Category: Stock Market

S&P/ASX 200 Index (ASX: XJO) bank shares are all well into the green so far in 2023.

Here’s how the big four bank stocks have performed since the opening bell on 3 January:

ANZ Group Holdings Ltd (ASX: ANZ) shares are up 8.0%.

National Australia Bank Ltd (ASX: NAB) shares have gained 7.9%.

The Westpac Banking Corp (ASX: WBC) share price is up 4.8%.

And Commonwealth Bank of Australia (ASX: CBA) shares have gained 8.5%. The CBA share price is now edging back to retake its November 2021 all-time highs, currently trading for $109.38.

But it’s not just share price growth that attracts many ASX 200 investors to the big bank shares.

Income investors are also drawn by their historically reliable, and relatively juicy, fully franked dividend yields.

What kind of trailing dividends do the big four ASX 200 bank shares pay?

Before looking ahead at what kind of dividends ASX 200 bank share investors might expect in 2023, here are the yields they’ve delivered over the past 12 months, all 100% franked.

Remember, when looking at dividends, most often you’ll see trailing dividend yields reported, as below. Future (or forecast) dividends are based on expected future earnings and may be higher or lower than the trailing yields accordingly.

With that said:

• NAB pays a trailing dividend yield of 4.8%
• CBA pays a trailing dividend yield of 3.6%
• ANZ pays a trailing dividend yield of 5.9%
• Westpac pays a trailing dividend yield of 5.3%

Those are the yields of yesteryear.

Now, what kind of dividend payouts can investors in ASX 200 bank shares expect in 2023?

Broker tips big boost in 2023 dividend payouts

For some insight into that, we defer to the analysts at Morgan Stanley (courtesy of The Australian Financial Review).

All up, the broker expects the big four banks to boost their combined dividends by an average of 9% in 2023.

But some of the ASX 200 bank shares are forecast to reward investors with a bigger dividend lift than others.

According to Morgan Stanley estimates:

• CBA leads the pack, forecast to deliver a 17% year-on-year increase in dividends from $3.85 per share to $4.50 per share
• NAB comes in number two and is forecast to increase its dividends by 10% from $1.51 per share to $1.66.
• Westpac is forecast to boost its dividends by 9% from $1.25 to $1.36 per share.
• ANZ (which pays the highest trailing dividend yield) lags the other ASX 200 banks here and is forecast to increase its dividend payout by 1% from the $1.46 per share paid out last year.

There you have it.

Happy income investing!

The post Investing in ASX 200 bank shares? Here’s the dividend outlook for 2023 appeared first on The Motley Fool Australia.

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More reading

• Goldman Sachs names 2 ASX dividend shares to buy now
• Forget gold! ASX 200 blue-chip shares could be the new safe-haven asset
• Does the Vanguard Australian Shares ETF’s unique structure deliver better returns than the ASX 200?
• 5 things to watch on the ASX 200 on Wednesday
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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 recommended Westpac Banking. 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 Megaport Ltd (ASX: MP1) share price is on course to end the week strongly.

In morning trade, the network as a service provider’s shares are up 6% to $7.34.

Why is this ASX 200 tech share racing higher?

The catalyst for the rise in the Megaport share price on Friday has been the release of a bullish broker note out of Morgans.

According to the note, the broker has upgraded the ASX 200 tech share to an add rating with a $9.00 price target.

Based on where its shares are currently trading, this implies potential upside of over 22% for investors over the next 12 months.

Why did the broker upgrade Megaport shares?

The broker made the move on the belief that the risk/reward on offer with Megaport shares is compelling now after a period of share price weakness.

Morgans also believes that the worst is over for ASX 200 tech shares and that valuations are fair again. And with global economic growth likely to struggle in the near term, it feels that investors could soon return to the tech sector. It explained:

In CY22 we had an underweight view on the technology sector. CY22 was brutal for technology and growth stocks. Inflation/interest rates were the main culprit. As we look into CY23 we think it’s improbable interest rate rises will be anywhere near as dramatic as CY23 so the macro backdrop looks better for tech.

Valuations for quality tech are now back to 20 year / long run averages (fair value). Interest rates should normalise and, assuming this occurs, investors may reassess the fact that we are back into a no growth world. […] Quality tech can grow regardless of weak economic conditions. Profit growth should reignite interest in the tech sector once again and this profit growth should drive share price appreciation.

The post Why is this ASX 200 tech share racing 6% higher today? appeared first on The Motley Fool Australia.

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More reading

• Here are the 10 most shorted ASX shares
• My top predictions for ASX All Ords shares in 2023
• Watch these 2 ASX 200 growth shares take off this year: expert
• My ASX shares fell 15% last year. Here’s what I’m doing now
• Here are the top 10 ASX 200 shares today

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 Megaport. The Motley Fool Australia has recommended Megaport. 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) healthcare share ResMed Inc (ASX: RMD) is marching higher in morning trade.

ResMed shares closed yesterday trading for $32.96 per share and are currently trading for $33.71, up 2.28%.

This comes after the blue-chip healthcare stock released its quarterly second-quarter results for the 2023 financial year (Q2 FY23) this morning.

Read on for the highlights.

What results did the ASX 200 healthcare share report?

The ResMed share price is in the green after the ASX 200 healthcare share reported revenue of $1.03 billion for the three months ending 31 December. That’s up 16% from the prior corresponding period of Q2 FY22 when the company reported revenue of $849.9 million.

On a constant currency basis, revenue grew by 20%. ResMed credited this to increased demand for its sleep and respiratory care devices coupled with a diminished competitive supply.

Meanwhile, gross margin contracted by 0.30% to 56.1% while income from operations increased 13% from the prior corresponding period. This helped drive ResMed’s non-GAAP (Generally Accepted Accounting Principles) operating profit up 14%.

Diluted earnings per share (EPS) came in at $1.53, up 12% from the $1.37 EPS in the prior corresponding quarter. EPS was lifted by strong sales but received some headwinds from higher operating expenses over the quarter.

ResMed declared a quarterly cash dividend of 44 cents per share with a record date of 9 February. The dividend will be paid out on 16 March.

What did management say?

Commenting on the quarterly results sending the ASX 200 healthcare share higher today, ResMed CEO Mick Farrell said:

We significantly increased production and delivery of flow generator devices to meet the incredible demand from customers, resulting in strong sales growth in the Americas, and solid overall performance for our business across 140 countries…

We cleared the final regulatory hurdles and closed the acquisition of MEDIFOX DAN, expanding our outside-hospital Software-as-a-Service (SaaS) business to its first market outside the US. We will deliver ongoing, sustainable growth through this exciting expansion of our business model in Germany, with strong links to both our global SaaS business and our market-leading German business in sleep and respiratory care.

How has this ASX 200 healthcare share been tracking?

The ResMed share price is off to a strong start in 2023, up 11% since the opening bell on 3 January.

As you can see in the chart below, over the past 12 months the healthcare share has gained 7%.

The post ASX 200 healthcare share charges higher as quarterly revenue surges appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Friday
• 3 ASX shares to buy in the hottest sector for 2023: Firetrail
• 3 excellent ASX 200 growth shares with major upside potential: analysts
• Here are the top 10 ASX 200 shares today
• 3 ASX 200 shares tipped to rise higher: experts

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 positions in and has recommended ResMed. The Motley Fool Australia has positions in and has recommended ResMed. 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 Mineral Resources Ltd (ASX: MIN) share price is having a subdued finish to the week.

In morning trade, the mining and mining services company’s shares are down 2.5% to $92.00.

Why is the Mineral Resources share price under pressure?

The weakness in the Mineral Resources share price on Friday appears to have been driven by a broker note out of Goldman Sachs.

That note reveals that the broker believes the company’s shares have peaked for the time being.

According to the note, Goldman has downgraded the company’s shares to a neutral rating with a reduced price target of $87.00.

This implies potential downside of almost 6% from current levels.

Why did Goldman downgrade Mineral Resources?

While Goldman was a touch underwhelmed with the company’s quarterly update, the main reason for the downgrade was its valuation following some strong gains in recent months. This can be seen on the chart below.

In respect to its quarterly performance, the broker said:

MIN reported a mixed Dec Q with better than expected iron ore and lithium spodumene pricing, but lower than expected iron ore and lithium sales volumes and Li hydroxide pricing at Wodgina. Guidance for FY23 is unchanged except for Mt Marion spodumene which has been downgraded slightly on the back of a slight delay to the expansion project (600ktpa to 900ktpa) ramp-up to July.

As for its valuation, its analysts highlight that the Mineral Resources share price had rallied a massive 58% since they put a buy rating on it. This has taken it to 1.2x net asset value, which is beyond what they believe is a fair valuation. Goldman adds:

With our updated estimates and PT we downgrade MIN to Neutral (from Buy) […] Since upgrading MIN to a BUY on 11 April 2022, the stock is up ~58% vs. the ASX200 roughly flat (-0.2%) over the same period.

The post Mineral Resources share price falls on Goldman Sachs downgrade appeared first on The Motley Fool Australia.

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More reading

• Invested $1,000 in Mineral Resources shares 10 years ago? Here’s how much passive income you’ve made
• 5 things to watch on the ASX 200 on Friday
• Why Best & Less, Evolution, Mineral Resources, and St Barbara shares are dropping
• Mineral Resources share price tumbles as lithium business takes off
• Guess which four ASX 200 lithium shares charged higher today

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 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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Flight Centre Travel Group Ltd (ASX: FLT) shares have been on a rollercoaster since the start of the COVID-19 pandemic. At first there was a crash, then a slow but steady rise. However, since the start of May 2022, the Flight Centre share price has actually gone through a 30% decline.

The ASX travel share has been telling investors about a recovery in demand, which logically should mean higher profit. But, how much profit is being projected?

Recovery of demand

At the company’s annual general meeting (AGM), the business said that there are some supply challenges – such as airline capacity – early in FY23. However, Flight Centre said those challenges don’t appear to be impacting customer demand. The leadership noted that the market generally grows year over year.

In June 2022, various businesses were tracking at near or pre-COVID total transaction value (TTV) levels on a monthly basis as a result of “both the rapid demand uplift after borders reopened and higher than normal airfare prices”.

Flight Centre also said that demand is increasing in both leisure and corporate travel. The revenue margin was “holding steady” year over year, “and expected to increase as market conditions normalise and as new initiatives gain transactions”.

On top of that, Flight Centre also noted that its cost margin is tracking at 10%, a level that it historically aspired to.

Its corporate business reported that September and October were the two strongest TTV months in its 30-year history in corporate travel. Management also said that it’s seeing positive trends in the leisure sector, though Australian short-term resident departures in August 2022 were at 63% of August 2019.

Flight Centre managing director Graham Turner said:

Travel is, however, at a relatively early stage on the path to recovery… and there is considerable pent-up demand that is not yet fully translating to bookings, which means there is also ongoing upside potential.

In business travel, for example, our recovery is being driven by very high customer retention rates and large volumes of new account wins – rather than by overall client activity returning to pre-COVID levels.

It’s expecting FY23 first-half underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to be between $70 million and $90 million, up from a loss of $184 million in the prior corresponding period.

Profit projections for Flight Centre shares

Looking at earnings per share (EPS) is one of the best ways to see profitability, in my opinion.

It puts the net profit in per-share terms and gives context to the share price. I don’t think there’s much point to growing net profit if it’s not boosting the underlying value of each share. Growing EPS is one of the key factors that can help grow the Flight Centre share price in the future.

According to Commsec, the business could generate 31.4 cents of EPS in FY23. This would put the Flight Centre share price at 50x FY23’s estimated earnings.

That may seem like a very high price/earnings (p/e) ratio. But, it’s still in the recovery phase. I think it’s worth pointing out that earnings are expected to more than triple to $1.035 in FY24. That would equate to it being valued at 15x FY24’s estimated earnings.

Of the analyst ratings that Commsec has collated on Flight Centre, there are three buys, two sells and eight holds.

The post How much profit could Flight Centre shares make in 2023? appeared first on The Motley Fool Australia.

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More reading

• Here are the 10 most shorted ASX shares
• Is 2023 Flight Centre’s year to return to profit?
• The Flight Centre share price has made a flying start to 2023! Should I buy?
• Here are the 10 most shorted ASX shares
• Could ASX 200 travel shares be set for a major boost in 2023?

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 no position in any of the stocks mentioned. The Motley Fool Australia has recommended Flight Centre Travel Group. 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 Limited (ASX: FMG) share price is ending the week strongly.

In morning trade, the mining giant’s shares are up 3.5% to a 52-week high of $23.25.

Why is the Fortescue share price rising?

Investors have been bidding the Fortescue share price higher today following the release of the miner’s second quarter and first half production update.

According to the release, for the three months ended 31 December, Fortescue delivered iron ore shipments of 49.4 million tonnes. This underpinned a 4% increase in half year shipments to a record of 96.9 million tonnes.

This was achieved with a second quarter C1 cost of US$17.17 per wet metric tonne (wmt). While this was up 12% year over year, it was a 3% improvement on the US$17.69 per wmt that it reported during the first quarter.

Fortescue commanded an average of US$86.93 per dry metric tonne (dmt) for the quarter, which equates to a discount of 88% to the average benchmark 62% fines iron ore price for the period.

While no earnings data was provided, Fortescue revealed that its cash balance increased US$700 million during the quarter to US$4 billion.

Management commentary

Fortescue’s Executive Chairman, Dr Andrew Forrest AO, commented:

The Fortescue team delivered our highest ever December quarterly shipments of 49.4 million tonnes, our best ever half year, grew the mineral and green energy business globally, strengthened our balance sheet, kept costs low, all while maintaining our excellent safety performance.

We are now nearing the 200 million tonne annualised rate in our iron ore business even before we commission Iron Bridge. Our Company has never performed better on the mining, exploration, green hydrogen and green energy development front, while leading the world as the first heavy industry company to achieve real zero with a fully costed plan.

Demand for Fortescue’s suite of iron ore products remains strong and our entry into the higher grade segment of the market has been well received, with significant interest in the Iron Bridge magnetite concentrate.

FY 2023 guidance

Pleasingly, there has been no change to Fortescue’s guidance for the full year. It continues to target iron ore shipments of 187 million tonnes to 192 million tonnes with a C1 cost of US$18 to US$18.75 per wmt.

Capital expenditure excluding Fortescue Future Industries (FFI) is expected to be US$2.7 billion to US$3.1 billion. Whereas FFI’s anticipated expenditure comprises US$500 million to US$600 million of operating expenditure and US$230 million of capital expenditure.

The post Fortescue share price hits 52-week high on record half appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Friday
• How much profit could Fortescue shares make in 2023?
• ASX passive income: My game plan to reach $30,000 per year
• Why a merger between Fortescue and this major-league miner could make sense: expert
• Why Fortescue shares could be facing a Meta-like problem

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 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 Origin Energy Ltd (ASX: ORG) share price is on course to end the week on a positive note.

In morning trade, the energy giant’s shares are up 2.5% to $7.51.

Why is the Origin share price pushing higher?

Investors have been bidding the Origin share price higher this morning following the release of a guidance update.

According to the release, for FY 2023, Origin now expects Energy Markets underlying EBITDA to be between $600 million and $730 million. This is up from $500 million to $650 million and excludes the potential impact of the introduction of the legislated coal price cap.

Origin notes that the improvement in Energy Markets earnings has been driven by an expected increase in natural gas and electricity gross profit due to a good operating and trading performance, as well as improved coal delivery under legacy contracts.

It also highlights that no material impact is expected on FY 2023 Energy Markets earnings as a result of the introduction of the $12/GJ cap on uncontracted gas. This is because gas supplies for the year had been almost entirely contracted prior to the cap coming into effect.

In addition, as mentioned above, this guidance excludes the potential impact of any compensation Origin may receive to recover coal costs that exceed the legislated coal price cap of $125/tonne, or further coal supply contracts that may be executed at the capped price.

LNG update

Another positive that could be boosting the Origin share price today is the performance of the LNG trading business. Management notes that it has improved following additional hedging at favourable market prices, resulting in a further $140 million to $180 million of LNG trading EBITDA.

Previously, the company was expecting LNG trading EBITDA for FY 2023 and FY 2024 to be slightly positive. However, it is now expected to be $40 million to $80 million.

Things will be even better in FY 2025, with LNG trading EBITDA now expected to be $450 million to $650 million across FY 2025 and FY 2026. This compares to previous guidance of $350 million to $450 million.

Though, it warns that this outlook remains subject to market prices on unhedged volumes, operational performance, and delivery risk of physical cargoes, and shipping and regasification costs.

Origin is currently a $9.00 per share takeover target for consortium comprising Brookfield Asset Management and MidOcean Energy.

The post Origin share price higher on earnings guidance upgrade appeared first on The Motley Fool Australia.

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More reading

• Why Baby Bunting, Origin, Rio Tinto, and South32 shares are dropping today
• Buy ‘underappreciated’ Origin Energy shares for 20% upside: Morgan Stanley
• How are ASX 200 energy shares tracking in the first week of trade?
• The 3 best performing ASX 200 dividend shares of 2022

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 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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If you’re looking for dividends to boost your income this year, then you may want to look at the two ASX 200 dividend shares listed below.

Both of these dividend shares have been rated as buys and tipped to provide investors with good yields in the near term. Here’s what you need to know about these shares:

Deterra Royalties Ltd (ASX: DRR)

The first ASX 200 dividend share for income investors to look at is Deterra Royalties.

It is the owner of a portfolio of royalty assets across a range of commodities, primarily focused on bulks, base and battery metals. This includes the massive Mining Area C (MAC) iron ore operation owned by mining giant BHP Group Ltd (ASX: BHP).

The team at Citi is positive on the company and has a buy rating and $5.10 price target on its shares.

As for dividends, the broker is forecasting fully franked dividends per share of 30 cents in both FY 2023 and FY 2024. Based on the current Deterra Royalties share price of $4.88, this will mean yields of 6.15%.

Macquarie Group Ltd (ASX: MQG)

Another ASX 200 dividend share for income investors to consider is investment bank Macquarie.

It has been tipped as a buy by analysts at Morgans. The broker notes that the investment bank is a “quality franchise, well exposed to structural growth areas, and the company is managing a more difficult FY23 environment well.”

In respect to dividends, Morgans is forecasting partially franked dividends of $7.05 per share in FY 2023 and $7.36 per share in FY 2024. Based on the current Macquarie share price of $185.13, this will mean yields of 3.8% and 4%, respectively.

Morgans has an add rating and $214.30 price target on the company’s shares.

The post Buy Macquarie and this ASX 200 dividend share: analysts appeared first on The Motley Fool Australia.

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More reading

• Forget gold! ASX 200 blue-chip shares could be the new safe-haven asset
• These ASX dividend shares have been tipped as buys by analysts
• Did you buy $1,000 of Macquarie shares 10 years ago? If so, here’s how much dividend income you’ve earned
• Earn passive income with these ASX 200 dividend shares – experts
• Top brokers name 3 ASX shares to buy next week

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 no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group. 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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Are you looking for dividend shares to buy this week? If you are, then the two named below could be worth checking out.

Both have been named as buys by Goldman Sachs and tipped to provide investors with attractive yields. Here’s what you need to know about them:

National Australia Bank Ltd (ASX: NAB)

The first ASX dividend share to look at is NAB. Goldman Sachs is very positive on this big four bank and currently has a buy rating and $35.60 price target on its shares.

Goldman Sachs likes NAB due to its exposure to commercial lending, which the broker believes will perform relatively better than home lending in the current environment. Its analysts “see volume momentum over the next 12 months as favouring commercial volumes over housing volumes and NAB provides the best exposure to this thematic.”

In respect to dividends, Goldman is forecasting fully franked dividends of $1.66 per share in FY 2023 and $1.73 per share in FY 2024. Based on the current NAB share price of $31.48, this implies yields of 5.3% and 5.5%, respectively.

Universal Store Holdings Ltd (ASX: UNI)

Another ASX dividend share that has been tipped as a buy is Universal Store. Goldman Sachs currently has a buy rating and $7.55 price target on its shares.

It is a growing retailer focused on youth fashion through the Universal Store and Thrills brands.

Goldman Sachs is a fan of the company due to the company’s exposure to younger consumers, which it expects to continue spending in 2023 thanks to minimum wage increases and their lower exposure to rising interest rates.

In addition, the broker sees “an opportunity for ongoing store roll-out for UNI which is the market leader in youth multi-brand apparel.”

As for dividends, the broker is expecting fully franked dividends of 27.2 cents in FY 2023 and 29.9 cents in FY 2024. Based on the latest Universal Store share price of $5.80, this equates to yields of 4.7% and 5.15%, respectively.

The post Goldman Sachs names 2 ASX dividend shares to buy now appeared first on The Motley Fool Australia.

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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 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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Small cap ASX shares have the potential to deliver big returns because they are starting from an earlier point in their journey compared to an established blue chip share. But how do you know which small cap company will go on to greater heights?

One fund manager has picked out Gentrack Group Ltd (ASX: GTK) shares as a major opportunity.

The ASX tech share is a software provider for utility businesses and airports around the world. It helps clients with efficiency and to deliver their customers better services. It’s also helping utilities ‘transform’ in this ‘sustainable era’ to meet customer demand for how they purchase and consume energy and water. Gentrack says that “it is not a case of if utilities transform to meet these demands, but when”.

Below is a snapshot of Gentrack’s share price history.

The NAOS Asset Management investment team believes Gentrack shares offer considerable upside, saying it has a high level of conviction in the business as a core investment over the next three to five years. They give two main reasons.

Industry tailwinds for the small cap ASX share

NAOS said the first reason to be positive is the “significant” industry tailwind of all meter points globally transitioning to new IT systems.

According to NAOS, this represents an opportunity worth more than $1 billion across around 200 utility companies.

The fund manager noted that Gentrack has been able to secure new tier 1 and tier 2 customers and successfully implement their systems in a seamless manner, which was described as a “key risk” for any IT migration.

Gentrack share price valuation

NOAS says the small cap ASX share’s valuation is also “extremely attractive”.

The fund manager pointed out that Gentrack’s customers operate in a highly regulated environment and are therefore “rather sticky clients”.

NAOS analysts think the business generates excellent cash flow and has good cash conversion. It was noted that all of Gentrack’s research and development is expensed (rather than spreading out the cost over multiple years, which is what a lot of other ASX tech shares do by capitalising those costs).

The fund manager pointed out that while Gentrack largely operates in three international markets, the small cap ASX share is now executing on a global expansion strategy. This was illustrated by the recent signing of a large utility company in Singapore. NAOS is particularly pleased by this foray because many ASX tech shares only operate within Australia and New Zealand.

The fund manager revealed how much future upside there might be with the Gentrack share price:

If management forecasts are to prove correct and in FY25 GTK produces $175 million of revenue and an EBITDA margin of 17%, then cash EBITDA for GTK would be ~$30 million. Of note would be the net cash position of the business which could reach close to $50 million. Using Objective Corporation Limited (ASX: OCL) as a comparative software business, which has similar attributes albeit a higher level of recurring revenue, OCL trades on 29 times EV/EBITDA. Even if you apply a 30% discount this would result in a valuation of $6.42 / share for GTK based on FY25 targets, which we see as particularly compelling given Gentrack’s current share price.

The post This obscure small cap ASX share is ‘extremely attractive’: expert appeared first on The Motley Fool Australia.

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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 Objective. 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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