Category: Stock Market

It’s easy to be bearish on the stock market right now.

1) Interest rates are rising, with the Reserve Bank of Australia (RBA) widely expected to hike again today, likely by another 50 basis points, lifting the cash rate to 2.35%.

2) Inflation is running at a 32-year high, at an annual rate of 6.1%. In the United States, the annual inflation rate is 8.5%, and in the United Kingdom, it’s over 10%, with some experts saying it could reach 15% there by the start of 2023.

The picture is much worse on Wall Street, with the S&P 500 and NASDAQ indices down 18% and 27% respectively so far this year, and effectively in bear market territory, the first prolonged such event since the global financial crisis. 

3) The S&P/ASX 200 Index (ASX: XJO) is down 8% since the start of the year, having been off as much as almost 14% in June. 

4) According to Bloomberg, Australian consumer sentiment has declined every month since November for a cumulative drop of almost 23%, bringing it to levels reached during the COVID pandemic and 2008-09 global financial crisis. 

Not much to look forward to, hey?

Admittedly, things feel bleak, although for me, that’s probably more to do with my profession – a stock market investor and commentator – than reality. In our business, fear sells like nothing else, including article headlines, like the one you clicked on to read this.

Reality is, I don’t know where the share market goes from here.

It could go higher if there are signs of inflation being tamed. Or it could grind lower if it becomes apparent interest rates will have to rise higher than current expectations. 

Speaking of which, according to the Australian Financial Review (AFR), Commonwealth Bank forecasts the RBA will pause tightening for “at least a few months” when the cash rate hits 2.6% or 2.85%. In contrast, the bond market implies a terminal cash rate of 3.8% by mid-next year. 

Recession and prolonged bear market

It’s an incredibly wide discrepancy and the likely difference between a softer landing and a recovering share market and a recession and a prolonged bear market.

Of the two scenarios, with my glass half-full, cap on, my money would be on the RBA cash rate not hitting 3.8% by the middle of next year.

At that level, mortgage holders and the housing market would be smashed. The Commonwealth Bank’s standard variable mortgage rate already stands at an eye-watering 6.3% – something that would likely plunge the Australian economy into recession and send the ASX 200 into a vicious bear market.

The most successful investors don’t let economic forecasts – good or bad – impact their investing decisions. It’s because they are generally unreliable. 

Sure, it’s easy to say now interest rates will go higher. But it was only in October last year that the RBA was saying interest rates would not rise until 2024, and that was when the cash rate was just 0.1%.

Sure, it’s easy to say now the share market will go lower, given the somewhat dire economic outlook. But how does that account for the 6% gain in the ASX 200 index since mid-June this year, and the almost doubling of the Life360 Inc (ASX:360) share price and the almost 60% gain in the WiseTech Global Ltd (ASX: WTC) share price in the same period?

As I said at the top, it’s easy to be bearish on the stock market right now.

If you are tempted to cash out now, I’d question why you are even invested in the stock market. Volatility comes with the turf, and is the very reason why the stock market offers above-average returns.

But such returns – between 8% and 12% per annum, on average – only accrue to patient, long-term investors. Managing your emotions is often your biggest investing challenge.

In the meantime, my best advice for right now, as it is at any time in the cycle, is to methodically and consistently just keep adding money to the market. Your future wealth will thank you. 

The post Here’s how rising interest rates could plunge the economy into recession and send the ASX 200 into a vicious bear market appeared first on The Motley Fool Australia.

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More reading

• The Zip share price slid 15% in August. What went wrong?
• Own Magellan shares? Here’s some news on your dividends
• Can you buy shares in Fortescue Future Industries?
• Batteries and water: Experts name 2 ASX shares you can’t ignore
• Should you buy Telstra shares after the telco ‘comfortably turned the corner’?

Motley Fool contributor Bruce Jackson has positions in WiseTech Global. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Life360, Inc. and WiseTech Global. The Motley Fool Australia has positions in and has recommended WiseTech Global. 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 Zip Co Ltd (ASX: ZIP) share price has had a tumultuous 18 months, to say the least.

It seemed like its fortunes were finally turning in July as sentiment emphatically returned for ASX buy now, pay later (BNPL) shares.

The Zip share price staged an incredible 159% resurgence in July. There was notable news during the month as the merger with Sezzle Inc (ASX: SZL) was officially scrapped and Zip released its fourth-quarter update.

But above all else, it appeared as though ASX BNPL shares were back in vogue.

The Sezzle share price skyrocketed 215% in July while the Splitit Ltd (ASX: SPT) share price doubled.

But the music stopped in August as ASX BNPL shares failed to keep the party going. The Zip share price tumbled 15% across the month, Sezzle shares slid 18%, and Splitit shares were dumped 21%.

It appears that investor sentiment waned throughout the month and Zip’s FY22 results only compounded the fall.

But even still, the Zip share price has doubled since the end of June. 

Pick a series of time periods and you’ll likely get starkly different performances, such is the wildly-swinging nature of the Zip share price.

Why has the Zip share price been sliding?

I’d say a key factor here is investor sentiment, which continues to turn on a dime.

But the market didn’t appear too impressed with the results Zip delivered at the end of the month.

Let’s take a look at some of the key points.

Customer count

Zip introduced a new metric in its FY22 results, disclosing active customers for the first time.

In order to be considered active, a customer must have had transaction activity in the last 12 months.

Prior to this, Zip had simply been disclosing total customer numbers, which were being inflated by inactive customers.

Here’s how these figures measure up across Zip’s geographical segments.

	Active customers	Total customers
Australia and New Zealand (ANZ)	2.3 million	3.2 million
United States (US)	4.1 million	6.4 million
Rest of world (ROW)	1.1 million	1.8 million
Group	7.5 million	11.4 million

Separate to this, Zip also restated its total customer count in the US, removing 600,000 accounts from the figure disclosed in 4Q22 as they were “not yet activated as at 30 June 2022”.

Unit economics mixed

As I discussed when previewing Zip’s FY22 results, unit economics tell an important tale of the company’s underlying performance.

The key metrics here are revenue margin, cash cost of sales (which includes bad debts), and cash transaction margin.

These metrics encapsulate how well Zip can convert the transaction value that flows through its platform into revenue. And from there, how much of this revenue it can successfully collect from customers.

Zip managed to buck a trend of declining revenue margins, improving from 6.8% in FY21 and 6.7% in HY22 to 7.1% in FY22. 

But rising bad debts led to an increase in cash cost of sales, jumping from 3.7% of TTV in FY21 to 4.8% in FY22.

As a result, the company’s cash transaction margin took a hit, dropping from 3.1% to 2.3%. 

Zip has a medium-term target range of between 2.5% and 3%, so investors will be expecting this margin to improve as the platform scales and bad customers are weeded out.

Net loss blows out

When you take a cursory glance at Zip’s income statement, one thing, in particular, stands out: the big negative number on the bottom line.

Zip served up a net loss of $1.1 billion in FY22. A frightful number, especially in the context of the company’s market capitalisation of $592 million.

But upon closer look, this $1.1 billion loss included an $821 million impairment charge relating to goodwill and intangibles. More specifically, the carrying value of some of Zip’s overseas businesses has been written down on the back of slower forecasted growth rates and rising interest rates.

So instead of looking at the bottom line, Zip believes a better reflection of the underlying business is cash earnings before tax, depreciation, and amortisation (EBTDA). Here, the company posted a cash EBTDA loss of $207 million in FY22, a notable increase from the $23 million loss in the prior year.

This came as the company’s cost base grew at a faster clip than revenue. Bad debts and expected credit losses more than doubled to $276 million, employee expenses surged 89% to $184 million, and marketing expenses jumped 63% to $120 million.

But green shoots may be emerging after the ANZ business generated positive cash EBTDA of $28 million, up from $8 million in the prior year. Importantly, cash operating expenses grew by just $2 million to support a $22 million rise in gross profit.

What next for the Zip share price?

The Zip share price has cratered 81% this year. And there could be further downward pressure ahead as Zip shares will soon be ousted from the S&P/ASX 200 Index (ASX: XJO) in the upcoming September rebalance.

In an effort to accelerate its pathway to profitability, Zip has committed to reining in costs and focusing on the core business. Internally, this has been dubbed ‘Operation Blue Sky’.

Zip is targeting cash EBTDA profitability in the first half of FY24.

The market will be closely watching how well Zip is able to execute these cost-cutting initiatives. And how this may impact the company’s growth rates and competitive position going forward.

In the wake of Zip’s FY22 results, analysts at Macquarie maintained their underperform rating on Zip shares. Analysts at UBS also maintained their sell rating, with the 12-month price target unchanged at 45 cents.

The post The Zip share price slid 15% in August. What went wrong? appeared first on The Motley Fool Australia.

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• August’s RBA rate hike saw investors favour Macquarie and BHP shares. Here’s what to expect in September: expert
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Motley Fool contributor Cathryn Goh 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 ZIPCOLTD FPO. 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 who own Magellan Financial Group Ltd (ASX: MFG) shares can rejoice. Today is the day that the Magellan dividend will flow into bank accounts.

Reporting season has only just finished, but some businesses are already getting on with paying shareholders the money they’ve allocated for them.

Magellan is paying its dividend only three weeks after announcing it. That’s a quick turnaround.

How big is the Magellan dividend for shareholders?

Magellan announced that the total dividend for the second half of FY22 is 68.9 cents per share, franked to 80%.

That final dividend comprises an ordinary dividend of 65 cents and a performance fee of 3.9 cents per share.

The franking level of 80% was an increase from the FY22 first half, which was 75%, and it’s expected to increase in future years.

This dividend is in line with the company’s dividend policy, subject to corporate, legal, and regulatory considerations.

Magellan’s ordinary interim and final dividends are based on 90% to 95% of the net profit after tax (NPAT) of the fund’s management business, excluding crystallised performance fees.

The annual performance fee dividend is based on 90% to 95% of net crystallised performance fees after tax.

Added to the interim dividend of 110.1 cents per share, this brought the full-year dividend to 179 cents per share. That meant Magellan reduced its total dividend by 15% from FY21.

What happened to the profit?

With Magellan’s dividend tracking its profit, it’s worth noting that the business experienced a drop in funds under management (FUM), revenue, and profitability.

The average FUM fell 9% over the year to $94.3 billion. However, at 29 July, its FUM had dropped to $60.2 billion.

The fund’s management profit before tax and performance fees was down 11% to $470.6 million. The adjusted net profit before tax was down 12% to $515.2 million. The adjusted profit after tax was only down 3%. This is due to a $6.6 million profit being generated by associates (compared to a loss of $41.8 million in FY21).

Outlook for the Magellan share price and dividend

Unless Magellan can regain FUM quickly, it’s hard to see that the dividend will get back to its former heights any time soon.

The new CEO and managing director, David George, noted that client confidence has been impacted by changes in the leadership team and personnel, and underperformance of the global shares strategy.

Magellan’s focus now is on the core funds management strategy, strengthening processes, and driving consistent and improved investment performance.

George will be giving shareholders an update on his thoughts and strategies in October 2022.

Magellan share price snapshot

Starting mid-July, Magellan shares rose 33% to 11 August. But they have since dropped 18.8%. Over the last six months, Magellan shares are down 2.5%.

The post Own Magellan shares? Here’s some news on your dividends 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 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 a market capitalisation of $54 billion, Fortescue Metals Group Limited (ASX: FMG) is one of the biggest businesses on the ASX. But are investors able to buy Fortescue Future Industries (FFI) shares?

Fortescue is best known for being a large ASX mining share with a focus on iron ore, along with its heavyweight peers Rio Tinto Limited (ASX: RIO) and BHP Group Ltd (ASX: BHP).

But there is elevated interest in Fortescue’s business segment known as Fortescue Future Industries.

FFI describes itself as a “global green energy company committed to producing green hydrogen, containing zero carbon, from 100% renewable sources”. Green hydrogen, when used, primarily produces water.

FFI is focused on “leading the green industrial revolution, developing technology solutions for hard-to-decarbonise industries, while building a global portfolio of renewable energy, green hydrogen and green ammonia projects”.

One of its key goals is to help decarbonise Fortescue’s operations by 2030.

Can we buy shares of Fortescue Future Industries?

FFI is not a separately listed business on the Australian Stock Exchange. So investors can’t directly buy shares of FFI.

But investors can buy shares of the ASX-listed Fortescue which owns all of Fortescue Future Industries.

Some experts believe that FFI is already worth tens of billions of dollars. According to reporting by the Australian Financial Review, Fortescue chair Andrew Forrest has been approached by investment banks. They’ve suggested Fortescue Future Industries is already worth US$20 billion if it was to go through the process of an initial public offering (IPO).

So, if investors were to apply that to Fortescue’s overall market capitalisation, it would represent a significant chunk of the company’s value. It also depends on how much investors would value Fortescue’s iron business.

What are FFI’s long-term goals?

Certainly, Forrest has big goals for Fortescue Future Industries. He said the following in Fortescue’s FY22 result:

We must become the Saudi Arabia, not of oil, but of green hydrogen, we can become the Asia of green iron too, if we are prepared to commit to it. Think the North West Shelf – not of climate-threatening methane, but of carbon-free green ammonia, for every ship in the world. Please don’t think it can’t be done, it can.

The company is investing to create a global portfolio of green energy projects to supply 15 million tonnes per year of renewable green hydrogen by 2030.

FFI has already signed deals with companies in the northern hemisphere for supplying green hydrogen.

In October 2021, it signed a memorandum of understanding (MoU) with UK-based construction company JCB and Ryze Hydrogen for the purchase of 10% of FFI’s global green hydrogen production.

It has also signed an MoU with German electricity company E.ON to deliver up to five million tonnes per annum of green hydrogen by 2030. This one deal represents approximately a third of Fortescue Future Industries’ future production to 2030.

Fortescue has also made a few acquisitions and partnerships to boost the decarbonisation and earnings prospects of FFI. For example, it acquired Williams Advanced Engineering, a leading provider of high-performance battery and electrification technology.

The post Can you buy shares in Fortescue Future Industries? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group Limited. 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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As interest rates rise, the stocks that drove portfolios last decade are falling out of favour.

Many experts are warning that high-growth technology ASX shares will not produce the same dizzying returns as they did in the days of near-zero rates.

Instead, investors will have to turn to businesses that provide goods and services that the world just can’t live without.

Here are two such examples currently rated as buys:

‘A critical mineral’ for electric vehicles

According to BW Equities equity salesperson Tom Bleakley, Syrah Resources Ltd (ASX: SYR) is the “biggest graphite producer on the ASX”. 

And that’s important because about 20% of the weight of a modern lithium-ion battery is made of graphite.

“Graphite is a critical mineral for the transition to electric vehicles,” Bleakley told The Bull.

“The International Energy Agency forecasts strong demand for graphite between 2020 and 2040. We believe Syrah offers a bright outlook.”

Tribeca Global Natural Resources Limited (ASX: TGF) portfolio manager Ben Cleary certainly agreed with Bleakley.

“They’re going to make good margins regardless of whether commodity prices remain high,” Cleary told Livewire last month.

“They are… at the bottom of their respective cost curves. And they all have been very focused on keeping their best people, as labour is tight.”

‘Consistent’ earnings that are recession-proof

Essential products don’t come any more essential than water.

As such, Shaw and Partners senior investment advisor Jed Richards likes the look of Duxton Water Ltd (ASX: D2O).

“The company buys water entitlements and leases them to farmers,” he said.

“Earnings are consistent, reliable and uncorrelated with the rest of the economy.”

With food inflation rampant, there will be hot demand for the local agricultural industry. And on a dry continent like Australia, there is always “a shortage of available water entitlements”, according to Richards.

“Combined with a significant increase in demand from the horticultural industry, [this] should lift the value of permanent water assets.”

Duxton has also been giving cash back to investors through a 12-month on-market share buyback program that’s been in place since October last year.

“The ongoing share buyback will support the price in the short term,” said Richards.

“The company was recently trading on a grossed up and appealing dividend yield of around 5.2%.”

The post Batteries and water: Experts name 2 ASX shares you can’t ignore appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo 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 Telstra Corporation Ltd (ASX: TLS) share price has taken a bit of a tumble recently.

Over the last couple of weeks, the telco giant’s shares have dropped over 6% to $3.89.

This leaves the Telstra share price trading closer to its 52-week low than its 52-week high.

Is the Telstra share price in the buy zone?

While this weakness is disappointing for shareholders, it could be a buying opportunity for others.

According to a recent note out of Morgans, its analysts have an add rating and $4.60 price target on the company’s shares.

Based on the latest Telstra share price, this implies potential upside of 18% for investors over the next 12 months.

And with Morgans expecting a 17 cents per share fully franked dividend in FY 2023, this potential return is boosted by a forecast 4.4% dividend yield.

Why is Morgans bullish?

Morgans was pleased with Telstra’s performance in FY 2022 and its outlook commentary. It believes the tide has now turned for the company and it is onwards and upwards from here. The broker commented:

After years of scrambling hard to lower costs and offset declining earnings, TLS has comfortably turned the corner and guided to growth in underlying EBITDA again in FY23. Guidance is in line with consensus, 3% ahead or our forecast.

Morgans also highlights that the company has some of the strongest tailwinds behind it and a new CEO (former CFO Vicki Brady) that isn’t likely to change the company’s course. It explained:

Telco has the strongest tailwinds in a decade with an increasingly rational market, pricing rises and the criticality of telco increasingly recognised. This combines with an incoming CEO who currently seems unlikely to drastically change the business and the potential for value uplift (potential bids) following the legal restructure.

All in all, the broker feels this makes Telstra’s shares great value at the current level.

The post Should you buy Telstra shares after the telco ‘comfortably turned the corner’? 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 positions in and has recommended Telstra Corporation 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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Exchange-traded funds (ETFs) can be very effective ways to get access to some of the world’s biggest and best businesses. The Vanguard MSCI Index International Shares ETF (ASX: VGS) could be one of the cheapest ways to do it, with an annual management fee of just 0.18%.

It’s pretty easy to buy shares on the ASX that we use in our day-to-day lives like Telstra Corporation Ltd (ASX: TLS), Woolworths Group Ltd (ASX: WOW) or Transurban Group (ASX: TCL).

However, it’s not so simple to buy shares of global names directly because they are not listed on the ASX.

It’s still possible to buy shares in them directly, but it could come with more paperwork. An ETF may be the easiest way to gain access to them.

But what shares does the VGS ETF actually own?

Vanguard MSCI Index International Shares ETF holdings

At 31 July 2022, it had 1,474 positions. That’s a lot of businesses, giving great diversification.

But, some of them have a much larger allocation in the portfolio than others.

These are the biggest 10 positions at the end of July 2022 in the VGS ETF:

Apple Inc makes the iPhone, Mac computer and many other well-known tech products and services.

Microsoft Corporation is another technology giant that offers various products and services like Windows, Microsoft 365 products, Xbox and Azure.

Alphabet Inc is the holding company for many services, including YouTube, Google Search, Google Maps and Android.

Amazon.com Inc is a huge e-commerce giant that also has other services like Twitch, Prime Video and AWS.

Tesla Inc is a leading electric vehicle and battery business that is diversifying into other areas.

UnitedHealth Group is a healthcare and insurance business.

Johnson & Johnson is a global healthcare product and pharmaceutical business.

NVIDIA Corporation designs graphics processing units (GPUs) and it’s involved in a number of other tech services. It’s also involved in the hardware and software for AI.

Exxon Mobil Corp is one of the world’s largest oil businesses.

Berkshire Hathaway Inc is an American-focused conglomerate led by Warren Buffett and Charlie Munger.

Investors may have heard of some, or all, of these businesses. They are the biggest positions in the VGS ETF portfolio, so they will have the largest influence on the returns.

For example, if Apple were 10% of the portfolio and it went up 20% in one month, that would be a 2% boost for the ETF. If a smaller company comprised 1% of the portfolio and it went up 100%, it would only add 1% of a total return.

VGS ETF share price snapshot

In the past month, the Vanguard MSCI Index International Shares ETF has fallen by around 4%.

The post What are the main holdings in the Vanguard MSCI Index International Shares ETF (VGS)? appeared first on The Motley Fool Australia.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. 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 Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Microsoft, Nvidia, Tesla, and Vanguard MSCI Index International Shares ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Johnson & Johnson and UnitedHealth Group and has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has positions in and has recommended Telstra Corporation Limited. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Nvidia, and Vanguard MSCI Index International Shares ETF. 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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Ask A Fund Manager

The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, SG Hiscock portfolio manager Hamish Tadgell explains why he’d currently buy three particular ASX shares.

Hottest ASX shares

The Motley Fool: So having said the investment environment has permanently changed in 2022, what are the three best stock buys right now?

Hamish Tadgell: We’re bottom-up investors at the end of the day. Our three best ideas coming out of reporting season would be, one, Cooper Energy Ltd (ASX: COE). 

It’s an east coast gas producer, well positioned I think to participate in the current structural shortfall in east coast gas, and particularly in Victoria and the energy transition to a lower carbon economy. 

It’s had a difficult couple of years with the commissioning of a gas plant — the sole gas plant — which AGL Energy Limited (ASX: AGL) operated for them down in Gippsland. [It] has seen the company not meet its production targets, but we think that’s turning the corner. Recently they’ve taken control of that gas plant. [Cooper] bought it off AGL, and ramping up production, and there’s a series of catalysts that we see over the coming 12 months, which I think positions that company very well for a strong re-rating.

MF: For an energy company, the share price hasn’t lit the world on fire this year, has it? But that gives it upside?

HT: The backdrop is incredibly attractive. The thematic is incredibly attractive. Now east coast gas prices 12 months ago were probably at $6 to $8. They’re now $10 to $15, and we don’t see them coming back in a hurry. 

More to the point, we think that Cooper’s going to have a lot more gas to sell over the next 12 months than they did the last 12 months as a result of fixing some of the plant problems that they’ve had.

MF: Your second ASX share to buy?

HT: The second one would be Chorus Ltd (ASX: CNU), which is the NBN equivalent, if you like, in New Zealand. It’s a virtual monopoly operating the New Zealand fibre network. It’s got some 88% or close to 90% of the fibre market in New Zealand. 

It’s clearly benefiting from the strong continuing demand for data and streaming, which was only reconfirmed through COVID and with people working from home and watching more Netflix Inc and all those sorts of things — the demand has been increasing for those services. 

More importantly, the stock’s moving from building out the network and the pretty high CapEx over the last four or five years, to [now] becoming an operating asset.

So the CapEx hump, if you like, dropped significantly this year, and we see very strong free cash flow for this stock starting to emerge over this year and the next number of years — and a growing dividend. 

When you look at it, it’s trading on a free cash flow yield of 8% to 9% on nine times EV to EBITDA. Look at some similar assets. This is a social infrastructure asset, a high-quality asset. Unity Group, which was recently bought by private equity, sold around 20 times EV to EBITDA. And then I look at something like Transurban Group (ASX: TCL), which again, is a high-quality social infrastructure asset, perhaps a little less regulatory risk, but it trades on 23.5 times. 

[Chorus] trading on nine… looks incredibly cheap to us for what I think will be a very strong, free cash flow and good dividend growing stock over the next number of years.

MF: And your last pick?

HT: I’d say Qube Holdings Ltd (ASX: QUB). It’s Australia’s largest integrated provider of import, export logistics. And these are highly strategic assets with very strong, sustainable, competitive advantage, long-term contracts and importantly, pricing power, which I think will be increasingly important in the inflationary environment we’re in. 

It’s proved actually to be a remarkably resilient business over the last 12 months. Its results just last month just showed that despite COVID, inflation, extreme weather events, supply chain disruption, labour issues, and China lockdowns, it’s still produced very resilient earnings and growth. 

And more to the point, with the company having recently sold, over the last 12 months, sold out of Moorebank. So it was developing a big industrial park up in New South Wales, and a lot of people were concerned that it was really a property play and they’d overstretched their balance sheet a bit, and concerned about the debt levels. Well, they sold that, returned quite a bit of that capital to shareholders, but also paid down quite a bit of their debt. 

We see them incredibly well positioned to continue to grow over the next couple of years. At the end of the day, Australia is an island — it’s dependent upon imports and exports, and this company’s the largest provider of those services. And we think it’s an incredibly well-managed business, very well diversified, and it’s got some good strong growth prospects over the next few years.

MF: It also gives out a dividend, doesn’t it?

HT: Yeah, it does. It’s not a high dividend — it’s probably only 2% or 3% yield, but it’s really a growth stock. 

It’s, in our mind, a GDP+ type business. The diversification… it’s in every part of the economy: retail, mining, agriculture, you think about anything basically that comes in or goes out of Australia, they handle it. So it’s a real proxy for the economy, but also [has] been a very good allocator of capital over time and made some very good bolt-on acquisitions.

The post ‘Incredibly cheap’: Fundie reveals 3 ASX shares he’d buy right now appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• Qube share price bounces 6% as dividend delights
• Here are the top 10 ASX 200 shares today
• Chorus share price lifts as company declares 35 cents per share dividend
• Cooper Energy share price spikes following FY22 results and update

Motley Fool contributor Tony Yoo 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 Netflix. The Motley Fool Australia has recommended Netflix. 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 Whitehaven Coal Ltd (ASX: WHC) share price has been a top performer in the past month, rising 36.5%.

It has significantly outperformed the S&P/ASX 200 Index (ASX: XJO), which has fallen by 1.76% over the same time.

What has caused such a big outperformance by Whitehaven shares?

With energy prices soaring around the world, coal is benefitting as countries try to keep their energy grids powered. This includes using more coal.

The ASX coal share recently reported its FY22 result, which showed how much the company is benefitting.

FY22 earnings recap

In the 12 months to 30 June 2022, the coal miner generated record revenue of $4.9 billion (up 216%) thanks to an average coal price of AU$325 per tonne. This compares to $1.56 billion revenue and an AU$95 per tonne average price in FY21.

Its earnings before interest, tax, depreciation and amortisation (EBITDA) rocketed by 1,396% to $3.06 billion.

Whitehaven made $1.95 billion of net profit after tax (NPAT). This compares to an underlying net loss of $87.3 million in FY21.

Operating cash flow soared 1,423% to $2.58 billion.

The ASX share has also been carrying out an on-market share buyback worth $550 million. The Whitehaven board will seek shareholder approval to increase the buyback at the company’s annual general meeting (AGM) in October.

It also decided to pay a final, fully-franked dividend of 40 cents per share. At the current Whitehaven share price, that dividend alone represents a grossed-up dividend yield of 7.2%.

The FY22 dividends and share buyback represent a total payout ratio of 51% of FY22 net profit, in line with the company’s policy.

Why are coal prices so high?

Whitehaven CEO and managing director Paul Flynn explained:

The longer-term under-investment in energy sources needed to supply baseload capacity to growing populations and economies has contributed to a widening gap between supply and demand. In FY22, we saw global energy shortages intensify as a result of the tragic conflict in Ukraine and associated sanctions against Russian coal and gas.

Coal prices are at record levels and customers are focused on energy security now more than ever before.

Demand for high-quality seaborne thermal coal is expected to remain strong throughout FY23 and high-CV coal prices should continue to be well supported.

To take advantage of this, Whitehaven expects to deliver higher production and coal sales in FY23 compared to FY22.

The company noted:

It is likely to take several years before additional supply or alternative energy sources are available to rebalance global supply and demand dynamics. Throughout the coming multi-decade energy transition reliable baseload fuels will be required. This will underpin continued demand for coal and, in particular, for the high-CV coal Whitehaven produces on account of its higher energy content and lower emissions profile relative to other coal products.

Broker confident about the Whitehaven share price

As first noted by my colleague James Mickleboro, the broker Morgans thinks that the high coal price will lead to “supercharged returns” for shareholders.

The broker has an add rating on the Whitehaven share price, with a target of $8.60. That suggests a possible rise of close to 10% over the next 12 months. It thinks there is “strong potential for a more prolonged dislocation in energy markets where supply security commands a higher premium for longer”.

With Whitehaven making profits and returning to paying fully franked dividends, it could pay a grossed-up dividend yield of 14.5% in FY23 and 11.5% in FY24, according to Morgans.

Based on the profit expectations, Morgans values Whitehaven shares at 3x FY23’s estimated earnings and 7x FY24’s estimated earnings.

The post The Whitehaven share price has surged 36% in a month. Why Morgans predicts more ‘supercharged returns’ appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• 3 ASX All Ords shares smashing new highs on Monday
• Why is the Whitehaven share price having such a stellar session today?
• Why are ASX 200 coal shares smashing the market on Monday?
• Are ASX 200 energy shares a good investment right now?

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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If you’re an income investor looking for dividend shares to buy, then you may want to check out the two listed below.

These have been named as buys and are forecast to provide generous dividend yields. Here’s what you need to know about these dividend shares:

Accent Group Ltd (ASX: AX1)

The first ASX dividend share that has been tipped as a buy is footwear focused retailer Accent.

After a tough time in FY 2022, the team at Morgans is tipping the company to bounce back this year. Particularly given how management is focused on selling at full price again, which it expects to support a recovery in its gross profit margin. In addition, the broker likes the company’s decision to moderate its store rollout in favour of a more selective expansion strategy focused on return on investment.

Morgans has an add rating with a $2.00 price target. As for dividends, the broker is forecasting fully franked dividends of 9 cents per share in FY 2023 and 11 cents per share in FY 2024. Based on the current Accent share price of $1.37, this will mean yields of 6.5% and 8%, respectively.

Charter Hall Long WALE REIT (ASX: CLW)

Another ASX dividend share that could be worth considering is Charter Hall Long Wale REIT.

It is a property company with a focus on high quality real estate assets that are leased predominantly to corporate and government tenants on very long term leases.

Ord Minnett is positive on the company. In response to the company’s FY 2022 results, the broker retained its accumulate rating with a $4.93 price target.

In respect to dividends, the broker is forecasting dividends per share of 28 cents in FY 2023 and 28.5 cents in FY 2024. Based on the current Charter Hall Long Wale REIT share price of $4.45, this will mean yields of 6.3% and 6.4%, respectively.

The post Analysts are tipping 6%+ yields from these ASX dividend shares appeared first on The Motley Fool Australia.

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More reading

• How I’d invest $50,000 in ASX dividend shares for retirement, if I had to start from scratch
• 3 ASX 300 shares trading ex-dividend today
• Analysts say these ASX dividend shares are buys right now
• Morgans names 2 ASX shares to buy post-results
• Leading brokers name 3 ASX shares to buy 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 recommended Accent 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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