The AVZ Minerals Ltd (ASX: AVZ) share price won’t be going anywhere on Monday.

This morning the lithium developer requested a trading halt prior to the market open.

Why is the AVZ share price halted?

This morning the AVZ share price was placed in a trading halt until the earlier of Wednesday or the release of an announcement. The company’s request states:

AVZ Minerals Limited requests that a trading halt be placed on the Company’s securities effective immediately, pending the release of an announcement in relation to it’s (sic) mining and exploration rights for the Manono Lithium and Tin Project.

What does this mean?

Judging by the request, it appears as though AVZ intends to address concerns about its ownership of the Manono Lithium and Tin Project in the Democratic Republic of the Congo.

Last week, the company announced that its 75%-owned Dathcom Mining SA business has received a mining licence for the Manono Lithium and Tin Project. The remaining 25% of Dathcom is currently owned by La Congolaise D’Exploitation Miniere SA (Cominiere).

Following the granting of the mining licence, Cominiere will cede 10% of its interest to the Democratic Republic of the Congo Government, with AVZ believing it has the rights to acquire the other 15%.

However, Cominiere has decided to transfer this 15% interest to China’s Jin Cheng Mining Company, preventing AVZ from acquiring the stake. AVZ doesn’t believe this is lawful and intends to fight the claim.

In addition, AVZ has previously signed away a 24% stake in Dathcom to Suzhou CATH Energy Technologies in exchange for a US$240 million investment to develop the Manono Project. This deal has not been finalised and remains subject to a final investment decision, among other items.

This means that AVZ could potentially end up owning as little as 51% of the project if things don’t go its way.

All in all, this has created significant uncertainty for investors and explains why the AVZ share price was sold off last week.

All eyes, therefore, will be on AVZ shares when the company releases its announcement in the coming days.

The post Why is the AVZ share price halted today? appeared first on The Motley Fool Australia.

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• Why is the AVZ Minerals share price sliding 7% on Friday?
• These 3 ASX 200 shares are topping the share market’s volume charts on Thursday

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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S&P/ASX 200 Index (ASX: XJO) travel shares took some of the steepest falls in the early months of the global pandemic as domestic and international travel ground to a halt.

The Qantas Airways Limited (ASX: QAN) share price, for example, cratered 64% from 21 February through to 20 March 2020.

Travel agencies were smashed too, as witnessed by the 75% fall in the Flight Centre Travel Group Ltd (ASX: FLT) during that same tumultuous month.

Then there’s Webjet Limited (ASX: WEB), whose shares dropped 72%.

And the Corporate Travel Management Ltd (ASX: CTD) share price, which fell 75% from 17 January through to 20 March 2020.

Ouch.

ASX 200 travel shares bounce back on recovery

As you’d expect, ASX 200 travel shares were also some of the strongest beneficiaries of the gradual recovery in domestic and international travel.

First, they leapt higher on news of the vaccines in November 2020. And since then they’ve continued to march higher, albeit with significant volatility.

Over the past 12 months, the Qantas share price has gained 17%; the Webjet share price is up 19%; Corporate Travel Management’s shares have gained 32%; and the Flight Centre share price is up 34%.

For some context, the ASX 200 is trading right about the same level it was at 12 months ago.

Are these companies fairly valued now?

With those gains behind them, are ASX 200 travel shares already fully valued?

For some insight into that question, we turn to Neil Margolis, lead portfolio manager at Merlon Capital Partners, courtesy of the Australian Financial Review.

According to Margolis:

While pent-up demand might result in super-profits for travel stocks, most of this is already reflected in the share prices. To illustrate this, the trio of booking agencies, Flight Centre, Corporate Travel and Webjet have a combined market value of over $10 billion, or 30 times consensus earnings for 2023. This compares to a combined value of only $8 billion before the pandemic, when actual earnings were 20% higher.

Remember the massive share price losses we covered up top? Margolis highlights how that hit the valuations of these top ASX 200 travel shares.

“To illustrate extreme market sentiment at work, they were valued at a mere $2 billion during the pandemic lows, which was when we participated in the Flight Centre and Webjet capital raisings.”

But he cautions about investing in stocks like ASX 200 travel shares based on unsustainable earnings surges.

“While they might surprise on earnings, we only pay for sustainable earnings – not peak earnings – and these companies also face risks from online competition,” he said.

As for Qantas?

According to Margolis (quoted by the AFR):

We do own Qantas after investing during the Sydney lockdowns last year, and while it has rallied strongly, the market valuation is still (just) below pre-pandemic levels and there is potential for permanent market share gains and cost efficiencies.

While we recognise Qantas’ strong domestic and loyalty market position, we do remain sceptical that the airline industry will ever change from being capital intensive and cut-throat.

The post Are ASX 200 travel shares already fully valued in May? appeared first on The Motley Fool Australia.

More reading

• These are the 10 most shorted ASX shares
• Top brokers name 3 ASX shares to sell next week
• Grounded! Why the Qantas share price is tanking 4% today
• 2 top ASX growth shares Goldman Sachs rates as buys
• Is the Webjet share price now a buy amid ‘strong’ travel demand?

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 Corporate Travel Management Limited, Flight Centre Travel Group Limited, and Webjet Ltd. 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 two ASX dividend shares in this article are businesses that aim to provide investors with dividend income. But could they be smart ideas to consider today?

There has been a lot of volatility on the ASX share market in recent months, amid the Russian invasion of Ukraine and market focus on inflation and interest rates.

Adairs Ltd (ASX: ADH)

Adairs is a homewares and furniture retailer. It sells products through three different brands – Adairs, Mocka, and Focus on Furniture.

According to CommSec, the current Adairs share price is valued at 7x FY23’s estimated earnings with a projected FY23 grossed-up dividend yield of 14.3%.

FY22 has seen the business hampered by COVID-19 – store closures had an estimated group earnings before interest and tax (EBIT) impact of $18 million to $20 million.

The ASX dividend share has a number of different strategies to grow profit into the future.

One tactic is to expand its floor area, which has a direct link to sales according to Adairs. In the first half of FY22, it opened two new homemaker stores and upsized four stores. Larger stores make more profit for the business. Adairs’ floorspace expanded by 8.6% in the previous 12 months.

Another plan is to grow its membership base, called Linen Lovers. In its FY22 half-year result Adairs said its membership rose by 10% in the prior 12 months.

Online sales growth is a focus for the business to be a leading omnichannel retailer. Total online sales for the half were 185% higher than in FY20. Online sales made up 43% of total group sales.

Adairs recently acquired Focus on Furniture. The ASX dividend share is transitioning to a new national distribution centre, which will make the business more efficient and save on annual expenses.

Brickworks Limited (ASX: BKW)

Brickworks is a diversified building products manufacturer. It provides several different product types including bricks, paving, precast, roofing and cement.

However, management points to two other assets that help provide the cash flow to fund a dividend that hasn’t been cut in over 45 years. Indeed, management is proud of the company’s history of paying and growing dividends.

The two other assets it owns are the investment in Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares and a 50% share of an industrial property trust.

It owns 26.1% of the investment conglomerate that owns names in the portfolio like TPG Telecom Ltd (ASX: TPG), Tuas Ltd (ASX: TUA), New Hope Corporation Limited (ASX: NHC), Macquarie Group Ltd (ASX: MQG) and Commonwealth Bank of Australia (ASX: CBA).

Soul Pattinson is invested in a number of sectors including resources, telecommunications, banking, agriculture and financial services.

Regarding the industrial property trust, Brickworks says that it’s seeing unprecedented demand for its industrial property facilities. So, it is building properties “at pace” to keep up with demand.

As properties are completed, the rental income grows for the ASX dividend share. Brickworks points to land that can enable years of further development and growth.

At the current Brickworks share price, the estimate on CommSec shows the business trading with a FY23 grossed-up dividend yield of 4%.

The post Are these 2 ASX dividend shares buys in May 2022? appeared first on The Motley Fool Australia.

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• Analysts name 2 inflation-beating ASX dividend shares to buy
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• 4 reasons it could be time to look at the Brickworks share price
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Motley Fool contributor Tristan Harrison has positions in Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended ADAIRS FPO, Brickworks, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended ADAIRS FPO, Brickworks, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Macquarie Group Limited and TPG Telecom 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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Once a week I like to look at ASIC’s short position report to find out which shares are being targeted by short sellers.

This is because I believe it is well worth keeping a close eye on short interest levels as high levels can sometimes be a sign that something isn’t quite right with a company.

With that in mind, here are the 10 most shorted shares on the ASX this week according to ASIC:

• Flight Centre Travel Group Ltd (ASX: FLT) takes the crown on the most shorted list for another week after its short interest rose to 17.1%. The market remains incredibly divided on the travel sector recovery with some companies predicting growth on 2019’s numbers and others predicting declines in 2022.
• Betmakers Technology Group Ltd (ASX: BET) has seen its short interest rise to 13.6%. Short sellers will have been pleased to see this betting technology company’s shares crash to a two-year low last week. Loss-making tech shares are out of favour with the market right now.
• Nanosonics Ltd (ASX: NAN) has short interest of 12.4%, which is up week on week. This medical device company’s shares have been sold off this year due to uncertainty caused by a major change to its sales model in the United States.
• Kogan.com Ltd (ASX: KGN) has seen its short interest climb again to 10.3%. This ecommerce company continues to be a target of short sellers due to its poor sales performance, strong competition, margin pressures, and its dire inventory management.
• Polynovo Ltd (ASX: PNV) has seen its short interest remain flat at 10%. Valuation concerns have been weighing on this medical device company’s shares. Though, clearly a couple of insiders don’t agree that PolyNovo’s shares are overvalued. Last week the company reported some major insider buying.
• EML Payments Ltd (ASX: EML) has seen its short interest jump to 10%. Short sellers have increased their positions in this payments company after it downgraded its profit guidance following a tough third quarter.
• Webjet Limited (ASX: WEB) has short interest of 9.3%, which is down week on week once again. As with Flight Centre, mixed messages out of the travel sector appear to have short sellers believing that the market is too bullish on the sector recovery.
• AMA Group Ltd (ASX: AMA) has 8.9% of its shares held short, which is up week on week. Short sellers aren’t giving up on this smash repair company despite its shares hitting a two-year low last week. Its high debt load and dwindling cash balance are weighing heavily on sentiment.
• Appen Ltd (ASX: APX) has returned to the top ten after its short interest rose to 8.9%. Concerns over softening demand for its services and a lack of guidance for FY 2022 appear to have attracted short sellers.
• Zip Co Ltd (ASX: Z1P) has seen its short interest fall to 8.25%. This buy now pay later provider’s shares have fallen out of favour with investors amid slowing growth and rising costs.

The post These are the 10 most shorted ASX shares appeared first on The Motley Fool Australia.

More reading

• Over 20 million new Zip shares will soon be available to trade. What does this mean for the share price?
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• Why BrainChip, Coles, Fisher & Paykel Healthcare, and PolyNovo shares are rising
• Why is the Zip share price making a partial recovery this afternoon?
• PolyNovo share price jumps despite the market selloff amid heavy insider buying

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 Appen Ltd, Betmakers Technology Group Ltd, EML Payments, Kogan.com ltd, Nanosonics Limited, and POLYNOVO FPO. The Motley Fool Australia has positions in and has recommended EML Payments, Kogan.com ltd, and Nanosonics Limited. The Motley Fool Australia has recommended Betmakers Technology Group Ltd, Flight Centre Travel Group Limited, and Webjet Ltd. 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 AUB Group Ltd (ASX: AUB) share price won’t be trading till tomorrow as it undertakes a capital raise to fund an $880 million acquisition.

The insurance broker called for the trading halt and announced the takeover of Tysers. The London-based target is the sixth-largest wholesale broker in the Lloyd’s marketplace with $3.6 billion in annual gross premiums.

The cash and scrip offer will be partly funded through a fully underwritten $350 million equity raising. The raising is made up of a $71 million share placement to institutional investors.

The balance will come via a 1-for-5.2 pro rata accelerated non-renounceable entitlement offer to existing shareholders.

AUB shares on watch as it undertakes cash-scrip acquisition

Tysers owners, Odyssey Investment Partners, will be given $176 million worth of AUB shares as part of the transaction. The shares will be escrowed for 24-months.

AUB will also take on a new $675 million new debt facility to replace its existing $250 million facility. This will leave the company with $74 million in unused debt post the acquisition.

Strategic rationale

Management says that the acquisition is consistent with its strategy to expand its international offering, build economies of scale and capture more of the brokering value chain.

AUB added that Tysers will strengthen its competitive position. The target’s specialist capabilities will enable AUB to design and offer market-leading products for AUB’s broker and agency network and to enhance the ability to establish new agencies and secure Lloyd’s binders.

AUB acquisition could hit $1.06 billion

The $880 million offer price could go up by another $176 million (earnout) if Tyser hits certain targets. But ignoring the earnout, the price tag for Tysers reflects a circa 12 times enterprise value to FY22 pro forma earnings before interest, tax, depreciation and amortisation (EBITDA).

However, if you include the forecast annual run-rate synergies from the merger of around $25 million, the multiple drops to around 9 times.

In other words, AUB believes the acquisition will lift its underlying earnings per share by 30% with the synergies.

The synergy assumptions are made up for cost savings and improving margins on current premiums to be fully realised after 18 months.

On sale of assets

In the wake of the acquisition, AUB intends to sell a 50% stake in Tysers’ UK Retail division to PSC Insurance Group Ltd (ASX: PSI). PSC, a 50/50 joint venture partner with AUB, will purchase the asset on the same multiples and commercial terms.

“Lloyd’s is the largest insurance market in the world. Tysers provides AUB Group the ability to access a diverse range of risks and insurance types for our clients and broker networks in Australia and New Zealand whilst also gaining the capability to accelerate the establishment of new agencies in these markets,” said AUB chief executive Mike Emmett.

“Clive Buesnel, Tysers CEO, is a highly respected insurance executive in the Lloyds and London market, and we are delighted to welcome him and the Tysers team to the AUB family as we embark on a new chapter for both AUB Group and Tysers.”  

The post AUB share price halted amid $880 million acquisition appeared first on The Motley Fool Australia.

More reading

• 2 ASX shares that were dogs last month but good to buy now: expert

Motley Fool contributor Brendon Lau 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 PSC Insurance Group. The Motley Fool Australia has recommended Austbrokers Holdings Limited 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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The ASX share market is seeing a lot of volatility right now. Could the National Australia Bank Ltd (ASX: NAB) share price be an opportunity?

On Friday, the S&P/ASX 200 Index (ASX: XJO) suffered one of its worst days in the last two years.

NAB shares fell on Friday as well. But, at the time of writing, the bank has gone up around 7.5% since the start of the year.

Last week, NAB reported its FY22 half-year result, and it managed to achieve growth. Before getting to the broker ratings on the bank, let’s look at how the bank performed.

Earnings wrap

NAB reported a statutory net profit after tax (NPAT) of $3.55 billion. The cash earnings rose 4.1% to $3.48 billion. Revenue rose by 4.6%, benefitting from “pricing discipline and strong growth in lending and deposits which were up 10% and 12% respectively” compared to the prior corresponding period.

The bank has been investing to deliver productivity benefits. It said that it has reset its FY22 cost growth target to approximately 2% to 3% to ensure it drives shareholder returns while balancing cost disciplines and growth opportunities. Indeed, the NAB share price is up 18% since this time last year.

NAB said that net interest margin (NIM) declined 11 basis points to 1.63%. However, excluding the impact from markets and treasury, and higher holdings of liquid assets, the NIM declined by 3 basis points. NAB said this reflected competitive pressures and “mix issues” in housing lending, partly offset by lower deposit and funding costs.

The bank’s credit impact charge was $2 million. However, NAB did say that it’s seeing improved asset quality across Australian lending exposures and low specific charges. The ratio of loans that are more than 90 days past due fell 48 basis points to 0.75%.

NAB’s board decided to declare an interim fully-franked dividend of 73 cents per share, up from 60 cents per share. At the current NAB share price, its current grossed-up dividend yield is 6.1%.

Regarding its outlook, the bank said:

We are optimistic about the future and well-positioned for an evolving environment in FY22 and FY23. Disciplined execution of our strategy and investing to deliver better customer and colleague outcomes remain our key focus to allow us to drive sustainable growth across our business and improved returns for shareholders.

Is the NAB share price a buy?

Brokers are somewhat mixed on the business.

Ord Minnett currently rates NAB shares as a buy, with a price target of $34.50. The broker thought the result was good.

Morgan Stanley is currently ‘equal-weight’ on the big four ASX banks, with a price target of $31.80.

Credit Suisse is neutral on the NAB, with a price target of $32.40. While NAB should be a beneficiary of interest rates increasing, the broker noted that NAB is expecting to report growth in expenses.

The post Is the NAB share price a buy amid this volatility? appeared first on The Motley Fool Australia.

More reading

• Is it too late to buy big bank ASX shares?
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• Here are the top 10 ASX shares today

JPMorgan Chase 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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Could the Woolworths Group Ltd (ASX: WOW) share price be an opportunity as the ASX supermarket share deals with the current inflation environment?

The business has had a lot of to deal with over the last two or so years. The COVID-19 panic buying was a challenge in 2020 and the company has had to significantly scale its e-commerce capabilities.

Woolworths is now dealing with supply chain challenges and inflation.

In the three months to 31 March 2022, Woolworths said that there was a return to COVID-related shopping behaviour in the early part of the quarter, which led to higher in-home consumption in the food businesses along with rising food inflation.

Quarter recap

Australian food sales increased by 5.4% in the third quarter, with Woolworths retail sales increasing by 5.2%. Average prices increased by 2.7%, reflecting “widespread industry cost pressures.” E-commerce sales growth remained “strong” at 38.1%, despite COVID and flood-related disruption resulting in sales penetration of 9.9%.

Australian business to business sales increased by 217% largely driven by PFD and Endeavour Group Ltd (ASX: EDV) partnership revenue not included in the prior year.

New Zealand food total sales increased by 3.8% despite lower item growth, with average prices increased by 3.6%. E-commerce sales increased by 18.3%.

Big W sales declined by 3.5%. This was comparing against 18.3% growth in the prior year.

Woolworths said that trading momentum in the fourth quarter to date has continued in Australian food and Big W with “strong Easter seasonal trade.” However, COVID impacts are expected to affect the FY22 second half earnings before interest and tax (EBIT) with a forecast range of between NZ$120 million to NZ$140 million, representing a decline of 16% to 28% compared to the second half of FY21. Those impacts and costs are largely associated with keeping the “customers and team safe and minimising disruption” to the supply chain.

It has been reducing its direct COVID costs in areas where it’s no longer required.

Woolworths acknowledged the cost-of-living pressures that are being felt by customers and the team. It’s supporting the position for an increase in team member wages that keeps pace with underlying cost-of-living increases.

Could the Woolworths share price be a buying opportunity?

Brokers are quite mixed on the business at the moment.

UBS currently rates Woolworths as sell, though the price target is only $36. It notes that suppliers are wanting to pass on costs and price increases. However, it’s Coles Group Ltd (ASX: COL) which is the broker’s pick in the sector.

Credit Suisse also has a negative rating with a ‘underperform’ rating with a price target of $33.89. This broker thinks that elevated COVID-19 costs are a drag on Woolworths.

However, on the positive side is Ord Minnett with a price target of $40. It likes it as the market leader and it is able to pass on higher costs to shoppers with higher prices.

Valuation

Ord Minnett thinks the Woolworths share price is valued at 33x FY22’s estimated earnings and 39x FY23’s estimated earnings.

However, Credit Suisse thinks that Woolworths shares are valued at 33x FY22’s estimated earnings and 29x FY23’s estimated earnings.

The post Is the Woolworths share price good value right now? appeared first on The Motley Fool Australia.

More reading

• Which ASX supermarket shares could win (and lose) as higher inflation hits shelves?
• Here’s how the Woolworths share price stacked up in April
• Analysts name 2 blue chip ASX 200 dividend shares to buy
• 5 things to watch on the ASX 200 on Wednesday
• Here’s how some of the biggest ASX 200 shares are responding to the RBA’s rate rise

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 COLESGROUP DEF SET. 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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Three large parcels of Zip Co Ltd (ASX: ZIP) shares will soon be able to hit the market after their escrow period ends.

That means millions more shares in the buy now, pay later (BNPL) giant will be available to trade, potentially impacting their value.

At the time of writing, the Zip share price is $1.04, nearly 76% lower than it was at the start of this year.

For context, the S&P/ASX 200 Index (ASX: XJO) has slipped 5% over the same period.

Let’s take a look at why more Zip stocks are coming out to play and what that could mean for the company’s share price.

Millions of Zip shares to be released from escrow

More than 22 million Zip shares might soon flood the market after they are released from voluntary escrow agreements.

Escrowed shares are normally issued as part of a capital raise or acquisition. They are restricted from trading for a certain amount of time after being handed out.

Three packages of Zip shares will be released from their limbo over the coming weeks. The first will be able to hit the market this week.

More than 7.45 million ordinary shares in the BNPL star will be released from escrow on Thursday.

Another second package – more than 1.5 million shares strong – will be able to be traded from 23 May.

Finally, more than 13.2 million shares will be released from escrow on 1 June.

The shares were issued to help pay for notable acquisitions undertaken by Zip over the last two years.

The first package was issued as part of Zip’s acquisition of Twisto Payments in November.

The second helped pay for the company’s purchase of Spotii in May.

The largest package was issued as part of Zip’s milestone acquisition of Quadpay in 2020.

It’s important to note the stocks’ release from escrow doesn’t mean they’ll be up for grabs anytime soon.

Though, if they are sold on-market, the rule of supply and demand suggests the Zip share price could suffer.

It’s also worth pointing out that the shares to be released from escrow were worth between approximately $3.75 and approximately $7 apiece at their time of issuance.

Thus, their owners might not be enthusiastic about selling their holdings at the current Zip share price.

The post Over 20 million new Zip shares will soon be available to trade. What does this mean for the share price? appeared first on The Motley Fool Australia.

More reading

• Why is the Zip share price making a partial recovery this afternoon?
• Why ARB, AVZ, Temple & Webster, and Zip shares are sinking
• The Zip share price is plunging 9% today. Here’s why
• Leading brokers name 3 ASX shares to sell today
• Why Block, Domain, Metcash, and Zip shares are pushing higher

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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On Friday, the REA Group Limited (ASX: REA) share price was sold off following the release of the property listings company’s third-quarter update.

The company’s shares were down as much as 9% to a 52-week low of $110.68 before recovering slightly to end the week at $112.15.

This means the REA share price is now down 35% since the start of the year.

Is the weakness in the REA share price a buying opportunity?

One leading broker that believes investors should be taking advantage of this weakness is Goldman Sachs.

According to a note from this morning, the broker has reiterated its buy rating with a trimmed price target of $164.00.

Based on the current REA share price, this implies potential upside of 46% for investors over the next 12 months.

What did the broker say?

Goldman Sachs acknowledges that REA missed its third-quarter estimates last week due to a greater than expected deterioration in the macro trends.

However, its analysts feel investors should look beyond this. They believe this is a short term headwind that will eventually turn into a tailwind for growth in the future.

The broker explained:

“REA revenues were -7% vs. GSe, given a greater than expected deterioration in the macro trends across its Rental (GSe c.10% of revenues) and Commercial and Developer businesses (14%) during the quarter. This offset the estimated +24% growth in its Residential ‘For-Sale’ business (+11% volume, +8% price and +5% depth).

Although this weakness is impacting FY22 earnings, as it relates to macro factors that will ultimately normalise in future periods, we believe it is only timing related, and will provide another tailwind to growth in future periods that will be impacted by macro weakness in ‘for-sale’ listings.”

Furthermore, the broker believes there are other tailwinds that will be supportive of strong future growth.

“When combined with continued pricing tailwinds and strong depth uptake (across existing and new products), we remain positive on REA’s ability to deliver sustainably strong earnings growth – forecasting +8% growth in FY23 (impacted by for-sale listings/India), accelerating to +11% in FY24.”

All in all, the broker feels this makes the REA share price a very attractively priced option at the current level.

The post Following months of selling, top broker tips 45% upside for the REA share price appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Monday
• Why Macquarie, REA, Temple & Webster, and Xero shares are sinking
• ASX 200 midday update: Macquarie and REA updates disappoint
• REA share price sinks 9% to 52-week low following Q3 update
• Buy these 2 impressive ASX shares in May 2022: experts

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 REA Group 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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If you’ve been keeping up with the share markets in recent months, you’ll already know the banks have done very well.

Banks and the miners have carried the S&P/ASX 200 Index (ASX: XJO), often dragging it back to moderate losses on days when other sectors have burned to the ground.

In fact, since the COVID-19 Omicron variant reared its head in late November, the S&P/ASX 200 Financials (ASX: XFJ) has gained more than 5.5% while the ASX 200 has lost 0.5%.

And with the Reserve Bank raising the cash rate last week, and expected to do so again multiple times this year, banks have plenty of reason to cheer.

So, as investors, is it too late to jump on the banking bandwagon? Are those shares worth buying now?

Switzer Financial director Paul Rickard, who made his name once as an executive at Commonwealth Bank of Australia (ASX: CBA), answered this question.

‘Most of the run is behind them’

Rickard told Switzer TV Investing that it’s not too late to buy big bank shares, but only if you set your expectations low.

“I think the best and most of the run is behind them,” he said.

“Sure, they’re going to win from higher interest rates now… That’s going to effectively allow them to improve their so-called ‘net interest margin’.”

Net interest margin is the difference between the lending interest rate (income for the bank) and the deposit interest rate (expense for the bank).

Australian banks often benefit from cash rate rises because they immediately pass on the full effect to borrowers but forward very little, if at all, to deposit holders.

So this expands their net interest margin.

Too much of a good thing could make one vomit

This scenario seems like a simple win for the banks, but Rickard warns that repeated rate rises could backfire.

“What people have got to be careful of is ultimately higher interest rates slow the economy down. They slow borrowing demand down, which makes volume growth harder,” he said.

“Then in the longer term, if [rates] stay high for a long term, borrowers find it harder to repay.”

Right now, according to Rickard, the big banks are in the best position in years in regard to bad debts and loan defaults.

This is because of the combination of historically low rates and generous COVID-19 provisions.

“Banks have been huge winners of over-providing in COVID-19 and writing it back,” said Rickard.

“Yesterday Australia and New Zealand Banking Group Ltd (ASX: ANZ) reported negative bad debts… Today National Australia Bank Ltd (ASX: NAB)’s total bad debts are $2 million.”

So all this means is that the bad debt total can only get worse from here for all financial institutions.

You won’t get another $18 rise

Rickard advised that if investors buy into bank shares now, they need to expect significantly less return than the spectacular rises seen in the past year or two.

“National Australia Bank, to give some context here, was $14 in March 2020… and today it’s $32,” he said.

“I don’t think [investors] are going to get another $18 out of them.”

The best shareholders could hope for from here is single-digit gains, according to Rickard.

“Mainly because they are struggling still to grow revenue and that’s still their fundamental problem.”

The post Is it too late to buy big bank ASX shares? 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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