Category: Stock Market

The Boss Energy (ASX: BOE) share price is capturing a lot of attention this morning.

This is due to some investment websites showing the uranium exploration company’s shares up a whopping 500% despite the omicron-induced market selloff on Monday.

Is the Boss Energy share price really up by 500% today?

Unfortunately, things aren’t anywhere near as positive as it might appear for the Boss Energy share price this morning.

At the time of writing, the uranium exploration company’s shares are changing hands for $2.21.

While this is a big lift on the Boss Energy share price of 31 cents at the close of play last week, there is a technical reason for this.

Share consolidation

Last week the company held its annual general meeting. At the meeting, the company’s shareholders were invited to vote on the consolidation of its share count from 2,278,276,306 shares to 284,784,538.

This would mean that for every 8 Boss Energy shares they owned, they would be consolidated into a single share.

The overall value of these shares would stay the same, ceteris paribus, and the Boss Energy share price would theoretically increase in value by eight times to reflect this.

In the case of the company’s shares, this would mean a value of $2.48 per share (8 x 31 cents).

At the annual general meeting, shareholders voted overwhelmingly in favour of the share consolidation. A total of 99.41% of the votes cast were in favour of the resolution, leading to today’s events.

Boss Energy’s shares are actually falling

So, with the company’s shares now trading at $2.21, they certainly are not up 500% this morning.

In fact, given that 8 shares would have been valued at $2.48 based on last week’s share price, this unfortunately means they are actually down by almost 11% at the time of writing.

The post Is the Boss Energy (ASX:BOE) share price really up 500% today? appeared first on The Motley Fool Australia.

More reading

• Why ASX uranium shares are eyeing China’s US$450 billion energy plan

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 Vulcan Energy Resources Ltd (ASX: VUL) share price is under pressure on Monday.

At the time of writing, the short sellers targeted lithium developer’s shares are down 6% to $9.63.

Why is the Vulcan share price falling?

Investors have been selling down the Vulcan share price today amid a broad market selloff driven by concerns over the omicron variant of COVID-19.

This has offset the release of an announcement by Vulcan which on a different day might have sent its shares shooting higher.

What did Vulcan announce?

This morning Vulcan announced that it has signed a binding lithium hydroxide offtake agreement with auto giant Stellantis.

Stellantis is the world’s fourth largest automaker and the name behind brands including Alfa Romeo, Chrysler, Citroen, Fiat, Jeep, Maserati, and Peugeot.

According to the release, Vulcan will supply Stellantis with a minimum of 81,000 tonnes and a maximum of 99,000 tonnes of battery grade lithium hydroxide over a five-year period from 2026.

The release notes that Stellantis’ electrification strategy, which includes ensuring a sustainable supply of lithium, will see it aim to achieve 70% low emission vehicles (LEVs) sales in Europe and 40% in the US by 2030.

To achieve this, the company plans to open a total of five battery cell manufacturing plants in Europe, including Germany, and the United States, with a total capacity of 260 gigawatt hours (GWh). Vulcan’s battery grade lithium hydroxide will be used to support this production.

As with previous deals, this remains subject to the successful start of commercial operation and full product qualification. Pricing will be based on market prices on a take-or-pay basis.

Vulcan’s Managing Director, Dr Francis Wedin, commented: “The definitive offtake agreement with Stellantis aligns with our mission to decarbonise the lithium ion battery and electric vehicle supply chain. The Vulcan Zero Carbon Lithium Project also intends to reduce the transport distance of lithium chemicals into Europe, and our location in Germany, proximal to Stellantis’ European gigafactories, is consistent with this strategy. We look forward to a long and productive relationship between Vulcan and Stellantis, as we work to achieve our shared sustainability and decarbonisation ambitions.”

The post Vulcan (ASX:VUL) share price falls 6% despite auto giant agreement appeared first on The Motley Fool Australia.

More reading

• Vulcan Energy (ASX:VUL) share price leaps 10% on new lithium deal
• Vulcan (ASX:VUL) share price on watch following Renault agreement
• Vulcan (ASX:VUL) share price falls despite acquisition update
• Vulcan Energy (ASX:VUL) share price lifts 6% to defy wider market selloff. Here’s why
• Why Afterpay, Immutep, Pushpay, and Vulcan shares are falling

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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As was widely expected, the Flight Centre Travel Group Ltd (ASX: FLT) share price has started the week deep in the red.

In morning trade, the travel agent giant’s shares are down a disappointing 11% to $15.21.

This means the Flight Centre share price has now lost almost 18% of its value over the last two trading sessions.

Why is the Flight Centre share price being smashed?

Investors have been selling down the Flight Centre share price today amid concerns over the new Omicron variant of COVID-19.

This variant of concern, as categorised by the World Health Organization, has led to countries shutting their borders to southern African nations and sparked fears of further lockdowns. This is threatening to derail the travel market recovery at a time when things were just starting to look rosy.

For example, rival Webjet Ltd (ASX: WEB), which is also tumbling lower today and down 8% at the time of writing, revealed last week that two of its three businesses were now profitable. However, that may not last long if travel markets are impacted by Omicron.

What happened on Wall Street on Friday?

It was a similar story for travel shares on Wall Street on Friday night.

Amid a broad market selloff that led to the Dow having its worst day of the year, the likes of American Airlines, Booking Holdings, Carnival Corp, and Expedia all fell heavily as investors rushed to the exits in a panic.

Though, as always, it is worth remembering that selloffs of this nature often bring about great opportunities for investors. Just look at what happened 18 months or so ago.

So, all eyes will be on Flight Centre and Webjet shares when the dust settles on this latest bout of volatility.

The post Flight Centre (ASX:FLT) share price crashes 11% amid omicron fears appeared first on The Motley Fool Australia.

More reading

• These are the 10 most shorted ASX shares
• When could Webjet (ASX:WEB) earnings return to pre-COVID levels?
• These were the worst performing ASX 200 shares last week
• What is going so wrong for the Flight Centre (ASX:FLT) share price today?
• Here’s why the Webjet (ASX:WEB) share price is getting hammered on Friday

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 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 Bruce Jackson.

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Once a week I like to look at ASIC’s short position report to find out which shares are being targeted by short sellers.

This is because it can be worth keeping a close eye on short interest levels as high levels can sometimes be a sign that something isn’t quite right with a company.

With that in mind, here are the 10 most shorted shares on the ASX this week according to ASIC:

• Flight Centre Travel Group Ltd (ASX: FLT) remains the most shorted ASX share after its short interest jumped to 13.3%. Concerns that the travel market recovery could be derailed by the Omicron variant sent this travel agent’s shares crashing lower last week.
• Kogan.com Ltd (ASX: KGN) has seen its short interest rise week on week again to 12%. An underwhelming update from this ecommerce company last week weighed heavily on its shares, much to the delight of short sellers.
• Redbubble Ltd (ASX: RBL) has short interest of 10.6%, which is up slightly week on week. Short sellers continue to increase their positions in this ecommerce company amid concerns it could be underperforming expectations materially.
• Zip Co Ltd (ASX: Z1P) has seen its short interest rise to 9.4%. This appears to have been driven by concerns about reports of rising fraud in the BNPL industry and increasing competition.
• Electro Optic Systems Hldg Ltd (ASX: EOS) has 9.1% of its shares held short, which is up again week on week. Short sellers have been increasing their positions after the defence and space company downgraded its earnings guidance.
• Webjet Limited (ASX: WEB) has short interest of 9%, which is down week on week. Short sellers will have been pleased to see the Webjet share price sink last week amid omicron concerns.
• Mesoblast limited (ASX: MSB) has short interest of 8.9%, which is up week on week. This biotech company’s precarious financial position is likely to be weighing on sentiment. Mesoblast is holding its annual general meeting this week and could be worth watching.
• Cooper Energy Ltd (ASX: COE) has 8.7% of its shares held short, which is up week on week again. Cooper’s underperforming Sole Gas operation appears to be behind this short interest.
• Inghams Group Ltd (ASX: ING) has 7.8% of its shares held short, which is down week on week. Short sellers have been targeting this poultry producer due to high grain costs.
• Temple & Webster Group Ltd (ASX: TPW) is back in the top ten with 7.5% of its shares held short. Short sellers don’t appear to believe this ecommerce company is performing in line with the market’s expectations.

The post These are the 10 most shorted ASX shares appeared first on The Motley Fool Australia.

More reading

• When could Webjet (ASX:WEB) earnings return to pre-COVID levels?
• Down 20% in a month: Is the Zip (ASX:Z1P) share price too cheap to ignore?
• These were the worst performing ASX 200 shares last week
• The Electro Optic (ASX: EOS) share price is having a shocker of a month. Is it now a buy?
• What is going so wrong for the Flight Centre (ASX:FLT) share price today?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Electro Optic Systems Holdings Limited, Kogan.com ltd, Temple & Webster Group Ltd, and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended Electro Optic Systems Holdings Limited and Kogan.com ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited, Temple & Webster Group Ltd, and Webjet Ltd. 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 future looks bright for the Estia Health Ltd (ASX: EHE) share price, according to one expert.

Wilson Asset Management portfolio manager Tobias Yao is backing the aged care provider’s stock for the coming year.

At the time of writing, the Estia Health share price is $2.18.

Let’s take a look at what about Estia Health appeals to the fundie.

Are Estia Health shares a buy for 2022?

Yao is backing the Estia Heath share price for 2022, stating the aged care sector could be in for a golden year.

Yao told Livewire the sector has had a rough trot recently, but it’s poised to boom – and he believes Estia is a particularly “efficient operator” within it.  

As Yao pointed out, the aged care industry was recently the focus of a Royal Commission. It was also hit hard by the COVID-19 pandemic.

The Royal Commission into Aged Care Quality and Safety’s findings were handed down in March. They included recommendations of minimum qualifications and an increased award rate for aged care staff and that aged care facilities should always have a registered nurse on-site.

Additionally, in its financial year 2021 results, Estia stated all its facilities were impacted by COVID-19 over the 12 months ended 30 June. Victoria’s second wave of infections saw occupants testing positive to the virus at 11 of Estia’s facilities. Sadly, the outbreak resulted in 36 deaths among Estia’s residents.

However, the space now looks to be a hot bed for takeovers and potential government funding, says Yao.

Estia’s formerly ASX-listed aged care peer, Japara Healthcare was recently taken over. Washington H Soul Pattinson and Co Ltd (ASX: SOL) also attempted to takeover aged care operator Regis Healthcare Ltd (ASX: REG) last year.

Finally, Yao is bullish on the aged care stock following the most recent federal budget. Within it, the federal government committed to provide $3.5 billion to the sector each year for the next 5 years.

The Estia share price is already boasting a strong recent run. It has gained 23% since the start of 2021.

The post Why this fundie says Estia Health (ASX:EHE) shares are a smart pick for 2022 appeared first on The Motley Fool Australia.

More reading

• Fundies reveal their 2 top ASX shares for 2022
• Why Chalice, De Grey, Estia Health, and Fortescue shares are racing higher

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 shares of and has recommended Washington H. Soul Pattinson and Company Limited. 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 Webjet Limited (ASX: WEB) share price will be on watch this Monday morning. This comes following a broader market sell-off on the S&P/ASX 200 Index (ASX: XJO) at the end of last week.

The new Omicron coronavirus variant seems to have spooked investors across global markets.

At Friday’s closing bell, the online travel agent’s shares finished down 5.14% to $5.35 apiece. Its shares have fallen by more than 11% in the past week and could be in for another turbulent day ahead.

How has Webjet been performing?

Before ascertaining when Webjet’s earnings will return to normal levels, we take a look at its latest financials.

Last Wednesday, the company released its first-half results for FY22, highlighting a rebound across the international travel industry.

Webjet reported a cash surplus of $3.5 million per month, a significant turnaround compared to FY21. Severe lockdowns led the company to record an average monthly cash burn of $5.5 million in the previous financial year.

Total transaction volume (TTV) revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) all soared over the 6-month period. TTV stood at 63% of pre-COVID volumes in its WebBeds B2B business, with many travel markets still yet to reopen. On the other hand, revenue came to $55.4 million, more than double the $22.6 million achieved in H1 FY21. EBITDA registered a loss of $38.2 million, an improvement from the $114.4 million loss in the prior corresponding period.

Expenses were also down materially compared to pre-COVID, reflecting strategic initiatives implemented by the company.

Is a full recovery coming for Webjet’s earnings?

Much of Webjet’s earnings are dependent on how the world responds to the new Omicron variant and if lockdowns recommence.

Urgent genomic sequencing is underway to understand exactly how deadly the mutated virus is. It is said to have 30 spike proteins which is double what has been detected in the Delta variant. This means it could easily bypass current defences from existing COVID-19 vaccines.

Pharmaceutical giant Pfizer has signalled that if Omicron is resistant, it can have an updated vaccine ready in 100 days. It expects to have results within 2 weeks to understand if its current mRNA vaccine is effective.

If there is no cause for concern, Webjet’s TTV could reach pre-COVID levels by the second half of FY23. On top of that, its group portfolio will be a much leaner business, having trimmed 20% of operating costs.

Webjet share price summary

In the last 12 months, Webjet shares have gained just 5% following heavy selling by investors last week. Although this can quickly change, depending on the next few days.

Based on valuation grounds, Webjet has a market capitalisation of around $2.03 billion, with approximately 380.51 million shares on issue.

The post When could Webjet (ASX:WEB) earnings return to pre-COVID levels? appeared first on The Motley Fool Australia.

More reading

• Here’s why the Webjet (ASX:WEB) share price is getting hammered on Friday
• Why are ASX 200 travel shares having such a shocker today?
• Brokers name 3 ASX shares to buy today
• Leading broker upgrades Webjet (ASX:WEB) shares to a buy rating
• Why Webjet, Whispir, Whitehaven Coal, and Woodside shares are pushing higher

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 no position in any of the stocks mentioned. The Motley Fool Australia has recommended Webjet Ltd. 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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Are you looking for some small cap shares? Then have a look at the ones listed below.

Both these ASX shares have been named as buys by analysts. Here’s what they are saying about them:

Bigtincan Holdings Ltd (ASX: BTH)

The first small cap to look at is Bigtincan. It is a growing sales enablement platform provider that allows users to drive the sales process with high quality sales content anywhere, anytime, and on any device.

Demand for its offering has been growing strongly in recent years, underpinning strong recurring revenue growth in recent years. Pleasingly, this is expected to continue in FY 2022. For example, thanks to a combination of organic growth and the recent acquisition of Brainshark, management is guiding to a 124% year on year increase in annualised recurring revenue in FY 2022.

Analysts at Morgan Stanley are positive on Bigtincan. So much so, they have an overweight rating and $2.10 price target on its shares. This is almost double the current Bigtincan share price of $1.07.

Catapult Group International Ltd (ASX: CAT)

Another small cap to look at is Catapult. It is a global sports analytics company that provides elite sporting organisations and athletes with real time data and analytics to monitor and measure athletes.

Catapult’s products are used by many of the biggest sports teams and organisations across the world. This includes Chelsea FC, Cricket Australia, the English Cricket Board, the New York Knicks, and the Wallabies, to name just a handful.

Although demand softened during the worst of the pandemic, it has rebounded strongly since then. This led to Catapult reporting a 13% increase in revenue to $37.5 million during the first half of FY 2022. This was driven by 29% growth in subscription revenue, which reflects Catapult’s strategic shift to a focus on high quality recurring revenue SaaS deals. It also boasts an ultra low churn rate, which demonstrates the stickiness of its products.

Earlier this month, the team at Morgans put an add rating and $2.45 price target on Catapult’s shares. This is notably higher than the current Catapult share price of $1.52.

The post 2 exciting small cap ASX shares named as buys 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. owns shares of and has recommended BIGTINCAN FPO and Catapult Group International Ltd. The Motley Fool Australia owns shares of and has recommended Catapult Group International Ltd. The Motley Fool Australia has recommended BIGTINCAN FPO. 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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Here we go again. 

A new variant of COVID-19, named Omicron, over the weekend prompted many countries to close borders and sent share markets tumbling.

The S&P 500 (SP: .INX) sank 2.3% on Saturday morning, while the STOXX Europe 600 (STOXX: SXXP) fell a shocking 3.7%.

The futures market is tipping the S&P/ASX 200 (ASX: XJO) to drop 1.4% on Monday morning, in its first trade after Omicron was declared.

Prime Minister Scott Morrison has called an urgent national cabinet meeting to form a national response to the new health threat.

“It’s about whether people are getting a worse illness or it’s going to put stress on your hospital system,” he told Nine’s Today show.

“The fact we’ve had a new variant is not a surprise. We’ve been saying all through the pandemic that new variants also come.”

All hell is breaking loose. What does this mean for our ASX shares?

No need to panic, says one expert

One expert is urging investors to hold tight and not panic.

DeVere Group chief executive Nigel Green predicted over the weekend that Omicron would trigger a temporary correction, but that would be quickly shrugged off.

“The fact that a new strain has been discovered and, critically, that at this stage we know little about it has caused jitters in the financial markets, which loathe uncertainty,” he said. 

“The headlines have caused a knee-jerk reaction.”

He added it didn’t help that US markets were closed for 1.5 days last week due to the Thanksgiving holiday, meaning market movements were exaggerated.

“This wobble is likely to be temporary with markets remaining bullish for the time being.”

Just look what happened after Delta arrived

Green pointed out that the Delta variant of the coronavirus triggered only a temporary shock on markets earlier this year.

“Global shares have jumped 16% this year with investors focusing on the post-pandemic economic rebound. They largely shrugged off the Delta variant that caused a mini wave of market nerves in the [northern] summer,” he said.

“It’s likely that markets will do the same with this new variant.”

Health authorities would have been expecting new types of the virus to pop up and would be better prepared after the experience of Delta.

And this, according to Green, would mean stock markets can quickly move on from Omicron worries and focus on other issues.

“Global financial markets will be focusing on other pressing issues including high inflation caused by supply side bottlenecks and the likelihood of a quicker pull away from ultra-loose monetary environment,” he said.

“Markets will temporarily wobble on the uncertainty of this new Covid variant, but will remain bullish.”

The post COVID-19 Omicron can’t stop shares charging up: expert appeared first on The Motley Fool Australia.

More reading

• New artificial intelligence ASX share rockets 11% on debut
• This ASX share is a buy after it dodged a MASSIVE bullet: analyst
• ANZ (ASX:ANZ) shares rated a buy amid $125 trillion decarbonisation opportunity
• Down 20% in a month: Is the Zip (ASX:Z1P) share price too cheap to ignore?
• This sector could be a $50 trillion investment opportunity: expert

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

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Investors in at the ground level on a new artificial intelligence ASX share did pretty well for themselves on Friday.

Shares for Artrya Limited (ASX: AYA) listed on the ASX that morning and closed its first day at $1.52.

That’s a handy 12.6% up from its initial public offer issue price of $1.35 per share.

What does Artrya do?

The Perth business develops technology to automate the diagnosis of coronary artery heart disease, which can lead to cardiac arrest.

According to Artrya co-founder and managing director John Barrington, internationally 9 million people die from such disease each year.

“This number is expected to increase over the next few decades, as ageing populations continue to put pressure on health systems,” he said.

“This float will assist the company in pursuing further growth in the US, UK, Canada, and Europe.”

A 10 November supplement to the original IPO prospectus showed that Artrya recently won a tender to be appointed as an artificial intelligence supplier for the National Health Service Shared Business Services (NHS SBS) Framework.

The deal means that Artrya is among a shortlist of pre-approved suppliers that UK public institutions, including 1,250 hospitals, can purchase from.

What’s Artrya’s pipeline?

Artrya’s flagship software product is called Salix, which detects the presence of “vulnerable plaque” within a person’s arteries in roughly 15 minutes.

According to the prospectus, such plaque may rupture and cause heart attacks.

Salix was developed as a collaboration between the University of Western Australia, the Harry Perkins Institute of Medical Research, and the Ottawa Heart Institute.

The software suite is scheduled for an “unrestricted launch” in Australia early in the new year. Overseas expansion will take place soon after that.

“We are keenly focused on product development and market entry strategies to ensure our shareholders are rewarded for their belief in an innovative Australian business,” said Barrington.

Artrya chair Bernie Ridgeway said in the prospectus that coronary artery disease impacts an estimated 126 million people around the world. 

And the majority will have no warning signs before experiencing a heart attack.

“As the prevalence of CAD rises due to an ageing population, global health systems will have to deal with more CAD cases.”

In November 2020, Salix was added to the Australian Register of Therapeutic Goods (ARTG) as a Class 1 medical device.

Artrya will sell the software in a subscription model.

“This model will help Artrya penetrate the global CCTA and ICA markets because healthcare providers pay no upfront costs to use Salix,” Ridgeway said.

“Artrya believes the software-as-a-service model could deliver annuity revenue and profitable margins for the company.”

The post New artificial intelligence ASX share rockets 11% on debut appeared first on The Motley Fool Australia.

More reading

• COVID-19 Omicron can’t stop shares charging up: expert
• This ASX share is a buy after it dodged a MASSIVE bullet: analyst
• ANZ (ASX:ANZ) shares rated a buy amid $125 trillion decarbonisation opportunity
• Down 20% in a month: Is the Zip (ASX:Z1P) share price too cheap to ignore?
• This sector could be a $50 trillion investment opportunity: expert

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

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In an odd turn of events, a particular ASX share has been upgraded from “hold” to “add” by one investment house because of a failed business deal.

Shares for energy infrastructure firm APA Group (ASX: APA) have not lit the world on fire of late. They closed Friday at $9.64, which is pretty much where they were at the trough of the COVID-19 crash in March 2020.

In an attempt to diversify its business, APA in September submitted a takeover bid for electricity company Ausnet Services Ltd (ASX: AST).

Eventually the Ausnet board went with another suitor, Brookfield Asset Management Inc (TSE: BAM.A), in a bitter blow for APA.

APA’s proposal reeked of desperation

But Morgans senior analyst Nathan Lead has no doubt APA’s takeover bid was terrible and investors were absolutely relieved the proposal was not accepted.

“We estimated APA needed to bridge a more than $3 billion gap in order for the acquisition to have zero value per share impact,” he wrote in a Morgans memo.

“This willingness to pay overs to diversify into electrification may signal that APA is concerned about the long-term prospects for its existing business.”

The market certainly agreed with Lead, pushing APA shares up more than 17% in less than a month since Ausnet killed the takeover offer.

Morgans analysis shows APA’s 2049 “terminal value” now assuming “mildly declining perpetuity cash flows”.

“Alternatively, APA’s penchant for M&A could see its cost-of-equity rise as it is viewed by the market as cum-capital raising.”

But now macroeconomic conditions could trigger revenue upgrades

So why is a loser who missed out on a business deal now so attractive to the Morgans team?

Inflation, pure and simple.

Lead explained that APA’s revenue changes are correlated to the consumer price index via “contracted price escalations”.

“The low inflation environment has reduced APA’s earnings growth in recent years,” he said.

“However, APA should benefit from a CPI surge in 2022. Circa 32% of EBITDA is sourced from the Wallumbilla-Gladstone Pipeline, whose US$ revenues escalate annually on 1 January based on November CPI in the USA.”

The November CPI figure is expected to be reasonably high, following October’s year-on-year 6.2% increase.

“Furthermore, we understand domestic CPI for the December quarter drives annual escalation of a mass of AU$ contract revenues in 2022 (and the September quarter CPI was a solid 3%),” Lead said.

“Long-term we assume Australian and USA CPI averages 2.4% and 3% per annum through to 2030 respectively, as per market implied expectations in yield curves.”

The Morgans team is therefore upgrading APA shares from “hold” to “add”.

“At current prices, we estimate a 12-month and 5-year potential return of circa 11% and 7.6% per annum, respectively.”

The post This ASX share is a buy after it dodged a MASSIVE bullet: analyst appeared first on The Motley Fool Australia.

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• Why Ausnet, Charter Hall, Codan, and Imugene shares are storming higher

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of 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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