Category: Stock Market

Rio Tinto Limited (ASX: RIO) shares are known for paying large dividends to investors. Could it be one of the most rewarding S&P/ASX 200 Index (ASX: XJO) shares in 2024?

One of the main advantages of ASX mining shares for income-seekers is that they trade on a relatively low price/earnings (p/e) ratio. The lower the p/e ratio, the higher the dividend yield is, assuming the dividend per share and dividend payout ratio don’t change.

Firstly, let’s have a look at what dividend yield Rio Tinto shares may be paying in FY24.

Projected Rio Tinto dividend yield

When the share price falls, it boosts the prospective dividend yield, so the 11% fall for Rio Tinto shares (that we can see on the chart below) is helpful for potential investors that want a good payout.

With the iron ore price now at around US$105 per tonne, down from US$130 per tonne earlier this year, Rio Tinto’s monthly profitability may be lower over the rest of the year and in 2024.

Even so, the ASX mining share is predicated (according to Commsec) to pay a solid grossed-up dividend yield of 8.9% in FY24 after paying a grossed-up dividend yield of 9.7% in FY23. By most measures, that’d be a really rewarding annual payment by the business.

How does it compare to some of the other ASX 200 dividend shares – is it better?

ASX 200 share comparisons

Rio Tinto’s dividend yield is expected to be larger than some of the well-known blue chips like Telstra Corporation Ltd (ASX: TLS), Wesfarmers Ltd (ASX: WES), Woolworths Group Ltd (ASX: WOW) and Commonwealth Bank of Australia (ASX: CBA).

In FY24, these could be the following grossed-up dividend yields from the ones I just named, according to projections on Commsec:

Telstra could pay a grossed-up dividend yield of 5.9%.

Wesfarmers might pay a grossed-up dividend yield of 5.4%.

Woolworths is projected to pay a grossed-up dividend yield of 4.3%.

CBA could pay a grossed-up dividend yield of 6.4%.

Clearly, Rio Tinto is going to pay a bigger dividend yield than the above ASX 200 shares. But, the other large ASX iron ore shares and several ASX 200 bank shares could be on course to pay a larger dividend yield in 2024. Commsec numbers suggest that for FY24:

BHP Group Ltd (ASX: BHP) could pay a grossed-up dividend yield of 8.9%.

Fortescue Metals Group Ltd (ASX: FMG) might pay a grossed-up dividend yield of 8.9%.

It might be unsurprising that the three major iron ore miners all face similar valuation changes and dividend payout movements as the iron ore price fluctuates. Now let’s look at some banks.

Westpac Banking Corp (ASX: WBC) may pay a grossed-up dividend yield of 9.8%.

ANZ Group Holding Ltd (ASX: ANZ) could pay a grossed-up dividend yield of 9.7%.

National Australia Bank Ltd (ASX: NAB) might pay a grossed-up dividend yield of 8.9%.

Bendigo and Adelaide Bank Ltd (ASX: BEN) is projected to pay a grossed-up dividend yield of 10.1%.

Foolish takeaway

Rio Tinto could be one of the stronger-yielding ASX 200 shares in 2024, though some banks could pay even higher yields.

The ASX mining shares don’t have much control over what commodity prices do, so it’s just a guess at this stage. Rio Tinto’s profit next year could be stronger, or weaker, than what investors are expecting.

But the long-term future for the company looks promising as it invests in copper and lithium.

The post Are Rio Tinto shares a strong ASX 200 option for dividends in 2024? appeared first on The Motley Fool Australia.

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More reading

• Goldman Sachs says these ASX 200 mining giants are buys
• Experts say these 2 ASX 200 dividend stocks are buys for passive income
• What’s going on with Rio Tinto shares and lithium?
• Bought $5,000 worth of Rio Tinto shares last February? Guess how much passive income you’ve already grabbed?
• How does the Fortescue dividend stack up against BHP and Rio?

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Bendigo And Adelaide Bank, Telstra Group, and Wesfarmers. 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 has been a lot of mergers and acquisitions (M&A) activity happening in the lithium industry of late.

This includes Liontown Resources Ltd (ASX: LTR) rejecting the advances of Albemarle Corp (NYSE: ALB) and Allkem Ltd (ASX: AKE) announcing plans to merge with Livent Corp (NYSE: LTHM).

Chances are, this won’t be where M&A activity stops. But which ASX lithium shares could be next in line to receive an offer?

Which ASX lithium share will next receive a takeover approach?

While there has been a lot of talk of Core Lithium Ltd (ASX: CXO) being a potential target, this seems unlikely due to its valuation.

M&A activity is designed to unlock value, but Core Lithium’s valuation is well and truly unlocked… and some more.

Last month, Goldman Sachs highlighted that Core Lithium shares trade at ~1.4x net asset value (NAV) compared to a peer average of ~1.1x NAV. That’s despite “also having the lowest average operating FCF/t LCE.”

Its shares have risen 8% since then, making the premium even greater and (probably) ruling out a takeover approach.

What else?

So, what else is left? Well, one ASX lithium share that appears to be in the M&A crosshairs right now is Delta Lithium Ltd (ASX: DLI).

The lithium developer, recently known as Red Dirt Metals, is rumoured to be attracting interest from Mineral Resources Ltd (ASX: MIN) and Gina Rinehart’s Hancock Prospecting.

On Monday, Bell Potter commented:

Reportedly, DLI has been under accumulation by potential strategic investors, Hancock Prospecting Pty Ltd and Mineral Resources Limited (MIN, Buy, TP$95/sh).

DLI has several characteristics in common with other lithium developers that have been the subject of strategic investment. Mt Ida is a relatively near-term producer, given that it’s situated on a granted mining lease, with a submitted mining proposal. Early Yinnetharra exploration results (and DLI commentary) point to the potential of the project to host a Tier1 Resource and operation. And DLI is, so-far, unencumbered by a significant shareholding by a strategic investor.

Watch this space!

Incidentally, Bell Potter has a speculative buy rating and $1.05 price target on the ASX lithium share.

The post Which ASX lithium shares could be next to appear on the takeover radar? appeared first on The Motley Fool Australia.

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More reading

• 2 ASX 200 lithium stocks just downgraded by a top broker
• Up 125% in 2023, would I be mad to buy Liontown shares at today’s prices?
• Is it time to be a bull or a bear on Core Lithium shares?
• Core Lithium share price could be a long-term winner as critical metals steal the spotlight at G7 summit
• ASX 200 lithium shares could be winners as Biden calls critical clean energy metals the ‘third pillar of the Australia-US alliance’

James Mickleboro owns Allkem shares. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Xero Limited (ASX: XRO) share price has done exceptionally well in 2023, rising by 58.53%. The S&P/ASX 200 Index (ASX: XJO) has only gone up by 3.38% in the year to date.

I’ve been confident about Xero’s recovery for a while now. It has gone up a long way since my optimistic call in March on the ASX growth share, but I believe the business can keep performing from here.

I’m going to explain why I believe it can beat the ASX 200 over the rest of this year and hopefully outperform up until 2030 as well.

Strong subscriber metrics

One of the main things that is helping drive Xero forwards is its growth of subscriber numbers. Those subscribers are paying the ASX tech share a monthly subscription fee, providing predictable cash flow.

The technology company is seeing a number of positive metrics with its subscribers, which I expect will continue in the first half of FY24, which can help drive the Xero share price.

The FY23 result saw total subscribers rise by 14% over the year to 3.74 million. It’s achieving strong organic growth with the average revenue per user (ARPU) increasing by 10% to $34.61.

Xero’s subscriber churn in FY23 was very low at just 0.90%, meaning its subscribers are very loyal (which allows the company to increase its subscription prices with little negative effect).

All of the above elements combined led to the total lifetime value of subscribers increasing by 23% to $13.4 billion.

Good revenue and gross profit margin

Businesses that are growing revenue at a good pace are growing their scale and that can help the business spend more on other activities like market, research and development, which is a very positive cycle.

Xero’s revenue is growing very quickly – in FY23 it saw 28% growth thanks to more subscribers and a higher ARPU.

The company has one of the highest gross profit margins on the ASX, which means that a lot of the new revenue also turns into gross profit, which can then be utilised by the business to spend more and/or become more profitable. In FY23, Xero’s gross profit margin was 87.3%.

I’m expecting Xero’s gross profit to keep climbing strongly in the coming years thanks to the subscriber growth.

Expectations of stronger profits in the coming years

One of the most exciting things to me about the potential for the Xero share price is that the company is planning to become much more profitable.

Increasing the size of the business usually comes with scale benefits, but management is now deliberately choosing for the business to become more profitable. The company is targeting an operating expense to operating revenue ratio in FY24 of around 75%.

The operating expense ratio to operating revenue ratio was 80.7% in FY23, so the next year could show a big improvement in profitability.

As the business continues to become bigger, I think the expense to revenue ratio can continue to improve, which will show the market how profitable the underlying operations truly are, which could impress the market and send the Xero share price even higher, in my opinion.

Foolish takeaway

Xero has done very well for shareholders in the first few months of 2023, and I think the FY24 half-year result could be another catalyst for the ASX tech share to keep rising.

By 2030, I think Xero could become one of the most profitable non-bank, non-miner businesses if it keeps growing subscribers and its profit margins.

The post Up 59% this year, I think the Xero share price can keep climbing in 2023 appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• Top brokers name 3 ASX shares to buy next week
• Here are the top 10 ASX 200 shares today
• Brokers name 3 ASX shares to buy now
• Why AUB, Austal, Core Lithium, and Xero shares are pushing higher

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

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If you’re a fan of growth stocks like I am, then I have some good news for you.

A couple of high quality shares with heaps of growth potential have recently been named as buys.

Here’s why brokers are tipping them as buys:

Corporate Travel Management Ltd (ASX: CTD)

Morgans is bullish on Corporate Travel Management and has recently named it as an ASX growth stock to buy.

The broker believes corporate travel booker is well-positioned for growth thanks to acquisitions made during the pandemic, its cost reductions, and its investment in technology. Its analysts commented:

Taking a longer term view, CTD remains as a key pick for the travel sector. We see substantial upside in its share price as the company recovers from the COVID affected travel downturn. In fact, CTD should be a materially larger business post COVID given it has made two highly accretive acquisitions during the downturn. The company has also won a lot of new business, implemented structural cost out opportunities and continued to develop its market leading technology offering which means that it will require less staff in the future. CTD is well managed and has a strong balance sheet (no debt).

Morgans has an add rating and $24.00 price target on its shares.

Objective Corporation Limited (ASX: OCL)

Goldman Sachs has tipped Objective Corp as an ASX growth stock to buy this week.

Its analysts believe the public sector software provider is well-placed for growth thanks to strong demand in a defensive sector. The broker is expecting this to lead to earnings per share growth above 20% in both FY 2024 and FY 2025. It said:

In our view OCL is well placed to deliver robust and defensive earnings growth driven by (1) R&D and new product cycles accelerating the contribution from newer products including Nexus, Build and RegWorks; (2) cycling of revenue/earnings headwinds from model transition away from perpetual / services revenue and towards subscriptions; and (3) cost management into FY24, with +350/+250bps margin expansion driving +23%/+32% FY24/25 EPS growth when comping trough FY23E earnings.

Goldman has a buy rating and $14.90 price target on Objective Corp’s shares.

The post These ASX growth stocks could be destined for big returns: experts appeared first on The Motley Fool Australia.

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More reading

• Up 44% this year: 2 ASX 200 ‘recovery’ shares starting to rocket
• Buy this ASX tech share for big returns: Goldman Sachs
• 2 ASX 200 shares that had a MASSIVE April, set for more gains
• Morgans names the best ASX 200 growth shares to buy in May
• 2 ASX 200 travel stocks (not Qantas!) just upgraded by Citi

James Mickleboro does not own any shares mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Objective. The Motley Fool Australia has recommended Corporate Travel Management. 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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BHP has been hitting headlines lately amid concerns about the federal government’s planned “same job, same pay” legislation.

BHP shares are down 0.2% at the time of writing, currently fetching $44.11 apiece. For perspective, the S&P/ASX 200 Materials Index (ASX: XMJ) is 0.05% lower.

Let’s take a look at why BHP shares are in focus today.

What’s going on with BHP?

BHP has expressed concern about the federal government’s proposed “same job, same pay” legislation.

The government is seeking feedback on the proposed reform that would see labour-hire workers paid at least as much as directly employed workers doing the same job.

BHP is claiming the legislation could cost the company $1.3 billion a year, impacting jobs.

In a submission, quoted by the Sydney Morning Herald, BHP said:

BHP estimates the financial impact of [same job, same pay] SJSP to our Australian operations will be up to $1.3 billion annually.

This cost is equivalent to the labour cost of approximately 5000 full-time employees across our operational workforce.

Commenting further, BHP said to “address a cost impact of this magnitude”, it would “clearly need to review” the impact on the company’s Australian operations and the “workforce that supports it”.

Written submissions for the proposed legislation closed on 12 May with the federal government planning to introduce the legislation in Spring 2023.

Workplace Relations Minister Tony Burke told Sky News on Sunday “the principle that we took to the election is the principle we intend to legislate”.

In a statement quoted by the Australian Financial Review, Burke made “no apologies” for the policy. He said:

The details of this policy are not yet settled. That is the point of the consultation we’re doing with BHP and others.

If you close a loophole to stop workers being ripped off, it will result in an increase in the wages budget of any company that was using the loophole. We make no apologies for that.

BHP shares are in the red at the time of writing, but other ASX mining shares are faring better in afternoon trade. Rio Tinto shares are up 0.89% while Fortescue shares are 0.34% higher.

Iron ore futures for a June 2023 China contract (62% Fe Fines) is currently down 0.68% on the Singapore Exchange.

Share price snapshot

The BHP share price has climbed 3.6% in the past 12 months.

BHP has a market capitalisation of about $224 billion based on the latest share price.

The post Why is everyone talking about BHP shares on Tuesday? appeared first on The Motley Fool Australia.

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More reading

• Here’s what ANZ’s iron ore forecast could mean for the BHP share price in 2023
• 5 ASX 200 shares to buy according to brokers
• The copper price could explode. This is the ASX share to take advantage
• Why BHP shares made our headlines this week
• Buy these ASX shares with big dividend yields: Goldman Sachs

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

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The S&P/ASX 200 Index (ASX: XJO) is back on form on Tuesday. In afternoon trade, the benchmark index is up 0.3% to 7,286.3 points.

Four ASX shares that are rising more than most today are listed below. Here’s why they are charging higher:

Catapult Group International Ltd (ASX: CAT)

The Catapult share price is up almost 7% to 78.5 cents. Investors have been buying this sports technology company’s shares after it delivered a strong full-year result. Catapult reported a 21.8% increase in SaaS revenue to US$84.4 million for the year. The company also revealed that it finished the year strongly, with operating earnings improving by a massive US$15.4 million half on half to US$2.2 million. In light of this, management expects to be free cash flow positive in FY 2024 without the need to raise capital.

OFX Group Ltd (ASX: OFX)

The OFX share price is up 20% to $1.85. This follows the release of the international money services provider’s full-year results. OFX reported a 17.9% increase in turnover to $39.1 billion, a 42.4% jump in revenue to $225 million, and a 25.6% lift in net profit to $31.4 million.

TechnologyOne Ltd (ASX: TNE)

The TechnologyOne share price is up 3.5% to $15.84. This has been driven by the release of the enterprise software provider’s half-year results. TechnologyOne reported SaaS annual recurring revenue (ARR) up 40% to $316.3 million and profit before tax up 24% to $52.7 million. This was ahead of analyst estimates.

Zip Co Ltd (ASX: ZIP)

The Zip share price is up almost 14% to 62.5 cents. This morning, analysts at Shaw and Partners suggested that Zip would be a big winner from regulatory changes in the BNPL industry. The broker also feels that it would be an attractive takeover target for Afterpay owner Block Inc (ASX: SQ2).

The post Why Catapult, OFX, TechnologyOne, and Zip shares are charging higher appeared first on The Motley Fool Australia.

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More reading

• 3 ASX 200 stocks rocketing to never-before-seen heights today
• Guess which ASX 200 tech share just hiked its dividend 10%
• Afterpay should acquire Zip: broker
• TechnologyOne share price charges higher amid strong half-year growth
• 5 things to watch on the ASX 200 on Tuesday

James Mickleboro does not own any shares mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Catapult Group International, Ofx Group, Technology One, and Zip Co. The Motley Fool Australia has recommended Catapult Group International, Ofx Group, and Technology One. 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 in the green on Tuesday, thanks in part to three stocks each soaring to new all-time record highs.

So, what’s been going right for the trio lately? Let’s take a look.

3 ASX 200 shares reaching record highs on Tuesday

First up is logistics-focused software developer WiseTech Global Ltd (ASX: WTC). The ASX 200 tech stock launched 1.9% to a high of $74.34 today – a new record.

Interestingly, there’s been no news from the company in the last couple of months. The last time the market saw a price-sensitive update from WiseTech was back in February.

That’s when it dropped its first-half earnings, detailing a 35% lift in revenue and a 40% underlying net profit after tax (NPAT). It also boosted its interim dividend by 39% to 6.6 cents per share.

Joining the stock in posting a new record high is its ASX 200 peer TechnologyOne Ltd (ASX: TNE). The TechnologyOne share price peaked at $15.86 earlier today – marking a 3.5% increase.

The latest news from the software-as-a-service (SaaS) provider came far more recently. Indeed, its first-half earnings were published this morning.

It posted a 22% jump in revenue, a 24% improvement in post-tax profit, and a 10% increase in its interim dividend, with 4.62 cents per share pledged to investors.

Finally, bringing in the biggest gain was stock in ASX 200 biopharmaceutical company Telix Pharmaceuticals Ltd (ASX: TLX). It surged 5% to an all-time high of $12.05 on Tuesday.

The company was added to the ASX 200 in February 2022. That same year it launched its lead product, Illuccix, in the United States.

More recently, it revealed positive results from a study of its TLX250-CDx product and announced its acquisition of AI-powered platform Dedicaid.

The post 3 ASX 200 stocks rocketing to never-before-seen heights today appeared first on The Motley Fool Australia.

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More reading

• Guess which ASX 200 tech share just hiked its dividend 10%
• TechnologyOne share price charges higher amid strong half-year growth
• 5 things to watch on the ASX 200 on Tuesday
• Here are the top 10 ASX 200 shares today
• Analysts say these ASX 200 growth shares are top buys right now

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Technology One and WiseTech Global. The Motley Fool Australia has positions in and has recommended WiseTech Global. The Motley Fool Australia has recommended Technology One. 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 rare earths share Meteoric Resources NL (ASX: MEI) has skyrocketed in 2023, but what could be ahead for the explorer?

The Meteoric Resources share price has surged 281% from 5.3 cents at market close on 30 December to its current share price of 20.2 cents. In today’s trade, this ASX rare earths share is sliding 1.46%. For perspective, the S&P/ASX 200 Materials Index (ASX: XMJ) is 0.03% lower so far today.

Let’s take a look at the outlook for this ASX rare earths share.

What’s ahead?

Meteoric is exploring the Caldeira Rare Earth Element (REE) project in Brazil, a project with 30 licenses.

In an announcement on 1 May, Meteoric advised the project has a maiden mineral resource of 409 million tonnes at 2,626 parts per million (ppm) TREO.

Meteoric described the Caldeira project as the “world’s Highest Grade Ionic Adsorption Clay REE Deposit”.

Argonaut associate dealer Harrison Massey recommends Meteoric Resources as a buy. He noted the company’s global resource estimate and further drilling planned at the Caldeira Project.

Commenting on The Bull, he said:

The company has planned a further 100,000 metres of air core and diamond drilling to target high grade areas within the current resource model. The company is in the process of acquiring further licences surrounding the deposit.

MEI is well capitalised with $A25 million in the bank.

Earlier this month, Meteoric updated the market with a drilling update at the Caldeira Project. Eight of 11 new diamond holes showed a “significant depth extension of the target clay zone beneath the historic auger holes”.

Commenting on the news, executive chairman Dr Andrew Tunks said:

Current drilling indicates an increase in the thickness of the target clay zone of up to 45m beneath the historic auger drilling.

Clearly this shows that there remains considerable potential for additional REE mineralisation beneath the historic drilling.

Share price snapshot

The Meteoric Resources share price has rocketed 1920% in the last year.

This ASX rare earths share has a market cap of about $367 million based on the latest share price.

The post Up 280% in 2023, is the Meteoric Resources share price about to go stratospheric? appeared first on The Motley Fool Australia.

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More reading

• Why 29Metals, Brainchip, Qantas, and Serko shares are falling
• Why the Fortescue share price could be a winner following Joe Biden’s extraordinary G7 statements
• 2 ASX 200 lithium stocks just downgraded by a top broker
• Guess which ASX 200 tech share just hiked its dividend 10%
• Wesfarmers share price drops as Silk takeover competition heats up

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

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In afternoon trade, the S&P/ASX 200 Index (ASX: XJO) is on course to record a small gain. At the time of writing, the benchmark index is up 0.3% to 7,287.2 points.

Four ASX shares that have failed to follow the market higher today are listed below. Here’s why they are falling:

29Metals Ltd (ASX: 29M)

The 29Metals share price is down 4% to $1.01. This morning, this copper producer released an update on its guidance for Capricorn Copper following the cessation of operations after an extreme weather event. Investors appear disappointed with its revised guidance.

Brainchip Holdings Ltd (ASX: BRN)

The Brainchip share price has crashed 15% to 43.2 cents. This follows the release of the embattled semiconductor company’s annual general meeting presentation and speeches. Brainchip Chairman, Antonio J. Viana, commented: “Let me be clear, nobody at BrainChip is happy or content with our current position. We haven’t hit any significant stride yet with respect to revenue.”

Qantas Airways Limited (ASX: QAN)

The Qantas share price is down 2% to $6.36. Investors have been selling the airline operator’s shares after it released a market update. Qantas revealed that it expects to post an underlying profit before tax of between $2.425 billion and $2.475 billion for FY 2023. This appears to have fallen short of what some investors were expecting from the flag carrier airline.

Serko Ltd (ASX: SKO)

The Serko share price is down 6% to $2.99. This is despite there being no news out of the travel technology company. However, with its shares up strongly since last week, some profit taking could be happening today. The Serko share price is still up 11% since last Tuesday despite today’s decline.

The post Why 29Metals, Brainchip, Qantas, and Serko shares are falling appeared first on The Motley Fool Australia.

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More reading

• ‘Nobody is happy’: Why the BrainChip share price is diving 16% on Tuesday
• Qantas share price drops as airline eyes record profit
• Here are the top 10 ASX 200 shares today
• Have I missed the flight on Qantas shares?
• Here are the top 10 ASX 200 shares today

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Serko. The Motley Fool Australia has recommended Serko. 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 Fortescue Metals Group Ltd (ASX: FMG) share price is up 1.1% in early afternoon trade on Tuesday.

Shares in the S&P/ASX 200 Index (ASX: XJO) miner are currently changing hands for $21.78 apiece.

And in the wake of the Group of Seven (G7) meeting in Hiroshima, Japan on Saturday, the longer-term outlook for the Fortescue share price may well have gotten a boost.

What happened at the G7 that could impact the Fortescue share price?

United States President Joe Biden managed a truncated appearance at the G7, before hurrying home to negotiate a new federal debt ceiling.

But in his shortened attendance, Biden managed to make some extraordinary statements in regard to Aussie companies involved in transitioning the world to clean energy.

The US, as you’re likely aware, is working to decrease China’s dominance in this field.

As part of that effort, Biden and Prime Minister Anthony Albanese announced a new Climate, Critical Minerals and Clean Energy Transformation Compact. This runs parallel with the newly minted US$369bn (AU$555 billion) Inflation Reduction Act, much of which is targeted at sustainable energy transformation.

Speaking at the summit, Biden said (quoted by The Australian Financial Review):

We are going to establish climate and energy as the third pillar of the Australia-US alliance. This will enable the expansion and diversification of clean energy supply chains, especially as it relates to critical materials.

Biden also plans to have Australia added as a “domestic source” under the US Defense Production Act. This could be a boon for the Fortescue share price, as it would enable new US investments in some of the miner’s projects, with a particular focus on green hydrogen.

And Germany added some fuel to the green hydrogen fire, as the member nations discussed energy security in the wake of Russia’s invasion of Ukraine.

“We also need some new gas power stations, but they should be built in a way that they can run on green hydrogen later on as well. So it is an investment in the clean future as well,” a German government official said at the summit (quoted by Reuters).

Hydrogen can be separated from oxygen by running electricity through water. For it to be green hydrogen the electricity needs to come from renewable sources.

Now what?

While a lot of big ideas were floated, many of the details remain to be worked out between the US and Australian governments.

But resources minister Madeleine King was unequivocally enthusiastic about the new pact.

“Importantly, it will ensure Australian resources companies can access US capital and benefit from the US Inflation Reduction Act,” share said (quoted by the AFR).

As for any potential tailwinds for the Fortescue share price, Jason Willoughby, CEO of Fortescue founder Andrew Forrest’s private company Squadron Energy, noted that Biden hadn’t specifically mentioned directly subsidising Aussie green hydrogen.

Willoughby said:

We’ll wait to see the detail. But I think the important message here is intent. And if we hadn’t had that message, the risk was that folks would start adjusting their attention to start to move to the US.

By announcing this and showing intent, that means that companies like ours and others can just keep going with their plans in Australia.

Fortescue’s green arm, Fortescue Future Industries (FFI) has five green hydrogen projects currently underway in various nations. Among those, the Gibson Island project in Queensland is the closest to production.

An FFI spokesman (quoted by The Australian) praised the new pact, saying it recognises the “critical importance of green hydrogen”.

And in what could offer a boost to the Fortescue share price down the road, he said the pact will help FFI demonstrate its green energy projects “around the world”.

This all comes just weeks after the Australian government announced $2 billion to fund green hydrogen projects as part of the 2023 federal budget.

Forrest, as you’d expect, applauded that funding.

“It’s a race to win this race,” he said of the global competition to be a leader in green hydrogen production.

Forrest added at the time:

I see the potential in our country of an industry at least the size of Aramco, a multi-trillion-dollar company that underpins the entire economy of Saudi Arabia and that high standard of living which 34 million people have in their country.

As for any long-term tailwinds for the Fortescue share price from the new pact, as Willoughby said, “We’ll wait to see the detail.”

The post Why the Fortescue share price could be a winner following Joe Biden’s extraordinary G7 statements appeared first on The Motley Fool Australia.

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More reading

• ‘The real struggle’: Can an ASX investment in hydrogen really pay off?
• Could this ‘further strengthening’ boost the Fortescue share price moving forward?
• Could Fortescue be the next ASX 200 miner on the lithium M&A trail?
• How does the Fortescue dividend stack up against BHP and Rio?
• Is the Fortescue share price a buy for its 2024 dividend yield?

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

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