Category: Stock Market

The Sayona Mining Ltd (ASX: SYA) share price is charging higher today.

Shares in the S&P/ASX 300 Index (ASX: XKO) lithium stock closed yesterday at 4.2 cents. In late morning trade on Thursday, shares are swapping hands for 4.4 cents apiece, up 4.8%.

For some context, the ASX 300 is down 1.0% at this same time.

Here’s what’s spurring investor interest today.

What’s boosting the ASX lithium share?

The Sayona Mining share price is smashing the benchmark today after the miner reported it has kicked off reverse circulation (RC) drilling at its Tabba Tabba Lithium Project, located in Western Australia.

Sayona is exploring a region where air core drilling previously identified high-potential pegmatite systems. RC drilling will enable the miner to drill significantly deeper.

The initial campaign comprises more than 2,000 metres of RC drilling across 14 holes. Sayona plans to conduct additional drilling throughout 2024 as it gains more geological information across the prospective area.

On the funding front, Sayona Mining could be getting a boost after the lithium miner reported it had secured a $180,000 co-funding grant from the WA Government’s Exploration Incentive Scheme (EIS).

Sayona said the government grant will help finance innovative exploration drilling in the search for flat lying spodumene pegmatite systems within the Tabba Tabba lease.

According to the ASX lithium stock:

Flat lying pegmatite systems often have limited surface expression and require a systematic exploration approach to best focus drilling into the most prospective target areas.

Sayona is advancing this process, being guided by gravity data, mapping, rock and soil sampling and drill information.

What did management say?

Commenting on the drill campaign sending the Sayona Mining share price sharply higher today, CEO James Brown said:

We are excited to have commenced RC drilling over the highly prospective Tabba Tabba lease which has known lithium mineralisation in close proximity and along strike.

Previous soil sampling and air core drilling identified areas of anomalous geochemistry that have been confirmed to also contain gravity features of significance. We now intend to test these targets with RC and possibly diamond drilling as supported by results.

We are highly committed to our wholly owned Western Australian lithium assets and intend to continue an active exploration program over the 2024 field season.

Sayona Mining share price snapshot

While today’s gains will be most welcomed by shareholders, the Sayona Mining share price is still down a precipitous 80% from this time last year.

The post Why did the Sayona Mining share price just leap 5%? appeared first on The Motley Fool Australia.

More reading

• These are the 10 most shorted ASX shares
• Down 80% in a year, are Sayona Mining shares now a buy?
• Why ANZ, Fletcher Building, Macquarie, and Sayona Mining shares are dropping today
• What’s happening with the Sayona Mining share price on Monday?
• These are the 10 most shorted ASX shares

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

The BHP Group Ltd (ASX: BHP) share price is taking a tumble today.

Shares in the S&P/ASX 200 Index (ASX: XJO) mining giant closed yesterday trading for $46.24. In morning trade on Thursday, shares are swapping hands for $44.96, down 2.8%.

For some context, the ASX 200 is down 0.9% at this time.

BHP’s underperformance today comes following the latest developments in its ongoing multi-billion takeover efforts of Anglo American (LSE: AAL).

What’s happening with the Anglo American takeover?

The BHP share price is under selling pressure after the ASX 200 miner reported that it had lobbed a third improved takeover offer for Anglo American. And that this offer, too, was swiftly rejected by Anglo’s board.

BHP announced its first takeover bid back on 26 April.

The big Aussie miner is mostly interested in Anglo copper assets. Should BHP succeed in its acquisition, it will become the world’s top copper producer. BHP has indicated it will likely divest some of Anglo’s assets, like its South African platinum and iron ore projects.

The first takeover offer was rejected as undervaluing Anglo’s assets and growth prospects and being too complex. The BHP share price initially fell on that news as well.

On 14 May BHP reported a sweetened offer valued at around $64 billion. This was also quickly waved off by Anglo’s board.

This third, and likely final, offer is valued at $59.64 per Anglo American share, a hefty premium to Anglo American’s recent share price. The new offer equates to around $74 billion.

“BHP’s revised proposal will offer immediate value for Anglo American shareholders and allow them to benefit from the long-term value generation of the combined group,” BHP CEO Mike Henry said.

But Anglo American chairman Stuart Chambers is not convinced. “The board is confident in Anglo American’s standalone future prospects,” he said.

But that doesn’t mean a deal is off the table.

If Henry’s goal was to get negotiations rolling in earnest, it looks like he may have scored.

According to Chambers:

The board is willing to continue to engage with BHP and its advisers on this topic and has therefore requested a one-week extension to the PUSU deadline which has been consented to by the panel.

The one-week extension moves the new takeover deadline to 29 May.

“BHP looks forward to engaging with the board of Anglo American to explore this unique and compelling opportunity to bring together two highly complementary, world class businesses,” Henry said.

Commenting on the developments pressuring the BHP share price today, James Whiteside, metals and mining corporate research director at Wood Mackenzie said (quoted by Bloomberg), “The companies believe that they’re getting closer. Anglo has probably signposted what needs to happen to get it over the line.”

BHP share price snapshot

The BHP share price is up 3% over the past 12 months.

The post Deal or no deal? Why the BHP share price is crumbling today appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Thursday
• BHP shares on watch after new $74b Anglo American takeover offer rejected
• ASX 200 mining stocks flying higher on ‘most relaxed’ Chinese stimulus ever
• BHP shares charging higher as the clock ticks down on the Anglo American takeover
• ASX 200 mining shares charging higher amid China’s $210 billion cash injection

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

The Xero Ltd (ASX: XRO) share price is moving with gusto this morning after releasing its full-year results for FY24.

An hour into trade, the cloud-based accounting software company shares are up 7.6% to $133.49. The move starkly contrasts the 1.02% slump in the S&P/ASX 200 Index (ASX: XJO) after the US Federal Reserve revealed it had contemplated more interest rate rises.

So, what about Xero’s results enable its share price to perform while the rest of the market is struggling?

Profitable growth sparks Xero share price

Xero shareholders are celebrating this morning amid the company’s latest result. Here’s a look at the key numbers driving today’s excitement:

• Operating revenue up 22% year-on-year to NZ$1.71 billion
• Subscribers grew by 419,000 to 4.16 million
• Average revenue per user (ARPU) up 14% to NZ$39.29
• Gross margin up from 87.3% to 88.2%
• Net profit after tax (NPAT) swinging to NZ$174.6 million from NZ$113.5 million loss

Xero’s ability to balance revenue growth and profitability in FY24 is significant after years of lacking the latter. Importantly, the company has now achieved the Rule of 40 — a metric that implies a software company’s revenue growth and free cash flow margin should be 40% or more for a healthy business.

The company noted that it focused on balancing subscriber additions with ARPU during FY24. This might explain the 11% reduction in net subscriber additions compared to FY23. However, the positive is that Xero’s gross margin is improving while it manages its cost to serve customers.

Furthermore, Xero implemented price changes during FY24, boosting ARPU. Despite increasing prices, the 0.99% monthly churn rate is a positive indicator of product stickiness.

What did management say?

Xero CEO Sukhinder Singh Cassidy touted the full-year result, stating:

This result shows we’re doing what we said we’d do. We’ve delivered a strong and profitable FY24 result and Rule of 40 outcome, demonstrating our commitment to balancing growth and profitability.

We have a clear and focused strategy to win on purpose, and Xero is positioned well as we move into FY25.

Australia and New Zealand continue to be strong markets for the accounting platform. Xero achieved 22% revenue growth across the two countries, growing its subscriber count in the region to 2.4 million.

Meanwhile, revenue in its international markets (the United Kingdom, North America, and the Rest of the World) rose 24% to NZ$734.9 million. The company has 1.8 million subscribers in these expanding markets.

The road ahead

No light was shed on future earnings or revenue estimates for FY25. However, Xero expects total operating expenses as a percentage of revenue to be approximately 73% in the next financial year.

Product design and development costs are also forecast to be a larger portion of revenue.

Xero share price in review

The Xero share price is up 20% over the past 12 months. However, it was a considerably different story towards the end of last year.

Shares in the software company fell as low as roughly $70 apiece. Yet, positive sentiment has since returned to the technology sector.

The post Xero share price leaps 8% on staggering earnings upheaval appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Thursday
• 5 stellar ASX growth shares to buy for strong returns
• Here are the top 10 ASX 200 shares today
• Own Xero shares? Here’s what to expect from next week’s results
• Brokers name 2 rapidly growing ASX 200 tech stocks to buy

Motley Fool contributor Mitchell Lawler 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.

The Origin Energy Ltd (ASX: ORG) share price is marching higher today.

Shares in the S&P/ASX 200 Index (ASX: XJO) energy provider closed yesterday trading for $10.16. In morning trade on Thursday, shares are changing hands for $10.23 apiece, up 0.7%.

For some context, the ASX 200 is down 0.9% at this same time.

This outperformance comes after Origin announced that the Eraring Power Station will keep producing electricity for much longer than previously targeted.

What’s happening with Eraring?

The Origin share price is in the green after the ASX 200 utility reported it has agreed to delay the retirement of Eraring by two years.

The agreement with the New South Wales government is intended to support the security of the state’s electricity supply through the ongoing energy transition.

The freshly inked Generator Engagement Project Agreement (GEPA) will see Eraring remain operational until at least 19 August 2027.

Eraring commenced full scale power generation in 1984. Origin had previously targeted closing the 2,880 MW black coal plant as early as August 2025, subject to market conditions.

The Origin share price could be getting some support with the company reporting New South Wales could offer compensation to help cover operating costs. Origin could recover a portion of any Eraring operating losses over the extension period, capped at $225 million a year.

If Eraring turns a profit rather than running at a loss, Origin will pay the NSW government 20% of that profit, capped at $40 million a year.

The coal-fired power plant could potentially remain in operation through to April 2029, the final closure date.

Commenting on the extended operations, Origin CEO Frank Calabria said:

We believe this agreement strikes the right balance, with an extension to operations enabling Eraring to continue supporting security of electricity supply in New South Wales through the energy transition, while making compensation available to Origin in the event economic conditions for the plant are challenging…

Importantly, today we can give our Eraring employees, our suppliers and the local community greater certainty around the future of the plant as we transition towards its retirement.

With a nod to the potential environmental impact, Calabria added, “Origin does not shy away from the need to exit coal generation as soon as there is sufficient renewable energy, firming and transmission capacity available.”

The ASX 200 utility has committed to constructing a large-scale battery at Eraring. The first phase of the project consists of a 460 MW two-hour battery located next to the power station. The battery is planned to begin operating in late 2025.

Origin share price snapshot

With today’s intraday moves factored in, the Origin share price is up 24% in 12 months.

The post Origin share price outpacing the ASX 200 on Eraring lifeline extension appeared first on The Motley Fool Australia.

More reading

• Which ASX shares could be set to benefit from the federal budget?
• Where to find value inside the top 50 ASX shares in May
• An ASX dividend giant I’d buy over NAB shares for 2024
• Here’s how the ASX 200 market sectors stacked up last week
• 2 unexpected ASX 200 stocks to buy now for the AI revolution

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

Fortescue Ltd (ASX: FMG) shares are often seen as a passive income option due to the large dividend yield. Could the ASX mining share continue its large payouts or is it a dividend trap?

The idea of a dividend trap is that a stock seems to offer a good yield based on the last dividend payments, but the upcoming dividends are likely to be much smaller – the historical yield is a mirage.

Let’s first look at what the miner is actually distributing to shareholders.

How big is the Fortescue dividend yield right now?

Despite the Fortescue share price being up by 33% in the past year, as seen on the chart below, the trailing yield is still very high.

The last two dividend payments from the ASX mining share amount to $2.08 per share, which equates to a grossed-up dividend yield of 10.9%.

Fortescue’s latest dividend, the HY24 payment of $1.08 per share, was the biggest six-month payment since 2022 and 44% higher than the HY23 payout.

Could Fortescue shares be a dividend trap?

The ASX mining share’s profit is highly dependent on the strength of the iron ore price. Mining costs don’t typically change much in the shorter term, so any extra revenue for its production can largely translate into extra net profit.

Fortescue has a dividend payout ratio policy to pay out between 50% to 80% of underlying net profit after tax (NPAT), so higher profit should also translate into a bigger dividend.

However, the reverse can happen when the iron ore price falls – it largely cuts into net profit, and the dividend suffers too. The Fortescue annual payout decreased in FY22 and FY23 partly because of a lower iron ore price.

With the iron price currently sitting around US$117 per tonne, analysts have forecast that Fortescue’s annual dividend per share will increase in FY24 compared to FY23.

The estimate on Commsec suggests the FY23 annual payout could be $1.94 per share, which would be a rise of 10.7% year over year. However, the FY24 final payment may be lower than the FY23 final payment, leading to the FY24 grossed-up dividend yield being projected to be 10.1%.

However, analysts don’t think the iron ore price will stay this high for long, which could lead to Fortescue’s profit falling in FY25 and FY26, causing the Fortescue annual dividend payout to drop to $1.47 per share in FY25 and $1.09 per share in FY26.

Those projections would mean Fortescue shares could have a grossed-up dividend yield of 7.7% in FY25 and 5.7% in FY26. If those projections come true, it would suggest Fortescue shares are a bit of a dividend trap because the future yield could be materially lower than what it pays in FY24.

However, the iron ore price has been very difficult to predict because of the uncertainty of Chinese demand. It’s possible that the iron ore price could be materially stronger or weaker than analysts expect. Over the last three years, we’ve seen the extremes – the iron ore price has been above US$210 per tonne and below US$90 per tonne.

Would I invest today?

I own Fortescue shares, but I’m not looking to invest right now, as the share price is not far off its all-time high. I prefer to invest when the market is fearful about iron ore miners. But, I’m planning to be a long-term shareholder because of the green energy efforts of the business.

The post Are Fortescue shares a dividend trap? appeared first on The Motley Fool Australia.

More reading

• Own Fortescue shares? Here’s why you now own an ASX tech stock!
• ASX 200 mining stocks flying higher on ‘most relaxed’ Chinese stimulus ever
• Top ASX dividend shares to buy in May 2024
• ASX 200 mining shares charging higher amid China’s $210 billion cash injection
• What’s the outlook for ASX iron ore shares after the federal budget?

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

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

Recent developments in the field of artificial intelligence (AI) have captured the public imagination over the past year or so. One of the byproducts of this trend has been the surging stock prices of companies at the forefront of this paradigm shift in technology. Nowhere is this more apparent than with chipmaker Nvidia (NASDAQ: NVDA), whose graphics processing units (GPUs) have become the gold standard for AI.

The company’s consistent execution and unrivaled business performance have fueled its meteoric ascent. Nvidia stock has gained 540% since early last year, driven by triple-digit revenue and profit growth resulting from surging demand for AI. Yet that’s just the beginning. Since Nvidia’s IPO in early 1999, the stock has soared from a split-adjusted price of $0.25 to more than $939, representing eye-popping gains of 375,500%.

On Wednesday, in conjunction with the release of the company’s quarterly results, Nvidia announced plans to split its stock for the first time since July 2020. The stock has gained more than 800% in the nearly four years since, which is likely the catalyst for the split. This revelation is sparking a fresh wave of interest in an already well-followed stock. Let’s review the mechanics of a stock split and what it means for investors.

The stock-split details

Nvidia announced that its board of directors had approved a 10-for-1 forward stock split. This will result from an amendment to the company’s Restated Certificate of Incorporation, which Nvidia says “will result in a proportionate increase of the number of shares of authorized common stock.”

As a result of this split, shareholders of record as of June 6, 2024, will receive nine additional shares of stock for each share they own after the market close on Friday, June 7. The stock is expected to begin trading on a split-adjusted basis on June 10.

Nvidia investors won’t need to take any steps in order to receive the additional shares of stock. Brokerage firms and investment banks handle the particulars, with the adjustments being handled behind the scenes. The stock-split shares will simply appear in investor accounts with no further action necessary. The timing can vary from brokerage to brokerage, so investors shouldn’t worry if the newly issued shares aren’t there immediately on June 7, as it can take hours, or in some cases days, for the additional shares to make an appearance.

Adding numbers can provide context regarding how the stock-split process plays out. For each share of Nvidia stock a shareholder owns — it’s currently trading for roughly $950 per share (as of this writing) — post-split, investors will hold 10 shares worth $95 each.

Is a stock split a good thing?

As the above example shows, the total value of ownership won’t change based on the split alone; it’s merely a different way of viewing the whole. Put another way, if you buy a pizza, it doesn’t matter if you cut it into eight slices or 16 slices — the total amount of pizza remains the same. By the same token, Nvidia stockholders will simply have a greater number of lower-priced shares.

There are those who believe that investor psychology will ultimately play a part, with excitement about the upcoming stock split driving up the share price. It’s also been suggested that the lower share price can increase demand for those shares among retail investors. Indeed, management notes in the announcement that the purpose of the split is to “make stock ownership more accessible to employees and investors.” While that’s frequently the case, that kind of temporary euphoria historically subsides, leaving investors to focus on what matters — the company’s operational and financial performance — which will ultimately drive the stock price higher or lower.

Is Nvidia stock a buy?

While the stock split alone isn’t reason enough to buy Nvidia, there are plenty of reasons the semiconductor specialist is a buy. Investors need to look no further than the company’s financial report for evidence to support that contention.

In its fiscal 2025 first quarter (ended April 28), Nvidia reported revenue that soared 262% year over year to a record $26 billion, marking an 18% quarter-over-quarter increase. This drove adjusted earnings per share (EPS) up 461% to $6.12.

For context, analysts’ consensus estimates were calling for revenue of $24.65 billion and EPS of $5.59, so Nvidia sailed past expectations with ease.

If there was any doubt, robust demand for generative AI fueled record data center revenue of $22.6 billion, up 427% year over year and representing 87% of Nvidia’s total sales.

Another important announcement for shareholders is that Nvidia increased its quarterly dividend by 150%, from $0.04 to $0.10 per share, or $0.01 on a post-split basis. The first increased dividend payment will be made on June 28. Even at the new, higher level, the yield will still be paltry, amounting to just four-tenths of 1%.

It’s still very early in the AI revolution, which is even more reason to be optimistic. The worldwide AI market clocked in at $2.4 trillion in 2023 and is expected to rise to $30.1 trillion — a compound annual growth rate of 32% — by 2032, according to Expert Market Research. As the gold standard for GPUs used in AI, Nvidia is well-positioned for future success.

Investors shouldn’t buy shares for the pending stock split. However, Nvidia’s long track record of consistently strong operating and financial results — and blistering stock price gains — show why it continues to be such a winning investment.

Some investors will balk at Nvidia’s valuation, but you get what you pay for. Despite four consecutive quarters of triple-digit revenue and EPS growth, Nvidia stock is selling for 37 times forward earnings. That’s a small price to pay for such robust growth.

That’s why Nvidia stock is a buy.

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

The post Nvidia announces a 10-for-1 stock split. Here’s what investors need to know. appeared first on The Motley Fool Australia.

More reading

• Forget Nvidia: This ASX growth stock is poised for its own bull run
• Here’s why Nvidia stock could sustain its stunning bull run after May 22
• History says an Nvidia stock-split announcement might be coming on May 22
• Nvidia stock’s next big catalysts could come on May 22. Should you buy shares before then?
• 3 reasons to buy Nvidia stock before May 22 (and 1 reason to sell)

Danny Vena has positions in Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Nvidia. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

There are few things better than being able to snap up high quality ASX shares when they are cheap.

The good news is that there are two household names that are trading on the ASX boards at a fraction of what investors were paying 12 months ago.

The even better news is that analysts see significant room for their shares to rise from current levels. They also expect some attractive dividend yields to sweeten the deal further.

Let’s take a look at two ASX shares that Goldman Sachs thinks could be undervalued right now:

Telstra Group Ltd (ASX: TLS)

The first ASX share to look at is the nation’s largest telecommunications company, Telstra. After another selloff this week, the company’s shares are now down 21% over the last 12 months and at multi-year lows.

While Goldman wasn’t overly impressed with Telstra’s update this week, it remains very positive on the investment opportunity here. It said:

Overall we revise TLS FY24-26 EBITDA -1% and EPS by -1% to -3%, reflecting the revised mobile outlook and broader restructure. Our 12m TP is -7% to A$4.25, given earnings and reduction in mobile EBITDA multiple to 6.0X (was 6.5X) on increased mobile uncertainty. Buy.

As you can see above, Goldman has put a buy rating and $4.25 price target on this ASX share. This implies potential upside of 24% for investors over the next 12 months.

In addition, the broker is now forecasting fully franked dividends of 18 cents per share in FY 2024 and then 18.5 cents per share in FY 2025. Based on the current Telstra share price of $3.42, this will mean yields of 5.25% and 5.4%, respectively.

That’s a total potential return of almost 30% according to Goldman.

Woolworths Limited (ASX: WOW)

Another ASX share that has been sold off (down 18% year on year) and could be in the buy zone now is supermarket giant Woolworths. Investors have been selling its shares due to concerns over market share losses and regulatory risks.

Goldman isn’t fazed by either and thinks investors should be snapping up Woolworths’ shares while they are undervalued. It said:

WOW is the largest supermarket chain in Australia with an additional presence in NZ, as well as selling general merchandise retail via Big W. We are Buy rated on the stock as we believe the business has among the highest consumer stickiness and loyalty among peers, and hence has strong ability to drive market share gains via its omni-channel advantage, as well as its ability to pass through any cost inflation to protect its margins, beyond market expectations. The stock is trading below its historical average (since 2018), and we see this as a value entry level for a high-quality and defensive stock.

Goldman has a buy rating and $39.40 price target on its shares. This suggests potential upside of almost 26% for investors.

In addition, the broker is forecasting fully franked dividends per share of $1.08 in FY 2024 and then $1.14 in FY 2025. Based on the current Woolworths share price of $31.33, this equates to dividend yields of 3.45% and 3.6%, respectively. Once again, this brings the total potential return to almost 30%.

The post Dividend deals: 2 top ASX shares that still look undervalued appeared first on The Motley Fool Australia.

More reading

• Top brokers name 3 ASX shares to buy today
• What are brokers saying about the Telstra share price after this week’s update?
• 5 things to watch on the ASX 200 on Wednesday
• 3 ASX 300 shares hitting new 52-week lows: Are they cheap buys?
• Telstra share price slips amid 2,800 cuts for growth

Motley Fool contributor James Mickleboro 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 Goldman Sachs Group. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

New Hope Corporation Ltd (ASX: NHC) shares could be in danger of crashing deep into the red.

That’s the view of analysts at Goldman Sachs, which are feeling very bearish about the ASX 200 mining giant.

What is the broker saying about this ASX 200 mining giant?

Goldman has been busy running the rule over the coal miner’s recent quarterly update.

In case you missed it, for the three months ended 30 April, New Hope delivered a 28% quarter on quarter increase in ROM coal production to 3,665,000 tonnes. This was driven by a 23% increase in Bengalla production to 2,955,000 tonnes and a 55% jump in New Acland production to 710,000 tonnes.

The ASX 200 mining giant also delivered the goods with its sales volumes. It reported a 21% quarter on quarter increase in coal sold to 2,358,000 tonnes. This was achieved with an average realised sales price of $179.78 per tonne, which was flat on the previous quarter.

Goldman was relatively satisfied with the company’s update. It commented:

NHC reported 3Q24 total saleable coal production and sales of 2.5Mt/2.4Mt, +21% QoQ (+5%/-6% vs. GSe) with the ongoing ramp-up of the Bengalla and the New Acland mines running slightly ahead of schedule. EBITDA for the April Q was A$219mn, broadly in-line with 50% of our ~A$400mn estimate for the 2H (end of July).

NHC finished the quarter with net cash of ~A$381m (incl. leases and cash held in fixed income assets), down only slightly from ~A$400m at end of Jan, and post the payment of the A$144mn interim dividend and A$80mn further investment in Malabar Resources.

However, it hasn’t been enough to change its bearish view on the ASX 200 mining giant.

Goldman remains bearish

According to the note, the broker has responded to the update by retaining its sell rating with an improved price target of $3.60 (from $3.50).

Based on the current New Hope share price of $5.08, this implies potential downside of just under 30% for investors over the next 12 months.

The broker named two reasons why it is bearish on this ASX 200 mining giant. One is its valuation, the other is its belief that the thermal coal market will soon soften. It explains:

[W]e rate NHC a Sell based on: 1. Valuation & FCF: The stock is trading at ~1.35x NAV (A$3.67/sh) and discounting a long-run thermal coal price of ~US$100/t (real) vs. our US$83/t estimate (based on our view of long run global marginal costs). NHC is also trading on a NTM EBITDA multiple of ~5x vs. global coal peers on ~4.5x (median). We note that FCF yield is -3%/10% in FY24/25 on our ~US$132/113/t thermal coal price assumptions, and -2%/17% at spot thermal (both include benefits from hedging). 2. Thermal Coal market to soften further in 2024: our global commodity team forecasts a ~40Mt surplus for 2024 due to decreasing global import demand, largely driven by a weakening in China hoarding demand (-80Mt) and high inventory levels, and growing export capacity (+50Mt) from Indonesia, Australia and Russia, and we expect marginal costs to fall to US$100/t in 2024. We forecast US$130/t for 6000kcal NEWC benchmark in 2024.

The post Guess which ASX 200 mining giant could crash 30% appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Thursday
• Here are the top 10 ASX 200 shares today
• Why did this ASX 200 mining stock jump 7%?
• Why Gentrack, New Hope, Nuix, and Star Entertainment shares are charging higher
• Own Xero shares? Here’s what to expect from next week’s results

Motley Fool contributor James Mickleboro 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 Goldman Sachs Group. 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.

The ASX dividend giant Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) appeals to me much more than Westpac Banking Corp (ASX: WBC) shares.

Both businesses are more than 120 years old and have provided investors with long-term dividend streams. Soul Patts has paid a dividend annually since it was listed in 1903.

Westpac is one of the largest ASX bank shares, while Soul Patts is a diversified investment conglomerate.

There are three key reasons why I’ve chosen the investment business for my portfolio over Westpac shares.

Dividend growth

Westpac currently has a higher dividend yield, with a trailing grossed-up yield of 6.6%, compared to the Soul Patts grossed-up dividend yield of 4%.

However, in the long term, Soul Patts has been much more successful at growing its dividend.

The last two dividends (91 cents per share) from Soul Patts are almost double what was paid in 2013 (46 cents per share).

Westpac’s last two dividends ($1.62 per share) are 16.5% lower than what the ASX bank share paid in 2013 ($1.94 per share).

I believe Soul Patts’ asset base gives it more scope to deliver growth over time.  

Earnings diversification

Westpac largely makes its profit by lending to households and businesses in Australia and New Zealand, which doesn’t offer much earnings diversification. So, Westpac shares are very reliant on the bank’s loan book.

Soul Patts is invested in numerous industries and ASX shares, it has the flexibility to invest wherever it sees opportunities. Some of its biggest industry exposures include resources, telecommunications, building products, property, financial services, agriculture, electronics, and electrical parts. These investments generate profit and pay dividends for Soul Patts.

Some of the biggest positions in its ASX portfolio include TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), New Hope Corporation Ltd (ASX: NHC), Tuas Ltd (ASX: TUA) and Macquarie Group Ltd (ASX: MQG).

Over time, Soul Patts’ portfolio can continue to grow and generate further cash flow to fund bigger dividends.

Dividend stability

If I invest in a stock for passive income, I’d like to know that the dividend will likely keep flowing even in a recession. That’s likely when I would need the cash flow the most!

Ignoring the one-off year of 2020, which was heavily impacted by the pandemic, Westpac saw its 2021 annual dividend decrease by approximately a third compared to the 2019 annual dividend. The 2023 dividend was 18% lower than 2019.

Meanwhile, Soul Patts has grown its annual ordinary dividend every year since 2000 – it kept rising during the COVID-19 years.

Soul Patts’ dividend isn’t guaranteed to keep growing, but it’s invested in a portfolio of primarily defensive assets, which offers security. The investment house usually retains some of its annual cash flow each year to invest in more opportunities to help grow its dividend in future years.

The post An ASX dividend giant I’d buy over Westpac shares right now appeared first on The Motley Fool Australia.

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

Sometimes it can be tempting to invest in a speculative stock promising the world.

However, unfortunately for investors, more often than not, these type of ASX shares fail to deliver on expectations and destroy wealth instead of creating it.

At the same time, investors keeping it simple and focusing on defensive ASX shares with stable and strong business models are slowly getting rich with limited effort.

But which ASX shares could deliver the goods for investors in this way? Let’s take a look at a couple that are reliable and defensive.

CSL Ltd (ASX: CSL)

This biotechnology giant could be a quality option for investors. It has delivered market-beating returns over the past decade thanks to the strength of its business, its investment in research and development, and increasing demand for immunoglobulins.

And thanks to a rare period of underperformance for its shares, analysts at Morgans believe now is a great time for investors to invest in CSL. They commented:

While shares have struggled of late, we continue to view CSL as a key portfolio holding and sector pick, offering double-digit recovery in earnings growth as plasma collections increase, new products get approved and influenza vaccine uptake increases around ongoing concerns about respiratory viruses, with shares trading at 25x, a substantial discount (20%) to its long-term average.

Morgans currently has an add rating and a $315.40 price target on the company’s shares.

REA Group Limited (ASX: REA)

Over at Goldman Sachs, its analysts believe that REA Group could be a high quality ASX share to buy now.

REA Group is the leading player in Australian real estate listings through its dominant realestate.com.au website. It is thanks to this market leadership position that Goldman is so positive on its outlook. It highlights REA Group’s pricing power and opportunity in lead generation. It explains:

We believe REA Group, a leading real estate classified business with strong market positions across Australia, Asia and the United States, has one of the best risk/reward profiles in our domestic media coverage. In particular, we are positive on the pricing power of the real estate classified vertical, given that we believe budgets will rise (at the expense of commissions), and within existing budgets, REA, as a leading player in the vertical, under-monetises its lead generation. We also see the current negative sentiment around AU property as more a driver of share prices over earnings.

We believe REA is among the highest-quality names in our coverage, given it has the highest ability to continue to drive pricing, with: (1) significant disparity between lead share and revenue share; (2) the lowest cost relative to overall vertical transaction; (3) a profitable and still fragmented end market; and (4) the existence of Vendor Paid advertising, with strong valuation support with current trading multiples in-line with historical levels.

Goldman has a buy rating and $202 price target on its shares.

The post Don’t get clever, just buy stability: 2 defensive ASX shares to buy now appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has positions in CSL. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL, Goldman Sachs Group, and REA Group. The Motley Fool Australia has recommended CSL and REA Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.