The TPG Telecom Ltd (ASX: TPG) share price has slumped in early trade today after the company released its 2020 annual report. It comes after the full-year financial report release to shareholders in February 2021.

Today’s report highlighted the surge in full-year revenue and profits for the Aussie telco. That came after a $15 billion merger with Vodafone Hutchison Australia Pty Limited (Vodafone) in July 2020.

TPG also provided an update on its strategic initiatives and broader group focus in the annual report.

At the time of writing, the TPG share price is down 9.3%, trading at $6.26.

Why is the TPG share price falling?

TPG this morning provided its annual report for the year ended 31 December 2020 (FY2020). Revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) surged higher, making the TPG share price worth watching today.

Full-year revenues jumped 24 per cent from 2019 to $4.35 billion while EBITDA climbed 18 per cent to $1.39 billion. That saw net profit after tax (NPAT) rocket higher to $734 million after a $280 million loss in 2019. However, TPG did note that the 2020 and 2019 results are largely incomparable due to the impact of the merger.

On the balance sheet side, TPG’s net assets reversed from -$1.2 billion in 2019 to $11.9 billion in 2020. That comes after the July 2020 merger, which created the current large-cap Aussie telco group.

The TPG share price is one to watch following this morning’s update. Shares in the Aussie telco have trended lower since mid-2020, dragging TPG’s market capitalisation to its current $12.9 level.

The group’s strategic priorities remain on rolling out its 5G network to reach scale in major cities. That includes a 2021 target to reach 85 per cent 5G population coverage in the top six cities.

TPG will also focus on enhancing and simplifying the customer experience while delivering more benefits of the merger to stakeholders. The telco is also forecasting $70 million in cost savings as part of the synergies from the merger.

Chairman resignation

The TPG share price is slumping this morning following the annual report release. That coincided with another announcement that TPG founder David Teoh will resign as chairman.

Mr Teoh has been with TPG for over 30 years but has today announced his resignation alongside his son, Shane Teoh. Canning Fok will become chairman of the board while Mr Teoh’s other son, Jack, will join alongside Antony Moffatt.

More reading

• TPG Telecom (ASX:TPG) share price slumps 6% as founder resigns
• ASX 200 rises, Brickworks builds, Netwealth sinks
• Which ASX 200 shares haven’t recovered from the COVID-19 crash?
• Leading brokers just upgraded these ASX shares to “buy” today
• 3 reasons why Brickworks is a great ASX dividend share

Motley Fool contributor Ken Hall 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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TPG Telecom Ltd (ASX: TPG) shares are falling this morning following news that company chair and founder David Teoh has resigned, effective immediately. In the opening minutes of trade, the TPG share price is trading 6.11% lower at $6.45. In contrast, the S&P/ASX 200 Index (ASX: XJO) has opened slightly higher.

In a statement to the ASX, Mr Teoh confirmed he would be leaving the company after more than 30 years. 

Let’s take a closer look at the company’s announcement.

David Teoh leaves, major board reshuffles

The TPG share price is on the slide today following this morning’s news. In a letter to shareholders, Mr Teoh outlined his reasons for leaving. The billionaire said the company was growing faster than expected and “now would be the right time…to step aside and pursue other interests.”

“When [wife] Vicky and I started our business more than 30 years ago, we had little more than ambition. We were lucky. Australia provided us with an environment in which, with hard work and perseverance, we were able to build a company that now provides services to millions of Australians and has a remarkable suite of assets” Mr Teoh added.

TPG merged with Vodafone last year after winning a protracted legal battle against the Australian Competition and Consumer Commission (ACCC).

Along with Mr Teoh, his son Shane – who was recently convicted of assault – will also be leaving the board. Mr Teoh’s other son, Jack, will replace him on the board. Company secretary Antony Moffatt will replace Shane. Board member Canning Fok will become the new chair.

Mr Teoh says Mr Fok is “one of the most capable business leaders in the world…”

Management commentary

TPG CEO Iñaki Berroeta said of Mr Fok’s appointment:

Canning brings decades of global executive business and telecommunications experience to the role of Chair, and I believe he will be a strong leader of the board,

With his involvement in the business dating back more than 20 years and his key role in the merger, Canning knows the company well.

I look forward to working with Canning as we lead TPG Telecom into the future.

Mr Fok gave the following words about his appointment.

Very few companies have an opportunity like TPG Telecom to challenge and shape an industry which is so important to the everyday lives of Australians. It’s an honour to be appointed as Chairman at such an exciting point in the company’s history. I admire the work Iñaki and the Executive Team have done to set the company up for the future and it’s clear there are exciting times ahead.

On David Teoh’s tenure, Mr Berroeta said

While David will remain one of the company’s major shareholders, I would like to thank him for the support he showed me, and I wish him well for the future.

Mr Fok also gave words of gratitude to Mr Teoh

David’s legacy is incomparable. He has driven significant change in the Australian market and has carved out a position which TPG Telecom will build on. We are in David’s debt for all he has done.

TPG share price snapshot

The TPG share price is down nearly 28% from this time last year. It is one of a few companies to have not recovered since last year’s COVID-induced market meltdown. Just in the last 6 months, the TPG share price is down nearly 13%.

TPG has a market capitalisation of $12.9 billion.

More reading

• ASX 200 rises, Brickworks builds, Netwealth sinks
• Which ASX 200 shares haven’t recovered from the COVID-19 crash?
• Leading brokers just upgraded these ASX shares to “buy” today
• 3 reasons why Brickworks is a great ASX dividend share
• No ASX dividend share is perfect, but Soul Patts (ASX:SOL) is more perfect than most

Motley Fool contributor Marc Sidarous 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 PointsBet Holdings Ltd (ASX: PBH) share price will be one to watch on Friday. This comes after the company announced it has secured two additional online market access points in its portfolio. At yesterday’s market wrap, the PointsBet share price finished the day at $13.48.

Let’s take a closer look at what the sports betting company announced.

Why the PointsBet share price is in focus

The PointsBet share price could be on the move today following the company’s latest update.

According to PointsBet’s release, its subsidiary PointsBet USA Inc. and Penn National Gaming Inc. (NASDAQ: PENN) have signed an extension of the Online Gaming Services Framework Agreement.

The extended agreement, which was formally executed on 31 July 2019, will see PointsBet secure online sports betting and iGaming market access in Pennsylvania and Mississippi. PointsBet management stated that the total addressable sports betting and iGaming market in Pennsylvania is estimated to be worth over US$1.75 billion per annum.

The transaction will also see PointsBet agree to the early release of disposal restrictions for Penn National Gaming and Penn Interactive Ventures. Previously, these restrictions in the Subscription Agreement were due to expire on 1 August 2021. It was noted though, all other equity restrictions within the framework will remain unchanged.

Details of the expanded partnership agreement

Under the new agreement, PointsBet will have market access in the additional states for a period of up to 20 years. This will commence when the company’s first branded service is offered to PointsBet customers.

In addition, PointsBet will cover all licencing and approval costs associated with launching and operating its services. While Pennsylvania currently permits online sports betting and iGaming, Mississippi requires legislative approval.

Lastly, PointsBet will pay Penn National Gaming a percentage of its net gaming revenues from its Pennsylvania and Mississippi operations.

What did management say?

Penn National Gaming president and CEO Jay Snowden commented:

With the addition of Pennsylvania and Mississippi, we are pleased to expand our market access partnership with PointsBet to seven States. We have a great working relationship with the PointsBet team and are thrilled with the performance of our equity stake in the company since inking the original agreement.

PointsBet group CEO Sam Swanell added:

…Pennsylvania is home to Philadelphia, the fourth largest media market in the United States, inclusive of southern New Jersey and a regional pillar of the Comcast-NBC Universal asset portfolio. NBC Sports Philadelphia owns the in-game broadcast rights to the Phillies, 76ers, and Flyers covering over 290 live events per year across 4.1 million households.

About the PointsBet share price

The PointsBet share price has accelerated by over 780% in the past year, and is up around 14% year to date. The company’s shares reached a 52-week high of $18.13 last month, before retreating to their current level. 

Based on the current share price, PointsBet has a market capitalisation of roughly $2.47 billion.

More reading

• Compared! How are ASX gaming share prices performing?
• ASX 200 crash anniversary: 5 of the best performing shares of the last 12 months
• Bell Potter thinks the PointsBet (ASX:PBH) share price could go 40% higher
• How this week’s Fed meeting could impact ASX 200 shares
• ASX 200 jumps, Pointsbet reveals acquisition, Metcash drops

Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Pointsbet Holdings Ltd. The Motley Fool Australia has recommended Pointsbet Holdings Ltd. 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 Resolute Mining Limited (ASX: RSG) share price has been smashed in 2021.

After crashing 26% lower on Thursday, the gold miner’s shares are now down 45% since the start of the year.

Why is the Resolute share price down 45% this year?

It has seemingly been a case of Murphy’s Law for Resolute Mining this year – anything that could go wrong, has gone wrong.

Disruption at its Syama operation in Mali, a disappointing FY 2020 result, and weak guidance for FY 2021 were already weighing heavily on the company’s shares before this week’s bombshell.

That bombshell was news that the the Ghanaian government has terminated its Bibiani Gold Mine licence. The miner has been told to cease all activities and operations at the site with immediate effect.

While this would be bad news at any point, the timing of it was particularly bad. That’s because the asset is currently being sold to Chifeng Jilong Gold Mining for US$105 million and was expected to complete in the coming weeks.

This sale now looks very unlikely to complete, at least on current terms.

Are its shares good value now?

Analysts at Goldman Sachs believe the selloff has been an overreaction and see a great deal of value in the current Resolute Mining share price.

According to the note, the broker has reaffirmed its buy rating and $1.30 price target on its shares.

This price target implies potential upside of approximately 180% over the next 12 months.

What did Goldman say?

The broker ascribes very little value to the Bibiani asset and hadn’t included its sale in estimates. As a result, it doesn’t see this latest news as an issue.

In light of this, it feels Resolute Mining’s shares are dirt cheap when compared to its overall net asset value (NAV) of $1.30 per share.

The broker explained: “We value Bibiani at US$40mn (A$0.05/sh) as part of our US$150mn (A$0.18/sh) group exploration value. We do not include the Bibiani sale in our estimates, pending deal closure. The sale of Bibiani is not required to meet any debt or liquidity obligations in our view, and we do not view this as an issue currently on our forecasts.”

Strong free cash flow to cover debt repayments

The broker also notes that its current operations should comfortably generate enough cash flow to make debt repayments.

“Resolute’s net debt at the end of 2020 was US$270mn (inc. leases), with US$89mn cash on hand. The first repayment (US$19mn) on the US$150mn term loan is due at the end of September 2021, with 6-monthly payments thereafter. Given strong free cash flow generation from Syama and Mako, we expect RSG will comfortably meet any near-term debt obligations on our forecasts.”

Finally, Goldman notes that the Resolute Mining share price is trading at the largest discount to NAV across its gold coverage.

“After today’s sell-off, RSG is trading at 0.4xNAV (A$1.30/sh), the largest discount across our gold coverage. In our view, the current share price implies no value is being ascribed to any asset apart from Syama Sulphides, which we conservatively model at Reserves only. We retain our Buy rating,” it concluded.

More reading

• 5 things to watch on the ASX 200 on Friday
• Top brokers name 3 ASX shares to sell today
• Why Airtasker, Netwealth, Piedmont Lithium, & Resolute Mining are tumbling lower
• ASX 200 up 0.3%: Brickworks impresses, Resolute hammered, Netwealth crashes
• Why the Resolute (ASX:RSG) share price will be in focus this morning

Motley Fool contributor James Mickleboro 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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Despite the recent stock market rally, buying shares to make a passive income could be a logical strategy.

In many cases, they offer high dividend yields versus other assets. They may also be able to deliver dividend growth, as well as capital growth, as the world economy likely recovers from its present woes.

As such, now could be the right time to buy a diverse range of income shares and hold them over the long run.

A generous passive income from shares

Even though many shares now trade at significantly higher prices than they did following the 2020 market crash, a number of companies offer high yields relative to other assets.

Certainly, a low-interest rate environment makes this task easier for equities. However, some stocks have dividend yields at the present time that are higher than their historic averages. This suggests that they could offer an attractive income stream over the long run.

Of course, there is never any guarantee that a company will maintain recent dividend payouts in future. A whole host of challenges can crop up that causes them to reduce or even cancel shareholder payouts.

However, by purchasing a wide range of dividend shares with high yields, it may be possible to build a resilient and generous passive income stream at the present time.

Dividend growth opportunities

As well as high yields, a number of shares could offer a growing passive income in the coming years. The world economy has always recovered from its declines to post positive growth in the past. Although the same outcome can never be assumed, the scale of monetary policy stimulus already announced suggests that a return to growth is likely to be ahead.

Through buying companies with affordable dividends and the potential to deliver rising profitability in the coming years, it is possible to obtain a growing income return.

This may become increasingly important over time since low interest rates and quantitative easing in some major economies could spark a period of higher inflation in the long run.

Capital growth opportunities

As well as the potential for a high and growing passive income, dividend shares could deliver capital growth in the coming years. They could experience high demand as a result of limited opportunities to make a worthwhile income in other mainstream assets. This may drive their prices higher.

Furthermore, a high yield can indicate that a stock offers good value for money and a wide margin of safety. Buying undervalued shares has been a relatively sound means of capitalising on the stock market’s long-term growth potential.

As such, now may be the right time to buy dividend shares, since they could produce higher total returns than the wider stock market over the long run.

More reading

• Is this the best small cap ASX share to buy now?
• Why the IAG (ASX:IAG) share price is one to watch today
• Telstra (ASX:TLS) share price on watch following NZ update
• Is the CSL (ASX:CSL) share price on the road to recovery?
• Is it time to buy HUB24 (ASX:HUB) and Netwealth (ASX:NWL) shares?

Motley Fool contributor Peter Stephens 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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Are you a fan of small cap shares? If you are, then you might want to take a look at the one listed below.

This small cap is growing very quickly and has been tipped to have bright futures. Here’s what you need to know about it:

Nitro Software Ltd (ASX: NTO)

Nitro Software is a growing software company that is helping to drive digital transformation in businesses around the world.

The company’s key solution is the Nitro Productivity Suite. It provides integrated PDF productivity, eSignature, and business intelligence tools to customers via a horizontal, software-as-a-service and desktop-based software suite.

Management notes that its software is highly scalable, serving large multinational enterprises and government agencies, as well as small businesses and individual users.

At the last count, the company had sold over 2.6 million licenses and had 11,700 Business Customers across 154 countries. Among these are 68% of the 2019 Fortune 500 and three of the 2019 Fortune 10.

FY 2020 performance

Last month Nitro released its full year results and revealed annual recurring revenue (ARR) of $27.7 million. This was up 64% year on year and ahead of its upgraded guidance range of $26 million to $27 million.

Positively, another strong performance is expected in FY 2021.

With its results, management provided FY 2021 ARR guidance of be between $39 million and $42 million. This will mean year on year growth of between 41% and 51.6% in FY 2021.

Is the Nitro share price in the buy zone?

According to analysts at Morgan Stanley, the Nitro share price is in the buy zone right now. Earlier this month, the broker retained its overweight rating and lifted its price target to $3.70.

Based on the latest Nitro share price of $2.55, this implies potential upside of 45% over the next 12 months.

Morgan Stanley believes management’s guidance is conservative and sees scope for the company to outperform it.

More reading

• 2 small cap ASX shares you need to know about
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• 2 buy-rated small cap ASX shares with strong growth potential

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Nitro Software 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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The Insurance Australia Group Ltd (ASX: IAG) share price is one to watch in early trade. Shares in the Aussie insurer could be on the move after a perils update following recent floods in Queensland and New South Wales.

Why is the IAG share price in focus?

IAG this morning provided an update on its FY21 natural perils claim costs. Widespread flooding and storm damage after heavy rains in south-east Queensland and northern New South Wales have increased claims for the Aussie insurer.

IAG received ~8,000 claims by 4pm on 25 March 2021 following the heavy rains. That is expected to rise further, the company added in today’s release. The claims are predominantly for property damage.

CEO and managing director Nick Hawkins said, “Teams are on the ground supporting customers in the worst impacted areas”. IAG has increased its call centre capacity while the group’s dedicated major events team is managing claims.

It will be interesting to see how the IAG share price responds following the company’s update on the estimated net cost. IAG is forecasting an approximate $135 million net cost impact, with net cost capped at $169 million. That cap comes from the maximum event retention (MER) for a first event under the group’s 2021 catastrophe reinsurance program.

Following the March event, IAG is estimating FY21 net natural perils claim costs of ~$660 million to $700 million. That is higher than the $658 million perils allowance for the period. Those figures comprise the $375 million for the 8 months to 28 February 2021, the estimated March impact and $150 million to $190 million for further peril events from March to June 2021.

IAG estimated MER at 26 March 2021 remains unchanged at $169 million. The insurer has FY21 aggregate cover that provides $350 million of protection in excess of $400 million. The heavy rain and flooding is expected to remove $150 million from IAG’s $400 million deductible.

Foolish takeaway

The IAG share price will be one to watch in early trade following today’s update. Shares in the insurer have fallen 21.7% in the last 12 months but edged 1.6% higher in 2021 in line with the S&P/ASX 200 Index (ASX: XJO).

More reading

• 8 ASX 200 shares rated as ‘outperform’ by brokers
• How are ASX insurance share prices performing during NSW’s floods?
• QBE (ASX:QBE) share price falls on Greensill update
• Brokers name 3 ASX shares to buy right now
• IAG (ASX:IAG) share price could jump with this other ASX share after a broker upgrade

Motley Fool contributor Ken Hall 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 Telstra Corporation Ltd (ASX: TLS) share price will be on watch on Friday morning.

This follows the release of an announcement relating to its New Zealand listing.

What did Telstra announce?

This morning the telco giant revealed that its Board has decided to delist from the New Zealand stock exchange (NZX) and move to a sole listing on the ASX.

According to the release, the trading of Telstra shares on the NZX will cease at the close of business on Wednesday 16 June 2021.

After which, Telstra’s NZX shares will be transferred to the ASX and will commence trading on Monday 21 June 2021.

Why is it doing this?

Telstra explained that it was making the change partly to streamline its shareholder services and notes that New Zealand investors now have easy access to the ASX.

It explained: “Telstra is looking to simplify its administration and streamline its shareholder services. Telstra shareholders on the New Zealand register have been reducing over time and, given the accessibility of the ASX to New Zealand-based shareholders, Telstra considers that delisting from NZX is an appropriate step. Moving to a single listing on the ASX will progress these goals and we believe this is in the best interests of shareholders and the company.”

What impact will this have on shareholders in the future?

The company explained that there will be virtually no impact to both ASX and NZX shareholders from this.

In fact, when it comes to Telstra’s generous 16 cents per share fully franked dividend, the company will continue to pay this to shareholders in both currencies.

It commented: “Telstra will continue to pay dividends in Australian or New Zealand dollars. Shareholders must have either Australian or New Zealand bank account details registered by the dividend record date to be paid in that currency.”

More reading

• Don’t ever buy defensive shares: fundie
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• Why is there no ASX All Ordinaries ETF?
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• Could a restructure spell a new era for the Telstra (ASX:TLS) share price?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra 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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The CSL Limited (ASX: CSL) share price has rebounded strongly since hitting a 52-week low of $242.00 in early March. The company is pushing forward with its locally manufactured COVID-19 vaccine rollout and implementing initiatives to restore plasma collections levels.

By yesterday’s market close, the global biotech’s shares finished the day 1.4% higher at $269.83.

With the latest developments, is the CSL share price finally on the road to recovery? Let’s take a look at what’s been happening for the biotech giant.

Vaccine update

Investors have buying CSL shares ahead of renewed optimism that the worst is behind the company.

According to the Australian Therapeutic Goods Administration (TGA), the first four batches of Melbourne-manufactured AstraZeneca COVID-19 vaccine have been released. This follows the TGA’s approval of the first 832,200 doses that were cleared Tuesday night. So far, almost 350,000 people in Australia have received a COVID-19 vaccination.

On Monday, the country moved to expand its COVID-19 vaccine eligibility to phase 1b group. This now includes elderly adults aged over 70 years, indigenous Australians, adults with pre-existing medical conditions, and other healthcare workers. However, there have been reports that general practitioner clinics have been overwhelmed with patients seeking the vaccine.

Despite the teething problems, it’s expected that, in the coming weeks, these concerns will ease. CSL plans to produce 1 million AstraZeneca COVID-19 vaccines each week up to a total of 50 million doses.

What about plasma collections?

While plasma collections have been heavily impacted by COVID-19, CSL has implemented a number of initiatives to incentivise blood donations. These include the use of social media influencers and the increase of donor compensation to as much as $700 per month. In addition, the company revealed plans to open up 12 new collection centres during the first half of FY21.

As world governments hastily inoculate their populations against COVID-19, experts predict that social norms will gradually return sometime in late 2021 to early 2022. Thus, if restrictions in the movement of people are lifted, CSL could find increasing numbers of blood donors returning to its collection centres.

CSL share price summary

The CSL share price has lost nearly 11% of its value when compared to this time last year. Year to date, the company’s shares are down by around 5%. CSL shares are also currently trading nearly 19% off their 52-week high of $332.68 reached in April last year.

On valuation grounds, CSL commands a market capitalisation of roughly $122.8 billion, with more than 455 million shares outstanding.

More reading

• 2 blue chip ASX 200 shares that could be strong buys
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• Down 18%: Is the CSL (ASX:CSL) share price a buy?
• Is now the time to invest into the CSL (ASX:CSL) share price?
• How to counter the ASX 200’s Achilles heel

Aaron Teboneras owns shares of CSL Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Is the CSL (ASX:CSL) share price on the road to recovery? appeared first on The Motley Fool Australia.

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Thursday was a day to forget for the HUB 24 Ltd (ASX: HUB) share price and the Netwealth Group Ltd (ASX: NWL) share price.

The shares of these wealth management platform providers fell 14% and 13.5%, respectively, following the release of an announcement out of the latter.

What was the announcement?

Netwealth announced that its agreement with Australia and New Zealand Banking GrpLtd (ASX: ANZ) in relation to the interest payable on the total pooled cash transaction account will be terminated in 12 months.

The agreement currently provides a margin of 95 basis points above the overnight cash rate.

While no comments were made in relation to why it was being terminated, it appears as though the bank felt this was a bit rich in the current environment.

Netwealth is now negotiating with ANZ and other banks on a new deposit arrangement to replace this one when it expires.

Is this bad news for HUB24 and Netwealth?

Analysts at Goldman Sachs appear to believe the selling on Thursday was a bit of an overreaction by investors.

While the broker acknowledges that the new terms will be less favourable and have an impact on earnings, that impact isn’t expected to be as great as their share price declines would indicate.

It also notes that it removes an element of uncertainty that has been hanging over both companies.

What did Goldman Sachs say?

Goldman said: “…domestic banks can raise retail term deposits in even the most competitive segments at around 30bps currently, and 3-5 year wholesale funding at around 50bps. As such NWL’s 95bps contract was becoming relatively expensive funding for ANZ, and in considering these spot datapoints plus a relationship overlay, we now assume NWL / HUB move to a cash rate+50bps arrangement in coming years. NWL’s announcement would suggest it is likely to maintain a similar model for cash balances, noting that it should recover c.40bps of recent spread compression as the cash rate recovers toward 50bps.”

“On balance, we downgrade EPS by 0%/-4%/-15% in FY21-FY23E for NWL, and -1%/-2%/-10% for HUB, where we expect HUB’s deposit contract should insulate earnings for a little longer than NWL’s.”

Is this a buying opportunity?

The broker has retained its neutral rating and reduced its price target on Netwealth’s shares to $15.18. This compares to the current Netwealth share price of $13.78.

Whereas for HUB24, it has retained its buy rating and trimmed its price target down to $24.58. This compares to the latest HUB24 share price of $20.85.

Goldman concluded: “Risk to cash balance earnings has been the key focus point for the market in recent months and, outside of valuation the only consistent concern most investors have had with the segment.”

“While the downgrades are not insignificant, the FUMA growth profile we envisage is strong enough such that we still model earnings growth in the periods where cash spreads reset. To this end, with the cash balance overhang (somewhat) addressed, we would expect the market to refocus on the medium term outlook for FUMA growth and margin optimisation, both of which remain encouraging.”

More reading

• ASX 200 rises, Brickworks builds, Netwealth sinks
• Why Airtasker, Netwealth, Piedmont Lithium, & Resolute Mining are tumbling lower
• ASX 200 up 0.3%: Brickworks impresses, Resolute hammered, Netwealth crashes
• Why the Netwealth (ASX:NWL) share price is sinking 15% lower today
• Why the Hub24 (ASX:HUB) share price is firing up 12% today

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Hub24 Ltd. The Motley Fool Australia owns shares of Netwealth. The Motley Fool Australia has recommended Hub24 Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Is it time to buy HUB24 (ASX:HUB) and Netwealth (ASX:NWL) shares? appeared first on The Motley Fool Australia.

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