The Pro Medicus Limited (ASX: PME) share price is losing its shine on Thursday.

In morning trade, the ASX 200 healthcare stock is down over 6% to $101.37.

This follows the release of the health imaging technology provider’s half-year results.

ASX 200 healthcare stock tumbles on results

Here’s how Pro Medicus performed over the six months ended 31 December:

• Revenue up 30.3% to $74.1 million
• Underlying profit before tax up 31.5% to $48.9 million
• Net profit up 33.3% to $36.3 million
• Cash and other financial assets up 8.3% to $131.5 million
• Fully franked interim dividend up 38.5% to 18 cents per share

What happened during the half?

During the half, the ASX 200 healthcare stock achieved a 30.3% increase in revenue and a 33.3% lift in net profit compared to the prior corresponding period.

Management advised that the result was driven largely by increased revenue from North America (up 36.8%), with four major implementations completed. In addition, it reported above industry growth in exam volumes across its client base.

The good news is that this strong growth looks set to continue. Pro Medicus won four key contracts during the six months. These have a total contract value of $200 million at committed minimum exam volumes and contract terms ranging from 7 to 10 years.

Management commentary

Pro Medicus’ CEO, Dr Sam Hupert, was pleased with the half and believes the company’s strong growth can continue. He said:

We were very pleased with the results. It was another half of profitable growth where all key financial metrics headed in the right direction. Our transaction-based business model underpinned by minimums and long-term contracts provides us with an annuity stream with each new contract building on the existing base of annual recurring revenue.

On top of that, our clients are growing well above industry average and there is always the potential for them to take additional products from us. So, we believe we will be able to maintain our growth trajectory especially when you consider we have had our strongest six-months of sales in the company’s history, with the revenue from these sales still ahead of us.

Outlook

The ASX 200 healthcare stock didn’t provide any guidance but Dr Hupert spoke very positively about the company’s prospects in the second half. He said:

[We] had our strongest start to the year in terms of sales, so, we believe our second half will be stronger than our first forming the base for future growth in FY2025 and beyond.

Our pipeline is strong across all sectors of the market. Our cloud-based modular approach continues to provide unprecedented flexibility and scalability, as evidenced by the increasing number of clients choosing the full stack of all three Visage products – Viewer, Workflow and Archive, a trend we see continuing.

Overall, a very strong result from the high-flying company. However, It seems that the market was pricing in even stronger growth.

Pro Medicus shares remain up 54% over the last 12 months.

The post This ASX 200 healthcare stock is sinking 6% despite explosive first-half earnings growth 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 Pro Medicus. The Motley Fool Australia has recommended Pro Medicus. 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 Origin Energy Ltd (ASX: ORG) share price is gaining on Thursday morning amid its FY2024 first-half results.

Shares in Australia’s largest listed utilities company by market capitalisation are up 3% to $8.83 at the time of writing. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is rallying 0.9%, overtaking the 7,600-point level.

Origin share price forge higher on strong growth

Origin released the Kraken in the half ending 31 December 2023, so to speak, crushing it in many aspects of its business.

• Total group revenue down 9% from prior corresponding period to $7,996 million
• Statutory profit up 149% to $995 million
• Underlying profit increasing from $44 million to $747 million
• Underlying EBITDA up 88% to $1,995 million
• Fully franked interim dividend of 27.5 cents per share, up from 16.5 cents

Flicking through Origin’s results, it quickly becomes evident what boosted underlying profit during the half. The energy market division saw $813 million EBITDA flow through due to a recovery in wholesale prices, lower electricity generation, and reduced procurement costs.

Integrated gas, which encompasses Origin’s share of Australia Pacific LNG (APLNG), acted as a drag. A fall in realised oil prices created a $179 million headwind for the company’s underlying profit. However, this was more than made back by earnings sourced by hedging and other LNG trading, generating $296 million.

What else happened during the first half?

In a big move, Origin outlaid around $530 million Australian dollars to up its stake in UK technology and energy company Octopus Energy on 18 December 2023. The Origin share price moved higher after revealing the move to go from a 3% holding to 23% as part of a funding round for Octopus.

Origin CEO Frank Calabria highlighted the success of Octopus Energy in today’s release, stating:

Octopus Energy continues its impressive growth trajectory, becoming the second largest energy retailer in the UK and growing Kraken technology licensing to more than 50 million accounts contracted worldwide, reinforcing our belief in its unique capabilities and strong platform for future growth.

On a different note, the takeover talks between Origin and the combined Brookfield and EIG outfit were officially laid to rest on 7 December 2023. Interestingly, the Origin share price has gradually increased since then, as shown below.

What did Origin management say?

Origin expects “increased value opportunities” for its battery projects amid greater intra-day electricity price volatility and unplanned outages. Just this week, half a million Victorians were left without power as AGL suffered a complete shutdown.

Outlining the company’s plans for further developments, Calabria noted:

We have continued to accelerate renewables and storage in our portfolio, having committed approximately $1 billion to develop two large scale batteries at our Eraring and Mortlake power stations. We also acquired a prospective 500 MW greenfield wind development in New South Wales and are progressing potential offshore wind projects in Victoria and New South Wales.

What’s next?

Guidance for both FY2024 and FY2025 were provided today — though details on the latter were sparse.

FY2024:

• Energy Markets EBITDA is expected to be between $1,600 million to $1,800 million (excluding Octopus Energy).
• Octopus Energy EBITDA is expected to be positive, but less than $100 million.
• APLNG production is slated to be between 680 petajoules (PJ) to 710 PJ

FY2025:

Origin believes energy markets EBITDA will be hampered by a decline in regulated customer tariffs. The softening is forecast to be somewhat offset by a lower cost base.

Origin Energy share price at a glance

The Origin share price has performed solidly over the past year, leaping 23.7%. For context, the Aussie benchmark is only 3.5% better off than a year ago. Most of this gain occurred around February last year when takeover bids were being lobbed its way.

The post Origin share price lifts as profits explode to almost $1 billion appeared first on The Motley Fool Australia.

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Motley Fool contributor Mitchell Lawler 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 South32 Limited (ASX: S32) share price is in the green today.

Shares in the S&P/ASX 200 Index (ASX: XJO) diversified mining stock closed yesterday trading for $3.08. At the time of writing late Thursday morning, shares are swapping hands for $3.11, up 0.8%.

For some context, the ASX 200 is up 0.5% at this same time.

This comes as investors digest the company’s half-year results for the six months ending 31 December (H1 FY 2024), as well as a major project announcement.

Here are the highlights.

(*Note, all figures in US dollars.)

South32 share price lifts despite profit dive

• Underlying revenue of $3.88 billion, down 14% from H1 FY 2023
• Profit after tax of $53 million, down 92% from the $685 million after tax profit in the prior corresponding period
• Underlying earnings down 93% year on year to $40 million
• Interim fully franked dividend of 0.4 US cents per share, compared to the prior interim dividend of 7.3 Aussie cents per share

What else is happening with the ASX 200 miner?

In other metrics that could impact the South32 share price, the company reported underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) of US$708 million.

Management noted that despite record aluminium production over the six months, underlying EBITDA was down 48% year on year due to lower commodity prices as well as lower volumes of its metallurgical coal. Coal production was impacted as the ASX 200 miner completed planned longwall moves at its Illawarra Metallurgical Coal asset.

Pleasingly for passive income investors, South32 returned US$180 million to its shareholders over the six months. That included US$145 million in dividends and a US$35 million on-market share buyback.

On the cost front, the miner’s focus on efficiencies and options to defer non-critical projects has seen it lower or maintain its FY 2024 operating unit cost guidance across most operations.

South32 share price boosted by US$2.2 billion project approval

In big news today, the South32 share price looks to be shaking off the plunge in profits after the company announced it has approved a final investment decision (FID) to develop the Taylor zinc-lead-silver deposit at its Hermosa project in the US state of Arizona.

What did management say?

Commenting on the Hermosa FID that appears to be offering some tailwinds for the South32 share price today, CEO Graham Kerr said:

We have taken the next step in our portfolio transformation by announcing a US$2.16 billion investment in the Taylor zinc-lead-silver deposit at our Hermosa project in Arizona, with first production expected in H2 FY 2027.

This investment is a major milestone for our business, that further reshapes our portfolio towards commodities critical to a low-carbon future. Taylor is expected to deliver value for shareholders for decades to come and underpin further growth phases at our regional scale Hermosa project, establishing it as a globally significant producer of commodities critical for a low-carbon future.

What’s next for South32?

Looking at what could impact the South32 share price in the months ahead, the company maintained its FY 2024 production guidance. The miner expects to deliver a 7% increase in production volumes in the current half-year.

Kerr added the miner will also “remain focused on driving operating performance and cost efficiencies across” its business.

South32 share price snapshot

The South32 share price has struggled over the past 12 months, down 32%.

The post South32 share price lifts off as ASX 200 miner greenlights US$2.2 billion project appeared first on The Motley Fool Australia.

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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 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) shares are falling on Thursday.

In morning trade, the telco giant’s shares are down 2.5% to $3.89.

What’s happening?

Investors have been pushing the sell button today in response to the company’s half-year results.

For the six months ended 31 December, Telstra reported a 1.2% increase in total income to $11,700 million and a 3.1% lift in underlying EBITDA to $4,001 million.

This reflects growth across mobile services, International, Telstra InfraCo Fixed, and Amplitel, which offset weakness from mobile hardware, Fixed C&SB, Fixed Enterprise, and Fixed Active Wholesale.

This ultimately allowed the Telstra board to increase its fully franked interim dividend by 5.9% to 9 cents per share.

Why are Telstra shares falling?

While on paper this looks like a decent result, it was actually a touch short of the market’s expectations.

In addition, Telstra shares are under pressure today after management revised its earnings guidance range for FY 2024.

Previously, the company was targeting EBITDA of $8.2 billion to $8.4 billion. However, it has now revised this in response to a weaker than expected performance from its Network Applications and Services (NAS) business.

Telstra CEO, Vicki Brady, explained:

Within our Enterprise Fixed business, Data & Connectivity is performing as expected, however NAS is clearly a long way from where we need it to be. […] Given the performance in our NAS business, we are tightening our FY24 Underlying EBITDA guidance range to $8.2 to $8.3 billion. FY24 guidance across other measures is reaffirmed.

Broker response

The team at Goldman Sachs notes that the result was short of its expectations. It said:

Telstra has reported 1H24 Income/EBITDA/NPAT of A$11.72bn/A$4.0bn/A$964mn, which was -1%/-1%/-0.2% vs. our estimates, and -1%/-1%/0% vs. Visible Alpha Consensus (VAe).

The broker also highlights that Telstra’s guidance implies a larger than normal earnings skew in the second half. It adds:

FY24 EBITDA guidance narrowed to $8.2bn to $8.3bn (from $8.2-$8.4bn, i.e. -1% at mid-point and vs. GSe/VAe). All other guidance metrics are unchanged. We note the 1H24 EBITDA and revised FY24 guidance implies a 48.7%/51.3% 1H/2H skew (mid-point) vs. TLS FY16-23 1H avg. of 49.5% – with this skew previously flagged at the Nov-23 investor day. The lower guidance reflects the disappointing NAS performance flagged at the Investor Day – which has continued Nov-Jan (lower business confidence), with its performance not expected to improve in 2H24 (i.e. typically 2H skew).

The post Telstra shares tumble on half-year disappointment 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 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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The Whitehaven Coal Ltd (ASX: WHC) share price is taking a tumble today.

Shares in the S&P/ASX 200 Index (ASX: XJO) coal stock closed yesterday trading for $7.51. In early morning trade on Thursday, shares are changing hands for $7.03 apiece, down 6.4%.

For some context, the ASX 200 is up 0.7% at this same time.

This follows the release of Whitehaven’s half-year results for the six months ending 31 December (H1 FY 2024).

Read on for the highlights.

Whitehaven share price dives as dividend slashed

• Revenue of $1.59 billion, down 58% from H1 FY 2023
• Underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) of $623 million, down 77% year on year
• Underlying net profits after tax (NPAT) of $372 million, down from $1.79 billion in H1 FY 2023
• Net cash down 43% to $1.50 billion
• Fully franked interim dividend of 7 cents per share, down from the prior interim dividend of 32 cents per share

What else happened with Whitehaven during the half-year?

Other core metrics impacting the Whitehaven share price include coal production, which increased during the period. Run of mine (ROM) production was up 17% from H1 FY 2023 to 10.35 million tonnes.

Unfortunately, costs were up too. Unit costs per tonne rose to $111 per tonne, up 16% from the prior corresponding half year. And coal stocks declined by 34% to 1.23 million tonnes.

Whitehaven reported it achieved a realised average price of AU$220 per tonne over the six months.

In the biggest development for the ASX 200 coal miner during the period, Whitehaven confirmed its intention to acquire the Daunia and Blackwater metallurgical coal mines, owned by the BHP Group Ltd (ASX: BHP) Mitsubishi Alliance.

And passive income investors may want to mark 8 March on their calendars. That’s when Whitehaven will pay out its interim dividend.

What did management say?

Commenting on the acquisition of BHP’s coal mines, which is failing to lift the Whitehaven share price today, CEO Paul Flynn said:

The program of work to complete the acquisition of Daunia and Blackwater mines and transform Whitehaven into a metallurgical coal business is progressing well…

The US$1.1 billion five-year credit facility, together with US dollar cash on the balance sheet, will be used to fund the upfront payment for the acquisition. Ongoing cash flows being generated by the business will provide additional liquidity.

Whitehaven expects the acquisition to be complete in early April, subject to regulatory approvals.

What’s next?

Looking at what might impact the Whitehaven share price in the months ahead, the company’s FY 2024 guidance forecasts managed ROM coal production of 18.7 million to 20.7 million tonnes. Managed coal sales are forecast to be in the range of 16.0 to 17.5 million tonnes for the full financial year.

On the cost front, Whitehaven expects unit costs (excluding royalties) to be between $103 to $113 per tonne. And capital expenditure is forecast at $400 million to $450 million (excluding acquisition costs).

Whitehaven share price snapshot

With today’s big dip factored in, the Whitehaven share price is down 14% over 12 months.

Shares in the ASX 200 coal stock are up 24% since the 31 May lows.

The post Whitehaven share price crumbles on plunging half-year revenue appeared first on The Motley Fool Australia.

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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 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 Treasury Wine Estates Ltd (ASX: TWE) share price is up 3.9% in early trade on Thursday despite the company putting out lukewarm half-year results in the morning.

What did the company report?

• First half 2024 net profit after tax down 11% to $166.7 million
• First half 2024 revenue up 0.4% to $1.3 billion
• First half 2024 earnings down due to some product sales weighted to the second half
• Interim dividend 17 cents, compared to 18 cents last year

The results come as Beijing is undertaking a review of punitive tariffs on Australian wine imports into China. Warmer diplomatic relations between the two nations may mean the tariffs are reduced, which will reopen a massive export market for Treasury Wine after it was lost in 2020.

What else happened in the first half?

The big news in the first half was Treasury Wine’s acquisition of Daou vineyards business in the US for about $1.4 billion.

Luxury wines carried the business with net sales revenue up 4.3%, while premium and commercial portfolio respectively lost 2% and 6.5%.

What did management say?

I am pleased with the ongoing underlying performance of Treasury Wine Estates this period, with strong consumer demand for our priority Luxury brand portfolio continuing around the globe.

Penfolds continues to perform and strengthen, whilst Treasury Americas has made significant progress in reshaping its portfolio focus with continued growth of its Luxury brands now supported by the acquisition of DAOU in December. The Premium wine category, whilst resilient, is highly competitive and we continue to innovate and invest to achieve the goal of outperforming the category and importantly attracting new consumers to wine.

Treasury wine chief executive Tim Ford

What’s next?

Aside from the massive potential catalyst of China’s tariff review, Ford said that the company is “on track to deliver mid-high single digit earnings growth in F24”.

“We remain confident that our premiumisation strategy, preeminent brand portfolio and attractive market fundamentals at Luxury price points will allow us to continue to deliver our long-term growth ambitions.”

Treasury Wine share price snapshot

Treasury shares had been down 16.1% over the past 12 months before trading on Thursday. The stock is now trading almost 42% lower than its pre-COVID high.

The post Treasury Wine shares rocket despite profit dive waiting for China tariff relief appeared first on The Motley Fool Australia.

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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 recommended Treasury Wine Estates. 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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BHP Group Ltd (ASX: BHP) shares are under pressure on Thursday morning.

At the time of writing, the mining giant’s shares are down 1.5% to $45.25.

Why are BHP shares falling?

Investors have been hitting the sell button today after the company announced a number of exceptional items that will show up in its upcoming half-year results.

According to the release, these items relate to an impairment of the carrying value of the Nickel West operations and West Musgrave project (Western Australia Nickel) and an increase to the provision for the Samarco dam failure.

Nickel impairment

Management highlights that the nickel industry is facing challenges and there has been a sharp fall in nickel prices.

This has been driven by the supply of nickel from Indonesia significantly increasing and the London Metals Exchange accepting Indonesian-origin nickel products in response to evolving industry dynamics.

Unfortunately, BHP believes these unfavourable operating conditions will endure for a considerable time. Combined with cost pressures, BHP has been forced to impair the Western Australia Nickel’s assets by US$2.5 billion. This reduces the carrying value of the assets to negative US$0.3 billion.

BHP will also record underlying EBITDA of approximately negative US$0.2 billion at Western Australia Nickel in its half-year results.

Management continues to optimise operations at Nickel West and options are being evaluated to mitigate the impacts of the current low prices.

BHP Chief Executive Officer, Mike Henry, said:

This is an uncertain time for the Western Australia nickel industry and we are taking action to address the current market conditions. We are reducing operating costs at Western Australia Nickel and reviewing our capital plans for Nickel West and West Musgrave.

Samarco provision

Also putting pressure on BHP shares is news that the miner will also recognise an income statement post tax charge of US$3.2 billion in relation to the Samarco dam failure.

This reflects the assessment of the estimated costs to resolve all aspects of the Federal Public Prosecution Office Claim and the Framework Agreement obligations.

Henry adds:

BHP Brasil along with Samarco and Vale continue to progress negotiations towards a settlement of the Federal Public Prosecutor Office Claim and Framework Agreement obligations in Brazil. The Renova Foundation has made good progress on reparation and compensation programs and over 84% of the community resettlement cases have been completed.

The post BHP shares fall on multi-billion profit hit from nickel and Samarco appeared first on The Motley Fool Australia.

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

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The Wesfarmers Ltd (ASX: WES) share price will be in focus on Thursday after the conglomerate released its half-year results.

Let’s see how the company performed during the half.

Wesfarmers share price on watch after half-year results release

• Revenue up 0.5% to $22,673 million
• Earnings before interest and tax (EBIT) up 1.6% to $2,195 million
• Net profit after tax up 3% to $1,425 million
• Operating cash flows up 47% to $2,898 million
• Fully franked interim dividend up 3.4% to 91 cents

What happened during the half?

For the six months ended 31 December, Wesfarmers reported a 0.5% increase in revenue to $22,673 million.

This was driven by a 1.7% increase in Bunnings revenue, a 7.8% jump in Kmart revenue, a 1.8% lift in Officeworks revenue, and a 3.2% improvement in Industrial and Safety revenue. This offset weaker Catch, Target, Wesfarmers Health, and WesCEF revenue. The latter was down 21.2% on the prior corresponding period.

Wesfarmers’ earnings grew at a quicker rate during the half, with net profit after tax up 3% to $1,425 million.

This was driven largely by the Kmart Group business, which posted a 26.5% increase in earnings for the year. Management advised that its record result reflects the positive customer response to Kmart’s lowest price positioning.

Bunnings earnings were relatively flat for the year but up 3.1% excluding property contributions.

The main drag on its earnings was the WesCEF business, which posted a 46.9% decline in earnings for the period. Its earnings were impacted by lower global commodity prices, as well as higher Western Australian gas costs.

Finally, thanks partly to its strong cash flow generation, the Wesfarmers board elected to increase its interim dividend by 3.4% to 91 cents per share.

How does this compare to expectations?

This result appears to have been a bit of a mixed bag compared to the market’s expectations.

On the positive side, Morgans was forecasting “EBIT to be down 5% mainly due to materially lower WesCEF earnings.”

So, the company has beaten those expectations, which could be good news for the Wesfarmers share price.

One negative, though, is the performance of the Bunnings business compared to expectations.

Goldman Sachs was forecasting a solid 5.1% increase in Bunnings EBIT for the half. Given that it is the key business in the Wesfarmers portfolio, its underperformance could be a worry for some investors.

Management commentary

Wesfarmers’s Managing Director, Rob Scott, was pleased with the company’s performance. He said:

Wesfarmers’ retail divisions executed strongly during the half, responding effectively to changing customer needs as households increasingly sought out value. In this environment, the retail divisions’ core offer of everyday products with market-leading value credentials supported growth in sales and customer transaction numbers.

The retail divisions have benefitted from a proactive focus on productivity and efficiency initiatives in recent years, which together with their unique sourcing capabilities and strong supplier partnerships enabled them to mitigate ongoing cost pressures and provide compelling value for customers during the half.

Outlook

No guidance has been provided for FY 2024, but management has given investors an update on the first five weeks of the second half. It said:

For the first five weeks of the second half of the 2024 financial year, Kmart Group has continued to deliver strong sales growth. Sales growth in Bunnings remained broadly in line with results for the first half. Officeworks’ sales for the first five weeks were in line with the prior corresponding period.

The Wesfarmers share price is up almost 20% over the last 12 months.

The post Wesfarmers share price on watch amid stellar first-half Kmart growth appeared first on The Motley Fool Australia.

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More reading

• Beginners: Here are 2 ASX dividend stocks to get your portfolio started!
• Are Wesfarmers shares a good long-term buy?
• 2 ASX stocks that could explode in February
• Own Wesfarmers shares? Here’s your half-year results preview
• Would I be crazy to buy Wesfarmers shares at $58?

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 and Wesfarmers. The Motley Fool Australia has positions in and has recommended Wesfarmers. 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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S&P/ASX 200 Index (ASX: XJO) bank shares are often seen as some of the best options for dividends. But, there are other sectors that can deliver strong passive income. ASX Insurance shares can also provide a very good yield.

Sure, Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), ANZ Banking Group Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) have some of the bigger yields in the ASX 200 at the moment.

But, banks also come with potential issues. For example, there is a lot of competition in the sector (hurting margins) and banks have huge balance sheets. They have large loan books – it would only take a relatively small amount of loans going bad to hurt profit significantly in one year.

I’m going to talk about three ASX Insurance shares that are demonstrating good dividends and underlying earnings growth.

Medibank Private Ltd (ASX: MPL)

Medibank is the largest private health insurer in Australia, with its Medibank and ahm brands.

The business has millions of policyholders and this number continues to grow, adding scale to the company and helping profitability. In FY23, it saw net resident policyholder growth of 10,900 (0.6%) and net non-resident policy unit growth of 78,400 (39.9%).

Medibank decided on a dividend payout ratio of 80.5% in FY23, which enabled a dividend per share of 14.6 cents. This puts the trailing grossed-up dividend yield at 5.5%.

The business added another 5,200 resident policyholders in the first four months of FY24, as well as ongoing growth in the non-resident business.

The projection on Commsec suggests Medibank could pay an annual dividend per share of 16 cents, which would be a grossed-up dividend yield of 6%.

NIB Holdings Limited (ASX: NHF)

NIB is another private health insurer – it’s not quite as big as Medibank, but it is rapidly growing. The company also has exposure to other areas such as travel insurance and NDIS-related earnings. Diversification is sometimes useful for protecting and growing earnings. It also gives the company more areas to look for acquisitions.

While the dividend hasn’t gone up every single year, it has been steadily trending higher since 2010. The business has provided an attractive mix between income and capital growth, as it has regularly invested for more growth.

One of the most attractive things about NIB and Medibank is that they operate in the healthcare sector, which usually has a more consistent demand for services because we all get sick sometimes (even in a recession), and the ageing tailwinds are growing in strength.

In FY23, NIB paid an annual dividend per share of 28 cents, which means the dividend translates into a trailing grossed-up dividend yield of 5%.

According to Commsec, the business could pay a grossed-up dividend yield of 5.4%.  

Insurance Australia Group Ltd (ASX: IAG)

IAG is one of the biggest insurance businesses in Australia (and New Zealand), with a number of brands including NRMA Insurance, CGU, SGIO, SGIC, Swann Insurance, WFI and Lumley Insurance.

Everyone with a car needs car insurance and I’d imagine most independent adults have some sort of home and/or contents insurance. There’s a lot of consistency to the premiums, the main difficulty is the variability of claims, which can be troublesome if there’s a large and expensive storm or flood.

But, the inflationary period has led to strong gross written premium (GWP) growth, and its investments in bonds are now making a lot more of a return thanks to higher interest rates. Things are looking good for the company, particularly if it can achieve ongoing higher insurance profit margins.

According to Commsec, the business is forecast to pay an annual dividend per share of 27 cents. At the franking credit rate of the last dividend paid, this would translate into a forward grossed-up dividend yield of 4.9%.

The post Beyond ASX 200 bank shares: 3 insurance plays with nice dividends appeared first on The Motley Fool Australia.

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More reading

• Big news: 15 ASX 200 shares smashing 52-week highs this Tuesday
• I’d buy these two resilient ASX dividend shares for big income
• Want a large and growing dividend? Medibank shares might be the answer
• Brokers say these 3 ASX dividend shares are buys
• IAG share price hits 2-year high ahead of earnings results next week

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 positions in and has recommended NIB Holdings. 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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Commonwealth Bank of Australia (ASX: CBA) shares were under pressure on Thursday.

The banking giant’s shares dropped 1.5% to $114.07 following broad market weakness and the release of its half-year results.

Should you buy CBA shares?

The team at Goldman Sachs has been running the rule over the bank’s results and was relatively pleased with what was reported. It said:

CBA’s 1H24 cash earnings grew by 3% hoh and were -1%/+2% versus GSe / Visible Alpha consensus expectations (VAe). The quality of the result was good, with PPOP +2%/+1% vs. GSe/VAe, largely on account of expenses.

However, the broker saw nothing in the result that it believes can justify the premium that CBA shares trade on compared to the rest of the big four banks. It adds:

CBA’s relative NIM resilience was evident in today’s result and was attributed to i) the effective management of its volume vs. margin trade-off, supported by ii) its deposit franchise strength.

Despite this, we do not think this justifies the 55% 12-month forward PPOP premium CBA is currently trading on versus peers (ex-dividend adjusted), compared to the 29% 15-year average.

In addition, it highlights that the bank is facing competitive and cost pressures. It said:

Coupled with i) a business mix that leaves it more exposed to the current competitive environment, and ii) the fact we do not think it can escape elevated FY24E cost pressures given heightened inflation, despite historically good performance on balancing investment and productivity, we stay Sell.

In light of the above, the broker has reiterated its sell rating with a trimmed price target of $81.98 on CBA’s shares (from $82.37). Based on its latest share price of $114.07, this implies potential downside of 28% for investors over the next 12 months.

The post Why you should sell your CBA shares before it’s too late appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Thursday
• Everything you need to know about the CBA dividend
• CBA shares tumble 3% on half-year profit decline and margin pain
• CBA share price on watch following $5b cash profit and dividend boost
• 5 things to watch on the ASX 200 on Wednesday

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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