Buying today’s cheap dividend stocks could be a very profitable move over the next 10 years. Not only do they offer the opportunity to make an attractive passive income, they could also deliver high capital returns.

Their low valuations and increasing popularity in a low interest rate environment could even mean that they double in price over the next decade. As such, building a diverse portfolio of income shares today could be a worthwhile idea. 

Cheap dividend stocks with capital growth potential

Despite the stock market recovery in 2020, there are a wide range of cheap dividend stocks available to buy today. In many cases, they have dividend yields that are significantly higher than their long-term averages. This suggests that they could offer wide margins of safety that provide scope for capital growth over the long run.

The past performance of the stock market shows that company valuations generally revert to their long-term averages following bear markets. Certainly, this may take time in some cases – especially where companies face challenging near-term operating conditions. However, dividend shares with solid finances and affordable shareholder payouts may be able to overcome difficulties in the short run to produce impressive returns in the coming years.

The increasing popularity of dividend shares

One factor that could have a positive impact on the valuations of today’s cheap dividend stocks is their income appeal on a relative basis. Investors who are seeking to obtain a worthwhile passive income in 2021 are unlikely to have much success elsewhere. High property prices have squeezed yields, while low interest rates have pushed income returns on bonds and cash to extremely low levels.

As such, demand for income shares could increase over the coming months and years. This may push their prices higher, resulting in capital gains for investors. And, with interest rates set to remain at low levels for a prolonged period of time due to economic uncertainty, the long-term outlook for today’s cheap dividend stocks could continue to improve.

Doubling an investment in dividend shares over the next decade

A 100% return on today’s cheap dividend stocks over the next decade may sound unlikely to some investors at the present time. After all, risks such as political instability and coronavirus are expected to persist in 2021.

However, a 100% return in 10 years requires an annual growth rate of around 7%. Given that the stock market has produced an annualised total return of around 8% in the past, a 7% return seems very achievable. It could even be argued that the low share prices of many dividend stocks mean that their returns could be above the long-term market average in the coming years. This may even allow an investor to double their money over a shorter timeframe than a decade as a stock market rally takes hold.

More reading

• Invest like Warren Buffett and buy and hold these ASX shares in 2021
• 5 exciting small cap ASX shares to watch in 2021
• 2 outstanding ETFs for ASX investors to buy
• 5 fantastic ASX shares to buy in 2021
• How I’d invest in REIT stocks to earn a passive income

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.

The post Why I think today’s cheap dividend stocks can double in the next 10 years appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/3ruOazI

Legendary investor Warren Buffett is a big advocate of buying and holding shares. It is a strategy he has used with great effect to amass his vast fortune over the last six decades.

The good news is that there is nothing to stop readers from following in his footsteps and replicating his investment style.

But which shares would be good buy and hold options? Listed below are two to look closer at:

Domino’s Pizza Enterprises Ltd (ASX: DMP)

This pizza chain operator is targeting strong growth over the long term. At the end of FY 2020, the company was operating 2,668 stores across Australia, New Zealand, Belgium, France, the Netherlands, Japan, Germany, Luxembourg, and Denmark.

While this might sound like a huge store network, management believes it still has a significant runway for growth in the future. The company is aiming to more than double its network to 5,500 stores by 2033. It is also aiming to grow its same store sales by 3% to 6% per annum over the medium term.

If it successfully delivers on these objectives, then the combination of organic and inorganic growth could underpin solid sales growth over the long term.

Goldman Sachs currently has a buy rating and $88.00 price target on its shares.

Zip Co Ltd (ASX: Z1P)

Zip has been a very strong performer in 2020. It has delivered very impressive sales, customer, and merchant growth over the last 12 months. This has been driven by its successful international expansion, the growing popularity of buy now pay later as a payment method, declining credit card usage, and the seismic shift to online shopping.

In addition to this, the company has supported its growth through the expansion of its product offering. This includes launching Zip Business and its Tap & Zip product. It also just raised $120 million via an institutional placement to support its growth.

One broker that appears very positive on the company’s future is Morgans. Its analysts recently reaffirmed their add rating and put a $8.89 price target on its shares.

More reading

• 3 of the best ASX shares to buy right now
• Here’s why the Zip (ASX:Z1P) share price is in focus today
• ASX 200 down 0.85%: ANZ CFO resigns, tech shares tumble, iron ore jumps
• Is the Zip (ASX:Z1P) share price a buy yet?
• New BNPL enters ASX: How it promises to be different

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 ZIPCOLTD FPO. The Motley Fool Australia has recommended Domino’s Pizza Enterprises Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Invest like Warren Buffett and buy and hold these ASX shares in 2021 appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/3aIygMu

At the small end of the Australian share market, there are a number of companies with the potential to grow materially in the future.

Five that investors might want to get better acquainted with are listed below. Here’s what you need to know about them:

Alcidion Group Ltd (ASX: ALC)

Alcidion is an informatics solutions company. It provides software that has been designed to improve the efficacy and cost of delivering services to patients and reduce hospital-acquired complications. Demand for its software has been increasing and has led to a number of major contracts with healthcare institutions in the UK.

Bigtincan Holdings Ltd (ASX: BTH)

Bigtincan is a provider of enterprise mobility software. The company’s software allows sales and service organisations to increase sales win rates, reduce expenditures, and improve customer satisfaction. This is achieved through improved mobile worker productivity. It has a large number of blue chips using its platform, including banking giant Australia and New Zealand Banking GrpLtd (ASX: ANZ) and Nike.

IntelliHR Ltd (ASX: IHR)

IntelliHR is a cloud-based human resources and people management platform provider. It has been growing very strongly this year. For example, during the first five months of FY 2021, IntelliHR revealed an impressive 148% increase in subscriber numbers. As a result, it now has almost 30,000 contracted subscribers on its books. This has underpinned similarly strong revenue growth. As of its last update, the company’s contracted annual recurring revenue (ARR) was up 81.3% to $2.8 million.

Pointerra Ltd (ASX: 3DP)

Another small cap to look at is Pointerra. It is a growing technology company with a focus on the commercialisation of 3D geospatial data. Pointerra’s software allows users to manage, visualise, and share large digital 3D datasets. This software is able to extract vital information from the data that would otherwise take many hours to do. Management estimates that its market opportunity is currently worth a massive $500 billion annually.

Whispir (ASX: WSP)

Whispir is a software-as-a-service communications workflow platform provider. Its software platform allows businesses and governments to deliver actionable two-way interactions at scale using automated multi-channel communication workflows. Management believes its platform revolutionises customer engagement, business resilience, and operational communications process.

More reading

• 3 top ASX shares to buy in 2021
• Why Bigtincan, Over the Wire, Resolute, & Uniti shares are dropping lower
• Here’s why the Bigtincan (ASX:BTH) share price is dropping lower
• 2 exciting small cap ASX shares growing rapidly
• Why Afterpay, Alcidion, Eagers Automotive, & Pacific Smiles are storming higher

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 and recommends BIGTINCAN FPO and Whispir Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Alcidion Group Ltd and Pointerra Limited. The Motley Fool Australia has recommended Alcidion Group Ltd, BIGTINCAN FPO, Pointerra Limited, and Whispir Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post 5 exciting small cap ASX shares to watch in 2021 appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/3mNtkrZ

It isn’t hard to see why exchange traded funds (ETFs) are becoming increasingly popular with Australian investors.

These funds give investors the opportunity to invest in a large number of shares through just a single investment.

Not only does this make diversification so much easier, it also means investors can gain exposure to markets or themes that would have been near impossible to do so 10 years ago.

Two popular ETFs that ASX investors might want to get better acquainted with are listed below:

BetaShares Asia Technology Tigers ETF (ASX: ASIA)

The first ETF to look at is the BetaShares Asia Technology Tigers ETF. It gives investors exposure to a portfolio of technology shares in the Asia market that are revolutionising the lives of billions of people in the region. Among the fund’s largest holdings you will find giants such as Alibaba, Baidu, JD.com, Samsung, and Tencent.

Today I am going to focus on Baidu and Tencent. Baidu is often referred to as the Chinese version of Google due to its dominant search engine business. But like Google, there is far more to Baidu than just a search engine.

The company has a focus on artificial intelligence (AI) and is aiming to become an autonomous vehicle powerhouse in the future. In respect to AI, in 2019 the company ranked number one in the amount of AI-related patent applications in China for the second consecutive year.

Tencent is another key holding in the portfolio. It is one of the world’s largest tech companies and has a focus on video games and social media. The company is best known for its WeChat app, which is used by over 1.2 billion people for messaging, e-commerce, digital payments, and entertainment.

VanEck Vectors Morningstar Wide Moat ETF (ASX: MOAT)

Another ETF that is proving popular with investors is the VanEck Vectors Morningstar Wide Moat ETF. It gives investors a piece of 48 US-based stocks which have sustainable competitive advantages or “moats”.

Moat is a term that Warren Buffett often talks about. The legendary investor likes to invest in companies with moats, as these sustainable competitive advantages support strong pricing power, which in turn underpins solid long-term earnings growth and returns for investors.

Among the VanEck Vectors Morningstar Wide Moat ETF’s holdings are the likes of Amazon, American Express, Boeing, Coca-Cola, Microsoft, Pfizer, and Yum! Brands. Over the last five years the ETF has outperformed the ASX 200 index with a net return of ~16% per annum for investors.

More reading

• Got cash to invest? Here are 3 ASX shares to buy
• 3 ETFs for ASX investors to buy in 2021
• Is this the perfect ETF to buy for 2021?
• 4 leading ASX growth shares to buy for 2021
• 2 ETFs offering strong international diversification

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BetaShares Asia Technology Tigers ETF. The Motley Fool Australia has recommended VanEck Vectors Morningstar Wide Moat ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post 2 outstanding ETFs for ASX investors to buy appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/2KALEaz

With a new year on the horizon, now could be an opportune time to consider making some new additions to your portfolio.

To help you on your way, I’ve picked out five ASX shares which have been tipped as buys. They are as follows:

Altium Limited (ASX: ALU)

The first share to look at is Altium. It is an award-winning printed circuit board (PCB) design software provider. Over the last few years, Altium has earned itself a leading position in a growing electronic design market. But the company isn’t settling for that. It is now aiming to dominate this market with its cloud-based Altium 365 product. Analysts at Credit Suisse are positive on its future and recently initiated coverage on Altium with an outperform rating and $42.00 price target.

Appen Ltd (ASX: APX)

Another share to look at is Appen. It is a leading developer of high-quality, human annotated datasets for machine learning and artificial intelligence (AI). It does this for some of the biggest tech companies in the world such as Facebook and Microsoft. It also helped Apple with the development of its virtual assistant, Siri. Macquarie is positive on the company’s growth prospects and has an outperform rating and $43.00 price target on its shares.

CSL Limited (ASX: CSL)

CSL is one of the world’s leading biotechnology companies. It is made up of two businesses, CSL Behring and Seqirus. CSL Behring is the number one player in a global plasma therapies industry worth a massive US$30 billion per year. Whereas Seqirus is now the number two player in the US$6 billion global influenza vaccines industry. UBS is a fan of CSL and has a buy rating and $346.00 price target on its shares. It notes that product development has been a key driver of growth and appears confident this will continue in the future.

NEXTDC Ltd (ASX: NXT)

Another share to look at is NEXTDC. It is a leading data centre operator with operations across Australia. It has also recently opened up offices in Singapore and Tokyo, with a view to expanding into these markets. This could give its already impressive growth a lift, especially thanks to the increasing demand for its services due to the structural shift to the cloud. Goldman Sachs is very positive on its future and has a buy rating and $13.20 price target on its shares. The broker even suggested the NEXTDC share price could go to $20.00 based on high but not unrealistic assumptions.

Pushpay Holdings Group Ltd (ASX: PPH)

A final ASX share to look at is Pushpay. It is a donor management and community engagement platform provider with a focus on the faith sector. Pushpay has been a very strong performer this year and recently reported a 53% increase in half year operating revenue to US$85.6 million. This is still only scratching at the surface of management’s medium to long term revenue target of US$1 billion. Analysts at Goldman Sachs are fans of the company. They have a conviction buy rating and ~$2.59 price target on its shares.

More reading

• 2 ASX growth shares to buy
• 3 ASX shares for growth, income, and value investors
• 2 of the best ASX healthcare shares to buy in 2021
• 7 top ASX biomedical shares in 2020
• In a record-breaking year, here are some of the world’s most popular shares

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 and recommends Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Appen Ltd, CSL Ltd., and PUSHPAY FPO NZX. The Motley Fool Australia has recommended PUSHPAY FPO NZX. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post 5 fantastic ASX shares to buy in 2021 appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/3hktVjU

Real estate invest trust (REIT) stocks experienced a mixed 2020. Many of them delivered falls in their valuations as a result of changing demand among consumers and businesses. For example, offices and retail units are in lower demand as working from home becomes more popular.

However, the wider property sector could experience an improving performance as the economic recovery takes hold. With many trusts trading at low prices, now could be the right time to buy them to make a generous passive income.

The prospects for REIT stocks

As with many companies, the prospects for REIT stocks continue to be relatively uncertain in the short run. The coronavirus pandemic is putting pressure on retailers and a variety of other businesses. This may mean that some landlords face rent collection challenges that put their financial outlook under a degree of pressure.

However, on a long-term view, investing in the property sector could be a shrewd move. The industry could benefit from a likely economic recovery over the coming years that provides improving confidence among businesses and consumers. The end result could be stronger financial performances from property companies.

Many REIT stocks may also have the financial strength to adjust their asset portfolios to adapt to changing demands within the commercial property sector. For example, they may be able to invest in flexible office space or warehousing, or shift their focus towards new market segments that provide stronger growth prospects over the coming years.

Investing in listed property stocks today

When investing in REIT stocks, it is crucial to ensure there is sufficient diversity. Some companies are focused on one specific area, such as retail units. Therefore, it could be worth buying multiple stocks so that an investor has exposure to a broad range of assets in different market segments and locations. This may produce a more resilient passive income that is likely to grow at a faster pace over the long run.

Meanwhile, buying property stocks at a discount to their intrinsic values could be a shrewd move. Even though the sector has recovered to some extent from the 2020 stock market crash, it is still possible to purchase REIT stocks at low prices. In some cases, they may even trade at a wide discount to their net asset value. Cheaper stocks can provide greater scope for high returns in the long run.

Of course, in the short run a number of companies could experience further challenges. Risks such as the coronavirus pandemic are known unknowns that may yet have a negative influence on the economy’s outlook in the early part of 2021. As such, it is crucial to adopt a long-term outlook on REIT stocks. Over the coming years, their low valuations, diverse portfolios and recovery potential could produce a growing passive income.

More reading

• 2 ASX growth shares to buy when the market reopens
• These ASX dividend shares could be top Christmas gifts for income investors
• Why the BrainChip (ASX:BRN) share price rocketed 57% higher
• ASX 200 rises on Christmas Eve
• 2 ASX growth shares to buy

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.

The post How I’d invest in REIT stocks to earn a passive income appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/3hf1tQp

The market may be closed for Christmas but that doesn’t mean you can’t plan the investments you want to make when it reopens.

Two top ASX shares you might want to take a closer look at are listed below. Here’s what you need to know about them:

a2 Milk Company Ltd (ASX: A2M)

The first share to look at is A2 Milk Company. It is a leading infant formula and fresh milk company which focuses on A2-only products. This reportedly makes its milk easier to digest than regular milk which has both A1 and A2 proteins. This point of difference has helped the company stand out in a crowded market and underpinned strong sales and profit growth over the last few years.

While COVID headwinds are going to weigh on its performance in FY 2021, management remains very positive that demand will rebound once the pandemic passes. Analysts at Morgans appear to agree and have recently put an add rating and $12.20 price target on its shares.

Kogan.com Ltd (ASX: KGN)

Unlike a2 Milk, Kogan has been a big winner from the pandemic. The closure of bricks and mortar retail stores shifted consumers online in large numbers, with some shopping online for the first time. This led to Kogan reporting a significant jump in active customers, which has underpinned extraordinarily strong sales and earnings growth.

Pleasingly, despite retail stores opening as normal again, this hasn’t stifled Kogan’s growth. Its strong growth has continued in FY 2021 and the company is currently on course to deliver a bumper profit result in the first half. In addition to this, a couple of value accretive acquisitions look set to give its second half performance a boost. One broker that is positive on the company is Credit Suisse. It recently put an outperform rating and $20.60 price target on its shares.

More reading

• ASX 200 rises on Christmas Eve
• ASX 200 up 0.5%: BHP Samarco update, A2 Milk’s acquisition, Credit Corp rockets
• Got cash to invest? Here are 3 ASX shares to buy
• Why the a2 Milk (ASX:A2M) share price will be on watch today
• 2 dirt cheap ASX shares to buy in 2021

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 Kogan.com ltd. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool Australia has recommended Kogan.com ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post 2 ASX growth shares to buy when the market reopens appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/3ppyOem

Unfortunately, as much as income investors may wish for it, Santa will not be bringing interest rate increases this Christmas.

In fact, if many economists are to be believed, it could be over two years until rates start to head higher from their record lows.

In light of this, dividend shares look likely to remain the best way to earn a passive income in 2021.

But which dividend shares should you buy? Here are two to consider:

BHP Group Ltd (ASX: BHP)

Investors that are not opposed to investing in the resources sector, might want to take a closer look at the Big Australian. It is one of the world’s largest miners and the owner of some of the highest quality operations across the globe.

With iron ore and copper prices surging higher this year and oil prices rebounding strongly from their lows, BHP has been tipped to deliver a bumper profit result in FY 2021. And with its balance sheet in such good health, the company looks set to reward shareholders handsomely with dividends.

Macquarie is expecting this to be the case and has forecast a fully franked ~$3.85 per share dividend in FY 2021. Based on the current BHP share price, this represents a massive 9% dividend yield.

Telstra Corporation Ltd (ASX: TLS)

Another dividend share to look at is Telstra. With the end of the NBN rollout in sight and the company’s T22 strategy progressing very well, the hard days certainly appear to be behind this telco giant. In addition to this, the arrival of 5G internet looks set to give its hugely important mobile business a big boost in the coming years.

Another potential positive on the horizon is its plan to split into three separate businesses. This will allow Telstra to take advantage of potential monetisation opportunities and unlock value for shareholders.

Goldman Sachs is pleased with its plan and is positive on its outlook. It has a buy rating and $3.60 price target on Telstra’s shares and is forecasting a 16 cents per share fully franked dividend in FY 2021 and beyond. Based on the current Telstra share price, this would provide investors with a 5.3% dividend yield.

More reading

• ASX 200 rises on Christmas Eve
• 3 top ASX dividend shares for a better retirement
• ASX 200 up 0.5%: BHP Samarco update, A2 Milk’s acquisition, Credit Corp rockets
• Why the Woodside (ASX:WPL) share price is edging higher today
• Iron ore prices poised to hit US$180 next month: Westpac

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.

The post These ASX dividend shares could be top Christmas gifts for income investors appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/3rvg8f4

The BrainChip Holdings Ltd (ASX: BRN) share price was an exceptionally strong performer on Thursday.

The artificial intelligence company’s shares were up as much as 57% to 51 cents at one stage.

While the BrainChip share price ultimately gave back a good portion of these gains, it still ended the day a very impressive 29% higher at 42 cents.

Why did the BrainChip share price rocket higher?

Investors were fighting to get hold of the company’s shares following the release of two positive announcements.

The first announcement revealed that BrainChip has received an order for its Akida Early Access Evaluation Kit from NASA.

According to the release, NASA will use the Akida Early Access Evaluation Kit within its shared service centre at the NASA/Ames research centre (ARC) in California.

Management notes that the kit will allow the space agency to evaluate the Akida technology for use in programs with a neuromorphic processor that meets spaceflight requirements.

It feels the processor is well suited for spaceflight and aerospace applications. This is because the device is a complete neural processor and does not require an external CPU, memory, or Deep Learning Accelerator.

This is a big positive as reducing component count, size, and power consumption is a paramount concern in spaceflight and aerospace applications.

Though, it is worth noting that there’s no guarantee that NASA will take things further once it has evaluated the technology.

What else did BrainChip announce?

In a separate announcement BrainChip revealed that it has signed an intellectual property license agreement with Renesas Electronics America.

Renesas Electronics America is a subsidiary of Renesas Electronics Corp, which is a global semiconductor manufacturer that specialises in microcontroller and automotive system-on-chip (SoC) products.

The agreement will see BrainChip deliver its Akida technology for use as a SoC licensed product and includes a single-use design license, implementation support services, royalty payments per unit, and software maintenance services for two years.

As with space travel, management believes the technology is well suited for advanced driver assistance systems (ADAS), autonomous vehicles, drones, vision-guided robotics, surveillance, and machine vision systems.

Overall, two promising developments, but time will tell whether they lead to material revenue generation in the future.

More reading

• Why AVZ Minerals, BrainChip, BSA, & Credit Corp shares are storming higher
• BrainChip (ASX:BRN) share price on watch following major announcements
• Why Brainchip Holdings (ASX:BRN) shares are in a trading halt
• Why the BrainChip (ASX:BRN) share price is charging higher
• ASX small caps could get a boost with the Aussie dollar hitting 28-month highs

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.

The post Why the BrainChip (ASX:BRN) share price rocketed 57% higher appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/3rrDHoV

The S&P/ASX 200 Index (ASX: XJO) went up by around 0.3% to 6,665 points.

Here are some of the highlights from the shortened trading day on the ASX:

A2 Milk Company Ltd (ASX: A2M)

A2 Milk confirmed that, as previously contemplated, it has decided to enter into binding agreements relating to the acquisition of a 75% interest in Mataura Valley Milk (MVM), which is a dairy nutrition business in New Zealand.

The company said that the proposed acquisition will provide the opportunity for A2 Milk to participate in nutritional products manufacturing, provides supplier and geographic diversification and strengthens its relationship with key Chinese partners.

A2 Milk will spend NZ$268.5 million to buy 75% of MVM, based on an enterprise value of NZ$385 million. It will be funded from A2 Milk’s existing cash.

One of the main reasons for the acquisition is that it will establish dual supply arrangements alongside existing relationships with Synlait Milk Ltd (ASX: SM1) and Fonterra Shareholders’ Fund (ASX: FSF).

The manufacturing facility that MVM owns has been recently constructed and it’s operational. A2 Milk described it as world class.

A2 Milk also said that MVM is well located for access to a growing productive milk pool supported by favourable climactic conditions and water availability. A2 Milk thinks the deal would give the opportunity to produce additional infant nutrition products for China and other markets. Finally, A2 Milk is excited by the ability to capture manufacturing margin.

Geoff Babidge, the CEO of A2 Milk, said: “MVM provides a unique opportunity to acquire a new world-class nutritional products manufacturing capability in New Zealand, alongside a highly respected China state owned enterprise in China Animal Husbandry Group. We have worked closely with CAHG and MVM over recent months and have developed relationships with both teams that we are confident will provide a strong foundation for the business going forward. We continue to be impressed by the MVM facility and the management team.”

A2 Milk expects that during a transitional period, between FY22 and FY24, it will be approximately break even at the earnings before interest, tax, depreciation and amortisation (EBITDA) level, with positive EBITDA generation from FY25 when significant nutritional volumes will be manufactured at the site.

There will be transaction costs of approximately NZ$10 million which will be treated as a one-off expense.

The A2 Milk share price went up more than 1% today in response to this news.

BHP Group Ltd (ASX: BHP)

BHP gave a Samarco update today. Samarco is the Brazilian business that BHP owns half of. Samarco had a dam failure a few years ago.

The miner said that Samarco has met the licensing requirements to restart operations at its Germano complex and Ubu complex. It has commenced iron ore pellet production.

Samarco’s operations were suspended following the failure of the dam on 5 November 2015.

BHP said that Samarco’s gradual restart of operations incorporates concentrator 3 at the Germano complex and pelletising plant 4 at Ubu, as well as a new system of tailings disposal combining a confined put and tailings filtering system for dry stacking.

Independent tests have been carried out on Samarco’s preparations for a safe restart of operations. Samarco expects initially to produce approximately eight million tonnes of iron ore pellets each year.

The work by the Renova Foundation to remediate and compensate for the damages of the failure of the dam continues. BHP’s Brazilian subsidiary continues to support Renova in its work. By November, Renova had spent US$2.1 billion on its remediation and compensation programs, with US$620 million spent on indemnities and emergency financial aid to approximately 325,000 people.

The BHP share price went up more than 1% in reaction to this news.

More reading

• ASX 200 up 0.5%: BHP Samarco update, A2 Milk’s acquisition, Credit Corp rockets
• 10 incredible quotes that sum up investing in 2020
• Why the Woodside (ASX:WPL) share price is edging higher today
• Iron ore prices poised to hit US$180 next month: Westpac
• BHP (ASX:BHP) share price on watch after Samarco update

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post ASX 200 rises on Christmas Eve appeared first on The Motley Fool Australia.

from The Motley Fool Australia https://ift.tt/3mLuQeb