The OZ Minerals Limited (ASX: OZL) share price is taking a belting this morning even after a leading broker upgraded its shares.

Shares in the copper miner fell around 5% in early trade – making it one of the worst performers on the S&P/ASX 200 Index (ASX: XJO).

The silver lining is that its shares recovered some ground to be down 1.26% at $17.23 at the time of writing.

OZ Minerals share price looking too cheap to ignore

The upgrade by Morgans may be helping. The broker lifted its recommendation on the OZ Minerals share price from hold to add, as it believes it is “far too oversold”.

OZ Minerals has shed a whopping 40% in value since the start of this calendar year.

Technical issues at its Carrapateena project, rising costs, and a weakening outlook for copper have weighed on the miner.

Recession fears tarnishing the copper outlook

The copper price has dived on fears of a looming global recession. It wasn’t that long ago that experts were forecasting supply constraints, but a recession would limit demand for the metal.

While Morgans acknowledges that uncertainties remain, it believes the outlook for the red metal isn’t as bad as some might believe.

The broker explains:

The long-term structural drivers appear intact despite marginal investors selling uncertainty. Despite short-term opacity, we note several macro shocks in recent years have proved compelling entry opportunities.

What is the OZ Minerals share price worth?

The opportunity looks even more compelling given where the OZ Minerals share price is currently sitting. The miner traded up to 1.3 times net present value (NPV) through 2021 due to over-excitement about “green metals”, which prompted Morgans to slap a hold on the shares.

But OZ Minerals is currently on 0.76 times NPV. The broker calls this “excessively cheap”. It also noted that the OZ Minerals share price has rebounded from these levels before during similar sell-offs.

Morgan’s 12-month price target is $23.12, which implies a more than 30% upside to the OZ Mineral’s share price.

Catching a falling knife  

However, Morgans warned would-be buyers that it may be “tactically prudent” for traders and short-term investors to wait. This is because the OZ Minerals share price could fall further in this climate of fear.  

OZ Minerals isn’t the only company under this dark cloud. Fellow copper producers Sandfire Resources Ltd (ASX: SFR) and South32 Ltd (ASX: S32) have also fallen out of favour, down 4% and 5% respectively.

The post Broker upgrade fails to stop the OZ Minerals share price from falling today appeared first on The Motley Fool Australia.

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More reading

• Why Argosy Minerals, Cann, OZ Minerals, and PointsBet shares are pushing higher
• ASX 200 midday update: Energy shares drop, PointsBet jumps
• What’s behind the weakness in ASX 200 mining shares during June?
• 5 things to watch on the ASX 200 on Tuesday
• Why Evolution, Newcrest, OZ Minerals, and Zip shares are dropping today

Motley Fool contributor Brendon Lau has positions in OZ Minerals Limited, Sandfire Resources NL, and South32 Ltd. 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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Financial year 2022 (FY22) was a busy period for now S&P/ASX 200 Index (ASX: XJO) tech staple, Block Inc (ASX: SQ2) and its share price.

While the payment service provider didn’t reach the Aussie market until January, it was the talk of the town for most of FY22 after announcing its plan to acquire former market darling and ASX buy now, pay later (BNPL) share Afterpay.

But between listing on the ASX and the end of FY22, the Block share price tumbled 48.7% to trade at $90.50.

For context, the ASX 200 slumped around 10% across the entirety of FY22.

Let’s take a closer look at what happened to Block and its share price over the course of last financial year.

What went wrong for the Block share price in FY22?

The Block share price first emerged on the ASX on 20 January, closing its first session at $176.63. Shares in the company hit the market after being issued to those previously invested in Afterpay.

Block proposed to take over the BNPL giant in August 2021, offering 0.375 Block (then Square) shares for each Afterpay stock to do so. The deal was valued at around $39 billion at the time.

However, that value tumbled alongside Block’s US listing, Block Inc (NYSE: SQ)’s share price. It fell around 55% between the acquisition’s proposal and its implementation.

Of course, the company also underwent a name change last financial year. Block was born from Square on 10 December. On announcing the switch, the company said:

The name has many associated meanings for the company — building blocks, neighbourhood blocks and their local businesses, communities coming together at block parties full of music, a blockchain, a section of code, and obstacles to overcome.

Finally, the most recent results released to the ASX from the payments and BNPL giant dropped in May.

Block’s revenue fell 22% to US$3.96 billion in the first quarter. Though, when excluding revenue from Bitcoin (CRYPTO: BTC), it increased by 44%. The company’s gross profit was also up 34% year-on-year, reaching US$1.29 billion.

However, it was likely a broader tech sell-off that damaged the Block share price most.

The S&P/ASX 200 Information Technology Index (ASX: XIJ) had a rough start to 2022 as uncertainty reigned. Then, tech stocks were once again among the hardest hit as inflation and resulting rate hikes kicked off.

The tech sector slipped around 40% over the course of FY22.

The post Why did the Block share price have such a lousy time in FY22? appeared first on The Motley Fool Australia.

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• 5 things to watch on the ASX 200 on Monday

Motley Fool contributor Brooke Cooper 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 Bitcoin and Block, Inc. The Motley Fool Australia has positions in and has recommended Block, Inc. 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 Sayona Mining Ltd (ASX: SYA) share price had an incredibly volatile month in June.

Although the lithium developer’s shares recorded a monthly decline of 32%, that’s only part of the story.

What happened to the Sayona Mining share price in June?

Sayona Mining and other lithium shares came under significant pressure last month for a number of reasons. These include a bearish note out of Goldman Sachs and news that BYD is planning to buy a large number of lithium mines.

In respect to the latter, Warren Buffett-backed electric vehicle company BYD is reportedly planning to buy six lithium mines in Africa with the aim of producing approximately 1 million tonnes of lithium carbonate each year.

That would be enough to build at least 27.78 million electric vehicles, which covers the automaker’s expected demand for the next decade.

This means that as well as increasing overall supply, it would take a major lithium buyer out of the chain, which could have a big impact on the demand side of the equation. And if other automakers decide to follow suit, lithium developers like Sayona Mining could end up being bypassed.

What else?

Also weighing on the Sayona Mining share price was a note out of Goldman Sachs. Although the broker has been predicting a sharp decline in lithium prices in the coming years for some time, its latest note reiterating this view caught the attention of investors this time around.

This had investors panicking that lithium prices will be nowhere near current levels when Sayona Mining and other developers finally get around to producing and selling the white metal.

Following these events, the Sayona Mining share price eventually dropped as much as 50% month to date before a late rebound pared some of these declines.

That rebound was driven by the release of an update on drilling activities in Canada. Those results reveal that the Moblan deposit has the potential to become a world-class deposit.

Here’s hoping that July is a better month for shareholders.

The post Why did the Sayona Mining share price crash 32% in June? 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 GrainCorp Ltd (ASX: GNC) share price is heading south in early trade on Wednesday morning, despite no company announcements.

At the time of writing, shares in the Australian agribusiness are down 6.12% to $8.59

Why are GrainCorp shares in reverse today? 

Following the company’s half-year results released on 11 May, investors are eyeing GrainCorp shares as they go ex-dividend today.

Typically, one business day before the record date, the ex-dividend date, is when investors must have purchased shares. If the investor did not buy GrainCorp shares before this date, the dividend will go to the seller.

What does this mean for GrainCorp shareholders?

For those eligible for GrainCorp’s dividend, shareholders will receive a payment of 24 cents per share on 21 July. The dividend is fully franked and comprises a 12 cent interim dividend and a 12 cent special dividend.

The interim dividend reflects a 50% increase compared to the prior corresponding period (8 cents per share).

And in case you weren’t aware, the 24 cent total dividend is the largest dividend that has been paid by the company since 2013.

Are GrainCorp shares a buy now?

Following the company’s financial scorecard, one broker weighed in on the GrainCorp share price.

According to ANZ Share Investing, the analyst team at Wilsons cut its price target by 9.4% to $8.80 for the grain exporter’s shares. The team believes that GrainCorp shares are fully valued for the time being.

Based on today’s price, this is roughly in line with where the company’s shares are currently trading.

GrainCorp share price snapshot

Looking at the past 12 months, the GrainCorp share price has accelerated 70% on the back of favourable trading conditions.

In contrast, the S&P/ASX 200 Consumer Staples (ASX: XSJ) sector has risen by around 2% over the same timeframe.

GrainCorp shares reached an all-time high of $10.86 in May, before backtracking amid inflationary movement and cost of living pressure.

The company commands a market capitalisation of roughly $2.09 billion, and has a dividend yield of 1.93%.

The post Here’s why the GrainCorp share price is shedding 6% today appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras 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 Pilbara Minerals Ltd (ASX: PLS) share price plunged in June, but could July be a better month?

The ASX lithium share price tumbled from $2.95 to $2.29 between market close on 31 May and 30 June, down 22%. At the time of writing, the company’s share price is down 0.88% at $2.24. For perspective, S&P/ASX 200 Materials Index (ASX: XMJ) is also down 2.73% so far today.

So what could be in store for the Pilbara Minerals share price in July?

Pilbara share price outlook

Pilbara is a lithium producer focused on the Pilgangoora Project near Port Headland in Western Australia.

The company was not the only ASX lithium share to tumble in June. Lake Resources NL (ASX: LKE) fell 49% between market close on 31 May and 30 June. Over the same period, the Core Lithium Ltd (ASX: CXO) share price also lost 31% and Sayona Mining Ltd (ASX: SYA) fell nearly 32%.

However, a recent broker note from Ord Minnett is predicting better times ahead for Pilbara Minerals. The broker placed a $4.25 price target on the lithium producer’s shares with a buy rating. This is almost 90% more than the current share price at the time of writing.

The broker is optimistic on future lithium prices after Pilbara’s latest offer at a Battery Material Exchange (BMX) auction.

On 23 June, Pilbara advised it accepted a bid worth US$7,000 per dmt [dry metric tonne] in advance of an auction on the BMX.

Meanwhile, Macquarie has also tipped significant upside for the Pilbara share price. Analysts have placed a $3.90 price target on the shares and kept an outperform rating. The broker was also impressed with Pilbara’s auction result and sees lithium prices remaining strong.

On 27 June, Pilbara advised its quarterly production jumped by an estimated 54% compared to the March quarter to 123-127,000 dmt.

Earlier in the month, Pilbara also announced Dale Henderson will be the company’s new managing director and CEO.

The Pilbara share price ended June on a high, jumping nearly 12% between 23 and 30 June. Pilbara is planning another BMX auction in the second week of July.

Share price snapshot

The Pilbara share price has exploded nearly 51% in a year but year to date, it has pulled back 30%.

The company has a market capitalisation of about $6.6 billion based on its current share price.

The post Can ASX lithium share Pilbara recover in July after slumping 22% in June? appeared first on The Motley Fool Australia.

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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 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 Commonwealth Bank of Australia (ASX: CBA) share price closed the 2022 financial year down 9.5%, almost identical to the losses posted by the benchmark S&P/ASX 200 Index (ASX: XJO) in FY22.

On 30 June 2021, CommBank was trading for $99.87. Last week, on 30 June 2022, the CBA share price closed at $90.38.

Share buybacks and strong financials

The CBA share price closed the financial year lower despite some strong financials reported by the bank.

In its half year results, reported in February, the bank revealed a 23% year-on-year increase in its cash net profit after tax, which reached $4.75 billion. CommBank also upped its fully franked dividend by 17% to $1.75 per share. And, to sweeten the pot, it announced another $2 billion on market share buyback, following on its earlier $6 billion off-market buyback. 

The big bank’s third quarter results, reported in May, were also strong, beating consensus expectations. Among the highlights lifting the CBA share price on the day, the bank reported quarterly cash profits of $2.4 billion, in line with its strong half year figures.

Following the quarterly release, CommBank’s CEO, Matt Comyn said, “Continued growth in household deposits, home loans, business lending and business deposits was a feature of the quarter. The Group maintained strong balance sheet settings and paid $3 billion in half-year dividends to shareholders.” 

While that was true for the quarter gone, it’s the home loan outlook that may have put the CBA share price under pressure over the last month of 2022.

What pressured the CBA share price in June?

Heading into June, CBA shares were still in the green for FY22. 

But over the last month of the financial year, shares tumbled a painful 13.4%. 

Shares in Australia’s biggest bank, and indeed all the big banks, came under selling pressure following outsized rate hikes from the US Federal Reserve and the Reserve Bank of Australia. With more rate hikes slated in the months ahead. 

While gradually moving rates higher can be good for banks as they’re able to increase their net interest margins, rapid rates can see new loan issues shrink and bad debts rise. 

Of particular concern for the CBA share price is the potential of a sharply weaker housing market impacting its lucrative mortgage lending sector. 

The post What happened with the CBA share price in the 2022 financial year?  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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Ask a Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In part one of this edition, we’re joined by Yarra Capital Management’s fixed income specialists, Darren Langer, co-head of Australian fixed income, and Chris Rands, co-portfolio manager of the Yarra Australian Bond Fund. Today they explain why it appears the market is overpricing in the expected interest rate rises from the RBA, and what this means for the inflation outlook and the Aussie housing market.

The Motley Fool: A lot of investors were caught off guard by the hawkish tightening we’re seeing from the US Fed and RBA. What’s your outlook for inflation and interest rates in 2022 and heading into 2023?

Darren Langer: The risk was that central banks would overreact. And that’s basically what’s happened and is still happening to some extent.

But we think that things are going to start to slow down much faster than what central banks are expecting. You might start to see a shift in some of that rhetoric in the next few months. But for now, particularly the Fed, they’re very hawkish. That’s obviously not a great thing for bond markets or for risk assets when they’re in that sort of mode.

Chris Rands: Really, as far as people being caught off guard with inflation, it’s the oil price shock that occurred from the Russian Ukraine invasion.

Looking through our inflation indicators, commodity and food prices are causing a large increase in inflation levels. It was very hard to see this coming, and it is this shock that’s taken inflation a leg higher.

If you assume that conflict will continue, then the oil price should remain high. Food prices should remain high. So that sets it up to have a base of higher inflation than the 2012 to 2019 period.

If the RBA is saying we’re going to get this inflation down by hiking rates, it stands to reason that it needs to come from things that are not oil and not food. So something else needs to come down to bring inflation down. Whether that’s rents or whether that’s consumer discretionary spending or something like that, those are the prices that they’re going to be targeting.

Looking at the US, there are signs that that’s starting to occur. You’re starting to see inventories build and those types of things. From that perspective, it looks like inflation should be a bit sticky for the next 12 months. And that puts the RBA in a position to raise rates. But we don’t think it’s going to be anywhere near as high as what the market expects.

MF: What level of interest rates are you expecting from the RBA?

CR: My calculations for what the economy can handle suggest a cash rate of 1.5%, that’s probably about neutral. Once you start going beyond that I think you’re going to start causing a bit of stress on people who’ve borrowed too much money over the past 18 months.

If the RBA wants to get back to neutral, it should start at 1.5%. If they really want to slow the economy down because they think it’s too hot, they probably need to go above 2%.

MF: When can investors expect some easing?

DL: I think this is going to be a similar tightening cycle to what we observed in 1994. That was a very rapid tightening cycle, both by the Fed and the RBA, but within the next 12 months, they were both easing interest rates. So, as you get towards the back-end of 2023, if they keep hiking fairly aggressively, they’re more than likely going to have to start cutting rates.

Markets are starting to price in that eventuality. You’re starting to see the longer-dated futures contracts pricing is easing now. Whereas before the yield curve has been quite steep, and they were pricing higher rates forever. Now they’re starting to realise that rate hikes are biting much faster than central banks would have thought.

MF: One of the big concerns right now is how higher interest rates will impact the Australian housing market. What’s your outlook?

DL: We feel house prices are going to be under some pressure. We’ve had such a rapid rise in prices over the last 12 months, and a lot of those people borrowed a lot of money. There are a lot of fixed-rate loans starting to come off in the next six to 18 months, so that will bite quite quickly.

In Australia, most of our housing market is floating rate rather than fixed-rate, like in the US. So it bites a lot quicker here, which is one of the reasons we don’t think the RBA is likely to tighten interest rates as much as the Fed will.

CR: For the housing market, wages over the past three years have barely moved, whereas house prices have risen 30%. A big chunk of that, in my opinion, is just low rates. And if you move rates back the other way, then you need to take some of those prices out.

If the RBA stops at 1.5%, which I think is neutral, then you might look at 2019-2020 levels for where house prices will stop. If rates go back to 2.5% or 3% like the market is forecasting, then it could be worse than that.

***

Tune in tomorrow for part two of our interview, where Yarra Capital’s Darren Langer and Chris Rands discuss fixed income investing strategies in the new higher rate environment.

(You can find out more about the Yarra Australian Bond Fund here.)

The post Why the RBA is unlikely to hike interest rates to the heights the market has priced in: fund managers 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 Bubs Australia Ltd (ASX: BUB) share price has returned from its trading halt and sank deep into the red.

In morning trade, the junior infant formula company’s shares are down 15% to 54.5 cents.

Why is the Bubs share price sinking?

Investors have been selling down the Bubs share price today after the company completed the institutional component of its equity raising.

According to the release, Bubs has raised $32.4 million via an institutional placement of 62.4 million new shares and $7.7 million from an institutional entitlement offer. These funds were raised at a sizeable 18.8% discount of 52 cents per new share.

Bubs chair, Dennis Lin, commented:

We are pleased with the support shown by institutional investors in the Equity Raising. We are delighted to welcome new shareholders to the register and are always grateful for the participation from our existing shareholders. Both have displayed confidence in Bubs and our commitment to deliver on future opportunities.

Retail offer

The company will now push ahead with its retail entitlement offer, which is aiming to raise a further $22.9 million. Eligible shareholders will be able to subscribe for 1 new share for every 10.42 shares held at the close of play on Thursday.

However, retail shareholders may feel a little short-changed here, as well as being diluted by the equity raising, they won’t be getting a discount anywhere near as generous as the one institutional investors received.

As these new shares are being offered at the same price as the institutional placement, this means the discount on offer is a paltry 4.6% following today’s decline by the Bubs share price to 54.5 cents.

Why is Bubs raising funds?

Bubs is raising funds on the belief that its recent sales boost in the United States due to supply shortages won’t be a short term thing.

The offer proceeds will be used to support working capital, inventory and growth initiatives. The latter includes its expansion in the US and an increased manufacturing capability to meet accelerating demand.

Time will tell if this was a one-time sugar hit in the US or the start of something big. One thing for sure, though, is that retail shareholders will no doubt be hoping this is the final time Bubs needs to raise funds.

The post Why is the Bubs share price crashing 15% today? 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 recommended BUBS AUST FPO. 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 Beach Energy Ltd (ASX: BPT) share price delivered a rollercoaster performance last month. The stock hit both a 52-week high and a three-month low in June, despite the company’s silence.

At the end of June, the Beach Energy share price was $1.725, flat with its final close of May.

For context, the S&P/ASX 200 Index (ASX: XJO) slumped 8.9% last month.

So, what helped the ASX oil share outdo the index? Let’s take a look.

Beach Energy share price trades flat in June 

Beach Energy’s stock traded flat in June while the broader market struggled. The company’s home sector, the S&P/ASX 200 Energy Index (ASX: XEJ), also closed the month lower, slipping 0.27% over the period.

Meanwhile, the stock was likely supported by rising (then falling) oil prices.

Oil prices rose to a 13-week high in early June as gasoline demand took the United States by storm.

Brent crude futures rose to US$123.58 per barrel while the US West Texas Intermediate crude price reached US$122.11 a barrel – their highest points since hitting a 13-year high in March.

That also saw the Beach Energy share price soaring to a new 52-week high of $1.91.

Sadly, its exuberance didn’t last long. As oil prices began to turn in mid-June, the stock tumbled 8% to close at its lowest price since March – $1.55 – on 20 June.

Thus, a flat month of trade may have been one of the better-case scenarios for the stock. Particularly as oil prices recorded their first monthly decline of 2022 in June.

Interestingly, many of the company’s ASX 200 energy peers recorded mixed performances last month.

The Woodside Energy Group Ltd (ASX: WDS) share price gained nearly 7% in June. Meanwhile, Santos Ltd (ASX: STO) shares slumped 9.5%.

Perhaps more encouraging for Beach Energy investors is the share’s longer-term performance.

It’s currently 33.6% higher than at the start of the year. That means it has outperformed the ASX 200 by 46% in 2022.

The post Why did the Beach Energy share price outperform the ASX 200 last month? appeared first on The Motley Fool Australia.

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More reading

• Santos and Woodside on watch after oil prices crash 10%
• 5 things to watch on the ASX 200 on Wednesday
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• Broker names 2 of the best ASX energy share to buy in FY23
• Why are ASX 200 energy shares dragging on the market today?

Motley Fool contributor Brooke Cooper 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 had a tough time in FY22 as it dropped approximately 30%.

Wesfarmers benefited in FY20 and FY21 from big boosts with DIY projects at home, as well as with technology to learn, work and entertain ourselves at home.

However, that boom has now faded as the Australian economy and ASX share market enter a new phase of higher energy costs, broadly elevated inflation and rising interest rates.

While the latest RBA interest rate rise of 50 basis points to 1.35% came after the end of FY22, it marks the second month in a row of 0.50% increases, which the market was largely expecting. However, higher interest rates are supposedly meant to pull down on asset values.

Let’s look at some of the highlights during FY22, which finished last week.

API acquisition

After seeing off a challenge from Woolworths Group Ltd (ASX: WOW) to buy Australian Pharmaceutical Industries (API), Wesfarmers finally completed its acquisition of the pharmacy and healthcare business at the end of March 2022.

Wesfarmers describes API as “a leading distributor of pharmaceutical goods and operates a portfolio of complementary wholesale and retail businesses.” It operates the Priceline Pharmacy, Soul Pattinson and Pharmacist Advice brands. API also operates Clear Skincare clinics, a provider of skin treatments, laser hair removal and non-invasive cosmetic procedures and also the manufacturer of pharmaceutical and personal care products.

The total cash consideration paid to API shareholders for the acquisition was $774 million.

Why was the deal attractive to Wesfarmers? The Wesfarmers managing director Rob Scott said:

API will be the foundation business of our new health division as we develop capabilities and invest in the growing health, wellbeing and beauty sector. We see opportunities to strength the competitive position of API and its partners, by investing in expanding product ranges, improving supply chain capabilities and enhancing the online experience for customers.

Sales and earnings decline

The Wesfarmers FY22 half-year result showed that its financial numbers had started to go backwards.

Excluding significant items, revenue was down 0.1% to $17.8 billion and net profit after tax (NPAT) fell 14.2% to $1.2 billion.

While these numbers were still impressive compared to pre-COVID times, it is said that share prices follow earnings. If the NPAT is going down, that makes it harder for the Wesfarmers share price to grow (or even stay at the same level).

The company explained the FY22 first half was disrupted by store closures and trading restrictions due to COVID-19, pointing to around 20,000 store days where stores were completely closed to customers. It also spent money on supporting its team members.

Wesfarmers also noted that it intended to increase its focus on price leadership and is “well positioned to continue to provide customers with great value on everyday products as rising cost-of-living pressures impact household budgets.” Time will tell what impacts this has on profit margins.

Business plans

Investors recently had the chance to look at an investor presentation by Wesfarmers about how it planned to grow each segment. Seeing growth ideas could help sentiment about the Wesfarmers share price.

For example, with Officeworks, it plans to evolve the core offering while adding new customer segments and services, such as working with schools.

With Kmart, it wants to improve the online customer experience and grow online profit. It suggested that ongoing cost of living pressure will drive customers to look for more ‘everyday value’ more frequently, which Kmart could provide. Target is being repositioned as a digitally-led retailer.

With Bunnings, Wesfarmers has plans to upgrade, expand or open 15 to 20 new Bunnings warehouses and small formats per year. It’s also ‘evolving’ the supply chain to support online fulfilment and commercial growth. It also plans to roll out Tool Kit Depot and grow Beaumont Tiles. In terms of product prices, Bunnings said that it wants to deliver more value and “go harder” on the lowest prices that matter the most.

Wesfarmers share price snapshot

Over the past month, the Wesfarmers share price has fallen 8%.

The post Down almost 30% in FY22: What’s worrying investors about Wesfarmers shares? appeared first on The Motley Fool Australia.

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More reading

• Why are ASX 200 retail shares getting bought up today?
• How did ASX 200 retail shares perform in June?
• Why did the Wesfarmers share price tumble 11% in June?
• What’s the outlook for Wesfarmers shares in July?
• Experts name 2 ASX dividend shares to buy 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 Wesfarmers 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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