Author: therawinformant

The Australian dollar could be at a decisive point as it slumped from its two-month high. Investors should be paying attention as our dollar could fall further and change the fortunes for a range of ASX stocks.

The Aussie battler was trading close to US74 cents early last month but retreated sharply to be around US70 cents this morning.

It’s resting on a psychologically important support line. If it gives up a little more ground, it could easily give up another cent or two. That may not sound like much, but don’t be fooled.

Australian dollar sways ASX stocks

A US1 cent change is a big move on currency markets and it can have a material impact on profits for S&P/ASX 200 Index (Index:^AXJO) stocks.

There are a few “push” and “pull” factors working in unison to knock the Aussie off its perch. The deputy governor of the Reserve Bank of Australia (RBA), Guy Debelle, jawboned our dollar in a speech this week.

RBA taking wind out of Aussie dollar’s sail

He hinted that direct intervention by the RBA to bring down the dollar is one of the arrows in the RBA’s quiver in its fight to support economic growth.

That would be a radical move as the RBA is/was a firm believer in a free-floating dollar – but we live in radical times.

Another push factor is the growing number of economists forecasting another interest rate cut in the next month or two. The cash rate stands at a record low of 0.25% but Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd. (ASX: NAB) are tipping the rate to fall to 0.1%.

US dollar on the attack

On the pull side, the US dollar is gaining ground against all major currencies, including ours. Europe is shutting down economy yet again to curb growing COVID-19 cases, and that’s forcing investors to scurry to the safety of the greenback.

What happens to the Aussie in the next few days could determine where it’s heading over the next few months.

How ASX stocks are affected by the Australian dollar

ASX-listed companies are impacted by the exchange rate in a few ways. They either generate income and/or incur costs in US dollars.

UBS picked the three large cap ASX stocks in its portfolio with most to lose or gain from the AUD/USD exchange rate.

The 3 ASX stocks most impacted by the Aussie

These are blood treatment giant CSL Limited (ASX: CSL), hearing implant maker Cochlear Limited (ASX: COH) and logistics group Brambles Limited (ASX: BXB).

While these companies are also exposed to other currencies, especially the Euro, the broker doesn’t think we will see much movement in the AUD/EUR exchange rate.

This means all the action will be centred on the Aussie’s battle with the greenback.

More reading

• 2 ultra-cheap ASX ETFs any investor can add to a share portfolio
• 2 must buy ASX 200 shares to snap up right now
• Is the Transurban (ASX:TCL) share price a secret cash cow?
• Why the Telstra (ASX:TLS) share price could be under pressure in 2021
• 5 things to watch on the ASX 200 on Friday

Brendon Lau owns shares of CSL Ltd. Connect with me on Twitter @brenlau.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. and CSL Ltd. The Motley Fool Australia has recommended Cochlear 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 tech sector has been uncharacteristically out of form in recent months following weakness on Wall Street’s Nasdaq index.

While this is disappointing if you’re already a shareholder of these tech companies, I see it as a big gift to non-shareholders.

The two ASX tech shares listed below, for example, are down heavily from their 52-week highs. I feel this could be a great entry point for a long-term focused investment. Here’s why:

Appen Ltd (ASX: APX)

The Appen share price is down over 25% from the 52-week high it reached just under a month ago. This means that the artificial intelligence services company’s shares are now changing hands at 37x estimated FY 2022 earnings. While this is still a premium to the market average, I think it is more than fair given its positive long term growth outlook.

Due to its leadership in the data preparation market for machine learning and artificial intelligence, I believe it is well-placed to continue delivering strong earnings growth over the 2020s. Last month IDC forecast spending on artificial intelligence to double in four years to US$110 billion. That’s a compound annual growth rate of 20.1% for the 2019 to 2024 period. It commented: “Companies will adopt AI — not just because they can, but because they must.” This bodes well for Appen.

Pushpay Holdings Ltd (ASX: PPH)

The Pushpay share price has bounced back recently but is still trading approximately 14% lower than its 52-week high. I think this has left it trading at a very attractive level for investors that are looking for buy and hold options.

Pushpay is a leading donor management and community engagement platform provider for the church market. Although this is a niche market, it certainly is a very lucrative one. Management is aiming to win a 50% share of the medium to large church market, which it estimates to be worth US$1 billion a year in revenue at present. Given the quality of its platform and the shift to a cashless society, I feel very confident it will achieve its goals.

More reading

• 3 top ASX tech shares to buy in 2020
• New to investing? I would invest $500 into these exciting ASX shares
• 2 top ASX shares I’d buy with $2,000 right now
• Top brokers name 3 ASX shares to buy today
• 2 stunning ASX growth shares to buy and hold

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 PUSHPAY FPO NZX. The Motley Fool Australia owns shares of Appen Ltd. The Motley Fool Australia has recommended PUSHPAY FPO NZX. 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 article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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

Tesla Inc‘s (NASDAQ: TSLA) new battery technology promises to accelerate the growth of the electric-vehicle market and widen its lead over its rivals.

So says Deutsche Bank analyst Emmanuel Rosner. On Wednesday, Rosner raised his rating on Tesla’s shares from hold to buy and boosted his price forecast from $400 to $500. His new target represents potential gains for shareholders of roughly 27% from the stock’s current price near $395.

Rosner applauded Tesla’s goal of slashing its battery costs by more than half in the next three years, which he says could significantly improve its sales volumes and profit margins. In turn, he expects Tesla to produce more than 2 million electric vehicles and $15 in earnings-per-share by 2025. Thus, he urges investors to use the stock’s recent pullback to buy shares at a sizable discount to its recent highs.

Is Tesla’s stock headed to $500?

Following Rosner’s upgrade, news broke that California plans to phase out gasoline-powered cars as a means to battle climate change. Governor Gavin Newsom issued an executive order requiring all new passenger vehicles sold in the state to be zero-emission by 2035. It also requires state agencies to work with businesses to “accelerate deployment of affordable fueling and charging options”. 

If California’s leadership in the battle against climate change spurs other states to enact similar plans, it could hasten the adoption of electric vehicles. That would be a boon for industry leader Tesla, and it could drive its shares to $500 and beyond in the coming years.

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

More reading

• Why this fundie still sees an ASX tech share surge
• How Elon Musk’s Tesla delivered a body blow to these ASX stocks
• Elon Musk’s ‘Battery Day’ could see these ASX mining shares soar, and volatility hits the markets
• Tesla’s ‘Battery Day’ is a dud; stock tumbles
• Ecograf (ASX:EGR) share price moves after Tesla’s Battery Day presentation

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

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I think that there are some good listed investment companies (LICs) out there that are worth investing in for high dividend yields of over 6.5%.

That sounds more attractive to me than not earning anything in the bank because of low interest rates. 

What is a LIC?

A LIC is a company which invests in other assets or shares on behalf of shareholders. There are plenty of LICs on the ASX which are managing money for shareholders.

Some of them are very large and have been around for decades like Australian Foundation Investment Co.Ltd. (ASX: AFI) and Argo Investments Limited (ASX: ARG) which invest in ASX blue chips.

There are other LICs that focus on small caps and can be quite volatile like WAM Microcap Limited (ASX: WMI).

Plenty of LICs offer pretty good dividend yields, but some offer even bigger yields than most:

WAM Leaders Ltd (ASX: WLE)

WAM Leaders is a LIC operated by Wilson Asset Management (WAM). The lead portfolio manager of WAM Leaders is Matthew Haupt who has managed the portfolio of large caps over the past few years.

On the dividend side of things it has a high dividend yield of 8.1%, grossed-up, at the current WAM Leaders share price. That yield includes the forward dividend guidance of a 3.5 cents per share payment.

At 31 August 2020 the LIC’s had delivered a gross return (before fees, expenses and taxes) of 10.6% per annum since May 2016, outperforming the S&P/ASX 200 Accumulation Index by 3.5% per annum. That’s solid outperformance. Over the prior 12 months its gross outperformance had been 10.7%.

It’s this strong level of performance (and outperformance) that allows the LIC to pay a solid dividend.

Large caps are generally seen as safer and more stable, which allows WAM Leaders to invest confidently. While many large cap ASX shares cut their dividends because of the pandemic, WAM Leaders has been able to still grow its dividend.

Naos Emerging Opportunities Company Ltd (ASX: NCC)

This LIC has a very high dividend yield. When grossed-up, it offers a yield of 10.5% at the current Naos Emerging Opportunities share price.

It aims to invest in small cap ASX shares with market capitalisations under $250 million. Many investors don’t venture into that area of the market, so there can be some exciting opportunities to be found at good prices.

Some of its current investments include Experience Co Ltd (ASX: EXP), Saunders International Ltd (ASX: SND) and Contango Asset Management Ltd (ASX: CGA).

Industrial small cap shares have found things tough in 2020 with the impacts of COVID-19. However, despite that, Naos Emerging Opportunities can still point to an average return per annum of 10.1% (after expenses but before fees) since inception in February 2013.

The high dividend yield seems fairly safe for the next few years as the LIC has maintained of grown its dividend very year since FY13. It has a profit reserve of 32.7 cents per share, which amounts to about four years at the current dividend level.

Future Generation Investment Company Ltd (ASX: FGX)

Future Generation is the final LIC in this article. It has increased its dividend each year over the past five years, including through this difficult COVID-19 pandemic period.

There are two main things to know about Future Generation. It donates 1% of its net assets to youth charities, which is particularly useful in this COVID-19 era.

Future Generation offers excellent diversification because it’s invested in around 20 funds of different Australian fund managers who work for free. Each of those portfolios probably represents at least 10 holdings. So there are lots of underlying shares for good diversification. 

Future Generation has a fairly high dividend yield, it has a grossed-up yield of 6.6%.

The LIC has delivered outperformance compared to the S&P/ASX All Ordinaries Accumulation Index. Over the past three years Future Generation’s gross portfolio return has beaten the index by an average of 2.1% per annum.

Foolish takeaway

All three of these LICs offer high dividend yields, which is nice for income investors. I’d be happy to buy all three at the current prices, though I think I’d prefer Future Generation because of the attractive net tangible asset (NTA) discount of around 11%.

More reading

• 3 star ASX income shares for 2021
• How to generate $1,000 a month in dividends
• Give yourself a payrise, buy these 3 ASX dividend shares
• ASX dividend share WAM Leaders (ASX:WLE) flags dividend boost
• 2 ASX shares perfect for beginners in 2020

Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN FPO and WAM MICRO FPO. The Motley Fool Australia owns shares of EXPERNCECO FPO. 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 Premier Investments Limited (ASX: PMV) share price will be one to watch this morning following the release of its full year results for FY 2020.

How did Premier Investments perform in FY 2020?

For the 12 months ended 25 July 2020, the retail conglomerate posted a 2.1% decline in revenue to $1.25 billion.

This was due largely to store closures during the pandemic and offset slightly by a 48.8% jump in online sales to a record of $220.4 million. The Peter Alexander brand also delivered record sales, up 16.3% to $288.2 million for the year.

It was thanks partly to its higher margin online sales that Premier Investments was able to grow its earnings strongly during the 12 months despite its overall sales decline. The company recorded an impressive 29% increase in net profit after tax to $137.75 million.

This allowed the board to declare a fully franked final dividend of 36 cents per share, down slightly from 37 cents per share a year earlier. However, this brought its full year dividend to 70 cents per share, which was flat year on year.

Wage subsidies.

Premier Investments advised that it became eligible for $68.7 million of global wage subsidies across seven countries during FY 2020, of which $49 million was received as of 25 July 2020.

Of the total amount, $35.5 million was passed directly through to eligible employees unable to work.

Circling back to its dividend, the Premier Investments board revealed that it considered the impact of wage subsidies on its profit and cash position. However, it determined that the net global government subsidies received were not required for the payment of the final dividend.

Smiggle closures.

Management notes that the impact of COVID-19 was particularly severe on the Smiggle business.

In light of this and to ensure Smiggle is best placed to rebound and grow post-COVID-19, management is making some big changes.

It intends to close the final four Smiggle stores in Hong Kong by the end of October. Up to 55 Smiggle stores out of 131 in the UK will be closed this financial year. Management intends to impair 100% of its UK assets, as well as those in Hong Kong, Singapore, Malaysia, and Ireland.

It will now focus on investing in Smiggle’s highly profitable global online presence.

Outlook.

Due to the uncertain economic environment, no guidance was given for the year ahead.

However, management believes the company is extremely well placed. This is thanks to its seven strong brands, fully integrated and highly profitable online channel, strong balance sheet, and high calibre board and management team.

More reading

• 5 things to watch on the ASX 200 on Friday
• The next ASX stock to be rocked by board shakeup after Rio Tinto (ASX:RIO)
• The 3 best ASX shares to buy before October
• 5 things to watch on the ASX 200 next week
• Is another stock market crash coming?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments 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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The best thing I like about index-tracking exchange-traded funds (ETFs) is how ultra-cheap some of them are. An ETF represents an avenue to a market-equaling return. Most of us ASX investors try and beat the market in any given year. But this is hard – and having ‘the market’ in your portfolio can help balance out your returns if your portfolio has a bad year.

But when it comes to choosing an index for this end, there are still many choices. We’ll go over an obvious one, and a not-so-obvious choice.

2 ultra-cheap ASX ETFs

BetaShares Australia 200 ETF (ASX: A200)

This ASX ETF from BetaShares tracks an index we’d all be reasonably familiar with – the S&P/ASX 200 Index (ASX: XJO). This index represents the largest 200 public companies in Australia. CSL Limited (ASX: CSL) is the top stock in this index, but the big four ASX banks like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), Wesfarmers Ltd (ASX: WES) and Woolworths Group Ltd (ASX: WOW) are also large constituents.

I like A200 because it is the cheapest Aussie ETF on the ASX today (to my knowledge anyway) with an annual management fee of 0.07%. That works out to be a cost of just $7 a year for every $10,000 you have invested. Even the famous-for-low-fees Vanguard Group offering can’t compete, with the Vanguard Australian Shares Index ETF (ASX: VAS) charging 0.1% per annum. For a simple and cheap avenue to all of your favourite Aussie companies, you can’t go wrong with this ultra-cheap ETF.

Vanguard U.S. Total Market Shares Index ETF (ASX: VTS)

As the name implies, this ETF tracks an index that covers the entire US share market. Don’t mistake this for an S&P 500 index fund. Even though the S&P 500 is a far more popular index in the ETF world, it only covers a selected group of 500 companies, rather than the 3,525 companies that VTS holds.

However, its top holdings will look very similar. You have the big tech shares like Apple Inc (NASDAQ: AAPL) and Microsoft Corporation (NASDAQ: MSFT) dominating, along with other companies like Visa Inc (NYSE: V), Johnson & Johnson (NYSE: JNJ) and even Tesla Inc (NASDAQ: TSLA), which hasn’t yet made it to the S&P 500.

The US houses some of (if not most) of the best companies in the world, so I think getting some exposure is a great idea for any investor. VTS charges a minuscule management fee of just 0.03% per annum (or $3 a year for every $10,000 invested), which I believe makes VTS the cheapest ETF on the ASX. You could do a lot worse than this ETF as a passive investment.

Foolish takeaway

There are many ASX ETFs available, but these 2 choices are by far the cheapest offerings in their respective fields. Both cover well-known and familiar indices, and so I think wither would make a top choice for any investors’ portfolio today.

More reading

• 2 must buy ASX 200 shares to snap up right now
• Is the Transurban (ASX:TCL) share price a secret cash cow?
• Why the Telstra (ASX:TLS) share price could be under pressure in 2021
• 5 things to watch on the ASX 200 on Friday
• ASX 200 falls 0.8%, Afterpay (ASX:APT) share price drops 6%

Sebastian Bowen owns shares of Johnson & Johnson, Tesla, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Apple, Tesla, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Johnson & Johnson. The Motley Fool Australia owns shares of Wesfarmers Limited and Woolworths Limited. The Motley Fool Australia has recommended Apple. 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 tech shares were smashed on Wednesday but one leading fundie thinks that now could be the time to buy.

What happened to ASX tech shares?

Big-name tech companies like Afterpay Ltd (ASX: APT) were smashed on Wednesday as a broader tech stock sell-off in the United States continued.

Tesla Inc. (NASDAQ: TLSA) shares fell 10.3 per cent on Wednesday after disappointing battery day updates. Tesla announced work to produce a car costing US$25,000 as it looks to reduce production costs while also announcing a new Model S ‘Plaid’ with a luxury price tag.

Investors were not impressed by the updates and it sparked another broad tech sell-off overseas. ASX tech shares were not immune with the Afterpay share price now down 8.2% since 10.30am on Wednesday morning.

Why a leading fundie thinks its time to buy

According to an article in the Australian Financial Review (AFR), Frazis Capital Partners portfolio manager Michael Frazis thinks it could be time to buy.

Frazis thinks now could be a good entry point for investors looking to invest in the future. The fundie doesn’t think that the volatility has subsided with a real chance of further short-term downside.

However, increased volatility could introduce buying opportunities for investors willing to roll the dice.

Is now really a good time to buy?

No one has a crystal ball for this sort of stuff. It’s hard to know whether there are further losses on the way or ASX tech shares are set to surge.

I think there are some like Afterpay that could see further correction given just how far they’ve surged in 2020. However, I’m sure there are pockets of tech that still have further to go if investors are willing to hunt for bargains.

Despite strong gains for Xero Limited (ASX: XRO), I’m still quietly bullish. I think the ASX tech share can continue to climb and surge past the $100 per share mark in 2020.

More reading

• 2 must buy ASX 200 shares to snap up right now
• ASX 200 falls 0.8%, Afterpay (ASX:APT) share price drops 6%
• How Elon Musk’s Tesla delivered a body blow to these ASX stocks
• Elon Musk’s ‘Battery Day’ could see these ASX mining shares soar, and volatility hits the markets
• ASX 200 down 1.2%: Westpac hit with $1.3bn penalty, Brickworks disappoints, tech shares lower

Ken Hall 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 AFTERPAY T FPO. 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 S&P/ASX 200 Index (ASX: XJO) is home to 200 of the largest listed companies in Australia.

While I don’t think all shares on the benchmark index are buys, there certainly are a good number of quality options for investors to choose from.

Two top ASX 200 shares that I would buy are listed below:

Ramsay Health Care Limited (ASX: RHC)

The first ASX 200 share to buy is Ramsay Health Care. Although trading conditions are likely to remain tough because of the pandemic and its impact on elective surgeries, I expect it to return to form once the crisis finally passes. After which, I believe Ramsay is well-positioned for growth over the long term due to increasing demand for healthcare services because of ageing populations and increased chronic disease burden.

In addition to this, Ramsay’s management team has a track record of making value accretive acquisitions. I suspect there will be further acquisitions in the coming years that expand its footprint into new markets and drive further growth.

Xero Limited (ASX: XRO) 

A second ASX 200 share to buy is this cloud-based business and accounting software platform provider. Over the last few years Xero has evolved from being an accounting solution to a full service small business solution allowing users to run their businesses more smoothly and efficiently. This has supported strong subscriber growth over the last few years, leading to Xero finishing FY 2020 with 2.285 million subscribers. This was up 26% year on year.

Pleasingly, despite the pandemic’s impact on small businesses, Xero’s subscriber numbers have continued to grow in FY 2021 and stood at 2.38 million in August. The good news is that this is still only scratching at the surface of its overall market opportunity. In light of this and the quality of its software, I believe it still has a very long runway for growth over the next decade.

More reading

• Why this fundie still sees an ASX tech share surge
• Is the Transurban (ASX:TCL) share price a secret cash cow?
• Why the Telstra (ASX:TLS) share price could be under pressure in 2021
• 5 things to watch on the ASX 200 on Friday
• ASX 200 falls 0.8%, Afterpay (ASX:APT) share price drops 6%

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 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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The Transurban Group (ASX: TCL) share price has been surprisingly resilient in 2020. The Aussie infrastructure share slumped 38.6% in the space of a month during the March bear market.

Investors were worried that the coronavirus pandemic would see traffic numbers plummet across Transurban’s portfolio. Less traffic means less toll road revenue and ultimately less free cash flow for investors.

Ultimately, that did turn out to be the case. Transurban’s traffic figures slumped 90% lower in the midst of sweeping restrictions.

However, the Transurban share price is down just 1.2% in 2020. That says to me investors aren’t nearly as bearish as they were on the Aussie infrastructure group. But I also feel like it’s an undervalued cash cow in the current market.

Why the Transurban share price could be a cash cow

Transurban may, in fact, see an uptick in traffic from the pandemic. I see a couple of drivers that could lead to this result in 2021 or beyond.

The first is a shift towards work from home and more remote working arrangements. This is allowing employees to live further away with longer commutes but less frequency. 

Ultimately, many of these people will need car transportation options. That paves the way for Transurban to increase traffic numbers just from a shift in commuting habits. In a perfect world, investors would see that hit the bottom line and boost the Transurban share price higher.

The other factor is restricted public transport numbers and perceived safety. Less people are interested in sitting on public transport while COVID-19 is a threat.

That could mean the toll roads operated by Transurban could be a good option. I think this two-prong approach could actually see the Transurban share price outperform the S&P/ASX 200 Index (ASX: XJO) in 2021. 

Even if the capital gains don’t shine through, Transurban shares are yielding 3.2% p.a. right now. If cash generation was high, we could even see a special dividend or even increased ordinary dividend in FY21.

Foolish takeaway

I think the macro environment is very solid for the Transurban share price. North America traffic has been slower to return but I think that will recover given time.

Combine strong cash generation ability with high-quality infrastructure assets and I think the Aussie infrastructure group could be in the buy zone.

More reading

• 2 must buy ASX 200 shares to snap up right now
• Why the Telstra (ASX:TLS) share price could be under pressure in 2021
• 5 things to watch on the ASX 200 on Friday
• ASX 200 falls 0.8%, Afterpay (ASX:APT) share price drops 6%
• Why I just bought shares of this ASX ETF

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Transurban Group. 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 rough ride in 2020, falling 20.7% lower to $2.84 per share. In contrast, the S&P/ASX 200 Index (ASX: XJO) is down 12.2% in the same time to 5,875.90 points.

Why is the Telstra share price falling?

The coronavirus pandemic has hurt earnings despite the telco maintaining its 16 cents per share final dividend. There is also the ever-present threat of the NBN which continues to hit the company’s top and bottom lines.

That NBN threat could be about to get even more serious, according to an article in the Australian Financial Review (AFR). The government-backed network company is making some serious waves that could put the Telstra share price under pressure.

What’s changing at NBN Co?

Communications Minister Paul Fletcher and NBN Co CEO Stephen Rue have announced some big changes which could weigh on the Telstra share price.

Mr Fletcher says that by 2023, 75 per cent of fixed-line premises will be able to order significantly faster broadband at 1 gigabyte per second.

This is all part of NBN Co’s 2021 corporate plan which forecasts earnings before interest, tax, depreciation and amortisation (EBITDA) of $4.5 billion by June 2024 and revenues of $6.2 billion.

For reference, Telstra recently posted total income down 5.9% to $26.2 billion with underlying EBITDA down 9.7% to $7.4 billion.

Some quick and dirty numbers by the AFR suggest that based on relative valuations and NBN’s forecast cash flows, the company’s enterprise value (equity + debt – cash) could be worth nearly $100 billion.

The NBN does look like it could cause some headaches under the new and improved plan. What does this all mean for the Telstra share price?

What it means for the Telstra share price

The introduction of faster NBN speeds is a big deal for Telstra. The telco’s 5G network can reportedly offer mobile modem plans of around 700 megabytes per second. 

These plans would come at a cheaper cost than the estimated faster NBN plans. That could mean Telstra could continue carving out its own niche alongside a growing NBN.

However, there’s no doubt this is a threat for the Telstra share price and its dividends. I think ultimately there is still plenty of uncertainty around the 5-year plan and a lot of execution risk involved.

The company’s push into a new tech agreement with Microsoft Inc. (NYSE: MSFT) could also be an indication of things to come. The telco is looking to leverage that connection to grow its capabilities in 5G, cloud computing and artificial intelligence.

A transformation away from being a pure telco into more of a technology company could ultimately be a good thing for the Telstra share price.

Foolish takeaway

I wouldn’t panic just yet. If Telstra can continue generating cash and positioning itself as a market leader, those dividends can be maintained for some years to come.

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• Where to invest your Telstra (ASX:TLS) dividends
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Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Ken Hall 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 Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. 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 the Telstra (ASX:TLS) share price could be under pressure in 2021 appeared first on Motley Fool Australia.

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