Author: therawinformant

The Cellnet Group Limited (ASX: CLT) share price is surging higher today following the release of a strong trading update.

At one point, shares in the lifestyle technology distributor were up at 13 cents, representing a massive gain of 202%. However, investors quickly sold off their holdings for a profit, sending the Cellnet share price back to 7.8 cents, up 81%.

As a matter of perspective, the All Ordinaires Index (ASX: XAO) is down 0.36% to 6,595.4 points.

What does Cellnet do?

Cellnet sources products and distributes popular brands of lifestyle tech products to retail and businesses in Australia and New Zealand. The company specialises in mobile phones, tablets and notebooks, and hybrid accessories.

Cellnet is also involved in services to the mobile telecommunications and retail industries.

What were the drivers of Cellnet’s results?

In the month of October, Cellnet reported robust trading conditions. Revenue increased to $12.6 million, up 18% year-on-year. This was underpinned by the surge in sales of iPhone accessories, following Apple’s announcement of four new flagship iPhone 12 models.

Net profit before tax came to $1.05 million, which was up $1.02 million over the corresponding period. Year-to-date net profit before tax is standing at $1.6 million thus far, which equates to over a 400% gain from this time last year.

Gaming was flagged as a continued performer, with PlayStation 5 and Xbox bringing new consoles to market. Cellnet revealed it is seeing positive earnings in October as a result.

In addition, recent brand acquisitions and cost management control have been significant contributors to the company’s financial performance.

What did management say?

Commenting on the achievement, Cellnet chief executive, Mr Dave Clark, said:

Our October result is a real testament to the dedication and hard work that the team has put in to make this iPhone launch our most successful yet. Our revenue and profit for October surpassed all expectations, delivering one of the best monthly results Cellnet has ever produced.

Cellnet is well placed as we move into the high velocity Christmas trading period.

About the Cellnet share price

The Cellnet share price was mostly stagnant from May onwards, unable to break the 5-cent barrier. However, today’s trading update has witnessed the company’s shares reach highs not seen since April.

The Cellnet share price hit a 52-week high of 9.6 cents per share on 22 January 2020.

More reading

• Brokers name 3 ASX shares to buy right now
• 3 big things you might have missed from the Xero (ASX:XRO) results
• What has Warren Buffett been up to lately?
• Tinybeans (ASX: TNY) share price leaps 9% after record month
• Why the Polynovo (ASX:PNV) share price up 6% higher today

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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Australia’s top brokers have been busy adjusting their estimates and recommendations again, leading to the release of a large number of broker notes this week.

Three broker buy ratings that have caught my eye are summarised below. Here’s why brokers think these ASX shares are in the buy zone:

Breville Group Ltd (ASX: BRG)

According to a note out of Morgan Stanley, its analysts have retained their overweight rating and $29.00 price target on this appliance manufacturer’s shares. This follows the release of its annual general meeting update which included guidance for FY 2021. Breville expects earnings before interest and tax (EBIT) of $128 million to $132 million. Morgan Stanley believes this guidance could prove to be conservative. The Breville share price is trading at $26.03 this afternoon.

InvoCare Limited (ASX: IVC)

A note out of Morgans reveals that its analysts have retained their add rating and increased their price target on this funerals company’s shares to $13.00. The broker made the move after InvoCare announced the acquisition of Family Pet Care and Pets in Peace for a combined price of $49.8 million. Morgans expects the acquisitions to be accretive to earnings in FY 2021. Outside this, it feels the recent easing of COVID restrictions will be a boost to its core business. The InvoCare share price is changing hands for $11.56 today.

Telstra Corporation Ltd (ASX: TLS)

Analysts at UBS have retained their buy rating and $3.70 price target on this telco giant’s shares. This follows an announcement by the company which revealed plans to split into three separate entities. The broker believes this plan will crystallise value for shareholders. In addition to this, the broker sees 5G internet as a major opportunity for Telstra and expects the company to pay a 16 cents per share dividend in FY 2021. The Telstra share price is trading at $3.12 on Friday afternoon.

More reading

• Why this broker is calling Telstra (ASX:TLS) shares a buy today
• These blue chip ASX dividend shares offer 5%+ yields
• The ASX 200 fell 0.5% on Thursday
• Why InvoCare, Nine, Telstra, & Wesfarmers shares are storming higher
• ASX 200 down 0.1%: Xero hits record high, Telstra and Wesfarmers updates impress

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended InvoCare Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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This week, cloud accounting platform Xero Limited (ASX: XRO) announced a rocketing earnings result for the six months to 30 September 2020. You can read the highlights here.

The big headline numbers showed continued growth in subscribers and revenue, as well as a huge lift in net profit, which jumped from NZ$1.3m to NZ$34.5m. Given the Xero share price jumped by as much as 6% on the day, the results were better than many had anticipated for a period throttled by COVID-19.

However, digging into the results, there are three big things that you may have missed.

1. Xero is piling up a lot of cash!

During the period, Xero’s free cash flow jumped from NZ$5.3 million to NZ$54.3 million. That is a big increase and the additional cash means that Xero now has NZ$572 million of cash and short term equivalents.

What could Xero do with that cash? Well, pop your dreams of a juicy dividend aside for now. Over the last few years Xero has made several careful acquisitions to expand the company’s platform and make it even more attractive to users. This includes the purchase of lending platform Waddle for $80 million, as well as the US$70 million acquisition of invoice and receipt capture software Hubdoc.

As Xero is still very much in growth mode, there is a good chance the company will continue to look for acquisitions that continue to add to the company’s platform.

2. COVID-19 caused the cost of acquiring new customers to spike

Although Xero was able to trim sales and marketing costs by 10% compared to the same period last year, the drag of COVID-19 on international subscriber growth meant that Xero’s Customer Acquisition Cost (CAC) jumped noticeably.

International CAC months, the number of months it takes for revenue from a new subscriber to cover the cost of acquiring them, jumped from 16 months at September 30 2019, to 22 months in 2020. Xero says the increase was largely due to the lower growth rate of new subscribers, so the average cost of acquiring each new user internationally increased 30%!

3. Xero still has a huge opportunity ahead

Although it was disappointing to see CAC rise, Xero reminded shareholders of just how big the opportunity ahead is. CEO Steve Vamos noted that Xero estimates that only half of small businesses in Australia and New Zealand have adopted cloud accounting, while for the rest of the world that number is only at 20%. This reiterates just how big the opportunity for cloud accounting, and Xero, remains.

More reading

• Why Orocobre, Ramsay, Webjet, & Xero shares are dropping lower
• The ASX 200 fell 0.5% on Thursday
• Why are ASX tech shares all over the place today?
• ASX 200 down 0.1%: Xero hits record high, Telstra and Wesfarmers updates impress
• Xero (ASX:XRO) share price hits record high after delivering strong first half growth

Regan Pearson owns shares of Xero. You can follow him on Twitter @Regan_Invests.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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Warren Buffett – chair and CEO of Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) – is one of the most successful and influential investors of all time.

Berkshire, the company that he almost single-handedly built into a US$526 billion behemoth, is one of the largest companies in the world. It owns (or owns massive stakes in) a wide variety of businesses, including Duracell, Fruit of the Loom, Geico, Apple Inc (NASDAQ: AAPL), Amazon.com Inc (NASDAQ: AMZN), Wells Fargo & Co (NYSE: WFC) and (more recently) Snowflake Inc (NYSE: SNOW).

So needless to say, when Buffett has something to say, most investors pay attention.

Over in the United States, large companies like Berkshire have to tell the markets what shares they own, and in what quantities, every 3 months in a filing known as the 13F. Berkshire’s latest filing (covering the quarter ending September 30, 2020) isn’t due for a few days yet. But reporting in BusinessInsider gives us a sneak preview.

What has Warren Buffett been doing?

According to reporting from BusinessInsider, Buffett likely spent the quarter trimming positions in some of his more well-known positions.

The report quotes David Hass, a finance professor at the University of Maryland in the US. Professor Kass “closely follows” Buffett and Berkshire, and reckons he has a few insights into Buffett’s more recent moves.

“I am expecting that Buffett further reduced his holdings in several banks including Wells Fargo”, the report quotes Hass as stating. He also predicted that Berkshire “cashed out about US$4 billion in Apple stock last quarter”. Hass makes these predictions based on Berkshire’s recent earnings.

Hass also highlights Berkshire’s recent ~US$750 million investment in cloud company Snowflake, which has a highly-publicised IPO back in September. He estimates Berkshire will show a US$1.5 billion position in Snowflake when we eventually get to see the filing.

However, Kass expects Buffett to put this cash to use, telling BusinessInsider that he expects the legendary investor to continue to shift his focus from “weathering the pandemic” to “deploying the company’s vast cash reserves”. Kass believes Buffett began this shift between the quarter ending March 31 (when Buffett net sold US$12.8 billion in stocks) and the quarter ending June 30 (when Buffett net bought $4.8 billion).

In fact, Kass says that Buffett “may be feeling even more bullish now” considering the prospect of an effective COVID-19 vaccine in “a matter of months”, together with the rollout of other promising treatments for the coronavirus.

This “should remove Buffett’s main cause of concern” Kass stated.

He says that “some new holdings may be revealed as well”, predicting we could see some larger tech positions, despite Buffett’s historical nonchalance toward the sector.

More reading

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• Here are the US shares that CommSec customers are buying
• 2 amazing stats from Amazon’s (NASDAQ:AMZN) third quarter
• Why REITs led the pack on the ASX today
• Apple develops its own search tools as Google defends against antitrust probe

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon, Apple, Berkshire Hathaway (B shares), and Snowflake Inc and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), short January 2022 $1940 calls on Amazon, long January 2022 $1920 calls on Amazon, and short December 2020 $210 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Amazon, Apple, and Berkshire Hathaway (B shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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Tinybeans Group Limited (ASX: TNY) shares have jumped up 8.61% in trading today after achieving record performance in October. At the time of writing, the Tinybeans share price is trading at $1.64.

What are the highlights?

Tinybeans announced that its second quarter of FY21 is off to a positive start with the company’s Red Tricycle web site (redtri.com) achieving multiple site records. These include:

• 3.1 million monthly active users, up by 7% since December 2019
• 222,000 monthly page views (up by 19% vs. previous record in May)
• and 250,000 organic search sessions (up by 27% vs. previous record in April)

Tinybeans also announced that it signed more than $500,000 in new business contracts in October. Partners include large new brands such as Apple TV+ (NASDAQ: AAPL), Netflix (NASDAQ: NFLX), and Hasbro (NASDAQ: HAS). These signed contracts will have an immediate benefit to top line revenues. 

Today’s announcement also follows the recruitment of senior executives in the United States to its boardroom. 

Tinybeans CEO Eddie Geller welcomed the results, saying:

After a successful Q1 of FY21, we are delighted to see the momentum carry into Q2 with our strongest performance ever both from a platform engagement and new brand win perspective. We are confident that as more users and partners experience the platform, this will pave the way for what we anticipate to be a second consecutive strong quarter of growth.

Tinybeans in a nutshell

Tinybeans was founded in Sydney in 2012 by Stephen O’Young. It’s a family photo sharing app that helps parents capture and organise their children’s lives using photos, video, and written messages. 

One big selling point for the app is that it has privacy features that allow parents to retain legal ownership of their content, unlike other larger social media sites. The app is available in both Android and iOS. The United States makes up 92% of the company’s revenue, while Australia contributes most of the remainder. The company employs both a premium subscription and advertising revenue business model.

How did the Tinybeans share price perform in 2020?

In its first quarter FY21 results announced in October, Tinybeans reported that revenue jumped to $2.5 million, a 123% increase on the prior corresponding period. The record result was achieved by Tinybeans’ premium subscription base growing above 22,000 members, with total registered users surpassing a record 4.65 million at the time. 

Although the Tinybeans share price has lost 25% on a year-to-date basis, the price has performed strongly since the beginning of August, doubling in value. It is currently trading at $1.64 with a market cap of $70 million.

 

More reading

• Why the Tinybeans (ASX:TNY) share price is jumping 16% today
• Why is the Tinybeans (ASX:TNY) share price edging higher today?

Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Apple, Hasbro, and Netflix. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Tinybeans Group Ltd. The Motley Fool Australia has recommended Apple, Netflix, and Tinybeans Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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 Polynovo Ltd (ASX: PNV) share price is soaring higher today. This comes after the company announced an approval of a pivotal trial investigation device exemption (IDE).

During mid-morning trade, shares in the medical device company reached an intra-day high of $2.98. However, the Polynovo share price has since slightly retreated to $2.97, up 6.07% at the time of writing.

Let’s take a look at what Polynovo updated the market with.

FDA approval for clinical trial

Polynovo advised that the United States Food and Drug Administration (FDA) has approved the pivotal trial IDE for NovoSorb BTM. The authorisation allows Polynovo to begin patient recruitment, once various hospital Independent Review Boards grant approval.

Polynovo will seek to utilise 20 sites and enlist 150 patients for the clinical study of NovoSorb BTM. All locations are currently in advanced contractual negotiations, and the company will provide further details when available.

Recruitment is anticipated to start in early 2021 and conclude around the end of 2023. Polynovo advised the program was supported by the Biomedical Advanced Research and Development Authority (BARDA) funding of $150 million.

What did management say?

Polynovo managing director Paul Brennan said this was a “significant milestone” for PolyNovo:

We are excited to begin this trial as it will build significant clinical data and further demonstrate the ability of NovoSorb BTM to enhance clinical outcomes and improve patients’ lives.

Recent developments

Earlier this month, Polynovo also announced that it had entered the Greek market for NovoSorb BTM. The company revealed it had appointed Biogenesys as the distributor in the Mediterranean country.

With more than 20 years of experience, Biogenesys specialises in the area of bone and tissue allograft. It has an established network servicing hospitals and surgeons in Greece.

Speaking on the new entry to market, Mr Brennan added:

Greece is the first of the Mediterranean markets to join the PolyNovo family. With Melbourne having such a close connection to Greece we are pleased that our life-changing NovoSorb BTM is now available to the wider Greek family. Biogenesys brings significant local knowledge and connections to facilitate penetration of this market.

More reading

• Why Elders, Jumbo, Northern Star, & PolyNovo shares are charging higher
• 5 things to watch on the ASX 200 on Friday
• These were the best performing ASX 200 healthcare shares in October
• Grow your wealth with these quality ASX healthcare shares

Aaron Teboneras owns shares of POLYNOVO FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of POLYNOVO FPO. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Why the Polynovo (ASX:PNV) share price up 6% higher today appeared first on Motley Fool Australia.

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In afternoon trade the S&P/ASX 200 Index (ASX: XJO) looks set to end a very positive week on a disappointing note. The benchmark index is down 0.55% to 6,382.5 points.

Four shares that are falling more than most today are listed below. Here’s why they are dropping lower:

Orocobre Limited (ASX: ORE)

The Orocobre share price is down 2% to $2.96. This follows the release of its annual general meeting update this morning. At the meeting the company spoke about its tough time in FY 2020 due to difficult lithium market conditions. It notes that COVID-19 made the situation worse with lithium supply remaining resilient while battery and electric vehicle (EV) manufacturing was reduced. Positively, management advised that it is now starting to see increased spot prices for lithium chemicals with increasing demand for EVs.

Ramsay Health Care Limited (ASX: RHC)

The Ramsay share price has fallen 2% to $66.75 following the release of its first quarter update. Although the private hospital operator revealed that its Australian operations delivered a 1.5% increase in revenue, its earnings have suffered. Management advised that its Australian earnings decline is due to restricted surgical activity in Victoria, increased costs, and reduced procurement benefits as a result of operating in a COVID safe environment.

Webjet Limited (ASX: WEB)

The Webjet share price has dropped 2.5% to $4.91. This appears to have been driven by profit taking after strong gains earlier this week amid the COVID-19 vaccine news. It is also worth noting that last week Morgan Stanley put a neutral rating and $3.40 price target on its shares. This is notably lower than where it shares trade at today.

Xero Limited (ASX: XRO)

The Xero share price is giving back some of yesterday’s gains and is down 2.5% to $120.43. This morning analysts at UBS retained their sell rating and lifted the price target on the company’s shares to $77.00. Although Xero delivered a stronger than expected half year result, it isn’t enough for the broker to change its view. It still feels its shares are expensive at the current level.

More reading

• Lithium miner Orocobre (ASX:ORE) share price down after AGM
• ASX 200 down 0.35%: Ramsay Q1 update, NEXTDC’s international expansion, gold miners surge
• Ramsay Health Care (ASX:RHC) share price on watch after Q1 update
• The ASX 200 fell 0.5% on Thursday
• Broker tipping a ~10% jump in the Medibank (ASX:MPL) share price by Tuesday

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Ramsay Health Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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Orocobre Limited (ASX: ORE) shares have slipped 1.99% after its annual general meeting (AGM) this morning. Management detailed the struggles the company has faced in 2020 due to costs arising from COVID-19, as well as the persistently low lithium market price. At the time of writing, the Orecobre share price is trading at $2.96.

Highlights from the AGM

Orecobre says that its financial performance reflected the difficult lithium market conditions with persistent oversupply and weak prices. In the second half of FY20, coronavirus impacts made the situation worse by reducing global production in battery and electric vehicles. In response to these external factors, the company reduced production rates, and brought forward planned maintenance activities.

The lithium supplier said productivity advances at its Olaroz mine in Argentina had been overshadowed by the pandemic. It noted that Argentina was one the hardest-hit countries with 2.5% of its population having been infected with COVID-19. New safety measures and protocols meant that new and rising expenses were incurred this year.  

On the bright side, Orecobre achieved growth with the acquisition of Advantage Lithium during the year. This effectively doubled the company’s resource base. The company also remained confident that continued growth in the electric car market and other forms of transport would underpin the company’s long-term growth.

How has Orecobre performed in 2020?

Earlier this year, the company posted a 50% decline in revenue to US$77.1 million, and a US$67.1 million loss after tax for FY2020. This loss includes impairments due to COVID-19 costs. Following the loss, the company raised a $126 million equity placement to fully fund its Olaroz mining project, so that it could navigate through the short-term challenges of COVID-19 and the pricing environments.

The company’s business has been severely hampered in recent years due to the oversupply of lithium in the market. Management has said this supply could be absorbed if the production of electric vehicles increased significantly over the next few years. 

Despite the company’s weak performance in 2020, the Orecobre share price has risen by 5% on a year-to-date basis. At the current share price of $2.96, it commands a market cap of $1 billion.

More reading

• Why Orocobre, Ramsay, Webjet, & Xero shares are dropping lower

Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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ASX gold stocks have slumped with the precious metal since news of a promising COVID‐19 vaccine hit, but some experts believe it can still rebound to a record in 2021.

The price of the precious metal tumbled around 4% in the past week to US$1,877 an ounce. This triggered a 4% slide in the Newcrest Mining Limited (ASX: NCM) share price, 6% decline in the Evolution Mining Ltd (ASX: EVN) share price and 11.5% drop in the Northern Star Resources Ltd (ASX: NST) share price.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) climbed around 3% over the same period.

ASX gold stocks losing their glitter

Gold’s lost some of its lustre on growing confidence that the world would soon emerge from the pandemic.

It’s also been on a backfoot since media organisations declared Joe Biden the new US president while the Senate remains in Republican hands.

This means Biden will find it hard to unleash the trillions in stimulus he’s proposing – a move which will weaken the US dollar.

These factors explain why ASX gold stocks have been underperforming.

Why gold could hit new record highs in 2021

Gold may be down, but it’s not out. That’s the view of some experts who’re predicting that the safe haven asset will hit new highs in the new year, reported CNN.

The fact is, gold may have retreated but it’s still well within striking distance of this year’s peak at just over US$2,000 an ounce.

Biden’s difficulty in getting his massive stimulus passed into law may very well force the US Federal Reserve to up their quantitative easing (QE) ante too.

If the Feds pump even more money into the financial system via QE, that will weaken the US dollar and shake confidence in the world’s reserve currency.

Gold is still relevant post COVID

All this is good news for ASX gold shares and the commodity, which investors regard as both an alternative to the US dollar and an inflation hedge.

“All of the reasons for gold strength over the past few months are still in place,” CNN quoted Bryan Slusarchuk, chief executive of Victoria-based Fosterville South Exploration.

“The horse has left the barn. People are looking at gold as an alternative currency.”

Gold a good alternative to bonds

There’s another reason why gold could find renewed favour. Some believe it makes a good substitute for government bonds.

This isn’t normally the case as gold doesn’t have a yield like bonds do. But the rates on Australian and US government bonds are so low, some investors might think having some gold is a good diversification strategy to their government bond portfolio.

What’s more, it’s clear that record low interest rates will be around for years, as will fiscal and monetary stimuli.

Gold price forecast for 2021

“The safe haven trade for gold is not completely gone. We are just a crossroads where volatility is high,” Everett Millman, precious metals specialist with Gainesville Coins told CNN.

“We expect moves on both sides and a lot of headline risk.”

However, Millman is tipping gold to hit a fresh record high of around US$2,100 next year, while Slusarchuk is a lot more bullish with his prediction of US$2,500.

If this comes to pass, ASX gold stocks could outperform in 2021.

More reading

• Why Elders, Jumbo, Northern Star, & PolyNovo shares are charging higher
• ASX 200 down 0.35%: Ramsay Q1 update, NEXTDC’s international expansion, gold miners surge
• 5 things to watch on the ASX 200 on Friday
• The ASX 200 fell 0.5% on Thursday
• After 8 months, ASX 200 shares are finally out of correction territory

Motley Fool contributor Brendon Lau owns shares of Evolution Mining Limited and Newcrest Mining Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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 Corporation Ltd (ASX: TLS) share price has had a pretty pleasant few weeks of late. On 30 October, just under 2 weeks ago, Telstra shares were plumbing new depths, drifting as low as $2.66 a share. That price was a new 52-week low and was dangerously close to an all-time low for Telstra.  This means a lot when a company has been on the market for more than 2 decades.

But what a difference 2 weeks can make. Today, the Telstra share price is trading at $3.12 at the time of writing, a good 16% higher than 30 October’s levels. In fact, Telstra shares are up 11.2% over just the past week, and up 4.4% since market close on Wednesday.

No doubt Telstra shareholders will be pleased with this news, but a major broker reckons there’s plenty of petrol left in the tank on this one.

Why is Telstra’s share price rising?

Investors seem to be, in part,  reacting to the news that Telstra released yesterday before market open as part of the company’s ‘annual investor day’ presentation. This news outlined how Telstra plans to split itself into 3 distinct legal entities: InfraCo Fixed, InfraCo Towers and ServeCo. The 2 ‘InfraCo’ divisions will house Telstra’s infrastructure assets like cabling, towers, ducts and data centres. The ‘ServeCo’ entity will house the ‘customer-facing’ and ‘active’ parts of the business, such as spectrum rights.

Its partly this restructuring program that has broker Goldman Sachs bullish on Telstra. Goldman reiterated its ‘buy’ rating on Telstra this morning with a $3.75 target price, citing the potential value creation from this restructuring. Goldman estimates that Telstra has an implied valuation of $3.55-$5.15 per share if the 3 entities are separated. Further, Goldman reckons Telstra will be able to achieve a 7.6% return on investor capital (ROIC) metric by FY2023.

Yesterday, Telstra’s CEO Andy Penn stated that achieving a ROIC of “close to 8%” was the company’s goal by FY2023, which he implied would help sustain Telstra’s 16 cents per share (cps) annual dividend. On the dividend, Goldman is bullish, stating that “the 16cps dividend is sustainable, and could be supplemented by meaningful TowerCo proceeds”.

A Telstra share price of $3.75 (as Goldman Sachs targets), implies a further upside of more than 20% on the current share price (not including any dividend returns). And if Telstra ever reaches the upper price target that Goldman states of $5.15 a share, it would imply upside of another 65%. Telstra hasn’t seen that kind of price in front of its name since way back in 2016.

More reading

• These blue chip ASX dividend shares offer 5%+ yields
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Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Why this broker is calling Telstra (ASX:TLS) shares a buy today appeared first on Motley Fool Australia.

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