The Aristocrat Leisure Limited (ASX: ALL) share price is sinking on Wednesday.

In morning trade, the gaming technology company’s shares are down 7% to $35.08 following the release of its full year results.

Aristocrat share price sinks on FY 2022 results

• Operating revenue up 17.7% to $5,573.7 million
• Normalised EBITDA up 20% to $1,850.9 million
• Normalised net profit after tax up 30.7% to $1,000.9 million
• NPATA up 27.1% to $1,099.3 million
• Final dividend of 52 cents per share

What happened during FY 2022?

For the 12 months ended 30 September, Aristocrat reported a 17.7% increase in operating revenue to $5,573.7 million.

This was driven by a 31.4% increase in Aristocrat Gaming revenue to $2,982.6 million, which offset a 0.6% decline in Pixel United revenue to US$1,834.7 million.

On the bottom line, Aristocrat reported normalised net profit after tax before amortisation (NPATA) of $1,099.3 million, which was up 27.1% year over year. On a reported basis, which includes certain significant items, NPATA was up 13.9% to $1,046.9 million.

Management advised that this strong revenue and profit growth reflects sustained investment in top-performing product portfolios, differentiating capabilities, increased operational diversification, and business resilience.

How does this compare to expectations?

According to a note out of Goldman Sachs, its analysts were expecting Aristocrat to deliver revenue of $5,654.2 million and EBITDA of $1,670.1 million.

While Aristocrat missed on the top line, its normalised EBITDA was stronger than Goldman was forecasting.

Management commentary

Aristocrat’s CEO, Trevor Croker, was pleased with the company’s performance in FY 2022. He said:

Aristocrat’s performance underlines the ongoing implementation of our growth strategy. Throughout the year, we continued to invest in competitive product portfolios to drive further share growth across key segments, greater operational diversification and deeper business capability.

Strong performance in Aristocrat Gaming more than offset headwinds in the Pixel United business, again highlighting the increasing diversification and resilience of our Group.

Coker also spoke about the company’s expansion into real money gaming (RMG), which is expected to be a key growth driver in the future.

We have made further progress in our ‘build and buy’ strategy to scale in online RMG, with the launch of our new business, Anaxi. While we are focusing first on the North American i-Gaming vertical, we ultimately aim to be the leading gaming platform within the global online RMG industry. We will continue to invest behind this key adjacent growth opportunity as we build Anaxi over the medium-term.

Outlook

It could be the company’s subdued outlook which is weighing on the Aristocrat share price today.

Management advised that it “expects to deliver NPATA growth over the full year to 30 September 2023, assuming no material change in economic and industry conditions.”

While it expects the Aristocrat Gaming business to continue performing strongly, it warned that the Pixel United business is expected to deliver lower growth in bookings and profit compared to previous years.

The company will also be making further investments in Anaxi, to support its online RMG ambitions.

The post Aristocrat share price sinks 7% on FY22 results 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The stock market is posting solid gains on Tuesday, with those portions of the market that got hit the hardest seeing some of the biggest gains in response. The Nasdaq Composite (NASDAQINDEX: ^IXIC) gained more than 2% near midday, while gains of closer to 1% for the Dow Jones Industrial Average (DJINDICES: ^DJI) and S&P 500 (SNPINDEX: ^GSPC) showed broad-based support.

The catalyst for Tuesday’s rise was a report that signaled that inflationary pressures just might be subsiding. Most of the time, investors don’t pay a lot of attention to the Producer Price Index (PPI) report, favoring its consumer-oriented counterpart instead. However, because the PPI offers a different look at pricing pressures, it’s particularly useful as market participants try to anticipate whether and when inflation might finally come under control.  

What is the Producer Price Index?

Most people are familiar with the Consumer Price Index because it matches their own experience as consumers. However, the Producer Price Index looks at the wholesale prices that companies pay for the inputs they need to provide the goods they make and the services they offer.

The PPI report actually includes several different measures of inflation. Final demand figures look at the prices that manufacturers charge retailers for finished goods that are ready for consumer purchase. Intermediate demand measures, however, look at input costs further down the supply chain, with four separate stages reflecting different points in the production process. Taken together, the PPI numbers offer a sense of where in the pipeline cost pressures might be strongest and where they might be easing.

October’s PPI figures showed prices for final demand goods and services rose 0.2% for the month. That brought the year-over-year gain in the index to 8%. Breaking down the numbers, goods saw a 0.6% rise, but services prices were actually down 0.1% from the previous month. Most of the rise in goods came from a 2.7% jump in energy prices. Declines in service prices came from lower trade, transportation, and warehousing costs. Removing food, energy, and trade costs, the final demand PPI was 5.4% higher than it was 12 months ago.

The biggest cooling, though, was in intermediate figures. Processed goods for intermediate demand saw prices drop 0.2% from the previous month, while unprocessed goods plunged 11.7%. Energy was the primary driver on the unprocessed goods side, but for both measures, year-over-year gains slowed to about 10% — down from growth rates of 25% to 50% or more at times in the past 12 months.

Working through the system

When companies price their goods, they tend to use the cost structure that was in place when they were purchasing required inputs to make those goods. As a result, it can take time for lower costs at an earlier stage of production to filter through and remove cost pressures on finished goods.

However, investors are increasingly optimistic that the conditions are ripe for future price increases to slow. Indeed, if outright price declines become more prevalent early in the manufacturing process, then it could lead to a relatively quick slowing of year-over-year price increases at the consumer level. That in turn could take away some of the urgency at the Federal Reserve to boost short-term interest rates at the breakneck pace they’ve followed over the past six months.

Many market participants have seen the pullback in stocks, particularly in high-growth companies with most of their profit potential far in the future, as driven in large part by the interest rate environment. If inflation does indeed prove fleeting after all, then it could lead to at least some recovery from the bear market over time. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why this obscure inflation gauge has US stock markets soaring appeared first on The Motley Fool Australia.

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More reading

• Aristocrat share price sinks 7% on FY22 results
• If even the RBA gets the forecast wrong…
• This falling ASX 200 share could catch an inflationary tailwind: fundie
• ASX 200 shares may have just hit the bottom: AMP economist
• Down 20% in a month, can things get any worse for the Medibank share price?

Dan Caplinger 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.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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“But what else will we use?”

It was a genuine question, in response to my suggestion that ASX CEOs should stop giving ‘guidance’.

It’s even a reasonable question… assuming that guidance is both accurate and in shareholders’ best interests.

But it’s usually not.

Which makes using it… a little silly.

But let’s backtrack a bit.

Warren Buffett – the world’s greatest investor and greatest investment teacher – released his company’s third-quarter results recently.

In it, I noted this statement:

In varying degrees, the COVID-19 pandemic has affected our operating businesses. In addition, significant disruptions of supply chains and higher costs emerged in 2021 and have persisted in 2022. Further, geopolitical conflicts, including the Russia-Ukraine conflict, have developed in 2022. We cannot reliably predict future economic effects of these events on our businesses or when our operations will normalize. Nor can we reliably predict how these events will alter the future consumption patterns of consumers and businesses we serve.

In other words?

‘You don’t know what’s going to happen next, and neither do we.”

Which is… refreshing, huh?

It’s also uncommon.

Happily, it’s less rare than it used to be – those two ‘X Factor’ events reminding corporate bosses that the future is uncertain.

But many still persist. And many more will return to giving ‘guidance’, once they feel like the coast is clear.

When was that last the case?

Maybe January 2020?

How did that end up?

Ego is a funny thing.

We all want to believe we know things. Doubly so when someone asks us, because they think we might or should know.

Cue the old Telstra ad:

Kid in the back seat: “Dad, why did they build the Great Wall of China”

Father, driving: “… To keep the rabbits out…. Lot of rabbits in China”

The ASX version is more similar than we – or the CEOs who get asked the question – would like to admit, perhaps even to ourselves.

How so?

Let’s say it’s November 2022 (convenient, huh?).

And some analyst from a stockbroker or fund is on a company conference call, and wants to know what to expect for the rest of the financial year.

It’s a reasonable question.

Sort of.

Actually, it’s not that reasonable, on the same basis that trying to answer it is similarly unreasonable.

Why?

Well, let’s think about it.

There are seven months of the financial year remaining.

Seven months over which inflation could rise. Or not.

Competitors could thrive. Or die.

Consumers could spend up big. Or snap the wallets shut.

Central banks could raise rates. Or keep them on hold.

Currencies could rise. Or fall.

Unemployment could stay low. Or increase.

Regulations could change. Or stay the same.

And they’re just the things that came immediately to mind.

But you really expect a CEO to know what’ll be happening next June?

And the CEO herself also thinks she might know?

Ladies and gentlemen, let me climb to the top of the tallest building in town, as the parade slowly makes its way past and shout – and please, say it with me:

“The Emperor Has Got Not Clothes!”

Now, remember the bloke I mentioned at the top of this piece?

His statement was in response to my assertion that CEOs should stop giving ‘guidance’, because it’s useless.

“But what else will we use?” was his response.

Now just think about that a little further.

He was essentially saying “I know it’ll probably be wrong — or lucky — but at least I can put something in my spreadsheet”.

Hmm…

That analyst – who will remain nameless to protect the guilty and because I can’t actually remember his name! – was content to play the game.

Why?

Because he got to fill in a spreadsheet, give that information to his customers and his boss, and then – if and when he was wrong – use that other useless phrase:

“The company missed expectations”.

See – it’s not the analyst’s fault. The expectations weren’t wrong… the company was.

Perfect.

Off the hook.

I hope – if I’m doing my job well – you can grasp the entire absurdity of the whole dog-and-pony show.

1. Analyst asks silly question.
2. CEO gives silly answer.
3. Analyst reports silly answer.
4. Company does or doesn’t get lucky enough to get close to silly answer.
5. Analyst looks smart if he’s right, or blames company if he’s wrong.

Please tell me I’m not the only one who thinks this is barking mad?

But… I need you to pay attention for just a little longer… it gets worse.

See, the CEO doesn’t want the company to ‘miss expectations’

She wants the market to like and respect her. And to like the company’s shares.

And so?

And so, once that ‘guidance’ is given, she’ll often make sure it’s delivered – come hell or high water.

Which sounds good… until you consider what happens inside a company to deliver on that vanity exercise.

(And lest you think this is hypothetical… I’ve been there many times in the past, and seen it first-hand.)

The CEO, who otherwise considers herself a business builder and long-term value creator becomes… less so.

Costs are slashed, whatever the long-term price.

Sales are made, no matter the implication. Deals are done, orders are pulled forward, discounts are given.

And then?

Well, it’s harder to make the next sale when your customer expects the same discounts or is already overstocked from the last deal. So the desperation builds…

(I have it on good authority that at one company I worked for, years ago, orders were invoiced and trucks were sent out on the last day of the financial year, only to return to the warehouse the next day for the invoice to be reversed!)

As Charlie Munger says, “Show me the incentive, and I’ll show you the outcome”.

Indeed.

Look, not all analysts are trying to get an easy ride. Most work hard, and just want to believe. So they do.

Not all CEOs will deliberately screw with the long-term health of a company just to deliver on ‘guidance’.

But, well… enough of them do it, many either without thinking, or after justifying it to themselves, convincing themselves they’re acting on noble or honest grounds.

And so, back to Buffett.

Yes, COVID and the war in Ukraine are remarkable one-offs. But Buffett has never given guidance.

He just doesn’t.

Because, rare among CEOs, he is both honest and humble enough to know (and admit) what he doesn’t know.

If I were a director of a public company, I’d be strongly encouraging my fellow directors and CEO to abandon the practice of providing ‘guidance’.

Which… might be enough to ensure I’m never asked to serve on a public company board.

Because people prefer to be popular. And to be well-thought-of, for giving the market what it wants.

I don’t blame people for wanting to believe that the future is knowable. It’s much more comfortable than uncertainty.

And self-delusion is a powerful force.

Unfortunately, that’s rarely the best way to build long-term value.

Investors should be careful what we wish for.

Fool on!

The post If even the RBA gets the forecast wrong… appeared first on The Motley Fool Australia.

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• This falling ASX 200 share could catch an inflationary tailwind: fundie
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Motley Fool contributor Scott Phillips has positions in Telstra Corporation Limited. 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 Corporation Limited. 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 Carsales.com Ltd (ASX: CAR) share price is one of the success stories of the S&P/ASX 200 Index (ASX: XJO). Over the past decade it has risen by around 190%.

Despite all of the volatility with ASX tech shares this year, Carsales shares are only down by around 14%. That compares to names like Xero Limited (ASX: XRO) which is down 52% since the start of the year. Another is the REA Group Limited (ASX: REA) share price which has fallen by around 30%.

Fund manager Alphinity has been thinking about the outlook for the Carsales share price. With that in mind, one of the investment team – Jacob Barnes – recently visited the United States. Barnes went to look at the company’s American acquisition, Trader Interactive, which it bought for $1 billion. This business owns RV Trader, which is the largest online advertiser of RVs in the US.

For people who don’t know, an RV is between the size of a van and a bus, with things potentially included like satellite TV, a bath and so on. Barnes visited Oklahoma, which he called the “RV capital of the world”.

How Carsales shares could benefit from price rises

Barnes thought it would be a good idea to hear what customers think about the service, its effectiveness and pricing.

It’s useful to know if customers think the service is “compelling or if it would be the first thing cut if tougher economic conditions arise”. As this could make or break a company’s investment case.

According to Alphinity, the broad consensus of the RV dealers it spoke to said that RV Trader generated the largest number of leads of any source, despite price increases.

Alphinity wrote:

This hints at some of the latent pricing power inherent in Trader Interactive, which is much earlier in its maturity than Carsales, where it is by far the Australian market leader and provides a crucial service for almost all car dealers.

RV Trader’s importance within the RV market is only likely to increase. Demand conditions are expected to cool somewhat from COVID-induced excesses meets an improved supply dynamic as supply chains to the RV manufacturers begin to free up.

The COVID period was “quite favourable” from an RV dealer’s perspective. It helped support dealer margins. But it also meant that “advertising for new leads was far less important given demand exceeded supply“. It also allowed some dealers to cut back on the number of premium ads they placed on RV Trader, boosting dealer margins further.

The fund manager said that in a normalised environment, the flow of leads becomes “even more crucial to dealers”.

Could economic challenges hurt the Carsales share price?

It’s possible, and the Carsales business is a globally diverse company, so it could be impacted in various ways. However, on the RV Trader side of things, the fund manager said:

While some might be tempted to cut costs, it seems unlikely they will use cutting advertising as a savings opportunity considering turnover is the lifeblood of RV dealerships, in fact, if anything it is more likely that dealers will need to increase the number of premium ads they buy to drive turnover in a more subdued demand environment.

The fund manager also referenced that “many” RV sales are being made to wind power companies and contractors because turbines are “often located a vast distance from the nearest town”. Inflation has also increased the cost of lodging, making RVs even more attractive.

Recent movements

Over the past month, the Carsales share price has risen by 12%.

The post This falling ASX 200 share could catch an inflationary tailwind: fundie appeared first on The Motley Fool Australia.

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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 Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool Australia has recommended REA Group Limited and carsales.com Limited. 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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One prominent economist has declared S&P/ASX 200 Index (ASX: XJO) shares may have passed the bottom.

The ASX 200 has indeed risen 10.6% since the start of October, and now sits only 5.9% lower than where it started in 2022.

While recession and geopolitical risks still loom large, AMP Ltd (ASX: AMP) chief economist Dr Shane Oliver thinks there’s a chance the recent rebound might not be just a bear market bounce.

“There is a rising chance we have seen the low in shares,” Oliver said in an AMP blog post.

“We have seen two bear market rallies into March and August that proved short lived. But this time there’s been more fundamental improvement.”

Oliver shared why he thinks this time it could be different:

Fight between inflation and central banks could be winding down

The big one for Oliver is that the inflation spike in the US finally seems to be decelerating.

“Headline inflation in October dropped to 7.7% year-on-year (well down from a peak of 9.1% in June) but more importantly core (ex food and energy) inflation came in at a slower than expected 0.3% month-on-month,” he said.

“Prices for used cars, household furnishings, medical care and airfares fell.”

The implication for Australia is that the inflationary effects lag the US by about six months.

“So it should start to decline here from early next year as well,” Oliver said.

“And Australian shares take their directional lead from the US most of the time anyway.”

The economist also cited the slowing down of interest rate rises as a positive sign for ASX 200 shares.

“Of course, central banks are still hawkish as inflation is too high and jobs markets [are] still too tight, so more rate hikes are likely. But a slowing in the pace reduces the risk of hard landings.”

Let’s put 2022 behind us

Another difference from previous rallies is that the market is now in a traditionally bullish part of the year.

“US, global and Australian shares [tend] to rally from October/November into year end and out to the middle of the next year, reflecting an end to tax loss selling in the US, new year cheer and a lack of capital raising over the Christmas/New Year period.”

Geopolitically, two major events of uncertainties are now behind us. That provides certainty and stability, which the stock market loves.

“Post US midterm election returns tend to be strong… with an average 17% fall in midterm years followed by an average 33% gain 12 months from the low,” said Oliver.

“With the party congress over, China is focussing on boosting its economy… It looks likely to exit from zero-COVID around March next year.”

All this means that Oliver’s team at AMP are bullish on stocks for the coming period.

“At last, it seems some of the bad news for shares appears to be abating,” he said.

“We remain optimistic on shares on a 12-month horizon as investors will start to focus on monetary easing from late next year and then economic recovery.”

Dangers still lurk

Of course, there are risks that could force the market to dip yet again.

Inflation certainly could surprise again and Europe is likely to fall into recession over a cold northern winter.

Geopolitics could also plunge into further crisis, as shown by Wednesday morning’s Russian missile strikes on Polish territory.

“China could move on integrating Taiwan,” said Oliver.

“Problems in the Middle East could also escalate, given the failure to return to the 2015 nuclear agreement with Iran, social unrest in Iran and the return of Netanyahu as Israeli PM increasing the risk Israel will take action against Iran’s nuclear capability.”

The economist also worried about a Republican-controlled lower house in the US leading to brinkmanship on the federal government debt ceiling.

The post ASX 200 shares may have just hit the bottom: AMP economist 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 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 Medibank Private Ltd (ASX: MPL) share price has gone down heavily over the past month – it’s down 20%.

Investors have punished the business after it was revealed that the company had been hacked, with millions of customers’ data being accessed.

According to Medibank, the cybercriminal has accessed the name, date of birth, address, phone number and email address of around 9.7 million current and former customers and some of their authorised representatives. This figure represents around 5.1 million Medibank customers, around 2.8 million AHM customers and around 1.8 million international customers.

Medibank decided not to pay a ransom, because that could encourage more cyber attacks. Further, it may not have done anything to protect customers or their data.

Customer data starts being published

The private health insurer confirmed that the cybercriminal is releasing files onto a dark web forum containing customer data.

According to reporting by The Age, Medibank customer data may be migrating into more “publicly available” places.

A Medibank Private spokesperson said:

The Australian Federal Police are aware of data on new sites and will be addressing it.

The Australian Federal Police have said they will take swift action against anyone attempting to benefit, exploit or commit criminal offences using stolen Medibank customer data.

We continue to work closely with the Australian Federal Police who are focused, as part of Operation Guardian, on preventing the criminal misuse of this data.

Is the Medibank share price an opportunity?

A key question is – will the economic damage to Medibank be more or less than 20% of its long-term value?

I’m not sure that it will. The broker Ord Minnett agrees, it thinks the main problem could be damage to the reputation of the business. However, its growth may be hurt and some policyholders may leave.

Ord Minnett rates the business as accumulate, with a price target of $3.20. That implies a possible rise of more than 10%. It could also pay a grossed-up dividend yield of 7% in FY23.

The broker Citi rates Medibank as neutral, noting that the private health insurer withdrew its policyholder growth for FY23. The broker also reduced its policyholder growth expectations for the medium-term.

Credit Suisse, another broker, rates Medibank Private as outperform, with expectations of higher costs and damage to Medibank’s brand.

My view on the opportunity

The Medibank share price has fallen a lot. At this stage it’s hard to say how this will affect the potential growth rate of the business.

I don’t think it will ‘bounce’ back quickly unless the business is able to say that it hasn’t lost many policyholders and that growth hasn’t really been affected.

Using Ord Minnett’s numbers, Medibank is valued at 17x FY23’s estimated earnings and 15x FY24’s estimated earnings.

I wouldn’t say it looks like a cheap buy, but it definitely looks cheaper than it was before. In the meantime, investors can receive a decent dividend yield until this event (hopefully) fades into history for policyholders and the company alike.

The post Down 20% in a month, can things get any worse for the Medibank share price? appeared first on The Motley Fool Australia.

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• ‘Use the volatility’: QVE reveals 3 ASX shares it just bought
• Do Medibank shares now represent a buying opportunity?

Citigroup is an advertising partner of The Ascent, a Motley Fool company. 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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Regular readers will know that it is simply not possible to reliably pick the bottom of the market.

In fact, even if you tried, you won’t even know whether you’re right or wrong until that point has well and truly passed. 

That’s the nature of bottoms — you can only define them in retrospect.

However, many experts reckon you can have better luck picking the bottom for individual ASX shares.

That’s because investors can carefully study the business’ performance, outlook and the market forces that could dictate its future.

Here’s one such stock that Wilson Asset Management is bullish on: 

Quality ASX share at rock bottom now

With interest rates now a whopping 275 basis points higher than six months ago, 2022 has been a poor year for real estate and real estate ASX shares.

Dexus Property Group (ASX: DXS), for example, has seen its share price drop in excess of 32% since early May when the Reserve Bank kicked off the rate resurgence.

But Wilson equity analyst Anna Milne, in a recent memo to clients, reckoned the real estate investment trust (REIT) has now been oversold.

“The valuation implied at the current share price is close to a worst-case scenario,” she said.

“Trading at a 30% discount to its asset backing, Dexus is at its lowest levels since the global financial crisis.”

Why this time it’s different

Milne explained, though, that the current situation is very different to the GFC trough.

“In 2009 the market was impacted by high debt margins, capital constraints and forced sellers. Today, demand for high-quality assets remains strong.”

Dexus has traditionally owned office properties, but these days its holdings are more diverse.

“Dexus continues to move up the quality spectrum by recycling its lower quality office assets into high-quality development projects,” said Milne.

“Additionally, growth in Dexus’ industrial and funds management businesses is impressive and diversifies the business from its pure office exposure.”

In any case, the office business also seems to be close to turning a corner.

“While the outlook for the office industry has been challenged in the last few years with the rise of working from home and now expectations for a recession, recent feedback suggests office market rents, occupancy and incentives have stabilised.”

The company has “a strong balance sheet“, added Milne, with borrowings comfortably lower than its target range.

“The current valuation has presented a good opportunity for us to increase our position in Dexus, and it is now a core holding of the fund.”

The post Priced for ‘worst-case scenario’: Fundie names ASX share that can’t get any cheaper appeared first on The Motley Fool Australia.

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• Broker names 2 ASX dividend shares to buy next week
• Morgans names 2 ASX dividend shares to buy with big yields
• 4 battered ASX 200 shares that are ‘obvious M&A targets’: expert

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

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If you’re wanting to add some high quality ASX dividend shares to your portfolio, then you may want to check out the giants listed below.

Here’s why these ASX dividend giants have been named as buys:

BHP Group Ltd (ASX: BHP)

The first dividend giant to consider buying is mining behemoth BHP.

It has been tipped as a buy by analysts at Morgans, who have an add rating and $47.40 price target on its shares.

The broker likes the miner due to its strong balance sheet and the diversity of its operations across both commodities and geographies. Morgans feels this makes it a “relatively low risk” option in the resources sector.

All in all, its analysts see “BHP as holding an attractive combination of upside sensitivity, balance sheet strength and resilient dividend profile.”

Speaking of dividends, the broker expects BHP to pay fully franked dividends per share of $2.95 in FY 2023 and $2.98 in FY 2024. Based on the current BHP share price of $43.94, this will mean yields of 6.7% and 6.8%, respectively.

Westpac Banking Corp (ASX: WBC)

Another ASX dividend giant that has been named as a buy is Westpac.

Australia’s oldest bank has been tipped as the top option in the banking sector right now by analysts at Goldman Sachs. They recently reiterated their conviction buy rating with an improved price target of $27.60

The broker likes Westpac due to its positive net interest margin (NIM) trajectory, its cost reduction target, and attractive valuation.

In respect to its margins, Goldman highlights that “management’s guidance on its FY23 NIM trajectory was better than we had previously anticipated.” This bodes well for its earnings and dividends in the coming years.

In respect to the latter, the broker is forecasting fully franked dividends of 148.4 cents per share in FY 2023 and 160 cents per share in FY 2024. Based on the current Westpac share price of $23.96, this will mean yields of 6.2% and 6.7%, respectively.

The post 2 ASX dividend giants to buy now: brokers appeared first on The Motley Fool Australia.

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More reading

• ASX 200 bank shares: fundie picks winners and losers of the big four
• How I’d aim to generate a growing passive income from dividend shares
• 3 reasons the Westpac share price is great value: Goldman Sachs
• Why are ASX 200 mining shares going nuts on Monday?
• Why is the BHP share price having such a ripper day?

Motley Fool contributor James Mickleboro has positions in Westpac Banking Corporation. 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 Westpac Banking Corporation. 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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Ask A Fund Manager

The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, 1851 Capital portfolio manager Martin Hickson analyses what he would do right now with four small-cap ASX shares.

Cut or keep?

The Motley Fool: Let’s take a look at three ASX shares that have plunged this year, and see if you think they’re a bargain to buy now or if you’d stay away like the plague.

First up is Frontier Digital Ventures Ltd (ASX: FDV).

Martin Hickson: FDV, share price down just over 50% so far this calendar year. What they do is they own a number of real estate portals through southeast Asia, Latin America, and Pakistan… They’re basically the realestate.com of a lot of those emerging markets. They’ve got a number of portals in emerging markets.

The reason why the share price has been so weak is it’s been caught up in that overall [slide of] technology stocks. We like it. We’ve been buying more recently. 

They’ve recently announced to the ASX that they plan to list both their Pakistan asset, which is Zameen, and their Latin American assets they plan to list on the NASDAQ. Our valuation for those two assets alone gives a valuation north of $1. Their shares are trading at 70 cents, and you’ve got those catalysts in terms of potentially listing or spinning out those assets and IPOing them separately, which should provide a strong readthrough for the overall valuation of Frontier Digital. 

Again, it’s trading at a very cheap price, and with catalysts, it could potentially rerate the current share price.

MF: Let’s get your thoughts on DGL Group Ltd (ASX: DGL), which has also roughly halved this year?

MH: It’s gone from $4.50 to $1.50 over the last six months. 

Despite that strong share price fall, we’re still not a buyer of DGL. We think that since listing, they’ve grown too quickly, they’ve made too many acquisitions too fast. From the outside, it’s hard to understand how much integration has gone on with a lot of those acquisitions. 

If you look at their FY22 results, as well, there’s a couple of big one-offs that drove their earnings. They were a big beneficiary of the higher AdBlue prices around Christmas time. They were also a big beneficiary of the lead price through FY22. We think some of those things won’t repeat this financial year. 

The most recent result, they delivered a very poor cash flow outcome. There’s been high staff turnover. They’ve been through three CFOs since listing 18 months ago. There’s a few reasons there that’s really keeping us on the sidelines at this point.

MF: The third one is familiar to a lot of people, Beacon Lighting Group Ltd (ASX: BLX), which is down about a third this year.

MH: Yeah. As the name suggests, they’re a retail lighting company. The share price has been weaker around fears of a potential slowdown or a recession in Australia. That will obviously impact their retail lighting business. 

The reason why we like it is they’ve also got two other parts of the business, which we think can support their earnings in a potentially overall weaker consumer environment. 

They’ve got a trade business which represents around a quarter of the company’s earnings, and that’s growing very strongly. What they’re doing there is they’re selling lighting but also electrical products to electricians in that trade space, and they’ve got offers like free three-hour delivery for tradies. 

That’s a point of difference, something that can take share in that trade space. They’ve also said that, in three years’ time, they’re targeting that trade business being half their earnings. If they can get to that outcome, from 25% today to 50% in three years, that will be a very strong tailwind for the overall earnings of the company. 

They’ve also got an international business where they’re selling products internationally, particularly into the US, and again, that’s growing quite strongly. They’re taking share in the American market. Again, that will support the company’s earnings in a potentially weaker consumer environment.

MF: Fantastic. Is that one you hold?

MH: We do. We hold Frontier Digital and Beacon.

The ASX share for a comfortable night’s sleep

MF: If the market closed tomorrow for four years, which stock would you want to hold?

MH: It has to be something with defensive earnings, given the current volatility and uncertainty across the world, so something like an insurance broker, like PSC Insurance Group Ltd (ASX: PSI), that’s very well-managed, high levels of insider ownership, and they’re obviously benefiting from the higher insurance premium rates cycle that we’re seeing. 

The cyberattacks that we’ve seen here in Australia in recent times [are] only going to be a further tailwind for insurance premiums, and PSC Insurance are likely to be a beneficiary of that. That’s one that I’d be comfortable holding over that four-year period.

The post 3 small-cap ASX shares to add to your portfolio right now: fundie 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 positions in and has recommended DGL Group Limited, Frontier Digital Ventures Ltd, and PSC Insurance Group. The Motley Fool Australia has recommended DGL Group Limited, Frontier Digital Ventures Ltd, and PSC Insurance 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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ASX 200 healthcare company CSL Limited (ASX: CSL) has a drug candidate in its pipeline that could be a ‘blockbuster’ in the future, Citi analysts believe.

The CSL share price climbed 1.47% today and closed at $290.75. For perspective, the S&P/ASX 200 Index (ASX: XJO) fell 0.07% today.

Let’s take a look at what could be ahead for this ASX 200 healthcare company.

What’s ahead

CSL is an ASX biotech giant that develops a huge range of biotherapies and vaccines to save and improve lives.

CSL’s drug candidate for reducing secondary heart attacks is a major positive for the company, according to analysts.

Commenting on CSL112, a drug currently at the phase three clinical trial stage, Citi analysts, quoted by The Age, said:

If approved, CSL112 has the potential to become blockbuster drug for CSL.

In an update in November, CSL said recruitment for this trial is on track for “Last Patient In” (LPI) by the end of the year.

Launch of CS112 is on track for the fourth quarter of 2025, according to CSL.

As my Foolish colleague James reported recently, Citi has a buy rating and a $340 price target on the CSL share price. Analysts said:

Our $340 TP includes $22.40 for the R&D portfolio (down from $23 on delays) – the main asset remains CSL112 (cardiovascular) at $20/share on which we will get Phase 3 data in Q1 CY24. Maintain Buy, $340 TP.

Meanwhile, Morgans is also impressed with Citi’s research and development pipeline, including CSL112. Morgans placed an add rating and $312.20 price target on the company’s share price.

CSL share price snapshot

The CSL share price has fallen 6% in the past year, while it has climbed 0.1% in the year to date.

For perspective, the ASX 200 has fallen 4.40% in the past year.

CSL has a market capitalisation of about $140.2 billion based on the current share price.

The post The drug with the ‘potential to become a blockbuster’ for this ASX 200 healthcare company: Citi appeared first on The Motley Fool Australia.

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More reading

• Can the CSL share price crack $300 before the year’s out?
• 3 ASX shares to buy in a sector ready to explode: expert
• Why is the CSL share price smashing the ASX 200 on Thursday?
• Are CSL shares a good buy right now?
• 2 big name ASX companies ready for a ‘share price recovery’: experts

Motley Fool contributor Monica O’Shea 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 CSL Ltd. 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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