Category: Stock Market

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.

After a terrible January, investors had hoped that stock markets would be able to recover in February. Yet volatility has continued to rule the day, and persistent fears about interest rates and inflation have been particularly hard on the Nasdaq Composite (NASDAQINDEX: ^IXIC). As of 2:45 p.m. ET, the Nasdaq was down almost 2.5% Thursday afternoon.

Yet some companies have been able to keep generating good financial results and keep their businesses moving in the right direction. Today, some of the best performers include Nasdaq stocks Outset Medical (NASDAQ: OM) and Global-e Online (NASDAQ: GLBE). Below, we’ll look more closely at these stocks to see why people are excited about their future prospects.

Outset looks healthy

Shares of Outset Medical moved higher by 16% on Thursday afternoon. The medical technology company reported fourth-quarter financial results that made investors excited about its future.

Outset Medical’s growth was strong. Revenue of $28.2 million rose 63% from year-ago levels, completing a full year in which sales more than doubled from 2020. Product revenue was especially favorable, posting quarterly growth of nearly 80% year over year as demand for its portable dialysis equipment remained robust.

Moreover, Outset was upbeat about its future prospects. Guidance for 2022 included revenue projections of $142 million to $150 million, which would be 38% to 46% higher than 2021’s final sales tally of $102.6 million.

Outset is still a long way from being profitable, with its fourth-quarter losses widening to $0.77 per share for the quarter. Adjusted net losses almost doubled in 2021 from 2020 levels on an absolute basis. However, investors are pleased just to see the medical equipment maker gain traction and help more patients, and that’s helping the healthcare stock regain some of the ground it had lost in the past few months.

Global-e gets a boost

Elsewhere, shares of Global-e Online rose 15%. The international e-commerce facilitator rose on favorable results from its fourth-quarter report.

Global-e’s numbers looked great. Fourth-quarter revenue climbed 54% on a 66% rise in gross merchandise value. The company posted a net loss, but that came primarily due to warrant-related expense tied to Global-e’s strategic partnership with Shopify. Global-e’s full-year 2021 results were also encouraging, with gross merchandise value soaring 87% to $1.45 billion and full-year revenue rising 80% year over year to $245 million. When you exclude the impact of the Shopify warrants, Global-e posted profits for both periods.

Global-e has gained traction quickly. Retention rates of more than 98% show that merchants tend to stick with the company once they come on board, and net dollar retention rates of 152% show that those customers expand their business over time. Global-e has been especially successful in providing its services to U.S. merchants looking for help in selling their goods and services internationally, as its U.S. outbound revenue more than doubled in 2021.

Best of all, Global-e expects another strong year in 2022. Gross merchandise value projections of $2.445 billion to $2.495 billion would represent growth of about 70% from 2021 levels. Revenue of $411 million to $421 million would be up in the same neighborhood year over year, and the company is looking for positive adjusted pre-tax operating earnings of between $38 million and $42 million for the year.

Growth stocks have to deliver the goods in today’s stock market environment. When they do, though, shareholders can still see the gains that Global-e and Outset Medical produced Thursday. 

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

The post As markets fall, these 2 Nasdaq stocks are surging higher appeared first on The Motley Fool Australia.

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• Own A2 Milk (ASX:A2M) shares? Here’s what to expect when the company reports on Monday
• Why Bitcoin, Ethereum, and Dogecoin plunged today

Dan Caplinger owns Shopify. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and recommends Outset Medical, Inc. and Shopify. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. 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 Bruce Jackson.

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

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The APA Group (ASX: APA) share price could soon get a boost by the company’s entrance into a brand-new market in New South Wales.

The S&P/ASX 50 Index (ASX: XFL) energy infrastructure business has reportedly put itself forward to help build the state’s proposed renewable energy network.

At the time of writing, the APA share price is flat today at $10.02.

Let’s take a closer look at what’s rumoured to be in store for the energy giant.

Is APA planning its break into large-scale renewable energy?

Owners of APA shares could soon hold some of NSW’s critical renewable energy infrastructure.

The company is vying to get involved in the state’s government’s plan to build renewable energy zones, according to the Australian Financial Review.

The zones will each see a single location generating renewable energy through natural assets such as wind and solar. The locations will also house energy storage systems like batteries.

As APA investors likely know, the company owns a 7,500-kilometre network of gas pipelines on Australia’s east coast and major pipelines in Western Australia and the Northern Territory.  

But the company has recently shown interest in branching into electricity infrastructure. It made an unsuccessful bid for formerly-listed $9.9 billion electricity supplier AusNet in September.

Now, according to today’s reporting, APA has put itself forward as a candidate to design, build, and control NSW’s first renewable energy zone.

Transgrid has also reportedly flagged its interest in the project.

The zone will be located in the state’s Central-West Orana region, encompassing Dubbo and Wellington.

The zone is predicted to produce 3 gigawatts of new network capacity. It’s also expected to bring up to $5.2 billion in private investment to the region by 2030. However, the news appears to have had little effect on the APA share price today.

The company’s rumoured bid comes just days after federal energy minister Angus Taylor slammed Origin Energy Ltd (ASX: ORG) for bringing forward the closure date of Australia’s largest coal-fired power station.

The Eraring power station – located in NSW’s Macquarie region – will now face its D-day in 2025.

Taylor said Origin’s decision was “bitterly disappointing” and the plant’s closure will leave a “considerable gap in reliable generation in the National Electricity Market”.

However, The Australian quoted NSW energy minister Matt Kean as responding to Taylor’s comments, saying:

He knows full well that we’ll be unlocking existing supply – it’s not a battery replacing a power station.

APA share price snapshot

It’s been a rocky start to 2022 for the APA share price. It has slipped 1.5% since the year began.

However, it is still 8.4% higher than it was this time last year.

The post Powering up: is the APA (ASX:APA) share price about to be electrified? appeared first on The Motley Fool Australia.

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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 owns and has recommended APA Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The QBE Insurance Group Ltd (ASX: QBE) share price is falling on Friday following the release of its full year results.

At the time of writing, the insurance giant’s shares are down 9% to $11.51.

QBE share price sinks after earnings miss

• Gross written premiums (GWP) up 25.7% (21% in constant currency) to US$18,453 million
• GWP ex Crop up 18% year on year
• Underwriting profit up 316% year on year to US$695 million
• Combined operating ratio of 93.7%
• Statutory net profit after tax of US$750 million, compared to loss of US$1.5 billion
• Adjusted net cash profit after tax of US$805 million
• Final dividend of 19 Australian cents per share, bringing the FY 2021 dividend to 30 Australian cents per share

What happened in FY 2021?

For the 12 months ended 31 December, QBE delivered a 25.7% increase in GWP (or 21% in constant currency) to US$18,453 million. This reflects the strong premium rate environment as well as improved customer retention and new business growth across all regions. Management also notes that growth in Crop was especially strong at 51%. This was due to the significant increase in corn and soybean prices, coupled with targeted organic growth.

Positively, premium rate increases are ongoing with company-wide renewal rate increases averaging 9.7% during the year. This is consistent with the first half and 9.8% in FY 2020. And while premium rate momentum moderated slightly in International across the year, momentum accelerated in North America and Australia Pacific during the second half.

As for its profits, QBE reported a statutory FY 2021 combined operating ratio of 93.7%. This compares favourably with 104.2% in the prior year, which was significantly impacted by COVID-19 claims and adverse prior accident year claims development. Anything below 100% is profitable and vice versa if the ratio is above 100%.

This ultimately led to the company reporting a statutory net profit after tax of US$750 million, up from a loss of US$1.5 billion a year earlier. And on an adjusted net cash basis, its profit after tax came in at US$805 million.

While this looks strong on paper, it is below the market consensus estimate of US$870 million. This may explain the weakness in the QBE share price today.

Outlook

QBE’s new CEO, Andrew Horton, was pleased with the year and appears cautiously optimistic on the future.

He said: “Following another year of elevated natural catastrophe claims costs alongside rising inflationary signals and continued low interest rates, the industry operating environment remains highly uncertain. Because of this, the premium pricing environment is likely to remain positive in 2022.”

“In light of this, we expect gross written premium growth to be in the high single digits in 2022. Moreover, delivery against our strategic priorities should result in an improved and more consistent return profile over time such that the Group is capable of consistently delivering a low to mid-90’s combined operating ratio. “In FY22, we expect the business will achieve further steady improvement on the FY21 ‘exit’ combined operating ratio of ~94%.”

The post QBE (ASX:QBE) share price sinks 9% on FY21 earnings miss appeared first on The Motley Fool Australia.

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

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At today’s Commonwealth Bank of Australia (ASX: CBA) share price, is the big four ASX bank expected to offer an attractive FY22 dividend yield?

Commonwealth Bank is one of the largest banks in Australia, along with National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group Ltd (ASX: ANZ). Macquarie Group Ltd (ASX: MQG) is also one of the biggest financial institutions now.

Big banks like CBA are well known for their income credentials. They have relatively low price/earnings ratio (p/e ratio) multiples. Banks usually have quite high dividend payout ratios. That combination can lead to an attractive dividend yield.

But sometimes a dividend yield can take a big hit if a company decides to reduce the dividend, like what happened during 2020 when COVID-19 struck. Bank debt provisions went up, profit went down and financial companies were told to reduce their dividend payout ratios by the financial regulator.

But those COVID effects are now unwinding and the CBA half-year profit reflected this. Expectations of higher profits can be a driver of the CBA share price.

FY22 half-year profit grows

CBA reported that for the six months to 31 December 2021, statutory net profit after tax (NPAT) went up 26% to $4.74 billion, whilst cash net profit grew 23% to $4.75 billion.

The bank explained that NPAT was supported by strong business outcomes, reduced remediation costs and lower loan loss provisions due to an improved economic outlook but impacted by lower margins.

Australia’s biggest bank revealed a high level of lending volume growth. Home lending increased by 8.5% (or $40.4 billion), whilst business lending went up by 12.5% (or $13.2 billion).

It maintained a high level of surplus capital with a common equity tier 1 (CET1) capital ratio of 11.8%. Lending volume growth offset a reduction of the net interest margin (NIM). The NIM dropped 14 basis points year on year due to lower-yielding liquid assets, increased switching to lower margin fixed home loans and continued pressure with home loan competition.

The half-year dividend was grown by 17% to $1.75 per share.

Annual dividend expectations

Analysts are expecting more dividend growth in the FY22 annual result. There are lots of different estimates out there.

The Commsec estimate, which comes from an independent third party, puts the FY22 dividend yield at 5.6% at the current CBA share price with a potential annual payment of $3.84 per share.

Citi thinks that CBA will pay a grossed-up dividend yield of 5.6%. Morgan Stanley reckons CBA will have a grossed-up dividend yield of 5.5%. Both of these brokers have a ‘sell’ rating on the bank.

One of the most pessimistic brokers on the bank, Morgans, reckons that CBA is a sell (with a price target of $77) and the FY22 grossed-up dividend yield will be just 5.1%.

CBA share price snapshot

Since the start of the year, the CBA share price has dropped 3.6%.

The post At today’s CBA (ASX:CBA) share price, how big will the FY22 dividend yield be? 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 recommended Macquarie Group Limited and Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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A2 Milk Company Ltd (ASX: A2M) shares will be in focus next week when the struggling infant formula company releases its half year results.

Ahead of the release, let’s take a look to see what is expected from the former market darling.

What is the market expecting from A2 Milk?

Expectations are very low for A2 Milk again in FY 2022 due to tough trading conditions and changing consumer preferences in China.

According to CommSec, the market consensus estimate is for a net profit after tax of NZ$60 million for the six months ended 31 December. This will be down 50% from NZ$120 million during the prior corresponding period.

The team at Morgans agrees with the view that A2 Milk will post a sizeable reduction in profits again.

It said: “We expect 1H22 NPAT will be down materially on the pcp given lower revenue, increased costs, five months of MVM losses, higher D&A, reduced interest income and a much higher tax rate.”

What about the full year?

Unfortunately, a similarly subdued performance is expected in the second half. For example, Bell Potter is forecasting full year net profit after tax of NZ$117.7 million on revenue of NZ$1,346.1 million. This profit is less than what it recorded during the first half of FY 2021.

However, despite its struggles, Bell Potter remains positive on A2 Milk shares. In fact, the broker has a buy rating and $7.70 price target on the company’s shares. Based on where they are trading at present, this implies potential upside of 45% over the next 12 months.

Bell Potter is positive on the future and sees potential for a big recovery in its earnings over the coming years.

It said: “We see the scope for EPS to double by FY26e, if A2M can execute on the China offline expansion strategy, while regaining 50% of the lost sales (from FY20-21) in English label IMF. Exiting the loss making US assets or navigating a turnaround at the MVM asset would likely accelerate this turnaround. We do not see the current share price as reflecting this potential.”

The post Own A2 Milk (ASX:A2M) shares? Here’s what to expect when the company reports on Monday 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 recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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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 

The value of cryptocurrencies dropped rapidly on Thursday as investors try to decipher what kind of regulation is coming to the industry in the U.S. The White House appears ready to push for regulation on the cryptocurrency industry and that uncertainty alone is spooking investors. 

As of 2 p.m. ET, Bitcoin (CRYPTO: BTC) had dropped 6.3% in the last 24 hours, Ethereum (CRYPTO: ETH) was down 6.2%, and Dogecoin (CRYPTO: DOGE) had fallen 5%. The drop has been pretty steady over the last day and doesn’t appear to be stopping at the moment. 

So what 

Current reports are that President Biden will issue an executive order next week asking for a variety of agencies to study cryptocurrencies and other digital assets. The agencies include the Departments of Treasury, State, Justice, and Homeland Security, with smaller agencies also asked to do technical reports. 

One concern is the risk to financial stability from cryptocurrencies, which have traditionally been much more volatile than currencies or even the stock market. Understanding those risks will be a part of the study. The technical aspects could also be important, which could lead to regulations intended to safeguard people’s digital assets. Given the fraud and hacking that’s taken place in cryptocurrencies over the last year, this type of regulation may be welcomed by the industry. 

We have seen big banks, small credit unions, venture capital firms, and publicly traded companies all lobby for regulation from Washington, D.C. to at least set the playing field for the industry. So an executive order like this isn’t surprising, but it’s a risk that some investors may not be willing to take right now. In any market, uncertainty is seen as a bad thing, causing selling to take place. 

It’s also worth noting that the stock market overall is down today and cryptocurrencies typically fall when the market is down. So that move could be part of the reason Bitcoin, Ethereum, and Dogecoin are down today. 

Now what 

Long term, it’s going to be a positive thing for cryptocurrencies and the crypto economy for regulation to be written. But it’s not entirely clear if the current Congress or administration is friendly to crypto or not. 

Companies and investors have been trying to get Congress and regulators to write favorable rules for years, but they’ve been fighting an uphill battle so far. Now that this is a multi-trillion dollar market it seems that political leaders are starting to take it more seriously. 

While I think that long term it’s good that crypto will get a regulatory framework, I expect there to be ups and downs in the process. Markets don’t like regulation or uncertainty, so while this expected executive order is probably a good thing for cryptocurrencies long term, the short-term reaction may still be negative. 

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

The post Why Bitcoin, Ethereum, and Dogecoin plunged today appeared first on The Motley Fool Australia.

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Travis Hoium owns Ethereum. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and recommends Bitcoin and Ethereum. The Motley Fool Australia owns and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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

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With demand for lithium growing strongly, analysts have consistently been revising their price forecasts higher over the last 12 months. This bodes well for the many lithium shares that are trading on the Australian share market.

But which lithium shares should you buy? Three that Bell Potter rates as buys today are listed below. Here’s what you need to know about them:

Allkem Ltd (ASX: AKE)

According to the note, Bell Potter has upgraded this lithium miner to a buy rating with a vastly improved price target of $17.00.

The broker explained: “The higher lithium price outlook has resulted in large upgrades to our AKE earnings outlook and valuation. EPS changes in this report are: FY22 +12%; FY23 +76%; and FY24 +131%. Our target price is now $17.51/sh (previously $11.00/sh). We have upgraded our recommendation to Buy.”

The broker believes Allkem is “a go-to stock for multi-project exposure to lithium markets.’

Lake Resources N.L. (ASX: LKE)

Bell Potter has retained its speculative buy rating and lifted its price target on this lithium developer’s shares to $1.82.

The broker said: “LKE’s key project is the 50ktpa lithium carbonate Kachi Lithium Brine Project in Argentina. This project is expected to employ direction lithium extraction technology which has enormous ESG benefits compared with incumbent brine and hard rock lithium production methods. With this development project, uncommitted product offtake and an independent share register, LKE has strategic appeal.”

Liontown Resources Limited (ASX: LTR)

Finally, Bell Potter has retained its speculative buy rating on this lithium developer’s shares and increased the price target on them to $3.06. Its analysts note that the company has recently signed a deal with auto giant Tesla.

Bell Potter commented: “LTR has entered a binding term sheet with Tesla for supply of up to 150ktpa spodumene concentrate from the Kathleen Valley project, adding to an agreement last month with major global battery producer LG Energy Solution (LGES). LTR now has binding term sheets in place for over half of the expected initial production from Kathleen Valley, with offtake pricing linked to market prices for lithium hydroxide. Lithium price upgrades increase our LTR valuation to $3.06/sh.”

The post Broker names 3 ASX lithium stocks to buy with huge upside potential appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro owns Orocobre 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 Bruce Jackson.

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If you’re building an income portfolio, then you may want to look at the ASX shares listed below.

Both ASX dividend shares offer attractive yields and have been named as buys by analysts. Here’s what you need to know about them:

BHP Group Ltd (ASX: BHP)

The first ASX dividend share to consider buying is this mining giant. BHP has a collection of world class operations across a number of locations and commodities. The latter includes Petroleum, Potash, Copper, Iron ore, Coal and Nickel. Though, the company is in the process of spinning out its petroleum assets via a merger with Woodside Petroleum Limited (ASX: WPL), which shareholders will be given a slice of.

As we saw with its recent results, these commodities are commanding favourable prices at present, which is underpinning significant free cash flow generation. This is expected to continue in the near term and support generous dividend payments.

Macquarie, for example, is forecasting fully franked dividends of $4.19 per share in FY 2022 and $2.54 per share in FY 2023. Based on the current BHP share price of $47.97, this will mean yields of 8.7% and 5.3%, respectively.

Its analysts have an add rating and $54.00 price target on the company’s shares.

Centuria Industrial Reit (ASX: CIP)

Another ASX dividend share to consider is Centuria Industrial. It is a property company with a focus on high quality industrial assets that deliver income and capital growth to investors.

In FY 2022, Centuria Industrial has been experiencing strong nationwide demand for industrial space, particularly from ecommerce-related tenant customers. This resulted in Centuria Industrial reporting strong rental income growth and a 26% increase in funds from operations (FFO) to $53.9 million during the first half.

The good news for income investors is that this positive form bodes well for dividends. Morgan Stanley, for instance, is forecasting Centuria Industrial REIT to pay above guidance distributions of 18.1 cents per share this year and in FY 2023.

Based on the current Centuria Industrial REIT share price of $3.83, this will mean 4.7% dividend yields for investors. Morgan Stanley also sees decent upside. It has an overweight rating and $4.35 price target on the company’s shares.

The post 2 buy-rated ASX dividend shares with big yields appeared first on The Motley Fool Australia.

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

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The fund manager Wilson Asset Management (WAM) has recently identified two top small cap ASX shares that it owns in its portfolio that could be ideas.

WAM operates several listed investment companies (LICs). Some focus on larger companies like WAM Leaders Ltd (ASX: WLE) and WAM Capital Limited (ASX: WAM).

There’s also one called WAM Microcap Limited (ASX: WMI) which targets small cap ASX shares with a market capitalisation under $300 million at the time of acquisition.

WAM says WAM Microcap targets the most exciting undervalued growth opportunities in the Australian microcap market.

The WAM Microcap portfolio has delivered gross returns (that’s before fees, expenses and taxes) of 22.2% per annum since inception in June 2017, which is superior to the S&P/ASX Small Ordinaries Accumulation Index average return of 9.5%.

These are the two small cap ASX shares that WAM outlined in its most recent monthly update:

Austin Engineering Ltd. (ASX: ANG)

Austin Engineering manufactures and supplies specialised mining products that improve efficiency and assist decarbonisation efforts for clients globally.

At the moment, Austin Engineering is undergoing a ‘three-phase’ optimisation plan under the guidance of its newly appointed CEO and Managing Director, David Singleton.

In December 2021, the small cap ASX share reported a five-year contract renewal with Rio Tinto Limited (ASX: RIO).

WAM pointed out that in January 2022, the company announced updated guidance relating to the FY22 first-half earnings before interest, tax, depreciation and amortisation (EBITDA) to $11.5 million and indicated an increase in EBITDA margins across the group, signalling that the company’s turnaround strategy is delivering.

Wilson Asset Management is positive that the company will see revenue and EBITDA grow across the Asia-Pacific, North America and South America sites with the execution of its three-phase plan.

Generation Development Group Ltd (ASX: GDG)

Generation Development is the owner of Generation Life. It specialises in investment bond products which provides tax-effective investment solutions.

In January, Generation Development released its December quarter update. It showed its highest-ever sales inflow for the quarter and a 44% increase in funds under management, compared to the previous corresponding period.

Generation Life achieved a 52% market share of annual sales inflows in the three months to September 2021, growing from 40% in the prior corresponding period.

WAM remains positive on the small cap ASX share ahead of its upcoming launch of the investment-linked lifetime annuity, subject to regulatory approval, and the next instalment of investment bonds that the fund manager believes will further bolster the company’s customer value proposition.

The post 2 compelling small cap ASX shares rated as buys appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison owns WAM MICRO FPO. 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 Bruce Jackson.

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It hasn’t been a fun week for Fortescue Metals Group Ltd (ASX: FMG) shareholders. The Fortescue share price has fallen 10% and the FY22 half-year dividend was cut. So why is spending growing at Fortescue Future Industries (FFI)?

For readers that don’t know, FFI is aiming to take a global leadership position in green energy and green technology, leading the effort to decarbonise hard-to-abate sectors.

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

Fortescue has committed to setting aside 10% of its net profit after tax (NPAT) to put towards Fortescue Future Industries each year.

Dividend cut, yet FFI spending is up?

Earlier this week, Fortescue released its result for the six months to 31 December 2021.

Whilst it was one of the strongest halves in the company’s history, it did show a decline year on year.

There was a 16% decline of average revenue per dry metric tonne of iron ore. Revenue fell 13%. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) dropped 28% to US$4.76 billion and net profit after tax declined 32% to US$2.78 billion. Operating cash flow fell 52% to US$2.1 billion.

The dividend was cut 41% to US$0.86 per share. The dividend payout ratio was reduced from 80% to 70%.

But the spending on Fortescue Future Industries is ramping up. FFI’s FY22 anticipated expenditure is US$400 million to US$600 million, including US$100 million to US$200 million of capital expenditure and US$300 million to US$400 million of operating expenditure.

As at 31 December, the unutilised funding commitment (of 10% of net profit) was US$651 million, after the first half operating and capital expenditure of US$242 million.

Fortescue’s justification

The Australian Financial Review recently ran an article discussing how some Fortescue investors are not convinced by the green focus shift of the business. Why redirect 10% of net profit each year to FFI when that money could be coming to shareholders as profits?

An argument is that Fortescue chair Dr Forrest could have funded FFI himself privately by increasing Fortescue’s dividend payout ratio.

But Fortescue’s answer is that it’s a useful diversification play away from being dependent on Chinese demand for iron, though the company is also looking for other commodities like copper in some of its tenements.

The AFR quoted Elizabeth Gaines, the current CEO, who said that FFI adds a lot of potential financial gains to Fortescue:

Our view is that the market is recognising that there is genuine value that’s being created by FFI and the ambitions that we have.

We’re seeing interest, certainly from our offshore investors, in the activities of FFI, the strategy that we will deliver on by 2030, and the efforts to decarbonise Fortescue.

A lot of analysts are putting in the capital for decarbonising iron ore operations. They’re doing that for us and our competitors. They’re putting in the costs, but they’re not actually modelling the benefits.

The benefits will be lower energy costs, better ESG outcomes and lower emissions. We won’t have to rely on expensive offsets. There are genuine benefits, and I think there is still a disconnect between the cost versus the value that’s created.

Fortescue share price snapshot

Whilst Fortescue shares have dipped this week, the share price has still gone up by around 40% over the last four months.

The post Dividends down, Fortescue (ASX:FMG) Future Industries spending up. Here’s the miner’s justification appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison owns 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 Bruce Jackson.

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