Category: Stock Market

The share price of ASX insurance software company FINEOS Corporation Holdings PLC (ASX: FCL) has been on the decline recently – dropping almost 30% from its August 52-week high of $5.75 to $4.01 at the time of writing.

It joins a number of ASX technology and software companies that surged to new highs last year but have so far underperformed in 2021.

Company background

FINEOS is a Dublin-based company that develops a suite of software for the life, accident and health insurance industries.

Its platform is capable of supporting insurers in the end-to-end processing of claims, including quotes, billing and payments.  It can also provide insights through reporting and analytics.

FINEOS’ customer-centric software automates and streamlines processes for insurance providers and aims to be an all-in-one replacement for legacy insurance administration platforms.

Financials

The company’s recent financial performance has been a bit of a mixed bag. For the first-half FY21, the company reported top-line revenue growth of a touch over 30% versus the prior comparative period to €52.6 million ($81.2 million).

However, statutory earnings before interest, tax, depreciation and amortisation expenses (EBITDA) declined by 53.6% to $4.9 million and FINEOS reported a net loss after tax of $7.8 million, down from a net profit after tax of $0.15 million in first-half FY20.

The losses came due to an increase in operating expenses, which jumped 43.6% to $47.3 million. FINEOS acquired US-based insurance software company Limelight Health during the half for US$75 million. This increased personnel costs during the period due to the additional headcount brought over from Limelight.

Outlook

FINEOS reaffirmed its full-year outlook for revenue in the range of $157 million to $162 million. It will be hoping that it can keep its costs under control over the second half, or else shareholders may start to doubt the wisdom of the Limelight acquisition.

Even if the Limelight acquisition is revenue accretive, if that benefit is outweighed by ballooning personnel costs it may continue to drag on the company’s bottom line growth.

Other recent news

In its first-half results announcement, FINEOS teased that it had signed a new client in the Australia and New Zealand region – which turned out to be New Zealand-based insurer Partners Life.

Following a “comprehensive market evaluation”, Partners Life selected FINEOS’ platform to process its insurance and medical claims. The deal is for a 5-year initial term.

Where next for the FINEOS share price?

FINEOS joins a growing list of COVID-19 market darlings – mostly technology companies – that enjoyed stellar share price growth last year but have run out of gas in 2021.

Companies like Bigtincan Holdings Ltd (ASX: BTH), Megaport Ltd (ASX: MP1) and Damstra Holdings Ltd (ASX: DTC) have all followed this pattern – with recent declines spurred by major selloffs on the tech-heavy NASDAQ index in the US.

It’s hard to say where the FINEOS share price will head next. It already jumped as high as $4.75 earlier this month before dropping back down again. This level of volatility could be the new normal – at least over the short-term – as the market continues to try to work out what effect a post-COVID economic recovery might have on tech companies (like FINEOS) that actually grew during the pandemic.

Either way, all these tech companies are still worth watching closely this year – there could be some potential bargains available for opportunistic investors.

More reading

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• Bigtincan (ASX:BTH) share price continues slide despite strong underlying growth
• 2 of the best small cap ASX shares to buy

Rhys Brock owns shares of FINEOS Holdings plc, Damstra Holdings Ltd, BIGTINCAN FPO and MEGAPORT FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends BIGTINCAN FPO, Damstra Holdings Ltd, and MEGAPORT FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends FINEOS Holdings plc. The Motley Fool Australia has recommended BIGTINCAN FPO, Damstra Holdings Ltd, FINEOS Holdings plc, and MEGAPORT 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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The Opthea Ltd (ASX: OPT) share price is up 8.39% to $1.55 this morning. The rise comes after receiving an initial Pediatric Study Plan (iPSP) waiver from the US Food and Drug Administration (FDA) for OPT-302. 

Opthea is committed to improving vision in patients suffering from retinal eye diseases. OPT-302 is the company’s lead product candidate. The product also has the potential to address the unmet medical need within the eye disease market. 

Another milestone for the Opthea share price 

An iPSP is a pre-requisite for a marketing application of new medicine for a biopharmaceutical company in the US. Additionally, the iPSP provides the FDA with details regarding the company’s proposed strategy. In particular, for the investigation of a new medical product in a pediatric population. 

On Wednesday, Opthea received an iPSP waiver for OPT-302. This applied to all subsets of the pediatric population (full pediatric age group from birth to <17 years) for the treatment of wet age-related macular degeneration (wet AMD), a leading cause of visual impairment in the developed world in people over the age of 50. 

Wet AMD affects approximately 1 million people in the United States and 2.5 million in Europe. Furthermore, the company believes that the global aging population will result in a significant increase in the number of wet AMD cases. The disease affects central vision and the ability to see fine detail. Wet AMD is caused by abnormal growth and leakage of blood vessels. This occurs at the back of the eye, which results in degeneration of the retina and vision loss. 

Comments from the CEO

The iPSP waver means Opthea will not have to conduct an additional study in the pediatric population. Opthea CEO, Dr. Megan Baldwin commented on the waiver: 

The agreed iPSP waiver is an important regulatory milestone in the US that is required to be completed before Opthea is able to submit a marketing application for OPT-302 to the FDA. Opthea will continue the process to further fulfilling regulatory requirements by focusing on our pivotal Phase 3 clinical trials in adult patients that are designed to support potential marketing approval of OPT-302 for the treatment of wet AMD.

 

More reading

• Why Codan, Evolution, Opthea, & People Infrastructure shares are charging higher
• Why the Opthea (ASX:OPT) share price is soaring 11% today

Motley Fool contributor Kerry Sun 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 Mesoblast limited (ASX: MSB) share price is pushing higher on Wednesday morning.

At the time of writing, the biotechnology company’s shares are up 1% to $2.19.

Why is the Mesoblast share price pushing higher?

Today’s gain could be in relation to an update the company released this morning highlighting its recent developments and upcoming milestones.

In respect to the former, Mesoblast reminded shareholders that it recently strengthened its balance sheet with a US$110 million private placement. This left it with a pro-forma cash balance of US$187.5 million at 31 December.

It also notes that this private placement was led by US investor group SurgCenter Development. It is one of the largest private operators of ambulatory surgical centres in the US, specialising in spine, orthopaedic, and total joint procedures.

Another positive recent development was its phase three trial of rexlemestrocel-L. Results in 404 patients with chronic low back pain due to degenerative disc disease showed that a single injection with hyaluronic acid carrier may provide at least two years of pain reduction, with opioid sparing activity in patients using opioids at baseline.

Finally, the company also reminded investors that it signed a license and collaboration agreement with Novartis for the development, manufacture, and commercialisation of remestemcel-L. This agreement’s initial focus is on the development of the treatment of acute respiratory distress syndrome (ARDS), including that associated with COVID-19.

However, it has warned that the agreement remains subject to certain closing conditions, including time to analyse the results from the bitterly disappointing COVID-19 ARDS trial.

What milestones lie ahead?

The next few months look set to be equally busy for Mesoblast.

Management advised that it is in discussions with potential strategic partners to develop and commercialise rexlemestrocel-L and remestemcel-L for the large market opportunities of chronic heart failure, chronic lower back pain, and respiratory diseases.

In addition, it expects to meet with the United States Food and Drug Administration (FDA) under a well-established regulatory process. This is to discuss the fastest pathway to licensure of remestemcel-L in the treatment of children with steroid-refractory acute graft versus host disease.

Also on the horizon are the clinical results from remestemcel-L trials in COVID-19 ARDS and medically refractory Crohn’s disease or ulcerative colitis.

Furthermore, Mesoblast intends to meet with FDA to discuss a potential pathway for approval of rexlemestrocel-L in patients with chronic heart failure. This is based on the observed reduction in mortality and morbidity in the chronic heart failure Phase 3 trial.

Finally, Mesoblast again intends to meet with FDA, this time to discuss a potential pathway for approval of rexlemestrocel-L in patients with chronic discogenic lower back pain. This is based on the aforementioned observed durable reduction in pain and opioid sparing activity in the Phase 3 trial.

With the Mesoblast share price down 62% from its 52-week high, shareholders will no doubt be hoping these activities are successful and help drive it higher again.

More reading

• What’s up with the Mesoblast (ASX:MSB) share price?
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Motley Fool contributor James Mickleboro 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 Paradigm Biopharmaceuticals Ltd (ASX: PAR) share price is on the rise this morning following a partnership agreement. At the time of writing, the biopharmaceutical company’s shares are up 1.92% to $2.66.

What did Paradigm announce?

Paradigm shares are on the move today after updating the ASX with a positive announcement.

According to this morning’s release, Paradigm advised that it has entered into a collaboration agreement with bene pharmChem (Bene). This follows a recently updated exclusive licence and supply deal between both parties in September last year.

Furthermore, the new agreement will seek to co-fund new R&D projects to unlock the potential benefits of Pentosan Polysulfate Sodium (PPS). Paradigm and Bene have also committed to work together on new intellectual (IP) property ownership to protect future innovations. This will be managed by the newly created, Joint Steering Committee. The purpose of the committee is to identify new projects, intended outcomes, and attribute IP ownership.

PPS, an injectable solution, aims to treat musculoskeletal disorders caused by injury, inflammation, aging, degenerative disease, infection or genetic predisposition. The semi-synthetic drug is packaged as Zilosul, and has shown improvements in pain reduction, joint function, and the prevention of cartilage damaging joints.

Additionally, Paradigm highlighted the importance of its longstanding relationship with Bene, the only approved manufacturer/supplier of PPS in the United States. While the new agreement establishes jointly funded activities, Paradigm will retain exclusive commercial rights to all information and developments.

Management commentary

Bene pharmaChem co-managing director Dr. Harald Benend commented on the upcoming trials for PPS:

Bene is excited by the imminent commencement of the phase 3 program for osteoarthritis and will be assisting Paradigm in any way possible to achieve the goal of successful registration and commercialisation of Zilosul for OA (osteoarthrosis).

Paradigm CEO and acting chair Paul Rennie also added:

We are eagerly awaiting the commencement of the pivotal phase 3 program for osteoarthritis; the market is eager for a safe and effective non-opioid therapy to relieve the burden of pain in osteoarthritis, PPS is showing great promise to meet this need.

About the Paradigm share price

The Paradigm share price has gained over 60% in the past 12 months, and is slightly up 2% year-to-date. The company’s share price also reached a 52-week high of $3.88 in late June of 2020.

Based on the current share price, Paradigm has a market capitalisation of around $589 million, with 225.8 million shares outstanding.

More reading

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Motley Fool contributor Aaron Teboneras 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 Openpay Group Ltd (ASX: OPY) share price has returned from its trading halt and is sinking lower

At the time of writing, the buy now pay later (BNPL) provider’s shares are down 8% to $2.22.

Why was the Openpay share price in a trading halt?

Openpay requested a trading halt on Monday so that it could arrange a major funding package to accelerate its international expansion.

This morning the company revealed a $67.5 million funding package, which comprises a $37.5 million placement, a $25 million corporate debt facility, and a $5 million share purchase plan.

In respect to its placement, the company raised the funds from new and existing institutional and high net worth investors at $2.03 per new share. This represents a 15.8% discount to its last close price.

The share purchase plan will be undertaken at the same price.

What now?

The Afterpay Ltd (ASX: APT) rival notes that this funding package will support the major partnership it announced this week with global payments provider, Worldpay from FIS.

This partnership will see the two parties collaborate to offer flexible BNPL payment products and other solutions to merchants and customers in territories in which Openpay operates. Though, the company’s immediate focus will be on the lucrative US market.

Openpay’s Managing Director and CEO, Michael Eidel, commented: “Earlier this week Openpay achieved a major milestone, securing an agreement with world-leading payments provider, Worldpay from FIS. Through this relationship, we will endeavour to offer Openpay’s ‘Buy now. Pay smarter.’ payment products to FIS merchants, initially focused on targeted verticals in the US and using FIS as a merchant acquirer, based on the integration into their payment gateway. This marks a core achievement in Opy USA’s six-pillar US entry strategy.”

“The funding package announced today will provide valuable funding for the integration and launch of the agreement with Worldpay from FIS, as well as other recent wins, and support the close of other agreements in our deal funnel across Australian, UK, and US markets. The window of opportunity for our differentiated ‘Buy now. Pay smarter.’ approach is open right now. We are moving with urgency through this inflection point, and expect deployment of this funding to lead to a step-change in business performance.”

More reading

• Openpay (ASX:OPY) share price on watch after agreement with Worldpay
• Is the Affirm share price dragging ASX BNPL shares lower?
• Here’s why the Openpay (ASX:OPY) share price is charging 5% higher today
• Openpay (ASX:OPY) share price drops despite positive announcement
• Is Afterpay (ASX:APT)’s BNPL competition heating up?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T 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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Suncorp Group Ltd (ASX: SUN) shares will be in focus when trading opens this morning after the financial services giant provided an update on the financial impact of the recent floods on its business. At close of trade yesterday, the Suncorp share price finished the day at $9.75, down 1.32%. For comparison, the S&P/ASX 200 Index (ASX: XJO) ended the day down 0.9%.

Let’s take a closer look at what Suncorp announced today.

Suncorp’s natural hazard update

The Suncorp share price will be one to watch today. In a statement to the ASX, the company provided an update on “the expected financial impact” from the recent flooding on the Australian east coast.

Suncorp estimates it will lose between $230 and $250 million in payouts to customers as a result of the floods. The group will cap flood payments at $250 million.

By midday yesterday, 7,600 customers had lodged claims to Suncorp’s insurance arm. The company expects that number to rise further over the coming days as residents return to their properties. Three-quarters of all claims are from New South Wales, one-fifth are from Queensland and the rest originate from Victoria and the ACT. The extent of the damage varies significantly between regions.

Suncorp states it has a “comprehensive” reinsurance program to help mitigate its exposure to the flood event and provide protection over the remainder of the financial year.

Words from the CEO

Speaking on today’s announcement, Suncorp CEO Steve Johnson says the government needs to do more to protect Australians from flooding.

Suncorp continues to work with our customers, particularly in the hardest-hit areas of the Mid-North Coast of NSW and Western Sydney.

Floods too frequently devastate communities across Australia, which is why as a country we must address this risk. Unfortunately, many homes in Richmond, Windsor, Penrith, Port Macquarie and Taree are in medium to very high flood risk areas.

As a country, we need to address how we can protect homes in flood-prone regions through government investment in mitigation infrastructure. We must also improve planning decisions to ensure we are not building new homes in high-risk areas.

The risk of extreme weather events, like flooding, is increasing every year due to climate change.

Suncorp share price snapshot

Over the last 12 months, the Suncorp share price has increased by 6.79%. Suncorp shares have already taken a hit recently due to the flooding.

In November last year, the share price hit its 52-week low, before rallying to hit its 52-week high at the beginning of this year.

Suncorp has a market capitalisation of $12.5 billion.

More reading

• Why top brokers want you to buy the embattled IAG (ASX:IAG) share price
• Suncorp (ASX:SUN) share price sinks today after floods update
• 8 ASX 200 shares rated as ‘outperform’ by brokers
• How are ASX insurance share prices performing during NSW’s floods?
• Why the Suncorp (ASX:SUN) share price is tumbling lower today

Motley Fool contributor Marc Sidarous 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 Jindalee Resources Limited (ASX: JRL) share price is on watch today after the company shared good news about its McDermitt Project. Jindalee has increased the size of its McDermitt Project – one of the largest lithium deposits in the US – by 67%.

The news comes at a good time for the Jindalee share price. It suffered a 2.44% drop yesterday, closing at $1.60.

Let’s look further into the mineral exploration company’s announcement this morning.

McDermitt Project

The company stated that its McDermitt Project now covers 54.6 square kilometres, after it received confirmation of an additional 271 claims.

Jindalee has previously stated that the McDermitt Project’s shallow, flat lying lithium deposits contained in soft rocks suggest mining there will come at a low cost.

Initial test work also found lithium mined at McDermitt has high recoveries from conventional sulphuric acid leaching at low temperature and low atmospheric pressure.

The company has also noted that the US has an increasing demand for lithium but only has one mine in operation, leaving the US to import most of its lithium. Jindalee hopes that it can fill the gap in the US market for locally mined lithium, avoiding tariffs in the process.

As the Project straddles the border of Nevada and Oregon, 88 of the new claims fall in Nevada. Jindalee believes this increases the potential development options at McDermitt.

Jindalee has 100% ownership of the McDermitt Project via its wholly-owned subsidiary. It expects an updated mineral resource estimate in early April.

Jindalee share price snapshot

Today’s news may be what the Jindalee share price needs to shift it back into gear. It’s shown poor performance over the last month, having dipped by 8.5%.

Although, even after that drop, the Jindalee share price is still up by 102.5% year to date. It’s also up by 416% over the last 12 months.

Jindalee has a market capitalisation of around $82 million, with approximately 51 million shares outstanding.

More reading

• Why the Jindalee (ASX:JRL) share price is up 11% today

Motley Fool contributor Brooke Cooper 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 AGL Energy Limited (ASX: AGL) share price was out of form on Tuesday despite the release of a major announcement.

After initially storming higher, the energy company’s shares ended the day 3.5% lower at $9.81.

What did AGL Energy announce?

On Tuesday AGL announced provisional plans to split into two businesses – New AGL and PrimeCo.

New AGL will be Australia’s largest multi-product energy retailer, leading the transition to a low carbon future. Whereas PrimeCo will be Australia’s largest electricity generator, supporting the economy as the energy market evolves.

Management believes the proposed separation will give each business the opportunity to execute their own respective strategies and growth agendas.

What’s the word on the street?

Goldman Sachs has been looking over its plans. And while it acknowledges that the announcement lacked detail, the broker doesn’t appear convinced by the proposal.

Goldman believes that the proposed demerger could result in downside risks for seven reasons. These include:

“1. Increasing capital intensity of ‘New AGL’ as (i) the NSW Energy Plan likely drives an acceleration of the closure of black coal generation in NSW, and with (ii) an increasing requirement for carbon offsets to achieve a carbon neutral position on Scope 1 & 2 emissions for ‘New AGL’ from separation;

2. Likely lower gearing capacity required as lenders/bondholders manage risks;

3. Cost duplication from a new management team and likely trading team;

4. Declining vertical integration and a new competitor;

5. Corporate appeal may increase for ‘New AGL’, but ‘PrimeCo’ has potential to be considered critical infrastructure limiting foreign ownership options for the business, while this carbon intensity of the portfolio will also likely limit appeal for Australian institutional/pension fund investors.

6. Cribb Point LNG import terminal has been rejected, and likely requiring a repositioning of the gas strategy. We expect Viva’s Geelong Energy Hub to proceed with LNG imports in Victoria in the medium term; and

7. Asset sales and dividends: Silver Springs and Newcastle gas storage are flagged as for sale, while declining earnings weaken distributions.”

In light of this, the broker sees increased uncertainty for investors and continued downside risk to earnings.

As a result, it has retained its neutral rating and cut its price target to $10.45.

More reading

• Why an AGL Energy (ASX:AGL) demerger might be a problem
• ASX 200 dips, AGL to split in two, NAB’s neobank acquisition approved
• Is the Amaysim (ASX:AYS) share price really tumbling 70% today?
• AGL Energy (ASX:AGL) share price slides after latest announcement
• ASX 200 down 0.15%: AGL to split into two, NAB’s 86 400 acquisition receives ACCC approval

Motley Fool contributor James Mickleboro 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 penny has dropped for investors around the world that the shift from petrol to electric vehicles (EVs) is inevitable.

This epiphany has been massive for the market leader in the electric segment, Tesla Inc (NASDAQ: TSLA). Its shares are up more than six-fold in the past 12 months, despite a significant pull back the past few weeks.

But for Antipodes portfolio manager Alison Savas, there is a better bet in this field. 

She said that Volkswagen Group (ETR: VOW3) is making “aggressive” strides towards competing with, and overtaking, Tesla.

“Last year the German automotive giant sold around 230,000 EVs. This is expected to more than double to over 600,000 this year. In comparison, Tesla is expected to sell around 800,000 EVs,” she said on an Antipodes blog post.

“Next year, Antipodes projects both Tesla and VW will sell around 1 million EVs each, then in the years beyond VW will outsell Tesla.”

Here comes ‘Voltswagen’

On Tuesday, Volkswagen ‘accidentally’ released a media announcement one month early.

According to CNBC, it revealed that it was rebadging its US operations to “Voltswagen” — to emphasise its electric credentials. The clearly incomplete announcement, dated April, was withdrawn very quickly. 

The rebadge was later revealed to be a marketing stunt.

All the petrol car makers are currently playing catch up to mass-produce EVs. But Savas reckons Volkswagen is way ahead of the pack.

“If we look to 2025 – which is when industry experts expect EVs will really take off – VW could be selling more than 2 million EVs, or around 20% of VW’s total volumes,” she said. 

“But more significantly, VW could have over 20% of the global EV market with the number one position in Europe and China, which are expected to be the two fastest growing electric vehicle markets.”

While Tesla revolutionised the movement, Savas said traditional car makers have the economies of scale and know-how to “produce and sell great cars”.

“Any first mover advantage Tesla had is arguably vanishing.”

Embarrassingly, VW’s push into electric was prompted out of a 2015 scandal when it was caught red-handed cheating on its diesel emissions tests. The current drive for full electrification of its catalogue is arguably an attempt to wipe the significant damage from that episode.

Tesla share price is dependent on perfection

The rise in the Tesla share price has seen it now valued as much as the 8 largest legacy car makers put together.

“Tesla’s valuation today – some $630 billion – dwarfs Volkswagen’s $150 billion, yet VW is likely to sell more EVs than Tesla in the coming years and on similar economics,” said Savas.

“As a pragmatic value manager, the difference in valuation ascribed by the market for these two companies is interesting.”

Tesla bulls say that the brand is more than just a maker of vehicles — it is developing technologies like autonomous driving and driverless taxis.

But Savas reckons about $500 billion of capitalisation is dependent on those innovations, and that’s far too much.

“The hurdles to fully autonomous vehicles on public roads are immense. Notwithstanding the hardware and software challenges, there are significant legal and regulatory hurdles,” she said.

“Tesla hasn’t solved these issues – no one has – but ascribing half a trillion dollars of value to the company suggests success is guaranteed.”

Volkswagen is at an attractive PE ratio

As well as the booming EV outlook, Volkwagen’s other headwinds are strong.

“We have a company that’s already made the investment to develop an electric range and will benefit from a cyclical rebound in economic activity and pent-up demand in the auto cycle,” said Savas.

“VW is also a great way to get exposure to the strong recovery we’re seeing in China, the largest auto market in the world where VW has the leading share.”

Therefore Volkswagen shares look very cheap compared to Tesla, which is currently trading at a roughly 950x price-to-earnings (P/E) ratio.

“At just 8x forward earnings and generating free cash flow of over $10 billion per annum – that’s post the investment in the electrification offensive – it’s hard to imagine how VW won’t transition to a secular growth winner as it dominates electrification.”

Battery prices have long been the hurdle for the electric car industry, as it is easily the biggest cost in producing a vehicle.

But like any tech, battery prices have been coming down — and are about to reach a significant milestone soon.

“By the end of the decade, VW is expecting battery costs to fall 30% to 50% from today’s $140/kwh — taking battery costs below the $100/kwh threshold at which industry experts believe cost parity between EVs and combustion engine vehicles can be achieved.”

By the middle of the 2020s, Antipodes predicts VW’s margins on electric cars will overtake what they make on equivalent petrol and diesel vehicles.

“For us, the EV race is one in which the spectators are fixated on the current front-runner, while ignoring the giant emerging from the pack,” said Savas.

“In plain investment terminology – a case of unwarranted multiple dispersion.”

More reading

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Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. 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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There are a few different reasons why the Westpac Banking Corp (ASX: WBC) share price could be a buy right now.

That’s despite the Westpac share price rising by 44% over the last six months.

The big four ASX bank has risen a lot, but there are a few reasons why the broker Morgan Stanley thinks that Westpac could still be a compelling ASX share to own:

Share buyback

A year ago during the crash it might have been hard to believe that the big four banks of Westpac, Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group Ltd (ASX: ANZ) would end up with such high levels of capital. But here we are.

In the first quarter of FY21, Westpac reported that its common equity tier 1 (CET1) capital ratio had increased to 11.9% as at 31 December 2020 – that was up 74 basis points over the quarter and 111 basis points over the year. The strength of the bank balance sheets was materially better than what the broker was expecting.

Morgan Stanley thinks that Westpac will launch a share buyback. This is when a business buys back its own shares from shareholders. It can be a way to increase the ownership and per-share profit statistics for existing shareholders without the shareholder having to take any action.

A better dividend

Westpac shareholders suffered a huge dividend cut during 2020 because of the impacts of the COVID-19 pandemic on its profitability.

There was also the $1.3 billion civil penalty that Westpac had to pay in relation to the admitted contraventions of the Anti-Money Laundering and Counter Terrorism Financing Act.

But those issues are now fading into history. In the first quarter of FY21, Westpac reported cash earnings of $1.97 billion, which was more than double the FY20 second half quarterly average profit of $808 million – up 54% excluding notable items.

Morgan Stanley believes that a large dividend increase is coming for those suffering Westpac shareholders.

The broker thinks that Westpac could pay an annual FY21 dividend of $1.10 per share, which equates to a grossed-up dividend yield of 6.4% at the current Westpac share price.

Lower costs

It’s a difficult income environment for banks at the moment. With the official RBA interest rate at close to 0%, it makes it hard for banks to earn as high of a profit margin, or net interest margin (NIM), as they used to.

But banks can still take action on costs, which is what the broker Morgan Stanley is looking at Westpac to do.

The broker thinks that the big four ASX bank can cut its expenditure by approximately 10%, which would help deliver stronger profitability.

What’s the Westpac share price valuation?

According to the Morgan Stanley earnings estimate for FY21, the Westpac share price is valued at 16x FY21’s estimated earnings.

The broker rates Westpac as a buy, with a price target of $27.20.

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Motley Fool contributor Tristan Harrison 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.

The post 3 reasons why the Westpac (ASX:WBC) share price could be a buy appeared first on The Motley Fool Australia.

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