Author: openjargon

Three S&P/ASX 200 Index (ASX: XJO) shares just earned substantial broker upgrades.

One is involved in cutting-edge medical treatments.

One runs Australia’s biggest lotteries.

And the third is a major iron ore producer.

Which ASX 200 shares are we talking about?

Read on!

(Broker data courtesy of The Australian.)

Three ASX 200 shares with boosted outlooks

The first ASX 200 share getting a sizeable broker upgrade is Champion Iron Ltd (ASX: CIA).

Shares in the iron ore miner are down 1.8% today, trading for $6.39 apiece. That leaves the Champion Iron share price up 3% over 12 months. Champion Iron shares also trade on a 2.4% unfranked trailing dividend yield.

CSLA believes there’s some strong potential for share price gains ahead. The broker raised Champion Iron to a buy rating with a $7.90 price target. That’s almost 24% above current levels.

The most recent price sensitive news from the company was released on 31 May. In a promising growth sign, the miner reported record-high earnings before interest, taxes, depreciation and amortisation (EBITDA) of C$553 for FY 2024. That was up 11% from FY 2023.

Which brings us to the second ASX 200 share scoring a broker upgrade, the Lottery Corp Ltd (ASX: TLC).

Shares in Australia’s biggest lottery company are up 0.8% today at $5.17. That sees the Lottery Corp share price up 2% over 12 months. Lottery Corp shares also trade on a 2.7% fully franked dividend yield.

Macquarie has a positive outlook for the stock.

The broker raised Lottery Corp to an outperform rating with a $5.50 price target. That’s more than 6% above the current share price.

The company could be set to benefit from the stage three tax cuts and new costs of living relief measures contained in the federal budget, which will see most Aussies pocketing significantly more money in the year ahead. Undoubtedly some of us will dip into that extra cash in hopes of turning it into millions with a winning lottery ticket.

Rounding off the list of ASX 200 shares receiving a significant broker upgrade is Telix Pharmaceuticals Ltd (ASX: TLX).

Shares in the biopharmaceutical company are down 0.3% today, changing hands for $16.41 apiece. The Telix Pharmaceuticals share price remains up an impressive 49% over 12 months.

And Bell Potter believes there are more outsized gains to be reaped.

The broker raised Telix Pharmaceuticals stock to a buy rating with a $19.00 price target. That represents a potential upside of almost 17% from the current share price.

Telix has achieved a number of commercially significant milestones with its medical products over the past few months. And the stock could substantially benefit with the rapid advance of AI helping to streamline clinical testing and new drug development.

This morning the ASX 200 share announced that it was pulling out of its intended initial public offering (IPO) on the Nasdaq. Judging by the muted share price reaction, management may have made the right call in pulling the plug after the Telix share price has surged 62% on the ASX in 2024.

The post Why these 3 ASX 200 shares just earned substantial broker upgrades appeared first on The Motley Fool Australia.

More reading

• Telix Pharmaceuticals share price sinks on unexpected Nasdaq news
• Why this broker just upgraded Telix shares to a buy rating
• Why is the Telix Pharmaceuticals share price frozen today?
• Here are the top 10 ASX 200 shares today
• These 3 ASX 200 shares were just rerated by top brokers

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

South32 Ltd (ASX: S32) shares have been popular with investors throughout 2024 and have advanced more than 10% this year.

Volatility in commodity prices and a surge in metals demand from the electrification ‘megatrend’ are two tailwinds behind companies like South32 in the basic materials sector.

South32 shares are trading at $3.65 each at the time of writing after a broker upgraded the miner to a buy due to recent strength in commodity prices. Here’s a look.

Why UBS upgraded South32 shares

UBS has raised its earnings projections for South32 by 13% to 34% for the 2024 to 2026 financial years. This is due to higher prices for manganese and alumina – two critical metals used in the production of ceramics, gasoline, steel and aluminium.

UBS mining analyst Lachlan Shaw said the firm was bullish on South32 as prices of these metals begin to stretch higher.

“Prices across South32’s commodity basket are now a strong tailwind to earnings and free cash flow optionality,” Shaw told the Australian Financial Review.

At the time of writing, the price of Manganese ore has shot to 42.50 CNY/mtu from a low of 29.144 CNY/mtu on 1 January.

Meanwhile, according to the London Metals Exchange, alumina prices were USD $498 per metric tonne on 13 June, up from USD $332/mt in December 2023.

The broker has increased its price target for South32 shares to $4.15 from $3.90, which represents a 14% upside potential at the time of writing.

Other broker insights on South32

Macquarie has also shown optimism about South32 shares, especially due to its copper exposure. According to my colleague James, in late May, Macquarie reaffirmed its outperform rating on South32 shares with an upgraded price target of $4.25. This suggests a potential upside of nearly 16% based on the current share price.

Furthermore, in a May note, Goldman Sachs maintained a buy rating on South32 shares. Despite minor adjustments to its FY 2024–2026 earnings before interest, tax, depreciation, and amortisation (EBITDA) estimates, Goldman Sachs raised its 12-month price target for South32 to $4.00.

It highlighted the company’s improving free cash flow (FCF) and attractive valuation. “We forecast ~US$550mn of FCF in the June half,” its analysts noted. Goldman also emphasised the positive outlook for key commodities like copper, aluminium, zinc, and metallurgical coal.

South32’s strong financial outlook is a key reason for these positive broker ratings, in my opinion. Higher commodity prices have significantly boosted the company’s earnings and free cash flow projections, which could help fund dividends and share repurchases.

UBS’s Lachlan Shaw also mentioned that a restart of the company’s buyback program at the FY 2024 results “cannot be ruled out”, according to the AFR.

Why South32 shares might be worth watching

The recent upgrades from UBS, Macquarie, and Goldman Sachs show a strong positive sentiment towards South32 shares.

With improved commodity prices and robust financial performance, the company might be positioned well for growth. Just remember to consider your own personal financial circumstances and to conduct your own due diligence.

The post See why this broker just upgraded South32 shares to a buy appeared first on The Motley Fool Australia.

More reading

• Buy Rio Tinto and these 4 ASX mining stocks in June
• Will ASX copper shares keep surging from here? (Plus: 2 top picks for exposure)
• 2 of the best ASX mining stocks to buy now

Motley Fool contributor Zach Bristow 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.

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

Warren Buffett, the legendary investor and CEO of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), has built a reputation as a master of traditional value investing. His approach, which involves identifying undervalued companies with strong fundamentals and holding them for the long term, has proven successful for decades.

However, as the world stands on the cusp of an artificial intelligence (AI) revolution, it’s worth examining whether Berkshire Hathaway’s stock portfolio is adequately prepared for the potential disruption.

This analysis is rapidly becoming an urgent necessity, as AI is poised to enter a period of unprecedented, exponential growth. The convergence of advancements in computing power and the massive influx of capital, with tens of billions of dollars being invested in AI-capable data centers, is set to propel AI development forward at a breakneck pace in the next 18 months.

Buffett has rarely been a fan of cutting-edge tech

Buffett’s stance on cryptocurrencies, particularly Bitcoin, has been unequivocal. In 2018, he famously described Bitcoin as “probably rat poison squared” and expressed his belief that cryptocurrencies would “come to a bad ending.”

While his skepticism toward Bitcoin may be warranted, it raises questions about his outlook on the broader technological landscape, including AI.

The AI revolution promises to bring about profound changes across industries, with the potential for both direct and knock-on effects that prove to be disruptive. For instance, the insurance industry, a key area of focus for Berkshire Hathaway, could undergo substantial transformations as AI improves risk assessment and automates claims processing. It also faces disruptions from the advent of an array of autonomous vehicles.

Moreover, the financial sector, which forms a significant portion of Berkshire Hathaway’s portfolio, may be particularly vulnerable to AI-driven disruption. As AI algorithms become more sophisticated, they could potentially replace human analysts and traders, creating both new opportunities and novel risks for the sector.

Berkshire Hathaway’s significant exposure to the energy sector is another area of concern in the age of AI. For example, AI-driven advancements in renewable energy, smart grid technologies, and autonomous green vehicles, among others could significantly diminish the earnings power of traditional oil and gas companies by the decade’s end, negatively impacting the value of Berkshire Hathaway’s holdings in this sector.

Berkshire Hathaway does have an AI hedge

However, it’s important to note that Berkshire Hathaway’s stock portfolio does include potential AI hedges. The company’s substantial stake in Apple (NASDAQ: AAPL), which recently announced the advent of “Apple Intelligence,” could help mitigate the risks associated with widespread technological disruption.

Apple’s ecosystem of AI-powered devices, services, and user experiences may help it navigate the changing landscape in the next stage of humanity. Still, the conglomerate’s lack of significant exposure to companies at the heart of the AI revolution is arguably another underappreciated risk factor.

What’s the big picture?

While Buffett’s value investing approach has stood the test of time, it’s crucial to consider whether it adequately accounts for the game-altering potential of the AI revolution. Traditional metrics, such as price-to-earnings ratios and book value, may not fully capture the disruptive impact of AI on industries and business models.

For instance, companies that appear undervalued based on historical data may face unexpected challenges as AI reshapes the competitive landscape. Meanwhile, businesses at the forefront of AI could continue to experience ultra-rapid growth, despite their premium-laden valuations.

Berkshire Hathaway’s stock portfolio doesn’t reflect this important dynamic. Instead, the conglomerate’s equity portfolio is crafted to leverage its massive positions in dividend-paying companies, thereby creating value for shareholders through compounding.

This strategy has worked like a charm historically, thanks to the company’s size and long-term holding strategy. However, if these income streams are disrupted by unforeseen quantum leaps in innovation, Berkshire Hathaway’s core value-creation strategy may come under pressure.

Key takeaways

In ordinary times, contemplating such a drastic shift in the investing landscape would be an exercise in futility, unworthy of serious consideration. However, we are on the precipice of an unprecedented era, propelled forward by technological innovation’s relentless, exponential growth.

This exponential progression is not a hypothetical or a distant possibility. It’s a stark reality that investors will have to grapple with in the imminent future. The rapid pace of change, fueled by a coming abundance of intelligence, is poised to reshape industries, disrupt traditional business models, and redefine the core tenants of portfolio construction. 

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

The post Warren Buffett meets AI: Is Berkshire Hathaway prepared for technological disruption? appeared first on The Motley Fool Australia.

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George Budwell has positions in Apple. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple, Berkshire Hathaway, and Bitcoin. The Motley Fool Australia has recommended Apple and Berkshire Hathaway. The Motley Fool Australia has positions in and has recommended Bitcoin. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Brickworks Limited (ASX: BKW) share price is up 0.6% in morning trading amid news related to Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) (AKA Soul Patts). The Brickworks rise comes at the same time as the S&P/ASX 200 Index (ASX: XJO) being down 0.2%.  

Brickworks and Soul Patts have been closely linked for decades due to their cross-ownership partnership. Soul Patts owns 43% of Brickworks and has been a shareholder since 1969.

The purpose of that structure was, and still is, to deter corporate raiders. Brickworks benefits by owning approximately a quarter of the diversified investment house.

The two businesses are becoming even closer after an appointment to the Brickworks board.

New Brickworks director

Brickworks has appointed Soul Patts CEO Todd Barlow to its board as a non-executive director.

As such a substantial holder of Brickworks shares, Soul Patts has had two directors on the Brickworks board. Michael Millner recently retired from the Brickworks board of directors at the 2023 annual general meeting, so Barlow will become the second nominee director.

Robert Millner has been the chair of Brickworks for 25 years and the chair of Soul Patts for 26 years.

The appointment of Barlow to the board maintains the number of directors at seven after Michael Millner’s retirement. Barlow will also be a member of the remuneration and nomination committee.

Barlow has been the CEO and managing director of Soul Patts since 2015, having previously been the managing director of Pitt Capital Partners for five years.

Brickworks also announced that Malcolm Bundey, who has been a non-executive director since October 2019, has been appointed as the deputy chair of Brickworks effective today.

Management comments

The new Brickworks deputy chair, Malcolm Bundey, said:

We are pleased to welcome Todd to the board of directors of Brickworks. The company looks forward to leveraging his deep experience to assist us in achieving performance objectives across our diversified portfolio of businesses.

New Brickworks director Todd Barlow said:

I look forward to continuing the long association Soul Patt’s has with Brickworks and assisting Brickworks to execute its strategy to deliver sustainable earnings growth and long-term value to shareholders.

Barlow’s ownership of Brickworks shares

Investors are able to learn how many shares a director has through ASX disclosures.

The Brickworks ASX appendix 3X announcement showed Todd Barlow has a total of 2,000 Brickworks shares. This currently has a value of just over $53,000.

Brickworks share price snapshot

In the last 12 months, the Brickworks share price is up just over 1%, as shown on the chart below.

The post Brickworks share price jumps on big Soul Patts news appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The S&P/ASX 200 Index (ASX: XJO) is down 0.3% in early trade today, but that’s not holding back ASX 200 uranium stock Boss Energy Ltd (ASX: BOE).

Shares in the Aussie uranium producer closed yesterday trading at $4.08. At time of writing on Friday morning, shares are swapping hands for $4.22 apiece, up 3.5%.

This comes following news that Boss Energy’s second uranium project has kicked off production.

Here’s what’s happening.

ASX 200 uranium stock lifts off on production milestone

The Boss Energy share price is charging higher after the company announced that production has started at its Alta Mesa In-Situ Recovery (ISR) Central Processing Uranium Plant and Wellfields, located in the US state of Texas.

The ASX 200 uranium stock owns 30% of the project. Its joint venture (JV) partner, enCore Energy Corp (NASDAQ: EU), owns the other 70%.

The Alta Mesa Project comprises more than 200,000 acres, along with the central processing plant and wellfields. Boss Energy expects production at the project to ramp up to a steady-state rate of 1.5 million pounds per year.

Today’s announcement comes just eight weeks after Boss Energy kicked off production at its 100%-owned Honeymoon project in South Australia. Honeymoon’s production is forecast to ramp up to 2.45 million pounds per year.

Commenting on the milestone sending the ASX 200 uranium stock sharply higher today, Boss Energy managing director Duncan Craib said, “The start of production at the Alta Mesa Project is another key milestone in the implementation of our strategy to be a global uranium supplier with a diversified production base in tier-one locations.”

Craib added:

With operations now ramping up at both Honeymoon and Alta Mesa, we are on track to hit our combined nameplate production target of 3 million pounds of uranium per annum. Our timing could hardly be better given the increasingly tight supply and demand fundamentals in the uranium market.

This highly favourable outlook was underpinned by US President Joe Biden’s recent signing of legislation to ban the importation of uranium products from Russia. This was a game-changing event for the uranium market and in particular for uranium projects in North America and Australia.

Craib said that with the ASX 200 uranium stock ramping up production at Honeymoon and Alta Mesa and both projects enjoying strong growth prospects, Boss was “very well positioned to continue capitalising on this huge opportunity”.

The post Why is ASX 200 uranium stock Boss Energy flying higher on Friday? appeared first on The Motley Fool Australia.

More reading

• Here are the top 10 ASX 200 shares today
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• Why Boss Energy, Elders, Peter Warren, and Serko shares are sinking today
• ASX 200 uranium stock dives 10% amid $26 million insiders sell-off
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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 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.

Investing in the stock market can feel like navigating a jungle – thrilling but sometimes overwhelming.

However, there’s a trusty compass to help guide your way: strong cash flows. Companies with robust cash flows are like the steady heartbeats of the stock market, providing the lifeblood that fuels growth, innovation, and shareholder returns.

In this article, we’ll introduce you to two ASX shares with impressive cash flows, making them prime candidates for your investment portfolio today.

Whether you’re a seasoned investor or just starting, these cash flow champions are worth your attention. Let’s dive in and explore my two ASX stock picks below.

Super Retail Group Ltd (ASX: SUL)

Super Retail is a prominent retailing group in Australia and New Zealand, specialising in automotive, sports, and outdoor leisure products. The company operates several well-known brands, including Supercheap Auto, Rebel, BCF, and Macpac.

Established in 1972, Super Retail has grown significantly, offering a diverse range of products to meet the needs of enthusiasts and professionals alike.

The retailer generated cash flow from operations of $756 million over the last 12 months to December 2023. From here, the company paid for its capital expenditure of $155 million, which increased from $110 million in FY23 used to expand its store network in Supercheap Auto and Rebel in the main.

This leaves the company with a free cash flow of approximately $600 million, sufficient to cover its lease payment obligations of around $220 million.

Compared to its current market capitalisation of close to $3 billion, Super Retail offers a free cash flow yield of more than 13% even after considering the lease payments.

Goldman Sachs also recognised this potential investment opportunity. As my colleague James highlighted, Goldman Sachs included Super Retail as one of its top dividend shares to buy. The broker said:

We believe SUL will display resilience in a softer economic environment that is built upon its competitive advantage of high loyalty (~11.0m active members accounting for >75% of sales) and this will be further bolstered as the company launches the Rebel loyalty program and continues to build personalisation capabilities. Hence, we are Buy-rated on SUL.

The Super Retail share price has fallen almost 23% from its all-time high of $17.11 in February 2024.

NIB Holdings Limited (ASX: NHF)

NIB is an Australian health insurer that provides health and medical insurance products to Australian and New Zealand residents, as well as international students and workers.

Founded in 1952, NIB has expanded its services to include travel and life insurance. The company focuses on providing affordable and comprehensive coverage, leveraging digital platforms to enhance customer experience and accessibility.

For the last 12 months to December 2023, NIB generated a cash flow from operations of $304.4 million, which has increased over the previous five years from $180 million in FY18.

The company explained that policyholder growth across its businesses underscored its strong operating cash inflow. NIB Thrive and Midnight Health are growing at a healthy rate, more than offsetting a sluggish result from NIB Travel.

From the operating cash flow, the company paid for property and other capital expenditures of around $50 million, leaving approximately $250 million as a free cash flow.

Based on NIB’s current market price, its free cash flow represents around 7% of its current market capitalisation of $3.6 billion. This means that if you acquired the company as a whole today, it would generate about a 7% return in its cash flow, which isn’t too bad, in my view.

Goldman Sachs sees further upside in the NIB share price due to NIB’s policyholder growth, diversified earnings streams, and valuation appeal, as my colleague Zach summarised.

The NIB share price has dropped 14% over the last 12 months and is down just 0.4% year to date.

The post 2 ASX shares with strong cash flows appeared first on The Motley Fool Australia.

More reading

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

The Telix Pharmaceuticals Ltd (ASX: TLX) share price is taking a fall today.

Shares in the S&P/ASX 200 Index (ASX: XJO) biopharmaceutical company closed on Tuesday trading for $16.46.

Shares were frozen yesterday after the stock entered a trading halt pending additional details on the company’s proposed initial public offering (IPO) in the United States.

With those details now out, shares are swapping hands for $16.13 apiece at the time of writing, down 2.0%.

Here’s what ASX 200 investors are mulling over.

ASX 200 biotech stock pulls out of Nasdaq IPO

The Telix Pharmaceuticals share price is under pressure after the company announced that its Nasdaq listing is off the cards.

The US listing has been in the works since early January. In May, Telix Pharmaceuticals chair Kevin McCann said the dual listing would enable the ASX 200 biotech stock “to better access the deep pool of specialist investors focused on biotechnology and radiopharmaceuticals in the US”.

He added that the Nasdaq listing would give the company increased visibility which “will drive long-term value creation for shareholders”.

On 6 June, the company confirmed its intent to list American Depositary Shares (ADSs) on the Nasdaq. The Telix Pharmaceuticals share price hit record highs on the day.

Today the company said it opted to withdraw its proposed Nasdaq IPO at the terms provided under current market conditions, adding that the proposed discounts were not aligned with its duty to existing shareholders.

Telix said its plan to list on the Nasdaq wasn’t based on the need to raise capital. And since it first announced its intent to file on 4 January, the company has achieved a number of commercially significant milestones with its medical products. That’s seen the Telix Pharmaceuticals share price soar more than 70% since 4 January.

Commenting on the withdrawal from the Nasdaq IPO, Telix CEO Christian Behrenbruch said:

While this is not our desired outcome Telix’s strategic objectives must align with our duty to existing shareholders. I’d like to thank my team for the personal commitment and incredibly long hours put into this IPO process.

Telix Pharmaceuticals noted that its performance and prospects remain strong.

“As a profitable, cash generative company, Telix retains sufficient earnings and balance sheet capacity to deliver on its key corporate objectives,” the company stated.

Telix Pharmaceuticals share price snapshot

The Telix Pharmaceuticals share price is up 61% so far in 2024.

Long-term investors who bought shares five years ago will be sitting on eye-popping gains of 1,541%.

The post Telix Pharmaceuticals share price sinks on unexpected Nasdaq news appeared first on The Motley Fool Australia.

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

Fortescue Ltd (ASX: FMG) shares have been known for huge dividend payouts in the last few years. The outlook for big dividends in the future is not strong, in my opinion.

The ASX iron ore share took full advantage of the elevated iron ore price in FY21, leading to an annual dividend per share of $3.58.

In FY22, the annual dividend per share was reduced to $2.07.

Can the Fortescue dividend recover to above $3 per share? I don’t think it will, for a few different reasons.

Increasing iron ore supply

The key factor enabling Fortescue to generate such a large profit and pay a big dividend in FY21 was the strong iron ore price.

Strong demand from China outstripped supply, leading to a higher commodity price.

I’m not sure the supply and demand equation will work as strongly as it did in Fortescue’s favour in the future.

The Chinese real estate sector is still struggling, so I don’t see this key iron ore user pushing up the iron ore price again like it did. India could be a big user of steel in the coming years, but it’s unlikely to be on the same scale as China.

On the supply side, a significant increase in iron ore mining could be a headwind for the iron ore price. In Africa, Rio Tinto Ltd (ASX: RIO) is part of the huge Simandou iron ore project, and Fortescue Ltd (ASX: FMG) is working on a project in Gabon.

Rio Tinto, Fortescue and BHP Group Ltd (ASX: BHP) all want to increase their production in Australia.

Lower dividend payout ratio

The Fortescue dividend payout ratio has been trending downwards, which means Fortescue is holding onto a larger proportion of its generated profit.

In FY21, Fortescue had a dividend payout ratio of 80%, which fell to 75% in FY22 and then 65% in both FY23 and the first half of FY24. A lower payout ratio obviously means smaller dividends for owners of Fortescue shares.

The business has an important reason to hold onto more of its cash – it has huge green energy ambitions related to green hydrogen, green ammonia, industrial batteries and more. It will need a lot of capital to realise its goals, even if it is successful at bringing on investment partners.

Even if Fortescue were making big enough profits to pay a $3 per share dividend, I don’t think it would be that generous with its dividend in the future because of the capital requirements.

Fortescue dividend projections

The estimate on Commsec for the Fortescue dividend per share in FY24 is $2.02, followed by $1.50 in FY25 and then sinking to $1.08 per share in FY26.

It’s possible the iron ore price may be stronger than expected in the medium term, as it was in FY21 and at the start of this year when it was above US$140 per tonne. But shareholders such as myself should be aware that the payout may not be as rewarding in the future.

The post Why the best dividend days may be over for Fortescue shares appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Fortescue. 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.

Catapult Group International Ltd (ASX: CAT) has been a standout ASX All Ords stock in the last 12 months, surging 89% to $1.83 currently. This is an 81% advantage over the benchmark S&P/ASX 200 Index (ASX: XJO) in the past year.

It has also been all green for the stock since trading began in January – up 32% year to date.

Despite this impressive gain, many believe this ASX All Ords stock still has room to grow. Let me explain.

What’s driving this ASX All Ords stock?

Catapult’s growth has been driven by strong financial performance and strategic initiatives. For the financial year ending 31 March 2024, the ASX All Ords stock’s revenue reached a milestone of US$100 million, a 20% increase year over year.

This growth reflects the strength of its software as a service (SaaS) strategy, which has been pivotal in attracting new customers and increasing the annualised contract value (ACV).

Forager Funds Management has been optimistic about Catapult’s potential for a long time. In its latest report from May 2024, the firm noted that it hopes “…to be writing about Catapult for years to come. For many years, we have admired the opportunity ahead of this company.”

The fund manager highlighted the ASX All Ord stock’s well-known athlete tracking vests, which are used in various major sports leagues worldwide.

Any avid sports-watcher will be familiar with Catapult’s athlete tracking vests. You can see them through Pat Cummins’ whites on a summer day at the SCG or at a training session for every single NRL and AFL team in Australia.

Forager also praised Catapult’s strategic vision under CEO Will Lopes. “When appointed in 2021, CEO Will Lopes didn’t do much to change the perception that shareholders would never see potential translate to profits”, it said.

But three years later, it says Lopes was right, that Catapult “needed to spend more”, and “needed to spend first”. Forager believes he is the “right man” to do the job.

The share price has reacted positively to the past few results announcements from Catapult but we still think it is a long way short of the company’s true value.

What does Catapult’s future look like?

The company’s FY 2024 results were a standout, with Forager noting over 40% of the revenue growth “translated to incremental profit”.

“The growth should be similar in 2025 and management expects that incremental profitability to increase further”, it added.

For FY 2025, the ASX All Ords stock’s management said in the last earnings that it aims to sustain strong ACV growth and high retention rates.

The company plans to align with the Rule of 40 – a key valuation metric for SaaS companies – which combines revenue growth rate and profit margin. Catapult achieved a 43% rate last quarter, exceeding the 40% benchmark. It looks to maintain this next year.

Foolish takeaway: ASX All Ords stock with growth

Despite its substantial share price increase over the past year, this ASX All Ords stock’s strategic initiatives and financial performance suggest there is still considerable room for growth.

The company’s focus on technology, customer retention, and profitability positions it well for continued success. Investors will be watching closely to see how Catapult executes its plans in FY25 and beyond, making it a compelling ASX All Ords stock to keep on your radar.

The post Up 80% in a year, this ASX All Ords stock is a ‘long way short’ of its true value appeared first on The Motley Fool Australia.

More reading

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• Catapult shines: 20% sales growth propels ASX tech stock to new 52-week high

Motley Fool contributor Zach Bristow 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 Catapult Group International. The Motley Fool Australia has recommended Catapult Group International. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.