Category: Stock Market

The new financial year is looking bright for ASX travel shares. Some of the market’s favourites are getting ready to rake in earnings after a disastrous few years for the industry.

And one top broker is also expecting big things from ASX-listed travel stocks despite notable headwinds.

Let’s take a look at what the market might expect from S&P/ASX 200 Index (ASX: XJO) travel giants such as:

• Qantas Airways Limited (ASX: QAN)
• Webjet Limited (ASX: WEB)
• Flight Centre Travel Group Ltd (ASX: FLT)
• Corporate Travel Management Ltd (ASX: CTD).

Broker bullish on ASX travel shares in FY23

Despite outlining numerous risks facing ASX travel shares in FY23, broker Morgans is still expecting strong growth from the sector.

Last week, senior analyst Belinda Moore tipped the time to climb aboard travel shares has arrived, despite the sector taking longer than expected to recover, saying:

Despite travel demand recovering strongly, in recent months the travel sector globally has derated due to concerns about a weak macro outlook. We think share price weakness represents a buying opportunity and see the quarterly reporting season in the US and Europe during July and then the Australian reporting season in August as a catalyst for a rerating.

Though, the broker noted numerous factors might “impact the extent of the earnings recovery” this financial year.

These include total transaction values growing faster than volumes due to higher airfares, more domestic travel than higher-margin international travel, limited international airline capacity in Australia and New Zealand, and high fuel prices.                                                        

What are these travel giants expecting from FY23?

Many ASX 200 travel shares have recently returned to profitability, while others can nearly taste the green.

Flight Centre returned to the earnings before interest, tax, depreciation, and amortisation (EBITDA) green in March. The company expects its total transaction revenue to surpass its FY19 levels sometime this financial year when the market’s recovery reaches around 70%.

Meanwhile, Webjet was cash flow positive over the second half of financial year 2022. It expects to be back at pre-COVID booking volumes by the second half of FY23.

On that note, Corporate Travel Management is targeting EBITDA of $265 million when the market fully recovers.

Finally, Qantas is slightly less optimistic for FY23. The airline expects to return to profit this financial year. However, it has also cut domestic capacity in a bid to battle high fuel prices.

The post Own ASX travel shares? Here’s the outlook for FY23 appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX shares today
• Here’s why the Qantas share price is taking off today
• ASX 200 travel shares slide amid travel chaos and cancellations
• How did ASX 200 travel shares go in FY22?
• These are the 10 most shorted ASX shares

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 recommended Corporate Travel Management Limited, Flight Centre Travel Group Limited, and Webjet Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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ASX shares are shaking off the nosebleed inflation figures that came out of the United States yesterday (overnight Aussie time).

The consumer price index in the world’s biggest economy leapt 1.3% in June, bringing annual inflation figures to a blistering 9.1%. This was significantly higher than consensus expectations and the highest levels seen in the US in 40 years.

To put the figure in some perspective, if inflation were to continue at this level, prices in the US would double every eight years. That means in just 16 years, one dollar would be worth only 25 of today’s cents.

US markets closed only moderately lower, with the Dow Jones leading the fall, down 0.7%. Futures indicate Thursday will see more modest selling.

As for ASX shares this morning, the All Ordinaries Index (ASX: XAO) is up 0.3%.

ASX tech shares are also broadly edging higher, with the S&P/ASX All Technology Index (ASX: XTX) up 0.4% at this same time.

And gold shares are shining brightly amid the soaring US inflation numbers, as witnessed by the 0.8% boost in the S&P/ASX All Ordinaries Gold Index (ASX: XGD).

Here’s what investors are considering down the road.

ASX shares and global equities facing hawkish US Fed

With inflation continuing to run hot, ASX share investors can expect more aggressive tightening from the US Federal Reserve in the months ahead. And investors should prepare for continuing volatility in global share and bond markets.

Markets have already widely priced in another 0.50% to 0.75% interest rate rise from the Fed at its 27 July meeting. Now analysts are upping the odds of seeing a historical 1.0% rates boost to tame the inflation beast to which many say the Fed has been too slow to react.

“The Fed is right to worry about the unmooring of inflation expectations. And this report raises the chance of an even larger rate hike than 75 basis points down the line,” said Bloomberg economists Anna Wong and Andrew Husby.

“Incoming data suggests the Fed’s inflation problem has worsened, and we expect policymakers to react by scaling up the pace of rate hikes to reinforce their credibility,” analysts from Nomura added.

Is the US heading for a recession?

If the world’s top economy tips into a recession, it will certainly pose headwinds for many ASX shares.

And with the latest round of outsized inflation figures, the odds of that recession are ramping up.

According to Kristina Clifton, senior economist at Commonwealth Bank of Australia (courtesy of Reuters): “Stubbornly high inflation increases the risk that the FOMC [Federal Open Market Committee] continues to hike aggressively and triggers a recession.”

“We still don’t know what’s going to happen but it’s most likely we’re going to have a recession because the Fed is going to have to act aggressively,” added Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

As for the impact on US stock markets – and by extension the ripple effects that will be felt by ASX shares – Anthony Saglimbene, global market strategist at Ameriprise Financial said: “The Fed is going to continue to be aggressive, and right now, the Fed is not your friend, at least from an investor stand-point and until that changes it’s going to be hard for stocks to gain traction.”

“We look for further market volatility as investors digest the combination of slowing growth, persistent inflation, and the likelihood that second-quarter earnings season results in downward revisions for margins and profits,” John Lynch, chief investment officer at Comerica Wealth Management, added (quoted by Reuters).

Peter Cardillo, chief market economist at Spartan Capital Securities, came in with a glass-half-full approach.

While admitting “the numbers are ugly”, Cardillo said, “the hints that inflation might be beginning to decelerate are there”.

When US inflation does decelerate, and the Fed can begin easing back on the interest rate hikes, global markets and ASX shares will breathe a sigh of relief.

The post US inflation surges to 9.1%. What does that mean for ASX shares? appeared first on The Motley Fool Australia.

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More reading

• The best and worst ASX All Ords mining shares of FY22
• Bega share price slides as milk prices skim away
• Why did ASX renewable shares fall while electricity prices increased in FY22?
• Telstra share price higher on Digicel Pacific acquisition completion
• Pilbara Minerals share price drops on latest BMX lithium auction update

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

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ASX mining shares were amongst the best performers last year with plenty of names securing record-breaking gains.

The S&P/ASX 300 Metals and Mining Index (ASX: XMM) made a hefty run to peak on 19 April before paring gains to close out the financial year.

It is now down 13% this year to date as losses extend over into FY23.

The top and bottom ASX mining shares

Let’s first cover the winners for FY22. On that, Core Lithium Ltd (ASX: CXO) is worth immediate mention.

The share finished up well into the green last financial year and has held a 288% gain these past 12 months.

This is despite consolidating much of 2022’s gains.

Lake Resources N.L. (ASX: LKE) also pushed ahead with a tidy gain and is still up 77% over the past year. However, it peaked at $2.45 on 4 April and has been on the down since.

Another share worth a mention for FY22 is Pilbara Minerals Ltd (ASX: PLS). It’s no doubt the lithium price underscored returns here.

The company’s battery metals exchange (BMX) realised a price of US$7,000 per dmt in a digital auction.

However, it wasn’t all positive for the sector. Resolute Mining Ltd (ASX: RSG) booked very heavy losses across the year without any reversal. It has carried this into FY23 and trades down 60% in 12 months.

Both Evolution Mining Ltd (ASX: EVN) and St Barbara Ltd (ASX: SBM) were also laggards in securing a 52% and 50% loss respectively.

Looking at FY23, and the metals & mining benchmark has started poorly. It is down 15% in the past month, having retraced by 13% this year to date.

This is in stark contrast to the period from November to April, as seen on the chart below.

Looking ahead, the outlook is mixed for the sector, as the sell-off in ASX shares continues well into the new financial year.

The post The best and worst ASX All Ords mining shares of FY22 appeared first on The Motley Fool Australia.

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More reading

• Pilbara Minerals share price drops on latest BMX lithium auction update
• 5 things to watch on the ASX 200 on Thursday
• 3 ASX lithium shares that flew in FY22, and 1 that sank
• Here are the top 10 ASX shares today
• Why has the Pilbara Minerals share price shot up 5% today?

Motley Fool contributor Zach Bristow 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 Bega Cheese Ltd (ASX: BGA) share price is slipping today amid the milk price in Victoria increasing 30%.

The dairy company’s share price is trading at $3.40 today, a 4.23% fall. For perspective, the S&P/ASX 200 Index (ASX: XJO) is down 0.11% today.

Let’s take a look at what Bega reported today.

What did Bega report?

Bega reported farm gate milk prices in Victoria in FY23 have jumped 30% higher than FY22. This is more than the previous expectations in June which were for a 15 to 20% boost to the price of this milk.

Explaining this difference, Bega said there has been strong competition among milk processors in June and July.

In a trading update released today, Bega said:

The farm gate price increases will benefit farmer suppliers, impact all Australian dairy companies, and is already being reflected in higher product prices in the retail and food service markets.

Despite it still being early in the financial year, Bega is forecasting an FY23 EBITDA of between $160 and $190 million.

Commenting on the outlook for FY23, Bega added:

Bega Cheese expects that the company’s FY2023 performance will be impacted by the delay in timing of some of these higher product prices and the finalisation of secured milk volumes during July.

Bega predicted it will recover the higher costs linked to the boost in farm gate milk prices via the global commodity market and retail and food service markets.

The company said its earnings guidance for FY22 of an EBITDA of between $175 and $190 million “remains current”. In April, Bega warned that COVID-19 related costs would be more than $40 million for the full year. Floods in February and March 2022 also had a major impact on customer deliveries.

Meanwhile, analysts at Bell Potter have placed a “hold” rating on the company’s share price with a $3.80 price target, down from $4.20.

Analysts lowered the price target due to the “ongoing dislocation in farmgate pricing and ingredient pricing”.

Bega share price snapshot

The Bega share price has descended 38% in the past year, while it has lost nearly 42% year to date.

In the past month, the company’s shares have shed nearly 28%.

For perspective, the S&P/ASX 200 Index (ASX: XJO) has fallen about 10% in the past year.

Bega has a market capitalisation of about $1 billion based on today’s share price.

The post Bega share price slides as milk prices skim away appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Thursday
• Why is the Bega share price on the nose this week?
• Why Bega, Fortescue, Santos, and Silver Lake shares are tumbling lower

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

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One of the head-scratchers for investors in FY22 was seeing ASX renewable shares fall in value while households struggled with rising electricity prices. And all during a significant period for the climate change movement as governments around the world commit billions to renewables projects.

That doesn’t make sense, right?

Why did ASX renewable shares fall last year?

Wentworth Williamson analyst Martin Marais sums up the problem. He says the renewables industry is currently “incapable of rapidly ramping up production after years of underinvestment”.

As a result, “the supply/demand imbalance may take many months, if not years, to fix”.

Although climate change is firmly on the agenda in most western nations today, that doesn’t mean the renewables sector is in a position to respond to it immediately.

Some of the businesses we refer to as ASX renewable shares are brand new companies, while others are existing energy providers. Both are having to spend oodles of cash to build their renewable energy offerings to meet this sudden demand.

A ramp-up in costs isn’t so good when there isn’t yet corresponding revenue growth to offset it. And that means profit warnings, according to RC Global chief investment officer Roy Chen.

In a recent article in the Australian Financial Review (AFR), Chen said:

There are some of these clean energy companies that have issued profit warning after profit warning, and warned profit margins could even turn negative because costs are becoming so much.

These are some of the factors making market watchers a bit wary of ASX renewable shares for now.

A snapshot of falling prices in FY22

For this article, we’re defining ASX renewable shares as companies producing clean power. Let’s take a look at how some of the big players did in FY22.

• The Contact Energy Limited (ASX: CEN) share price dropped 14.5% in FY22
• The Meridian Energy Ltd (ASX: MEZ) share price fell 15% in FY22
• The Mercury NZ Ltd (ASX: MCY) share price tumbled 32% in FY22
• The Infratil Ltd (ASX: IFT) share price lost 6%. (Infratil isn’t a power producer but it’s a major investor in green energy assets with a market cap of $5 billion. So, it’s worth including here)
• Genesis Energy Ltd (ASX: GNE) shares fell 24.5% in value in FY22.

There’s no index for ASX renewable shares but the VanEck Global Clean Energy ETF (ASX: CLNE) provides a good proxy. Units in the exchange-traded fund lost 22% in value during FY22.

The post Why did ASX renewable shares fall while electricity prices increased in FY22? appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX shares today
• Here are the top 10 ASX shares today
• Here are the top 10 ASX shares today
• Here’s why ASX renewable shares slipped in June

Motley Fool contributor Bronwyn Allen 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 is on the move on Thursday morning.

At the time of writing, the telco giant’s shares are up slightly to $3.91.

Why is the Telstra share price rising?

Investors have been bidding the Telstra share price higher in response to the release of an announcement this morning.

According to the release, following receipt of all necessary government and regulatory approvals, Telstra has completed the acquisition of Digicel Pacific.

Digicel Pacific is the leading provider of communications services across Papua New Guinea, Fiji, Nauru, Samoa, Tonga and Vanuatu. At the last count, the company had around 2.8 million subscribers and generated US$466 million in service revenue from them during the financial year ended 31 March 2022.

How much is Telstra paying?

While the acquisition of Digicel Pacific will cost a total of US$1.6 billion, Telstra will only be contributing US$270 million. The remaining US$1.33 million is being covered by the Australian Government through Export Finance Australia via a combination of non-recourse debt facilities and equity like securities.

Despite this, Telstra will own 100% of the ordinary equity in Digicel Pacific.

The telco giant also notes that it is expecting Digicel Pacific depreciation and amortisation, including purchase price amortisation arising from the transaction, of around US$160 million per annum.

Management commentary

Telstra’s CEO, Andrew Penn was pleased with the acquisition.

We are very pleased the deal has completed and we welcome Digicel Pacific to the Telstra family. We have been working closely with Pacific Governments on this acquisition and we’d like to thank them for their cooperation and support. We look forward to continuing to work with them as we operate Digicel Pacific and strengthen our relationships in the region.

The post Telstra share price higher on Digicel Pacific acquisition completion appeared first on The Motley Fool Australia.

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More reading

• How much has the Telstra share price paid in dividends over the last 5 years?
• Is the Telstra share price an opportunity calling in FY23?
• Here are 2 quality ASX dividend shares to buy according to experts
• Own Telstra shares? Here are details on the telco’s 2,000 new Australian call centre workers
• How big will the Telstra dividend yield be in FY23?

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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The Pilbara Minerals Ltd (ASX: PLS) share price is under pressure on Thursday morning.

In morning trade, the lithium miner’s shares are down 1.5% to $2.32.

Pilbara Minerals share price falling?

Investors have been selling down the Pilbara Minerals share price this morning following the release of the company’s latest lithium auction update.

According to the release, the company has recorded its first decline in lithium price received since the battery materials exchange (BMX) auctions began.

Last month, Pilbara Minerals advised that it had accepted a pre-auction offer of US$6,350 per dry metric tonne (dmt) on a 5.5% lithia basis for 5,000dmt. This was a new record high and equates to an approximate price of US$7,017 per dmt on a 6% lithia basis.

What’s the latest?

Today’s update reveals that Pilbara Minerals received strong interest in both participation and bidding by a broad range of qualified buyers with a total of 41 bids received online during the 30-minute auction window.

However, despite this strong interest, the price received from its BMX auction has edged lower for the first time.

The company advised that it intends to accept the highest bid of US$6,188 per dmt on a 5.5% lithia basis for another 5,000dmt cargo of the lithium for delivery in late August. This equates to a price of ~US$6,841 per dmt on a 6% lithium basis, which is down 2.5% month on month.

Investors may believe this is a sign that lithium prices have now peaked.

Though, it is worth remembering that this is still materially higher than this time last year. As a result, this bodes well for Pilbara Minerals’ cash flow generation and bottom line.

The post Pilbara Minerals share price drops on latest BMX lithium auction update appeared first on The Motley Fool Australia.

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More reading

• 3 ASX lithium shares that flew in FY22, and 1 that sank
• Here are the top 10 ASX shares today
• Why has the Pilbara Minerals share price shot up 5% today?
• Here are the 3 most heavily traded ASX 200 shares on Wednesday
• Here are the 3 most heavily traded ASX 200 shares on Tuesday

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 Liontown Resources Ltd (ASX: LTR) share price powered home in FY22 with a 30% gain for the year.

Now that we’ve rolled over to FY23, trends have shifted and Liontown shares are now 15% down in the past month.

Before the open on Thursday, the Liontown share price was resting at 94.5 cents.

Liontown share price set to roar in FY23?

Analysts are bullish on Liontown’s prospects this financial year and reckon the ASX lithium share is a buy.

Bell Potter recently said Liontown was one of its top lithium picks for FY23. The broker values Liontown shares at $3.06 apiece.

Four analysts covering Liontown rate the share a buy right now, according to Refinitiv Eikon data. There is just one hold rating and no sell ratings.

From this list, the consensus price target for Liontown is $2.08 per share. That means, on average, analysts tip it to deliver more than 120% upside in the next 12 months.

Meanwhile, if company earnings estimates among ASX lithium shares are anything to go by, it appears that the lithium sector is set to continue growing in FY23.

Analysts at Macquarie are bullish on the sector, pricing in earnings growth for Liontown’s peers, Pilbara Minerals Ltd (ASX: PLS) and Allkem Ltd (ASX: AKE).

The broker rates all three shares a buy, with an average 86% upside price target across them.

With that in mind, analyst sentiment is certainly positive on Liontown’s growth prospects and potential share price appreciation.

Liontown has clipped a 26% gain in the past 12 months. This is despite incurring a 43% loss this year to date.

The post What’s the outlook for the Liontown Resources share price in FY23? appeared first on The Motley Fool Australia.

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More reading

• Why are these ASX 200 lithium shares tumbling today?
• ASX battery metals shares trying to power up after a horror June
• Here are the top 10 ASX shares today
• Liontown Resources roared home with a 30% gain in FY22
• Can ASX lithium shares recharge in FY23?

Motley Fool contributor Zach Bristow 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 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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When it comes to consumer staples shares and the role they can play in one’s ASX share portfolio, one word probably comes to mind: defensive. When we hear investors discuss consumer staples shares, it normally involves the idea that these companies can protect an investor’s portfolio from volatility and capital loss.

That’s because consumer staples are goods and services that we all need, rather than want. They include food, drinks, household essentials, and vices like alcohol and tobacco.

But, like all assumptions in the world of investing, this might not always be the case. So let’s see if this reputation still holds water after what has been an especially tough year so far for investors in 2022 by checking out the iShares Global Consumer Staples ETF (ASX: IXI).

This exchange-traded fund (ETF) is the only one on the ASX that solely holds shares in the consumer staples sector. But not just ASX consumer staples shares though. IXI holds a basket of underlying companies that hail from the United States, the United Kingdom, Switzerland, Japan and France, amongst others.

But Australia is also included, with IXI holding ASX shares like Woolworths Group Ltd (ASX: WOW), Coles Group Ltd (ASX: COL) and Endeavour Group Ltd (ASX: EDV).

But even though most of IXI’s holdings are outside the ASX, you might still be very familiar with some of its top companies. These include Coca-Cola Company, Nestle, PepsiCo, Philip Morris International, Walmart and Unilever.

Has the Consumer Staples ETF protected investors’ portfolios in 2022?

So let’s look at how the iShares Consumer Staples ETF has held up in 2022 so far. So 2022 has been a very rough year for ASX shares. As it currently stands, the S&P/ASX 200 Index (ASX: XJO) remains down by a painful 11.1% in 2022 thus far.

It’s even worse over in the United States. The S&P 500 Index (INDEXSP: .INX) remains down by around 20% year to date.

So how has the IXI ETF fared? Well, over 2022 thus far, the IXI unit price has lost just 3.81%, falling from $88.72 a unit to the $85.34 the ETF closed at yesterday.

Not only that, but investors have also received two dividend distribution payments over 2022 thus far. These amount to $1.73 in distributions per unit. That translates into a trailing yield of just over 2%, bringing this ETF’s 2022 losses even lower

So IXI may have had a disappointing performance over 2022 thus far. But it has still outperformed the ASX 200 by more than 7%, and the S&P 500 by far more than that.

So it seems that in this case, the reputation of consumer staples shares as defensive portfolio protections against market losses and volatility remains intact.

The post Has the iShares Consumer Staples ETF protected investors’ portfolios in 2022? appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has positions in Coca-Cola, PepsiCo Inc., Philip Morris International, and Walmart Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Philip Morris International and Unilever and has recommended the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool Australia has positions in and has recommended COLESGROUP DEF SET and iShares Global Consumer Staples 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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Is Telstra Corporation Ltd (ASX: TLS) a compelling investment opportunity at today’s share price for FY23 and beyond?

As the biggest telecommunications business in Australia, Telstra has a large position in the market. However, ‘large’ doesn’t necessarily mean ‘better’ in terms of potential investment returns.

Over the past month, the Telstra share price has outperformed the S&P/ASX 200 Index (ASX: XJO) by about 2%.

Can this outperformance continue? No one has a crystal ball, but brokers like to estimate where they think a company’s valuation could be in 12 months from now with what’s called a ‘price target’.

Let’s look at where brokers think the Telstra share price could go over the next year.

Broker ratings on the Telstra share price

The Telstra share price was $3.90 at the market close on Wednesday.

The broker Ord Minnett currently rates Telstra a buy with a price target of $4.65. That means a possible rise of about 19%. Ord Minnett is also predicting earnings per share (EPS) growth in FY23.

Morgan Stanley also rates Telstra a buy or ‘overweight’ with a share price target of $4.60. This suggests a possible rise of about 18%. One of the things that the broker likes is the potential for 5G to win customers onto wireless home broadband. That’s where a home broadband connection powered by the NBN is replaced by a 5G-powered home internet connection.

The shift to the NBN hurt Telstra’s margins. Getting households onto 5G home internet would be helpful for margins because Telstra would be providing the connection.

What could drive Telstra’s earnings higher?

The Telstra share price could follow earnings. Rising profits could be helpful in several ways, including funding higher dividends.

The core tactics of the T25 strategy are cutting costs, delivering growth and “exceptional customer experiences”, and continuing network and tech leadership.

In terms of cutting costs, Telstra says it wants to reduce its net fixed costs by $500 million between FY23 and FY25.

There are five areas of the business that Telstra is focusing on to achieve its cost reduction targets.

Telstra wants to:

• “Significantly reduce its IT operating costs”, remove legacy systems, and consolidate platforms
• Transform the ‘Telstra enterprise’ customer value chain across the different processes
• Improve efficiencies in billing, assurance, and activation for customers
• Achieve further labour productivity across the ‘back of house’ and support areas
• Expand its productivity in sale costs, fixed costs, and capital expenditure.

Telstra earnings could also rise as the company increases its prices in line with CPI inflation. These increases could happen annually.

Dividend expectations

Morgan Stanley and Ord Minnett believe the telco giant will pay an annual dividend per share of 16 cents in FY23. This equates to a grossed-up dividend yield of 5.9%.

Telstra share price snapshot

Since the beginning of 2022, Telstra shares have fallen 7.6%. However, the ASX 200 has dropped 12.75%.

The post Is the Telstra share price an opportunity calling in FY23? appeared first on The Motley Fool Australia.

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More reading

• Here are 2 quality ASX dividend shares to buy according to experts
• Own Telstra shares? Here are details on the telco’s 2,000 new Australian call centre workers
• How big will the Telstra dividend yield be in FY23?
• Here’s why brokers rate these ASX dividend shares as buys
• Telstra share price in the red despite taking out green crown

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. 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 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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