May.11 — Jun Bei Liu, portfolio manager at Tribeca Investment Partners, looks at how the coronavirus outbreak is affecting the global economy and stock markets, and shares her investment strategy. Federal Reserve Bank of Minneapolis President Neel Kashkari said Americans should brace for even more gut-wrenching news on unemployment amid the coronavirus pandemic. Liu speaks with Rishaad Salamat and Selina Wang on “Bloomberg Markets: Asia.”
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May.11 — Investors remain “pretty wary” despite the bounce in equity markets, according to Julian Chillingworth, chief investment officer at Rathbones. European markets in particular “could well be spooked” if coronavirus infections start to increase again, Chillingworth says in an interview on “Bloomberg Markets: European Open.”
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You might have heard the phrase ‘share buyback’s thrown around quite a lot in recent years (although probably not since February). It’s a concept that has gotten a lot of media attention in recent years – and a lot of praise from investors.
Even the great Warren Buffett has waxed lyrical about buybacks over the years, saying he prefers them to straight dividend payments from his (meaning Berkshire Hathaway’s) holdings:
“Disciplined repurchases are the surest way to use funds intelligently: It’s hard to go wrong when you’re buying dollar bills for 80¢ or less” Buffett said in his 2012 letter to Berkshire Hathaway shareholders.
But why? Surely receiving dividends in cash is a better option to a share buyback for the average investor? Well, let’s have a look and see.
A ‘share buyback’ program refers to a decision by a company’s management to use its cash to purchase its own company’s shares off of the open market. Once the shares are bought, they are ‘retired’ – it’s the opposite of a company issuing new shares to raise capital.
So how does this help investors? Well, say if Company A has 100 shares outstanding and you as an investor own 10. That would equate to a 10% ownership stake of that company and an entitlement to 10% of the company’s earnings.
But say Company A’s management decide to buy back 20 shares using the company’s profits. Now, there are only 80 shares of Company A on issue, meaning us, the investor, still owns 10 shares. But these 10 shares now represent 12.5% of the company’s ownership – meaning our stake in the company has increased. It’s a similar outcome to if the company paid out a dividend and you reinvested it instead (except without taxes getting in the way).
Not always. It can be deleterious to a shareholder’s long-term wealth if a company pays too much for its own shares – much like for an investor.
But conversely, it can be extremely beneficial if the company manages to buy back shares at a discount.
One of my own holdings – Magellan High Conviction Trust (ASX: MHH) – permits share buybacks if the trust’s unit price is trading under the net tangible assets (or real value) of each unit. Just last week, the trust informed the ASX that over $3.5 million worth of MHH shares were purchased on market for a price below what each unit is worth.
As a shareholder, I am very pleased with these actions for the reasons outlined above.
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Motley Fool contributor Sebastian Bowen owns shares of Magellan High Conviction Trust. 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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May.11 — Germany and the European Union are escalating a legal power struggle that could undermine the euro. On Sunday, European Commission President Ursula von der Leyen said the EU’s executive arm will consider possible next steps, including so-called infringement proceedings, after a critical ruling on European Central Bank policy by Germany’s constitutional court. Karin Matussek reports on “Bloomberg Markets: European Open.”
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The irrational bear market has thrown investors many false dawns over the past 2 months. We have had many false starts and bear rallies, all traps for new players. Nonetheless it has created some of the most extraordinary value investing opportunities in my lifetime. Many companies that are almost totally unaffected by the pandemic have seen share prices slashed in blind panic.
For example, the Evolution Mining Ltd (ASX: EVN) share price has rocketed up ~60% since its low point on 16 March. IDP Education Ltd (ASX: IEL) is a company that is marginally impacted. Yet after being over sold dramatically, the IDP share price has risen by 41.4% since 23 March. Lastly, the mighty Afterpay Ltd (ASX: APT) share price has risen by 350.6% from its low point on 23 March.
These are not normal returns, just as these are not normal times. However, there are still opportunities in the S&P/ASX 200 Index (INDEXASX: XJO). The 3 ASX 200 shares below are set to see a significant rebound as restrictions start to relax.
Santos Ltd (ASX: STO) has shown itself to be a well managed company with a strong chance of emerging from the oil crisis as a productivity leader. The Santos share price has already risen by ~79% from its low point on 19 March. Yet its price-to-earnings (P/E) ratio is still 6 points lower than its 10-year average P/E at 9.9.
The Santos share price still has a way to rise. By my calculations it needs to rise another 61% to meet average 10 year P/E levels. That doesn’t factor in the huge productivity gains the company has made over the past 2 months. This is a prime candidate for value investing.
The Bank of Queensland Limited (ASX: BOQ) share price has dropped by 33% year to date, giving it a P/E ratio of 7.7. This is 3 points lower than the 10-year average. To get back to this level, the bank’s share price will need to rise by 51%.
The bank also has good dividend stability of ~95% despite the present deferral. At the current price, the trailing 12-month dividend yield is 13.4%, placing the company as one of the better paying dividend shares. I believe this bank is a good candidate for value investing. Its share price is likely to see a jump over the next 3 – 6 months as the pandemic eases.
The BHP Group Ltd (ASX: BHP) share price has risen 25% from its low point on 16 March. It has another ~17% before equalling its 10-year P/E ratio. However, I don’t think the market has fairly valued the company’s future earnings.
BHP has 4 things in its favour. First, the low Australian dollar increases the value of every tonne of product sold in USD. Second, the iron ore market has withstood the impacts of COVID-19. Third, BHP is the third largest producer of copper, a commodity soon to see a price increase.
Lastly, the company has no exposure to aluminium, unlike mining stablemate Rio Tinto Limited (ASX: RIO). Aluminium is likely to see further price falls without high car manufacturing volumes.
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Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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 Australian economy is emerging from the dreaded COVID-19 lockdown and the optimism is firing up the share market!
The S&P/ASX 200 Index (Index:^AXJO) jumped 1.3% on Monday with all sectors finishing in the black, although the runup in share prices is forcing some brokers to downgrade some ASX shares.
One of the latest stocks to be hit with a recommendation downgrade is building supplies group CSR Limited (ASX: CSR).
Citigroup cut its rating on the stock to “neutral” from “buy” ahead of the group’s full year results tomorrow.
This probably explains the 4% plunge in CSR’s share price to $3.38 even as the broader market rallied. This makes CSR the second worst performer on the ASX 200 today after Graincorp Ltd (ASX: GNC), which fell 4.2% to $3.45.
Citigroup is expecting CSR to post a 40% drop in underlying net profit to $111.1 million, which is 7% below consensus forecasts.
You can blame the downturn in building construction for much of the damage, although the challenging medium-term outlook for its aluminium business isn’t helping either.
“The outlook for CSR remains challenging, with top line headwinds in housing and aluminium businesses emerging,” said the broker.
“This creates a high level of earnings pressure medium term and drives our underlying NPAT downgrades of ~50% in FY21e and FY22e.”
Citi’s 12-month price target on the stock was lowered to $3.45 from $5.60 a share.
Another to come under pressure today was the REA Group Limited (ASX: REA) share price.
Shares in the online property classifieds group fell 1.8% to $93.46 after Credit Suisse downgraded the stock to “neutral” from “outperform”.
The broker’s decision comes in the wake of the group’s quarterly earnings update that showed a 1% increase in revenue and 7% improvement in earnings before interest, tax, depreciation and amortisation (EBITDA).
The top-line missed Credit Suisse’s forecast of around 5% while EBITDA was roughly in line.
“Given ~7% price increases, this implies the benefit from depth penetration for the quarter was minimal,” said the broker.
“We lower our target price to A$94.50/share (prev A$94.80/share) to reflect the minor reductions to our forecasts.
“We continue to expect a recovery in volumes from the low point expected over the next few months, but given the recent rally in the stock, we view the recovery as appropriately priced in.”
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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group 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 Altium Limited (ASX: ALU) share price has been up and down in 2020, but is it set to surge in the second half of the year?
Altium is a software company that provides PC-based electronics design software for engineers who design printed circuit boards. It’s been something of a rollercoaster for the ASX tech company in 2020, with less international trade, reduced business expenditure and potential supply chain disruptions weighing heavily on the Altium share price in March.
Altium is part of the WAAAX group of tech shares that have rocketed higher in recent years. While Altium does have a 1.03% dividend yield, much of its value is tied up in future expected growth. In fact, Altium trades at a price-to-earnings ratio of 59.82, which is why investors were spooked by the COVID-19 shutdown.
At the height of the February earnings season, Altium hit a new 52-week high of $42.76 per share. It was downhill from there as the S&P/ASX 200 Index (ASX: XJO) slumped amid a broader bear market. The Altium share price fell to a 52-week low of $23.11 per share before recovering to its current $36.79 valuation.
It’s been an impressive share price recovery for Altium in April and May. Altium is still trading below its pre-COVID-19 value but the economic outlook has certainly shifted. I personally don’t think Altium’s valuation is compelling enough to buy right now.
If we see another bear market drop then I’d look at buying Altium for the right price, however, I think there are other strong ASX tech shares that could be in the buy zone, like Xero Limited (ASX: XRO).
The Altium share price has been on a rollercoaster ride this year. Altium is a dividend-paying share that does provide some security, but I still think I’ll wait for another market dip 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 owns shares of Altium. 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 S&P/ASX 200 Index (ASX: XJO) went up 1.3%, it started the week strongly. Investors are feeling more confident about the situation now that restrictions are starting to lift.
Whilst Australia’s leaders are telling people not to get complacent, various rules around the country are starting to become a bit more relaxed.
Here are some of the highlights from the ASX 200 today:
Some ASX 200 businesses saw share prices rise considerably today.
The share price of Webjet Limited (ASX: WEB) rose by 19.5%.
Southern Cross Media Group Ltd (ASX: SXL) saw its share price go up 18.5%.
The share price of NRW Holdings Limited (ASX: NWH) grew by 12.2%.
AP Eagers Ltd (ASX: APE) saw its share price rise by 10.8%.
The ASX 200 hearing device business saw a 5% rise in its share price today despite outlining a significant fall in revenue.
Compared to April 2019, sales revenue across the company declined 60% in April 2020. Cochlear implant unit sales fell by 80% across developed markets, with most elective surgeries postponed across the US and Western Europe.
The bright spot was China where surgeries recommenced in late February and continued to recover throughout April. Surgeries are now running close to pre-virus run rates despite Beijing, the largest surgery centre, remaining largely closed to elective surgery.
The ASX 200 financial business saw its share price rise 4.2% today after also giving an update.
It was announced CEO of Banking and Wealth Lee Hatton will be leaving the organisation at the end of the month.
At 31 March 2020 it had excess group common equity tier 1 (CET1) capital of $682 million at 31 March 2020.
On the insurance side of things Suncorp is expecting gross written premiums to be impacted by lower economic activity, however it’s expecting lower consumer motor claims volumes. It said it’s expecting increased landlord loss of rent claims.
The final dividend will be considered though the year end process.
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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Cochlear Ltd. 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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