Category: Stock Market

Westpac Banking Corp (ASX: WBC) shares are underperforming on Thursday.

In morning trade, the banking giant’s shares are trading relatively flat.

As a comparison, the ASX 200 index is up 0.8% at the time of writing.

Why are Westpac shares underperforming?

Today’s softness appears to have been driven partly by a subdued reaction to its technology simplification plan from brokers.

One of those brokers was Goldman Sachs (NYSE: GS).

While its analysts see big positives from the plans, they also acknowledge that there are big execution risks. Particularly in the current environment where large projects have seldom stayed on budget. They explain:

WBC’s technology simplification plan has been a long time coming, and we believe it does, over time, have the potential to materially improve WBC’s relative productivity positioning. While management believes it can be funded with A$1.8 bn in FY24 and then A$2 bn p.a. thereafter of investment spend, we do acknowledge the high level of execution risk involved given historically banks’ large scale transformation programs have struggled to stay on budget, and we are currently operating in an elevated inflationary environment.

Should you invest?

At present, Goldman doesn’t see enough of a reward on offer with Westpac shares to justify an investment. It adds:

Trading a 12-mo forward PER of 14.2x (15 year historic average of 12.7x), we remain Neutral rated

The broker has retained its neutral rating with a slightly trimmed price target of $23.41.

Based on the current Westpac share price of $26.00, this implies potential downside of 10% for investors over the next 12 months.

Though, if we throw in the estimated 5.5% dividend yield that Goldman expects in FY 2024, the total potential loss reduces to a more modest 4.5%.

Westpac shares are up 21% over the last 12 months.

The post Are Westpac shares a buy following the bank’s big tech update? appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Thursday
• Westpac shares push higher on $9.8b technology simplification plan
• Shares vs. property: How to generate $500 passive income per month
• Forget term deposits and buy these ASX dividend shares
• Better buy: CBA or Westpac stock?

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Telstra Group Ltd (ASX: TLS) pays out its boosted dividend today.

That means passive income investors who owned Telstra shares at market close on 27 February will be heading into the Easter weekend with some extra spending money.

Or money to reinvest, of course.

Telstra’s 6% dividend boost

The S&P/ASX 200 Index (ASX: XJO) telco reported its half-year results on 15 February.

Among the highlights for passive income investors was the 5.9% increase in Telstra’s interim dividend.

Management declared a fully franked dividend of 9 cents per share. That was up from 8.5 cents paid out for the interim dividend the prior year and marks Telstra’s highest interim dividend since the heady days of 2018.

The telco was able to increase its dividend on the back of a 1.2% year-on-year increase in total income for the six-month period, which reached $11.7 billion. That was driven by growth across the company’s mobile services, International, Telstra InfraCo Fixed and Amplitel.

This in turn helped drive an 11.5% increase in net profit after tax to $1.0 billion. Though the company modestly lowered its underlying EBITDA guidance range for FY 2024 to $8.2 to $8.3 billion.

As for that passive income, Telstra shares traded ex-dividend on 28 February.

That means income investors will have had to own shares at market close on 27 February to receive today’s payout.

Eligible shareholders can expect that money to hit their bank account today.

Unless, of course, they’ve opted for Telstra’s dividend reinvestment plan (DRP). Then they’ll own more Telstra shares instead.

The ASX 200 telco also paid a fully franked final dividend of 8.5 cents per share on 28 September.

At a full-year payout of 17.5 cents per share and currently trading for $3.81 per share, Telstra is trading on a fully franked trailing yield of 4.6%.

Telstra shares are up 0.79% in early morning trade today.

The post Investing for passive income? Keep any eye out for that boosted Telstra dividend today! appeared first on The Motley Fool Australia.

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More reading

• Is Telstra stock a buy, sell, or hold?
• 5 things to watch on the ASX 200 on Thursday
• Almost ready to retire? I’d buy cheap ASX dividend shares for income
• Qantas or Telstra share price: Which will climb higher in 2024?
• $19 billion in ASX dividends is being paid out this week. Are you getting your share?

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

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The Australian share market is on course to record a solid gain in March.

As things stand, the ASX All Ordinaries index is up 2.3% month to date.

While that is very positive, it pales in comparison to some of the gains that have been recorded on the index.

For example, the three ASX All Ords shares listed below are up over 50% this month. Let’s see why investors have been fighting to get hold of these shares:

Life360 Inc (ASX: 360)

The Life360 share price is up 61% month to date. The key driver of this gain has been the release of the location technology company’s FY 2023 results at the beginning of March. Life360 reported subscription revenue of US$200 million, which was up 52% year on year and ahead of guidance. Also coming in comfortably ahead of guidance was its adjusted EBITDA of US$20.6 million. This compares to its guidance range of US$12 million to US$16 million. The announcement of a new advertising business also got the market excited.

Mesoblast Ltd (ASX: MSB)

The Mesoblast share price is up 67% since the end of last month. This has been driven almost entirely by the release of an announcement this week from the ASX All Ords share relating to the US Food and Drug Administration (FDA). The FDA advised that there appears to be sufficient results to support the submission of the biotechnology company’s proposed Biologics License Application (BLA) for remestemcel-L to treat paediatric patients with steroid-refractory acute graft versus host disease.

Zip Co Ltd (ASX: ZIP)

The Zip share price is up 58% in March. Investors have been scrambling to buy this ASX All Ords share thanks to its strong performance so far in FY 2024 and a couple of bullish broker notes. In respect to the latter, the previously ultra-bearish team at UBS has changed its tune on the buy now pay later provider. This saw the broker upgrade Zip’s shares from a neutral rating with a 36 cents price target to a buy rating with a $1.43 price target. The team at Citi also made a similar move, upgrading the company’s shares to a buy rating and $1.40 price target (from neutral and 78 cents).

The post 3 ASX All Ords shares up 50%+ in March appeared first on The Motley Fool Australia.

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More reading

• Why Mesoblast, Patriot Battery Metals, Sigma, and Zip shares are pushing higher
• Mesoblast share price rockets 36% on breaking FDA news
• Why are these ASX tech shares getting smashed today?
• Here are the top 10 ASX 200 shares today
• Here are the top 10 ASX 200 shares today

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor James Mickleboro has positions in Life360. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Life360 and Zip Co. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Today is a good day to own BHP Group Ltd (ASX: BHP) shares for a couple of reasons.

The first reason is that the mining giant’s shares are on course to end the shortened week in a positive fashion.

At the time of writing, the Big Australian’s shares are up almost 2% to $44.48.

This follows a strong showing for BHP’s US listed shares on the New York Stock Exchange despite a pullback in iron ore prices.

Why else is it a great day to own BHP shares?

The other reason it is a great day to have BHP shares in your portfolio is that today is pay day for shareholders.

Last month, BHP released its half-year results and reported a 6% increase in revenue to US$27.2 billion and flat underlying earnings of US$6.6 billion for the half.

This allowed the miner to declare an interim dividend of 72 US cents (A$1.10) per share, which represents a total payout of US$3.6 billion and a payout ratio of 56%.

Today is the day that the Big Australian is paying eligible shareholders this dividend, much to their delight.

Especially given that at yesterday’s close price, this interim dividend equates to a very attractive 2.5% dividend yield.

What’s next for the BHP dividend?

According to a note out of Goldman Sachs, its analysts expect a similar dividend to be paid for the second half of FY 2024.

The broker has pencilled in a fully franked final dividend of 73 US cents (111.7 Australian cents) per share. This will mean another 2.5% dividend yield for shareholders.

Looking further ahead, Goldman expects the BHP dividend to come in at US$1.28 (A$1.96) per share in FY 2025 and US$1.25 (A$1.91) per share in FY 2026. Based on where BHP shares currently trade, this will mean yields of 4.5% and 4.4%, respectively.

The post Why it’s a great day to own BHP shares appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Thursday
• Down 14% in 2024, why is the BHP share price sliding again today?
• $19 billion in ASX dividends is being paid out this week. Are you getting your share?
• Shares vs. property: How to generate $500 passive income per month
• Here’s how the ASX 200 market sectors stacked up last week

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 positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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I think ASX tech shares can be very exciting investments because of their ability to expand quickly and generate strong margins.

The nature of software usually means it’s very cheap and very quick to sign up a new client or subscriber – the company doesn’t need to wait for more cars or tables to be manufactured.

Being able to replicate new software for a very low cost is exciting because additional revenue can come with a high gross profit margin and add a lot to the company’s cash flow and earnings before interest, tax, depreciation and amortisation (EBITDA) profit margins.

With that in mind, there are three ASX tech shares I want to talk about.

TechnologyOne Ltd (ASX: TNE)

TechnologyOne describes itself as Australia’s largest enterprise software company, with locations globally. It provides global software as a service (SaaS) enterprise resource planning (ERP) solution which is available on any device, anywhere, any time and is “incredibly easy to use).

It has more than 1,200 corporations, government agencies, local councils and universities using its software. The business continues to win new clients, boosting its scale.

One of the most pleasing elements of the business is that existing clients continue to pay more for the software as the company invests more in the software offering.

In FY23 the business grew its profit before tax by 15%, cash flow generation rose 36% to $104.6 million and the board increased the dividend per share by 15%.

It’s making strong progress in the UK, which is a bigger market than Australia. UK annual recurring revenue (ARR) increased by 52% to $26.5 million, which is a very strong increase.

The company is expecting to double in size in five years, which is an impressive compounding rate.

Airtasker Ltd (ASX: ART)

Airtasker offers a platform that enables people who need work to connect with people and businesses willing to do that work. Examples of tasks include removalists, furniture assembly, photography, food delivery and many other categories.

The company has a gross profit margin of more than 90%, so the more volume it can generate the better its operating profit margins will be.

The ASX tech share has made great progress in its profitability. In the recent FY24 first-half result, it reported positive free cash flow of $0.1 million, an improvement of $4.7 million. The company also achieved positive EBITDA of $2 million, which represented growth of $7.1 million.

Reaching breakeven, and positive profitability, can be an important milestone for ASX tech shares because profit can jump higher in subsequent years if revenue keeps growing.

Despite the challenging economic conditions amid inflation and high interest rates, the company reported that Airtasker marketplaces revenue increased 10.3% to $18.9 million

It has a small presence in the UK and an even smaller position in the US. While the international segment of the business is currently small, it’s growing quickly – in HY24 international revenue jumped 35.3% to $0.6 million.

If Airtasker can keep growing its revenue and the number of tasks posted over the long term then I think it has a very promising future.

Siteminder Ltd (ASX: SDR)

Siteminder provides software that can help hotels unlock their full revenue potential. It also has Little Hotelier, an all-in-one hotel management software offering for small accommodation providers. It generates more than 115 million reservations worth over $70 billion in revenue for hotel customers.

The ASX tech share is benefiting from the ongoing digitalisation of transactions, how people book accommodation and a growing market share. In the HY24 result, Siteminder saw total revenue growth of 27.9% to $91.7 million, with subscription revenue rising 18.5% and transaction revenue growing 30.5%.   

Siteminder saw its cash flow, underlying EBITDA and statutory net loss all make strong progress towards breakeven, with margins significantly improving. I think it has a promising future if revenue keeps climbing at a double-digit pace.

The post 3 of the best ASX tech shares to buy and hold until 2030 appeared first on The Motley Fool Australia.

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More reading

• Bell Potter names 2 exciting ASX tech shares to buy now
• Here’s why analysts love these buy-rated ASX 200 growth shares
• Why these ASX 200 growth shares could be top buys now
• Why Bannerman Energy, Cettire, TechnologyOne, and Zip shares are charging higher
• Guess which ASX 200 tech stock has just been upgraded

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 positions in and has recommended SiteMinder and Technology One. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Airtasker. The Motley Fool Australia has positions in and has recommended SiteMinder. The Motley Fool Australia has recommended Technology One. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Owners of Commonwealth Bank of Australia (ASX: CBA) shares may feel a little richer today because the dividend is headed your way.

CBA likes to send dividend payments to shareholders every six months, and this latest payout is the FY24 interim dividend for the six months to 31 December 2023.

Dividend details

For investors that didn’t know, in the FY24 first-half result the CBA board of directors decided to declare a half-year payout of $2.15 per share. If someone owned 50 CBA shares, they would receive a fully franked payment of $107.50.

This payout was 2% bigger than last year’s payment per share. It represents a dividend payout ratio of 72% of cash net profit after tax (NPAT). As a reminder, CBA’s dividend policy is to target a full-year payout ratio of between 70% to 80% of cash NPAT. The payout ratio has been climbing since the worst of the COVID-19 pandemic – it was 68% of the first half of FY23 NPAT and 62% of HY22’s NPAT.

The bank also said it was to maximise the use of its franking account by paying fully franked dividends and “sector leading cash dividends at sustainable levels”.

The ASX bank share said it was expecting the dividend reinvestment plan (DRP) to be satisfied through the on-market purchase of shares.

CBA’s balance sheet is in a strong position to be able to fund this dividend. Its common equity tier 1 (CET1) ratio was 12.3% at December 2023, up from 11.7% at December 2019 (pre-COVID).

Dividend reinvestment plan price

For investors that did take up the DRP, the DRP price is $117.19. This was calculated as the average of the daily volume weighted average market price of all CBA shares sold on the ASX during the 20 trading days between 26 February 2024 and 22 March 2024, with no discount.

The bank revealed that participation in the 2024 interim dividend was approximately 13.4% of CBA shares on issue.  

CBA share price snapshot and payout projection

Over the last six months, the CBA share price has risen around 20%.

According to the (third party) projections on Commsec, the bank is expected to pay an annual dividend per share of $4.55 in both FY24 and FY25, which translates into a forward grossed-up dividend yield of 5.4%.

The dividend is then predicted to rise by 1.3% to $4.61 per share in FY26, which would be a grossed-up dividend yield of 5.5%.

The post Own CBA shares? It’s payday for you! appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Thursday
• Are CBA shares really worth $120?
• $19 billion in ASX dividends is being paid out this week. Are you getting your share?
• These 5 high-quality companies are now paying a better income than CBA shares
• Own CBA shares? Here’s the tech stock the banking giant just invested in

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

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Telstra Group Ltd (ASX: TLS) stock has been a rather disappointing investment in recent months at first glance.

At the current stock price of $3.78, Telstra is down 4.66% year to date and down 10.1% over the past 12 months.

This ASX 200 telco and blue-chip share even hit a new 52-week low of $3.73 this week.

The company is also down close to 14% from its last 52-week high of $4.46 that we saw last May.

Check all of that out for yourself below:

Telstra stock has been a constant presence on the ASX for decades and is one of the most widely-held ASX 200 shares. As such, there are no doubt more than a few investors out there who have been left disappointed with this recent performance.

That’s despite more recent wins for investors. In February, Telstra announced its third hike for its interim dividend in a row. Telstra will be paying out its interim dividend of 9 cents per share (fully franked of course) today, as it happens. That’s up from 8.5 cents this time last year and 8 cents in 2022.

Despite these hikes, investors still don’t seem placated.

So it might be a good time to ask whether Telstra stock is a buy, hold or sell today.

Telstra stock: Buy, hold or sell?

Well, more than one ASX expert seems united on this one.

Last week, my Fool colleague James looked at the buy rating that ASX broker Goldman Sachs has given Telstra. Goldman named the telco as a ‘buy’, and gave Telstra shares a 12-month share price target of $4.55. That would obviously result in some huge gains for investors if realised.

Goldman named Telstra’s “low risk earnings (and dividend) growth… underpinned through its mobile business” as the primary reason behind its bullish outlook. It has also pencilled in further dividend pay rises every financial year until FY2026.

But Goldman isn’t the only Telstra bull out there right now. Earlier this month, we also took stock of what another ASX broker in Bell Potter thinks about Telstra shares.

Bell Potter stated that Telstra stock is “starting to look reasonable value”, and as such, upgraded the telco from a hold to a buy. That came alongside a share price target of $4.25.

This broker is also expecting rising dividends from Telstra over the next few years.

So that’s what a pair of ASX experts think about Telstra stock today. No doubt shareholders won’t be complaining about these assessments. But, as always, we’ll have to wait and see who’s on the money.

The post Is Telstra stock a buy, sell, or hold? appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Thursday
• Almost ready to retire? I’d buy cheap ASX dividend shares for income
• Qantas or Telstra share price: Which will climb higher in 2024?
• $19 billion in ASX dividends is being paid out this week. Are you getting your share?
• Why Telstra and these ASX 300 stocks just hit 52-week lows

Motley Fool contributor Sebastian Bowen has positions in Telstra Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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With the ASX 200 index likely to hit a record high on Thursday, you would be forgiven to think that there are no bargain ASX 200 stocks currently trading on the bourse.

However, that may not be the case according to analysts at Goldman Sachs.

The broker has identified one ASX 200 stock that could be well and truly in the bargain bin right now and have major upside potential.

That stock is Australia’s flag carrier airline Qantas Airways Limited (ASX: QAN).

Is Qantas a bargain ASX 200 stock?

As with most airlines, Qantas had an incredibly tough time during the pandemic.

But it certainly didn’t waste the crisis. It worked hard to cut costs materially and make its operations leaner and more profitable.

So much so, the company was able to deliver a huge profit in FY 2023 and then followed this up with another bumper profit during the first half of FY 2024.

However, despite this structurally improved profitability, Qantas shares are still trading on a lower valuation than pre-COVID times.

This hasn’t gone unnoticed by analysts at Goldman Sachs, who believe the market is seriously undervaluing this ASX 200 stock, potentially making it a real bargain at current levels. The broker recently commented:

Notwithstanding a decline in unit revenues (and group capacity still at 95% of pre-COVID) our estimated FY24e EPS sits 52% above pre-COVID levels. Despite this, QAN’s market capitalisation and EV is 17% and 24% lower than pre-COVID levels. We acknowledge broader macro uncertainty at this point in the cycle, but believe the current share price does not reflect the group’s improved earnings capacity.

Big returns to come?

Goldman currently has a buy rating and $8.05 price target on Qantas shares.

Based on its current share price of $5.41, this implies potential upside of almost 50% for investors.

The broker concludes:

[W]e believe QAN is not priced for a generic recovery, let alone prospects for improved earnings capacity. We continue to see upside associated with substantially improved MT earnings capacity.

The post Is Qantas a bargain ASX 200 stock today? appeared first on The Motley Fool Australia.

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More reading

• Where to invest $8,000 in April 2024
• Qantas or Telstra share price: Which will climb higher in 2024?
• A ‘once in a lifetime’ opportunity for Qantas shares?
• Buy these ASX 200 blue chip shares for big returns
• $2.1 million! Who are the highest paid ASX 200 directors?

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 positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you’re not keen on stock picking but want to build an income portfolio, then ASX exchange-traded funds (ETFs) could be the answer.

Instead of having to pick individual stocks to buy, ETFs allow investors to snap up large groups of income shares in one fell swoop.

This can provide near instant diversification for a portfolio, reducing risk and removing the stress of deciding which shares to buy.

But which ASX ETFs would be good for income? Two quality options to consider buying are listed below:

BetaShares S&P 500 Yield Maximiser (ASX: UMAX)

The BetaShares S&P 500 Yield Maximiser could be worth a closer look.

This income ETF has been designed to squeeze out as much income as possible from the top 500 companies listed on Wall Street. This includes giants such as Apple, Johnson & Johnson, Microsoft, and Walmart.

It does this through a covered call strategy, which aims to earn quarterly income that is significantly greater than the dividend yield of the underlying share portfolio over the medium term.

At the last count, its units were trading with a 12-month trailing 4.8% distribution yield.

Vanguard Australian Shares Index ETF (ASX: VHY)

Another ASX ETF for income investors to consider buying is the Vanguard Australian Shares High Yield ETF.

This popular fund offers investors low-cost exposure to a group of 72 ASX shares that have higher forecast dividends relative to the market average (based on broker research).

But don’t worry, you won’t just be buying miners and banks such as BHP Group Ltd (ASX: BHP) and Commonwealth Bank of Australia (ASX: CBA). The Vanguard Australian Shares Index ETF restricts the proportion invested in any one industry to 40% and 10% for any one company.

This ensures that investors have a nicely balanced group of holdings and aren’t overexposed to any one side of the market. In addition, Australian Real Estate Investment Trusts are excluded from the index, which means there’s no material exposure to the property market.

The ETF currently trades with a trailing dividend yield of 5.2%.

The post Why these ASX income ETFs could be top options 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 positions in and has recommended Apple, Microsoft, and Walmart. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Johnson & Johnson and has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has positions in and has recommended BetaShares S&P 500 Yield Maximiser Fund. The Motley Fool Australia has recommended Apple and Vanguard Australian Shares High Yield ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Woolworths Group Ltd (ASX: WOW) is a solid business, but it’s not my top pick in the food industry. Instead, I went for the S&P/ASX 200 Index (ASX: XJO) stock Metcash Ltd (ASX: MTS).

I’m not saying that Metcash’s food operations are stronger or that it has a better growth outlook than Woolworths. But, the overall Metcash company seems more compelling to me.

Three pillars

There are three main segments to the Metcash business – food, liquor and hardware.

The food business is best known for supplying over 1,600 independent stores across Australia, with IGA and Foodland supermarkets being two of the main customers.

The ASX 200 stock is the largest supplier of liquor to independently owned liquor retailers. It supplies Cellarbrations, The Bottle-O, IGA Liquor, Porters Liquor, Thirsty Camel, Big Bargain Bottleshop and Duncans.

Metcash’s third pillar is hardware. It owns a number of brands and businesses including Mitre 10, Home Timber & Hardware and Total Tools. It supports independent operators under the small format convenience banners Thrifty-Link Hardware and True Value Hardware, as well as a number of unbannered independent operators.

Acquisitions

A few weeks ago, the company announced it had entered into binding agreements for some acquisitions.

One of the businesses it’s buying is Superior Food, a leading Australian foodservice distribution business, which it described as a logical extension of the food strategy, partly because it can benefit from and enhance Metcash’s core food wholesale and distribution capabilities. Foodservice is described as a large and growing market.

The second acquisition was Bianco Construction Supplies, a construction and industrial supplies business servicing South Australia and the Northern Territory.

Thirdly, it said it was going to buy Alpine Truss, one of the largest frame and truss operators in Australia.

Metcash is expecting to achieve annualised synergies of around $19 million and add to Metcash’s margins.

Why I decided to invest in the ASX 200 stock

There are three main things that attracted me to Metcash.

First, the strength and profitability of its hardware business are impressive in my opinion. When interest rates start coming down and the outlook for the economy improves, I think the profitability of the business can grow. The inclusion of Bianco and Alpine Truss is a useful boost for the ASX 200 stock as well.

Second, it has a much lower price/earnings (P/E) ratio than other ASX shares. According to Commsec, Metcash shares are valued at 14 times FY24’s estimated earnings and 13 times FY25’s estimated earnings. In comparison, Woolworths shares are valued at 23 times FY24’s estimated earnings and Wesfarmers Ltd (ASX: WES) – owner of Bunnings – is priced at 30 times FY24’s estimated earnings.

I think Metcash is priced attractively for its hardware’s growth outlook for the long term. Third, the dividend yield is appealing. Metcash targets a dividend payout ratio of 70% of underlying net profit after tax (NPAT). The FY24 grossed-up dividend yield is projected to be 7.3%.

The post Why I bought this ASX 200 stock instead of Woolworths appeared first on The Motley Fool Australia.

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• Metcash shares push higher on trading update

Motley Fool contributor Tristan Harrison has positions in Metcash. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Wesfarmers. The Motley Fool Australia has positions in and has recommended Wesfarmers. The Motley Fool Australia has recommended Metcash. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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