Key points

• The Altium share price could be significantly undervalued today based on management’s comments
• It previously rejected a takeover offer of $38.50 per share from Autodesk
• The company is rapidly expanding its cloud operations with Altium 365 adoption by clients

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The Altium Limited (ASX: ALU) share price could be “significantly undervalued”, according to the people who know the business the best.

For readers that don’t know, Altium is one of the leading electronic PCB design software businesses in the world. It also offers other services including Octopart, a search engine for electronic parts.

Is the Altium share price really good value?

The people who probably know the business best are the ones that work in the business, particularly management.

In June 2021, readers may remember that Altium received a formal, non-binding indicative proposal from US tech business Autodesk to buy the whole Altium business for A$38.50 per share.

Altium didn’t go for the offer, it wasn’t interested, though it appreciated the interest which evolved from dialogue about a strategic partnership.

The board said that the offer of $38.50 “significantly undervalued” Altium’s prospects and rejected the other. At the time of writing, the Altium share price is $37.11. So, it’s around 4% lower than the offer price which the board said significantly undervalued the business.

Since that takeover interest lapsed, Altium shares reached just over $45 by the end of 2021. However, it has dropped 17% since the start of the year.

Why is the ASX share undervalued?

The board said that Altium has a unique position in the electronics ecosystem. Its strong track record of setting ambitious long-term goals and achieving them gave the board confidence in its ability to pursue its transformative strategy.

Having successfully pivoted to the cloud through Altium 365, the company said it’s well positioned to pursue market dominance and industry transformation.

The business says that Altium 365 is the platform for all software engineering disciplines to collaborate to design and build electronics for manufactured products.

At the company’s AGM said that Altium 365 already has more than 17,000 active users and more than 7,000 active accounts. It also said that 15% of seats were on the cloud subscription and 40% were in transition.

What are some of the growth initiatives?

Management are working on several things to help grow the profit and the Altium share price.

The business is looking to accelerate adoption of the Altium 365 and Nexar ecosystem.

Another focus is scaling enterprise sales through strategic partnerships to expand its total addressable market within the PCB market.

Altium is rolling out its digital sales platform with the first US digital hub and taking the transactional sales global for expanded reach.

The next goal is expanding its Octopart total addressable market with its integration into Nexar.

The company is wanting to grow its licence compliance in China and, over time, generate recurring revenue through its Altium 365 China division.

Finally, the company is launching Altimade and lay the foundation for ‘smart’ manufacturing with a high profit margin.

FY22 expectations

At the AGM, Altium said that it had a strong first four months of FY22 with the core business growing well, Octopart outperforming, China and Nexus going well and Altium 365 cloud adoption accelerating.

It also said that it’s confident that based on business momentum, it is not likely to be at the low end of its guidance range.

As a reminder, it’s expecting to grow FY22 revenue by 16% to 20% to between US$209 million to US$217 million. The underlying earnings before interest, tax, depreciation and amortisation (EBITDA) margin is predicted to be between 34% to 36%. Annualised recurring revenue (ARR) growth is expected to be between 23% to 27%.

Altium share price snapshot

Altium shares are up 1% today and have risen 8.6% since the bottom of the recent decline on 27 January 2022.

The post Here’s why the Altium (ASX:ALU) share price is ‘significantly undervalued’ appeared first on The Motley Fool Australia.

More reading

• Why did these tech shares lead the ASX 200 today?
• 3 ASX shares brokers have named as buys
• What happened to ASX tech shares today?
• 2 ASX tech shares to buy after the market meltdown
• Why is the Altium Limited (ASX:ALU) share price sinking 16% this year?

Motley Fool contributor Tristan Harrison owns Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Altium. 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 Bruce Jackson.

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Key points

• The Sparc Technologies share price exited a trading halt today and is currently down 12%, trading at $1.44
• The fall follows news hydrogen-giant Fortescue Future Industries is buying into the Sparc Hydrogen Joint Venture
• Under the deal announced today, both entities will end up with 36% of the venture, with the University of Adelaide holding the remaining 28%

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The Sparc Technologies Ltd (ASX: SPN) share price is tumbling lower on Wednesday despite one of the ASX’s biggest names taking a sizable stake in the company’s hydrogen venture.

Fortescue Metals Group Limited‘s (ASX: FMG) hydrogen-focused renewable energy leg, Fortescue Future Industries (FFI), is set to snag up to 36% of the newly-formed Sparc Hydrogen Joint Venture.

Unfortunately, the market is reacting poorly to the news. At the time of writing, the Sparc Technologies share price is $1.44, 12.73% lower than its previous close. Meanwhile, the Fortescue Metals share price has gained 3.47%.

Let’s take a closer look at the latest news from the technology company.

A quick recap: What is Sparc Hydrogen?

The Sparc Hydrogen Project is developing the thermo-photocatalysis process – whereby hydrogen is created from water using radiation from the sun.

Thus, it bypasses the need for other forms of renewable energy when creating green hydrogen.

Theoretically, only light energy, water, and a catalyst are needed in the process. However, no technology using the method has been commercialised.

Prior to FFI’s entrance, Sparc held 72% of the venture while the University of Adelaide held the other 28%. The joint venture was first announced in October.

Sparc Technologies share price tumbles on joint venture news

The freshly-thawed Sparc Technologies share price is slipping lower despite a major hydrogen entity gaining an interest in Sparc Hydrogen.

Under the deal announced today, Fortescue Future Industries will initially be paying $1.8 million to get a 20% hold of the venture as part of its stage 1 funding. Sparc will issue the Sparc Hydrogen shares to FFI immediately.

Sparc Technologies will receive an approximately $512,000 reimbursement through FFI’s initial funding contribution.

The following funding stage will see Sparc Technologies paying $1.025 million and Fortescue Future Industries putting forward $1.475 million.

That will see both entities with a 36% holding in Sparc Hydrogen. The university will continue to own 28% of the venture.

The market might believe Sparc Technologies is getting a raw deal, inspiring its share price to tumble today.

Though, both parties will ultimately end up putting forward $3,257,000 for their holding. Sparc Technologies’ contribution will include three million shares given to the University of Adelaide and the University of Flinders.

Additionally, the university has provided all technology under development, including intellectual property, to Sparc Hydrogen under an exclusive licence.

What did management say?

Sparc Technologies chair Stephen Hunt commented on today’s news:

Sparc is extremely excited to be working with a company of the calibre of FFI, which has demonstrated its credentials as being a world leading company in green hydrogen. FFI is very well placed to assist the development and commercialisation of Sparc Hydrogen’s green hydrogen photocatalytic technology.

Fortescue Future Industries CEO Julie Shuttleworth responded to the deal:

Green hydrogen is a practical, implementable solution to decarbonise hard to abate sectors, including heavy industry. The research being undertaken by Sparc Hydrogen is important for FFI’s growing technology portfolio as we develop technologies to lower emissions globally.

Sparc Technologies share price snapshot

Since the end of 2021, the Sparc Technologies share price has slid 11%.

Though, it’s still 388% higher than it was this time last year.

The post Sparc Technologies (ASX:SPN) share price slides 12% despite Fortescue buy in. What’s happening? appeared first on The Motley Fool Australia.

More reading

• Fortescue (ASX:FMG) Future Industries to buy stake in Sparc Hydrogen
• Why is the Sparc Technologies (ASX:SPN) share price on ice today?
• Here are the 5 best performing ASX hydrogen shares of 2021

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 Bruce Jackson.

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In afternoon trade, the S&P/ASX 200 Index (ASX: XJO) is on course to record a strong gain. At the time of writing, the benchmark index is up 1.1% to 7,086.8 points.

Four ASX shares that are climbing more than most today are listed below. Here’s why they are pushing higher:

Aussie Broadband Ltd (ASX: ABB)

The Aussie Broadband share price is up 4% to $4.32. This appears to have been driven by a broker note out of Credit Suisse this morning. According to the note, the broker has upgraded the telco’s shares to an outperform rating with a $5.00 price target. Although the company fell short of Credit Suisse’s first half estimates, it believes recent share price weakness has created a buying opportunity.

BrainChip Holdings Ltd (ASX: BRN)

The BrainChip share price has jumped 7% to $1.77. This follows news that the artificial intelligence chip company has been awarded another patent in the United States. This patent protects the basic structure and function of a digital neuron consisting of multiple synapse circuits connected to a soma circuit.

Talga Group Ltd (ASX: TLG)

The Talga share price is up 6% to $1.60. Investors have been buying this graphite company’s shares in response to an update on drilling activities at its Vittangi Graphite Project. According to the release, recent drilling has delivered further spectacular graphite grades over substantial widths, with all deposits remaining open along strike and at depth.

Telstra Corporation Ltd (ASX: TLS)

The Telstra share price is up 1.5% to $4.00. This morning the telco giant announced two new telecom projects costing up to $1.6 billion that are set to improve connectivity nationwide. One of the projects involves a collaboration with global communications company Viasat to provide Australians with higher data and video streaming speeds.

The post Why Aussie Broadband, BrainChip, Talga, and Telstra shares are pushing higher appeared first on The Motley Fool Australia.

More reading

• Telstra (ASX:TLS) share price climbs on new $1.6 billion ‘nation-building’ projects
• What’s driving the BrainChip (ASX:BRN) share price 14% higher today?
• Broker names 2 ASX 200 dividend shares to buy in February
• Why Aussie Broadband, BHP, Brambles, and Champion Iron shares are dropping
• Here are the 3 most heavily traded ASX 200 shares this Tuesday

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. owns and has recommended Aussie Broadband Limited. The Motley Fool Australia owns and has recommended Telstra Corporation Limited. The Motley Fool Australia has recommended Aussie Broadband Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Shares in computer hardware and software distributor Dicker Data Ltd (ASX: DDR) are edging lower in today’s session, now trading down 0.9% at $13.24 apiece.

The Dicker Data share price has lost support in the last few months, tumbling from a high of $15.60 back in early November.

While there’s been nothing remarkable from the company in that time, ASX tech shares have led the broad market losses this year. That’s amid a widespread tremor in global equity markets since December.

Dicker Data certainly hasn’t been immune to the selloff. Its shares hit 3-month lows of $12.05 just last week.

However, there’s life in the company’s stock once again with its share price gaining 5.56% in the past week.

Let’s take a look at what’s behind the price action.

What’s up with the Dicker Data share price this week?

Even as Dicker Data struggled in January, in the past few days, its shares have reversed course and rallied as much as 11% since Australia Day last week.

As well, the company also released an update today regarding a new distribution agreement with Autodesk, Inc (NASDAQ: ADSK) for Australia and New Zealand (ANZ). While the announcement isn’t price-sensitive, it contains important updates regarding Dicker Data’s growth plans.

Specifically, the company advised it has been appointed as the non-exclusive Autodesk distributor for both the ANZ regions. It’s part of a 3-year deal that took effect yesterday, 1 February.

“Whilst it is not possible to quantify the revenue impact the new distribution agreement will have at this stage, it is expected to be material and significant over the course of the three-year period,” the company said.

This deal follows Autodesk’s strenuous review and planning process underway in recent months. It saw the company consolidate its ANZ distributors to just 1 entity. Dicker Data first began distributing Autodesk in 2014 following the acquisition of Express Data Holdings.

Dicker Data chair and CEO David Dicker commented on the agreement:

This is a particularly satisfying outcome for our company that clearly demonstrates our strength in software and subscription distribution models.

It’s pleasing to see these strengths recognised at a global and regional level with the confidence technology giants such as Autodesk, and others, place into us as their only distributor in ANZ.

The recent price action in Dicker Data shares has caught the attention of analysts at Evans & Partners, according to a recent note from the broker.

Its analysts initiated coverage of Dicker Data with a “positive” rating – akin to a bullish stance.

Evans & Partners values the company at $15.10 per share, suggesting a potential upside of 13%.

The consensus price target on Dicker Data is also conveniently $15.10 per share, according to Bloomberg Intelligence.

Dicker Data share price snapshot

In the last 12 months, the Dicker Data share price has gained more than 15% after a strong display in 2021.

This year to date, however, the company’s shares have plunged 10%. Hence, this week’s gains provide welcome respite for Dicker Data shareholders.

The post Here’s why the Dicker Data (ASX:DDR) share price is having such a great week appeared first on The Motley Fool Australia.

More reading

• An ASX XI to take on the world
• 2 ASX 200 shares that could be top buys for dividends
• Top ASX dividend shares to buy in 2022

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Dicker Data Limited. The Motley Fool Australia owns and has recommended Dicker Data Limited. The Motley Fool Australia has recommended Autodesk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Shares in technology and financial services provider Computershare Limited (ASX: CPU) are surging higher today and now trade more than 5% in the green at $20.72.

After a slight stumble, the Computershare share price went vertical in late January, soaring off a low point of $19.12 to trade back near its record highs once again.

All of this price action has caught the attention of analysts at Swiss Investment bank UBS in a note today. The broker revised its Computershare rating from neutral to buy today. Let’s take a closer look.

Are Computershare shares a buy?

According to the team at UBS, the recent pullback in Computershare’s stock presents as a potential buying opportunity for investors.

UBS adds that the prospects for capital gains are further increased now that Computershare has settled the spate of acquisitions and portfolio updates it recently made.

Now that the fog has cleared on these transactions, UBS reckons the company’s earnings profile is far more visible – a fact that had been compressing the share price in the broker’s estimation.

Not only that, the broker forecasts that several of these acquisitions will be beneficial to liftoff margin pressures throughout the company’s P&L. It also likes Computershare’s market position to capture shifting consumer trends in the mortgage market.

The broker upgraded its rating on Computershare to a buy and raised its valuation on the company by 27% to $22.50 in its most recent model update.

Morgan Stanley is also bullish on the company, rating the stock a buy as well. Analysts at the firm reckon that management could upgrade earnings per share (EPS) growth forecasts above the current 2% target.

According to a previous analysis by The Motley Fool, “the broker also bakes in its views on interest rates, treasury yields and cost-budgeting efforts by the company that could materialise in FY22 to support its thesis. This is relevant to Computershare given its exposure to interest rates at the belly of the interest rate curve, particularly up to 5-years, which are incredibly attractive to Morgan Stanley”.

As such, the broker estimates a 10% growth in EPS for the company from each year into FY22–FY24 and values the company at $21.50 per share.

Computershare share price snapshot

In the last 12 months, the Computershare share price has gained more than 44% after rallying 4% in the past month.

Shares have started the year strongly and have climbed more than 8% this past week, outpacing the benchmark S&P/ASX 200 Index (ASX: XJO)’s return in that time.

The post The Computershare (ASX:CPU) share price is leaping 5%. Top broker says buy now appeared first on The Motley Fool Australia.

More reading

• What happened to ASX tech shares today?
• Why did the Computershare (ASX:CPU) share price set another record high today?

Motley Fool contributor Zach Bristow 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 Bruce Jackson.

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Key points

• Sandfire announces completion of its US$1.87 billion MATSA acquisition, making it one of the biggest ASX copper-focused miners
• Sandfire share price rises after the news, but lags its peers
• Management reassures investors that the integration is going well and that the company’s balance sheet remains strong

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The Sandfire Resources Ltd (ASX: SFR) share price is rallying today after the company announced it has finalised the acquisition of the MATSA mining complex in Spain.

The US$1.87 billion (AU$2.6 billion) transaction will transform Sandfire into one of the largest ASX copper-focused miners.

The Sandfire share price jumped 1.2% to $6.79 during lunchtime trade, although it’s lagging behind its peers.

The OZ Minerals Limited (ASX: OZL) share price and Aeris Resources Ltd (ASX: AIS) share price gained around 3% each.

New era for the Sandfire share price

Nonetheless, the completion of the MATSA acquisition is a major milestone for Sandfire and the ASX miner has full operational control over the Spanish target as of yesterday.

The deal was finally consummated after the miner gained key approvals from relevant Spanish Government authorities. This included the Foreign Direct Investment and Competition Authority in late December 2021.

More significantly, management reported that the integration of MATSA is well progressed. Bedding down acquisitions is always challenging, especially such a large one.

How Sandfire’s balance sheet looks post acquisition

The takeover was funded through existing cash reserves, last year’s $1.3 billion capital raise, and a $1.1 billion debt.

However, Sandfire assured investors that it still holds a strong balance sheet. Post the transaction, Sandfire has $384 million for working capital, and that’s not including the cash held by MATSA.

The acquisition, announced on 23 September last year, gives Sandfire control of an asset in the world-class Iberian Pyrite Belt in the Huelva Province of Andalusia in south-western Spain.

MATSA is a substantial polymetallic mining complex. It comprises three underground mines and a 4.7Mtpa central processing facility.

Exploration upside for the Sandfire share price

MATSA also includes exploration rights covering 2,450km square in Spain and neighbouring Portugal. Sandfire pointed out that this gives it long-term exploration upside and organic growth opportunities.

“Today marks the beginning of an exciting new era for Sandfire, with our business expanding to an organisation with a workforce of around 3,800 direct employees and contractors around the globe,” said Sandfire’s managing director, Karl Simich.

“Our vision for Sandfire is to become an international diversified and sustainable mining company, and the completion of this transaction represents a major step closer to realising this aspiration.”

The post Sandfire (ASX:SFR) share price firms after completion of $2.6b acquisition appeared first on The Motley Fool Australia.

More reading

• Time to sell? Macquarie just downgraded these 3 ASX shares from buys
• The OZ Minerals (ASX:OZL) share price has dumped 11% this week. Is it a bargain?
• OZ Minerals (ASX:OZL) share price slips despite record $2 billion revenue
• 2 ASX shares to guide you out of this bloodbath: expert
• Top brokers name 3 ASX shares to sell next week

Motley Fool contributor Brendon Lau owns OZ Minerals Limited and Sandfire Resources NL. 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 Bruce Jackson.

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The National Australia Bank Ltd (ASX: NAB) share price is pushing higher on Wednesday.

In afternoon trade, the banking giant’s shares are up over 0.5% to $27.80.

Today’s gain means the NAB share price is up almost 15% over the last 12 months.

Where next for the NAB share price?

The good news for shareholders is that one leading broker believes the NAB share price can still climb meaningfully higher from here.

According to a note out of Goldman Sachs this morning, the broker has retained its conviction buy rating and $31.15 price target on its shares.

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

And if you include the $1.43 per share fully franked dividend the broker is forecasting in FY 2022, which represents a 5.1% yield, the total potential return stretches to over 17%.

What did the broker say?

Goldman named three reasons why it is bullish on the NAB share price. These include its cost management initiatives, its position as the largest business bank, and its balance sheet momentum.

The broker explained: “NAB remains our preferred major bank exposure, reflecting NAB’s cost management initiatives, which seem further progressed relative to peers, have freed up investment spend to be more directed towards customer experience (50% in FY22 from 39% in FY21) as opposed to infrastructure. Given NAB’s position as the largest business bank, we believe it will benefit more from the continued economic recovery (management is seeing all segments in its Business & Private Bank exhibiting solid growth without sacrificing margin, and asset quality remains pristine). Good balance sheet momentum with NAB expecting at or above system growth across all divisions.”

The post 3 reasons Goldman Sachs thinks NAB (ASX:NAB) shares are a conviction buy appeared first on The Motley Fool Australia.

More reading

• How are ASX bank shares responding to the RBA’s interest rate call?
• ASX 200 shares offer 12% upside after sell-off: JP Morgan
• How does the Macquarie (ASX:MQG) dividend compare to the big four banks?
• Here’s what higher interest rates could mean for ASX bank shares
• What to expect from the NAB (ASX:NAB) Q1 update next month

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 Bruce Jackson.

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Key Points

• Lumos Diagnostics shares rise 15% following strong support from Victorian government
• $17.2 million intended to be invested in developing local manufacturing capability of RATs
• Subject to approvals, the facility is expected to be up and running in the second-quarter of 2022

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The Lumos Diagnostics Holdings Ltd (ASX: LDX) share price is roaring higher today on the back of a positive company update.

During afternoon trade, shares in the medical diagnostics company are up 14.97% to $1.075 apiece. In comparison, the All Ordinaries Index (ASX: XAO) is 1.24% higher to 7,403.7 points.

What did Lumos Diagnostics announce?

Investors are buying up Lumos Diagnostics shares in hope that the company’s manufacturing capability will be significantly expanded.

In its release, Lumos Diagnostics advised that the Victorian government intends to support a diagnostics manufacturing facility and innovation hub. The $17.2 million package will see the company establish manufacturing capability of Rapid Antigen Tests (RAT) in Victoria.

Subject to meeting a number of requirements, the facility could be producing RATs as early as the second-quarter of 2022. However, hurdles such as securing approval from the Australian Therapeutic Goods Administration (TGA) need to be checked off first.

With COVID-19 cases soaring in the past few months, Australia has faced critical shortages of COVID-19 RAT tests. This highlighted the need to develop a local capability for manufacturing rapid diagnostics within the country.

If the TGA green lights Lumos Diagnostics’ CoviDx RAT, the next step will be finalising a legal agreement with the Victorian government.

Once the production and assembly facility are set up, up to 1 million RATs will be produced initially each year. This is expected to increase up to 50 million RATs through the introduction of greater automation and expanding production lines.

Lumos Diagnostics noted that RATs can also be used for influenza, infectious diseases, reproductive health and chronic disease management.

What did management say?

Sam Lanyon, executive chair of Lumos Diagnostics, commented:

Lumos Diagnostics is proud to collaborate with the Victorian Government to manufacture and deliver critical, rapid diagnostic tests. Lumos will leverage its existing partnerships and global experience that has seen it create critical infrastructure and world-class technology in North America, to support the establishment of a Victorian manufacturing and innovation hub for rapid diagnostics.

We are thrilled that as an organisation that was founded in Victoria, we can support the creation of local jobs whilst future proofing Victoria’s needs for rapid testing.

Lumos Diagnostics share price snapshot

Over the last 12 months, the Lumos Diagnostics share price has descended by around 20% in value. However, when looking at year to date, its shares are up almost 2%.

Lumos Diagnostics has a market capitalisation of roughly $152.05 million, with approximately 150.55 million shares on its books.

The post Why the Lumos Diagnostics (ASX:LDX) share price is up 15% today appeared first on The Motley Fool Australia.

More reading

• AnteoTech (ASX:ADO) share price gains 42% in a week amid RAT race
• Lumos diagnostics (ASX:LDX) share price climbs amid RAT mania

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 Bruce Jackson.

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Key points

• Investors are eyeing ASX banks shares amid rate rise expectations
• The banks underperformed the benchmark following yesterday’s RBA announcement
• Macquarie’s bullish outlook

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ASX bank shares have been under review in recent weeks with the prospect of higher interest rates ahead.

As we looked at on Monday (see the full story here), ASX banks shares would receive some tailwinds from higher rates in the form of increased lending margins. But some of that benefit would be eroded with higher rates negatively impacting the banks’ lucrative mortgage markets.

Yesterday the Reserve Bank of Australia (RBA) opted not to follow the hawkish lead flagged by the US Federal Reserve.

At 2:30 pm AEDT the RBA said that while it was halting its bond purchase program on 10 February, the official cash rate would remain unchanged at the current record low 0.10%.

RBA governor Philip Lowe said, “The Board is committed to maintaining highly supportive monetary conditions to achieve its objectives of a return to full employment in Australia and inflation consistent with the target.”

How are ASX bank shares responding?

In the 30 minutes directly after the RBA’s decision to keep rates at record lows, the S&P/ASX 200 Index (ASX: XJO) gained 0.5%. At time of writing the index is now up 1.3% since the announcement.

As for ASX banks shares, the Commonwealth Bank of Australia (ASX: CBA) share price gained 0.6% immediately following the announcement. CBA shares remain up 0.6% at time of writing as well. 

Australia and New Zealand Banking Group Ltd (ASX: ANZ) shares also leapt 0.6% in the half hour after the RBA’s rate decision. They’ve since pulled back a tad to be up 0.4%.

Turning to the National Australia Bank Ltd. (ASX: NAB), the NAB share price gained 0.3% immediately after the announcement and is now up 0.4%.

Which brings us to Westpac Banking Corp (ASX: WBC). Like its peers, Westpac shares gained on the announcement, up 0.5% by 3 pm. At the time of writing, shares are up 0.4% since 2:30 pm yesterday.

How will the banks fare when rates do rise?

Macquarie for one believes banks should be on investors’ radars as rates inevitably head higher.

According to the broker (quoted by the Australian Financial Review):

Considering evolving macro trends, rising inflation, and increasing likelihood of rate hikes, it appears increasingly risky to be underweight banks.

Banks benefit from higher rates, and while we believe the market tends to overestimate the ultimate upside, we see the risk of banks outperforming ahead of and during the early phase of the rate rise cycle.

With ASX banks shares trailing the benchmark since the RBA’s decision to keep the cash rate on hold, the pending rate rise cycle is worth keeping an eye on. 

The post How are ASX bank shares responding to the RBA’s interest rate call? appeared first on The Motley Fool Australia.

More reading

• Morgans names the best ASX financial shares to buy in February
• 3 reasons Goldman says the CBA (ASX:CBA) share price is a sell
• 5 things to watch on the ASX 200 on Wednesday
• Own Westpac (ASX:WBC) shares? Outlook ‘highly uncertain’ says this broker
• ASX 200 shares offer 12% upside after sell-off: JP Morgan

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 Bruce Jackson.

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As we continue into 2022, one theme that is certainly emerging as a dominant one this year is that of inflation. With hefty inflation numbers now coming out of Australia, the US and many other countries around the world, investors have been fretting over protecting their wealth from inflation’s corrosive effects. That is arguably one of the reasons we have seen such volatility across global markets over the past month or two.

So how does one protect a share portfolio from inflation? Here are two ASX exchange-traded funds (ETFs) that arguably have inflationary protections built into them.

2 ASX ETFs that could help fight off inflation

BetaShares Global Energy Companies ETF (ASX: FUEL)

This ETF from BetaShares represents a basket of global shares from the energy sector. Over 90% of its (current) 42 holdings are involved in oil and gas. Integrated companies, as well as exploration, refining, equipment and transportation companies, are present here.

Energy is arguably an inflation-resistant industry since it is such an inelastic and essential input into every economic industry. We all need energy and, as such, most of us are forced to pay whatever the going rate for electricity, petrol, diesel, or gas may be. That makes the companies that produce and sell energy arguably useful to own in an inflationary environment.

Some of FUEL’s top holdings include Exxon Mobil Corp (NYSE: XOM), Chevron Corporation (NYSE: CVX), and BP plc (LON: BP).

The BetaShares Global Energy Companies ETF charges a management fee of 0.57% per annum. It has returned an average of 1.44% per annum since its inception in 2016. It offers a trailing dividend distribution yield of 4%.

BetaShares Global Banks ETF (ASX: BNKS)

As you might imagine, this ETF is similar in nature to our previous option. But this one only invests in bank shares. BNKS currently has 59 underlying shares in its portfolio. These are spread across the United States, Canada, Britain, China, Japan, Singapore, and Europe (no ASX banks though).

Because a bank is so heavily influenced by interest rates, it arguably has an inflation hedge built in. A bank will almost always keep its interest rates (both on debt and on credit) ahead of the official cash interest rate set by the central bank. And because central banks usually adjust cash rates in accordance with inflation, they can be resistant to its wealth-eroding effects.

Some of BNKS’ top holdings include Bank of America Corp (NYSE: BAC), Wells Fargo & Co (NYSE: WFC), JPMorgan Chase & Co (NYSE: JPM), and Royal Bank of Canada (TSE: RY).

The BetaShares Global Banks ETF charges a management fee of 0.57% per annum. It offers a trailing dividend distribution yield of 3.6%.

The post These 2 ASX ETFs could help your portfolio crush inflation appeared first on The Motley Fool Australia.

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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Sebastian Bowen owns JPMorgan Chase. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended BetaShares Global Energy Companies ETF – Currency Hedged. 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 Bruce Jackson.

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