Category: Stock Market

ASX 200 gold shares are having a top run on the market today amid higher gold prices.

Gold explorers in the green include Evolution Mining Ltd (ASX: EVN), Newcrest Mining Ltd (ASX: NCM) and Northern Star Resources Ltd (ASX: NST)

Let’s take a look at what is weighing on ASX 200 gold shares today in more detail.

Gold prices lift

Evolution Mining shares are rising 7% today. Meanwhile, Newcrest Mining shares are lifting 5.71% and Northern Star Resources shares are up 3.94%. For perspective, the S&P/ASX 200 Index (ASX: XJO) is climbing 1.58% today.

Gold shares after lifting after the spot gold price rose by 1.6% overnight. Gold is currently fetching US1,827.40 an ounce at last look, according to CNBC.

A weaker US dollar provided the gold price with a boost, as my Foolish colleague James reported this morning. The Bank of Japan shifted its yield curve, causing the Japanese yen to surge to a four-month peak against the dollar, Reuters reported.

Commenting on the impact of the US dollar on the gold price, Exinity chief market analyst Han Tan, quoted on CNBC, said “spot gold is being given another chance to shine thanks to the dollar’s pullback”. He added:

The next leg down for the dollar should send spot gold onto a new cycle high past $1,824.50.

One analyst is tipping the gold price to continue to rise, despite the prospect of the US Federal Reserve raising interest rates next year. Circle Squared Alternative Investments chief executive officer Jeffrey Sica said in quotes cited by Reuters:

I see that it’s going to be a dark shadow on the gold market, but I still think we’re headed for an upside.

Earlier this week, Newcrest advised the market of leadership changes at the company. CEO and managing director Sandeep Biswas has retired. The company’s chief financial officer Sherry Duhe has taken the reigns as interim CEO.

Share price snapshot

Newcrest Mining shares have fallen nearly 13% in the past year.

The Northern Star Resources share price has soared 17.7% in the last year.

Evolution shares have slid 25% in the last 52 weeks.

The post Why are ASX 200 gold shares having such a stellar run today? appeared first on The Motley Fool Australia.

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More reading

• Why European Lithium, Evolution, Medadvisor, and REA shares are charging higher
• 5 things to watch on the ASX 200 on Wednesday
• 5 things to watch on the ASX 200 on Tuesday
• Here are the top 10 ASX 200 shares today
• Could copper become ‘the lithium’ of 2023?

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 recommended REA 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 S&P/ASX 200 Index (ASX: XJO) is well and truly back on form on Wednesday. In afternoon trade, the benchmark index is up 1.3% to 7,115.2 points.

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

BWX Ltd (ASX: BWX)

The BWX share price is down a further 12% to a new low of 26 cents. Investors have been abandoning the Sukin skincare manufacturer after the release of a shocking business update. BWX has admitted to channel stuffing activities and revealed a growing mountain of debt. As things stand, BWX is going to breach its debt covenants in January if they are not waived. And don’t be surprised if class action lawyers are circling the company.

Novonix Ltd (ASX: NVX)

The Novonix share price is down over 6% to a 52-week low of $1.59. This morning, the battery materials technology company appeared to downgrade and delay its production guidance. As of late October, Novonix was on track for synthetic graphite anode materials production of 10,000 tonnes per annum (tpa) in 2023. It now expects to begin production at a rate of approximately 3,000 tpa in 2024, before ramping up to approximately 12,000 tpa in 2028.

Symbio Holdings Ltd (ASX: SYM)

The Symbio share price has crashed 34% to $1.68. Investors have been selling this voice communications software provider’s shares after it downgraded its FY 2023 earnings guidance. Symbio now expects FY 2023 EBITDA to be between $26 million and $30 million, which represents a 25% downgrade based on the mid-point of its guidance ranges. Management advised that the company’s Communications Platform-as-a-Service (CPaaS) division has been impacted by returns and slow sales progress.

TPG Telecom Ltd (ASX: TPG)

The TPG share price is down 3.5% to $4.61. This has been driven by news that the ACCC has blocked its proposed regional mobile network arrangements with Telstra Group Ltd (ASX: TLS). The competition watchdog believes the “arrangements will likely lead to less competition in the longer term and leave Australian mobile users worse off over time, in terms of price and regional coverage.” Telstra has since announced plans to appeal the decision.

The post Why BWX, Novonix, Symbio, and TPG shares are dropping today appeared first on The Motley Fool Australia.

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More reading

• Why did this ASX All Ordinaries share just crash 33%?
• Novonix share price sinks on surprise production guidance downgrade
• Telstra share price lower after ACCC blocks TPG deal
• I’d buy these 3 ASX 200 shares in 2023 and hold them for a decade
• Little downside protection for popular ASX 200 shares as 2023 looms a much tougher year for blue chip stocks

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 positions in and has recommended Telstra Group and Symbio. The Motley Fool Australia has recommended Tpg Telecom and Symbio. 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 rocketing on Wednesday amid news of the $9 per share acquisition offer previously put to the company.

The S&P/ASX 200 Index (ASX: XJO) utilities giant announced the consortium behind the bid is on track to complete its due diligence in the new year. Origin has agreed to extend its exclusivity until 16 January.

Meanwhile, one expert is said to have flagged the stock as an opportunity, saying the market is overestimating the risk of the deal failing.

Right now, the Origin share price is $7.52, 6.21% higher than its previous close. That’s also 16% lower than the takeover offer on the table of the company.

For comparison, the ASX 200 is up 1.51% today, recovering all of yesterday’s losses.

Let’s take a closer look at the news that’s seemingly driving the energy giant’s stock higher today.

What’s going right for the Origin share price today?

It’s a good day to be invested in Origin Energy. The market is bidding its share price higher despite no price-sensitive news having been released by the ASX 200 giant.

Though, the company did reveal the consortium behind its $9 per share takeover offer is planning to sign binding transaction documents after the holiday period, wherein it’s expected to complete due diligence. Therefore, Origin has extended the consortium’s exclusivity to mid-January.

Meanwhile, RBC Capital Markets believes the ASX’s apparent suspicion the deal could fall through has created a buying opportunity. Analyst Gordon Ramsay said, courtesy of the Australian Financial Review:

We see an arbitrage opportunity for investors willing to play this space, particularly since the Origin board has effectively already endorsed the offer in the absence of a superior proposal.

In a worst-case scenario, the bidders may seek a discount on the prior agreed offer price.

Will this discount be as large as the current disconnect between the current Origin share price and the indicative non-binding offer? We would be surprised.

This year has been a good one for Origin stock. The company’s share price has gained 40% since the start of 2022. It’s also 45% higher than it was this time last year.

Comparatively, the ASX 200 has fallen 6% year to date and 3% over the last 12 months.

The post Why is the Origin Energy share price surging 6% on Wednesday? appeared first on The Motley Fool Australia.

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More reading

• Origin share price lifts despite price cap casting shadow over $18 billion takeover
• Why is the Origin Energy share price dumping 8% on Monday?
• Here are the 3 most heavily traded ASX 200 shares on Monday
• Why Bigtincan, Nanosonics, Origin, and Tyro shares are sinking today
• 3 ‘boring’ ASX shares with returns over 25% in 2022

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 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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With rising gold prices, ASX investor interest in owning gold as an investment is also on the rise. But owning physical gold bullion is a costly way of exposing an investment portfolio to gold. There’s the hassle of buying and transporting one of the world’s heaviest metals for one. Then there is safe storage to think about.

For these reasons, many investors prefer to own gold exchange-traded funds (ETFs), rather than the physical metal itself. ETFs charge fees, sure. But many investors prefer paying a small fee rather than dealing with the hassle of physical gold ownership. So if an investor wished to go down the ETF path, what options does the ASX provide?

What kinds of physical gold ETFs does the ASX offer?

Well, a popular choice is the Global X Physical Gold ETF (ASX: GOLD). This ETF represents ownership of physical gold bullion, which is stored on behalf of the fund in a London bank vault. The Global X Physical Gold ETF has close to $2.6 billion in assets under management, and charges a fee of 0.4% per annum for its services. That’s $40 per year for every $10,000 invested.

Another option that this provider offers is the Global X Physical Precious Metals Basket ETF (ASX: ETPMPM). This fund is similar to the Physical Gold ETF, but also includes exposure to other precious metals in silver, platinum and palladium bullion.

But the Global X Physical Gold ETF isn’t the only pureplay gold ETF on the ASX. Another option is Perth Mint Gold (ASX: PMGOLD). Perth Mint Gold is a fund run by the Perth Mint, itself a government-owned institution. This fund has just under $650 million in assets under management, with units of the fund available for direct conversion into Perth Mint bullion bars.

Due to its ownership by the Western Australian government, this ETF also offers a government guarantee on all holdings. It charges a management fee of 0.15% per annum, or $15 per year for every $10,000 invested.

Want hedging too?

A third option is the BetaShares Gold Bullion ETF (ASX: QAU).

This is the only gold ETF on the ASX that offers currency hedging, as well as exposure to gold. Gold, as a commodity, is usually priced in US dollars. This means that the above two funds’ values can be impacted by movements in the US dollar against the Australian dollar, as well as by the price movements of gold itself.

The BetaShares Gold Bullion ETF takes this secondary factor out of the equation, ensuring that currency impacts are theoretically nullified.

The BetaShares Gold Bullion ETF has just over $435 million in assets under management on the latest numbers. This ETF’s gold holdings are also backed by physical gold bullion, held in a London vault. Likely due to the costs of providing hedging, this ETF’s management fee stands at 0.59% per annum, or $59 a year for every $10,000 invested.

The post 3 (or 4) ASX ETFs to buy if you want physical gold ownership appeared first on The Motley Fool Australia.

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More reading

• Why is everyone suddenly talking about the Global X Physical Gold ETF?

Motley Fool contributor Sebastian Bowen 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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Investors were caught off guard yesterday after the Bank of Japan (BoJ) broke decades of monetary tradition.

The central bank’s decision to widen the acceptable band on the country’s risk-free rate was met with blood in equity markets. In response, Japan’s Nikkei 225 Index fell a considerable 2.5%. Meanwhile, our local S&P/ASX 200 Index (ASX: XJO) shaved off 1.5%.

You might be wondering why this decision created such a panic. The short answer is: it creates more questions than answers. Let’s delve into what that means exactly.

Final nail in the ultra-low-rate coffin

Japan’s central bank is one of only a handful that has implemented negative interest rates at some point over its existence. In 2016, the BoJ targeted a negative 0.1% rate to try and curb decades of deflation, evident by the country’s stagnant — at times falling — gross domestic product (GDP).

However, Japan proved yesterday that even its economy is experiencing levels of inflation that can no longer be ignored. In its statement, the BoJ revealed it would widen its target band on the 10-year bond to plus or minus 0.5%, up from 0.25%.

The decision comes at a time when many investors and economists are deliberating over whether more rate rises are to come in Australia and the United States. Earlier this month, Philip Lowe made the call to jack the Aussie cash rate up to 3.1%.

Yesterday’s BoJ decision could be interpreted as further rate rises to come. In fact, Exante Data founder and CEO, Jens Nordvig, went as far as saying:

Japan is a big investor in all kinds of markets, especially fixed-income markets around the world. We can see when there’s a shift in Japan, we’ve decided to have all yields globally shift up today from Europe to the United States. So it’s a big deal. And it’s not just today, right? This is a signal that they’re going in a certain direction, there are going to be almost guaranteed more steps in 2023 from the Bank of Japan.

The Bank of Japan made an impactful change to its bond yield policy, and now the $JPY is reaching its highest level against the $DXY in months.

Here’s how @jnordvig thinks this news will have an effect for market demand in the States. #jensonyen pic.twitter.com/aSySmaN5rI

— CNBC’s Fast Money (@CNBCFastMoney) December 20, 2022

https://platform.twitter.com/widgets.js

Further interest rate increases are not the words investors in share markets want to hear right now. As Nordvig points out, that would mean less liquidity available to invest, potentially depressing prices more.

Why is the Bank of Japan doing this?

The ‘why’ for loosening the target band on Japan’s 10-year yield depends on who you ask. According to the BoJ governor Haruhiko Kuroda the reason is to create a better functioning market, stating:

Today’s step is aimed at improving market functions, thereby helping enhance the effect of our monetary easing… It’s therefore not an interest rate hike.

However, with an inflation rate of 3.7% and central banks around the world hiking at a record pace — one could argue the conditions demanded policy tightening.

The Japanese Yen to the US dollar has eroded in value throughout the year, as shown above. Rising rates in other countries made foreign treasuries more appealing than holding Yen.

Given the country has a negative trade balance, Japan would effectively be importing more inflation to its country via its depreciated currency.

The post Why you should pay attention to the Bank of Japan appeared first on The Motley Fool Australia.

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More reading

• Why European Lithium, Evolution, Medadvisor, and REA shares are charging higher
• Why did this ASX All Ordinaries share just crash 33%?
• Guess which ASX lithium share is rocketing 22% on a deal with BMW
• The worst investment decision I ever made (and what I learned from it)
• Guess which ASX tech billionaire just bought a million of their company’s shares

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In afternoon trade, the S&P/ASX 200 Index (ASX: XJO) has bounced back from yesterday’s selloff. At the time of writing, the benchmark index is up 1.3% to 7,117.2 points.

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

European Lithium Ltd (ASX: EUR)

The European Lithium share price is up 15% to 8.3 cents. Investors have been buying this lithium explorer’s shares after it announced a binding offtake agreement with auto giant BMW. From 2026, European Lithium will supply BMW with a total of 50,000 metric tonnes of battery grade lithium hydroxide from the Wolfsberg Lithium Project in Austria.

Evolution Mining Ltd (ASX: EVN)

The Evolution Mining share price is up 7% to $3.04. Evolution and other gold miners are charging higher today after the gold price rose strongly overnight. This has led to the S&P/ASX All Ordinaries Gold index rising an impressive 4.9% on Wednesday.

Medadvisor Ltd (ASX: MDR)

The Medadvisor share price is up 11% to 25 cents. This morning, the medtech company released its revenue guidance for the first half of FY 2023. Medadvisor revealed that it expects to report half year revenue between $58 million and $61 million. This will be up 50% to 60% on the prior corresponding period.

REA Group Limited (ASX: REA)

The REA share price is up 3% to $112.39. This may have been driven by a broker note out of Goldman Sachs this morning. According to the note, the broker has retained its conviction buy rating with a slightly trimmed price target of $158.00. Goldman commented: “Following the recent decline in share prices, REA/DHG are now trading on 19x/13x 12mf EBITDA, which we see as very attractive vs. historical levels (>20% discount).”

The post Why European Lithium, Evolution, Medadvisor, and REA shares are charging higher appeared first on The Motley Fool Australia.

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More reading

• Guess which ASX lithium share is rocketing 22% on a deal with BMW
• 5 things to watch on the ASX 200 on Wednesday
• 5 things to watch on the ASX 200 on Tuesday
• Here are the top 10 ASX 200 shares today
• 5 things to watch on the ASX 200 on Thursday

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. owns shares of MedAdvisor. The Motley Fool Australia has recommended REA Group and Medadvisor. 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 All Ordinaries (ASX: XAO) index may be rising strongly but the same cannot be said for the Symbio Holdings Ltd (ASX: SYM) share price on Wednesday.

At the time of writing, the voice communications software provider’s shares are down a massive 33% to a 52-week low of $1.72.

This means the Symbio share price is now down a very disappointing 75% in 2022, as you can see below.

Why is this All Ords share being hammered?

Investors have been hitting the sell button today in response to the release of a trading update after the market close on Tuesday.

Unfortunately for Symbio, it appears that demand during the COVID pandemic is unravelling somewhat right now, which is weighing on its performance.

According to the release, the company now expects FY 2023 EBITDA to be between $26 million and $30 million. This compares to its previous guidance of between $36 million and $39 million, which represents a 25% downgrade based on the mid-point of the ranges.

What’s going on?

Management advised that the company’s Communications Platform-as-a-Service (CPaaS) division has been impacted by returns and slow sales progress.

In respect to the former, it notes that several US-based global software companies have returned unused phone number inventory in the second quarter following COVID-related bulk orders.

As for the latter, management highlights that new deals are taking longer to finalise. It revealed that there are approximately 400,000 Australian phone numbers that have been in the final stages of the contract process since 30 June. Positively, Symbio remains confident they will materialise.

The All Ordinaries share also advised that other business divisions, TaaS and UCaaS, are performing in line with previous expectations, albeit at a slightly slower pace due to some areas of softness in the economy.

In response, Symbio has reduced its capital expenditure plans, cut discretionary spending on travel and marketing, and suspended recruiting. It is also exploring additional measures and opportunities to reduce its cost base.

Symbio co-founder and CEO, Rene Sugo, commented:

Despite a positive Q1’23, which tracked in line with our expectations, some unexpected customer activity during Q2’23 has impacted trading. As a result, we have revised our expected FY23 EBITDA guidance to $26 million to $30 million.

Symbio has acted quickly in response, reducing capex and opex to preserve our strong balance sheet. We are continuing to efficiently execute our strategy and remain committed to our APAC expansion plans. Singapore is performing well and at this stage, our focus is now on launching operations in Malaysia and Taiwan. Once we are cash flow positive in all three countries, we will then expand further into the APAC region as outlined in our 2030 vision.

The post Why did this ASX All Ordinaries share just crash 33%? appeared first on The Motley Fool Australia.

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More reading

• Guess which ASX lithium share is rocketing 22% on a deal with BMW
• The worst investment decision I ever made (and what I learned from it)
• Guess which ASX tech billionaire just bought a million of their company’s shares
• Is there something strange going on with ANZ shares today?
• Why is the Fortescue dividend yield so high?

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. owns and has recommended Symbio Holdings Limited. The Motley Fool Australia owns and has recommended Symbio Holdings Limited. . 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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A whopping insider buy just went down with shares in technology-focused listed investment company (LIC) Thorney Technologies Ltd (ASX: TEK). Perhaps more excitingly, the purchase was made by a rich lister who boasts a billion-dollar fortune built through investing.

Right now, the Thorney Technologies share price is 21 cents. It has fallen 51% year to date. That leaves the LIC with an $89 million market capitalisation.

For comparison, the benchmark All Ordinaries Index (ASX: XAO) has dropped 8% since the start of 2022.

So, which Aussie billionaire seemingly thinks now is a good time to buy into the ASX tech-focused share? Let’s take a look.

This insider just bought a million shares in their tech-focused LIC

Famous investor Peter Lynch is widely quoted as having said:

Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.

Thus, it might be a good sign that billionaire investor and Thorney Technologies chair Alex Waislitz snapped up another million shares in the LIC yesterday.

Waislitz, who has previously been dubbed ‘Australia’s Warren Buffett’ by some, now boasts a 23% stake in the ASX-listed tech-focused investment company.

He paid 20.92 cents per share for his latest buy, forking out a total of $209,200.

Waislitz sits at number 91 on the Australian Financial Review’s 2022 Rich List, commanding a $1.5 billion fortune.

He is also the person behind Thorney Investment Group, which is in turn the manager of the Thorney Technologies LIC. The group is Waislitz’s private investment vehicle.

Among Thorney Technologies’ major investments are Nitro Software Ltd (ASX: NTO), Imugene Limited (ASX: IMU), and Calix Ltd (ASX: CXL).

And yesterday wasn’t the first time the billionaire bought into the ASX tech-focused share in December. He forked out $38,412 on 16 December to buy 192,062 shares in Thorney Technologies for 20 cents apiece.

The post Guess which ASX tech billionaire just bought a million of their company’s shares appeared first on The Motley Fool Australia.

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More reading

• Guess which ASX lithium share is rocketing 22% on a deal with BMW
• The worst investment decision I ever made (and what I learned from it)
• Is there something strange going on with ANZ shares today?
• Why is the Fortescue dividend yield so high?
• Novonix share price sinks on surprise production guidance downgrade

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The market may be charging higher today but that is nothing compared to the gains being recorded by the European Lithium Ltd (ASX: EUR) share price.

In morning trade, the lithium explorer’s shares were up as much as 22% to 8.8 cents.

The European Lithium share price has pulled back a touch since then but remains up 15% at 8.3 cents.

Why is this lithium share racing higher?

Investors have been scrambling to buy the company’s shares this morning after it announced a binding offtake agreement with auto giant BMW.

According to the release, European Lithium will supply BMW with a total of 50,000 metric tonnes of battery grade lithium hydroxide from the Wolfsberg Lithium Project in Austria.

This is expected to begin in 2026 and continue for six years until 2031, at which point the offtake agreement can be extended for three years. The first year will see the supply of 5,000 metric tonnes to BMW. After which, the agreement is for 9,000 metric tonnes of battery grade lithium hydroxide each year.

Pricing will be based on Fastmarket spot prices for lithium hydroxide with an unspecified discount applied. Though, before all that happens, the agreement is conditional upon the successful start of commercial production and full product qualification and certification.

The release also notes that BMW will make an advanced payment of US$15 million, which will be repaid through equal set offs against the supply delivered to BMW.

‘A key milestone’

European Lithium’s executive chairman, Tony Sage, appeared to be very pleased with the news. He said:

With the signing of the binding offtake agreement with BMW, our first offtake is secured, and we look forward to partnering with BMW in the future.

The company added:

Securing its first offtake is a key milestone which will allow the Company to focus on the final steps of development and construction of the Wolfsberg Project while it looks to the future and builds a portfolio of prospective battery metals projects located in Europe.

The post Guess which ASX lithium share is rocketing 22% on a deal with BMW 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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Since I started investing, I’ve been lucky that only a few of my own ASX share investments have gone down heavily. But, the one that did the worst hurt and taught me a lot was Slater & Gordon Limited (ASX: SGH).

Thankfully it was only a small amount of money lost as it was near the start of my investment journey.

There were a number of things that seemed promising about the lawyer business as an investment, before its big acquisition in the United Kingdom. And then everything went wrong.

It was delivering revenue growth, including organic revenue growth, and net profit after tax (NPAT) growth. The dividend was being grown strongly by the board.

One of the most promising elements of the business (at the time) was that it was expanding in the UK with bolt-on acquisitions. Growth of its addressable market and scale seemed compelling.

But then it made a $1.2 billion acquisition of UK business Quindell’s professional services division. In time, it had to write off a huge amount of that value, with personal injury laws proposed to be changed in the UK which would impact compensation claims about minor motor accident injuries.

There were a few different things I learned from this experience. The Slater & Gordon share price didn’t go to $0, but it was smashed and has remained down heavily.

Cash flow is extremely important

Ensuring that operating businesses have a good cash flow profile is important.

Achieving net profit after tax (NPAT), and growth, is important. But, I think NPAT is not as good an indicator of profitability as cash flow. Revenue and cost recognition can vary in different businesses and industries.

The company said that its normalised net operating cash flow to NPAT ratio was 86.3% in FY14 and just 73.6% in FY15. Ideally, a company’s cash flow should fairly closely match (underlying) net profit year to year.

Good cash flow allows the ASX share to organically fund its own growth, rather than issuing lots of new shares or taking on a lot of debt.

Major takeovers can destroy value

I’m not going to go over everything that went wrong with the Quindell acquisition – though there were several elements to it. Slater & Gordon was also unlucky with the timing of the law change.

With this deal, the ASX share was hoping to become the leading personal injury law group in the UK.

There is a real danger that if a business overpays for an acquisition and/or buys the wrong business, it can torch lots of shareholder value.

With individual shareholders not having access to the same due diligence materials as management when considering a deal, investors have to hope that the company is looking at the right things and being prudent.

A huge acquisition that goes bad can be dilutive if funded from new shares. If it’s funded by debt and goes bad it can destroy the business.

The attitude and prudence of management are key when it comes to takeovers.

Debt can be very dangerous

Not only does debt have an interest cost, but if there’s too much debt, it can end an ASX share if it isn’t able to repay that debt.

With interest rates so much higher now, businesses that rely on debt now face a very different landscape.

Being able to afford to pay their interest and repay the principal amount is essential.

Debt can be useful, particularly for the right asset. But, I think it’s good to focus on operating companies that have a balance sheet with a net cash position. That means the business has more cash than debt.

That’s not usually applicable for a real estate investment trust (REIT), but I think they deserve to be treated a little differently – they do have large asset backing with the property portfolio.

Generally, if debt is part of the picture, I want to see that a potential investment has low (or no) debt, has plenty of cash flow to afford the interest payments, and that the overall level of debt is relatively small compared to the size of the ASX share.

The post The worst investment decision I ever made (and what I learned from it) appeared first on The Motley Fool Australia.

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More reading

• Guess which ASX lithium share is rocketing 22% on a deal with BMW
• Is there something strange going on with ANZ shares today?
• Why is the Fortescue dividend yield so high?
• Novonix share price sinks on surprise production guidance downgrade
• Pilbara Minerals share price leaps on positive lithium price update

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 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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