Category: Stock Market

It has been another red day for the Lake Resources N.L. (ASX: LKE) share price on Monday.

In afternoon trade, the lithium developer’s shares are down 9% to $1.50.

This means the Lake Resources share price is now down a disappointing 25% since this time last month.

Why is the Lake Resources share price sinking?

Investors have been selling down the Lake Resources share price today amid a broad market selloff.

Unfortunately, shares that are higher up the risk curve, such as lithium miners, have been the most heavily impacted during today’s market weakness.

For example, fellow lithium developers Liontown Resources Limited (ASX: LTR) and Sayona Mining Ltd (ASX: SYA) are also down by a similar margin during afternoon trade.

Is this a buying opportunity?

The team at Bell Potter may see the weakness in the Lake Resources share price as a buying opportunity.

The broker currently has a speculative buy rating and $2.83 price target. This implies almost 90% upside for investors over the next 12 months.

Last month the broker commented:

LKE has now announced two non-binding Memorandum of Understandings covering all of the proposed 50ktpa initial lithium product offtake from its Kachi Project (LKE 75%). The Hanwa Co., Ltd non-binding MoU (announced 29 March 2022) for 25ktpa will potentially align LKE with Japanese battery and auto manufacturers.

Today’s announced non-binding MoU with Ford Motor Corporation covering 25ktpa adds a further highly credible potential counterparty with a focus on North American markets. The agreements and the counterparties add support to ongoing financing and predevelopment activities for Kachi. They also highlight auto manufacturers’ increased interest in participating further up the battery minerals supply chain and with an eye to the ESG credentials of raw materials providers.

The post Lake Resources share price drops 9%: Is this a buying opportunity? appeared first on The Motley Fool Australia.

More reading

• Low charge: is the party over for ASX lithium stocks?
• Which ASX 200 mining shares were the worst-performing on Friday?
• Why is the Lake Resources sliding 7% into the red on Friday?
• Why is the Novonix share price down 6% on Friday?
• Investing in ASX lithium shares? Here’s what you need to know

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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ASX lithium stocks have had a wild ride in the past few years. The sector has seen enormous gains as investors piled in, expecting a shortage in supply to drive up prices.

However, we have seen many of these companies experience significant share price weakness over the past month.

So, is this the beginning of the end for ASX lithium stocks? Or is there still room for them to run higher?

Foot slips off the gas of ASX lithium shares

If there is one thematic that has dominated markets in recent history, it is the growing demand for lithium. The proliferation of electric vehicles (EVs) jump-started the lithium price in 2021, continuing into this year.

From the beginning of 2020 to the peak of this year, the price of lithium carbonate has exploded — increasing from ~US$6,600 per tonne to ~US$74,200 per tonne. Although, investors speculating on further price rises coinciding with demand have faced sobering insight recently.

As my colleague James covered last week, Goldman Sachs analysts have suggested that the highest prices for the electrifying commodity might be behind us. In a note, the investment bank disclosed its expectation for a long-run average price of US$11,500 per tonne.

The forecast comes at a time when lithium prices have been retracing over the last 30 days — pulling back by roughly 7%. In response, ASX lithium stocks have also seen their value depleted during this time, including:

• Lake Resources N.L. (ASX: LKE) down 23.6% to $1.48
• Liontown Resources Limited (ASX: LTR) down 23% to $1.26
• Allkem Ltd (ASX: AKE) down 10.6% to $11.34
• Pilbara Minerals Ltd (ASX: PLS) down 15.3% to $2.55

One lithium company is flipping the script

Beyond the bounds of the Australian share market, there is a lithium share that has been able to push higher despite the souring sentiment.

The share price of US-based Albemarle Corporation (NYSE: ALB) is up 17.7% over the last month. Most of this strength followed the company’s first-quarter earnings result for FY22. Pleasingly, Albemarle surpassed analyst expectations with a 44% earnings per share (EPS) beat.

In comparison, Pilbara Minerals is one ASX lithium stock that failed to rally upon its latest quarterly report. The company revealed slightly lower spodumene concentrate production and a significant fall in shipment volume.

The post Low charge: is the party over for ASX lithium stocks? appeared first on The Motley Fool Australia.

More reading

• Lake Resources share price drops 9%: Is this a buying opportunity?
• Which ASX 200 mining shares were the worst-performing on Friday?
• Why is the Lake Resources sliding 7% into the red on Friday?
• Why is the Novonix share price down 6% on Friday?
• Why is the Pilbara Minerals share price sinking 9% today?

Motley Fool contributor Mitchell Lawler owns shares in Albemarle Corporation. 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 BetMakers Technology Group Ltd (ASX: BET) share price is heading south on Monday.

At the time of writing, the betting technology company’s shares are fetching 47.2 cents apiece, down 3.67%.

This comes after the S&P/ASX 200 Index (ASX: XJO) taking a beating on the back of heavy losses on Wall Street last week.

As such, the benchmark index is trading at 7,107.7 points, down 1.36%.

BetMakers launches fixed odds betting

Despite the company’s positive update, investors are continuing to sell off the BetMakers share price.

According to its release, BetMakers advised that it has launched fixed odds betting on thoroughbred horse racing in New Jersey.

In August 2021, the Governor of New Jersey signed into law a bill authorising fixed-odds wagering on horse races. Notably, this was the first state to approve fixed odds betting in the United States.

BetMakers noted that the first fixed odds bet was taken on Friday 6 May. This was followed by the first fixed odds betting conducted at the Monmouth Park season launch meeting on 8 May.

The company now plans to roll out fixed odds wagering to further horse racing meetings in the coming weeks. This includes up to 10 meetings each day from North American tracks before expanding to international meetings for fixed odds wagering.

BetMakers also stated that it has been contracted to provide online fixed odds solutions for Monmouth Park.

Management is expecting this to be operational within the next quarter.

BetMakers North American CEO, Christian Stuart commented:

This was a momentous occasion for BetMakers and US horse racing in general.

We believe horse racing is the untapped vertical for sports bookmakers as they look to deliver more content more often to their acquired databases with products that can deliver solid margins.

BetMakers continues to lead the charge to deliver what we believe is the renaissance of horse racing in the United States.

BetMakers share price snapshot

The BetMakers share price has failed to take off in the past 12 months, losing more than 65% in value.

The company’s shares hit a 52-week low of 47 cents today and are struggling to keep afloat. This brings its year-to-date losses to around 40% in the space of five months.

Based on today’s price, BetMakers commands a market capitalisation of around $424.63 million.

The post BetMakers share price slides despite ‘momentous occasion’ appeared first on The Motley Fool Australia.

More reading

• Macquarie share price tumbles 4% to 9-week low. Is it time to pounce?
• The Lynas share price has plunged 6% today! What’s going on?
• ASX 200 midday update: Westpac result impresses, AVZ halted
• Why is the ANZ share price sliding on Monday?
• These are the 10 most shorted ASX shares

Motley Fool contributor Aaron Teboneras 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 Betmakers Technology Group Ltd. The Motley Fool Australia has recommended Betmakers Technology Group 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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The Macquarie Group Ltd (ASX: MQG) share price has dropped approximately 4%, meaning the bank just fell to a nine-week low.

The business is seeing a decline, as is the wider ASX share market. The S&P/ASX 200 Index (ASX: XJO) is currently down around 1%. ASX shares are following on from the decline that the international share market saw on Friday.

What’s impacting the Macquarie share price?

Aside from the ongoing market volatility amid the focus on inflation and interest rates, Macquarie announced its FY22 result on Friday.

The investment bank is becoming increasingly global. In FY22, international income was 75% of total income.

It reported that FY22 net profit after tax (NPAT) was $4.7 billion. That represented an increase of 56% year on year.

The FY22 second-half profit of $2.66 billion was 30% higher than the first half of FY22 and up 31% compared to the second half of FY21.

It also said that its assets under management (AUM) increased by 37% to $774.8 billion over the year.

Macquarie’s financial position “comfortably exceeds regulatory minimum requirements” with $10.7 billion of surplus capital. The bank’s common equity tier 1 (CET) ratio was 11.5%.

The investment bank said that it continues to maintain a cautious stance, with a conservative approach to capital, funding and liquidity which will help it respond to the current environment.

Outlook

Macquarie CEO Shemara Wikramanayake said:

Macquarie remains well-positioned to deliver superior performance in the medium term. This is due to our deep expertise in major markets, strength in business and geographic diversity and ability to adapt the portfolio mix to changing market conditions, an ongoing program to identify cost saving initiatives and efficiency, a strong and conservative balance sheet, and a proven risk management framework and culture.

Is the Macquarie share price an opportunity?

The market is very mixed on the business.

Morgan Stanley says it’s a buy, with a price target of $245. That implies a possible upside of more than 30%. It thinks that Macquarie is placed well to do well from the flow of capital into green opportunities. The broker thinks that Macquarie can continue to do well in the current environment.

Another broker that’s positive on the business is Morgans, with a buy rating and a price target of $215. That’s a possible upside of around 20% over the next year.

Citi is one of the brokers that is neutral on the Macquarie share price, with a price target of $187, implying a slight upside. It thinks that earnings generated by Macquarie’s commodity division will settle down, likely impacting profits in the next few years.

But there’s one broker that is fairly negative. Credit Suisse rates Macquarie as ‘underperform’. It thinks the FY22 result is the best that profit is going to be. The rising interest rate environment could be a negative for the global investment bank, potentially hurting asset values.

On Credit Suisse’s numbers, the Macquarie share price has a valuation of 18x FY23’s estimated earnings.

However, Morgan Stanley’s more optimistic outlook puts Macquarie shares at 17x FY23’s estimated earnings.

The post Macquarie share price tumbles 4% to 9-week low. Is it time to pounce? appeared first on The Motley Fool Australia.

More reading

• The Lynas share price has plunged 6% today! What’s going on?
• ASX 200 midday update: Westpac result impresses, AVZ halted
• Why is the ANZ share price sliding on Monday?
• Is the NAB share price a buy amid this volatility?
• Is it too late to buy big bank ASX shares?

Citigroup 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 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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The S&P/ASX 200 Index (ASX: XJO) has once again opened lower so far this Monday. The ASX 200 is currently down by a depressing 1.39% at just under 7,105 points.

But the Xero Limited (ASX: XRO) share price is faring worse. The cloud-based accounting software provider has plunged today, falling a nasty 2.9% to $84.06 at the time of writing.

Now only that, but Xero shares also hit a new 52-week low of $83.53 apiece earlier this morning. That happens to be the lowest pricing point for Xero shares since the dark days of 2020. So it’s a two-year low for Xero shares today.

This latest slide will no doubt be disappointing for many Xero investors. It was only back in November last year that the company was at an all-time high of $156.65. Today, the company is more than 45% off that high, as well as being down by 41% so far in 2022.

The sell-off we’ve seen amongst ASX tech shares, which has followed on from heavy losses in the US tech sector, has harshly punished Xero. The company hasn’t released any major news or updates in weeks, so we can only assume that it’s largely this latest market disdain for tech shares that has been fuelling Xero’s woes of late.

But after these steep falls, many investors might be wondering whether the Xero share price is starting to look like a bargain.

So let’s see if Xero shares are a buy or a sell today.

Is the Xero share price a buy or a sell today?

Well, one ASX broker who reckons Xero is looking attractive right now is investment bank, Goldman Sachs. As my Fool colleague covered last week, Goldman is currently rating Xero shares as a “buy”. That comes with a 12-month share price target of $133 a share. If that came to pass, it would mean a potential upside of close to 50% on current pricing.

Goldman is bullish on Xero for its “compelling growth story” and reckons the company is an attractive buying opportunity for long-term investors. No doubt shareholders will be happy with that assessment.

At the current Xero share price, this ASX 200 tech share has a market capitalisation of $12.59 billion.

The post Xero share price slumps to lowest price since 2020. Broker tips 50% upside appeared first on The Motley Fool Australia.

More reading

• Why Macquarie, REA, Temple & Webster, and Xero shares are sinking
• Here’s why ASX 200 tech shares are having such a disastrous run on Friday
• Xero share price plummets 7% as tech sector struggles
• Analysts rate these ASX growth shares as buys in May
• Why are ASX tech shares having such a dire run on Monday?

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 positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

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

What happened

Shares of fintech stock Block (NYSE: SQ) fell 26.6% last month due to the sell-off in growth stocks and cryptocurrencies. There wasn’t any major negative news about Block’s operations, but the stock suffered along with other correlated asset classes as investors pull capital out of risk assets.

So what

Block beat analyst estimates for the first quarter, and it reported those results in the first week of May. Investors are also looking forward to updates from the fintech disruptor later this month. Those events provide valuable insight on the financial prospects of Block’s business. No such information was available in April. The biggest development was the company’s announcement that it was launching a business lending product.

Instead, Block shares tumbled due entirely to market forces. Its price chart very closely resembled that of Bitcoin and the Proshares UltraPro QQQ ETF, which is a good proxy for growth stocks right now.

SQ, TQQQ, BTC Total Return Level data by YCharts

Investors are clearing out of volatile assets, including cryptocurrencies and high-valuation growth stocks. Block is a growth stock that is linked heavily with cryptos and blockchain technology, so it never really stood a chance in April’s market.

Now what

Block is dealing with a slowdown, but it’s still posting great growth results. The company’s gross profit rose 34% last quarter. This marked a deceleration in the rate of expansion, but it broke a relatively flat trend from the prior three quarters. Gross profit inched forward in its Square business unit, while Cash App had a breakout month that propelled the whole company higher. Adjusted EBITDA rose over the prior quarter, but it’s still down year over year. Block’s recent acquisition of Afterpay also contributed to that growth, so its “organic” expansion was slightly worse than the headline figures would imply.

The value of transactions being processed by the company declined last quarter. That’s likely to be a concern for investors. Consumers are hurting from inflation, and business activity could slow as interest rates rise from the Fed’s aggressive monetary tightening. Be sure to monitor these trends over the next few quarters from Block.

Block derives a significant portion of its revenue from Bitcoin, and it has purchased more than $200 million in Bitcoin, which it holds on its balance sheet. As a result, the stock is likely to be highly correlated with the cryptocurrency markets for the foreseeable future. Bitcoin only contributed 3.4% of Block’s gross profit in the last quarter, and its Bitcoin holdings amount to less than 1% of total assets on the balance sheet, so the market might be overreacting to crypto volatility in terms of its overall impact on the value of Block’s business. This can create opportunities for long-term investors, but it will make the stock even more volatile in the short term.

Block remains a compelling opportunity to invest in a business that’s committed to unlocking the value of Web3, the blockchain, and cryptocurrencies. 

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

The post Why did Block shares fall 27% in April? appeared first on The Motley Fool Australia.

More reading

• Macquarie share price tumbles 4% to 9-week low. Is it time to pounce?
• Xero share price slumps to lowest price since 2020. Broker tips 50% upside
• Why is the Woodside share price beating the ASX 200 on Monday?
• The Block share price is tumbling 7% today. What’s going on?
• The Lynas share price has plunged 6% today! What’s going on?

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

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

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The Woodside Petroleum Ltd (ASX: WPL) share price is handily outperforming the S&P/ASX 200 Index (ASX: XJO) today, though shares have just slipped into the red.

Woodside shares closed on Friday at $31.39 and are currently trading for $31.33, down 0.2% after earlier posting intraday gains of 1.3%.

This comes as the ASX 200 succumbs to another day of selling, following weakness in US markets on Friday. At time of writing the ASX 200 is down 1.5%.

So, why is the Woodside share price outperforming?

Tailwinds for Woodside share price amid tight supply outlook

It’s not just Woodside that’s bucking the broader selloff today.

The S&P/ASX 200 Energy Index (ASX: XEJ) is also only down 0.2%, indicating broader support of ASX 200 energy shares.

While crude oil prices have retraced 0.6% over the past 24 hours, with Brent crude currently trading for US$111.77 per barrel, Brent is up 0.8% from where it was at during Friday’s trade.

That could be offering some tailwinds for the Woodside share price and the wider energy sector.

ASX investors may also be looking beyond the daily price moves to the longer-term outlook for energy prices.

On the negative side of the picture for oil prices, China’s COVID-zero polices could see the world’s number two economy undergo lengthy, economy crippling lockdowns. This will have a big impact on the nation’s energy demands. But most likely only in the short to medium-term.

Longer-term, the world is increasingly working together to take Russian oil exports off the market to punish the nation for its invasion of Ukraine.

The European Union, consisting of 27 nations, is working out the last kinks in its plan to ban Russian crude oil over the next six months. Joining the EU’s efforts, the Group of Seven (G7) – Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States – have also pledged to stop importing Russian oil.

Once these bans are put into place, you can imagine the EU and G7 will up the pressure on other nations to follow suit, taking a large chunk of the global energy supply out of the market.

That will likely keep oil and gas prices elevated and help support the Woodside share price.

Energy majors not opening up the spigots

With crude oil prices having hit 13-year highs earlier this year, you’d think the big oil companies might be spending big on exploring for and drilling new fields.

But that’s not the case. Rather than splashing cash on new projects, energy companies are increasingly returning profits to shareholders via buybacks and increased dividends.

Woodside shares, for example, offer a 6.0% trailing dividend yield, fully franked.

Commenting on the shift in tactics, Noah Barrett, lead energy analyst at Janus Henderson said (quoted by Bloomberg):

In prior cycles of high oil prices, the majors would be investing heavily in long-cycle deep-water projects that wouldn’t see production for many years. Those type of projects are just off the table right now.

“Discipline is the order of the day,” said BP’s CEO, Bernard Looney.

Indeed, according to data compiled by Bloomberg, when oil was consistently trading for more than US$100 per barrel back in 2013, the big oil companies’ combined capex was US$158.7 billion. That’s almost double what these companies are spending today.

Cautioning of longer-term elevated energy prices, which could help boost the Woodside share price, Joseph McMonigle, secretary general of the International Energy Forum said, “Two years in a row of large and abrupt underinvestment in oil and gas development is a recipe for higher prices and volatility later this decade.”

Barrett added, “For so long the industry has been told by investors and politicians we need less oil and executives remember that. If the world needs an extra million barrels a day to ease prices, I’m not sure where it will come from.”

Woodside share price snapshot

Benefiting from soaring energy prices, the Woodside share price is up 38.2% so far in 2022. That compares to a year-to-date loss of 6.4% posted by the ASX 200.

The post Why is the Woodside share price beating the ASX 200 on Monday? appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Monday
• 5 things to watch on the ASX 200 on Friday
• Why are ASX 200 energy shares leaping higher today?
• Why is the Woodside share price climbing today?
• 5 things to watch on the ASX 200 on Thursday

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 Block Inc (ASX: SQ2) share price is suffering on Monday despite the company’s New York-listed stock’s gains.

At the time of writing, the Block share price is down 6.75% on the ASX, trading at $133.27.

For context, the S&P/ASX 200 Index (ASX: XJO) is also falling today. It is currently down 1.53%.

So what’s got the company’s Australian counterpart feeling so blue (or red) today? Let’s take a look.

What’s going on with the Block share price?

Block’s shares are suffering alongside its ASX 200 technology peers on Monday.

Right now, the S&P/ASX 200 Information Technology Index (ASX: XIJ) is recording a 3.3% slump, and Block’s stock isn’t its biggest weight.

The Novonix Ltd (ASX: NVX) share price takes home that unfortunate prize. It’s currently down 8.2%.

At least Block’s stock is well versed in falling. It slumped 1.8% on Friday amid the release of the company’s quarterly earnings.

Interestingly, those same results appeared to incite stock in Block Inc (NYSE: SQ) – the company’s original US-based listing – to lift 0.61% after the Australian market closed for the week.  

Today’s tumble included, the Block share price has fallen 19% over the last 30 days on the ASX.

It’s also 24% lower than it was when it joined the Australian exchange following its takeover of former market darling, Afterpay earlier this year.

The post The Block share price is tumbling 7% today. What’s going on? appeared first on The Motley Fool Australia.

More reading

• ASX 200 midday update: Macquarie and REA updates disappoint
• Block share price on watch amid Q1 earnings miss
• Why Block, Domain, Metcash, and Zip shares are pushing higher
• Bank of America tips 38% upside for Block shares. Here’s why
• Why Appen, Block, Life360, and Northern Star shares are dropping

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 positions in and has recommended Block, Inc. The Motley Fool Australia has positions in and has recommended Block, Inc. 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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It’s been another dreadful day of trading for ASX shares so far this Monday. At the time of writing, the S&P/ASX 200 Index (ASX: XJO) has lost a depressing 1.47% and is now back under 7,100 points. But the Lynas Rare Earths Ltd (ASX: LYC) is suffering a worse fate so far. As it currently stands, Lynas shares have lost a nasty 6.44% from last week’s closing price of $9.01 and are now trading at $8.43 each.

So what’s going on with Lynas shares this Monday?

Well, we can’t be certain. There hasn’t been much in the way of news or announcements out from Lynas in almost a month. The last piece of major news we got out of the company came back on 12 April. That was when Lynas released a quarterly report for the first three months of 2022. As we covered at the time, this report announced record quarterly sales revenue of $327.7 million, as well as a 17.5% rise in total rare-earth oxide production. Investors reacted positively at the time.

Perhaps today’s move just reflects a general market distaste for green metals companies like Lynas. Indeed, we are seeing some pretty major falls across the board in this space. Take Pilbara Minerals Ltd (ASX: PLS). The Pilbara share price has lost more than 6% so far today. It’s the same with Neometals Ltd (ASX: NMT) and Core Lithium Ltd (ASX: CXO).

So it seems investors don’t want anything to do with green metals shares today. And The Lynas share price looks to have been swept up in this trend.

Lynas shares are now down nearly 15% over the past month, as well as down 27% since the company touched a new 52-week high of $11.59 in early April.

At the current share price, Lynas commands a market capitalisation of around $8.4 billion.

The post The Lynas share price has plunged 6% today! What’s going on? appeared first on The Motley Fool Australia.

More reading

• ASX 200 midday update: Westpac result impresses, AVZ halted
• Why is the ANZ share price sliding on Monday?
• Is the NAB share price a buy amid this volatility?
• Is it too late to buy big bank ASX shares?
• 5 things to watch on the ASX 200 on Monday

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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This week may prove critical for the planned demerger of AGL Energy Ltd (ASX: AGL) as billionaire investor Mike Cannon Brookes warns that AGL dividends could be at risk.

According to reporting by The Australian, both AGL leadership and Cannon-Brookes will be meeting with the company’s biggest shareholders.

AGL wants to push ahead with a demerger of the company into a retailing business (AGL) and energy generation company (called Accel). However, Cannon-Brookes says that demerging would be a bad idea.

What are Cannon Brookes’ points on AGL?

The Australian reported that Cannon Brookes’ Grok Ventures would tell major shareholders that dividends would be “severely impacted” because of the “financial constraints” that Accel would face.

Accel could suffer “coal outages” and “major offtake contracts expiring in 2028”, according to Grok Ventures, adding the AGL board’s value assumptions were “severely misguided”.

Grok Ventures also would point out to shareholders its belief that exiting coal quicker-than-planned would open more economic opportunities with a green energy business, the newspaper reported.

Independent expert views

Independent expert Grant Samuel also reportedly concluded that shareholders could receive lower total dividends from two separate businesses than under the current combined structure because of “Accel’s debt amortisation profile”, The Australian reported.

Lower dividends weren’t the only thing that Samuel noted. There were “non-trivial” disadvantages, costs and risks from the demerger. However, the expert concluded that shareholders would be better off with two separate businesses.

How big are AGL dividends expected to be?

Analysts have varied expectations for the company.

Commsec numbers suggest that AGL could pay an annual dividend of 26 cents in FY22, 40 cents per share in FY23 and 60 cents per share in FY24. That would translate into dividend yields of 3.2% in FY22, 4.8% in FY23 and 7.25% in FY23.

In the FY22 half-year result, AGL reported a statutory net profit after tax (NPAT) of $555 million. The underlying net profit after tax was down 41% to $194 million. It decided to pay an interim dividend of 16 cents per share.

It’s expecting to generate a net profit after tax of between $260 million to $340 million for FY22.

Failed takeover

A couple of months ago, the AGL board rejected a revised indication of interest from a consortium including Brookfield and Grok Ventures. That bid was $8.25 per share, which was a premium of 15.2% to the prior closing price.

However, the board said that the bid ignored the opportunity of the proposed demerger to deliver future value. It also said that it ignored business momentum and improvements in the forward wholesale prices.

AGL said the demerger would create “two industry-leading companies with distinct value propositions. It will allow each business to be valued separately and more positively by the market on the basis of their own specific business fundamentals.”

AGL chair Peter Botten added that there would be defined, distinct dividend policies and capital structures for each company that would “support both future growth and appropriate returns to shareholders, as both organisations pursue their commitment to responsibly decarbonise without impacting energy reliability and affordability”.

AGL share price snapshot

The AGL share price is trading at $8.36 at the time of writing. Shares in the company are down 5% over the past 12 months but have lifted 36% since the start of 2022.

The post Cannon-Brookes warns AGL dividends at risk from demerger 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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