Jul.12 — Tensions between China and the U.S. are escalating with the Trump administration saying it’s “just getting started” on taking strong action against Chinese-owned social media apps. Bloomberg’s Jodi Schneider reports on “Bloomberg Daybreak: Asia.”
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The Wesfarmers Ltd (ASX: WES) share price jumped with the S&P/ASX 200 Index (Index:^AXJO) on positive offshore leads, but that isn’t the only thing exciting investors.
There’s speculation that the conglomerate might be keen on repeating a winning strategy following the Coles Group Ltd (ASX: COL) spin-off a little more than a year ago.
This time, it’s Wesfarmers’ holdings in its Bunnings Warehouse properties that’s in the spotlight. It’s rumoured that bankers are trying to persuade management to divest its holdings in the $2.5 billion BWP Trust (ASX: BWP), according to the Australian Financial Review.
The Wesfarmers share price jumped 1.9% in early trade to $46.36 when the ASX 200 index gained 1.4%.
The sell-down of Wesfarmers’ 25% stake in BWP could net the group more than the $600 million plus that BWP’s market cap might imply. This is because Wesfarmers will also likely have to sell its management rights in the trust.
But this could be a sticking point as Bunnings can effectively management the properties even though it doesn’t own them.
The giant hardware retailer is a big beneficiary from the COVID-19 pandemic as stuck-at-home consumers dust off old DIY projects.
On the other hand, the management rights risk can be managed and the temptation to cash in on the property trust might be too great to resist.
The BWP share price jumped over 2% this morning to $3.92 and is just a tat off its late January pre-coronavirus high of $4.12.
Wesfarmers’ done very well in this investment, which it held since BWP floated in 1998. Back then, the holding was worth a mere $33 million to the conglomerate, reported the AFR. At today’s market price, it’s a near 20-bagger.
What’s more, the group also netted $13.4 million in management fees from the trust in the last financial year.
Given that divesting assets is in fashion with the amount of shareholder value added to groups that have undertaken such a manoeuvre, shareholders will be eagerly watching this space.
This is particularly so because the cash bonanza from the sale may flow back to shareholders via some capital return program.
Wesfarmers is already cashed up with more than $5 billion in the kitty. Unless it can find a sizable acquisition to undertake, it will be under pressure to return some love to shareholders.
Meanwhile, Wesfarmers isn’t the only oversized group that is under the divestment spotlight. The Woolworths Group Ltd (ASX: WOW) share price is also on watch as investors ponder the future of its Big W department store.
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Motley Fool contributor Brendon Lau owns shares of Woolworths Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET, Wesfarmers Limited, and Woolworths Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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At lunch on Monday the S&P/ASX 200 Index (ASX: XJO) is on course to start the week on a positive note. The benchmark index is currently up 0.8% to 5,967.8 points.
Here’s what has been happening on the market today:
The big four banks have started the week with a bang. All four banks are on the rise on Monday and helping to drive the ASX 200 higher. The best performer in the group is the Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price with a 2% gain. Bargain hunters appear to be swooping in after bank shares dropped lower last week following a rise in coronavirus cases.
The Oil Search Limited (ASX: OSH) share price is tumbling lower on Monday after announcing a sizeable impairment. The energy producer expects to recognise a non-cash, pre-tax impairment charge of US$360 million to US400 million in its first half results. This reflects a reduction in the carrying value of its assets “after taking into account the potential longer-term impact of prevailing economic conditions, the outlook for oil and gas prices and the current status of other factors that could impact on value realisation.”
TechnologyOne Ltd (ASX: TNE) has hit back at Hong Kong-based GMT Research for claiming that the enterprise software company is using accounting tricks to pull forward revenue and profits. The research firm alleges that it is doing this to hide a slowdown in its growth. TechnologyOne has responded by advising that the claims are false and misleading. It intends to refer the matter to ASIC. That hasn’t stopped the TechnologyOne share price from taking a tumble today.
The IGO Ltd (ASX: IGO) share price has been the best performer on the ASX 200 index on Monday with a 4.5% gain. This follows a decent rise in the nickel price on Friday night. The worst performer has been the TechnologyOne share price with a decline of 6%. This follows the aforementioned attack by GMT Research.
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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. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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Jul.12 — Hong Kong Legislative Council Member and Civic Party Leader Alvin Yeung discusses the voter turnout for the opposition party primaries in Hong Kong amid the coronavirus pandemic and why the democratic candidates are concerned over the upcoming election in September. He speaks on “Bloomberg Daybreak: Asia.”
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In late morning trade the S&P/ASX 200 Index (ASX: XJO) is following the lead of U.S. markets and pushing notably higher. At the time of writing the benchmark index is up 1% to 5,979.2 points.
Four shares that have failed to follow the market higher today are listed below. Here’s why they are tumbling lower:
The Domain Holdings Australia Ltd (ASX: DHG) share price has continued its slide and is down almost 4% to $3.03. Investors continue to sell the property listings company’s shares amid concerns its performance could be negatively impacted by the spike in coronavirus cases in Victoria. Domain is understood to have a strong presence in the Melbourne market.
The OceanaGold Corp (ASX: OGC) share price has crashed 7% lower to $3.25. The catalyst for this was an announcement by the gold miner which reveals that the Philippines Court of Appeals has denied its application for an injunction for its Didipio operation. OceanaGold was hoping for an injunction to allow its operations to continue while it challenges an order to restrain activities at the site.
The Praemium Ltd (ASX: PPS) share price is down 6% to 44.5 cents following the release of its fourth quarter update. According to the release, global platform funds under administration reached $8.9 billion at the end of the quarter. This was an increase of 8% and driven by net inflows of $459 million and positive market movements of $400 million.
The TechnologyOne Ltd (ASX: TNE) share price has dropped 5% to $8.31. Investors have been selling the enterprise software company’s shares after Hong Kong research firm GMT Research alleged that it is using accounting tricks to pull forward revenue and profits. TechnologyOne has responded by advising that the claims GMT Research has made are false and misleading. It intends to refer the matter to ASIC.
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
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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 Praemium Limited. The Motley Fool Australia has recommended Praemium Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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The Fortescue Metals Group Limited (ASX: FMG) share price has rocketed 38.15% higher in 2020 (at the time of writing). On paper, that’s a significant outperformance compared to the S&P/ASX 200 Index (ASX: XJO), which has fallen 12.09% lower this year.
But how does the Fortescue share price stack up against its fellow Aussie iron ore miners?
The first thing about relative valuation is defining an appropriate peer group. According to the Australian Department of Industry, Fortescue is part of the ‘Big 4’ producers alongside BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO) and Brazil-based Vale.
That means BHP and Rio are probably decent comparisons for the Fortescue share price. I’ve whipped up a quick table of some key metrics to compare the Aussie iron ore miners right now.
| Fortescue | BHP | Rio Tinto | |
| Market Capitalisation | A$46.09 billion | A$172.61 billion | A$36.71 billion |
| Net Assets (Feb 2020) | US$12.5 billion | US$52.4 billion | US$45.2 billion |
| YTD share price change | +38.15% | -7.56% | -3.3% |
| P/E ratio | 6.45 | 13.76 | 14.12 |
| Dividend yield | 6.68% p.a. | 5.81% p.a. | 5.75% p.a. |
Data source: Google Finance, Table: Author’s own
Based on the above table, it’s easy to see that Fortescue has a couple of things going for it.
While BHP and Rio shares have slumped in 2020, the Fortescue share price is up 38.15% to $14.95 per share at the time of writing.
That’s a remarkable recovery, given it was hammered 36.3% in the March bear market from its January 2020 all-time high.
One big factor was the Aussie iron ore miner’s strong quarterly result in April. That announcement was highlighted by record third-quarter iron ore shipments of 42.3 million tonnes, up 10% year on year.
However, Fortescue is still trading at a lower P/E ratio than both BHP and Rio. That could mean the Fortescue share price is a good buy right now, but where is it headed in 2020?
I think the technical environment remains quite strong for the Aussie iron ore miners. Global iron ore prices have surged in recent months, which bodes well for the August earnings season.
There’s also the potential for an Aussie infrastructure boom to boost demand for steel further in 2020.
There are certainly some potential headwinds looming. Frosty relations with China (a major iron ore importer) and a global economic slowdown are two of those.
The Fortescue share price is also approaching its all-time high of $15.25. That could mean it’s a risky buy near the top of its trading range.
Personally, I think for a P/E ratio of 6.4 it could be a steal. However, I’ll be waiting until the group’s August earnings result before buying in.
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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. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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