

But I think it’s fair to say that with an uncertain economic situation due to inflation and higher interest rates, only certain businesses may be able to keep performing with their profits and share prices.

In 2023 to date, the ASX 300 has risen by around 4.4% while some specific names have done very well. For example, the Xero Limited (ASX: XRO) share price is up 34% and the Woolworths Group Ltd (ASX: WOW) share price is 17% higher.

A lot of the Motley Fool’s content is about trying to find investments that can do well in the coming years, so you’re at the right place to pick stocks. I’m always on the lookout for ideas and I’ll keep writing about them if I see them, or if fund managers have identified opportunities.

No matter what’s happening on the ASX share market or with the broad economy, I believe we’ll always be able to find some attractive or unloved investments that can do well.

The post ‘The market has changed’: Here’s what to do about it appeared first on The Motley Fool Australia.

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More reading

• Did you invest $5,000 in Evolution Mining shares in 2018? If so, here’s how much dividend income you’ve earned
• Why did Morgans just downgrade this popular ASX 200 stock?
• Up 17% in 2023, are Woolworths shares still worth buying?
• 2 ASX 200 shares this fund manager is backing with major growth plans
• Broker urges investors to buy the QBE share price dip

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 Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Evolution Mining Ltd (ASX: EVN) shares have performed steadily over the last five years. The gold miner’s stock has risen 21.5% since May 2018.

An investor sinking $5,000 into the stock back then likely would have snapped up 1,607 shares, paying $3.11 apiece.

Today, that holding would be worth $6,074.46. The Evolution Mining share price last traded at $3.78.

For comparison, the S&P/ASX 200 Index (ASX: XJO) has gained 19.2% over that time.

In the meantime, the gold miner has been a regular provider of dividends. Let’s dive into the dividend income realised by shareholders over the last five years.

All dividends paid to those holding Evolution Mining shares since 2018

Here are all the dividends offered to those invested in Evolution Mining shares over the last five years:

Evolution dividend pay date	Type	Dividend amount
August 2022	Final	3 cents
March 2022	Interim	3 cents
September 2021	Final	5 cents
March 2021	Interim	7 cents
September 2020	Final	9 cents
March 2020	Interim	7 cents
September 2019	Final	6 cents
March 2019	Interim	3.5 cents
September 2018	Final	4 cents
Total:		47.5 cents

As the chart above shows, each Evolution Mining share has yielded 47.5 cents in dividend income since May 2018. That means our figurative investment has brought in $763.32 over its life.

Considering both share price gains and dividend income, the stock has likely provided a total return on investment (ROI) of around 37%.

And that’s before factoring in any possible tax benefits brought about by franking credits or potential compounding returns if one were to have reinvested their dividends.

Evolution shareholders also have their next payment to look forward to. The ASX 200 miner will send out its 2-cent per share, fully franked interim dividend next month.

Right now, Evolution Mining shares offer a 1.32% dividend yield.

The post Did you invest $5,000 in Evolution Mining shares in 2018? If so, here’s how much dividend income you’ve earned 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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One leading broker appears to believe that the REA Group Ltd (ASX: REA) share price could have peaked for the time being.

As a result, its analysts have downgraded the ASX 200 stock to a hold rating this morning.

Why has this ASX 200 stock been hit with a downgrade?

According to a note out of Morgans, its analysts have downgraded this property listings company’s shares to a hold rating on valuation grounds.

Although the broker responded to REA Group’s third-quarter update by increasing its price target by 9% to $145.00, this is only modestly higher than where the ASX 200 stock currently trades.

As a result, the broker feels that its shares are about fair value and investors ought to wait for a more attractive entry point.

What did the broker say?

Morgans highlights that REA’s third-quarter update revealed that trading conditions have got tougher. It commented:

REA has released its 3Q23 trading update. It was broadly a tougher quarter overall for the group, as it cycled a very strong pcp with volumes continuing to be impacted by the challenging macro. 3Q23 revenue of A$269m was down 3% on pcp with a weaker Aus resi (revenue -6% on pcp) partially offset by a strong India performance (revenue +63% on pcp).

As a result of the above, the broker feels the company is unlikely to achieve consensus expectations in FY 2023. It adds:

For the 9 months FY23TD, group revenue is A$887m (+2% on pcp), which implies a ~15% 4Q23 sequential growth performance is needed to meet current FY23 Visible Alpha consensus of ~A$1.2bn. Group operating expenses of A$133m for the quarter are up 9% on pcp (largely related to planned REA India investment and tech costs), with core Australia operating cost growth relatively constrained at +3% for the quarter. Operating EBITDA (ex assoc.) of A$136m is down 13% on the pcp.

Still a high quality company

It is worth noting that Morgans still believes that REA Group is one of the highest quality ASX 200 stocks around, despite its downgrade. However, it just feels that its valuation is getting full now. The broker concludes:

REA remains one of the highest quality franchises in our coverage with a management team that continues to execute well. However, with near term listings headwinds impacting topline growth and the stock now on ~39x FY24F PE (~1 standard deviation above its 10-year average), we believe the stock to be closer to fair value. We move to a Hold recommendation.

The post Why did Morgans just downgrade this popular ASX 200 stock? appeared first on The Motley Fool Australia.

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More reading

• REA shares fall as costs take a bite out of bottom line
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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 REA 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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The Woolworths Group Ltd (ASX: WOW) share price has been a strong performer since the start of the 2023 calendar year, gaining 17%. It has soundly beaten the S&P/ASX 200 Index (ASX: XJO), which has risen by 4.5% in the year to date.

For an ASX blue chip share to outperform the ASX 200 by more than 12% in a relatively short period of time is an impressive performance in my opinion.

The market typically pays the most attention to a company’s most recent update and outlook commentary, so what happened in 2022 is old news. Let’s start by looking at what Woolworths reported in the third quarter of FY23 and then decide if its current valuation makes investment sense.

Sales recap

Woolworths saw Australian food sales increase by 7.6% to $12.3 billion, while total sales increased 8% to $16.3 billion. Other parts of the business include its New Zealand food sales (up 7%), BIG W sales (up 5.7%), and business-to-business sales (up 16.4%).

It was a very solid quarter of growth for the business. However, it’s worth noting that Woolworths supermarkets got a boost from the 5.8% change in average prices. It blamed this inflation on supplier cost price increases.

There was positive news, however, with improved fruit and vegetable growing conditions and lower livestock prices. Woolworths also said the cycling of inflation in the prior year contributed to its slowdown in the third quarter compared to the second quarter rate of 7.7%.

The ASX share market is usually forward-focused, so the outlook is likely what investors are paying attention to the most when it comes to the Woolworths share price.

Outlook

Woolworths CEO Brad Banducci revealed in the first weeks of the fourth quarter of FY23, sales trends had “been in line with Q3 with solid sales growth” in the supermarkets, with growth moderating in BIG W.

It’s seeing signs of overall food inflation “moderate” but in many areas, inflation remains “frustratingly elevated”, according to Banducci.

Woolworths said that it’s going to continue to work hard to provide customers with “great value” across the shopping basket, including affordable protein, leveraging its own and exclusive brands, among other strategies.

My verdict on the Woolworths share price

I don’t think it’s too surprising that Woolworths has been a strong performer because its sales (and presumably profit) have benefited from inflation — and that inflation seems to be continuing.

With the economic outlook uncertain, given the run of interest rate increases and inflation, investors appear to be seeking the safety of defensive ASX shares.

Also, Australia’s population continues to grow, which is a helpful tailwind for Woolworths’ earnings in the coming months and years in my view as there are simply more potential customers to feed.

According to estimates on Commsec, the Woolworths share price is valued at 28 times FY23’s estimated earnings. The projections also suggest that earnings per share (EPS) could rise by 16% to FY25. Over the long term, share prices usually follow profit, so profit growth is a promising prospect for Woolworths shareholders.

However, with the business close to its 52-week high, as we can see on the chart below, it’s possible that there could be a cheaper share price later this year if investors are prepared to be patient.

The post Up 17% in 2023, are Woolworths shares still worth buying? appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Monday
• Green skies ahead: These 2 ASX 200 stocks upgraded their earnings guidance this week
• Here are the top 10 ASX 200 shares today
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• What’s the 5-year forecast for commodity prices and ASX 200 mining shares?

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has 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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