How much profit is too much?

That sounds like a funny thing for a self-confessed capitalist and investor to ask, right?

To (mis)quote Creedence Clearwater Revival:

“And when you ask ’em, “How much should we make?”
Ooh, they only answer, “More, more, more, more!””

Right?

Well, kinda.

More, sure.

But more… over the long term.

And that time frame is a distinction that matters.

This week, Commonwealth Bank of Australia (ASX: CBA), Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL) announced big jumps in profit.

Ampol Ltd (ASX: ALD) made a motza.

While, at the same time, hiking prices for their customers and blaming inflation.

Now, settle down you lot shouting at the back.

I completely agree that they should be free to increase prices.

And there are those who complain when companies make more money but are (not so) strangely silent when they make less.

They criticise ‘profiteering’, but don’t offer to make up the difference when profits fall.

Frankly, this ‘one way’ expectation is… silly.

And, if I can say it politely, kinda exposes the critics’ motivations… and misunderstanding.

My firmly held view is that a well-functioning system of democratic capitalism needs a decent profit motive.

If you know you’re going to have profits garnished when you make them, but you’re going to be on your own during the tough times… that doesn’t exactly incentivise growth and risk-taking.

But, nor do I think companies should have an unfettered ability to raise prices.

Not (just) because it hurts those least able to afford them.

But because it signals a market in which competition is, if not broken, at least not operating as well as it should.

In theory, higher prices from one market participant should mean consumers switch to the others.

That ebb and flow of supply and demand, in a well-functioning market, will see to it that no one company (or companies) can get away with raising prices meaningfully above a level of economic viability and customer desire (more on that later).

And so…

Well, I’ll let you decide.

If CBA, Ampol and our grocers can increase profits by that much, doesn’t it suggest something isn’t working properly?

I would say that’s precisely the implication.

But here’s the thing: it’s not just bad for consumers.

It’s bad for the whole economy, including those other companies in which we hold shares.

If prices are too high in some sectors, those companies are capturing excess profits… money that could otherwise be spent in other businesses.

Writ large, that lowers our overall standards of living and, as a result, the levels of economic activity and success we could otherwise enjoy.

It’s short term gain for long term pain.

And – just ask Woolies shareholders who owned shares in the company between 2014 and 2016 – often these higher profit margins become a millstone around the neck of a business.

They get so addicted to the margins, they stop being competitive… and fixing the latter can come at a serious cost to the former, taking shareholders down with them.

In Woolies’ case, the company made world–beating grocery margins… for a while.

And then it all came a cropper.

Which is, hopefully, a cautionary tale.

No, I’m not predicting – or even suggesting – that the companies I mentioned above are necessarily headed for a fall.

I’m just making the point that short term profits, if unsustainable, can actually come at the expense of longer term value creation… when competition works.

And here’s the kicker – and a point I’ve made before: the best way for capitalism to create maximum value for society – and for shareholders – is when competition works as well as possible.

That’s when scarce resources are most effectively and efficiently allocated, leading to the greatest creation of value – for all of us; consumers, shareholders… the lot.

Don’t get me wrong: I love it when companies in which I own shares can flex genuine pricing power. And I can admire it even in companies I don’t own. The price premium for an Apple product defies rationality (in my view, anyway!)… yet it’s earned not because competition doesn’t work, but because Apple has convinced many of us to pay up – big – for its products.

The same applies to many other businesses in many different categories: Tiffany, Mercedes, Coke and plenty more.

But – and here’s the key difference – they do it by convincing the customer that they’re worth more (whether you or I disagree with those customers’ assessments is irrelevant, by the way!), not by taking advantage of short term market dislocations or because customers have no other choice.

As investors, I’d suggest that’s the key question to ask: how much of the pricing power I’m seeing is genuinely ongoing, and how much is because of short-term factors.

The former is a sight to behold (and, at the right price, a joy to own). The latter might just be skating on very thin ice.

Fool on!

The post Where’s the competition? appeared first on The Motley Fool Australia.

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More reading

• Experts name 2 ASX All Ords shares to buy after their excellent results
• Qantas share price on watch amid $1.4b half-year profit
• Earnings preview: Here are the ASX shares reporting on Thursday
• Everything you need to know about the latest Rio Tinto dividend
• Results in! Buy these ASX growth shares now: analysts

Motley Fool contributor Scott Phillips 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. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has positions in and has recommended Coles Group. The Motley Fool Australia has recommended Apple. 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 a turbulent world as background, the performance and outlook of ASX companies has never been under more scrutiny than this current reporting season.

Two particular businesses that revealed their cards this week showed such promise in its reporting that some experts reckon they’re ripe to buy right now:

Cashing in from ‘click and collect’

HomeCo Daily Needs REIT (ASX: HDN) is not a household name among investors by any means, but it does have a $2.6 billion market capitalisation.

The trust is named “daily needs” because it owns commercial real estate to rent out to tenants like large-format retailers, convenience stores and gyms.

Morgans co-head of research Fiona Buchanan was pleased with how it reconfirmed its previous 2023 financial year guidance.

“HomeCo Daily Needs’ portfolio remains well positioned with resilient cash flows and continues to be a beneficiary of accelerating click & collect trends,” Buchanan said on the Morgans blog.

“+80% of tenants are national and 73% of tenants offer click & collect, reinforcing the importance of assets being able to support ‘last mile logistics’.”

She noted how the assets are in “strategic locations with strong population growth”.

The HomeCo Daily Needs share price has dipped 8.6% over the past 12 months, but like most real estate trusts it pays out a handsome income.

“HomeCo Daily offers investors an attractive yield of +6% underpinned by contracted rental income and has a large development pipeline.”

Buchanan’s team thus has an add rating on the stock.

Post-pandemic recovery going gangbusters

Helloworld Travel Ltd (ASX: HLO) was a basket case for investors for many years, but it seems to have cleaned up its act.

The travel agency sold off its corporate business last year, and the latest results were the first half-year to report since that transaction.

Morgans senior analyst Belinda Moore liked how its post-pandemic recovery is taking place faster than anticipated.

“Helloworld’s 1H23 result beat our forecast,” Moore said on the Morgans blog.

“The strength of its EBITDA margin was the key highlight and is already above pre-COVID levels.”

She noted how profitability is improving quarter-on-quarter, showing how “travel demand continues to recover in ANZ despite the current macroeconomic uncertainty”.

And there is further upside to come.

“Helloworld expects that bookings volumes will continue to increase as airfares normalise in line with the return of airline capacity, tour operators continue to onboard staff to meet demand and confidence levels amongst the travelling public return to pre-COVID levels.”

The inbound and wholesale business units have also recovered back to pre-pandemic levels.  

“Helloworld sees further opportunities for these businesses with the China market reopening and expects strong growth into the foreseeable future.”

The Morgans team has an add rating for the travel agency, although Moore reminded investors to be patient with this one.

“With a strong balance sheet, Helloworld is well placed to capitalise on the pent-up demand for leisure travel and acquisition opportunities,” she said.

“Helloworld is materially undervalued trading on a recovery year (FY25) EV/EBITDA multiple of only 3.1x.”

The Helloworld share price is down 1.7% over the past 12 months, and is half of what it was five years ago.

The post Experts name 2 ASX All Ords shares to buy after their excellent results appeared first on The Motley Fool Australia.

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More reading

• These excellent ASX dividend shares are buys: Morgans
• Guess which ASX All Ords share is rocketing 5% after sales tripled
• Big yields and strong gains ahead for these ASX shares: analysts
• These are the best ASX dividend shares to buy: broker
• 2 ASX dividend shares to buy with big yields: Morgans

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 positions in and has recommended Helloworld Travel. The Motley Fool Australia has positions in and has recommended Helloworld Travel. 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 Qantas Airways Limited (ASX: QAN) share price will be one to watch on Thursday.

That’s because the airline operator has just released its half-year results for FY 2023.

Qantas share price on watch after beating guidance

• Revenue up 222% over the prior corresponding period to $9.9 billion
• Underlying profit before tax of $1.43 billion compared to loss of $1.3 billion
• Statutory profit after tax of $1 billion
• Net debt reduced to $2.4 billion
• $500 million on-market share buy-back announced

What happened during the six months?

For the six months ended 31 December, the Flying Kangaroo reported a 222% increase in revenue to $9.9 billion. This reflects a 450% increase in net passenger revenue and a 14% increase in other revenue, which offset a 12% decline in net freight revenue.

The former was driven by the return of domestic and international operations, as well as revenue growth at Qantas Loyalty, whereas the latter was the result of a moderation in record yields as international belly space capacity returned.

And while Qantas carried approximately 20% fewer passengers than pre-COVID levels, it was generating significantly more revenue per available seat kilometre.

This ultimately underpinned an underlying profit before tax of $1.43 billion for the first half of FY 2023. This was at the high-end of its upgraded guidance range and represents a $2.73 billion improvement on the loss of $1.3 billion recorded a year earlier.

And although no dividend has been declared, Qantas will be returning funds to shareholders. It has announced an on-market share buy-back of up to $500 million. This is due to commence in March and follows a $400 million buy-back that completed in December.

Management commentary

Qantas CEO, Alan Joyce, was rightfully pleased with the company’s performance during the half. He said:

This is a huge turnaround considering the massive losses we were facing just 12 months ago. When we restructured the business at the start of COVID, it was to make sure we could bounce back quickly when travel returned. That’s effectively what’s happened, but it’s the strength of the demand that has driven such a strong result.

The good news for travellers is that airfares could be coming down in the near future as headwinds ease and capacity increases. Joyce added:

Fares have risen because of higher fuel costs, but also because supply chain and resourcing issues meant capacity hasn’t kept up with demand. Now those challenges are starting to unwind, we can add more capacity and that will put downward pressure on fares. In terms of overheads, we expect the costs we’re carrying from the extra operational buffer will start unwinding from this half and into next financial year.

Outlook

Although no guidance has been provided, management appears positive on the company’s outlook in the second half and in FY 2024. It notes that “travel demand expected to remain strong throughout FY23 and into FY24.”

In light of this, Group Domestic capacity is set to increase from 94% to 103% through the second half of FY 2023, whereas Group International capacity is to increase from 60% to 81%.

Fares are expected to moderate during the second half as capacity increases but will remain significantly above FY 2019 levels. Qantas also revealed that it expects its fuel cost for FY 2023 to be $4.8 billion, with hedging in place.

The Qantas share price is up 21% over the last 12 months, as you can see below.

The post Qantas share price on watch amid $1.4b half-year profit appeared first on The Motley Fool Australia.

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More reading

• Earnings preview: Here are the ASX shares reporting on Thursday
• 5 things to watch on the ASX 200 on Thursday
• Own Qantas shares? Here’s how the ASX 200 airline is investing $100 million
• Are Qantas shares a buy ahead of this week’s ASX results announcement?
• Own Qantas shares? Here’s what the market is expecting from its half year results

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

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The end of the week is drawing near, and with it comes a massive day for ASX shares and their earnings.

Some of the largest companies across healthcare, industrials, and utilities are reporting their latest figures. Which will be showered with praise and which will be wallowing in disappointment?

Here are the details to get your day started on the right foot.

These ASX shares are posting results today

Ranked in order of market capitalisation (largest to smallest)

Ramsay Health Care Ltd (ASX: RHC), $15.1 billion

APA Group (ASX: APA), $12.6 billion

Qantas Airways Limited (ASX: QAN), $11.8 billion

Auckland International Airport Limited (ASX: AIA), $11.4 billion

Atlas Arteria Group (ASX: ALX), $9.6 billion

IDP Education Ltd (ASX: IEL), $8.5 billion

Medibank Private Ltd (ASX: MPL), $8.5 billion

Cleanaway Waste Management Ltd (ASX: CWY), $5.9 billion

Qube Holdings Ltd (ASX: QUB), $5.3 billion

Nine Entertainment Co Holdings Ltd (ASX: NEC), $3.5 billion

Eagers Automotive Ltd (ASX: APE), $3.1 billion

Perpetual Limited (ASX: PPT), $3.0 billion

Insignia Financial Ltd (ASX: IFL), $2.3 billion

Blackmores Ltd (ASX: BKL), $1.7 billion

HMC Capital Ltd (ASX: HMC), $1.4 billion

Nanosonics Ltd (ASX: NAN), $1.4 billion

Star Entertainment Group Ltd (ASX: SGR), $1.4 billion

Smartgroup Corporation Ltd (ASX: SIQ), $760.6 million

Australian Clinical Labs Ltd (ASX: ACL), $686.2 million

Pepper Money Ltd (ASX: PPM), $668.3 million

Zip Co Ltd (ASX: ZIP), $432.4 million

Reject Shop Ltd (ASX: TRS), $151.8 million

Airtasker Ltd (ASX: ART), $125.9 million

Maggie Beer Holdings Ltd (ASX: MBH), $68.7 million

What can we expect to see?

The ‘Flying Kangaroo’ is one ASX share investors will be picking apart today amid its half-year results. A booming period for travel has helped Qantas bounce back from the difficult pandemic lows, but just how good of a result can Alan Joyce and the team deliver today?

In its November update, the company guided underlying profit before tax of between $1.35 billion and $1.45 billion. Since then, the price of oil has traded lower at times (pictured above), which could further improve the bottom line.

Analysts at Morgans are also expecting the airline operator to announce a $400 million share buyback program.

Shifting gears to an ASX share that is still navigating its path to profitability, buy now pay later provider Zip. The company released its second-quarter updater in late January, which shed ample light on transaction volume and revenue.

Unless there were any major changes in auditing, Zip should post $351.2 million in revenue for the first half, up 16.2% year on year. What shareholders are still in the dark on is how much has Zip been able to narrow its losses and does it still have sufficient liquidity available in the meantime.

The Zip share price is down nearly 76% over the past 12 months. In contrast, the S&P/ASX 200 Index (ASX: XJO) has held steady with a 1.5% gain over the same period.

Don’t forget to check back in throughout the day for our earnings coverage.

The post Earnings preview: Here are the ASX shares reporting on Thursday appeared first on The Motley Fool Australia.

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More reading

• Qantas share price on watch amid $1.4b half-year profit
• 5 things to watch on the ASX 200 on Thursday
• Own Qantas shares? Here’s how the ASX 200 airline is investing $100 million
• Own Zip shares? Here’s an earnings preview
• Here are the 10 most shorted ASX shares this week

Motley Fool contributor Mitchell Lawler has positions in Smartgroup. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Idp Education, Nanosonics, and Zip Co. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Airtasker. The Motley Fool Australia has positions in and has recommended Apa Group, Nanosonics, and Smartgroup. The Motley Fool Australia has recommended Blackmores, Idp Education, and Nine Entertainment. 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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After the market close on Wednesday, Rio Tinto Ltd (ASX: RIO) released its full-year results.

For the 12 months ended 31 December, the mining giant reported a 13% decline in revenue to US$55,554 million and a 41% reduction in net profit after tax to US$12,420 million.

This reflects the movement in commodity prices, the impact of higher energy and raw materials prices on its operations, and higher rates of inflation on operating costs and closure liabilities.

As you might have guessed from its significant profit decline, the Rio Tinto dividend has come under pressure.

Rio Tinto dividend

In response to its softer earnings, the Rio Tinto board elected to cut its fully franked final dividend by 46% to US$2.25 per share.

This brought the Rio Tinto dividend to a total of US$4.92 per share in FY 2022, which is a 38% reduction on what was paid a year earlier. It also equates to a total payout of US$8 billion for the year and represents a payout ratio of 60% of underlying earnings.

The good news for investors is that based on current exchange rates and the latest Rio Tinto share price, this still provides shareholders with a generous fully franked 5.8% dividend yield.

But if you want to get hold of Rio Tinto’s final dividend of FY 2022, you’ll need to act reasonably fast.

The mining giant’s shares are scheduled to trade ex-dividend in a couple of weeks on 9 March. After which, the miner is scheduled to pay eligible shareholders this dividend the following month on 20 April.

Where next for its dividends?

Unfortunately, another dividend cut is widely expected in FY 2023.

For example, according to a note out of Goldman Sachs, its analysts expect an 8.5% reduction to US$4.50 per share.

The good news, though, is that its analysts are then expecting a rebound the following year.

They have pencilled in an increase to US$5.50 per share in FY 2024. And while it’s not quite FY 2021 levels, it certainly is a step in the right direction.

The post Everything you need to know about the latest Rio Tinto dividend appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Thursday
• Rio Tinto share price on watch amid FY22 results
• Goldman tips 20% surge in iron ore price. Should I buy ASX 200 mining shares?
• Passive income boost! 2 excellent high yield ASX dividend shares to buy: experts
• Should you dig into Rio Tinto shares before the ASX 200 miner reports next 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 no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The results have certainly been coming in thick and fast this month.

Two ASX growth shares that brokers have slapped buy ratings on this week following the release of their respective results are listed below. Here’s what they are saying:

Lovisa Holdings Limited (ASX: LOV)

The first ASX growth share that has been named as a post-results buy is this fast fashion jewellery retailer.

Earlier this week, Lovisa released its half-year results and reported a 44.8% increase in revenue to $315.5 million and a 31.9% jump in net profit after tax to $253.2 million.

This went down well with analysts at Morgans, which responded by retaining its add rating with an improved price target of $29.00. The broker commented:

LOV continues to impress us with the rate at which it opens new stores and expands into new markets. As we have said before, LOV may just prove to be one of the biggest success stories in Australian retail. LOV is showing every sign of becoming a global brand. Investment will be needed to expand LOV’s network in the US and Europe and to take it into new markets, but the company has the balance sheet capacity to fund this and the returns could be stellar. We retain an ADD rating. Our target price increases from $28.50 to $29.00.

Readytech Holdings Ltd (ASX: RDY)

Another ASX growth share that delivered strong growth during the first half was enterprise software provider Readytech.

It reported a 34.1% increase in revenue to $47.9 million and underlying EBITDA of $15.6 million. Management also confirmed that it remains on target to achieve its FY 2023 guidance and reaffirmed its FY 2026 goal of over $160 million of organic revenue.

While the result was a touch short of expectations, Goldman Sachs responded positively and retained its buy rating with a trimmed price target of $4.40. It said:

RDY’s 1H23 result missed on both revenue and EBITDA (-5%/-9%), although we remain positive on the company’s ability to meet its reiterated full-year guidance for mid-teens organic growth at low-to-mid 30’s EBITDA margin. Our constructive view is based on encouraging metrics including (1) A$9mn ACV from 6 enterprise deals signed late in 1H23 and yet to contribute to group revenue; (2) average revenue per new customer of A$72k in the half, up from A$52k in FY22, demonstrating RDY’s enterprise momentum; and (3) easing tech labour pressures, supporting margin expansion in 2H23.

The post Results in! Buy these ASX growth shares now: analysts appeared first on The Motley Fool Australia.

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More reading

• 3 ASX 200 shares defying the market following earnings announcements
• 3 ASX All Ords tech shares making moves on earnings updates
• These ASX tech shares are buys with 30%+ upside: brokers
• Two ASX shares with bucketloads of growth potential: experts
• How to create a second income from ASX growth shares

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 Lovisa and ReadyTech. The Motley Fool Australia has recommended Lovisa and ReadyTech. 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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There’s no doubt small-cap ASX shares can fly high in a hurry unlike anything their larger rivals are likely to do.

But nothing comes for free, and this type of explosive growth won’t just fall into an investor’s lap.

Picking the right small-cap stock requires much research of businesses where information might be pretty scarce.

And because many of them are in pre-profit or even pre-revenue stages, financial fundamentals might not even necessarily reflect their future potential.

It’s indeed an imprecise art.

However, there are professional investors that study small caps for a living. Listening to their favourite picks and the rationale behind them might provide some insight for your own decisions.

One of those pros is Salter Brothers portfolio manager Gregg Taylor. This week, he named one ASX stock with a bright outlook that investors may not know much about:

Dirt cheap for ‘defensive growth’

Acrow Formwork and Construction Srvc Ltd (ASX: ACF) provides services and formwork solutions for the civil construction industry.

Those in the know have flocked to the stock, seeing the share price rocket more than 39% over the past year.

Taylor’s team reckons there’s still upside in excess of 45% above the current share price over the next couple of years.

The business is “consistently growing” its revenue and earnings, as seen over the five years that it’s been listed on the ASX.

“It’s also generating good cash, has a good balance sheet, is quite profitable and is dividend-paying — fully franked yield of close to 6%.”

Despite the rise in share price, Acrow shares are still trading at a price-to-earnings multiple of seven to eight times, which is a bargain in Taylor’s eyes.

“So you’re not paying a lot for that defensive growth.”

The post The obscure ASX share with 45% upside one small-caps expert is backing right now appeared first on The Motley Fool Australia.

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More reading

• Broker says these small cap ASX shares offer big returns potential

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 positions in and has recommended MedAdvisor. 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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Are you looking for dividend shares to buy this week? If you are, then the two listed below could be worth checking out.

Both have been named as buys by analysts at Morgans this week and have been tipped to provide very attractive yields. Here’s what you need to know about these dividend shares:

Coles Group Ltd (ASX: COL)

The first ASX dividend share that Morgans thinks is a buy is supermarket giant Coles.

its analysts were pleased with the company’s half-year results and particularly the stronger than expected performance from its supermarkets segment.

In light of this positive form and its defensive qualities, the broker believes Coles is a great option right now. It commented:

Trading on 22.5x FY24F PE and 3.6% yield, we continue to see COL as offering good value with the company’s healthy balance sheet and defensive characteristics putting it in a good position to navigate through a weaker economic environment. In our view, the unwinding of local shopping trends should continue to be a tailwind and further trading down from consumers will also be positive given COL’s strong Own Brand offering.

As for dividends, the broker is forecasting fully franked dividends per share of 66 cents in both FY 2023 and FY 2024. This represents yields of 3.6% for both years.

Morgans has an add rating and $19.60 price target on its shares.

HomeCo Daily Needs REIT (ASX: HDN)

Another ASX dividend share that has been named as a buy is HomeCo Daily Needs.

It is a property investment company that offers investors exposure to a portfolio of daily needs assets. These include convenience-based assets across neighbourhood retail, large format retail, and health and services.

Morgans is very positive on the company due to the resilience of its cashflows and its huge development pipeline. Earlier this week, the broker commented:

HDN’s portfolio remains well positioned with resilient cashflows and continues to be a beneficiary of accelerating click & collect trends. +80% of tenants are national and 73% of tenants offer click & collect reinforcing the importance of assets being able to support ‘last mile logistics’. Sites are also in strategic locations with strong population growth (79% metro). HDN offers investors an attractive yield of +6% underpinned by contracted rental income and has a large development pipeline.

In respect to dividends, the broker is forecasting dividends per share of 8.3 cents in FY 2023 and 8.4 cents in FY 2024. Based on the current HomeCo Daily Needs share price of $1.26, this will mean dividend yields of 6.6% and 6.7%, respectively.

Morgans has an add rating and $1.50 price target on HomeCo Daily Needs’ shares.

The post These excellent ASX dividend shares are buys: Morgans appeared first on The Motley Fool Australia.

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More reading

• Experts name 2 ASX All Ords shares to buy after their excellent results
• Wake up! Buy 5 ASX shares that are reporting season gems: Morgans
• Top brokers name 3 ASX shares to buy today
• 3 ASX 200 dividend shares to buy now before their dividend payouts
• Is Coles now one of the best ASX 200 dividend shares?

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 positions in and has recommended Coles 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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Earlier this week, The Motley Fool reported Wilsons equities strategist Rob Crookston’s seven ASX growth stocks to buy that could become takeover targets.

The idea behind that, according to the Wilsons team, is that acquisition bids are almost always favourable for the existing shareholders.

“Normally, companies are acquired at a significant premium to their latest share price,” said Crookston in a memo to clients.

“Identifying companies that will make suitable takeover targets can make for very lucrative investments.”

And the great thing for investors is that an actual transaction doesn’t even have to materialise for their ASX shares to explode out of the gates.

“Any hint of a possible acquisition can trigger positive momentum even before a bid is announced.”

‘Infrastructure-like’ ASX shares with free cash flow

One way to identify tempting takeover targets is to find companies that are asset-rich that have reliable incomes.

“We screened for infrastructure or ‘infrastructure-like’ stocks with low market betas, free cash flow yields (FY25) above 4% and companies that haven’t seen a material re-rate over the last year.”

Using these criteria, Crookston’s team came up with six S&P/ASX 200 Index (ASX: XJO) shares that one could buy in anticipation of a takeover bid:

• AGL Energy Limited (ASX: AGL)
• Aurizon Holdings Ltd (ASX: AZJ)
• Ramsay Health Care Ltd (ASX: RHC)
• APA Group (ASX: APA)
• Cleanaway Waste Management Ltd (ASX: CWY)
• Lottery Corporation Ltd (ASX: TLC)

Crookston noted that Cleanaway and Lottery Corp both already feature in Wilsons’ “focus portfolio”.

“These look attractive acquisition targets due to their stable cash flows, relatively low debt balances and strong market positioning in their respective markets.”

The Lottery Corporation also operates as a monopoly in every state except for Western Australia.

“Looks well priced versus other infrastructure-like assets.”

Energy provider AGL was already the subject of a failed takeover attempt last year, as was Ramsay Health.

According to Crookston, the story might not be over for Ramsay.

“Cost out and real estate asset sales could be [an] opportunity for the right buyer. Earnings recovery after the pandemic could also be alluring.”

Private ownership might actually help freight rail provider Aurizon operate better, read the Wilsons memo.

“Infrastructure asset, monopoly, relatively steady (high) cash flows. Might benefit from being taken private from an ESG perspective.”

The post 6 asset-rich ASX 200 shares to buy for their takeover potential: expert appeared first on The Motley Fool Australia.

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More reading

• Here’s why the AGL share price is dipping on Wednesday
• Boost your passive income with these ASX shares: analysts
• Hoping to bag the next AGL dividend? You’d better be quick
• 8 ASX 200 shares trading ex-dividend this week
• 3 excellent ASX 200 shares to buy and hold for a decade: analysts

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 positions in and has recommended Apa Group. The Motley Fool Australia has recommended Aurizon. 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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There is much macroeconomic and geopolitical manoeuvring that’s distracting investors of ASX shares.

But one mustn’t forget the current reporting season has been revealing crucial information about the businesses themselves.

Lucky for us, experts like Morgans analyst Andrew Tang have been keeping tabs on all the company reports.

In his regular “call to action” blog post, he picked out five ASX shares this week that are the best buys on the back of their February updates:

‘Industry leading’ with growth runway intact

Investment platform provider Hub24 Ltd (ASX: HUB) reported “above expectations”, with underlying earnings and net profit both up.

“Hub24 looks to be delivering ‘cleaner’ financials,” Tang wrote on the Morgans blog.

“The product offering is industry leading — along with Netwealth Group Ltd (ASX: NWL) — and the runway to secure more clients looks intact.”

Average funds under management and platform revenue also grew significantly.

The only bone to pick with Hub24 shares is that they have already risen 16.8% over the past year and a phenomenal 326% since the COVID-19 market crash.

They’re still an add for Tang’s team though.

“Whilst upside to our valuation is reasonably low, the potential for larger ‘transitions’ wins is a realistic catalyst within CY23.”

Industry halves but this player is standing strong

Monash IVF Group Ltd (ASX: MVF) is going from strength to strength, according to Tang.

“Despite industry volumes declining in the half, Monash IVF continues to gain market share in its key markets through both organic growth and through acquisitions.”

The February report was solid, with net profit after tax (NPAT) of $12.6 million coming in marginally higher than guidance.

“A strong increase in new patient registrations for the 2Q gives us confidence in the pipeline for 2H23,” said Tang.

“Management has upgraded underlying NPAT guidance to 15% growth to A$25.5m for FY23 (up from guidance provided at its AGM of 10%+ growth).”

The Monash share price is flat from a year ago.

Potential clouds coming, but this one’s still a buy

Tang called online jobs classifieds Seek Ltd (ASX: SEK)’s update “broadly a positive result”.

However, forward guidance was biased towards the lower end of expectations with a slowing economy dampening job ad growth in Australia and New Zealand.

Morgans has subsequently downgraded its earning forecast, but the stock remains a buy.

“We adjust our FY23F to FY25F EPS by -5% to +1% factoring in the revised guidance, lower topline estimates across our forecast period on additional conservatism and improved EBITDA margins in SEEK Asia.”

The Seek share price is down 9.75% over the past 12 months.

‘Potential short-term catalyst’ coming for these dealers

Car dealership network Peter Warren Automotive Holdings Ltd (ASX: PWR) enjoyed a surge in vehicle sales at the height of the pandemic.

Despite that fervour subsiding over the past year, its share price has managed to rise 4.4%.

Tang is buying the stock after a result that was “broadly in-line”.

“Peter Warren is trading on ~11x our assumed more ‘normalised’ conditions (FY24/25),” he said.

“Industry consolidation will continue — we expect PWR to be a participant which adds to structural earnings capacity.”

He added that the onboarding of Toyota Motor Corp (TYO: 7203) to its network would be “a potential short-term catalyst”.

Excellent result and new CEO

Supermarket giant Coles Group Ltd (ASX: COL) hogged the limelight in the financial media earlier this week with excellent results and the transition to a new chief executive.

According to Tang, Coles is expecting consumer habits to change in 2023.

“Management said supermarkets volume growth returned to modestly positive from mid-January and is expecting more customers to be value conscious as cost-of-living pressures increase.”

The company’s booming supermarkets arm is somewhat cancelled out by reduced earnings in its liquor division.

Coles is also selling off its petrol station network to Viva Energy Group Ltd (ASX: VEA), which will impact short-term earnings.

The Coles share price is up 5.4% over the past 12 months while paying out a 3.5% dividend yield.

Tang’s team is maintaining its add rating.

The post Wake up! Buy 5 ASX shares that are reporting season gems: Morgans appeared first on The Motley Fool Australia.

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More reading

• These excellent ASX dividend shares are buys: Morgans
• These blue chip ASX 200 shares are post-results buys: experts
• Top brokers name 3 ASX shares to buy today
• 3 ASX 200 dividend shares to buy now before their dividend payouts
• Is Coles now one of the best ASX 200 dividend shares?

Motley Fool contributor Tony Yoo has positions in Seek. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Hub24 and Netwealth Group. The Motley Fool Australia has positions in and has recommended Coles Group, Hub24, and Netwealth Group. The Motley Fool Australia has recommended Seek. 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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