Author: therawinformant

The S&P/ASX 200 Index (ASX: XJO) rose by 0.6% today to 5,956 points.

Melbourne entered its first day of a return to lockdowns with another day of well over 100 confirmed cases in Victoria. There were 165 cases reported today.

Afterpay Ltd (ASX: APT) share price steals the show

The Afterpay share price finished the day up 11.4% to $73.50 today. At one point the share price went just over $75.

Afterpay has seen a huge rise in its share price since the March 2020 COVID-19 selloff.

The cause of today’s share price jump appears to be broker Morgan Stanley increasing its share price target for the ASX share to $101. Continued strong underlying sales growth and good credit quality were the two main catalysts for the upgrade.

The buy now, pay later business recently completed a $650 million institutional capital raising which gives the ASX 200 business a war chest to go for more growth.

Rio Tinto Limited (ASX: RIO) plans to shut its New Zealand smelter

Rio Tinto has announced that it is going to start planning for the wind-down of operations and eventual closer of its New Zealand Aluminium Smelters (NZAS) after concluding its strategic review. The Rio Tinto share price rose 3.3% today.

The NZAS business is no longer viable because of high energy costs and a challenging short to medium term aluminium outlook.

In 2019 the smelter made an underlying loss of NZ$46 million. The energy costs it is paying are some of the highest in the industry globally. NZAS has given Meridian Energy Ltd (ASX: NEZ) notice to terminate the power contract, which will end in August 2021 when the wind-down of operations is expected to complete.

The ASX 200 miner tried to secure a cheaper power contract but it wasn’t able to find a solution.

Alf Barrios, the Rio Tinto aluminium chief executive, said: “We recognise the decision to wind-down operations at NZAS will have a significant impact on employees, the community and our customers.

“It is not a decision we have made lightly and without significant careful consideration. It is very unfortunate and we could not find a solution with out partners to secure a power price reduction aimed at making NZAS a financially viable business.”

NZAS employs around 1,000 people directly and also supports a further 1,600 indirect jobs.

Treasury Wine Estates Ltd (ASX: TWE) disappoints

The ASX 200 winemaker updated the market and said its earnings before interest, tax and SGARA (EBITS) is expected to be between $530 million to $540 million, reflecting the impact of the COVID-19 pandemic, which has had a significant impact on the company’s trading performance across all geographies in the second half of FY20.

FY20 EBITS has declined approximately 21% for the overall company, with regional declines of approximately 14% in Asia, 37% in the Americas, 16% in Australia and New Zealand and 18% in EMEA.

At the end of FY20 Treasury Wine Estates had cash on hand of approximately $448 million and uncommitted debt facilities of $920 million, providing total liquidity of $1.4 billion. This liquidity position will allow the company to continue with its long-term dividend policy of a payout ratio between 55% to 70% of net profit after tax.

The company is working on lowering its cost base and is also considering divesting some of its wine brands.

Pointsbet Holdings Ltd (ASX: PBH) share price climbs 11%

Pointsbet had another exciting day after announcing another partnership.

It has signed a deal with Betmakers Technology Group Ltd (ASX: BET) to offer fixed odds betting on horseracing in New Jersey after Betmakers secured an exclusive 10-year agreement with New Jersey Thoroughbred Horsemen Association and Darby Development LLC, the operator of the Monmouth racetrack.

The Betmakers Technology share price rose by almost 8% today in reaction to the news. 

More reading

• Why the Saracen share price has soared over 80% higher in the first half of 2020
• The embattled ASX 200 stocks that could deliver a dividend surprise
• Is the Telstra share price a buy?
• Afterpay share price jumps 14% to new record high
• How did the Qantas share price perform in June?

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Pointsbet Holdings Ltd. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Pointsbet Holdings 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 Saracen Mineral Holdings Limited (ASX: SAR) share price is having a pretty good day today. Saracen shares closed at $6.24, after making a new all-time high of $6.31 earlier in the day. The Saracen share price is now more than 87% higher since the start of the year and up an astonishing 1,318% since July 2015.

Why has the Saracen share price taken off in 2020?

Saracen is a mid-tier ASX gold miner and has been caught in a powerful tailwind in 2020. At its core, Saracen’s profitability is influenced by 3 factors: how much gold it can mine, the price it can sell said gold for, and how much it costs the company to extract the gold.

The powerful tailwind I referenced earlier is the gold price. Since the start of 2020, the yellow metal has gone from being priced at around US$1,400 an ounce to today’s price of $1,815 an ounce. As my Fool colleague Brendan Lau reported earlier today, gold has appreciated more than 30% in value over the past 12 months, which outpaces the gains that the S&P/ASX 200 Index (ASX: XJO) has seen over the same period, as well as the US Dow Jones and Nasdaq indices. Gold is now getting very close to the all-time high of US$1,920 we saw back in 2011. I wouldn’t be surprised if we saw this record broken over the coming months.

In addition to this gold price tailwind, Saracen is also expanding gold production. Just yesterday, the company told the ASX that its gold production for FY20 came in at 520,414 ounces, which exceeded the company’s guidance of 500,000 ounces. Saracen expects to produce more than 600,000 ounces in FY21.

It’s this ‘double-whammy’ of a rising gold price in conjunction with rising gold production from Saracen that is pushing the Saracen share price into the stratosphere.

Will gold prices stay at record highs?

Saracen shareholders will be pleased to know that I think record-high gold prices are here to stay, at least in the short to medium-term. Gold is viewed by many investors as the ultimate ‘safe haven’ asset and an effective portfolio hedge against economic uncertainty, geopolitical risk, and currency debasement.

There’s no doubt that 2020 has brought global economic uncertainty in spades, for obvious reasons. Geopolitical risks, especially those between China and the rest of the world, have also been climbing in recent months. On top of this, there are growing fears over inflation as central banks around the world increase their balance sheets at unprecedented rates.

The convergence of the above trends leads me to believe we are witnessing a massive bull run in the gold market, one that I see playing out over many more months, if not years. As such, I wouldn’t be surprised to see the Saracen share price climb even further from where we see it today, despite its already substantial gains.

More reading

• The embattled ASX 200 stocks that could deliver a dividend surprise
• Is the Telstra share price a buy?
• Broker tips on how to invest for the August ASX reporting season
• Leading investment bank says US shares could fall 10%, something that could have serious implications for the ASX 200 index
• Top brokers name 3 ASX 200 shares to sell today

Motley Fool contributor Sebastian Bowen 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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There’s a sector that could deliver an unexpected dividend surprise at the upcoming profit reporting season.

This isn’t the mighty miners like BHP Group Ltd (ASX: ASX: BHP) and Rio Tinto Limited (ASX:RIO) – even though their strong balance sheets certainly puts them in a good position to be generous with they payouts.

The unlikely dividend heroes I am referring to are the ASX big banks. They include the Commonwealth Bank of Australia (ASX: CBA) share price, Westpac Banking Corp (ASX: WBC) share price, the Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price and National Australia Bank Ltd. (ASX: NAB) share price.

ASX banks falling off a cliff

That may sound surprising given that banks are hard hit by the COVID-19 turmoil and are facing the so-called dreaded “fiscal cliff”.

The cliff refers to the September expiry of the government’s wage and other fiscal support programs that are keeping consumers and small businesses on their feet.

The fear is that ASX banks will suffer a wave of loan delinquencies in the next few months, which is why the banks are extending their loan repayment holiday for a further four months after September.

Impact of new loan holiday on banks

On the face of it, the loan extension may be seen as a negative for bank profits and dividends. But a number of brokers, including Citigroup, are believe this is more positive than negative.

The repayment reprieve extension won’t be applied carte blanche like the original support program. Borrowers needing further relief will need to show that they will be able to repay their debts in the post COVID-19 economy.

The extension will allow the banks to manage a number of key risks, according to Citigroup. This includes the second lockdown of the greater Melbourne region and Mitchell Shire, the winddown of fiscal stimulus and ongoing disruptions to vulnerable sectors like tourism and hospitality.

Capital ratio relief

Further, the banking regulator APRA is providing regulatory relief on the capital requirement for loans. This means banks won’t need to hold extra cash to buffer themselves against underperforming loans like they would normally have to.

This capital relief will last till end of March next year and not having cash tied up in a safety net will pad the banks’ bottom line.

“Loans that are restructured prior to 31 March will also be treated as performing for capital and reporting purposes, which we view as a favorable [sic] outcome for the sector,” added Citi.

ASX bank stocks to buy

The broker believes that the market’s worry about the sector’s bad debts are overblown and that the milder than expected loan losses will drive higher than expected dividends out to FY22.

Citi is recommending all the big bank stocks as “buy”, but prefers NAB followed by Westpac then ANZ bank and CBA.

More reading

• Why the Saracen share price has soared over 80% higher in the first half of 2020
• Is the Telstra share price a buy?
• Broker tips on how to invest for the August ASX reporting season
• 3 large cap ASX shares primed for expansion and M&A activity
• Leading investment bank says US shares could fall 10%, something that could have serious implications for the ASX 200 index

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, BHP Billiton Limited, Commonwealth Bank of Australia, National Australia Bank Limited, Rio Tinto Ltd., and Westpac Banking. 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 saw a welcome 2.63% boost today, but is still down around 10% this past year. Telstra’s yearly return is close in terms of performance to that of the S&P/ASX200 Index (ASX: XJO), which is down around 11% at the time of writing.

Here are 3 reasons why I believe the Telstra share price has been under pressure this past year.

Reason 1: An incredibly competitive environment

The merger of Vodafone and TPG, listed on the ASX as TPG Telecom Limited (ASX: TPM) creates a tougher environment for Telstra to operate in, as the merged entity can leverage their scale to offer more competitive solutions to customers.

In addition, Telstra’s once-held monopoly on the fixed line network has been eroded by the National Broadband Network (NBN).

In terms of customer satisfaction, Telstra continues to lag competition based off surveys and product reviews. A good measure of future performance of a company is customer satisfaction, and while Telstra is the most popular ISP in Australia according to Choice, it ranks below average for customer satisfaction. 

Reason 2: Foxtel impairment

On 8 May 2020, Telstra announced a $300 million impairment of its 35% stake in Foxtel. This reduces the carrying amount from $750 million to $450 million. While it is a non-cash expense (as it points out in the ASX announcement), it still decreases the value of the asset in the company’s accounts.

Unfortunately, I believe further impairments are to come because of cord cutting and the rise of streaming services. However, the return of sport should help Foxtel somewhat as this has been a major attraction of having the cable company in the home.

Reason 3: Belong 

Belong is owned by Telstra and offers cheaper prices and less services than the main brand. Belong offers internet and mobile services only. 

According to Telstra’s half year report for the period ended 31 December 2019, Belong is having an impact on the growth of its postpaid handheld retail customer services. While these services increased by 137,000 for the half, 91,000 of those customers were from Belong. Telstra stated in the report that a contributor to the decrease in revenue of postpaid handheld was due to a “modest dilution due to an increase in the Belong customer mix…”

This will decrease the amount of potential revenue Telstra could have received. However, it needs to compete with other telecommunication providers that are offering cheaper services.

What is there to like?

Telstra’s 5G network offering high internet speeds could attract people who are on the move and need fast mobile speeds. It still has a wider coverage than competitors, which widens its customer pool potential.

In mobile plans, sport offers a point of difference with mobile rights to AFL and NRL content (just to name a couple) included data-free.

Free cash flows remain strong to enable the continuation of dividend payments, at least in the short term to the medium term.

Foolish takeaway

Telecommunications is an incredibly tough industry to operate in. Competitive pressures are intense and has resulted in declining revenue for Telstra. Since 2017, dividends have been trending downwards as competitive pressures begin to manifest.

Additionally, its investment in Foxtel appears to be rapidly declining in value. I believe this is because of the rise of cord cutting as streaming providers are gaining immense popularity.

The Belong company offers a more competitive offering and is helping the growth in customers, but total income is still on the decline for the Telstra group.

Its 5G network and widespread coverage is an edge that its competition does not have, however, with so much of the population in city areas, I am not convinced it is a significant enough competitive advantage.

On balance, I think there could be better ASX shares rewarding investors with capital growth and income at the present time.

More reading

• Why the Saracen share price has soared over 80% higher in the first half of 2020
• The embattled ASX 200 stocks that could deliver a dividend surprise
• Broker tips on how to invest for the August ASX reporting season
• 3 strong ASX 100 shares for retirees to buy today
• 3 large cap ASX shares primed for expansion and M&A activity

Motley Fool contributor Matthew Donald has no position in any of the stocks mentioned. 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.

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S&P/ASX 200 Index (ASX:XJO) shares can generate good returns for investors if they pick the right businesses.

ASX 200 shares are amongst the best in their industry, if not the best outright. That means they have strong market positions, better access to capital than competitors and probably better margins than their peers.

The below three businesses have the long-term potential for good profit growth and perhaps market-beating share price gains. They are also known for being good dividend payers. It’s that combination of growth and income which makes me think they could be good ASX 200 share buys for the years ahead:

Share 1: Bapcor Ltd (ASX: BAP)

Bapcor is the leading auto parts business in Australia and New Zealand.

Despite recently announcing solid revenue growth in the last couple of months, the Bapcor share price is actually down 14% since 20 February 2020.

As a reminder, Autobarn same store sales increased by more than 45% in May and June compared to the prior year. On a full year basis to the end of June 2020, Bapcor estimated that Autobarn same store sales will increase by approximately 8%.

The ASX share said Burson Trade also experienced strong demand in May and June with same store sales growth up approximately 10%. On a full year basis, Burson same store sales growth is expected to be around 5%.

I think these are solid numbers for a company that is only trading at 19x FY21’s estimated earnings.

Over the longer-term I’m excited by the company’s growth trajectory in Asia.

If Bapcor were to pay an annual dividend of $0.15 per share in FY21, it’s trading on a forward grossed-up dividend yield of 3.7%.

Share 2: InvoCare Limited (ASX: IVC)

InvoCare is the leading funeral business in Australia and New Zealand.

You’d think a funeral business would benefit from a global pandemic, but that hasn’t happened with COVID-19. The social distancing and funeral attendance limits caused a reduction of InvoCare earnings in the first quarter of 2020 despite case volumes remaining flat.

A greater impact is forecast in the second quarter driven by lower revenue per funeral. The case average for the ASX share in April 2020 was down 13.3% on the prior corresponding period. In the first quarter of 2020 InvoCare reported that earnings before interest, tax, depreciation and amortisation (EBITDA) fell 10.7% to $24.7 million.

However, apart from Victoria, Australia appears to have COVID-19 under control. That means that InvoCare’s earnings should mostly be able to return to normal. In New Zealand COVID-19 seems to have been eradicated entirely. 

This ASX share is leveraged to ultra-long-term ageing tailwinds. Death volumes are expected to grow by 1.4% per annum between 2016 to 2025 and then increase by 2.2% per annum from 2025 to 2050.

Sooner or later this COVID-19 period will pass and InvoCare’s operating conditions will return to normal. Right now it’s trading at under 21x FY21’s estimated earnings.

Share 3: Brickworks Limited (ASX: BKW)

Brickworks is a diversified property business. In Australia it produces a variety of different building products including bricks, precast, masonry and roofing.

The ASX share recently announced another impressive win for its industrial property trust that it owns 50% of, along with Goodman Group (ASX: GMG). Amazon is going to lease a 26-metre high facility which will have a floor area of 53,500 square metres. Coles Group Limited (ASX: COL) will also take up a high-tech warehouse at the Oakdale site. Brickworks is building a reputation as a high-tech landlord. 

There is still sufficient land in the property trust for several more years of development. Once the Coles and Amazon buildings are completed it should increase the gross assets of the trust to above $3 billion.

COVID-19 had a tough impact on the company and share price a few months ago, but things are looking up now that restrictions are lifting across most of Australia and the US, though the new outbreak in Victoria puts a bit of a dampener on things. The Homebuilder scheme should indirectly benefit Brickworks.

The Brickworks dividend is supported just by the cashflow from its property trust and the dividends from Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). At the current Brickworks share price it offers a grossed-up dividend yield of 5.3%.

Foolish takeaway

Each of these ASX shares look good value to me with a multi-year outlook. At the current prices I’d probably go for Brickworks first – it’s trading cheaply compared to its net asset value and the property trust has a compelling future over the next five years.

More reading

• ASX income stalwart WAM Capital announces 8.2% dividend
• 3 ASX dividend shares to grow and diversify your income
• Top brokers name 3 ASX shares to buy next week
• 5 ASX shares rated as strong buys by brokers
• 2 dirt-cheap ASX shares to buy next week

Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Bapcor, Brickworks, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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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The Afterpay Ltd (ASX: APT) share price was on form again on Thursday and stormed notably higher.

The payments company’s shares were up as much as 14% to a new record high of $75.26 at one stage before closing the day 11% higher at $73.50.

This latest gain means the Afterpay share price is now up a remarkable 817% from its March low of $8.01.

Why did the Afterpay share price rocket higher?

Investors were fighting to buy the company’s shares on Thursday after it was the subject of a very positive broker note out of Morgan Stanley.

According to the note, the broker has upgraded the buy now pay later provider’s shares to an overweight rating and lifted the price target on them by a massive 180% from $36.00 to a lofty $101.00.

Even after today’s strong gain, this price target implies potential upside of over 37% for Afterpay’s shares over the next 12 months.

Why did Morgan Stanley upgrade Afterpay’s shares?

Morgan Stanley made the move in response to Afterpay’s better than expected credit quality and the acceleration in its sales growth.

The broker is expecting the company’s revenue to grow by a compound annual growth rate of 60% through to FY 2022, with a stable net transaction margin of ~2%.

This is expected to be driven by its diversification away from fashion thanks partly to its agreement with eBay, its impending launch into Canada, and its in-store roll out in the United States. The broker expects the latter to strengthen its first mover advantage in the key market.

In addition to this, its analysts note that the company’s capital raising now gives it the opportunity to consider M&A activities and further geographic expansion.

Should you invest?

While it shares are certainly high risk, I continue to believe that Afterpay would be a quality buy and hold investment. This is due to its leading position in a rapidly growing market which is benefiting from structural tailwinds.

All in all, even though its shares are up over 800% from their March low, I don’t believe it is too late to invest.

More reading

• How did the Qantas share price perform in June?
• Top brokers name 3 ASX 200 shares to sell today
• ASX 200 up 0.8%: Afterpay jumps on broker note, Treasury Wine update disappoints
• 2 ASX shares that could flourish in an Australian recession
• Why Afterpay, Evolution, Netwealth, & Praemium shares are racing higher

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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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