Tag: Motley Fool Australia

Don’t let today’s weakness on the S&P/ASX 200 Index (Index:^AXJO) fool you. The new bull market is here to stay although the next phase of the rally could see investors rotate to value stocks from growth.

It’s growth stocks, including tech darlings like the Afterpay Ltd (ASX: APT) share price, that’s stolen the lime light since our market hit its bear market bottom in March.

But we may soon see the ASX value shares outperform as conditions seem ripe for these laggards to outperform.

Why value can outperform growth

The recent steepening of the yield curve and expectations of a V-shape recovery favour these underachievers, according to Morgan Stanley.

While there’s great debate over the shape of the ongoing economic recovery due to the COVID-19 crisis, the broker is more convinced than ever of a quicker rebound.

“Our global team’s increased conviction in a sharper and shorter economic downturn has projected a V-shaped recovery in global markets,” said the broker.

“Coupled with ongoing stimulus roll-out across regions and within country, [these are] providing the support for improving Value signalling and performance over the near and long term.”

What are value stocks?

Value stocks are those that tend to trade at a discount to the market or to their historical valuations. Growth stocks are those that trade at a premium as investors are willing to pay up for companies best placed to increase their earnings coming out of the recession.

“Expensive valuations and better growth should push bond yields higher and the curve steeper – a ‘normal’ early cycle pattern, with the global rates team forecasting steeper yield curves into year-end for both the US and Australia,” added Morgan Stanley.

Top stock picks for new year

The broker highlights 11 ASX value stocks that it believes are the best of the bunch. Financial stocks on its list include Australia and New Zealand Banking GrpLtd (ASX: ANZ), Bendigo and Adelaide Bank Ltd (ASX: BEN) and Link Administration Holdings Ltd (ASX: LNK).

In the industrials space, its top picks include cement supplier Adbri Ltd (ASX: ABC), building materials group Boral Limited (ASX: BLD), casino operator Crown Resorts Ltd (ASX: CWN), alcoholic drinks maker Treasury Wine Estates Ltd (ASX: TWE) and national carrier Qantas Airways Limited (ASX: QAN).

There’re also one stock from property and materials each that Morgan Stanley favours. These are DEXUS Property Group (ASX: DXS), retailer Harvey Norman Holdings Limited (ASX: HVN) and BlueScope Steel Limited (ASX: BSL).

Looking for more buy ideas for FY21? The experts at the Motely Fool have picked their best ASX stocks to buy now.

Click on the link below to find out for free what these stocks are.

More reading

• Has the Afterpay share price become too expensive to buy?
• Why A2 Milk, Afterpay, Mesoblast, and Temple & Webster are pushing higher
• 2 ASX shares to buy for beginners
• Where to invest $5,000 in an irrational market
• Is the Macquarie share price a solid buy today?

Brendon Lau owns shares of Australia & New Zealand Banking Group Limited and BlueScope Steel Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Link Administration Holdings Ltd. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Crown Resorts Limited and Link Administration Holdings 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.

BrenLau owns shares of Australia & New Zealand Banking Group Limited and BlueScope Steel Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Link Administration Holdings Ltd. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Crown Resorts Limited and Link Administration Holdings 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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Is the National Australia Bank Ltd (ASX: NAB) share price a strong buy?

The NAB share price remains down more than 30% from its pre-coronavirus level. When a blue chip drops that hard I think it’s worth considering whether it could be an contrarian opportunity to buy it.

NAB and the other big four ASX banks of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) were smashed during the selloff. The worst point was 23 March 2020.

Thankfully the NAB share price has actually gone up 37% from its low in March.

The COVID-19 picture looks much better now for Australia than it did in March. But the economic pain could still take some time to cure. The OECD has warned that Australian GDP could fall by 5% in 2020. If there is another outbreak and a return of lockdowns then Australian GDP could fall by 6.3% in 2020.

What will the fallout be for NAB?

NAB revealed some of the expected pain in its recent FY20 half-year result. NAB said credit impairment charges increased 158.6% to $1.16 billion. As a percentage of gross loans and acceptances, credit impairment charges rose 23 basis points to 38 basis points.

FY20 first half charges included $828 million of additional collective provision forward looking adjustments, of which $807 million was a top-up to the economic adjustment to reflect potential COVID-19 impacts. In other words, NAB has provisioned $807 million for the COVID-19 pain. Higher bad debts result in a lower net profit and therefore a lower NAB share price is likely.

The market was already expecting the sort of economic pain reported in this year’s interim report, that’s why the NAB share price had fallen so much before the result was released.

Worryingly, NAB’s loan arrears had been rising even before COVID-19. The ratio of loans that are more than 90 days past due increased by 18 basis points to 0.97% in the FY20 half-year result. At the end of FY19 this arrears ratio was 0.93%. The FY19 half-year result the arrears ratio was 0.79%. At the end of FY18 the loan arrears ratio was 0.71%. It has been steadily climbing.

Australia’s success at flattening the curve is good news for the broader economy. But there are still specific sections of the economy which could struggle. International tourism may not return during 2020. Australia hasn’t even managed to open the travel bubble with New Zealand yet.

However, if the NAB profit pain is less than expected by the market then the NAB share price could prove cheap today.

There were fears that the big ASX banks may not have provisioned enough money for how much COVID-19 will hurt the overall economy. Hopefully the current provisions are enough. There are signs it could be enough with the initial jobkeeper estimate being $60 billion higher than the expected real number.

What about the NAB dividend?

The NAB board decided to reduce the NAB interim dividend by 64% to 30 cents per share. This was obviously a large income hit to shareholders. But NAB acknowledged that the economic pain needed to shared across the bank, customers and shareholders. It could take a few years for the half-yearly dividend to return to something like $0.80 cents per share if the bank remains prudent with capital. 

The decision to reduce the dividend was equivalent to $1.6 billion of CET1 ratio capital, or 37 basis points in percentage terms. The bank also did a large capital raising to increase its CET1 ratio, raising $3 billion from institutional investors alone.

Is it time to buy NAB at this share price?

The NAB share price is still a lot lower than it was before the COVID-19 hit. But interest rates are now a lot lower too, which means it could be harder for NAB to maintain profitability if the net interest margin (NIM) sinks.

I don’t think NAB is a strong buy right now. Jobkeeper is expected to come to an end in September and that could cause more economic uncertainty. At this NAB share price I think I’d want to wait at least until November or December before buying.  

More reading

• Is the Macquarie share price a solid buy today?
• Why the Wisr share price is surging 32% higher today
• Got $3,000? These 5 beaten-down ASX shares are begging to be bought
• Can ASX big banks generate an attractive sustainable dividend yield from FY21?
• ASX 200 down 0.3%: Big four banks mixed & Healius rockets on medical centre sale

Motley Fool contributor Tristan Harrison 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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Due to the market crash in March, a number of shares are trading significantly lower than their 52-week highs.

While not all shares are necessarily bargain buys, a few which I think could be great value are listed below. Here’s why I like them at these levels:

The Aristocrat Leisure Limited (ASX: ALL) share price is down 29% from its 52-week high. This has left the gaming technology company’s shares trading at 21x estimated FY 2021 earnings. I think this makes them great value based on its long term growth prospects. Aristocrat Leisure appears well-positioned to deliver strong earnings growth over the next decade thanks to its leading pokie machine business and fast-growing digital business. The latter is generating significant recurring revenues from its millions of daily active users.

The Clover Corporation Limited (ASX: CLV) share price has lost a third of its value since peaking at $3.31. This has brought the shares of the infant formula ingredients producer down to an estimated 27x FY 2021 earnings. While this is still a notable premium to the market average, I believe it is a good price to pay for a company with such strong growth potential. Clover’s business looks well-placed to benefit from increasing demand for infant formula and favourable changes to ingredient requirements in a number of key markets.

The Sydney Airport Holdings Pty Ltd (ASX: SYD) share price is trading 33% below its 52-week high. Investors have been selling the airport operator’s shares after the coronavirus pandemic made its terminals a ghost town. And while it will take time for passenger numbers to recover fully, it will inevitably come in time. I think this makes it well worth taking advantage of this share price weakness by making a patient long-term investment.

More reading

• Where to invest $5,000 in an irrational market
• 3 fantastic ASX 50 shares I would buy today
• 3 ASX shares to buy for 2021
• 2 quality ASX 200 shares to buy for long-term growth
• Investing $1,000 into these ASX 200 shares could be a smart move

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 Clover Limited. 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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The Macquarie Group Ltd (ASX: MQG) share price climbed 0.55% higher yesterday to close at $121.00 per share.

On a day when the S&P/ASX 200 Index (ASX: XJO) surged 0.83% higher, Macquarie was doing some of the heavy lifting.

Investors have been bullish on ASX bank shares in recent months but is Macquarie a solid buy in the current market?

Why the Macquarie share price has surged higher

Macquarie was not immune to the bear market we saw in February and March. In fact, the Macquarie share price fell 52.4% from 21 February to 23 March.

However, it’s been a different story since then with Macquarie’s market capitalisation rocketing to $43.5 billion.

That’s good news for current shareholders, but where does it leave prospective investors?

There are quite a few headwinds facing ASX bank shares like Macquarie right now. The effects of the 2018 Royal Commission are still lingering while the coronavirus pandemic and subsequent lockdown have presented some unique challenges for the sector.

Macquarie is somewhat different from its other major bank peers. It is more of an investment bank compared to the retail and business banks like Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd. (ASX: NAB).

This creates some opportunities for the Macquarie share price to chart a different path through the current market conditions.

For instance, Macquarie’s full-year earnings provided some hope for investors.

Full year earnings

The ASX bank posted an 8% decline in net profit to $2,731 million for the 12 months ended 31 March. Macquarie was certainly not immune from the impacts of COVID-19 and announced $1,040 million worth of impairments.

But it wasn’t all bad news with Macquarie’s assets under management swelling 10% to $606.9 billion by year-end.

The Aussie bank also declared a final dividend while some of its cohorts like Westpac Banking Corp (ASX: WBC) pulled back on their dividend payments.

Importantly, the bank’s investment arms showed signs of strong performance. This included a 16% increase in net profit contribution from Macquarie Asset Management (MAM) to $2,177 million.

Of course, there were downsides to the result including an inability to provide meaningful guidance for FY21. 

However, I believe there are positive signs that Macquarie’s various business units can combine to stabilise earnings, despite the tough operating environment.

How does Macquarie compare to other ASX bank shares?

The Macquarie share price has now climbed 68% higher since 23 March.

It’s been a similar story for many ASX 200 shares with investors sending the index climbing by 36% since its March low.

However, I still think there are plenty of risks facing Macquarie and the other big banks right now. If you’re a long-term investor, I think it’s worth waiting until further results come out in October or November before jumping in.

This will provide the best picture of Macquarie’s financial position and how its various investment arms have performed in 2020.

I’ll be taking the same approach for both National Australia Bank and CommBank shares. National Australia Bank’s share price is up 36.6% since 23 March which could mean investors are a bit more skeptical about the big four compared to Macquarie.

Foolish takeaway

All the ASX banks have seen their values soar since the February/March crash but I’m not bullish enough to buy Macquarie at its current price.

More reading

• 2 ASX shares to buy for beginners
• Where to invest $5,000 in an irrational market
• Next phase of bull market could see ANZ Bank outperform Afterpay
• Is the NAB share price a strong buy?
• 5 things to watch on the ASX 200 on Thursday

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie 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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I think the concept of Australian travel is going to be a pretty big deal over the foreseeable future. I don’t know about you, but right now I can’t imagine travelling anywhere else in the world, except for maybe New Zealand. Not Asia, Europe, the United States or the United Kingdom. 

In fact, even achieving the reopening of our own state borders is proving to be a thorny issue in Queensland. Not so much in my home state of WA however; we see things a little differently.

So in a world where travel is likely to be largely limited to within our own shores, which shares are likely to benefit?

Transport for Australian travel

Alliance Aviation Services Ltd (ASX: AQZ) has been one of the real workhorses of the coronavirus pandemic and looks set to emerge on the other side a better positioned company. Alliance saw increased demand for its charter flights during the lockdown period. In addition, the company recorded increases in its fly-in-fly-out flight volumes, something it has nurtured as a core service offering.

Yet, it is Alliance’s recent award of flights to the Whitsundays by the Queensland Government that really tells the tale.  Alliance Airlines is structured as a nimble organisation with a low cost base. If we do have to live only with domestic tourism for a while, I believe the company will prosper. Conversely, a company like Qantas Airways Limited (ASX: QAN) is just too big to survive on local flights alone.

Furthermore, the company has recently completed a successful $91.9 million share placement which will see it well positioned to take advantage of growth opportunities whilst maintaining a strong balance sheet.  

Car parts and accessories

Bapcor Ltd (ASX: BAP) is the Asia Pacific’s leading provider of vehicle parts, accessories, equipment, and services. Some of its well known brands include Autobarn and Midas. It stands to reason that if travel within Australia becomes an increasing trend, many of us will choose to get where we’re going by car. 

Bapcor has grown its sales by an average of 14.9% every year for 6 years. In addition, the company’s share price has grown by an average of ~24% each year over the same period. If the Bapcor share price continues to rise at this rate, it would take just over 3 years to double an initial investment in the company. 

Foolish takeaway

I believe the increase in domestic tourism will provide an opportunity for particular companies to shine. The big international tourism operators like Webjet Limited (ASX: WEB) and Crown Resorts Ltd (ASX: CWN) are likely to see some benefit. But I feel it will mostly be those companies that facilitate regional travel which will really enjoy the spoils of a surge in domestic tourism.

More reading

• ASX 200 finishes higher by 0.8%, Carsales share price driven up by FY20 guidance
• Top brokers name 3 ASX 200 shares to buy today
• Why G8 Education, InvoCare, Megaport, & Webjet shares are tumbling lower
• Is the Webjet share price going to crash lower?
• ASX 200 jumps almost 4%, Webjet share price soars

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Bapcor and Webjet Ltd. The Motley Fool Australia has recommended Crown Resorts 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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Looking to add to your share portfolio? I think the ASX tech sector is a good place to start, particularly the small- to mid-cap segment of the market. There are a number of fast growing companies with strong growth prospects over the next 5 years.

Two of my top picks right now are Pushpay Holdings Ltd (ASX: PPH) and Nearmap Ltd (ASX: NEA). Both companies have a growing international presence and strong market positions in their respective niches.

Pushpay

Pushpay is a donor management platform provider for the faith, not-for-profit, and education sectors. The company targets the large-to-medium church sector of the US market. Pushpay has been growing its market share in this market over the past few years, resulting in strong recurring revenue growth.

At the end of 2019, Pushpay acquired rival Church Community Builder, which provides digital church management systems to over 4,000 US churches. This acquisition has expanded its overall offering to church clients and is likely to drive further growth over the next few years.

Pushpay delivered a 39% increase in total processing volume to US$5 billion for the 12 months to 31 March 2020, while its operating revenue increased by 33% to US$127.5 million. The company’s gross margin, expanded from 60% to 65% in FY 2020. The company anticipates further high growth for FY 2021.

May this year proved to be a particularly strong month for Pushpay, with its share price up by a staggering 69%. Due to the closure of many churches across the US during the coronavirus, demand for its online platform has recently increased.

I believe that Pushpay still has significant potential for long-term growth moving forward, as it achieves scale efficiencies and gains further market share.

Nearmap

Another ASX tech share to look at is Nearmap. The company is an Australian aerial imagery and location data company that provides geospatial map technology for businesses, enterprises and government customers across Australia, New Zealand, the US, and Canada.

Nearmap captures images of a particular location approximately 6 times a year. Google Maps, in comparison, typically only updates its images every couple of years or so. Therefore, the information Nearmap provides is typically more accurate and up to date.

Nearmap has been growing its subscriber base strongly over the past few months. What is particularly pleasing is that its average revenue subscription continues to improve, which is flowing through to higher margins. Customer churn is now below 10% on a 12-month rolling basis, down from 11.5% at the end of last year.

The North American market in particular offers Nearmap strong growth potential over the next 5 years.

More reading

• 3 ASX shares to buy and hold for the next decade
• Why Nearmap and this ASX mid cap share could be strong buys
• $3,000 invested in these 2 shares could make you a fortune over the next 10 years
• The top ASX growth shares I would buy for the 2020s
• Sezzle shares and 2 other ASX techs soared up to 50% in the past 4 weeks

Phil Harpur owns shares of Nearmap Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Nearmap Ltd. and PUSHPAY FPO NZX. The Motley Fool Australia has recommended Nearmap Ltd. and PUSHPAY FPO NZX. 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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With interest rates at such low levels, it is nearly impossible to earn a sufficient income from term deposits and savings accounts.

But don’t worry, because the share market is here to save the day with countless dividend shares offering generous yields.

But which dividend shares should you buy? Three to consider are listed below:

BHP Group Ltd (ASX: BHP)

I think the Big Australian would be a great dividend share to buy if you’re not averse to investing in the resources sector. Thanks to favourable commodity prices, I believe BHP is well-positioned to deliver strong free cash flows over the coming years. And given how robust its balance sheet is at present, I suspect the majority of this free cash flow will be returned to shareholders. I estimate that the mining giant’s shares currently offer investors with a forward fully franked ~5% dividend yield.

Transurban Group (ASX: TCL)

Another dividend share to consider buying is this toll road operator. Transurban owns a portfolio of key toll roads in Australia and North America. Although its performance this year will be impacted by a significant decline in traffic volumes because of the pandemic, I believe volumes will now be recovering and could return to previous levels again next year. As a result, I believe it could be a great time to consider a long term and patient investment. I estimate that its shares offer a 3.3% FY 2021 distribution yield.

Treasury Wine Estates Ltd (ASX: TWE)

A sharp pullback in this wine company’s share price over the last six months could be a buying opportunity for patient income investors. While its performance in FY 2020 has been underwhelming (even before the pandemic), I believe it does have a positive long term outlook. This is due to the strong demand for its wines in China and its premiumisation strategy. Its shares currently offer a trailing 3.4% dividend yield. And while this dividend is likely to be cut in response to the pandemic, I believe it will rebound in FY 2021/2022. This could make it worth considering with a long term view.

More reading

• ASX 200 finishes higher by 0.8%, Carsales share price driven up by FY20 guidance
• Forget bank interest, try these ASX 200 dividend shares!
• ASX 200 down 0.1%: Carsales update impresses, a2 Milk surges higher
• Why I would buy CSL and these ASX blue chip shares
• The Treasury Wine share price is up 13% in a month: Is it too late to invest?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia owns shares of Transurban Group. 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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On Wednesday the S&P/ASX 200 Index (ASX: XJO) continued its positive run and stormed higher again. The benchmark index jumped 0.8% to 5,991.8 points.

Will the market be able to build on this on Thursday? Here are five things to watch:

ASX 200 expected to drop lower.

The ASX 200 looks set to end its winning streak on Thursday. According to the latest SPI futures, the benchmark index is poised to open the day 32 points or 0.55% lower this morning. This follows a disappointing night of trade on Wall Street which saw the Dow Jones fall 0.65%, the S&P 500 drop 0.35%, and the Nasdaq index edge 0.15% higher.

Oil prices tumble.

Energy producers such as Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) could come under pressure on Thursday after a weak night for oil prices. According to Bloomberg, the WTI crude oil price fell 1.7% to US$37.74 a barrel and the Brent crude oil price dropped 1% to US$40.58 a barrel. Traders were selling oil amid increasing oversupply fears.

Gold price edges higher.

Gold miners including Evolution Mining Ltd (ASX: EVN) and Newcrest Mining Limited (ASX: NCM) will be on watch today after the gold price edged ever so slightly higher. According to CNBC, the spot gold price is up 0.05% to US$1,737.30 an ounce.

Westpac dumps Pendal stake.

The Westpac Banking Corp (ASX: WBC) share price could be on the move after it dumped its remaining stake in Pendal Group Ltd (ASX: PDL). Westpac has agreed a fully underwritten offer of ~31 million Pendal shares to institutional investors. This represents approximately 9.5% of Pendal’s shares on issue. The banking giant has agreed to sell the shares for $5.98 per share. This represents a discount of 4% to Pendal’s last close price. It also warned that it may withdraw its funds under management in the future.

Employment data release.

Later today the Australian Bureau of Statistics will release its employment data. The Reserve Bank has previously stated that it believes the unemployment rate could jump as high as 10%. Whereas Westpac is forecasting an unemployment rate of 7.4% It said: “With an upside risk to participation for families getting some relief in childcare, and a downside risk on employment, we see an upside risk to our 7.4% forecast for unemployment.”

More reading

• Westpac share price on watch after dumping its Pendal stake
• ASX 200 finishes higher by 0.8%, Carsales share price driven up by FY20 guidance
• The next ASX sector at risk of cutting dividends
• The latest ASX 200 shares to be downgraded by leading brokers
• What a record rebound in oil demand in 2021 means for ASX energy stocks

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. 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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The Westpac Banking Corp (ASX: WBC) share price will be on watch on Thursday following the release of an after-hours announcement.

What did Westpac announce?

This afternoon Westpac announced a fully underwritten offer of ~31 million Pendal Group Ltd (ASX: PDL) shares to institutional investors. This represents approximately 9.5% of Pendal’s shares on issue.

According to the release, the banking giant has agreed to sell the shares for $5.98 per share. This represents a discount of 4% to Pendal’s last close price and a total consideration of just over $185 million.

This sale will complete the divestment of Westpac’s shareholding in Pendal, following earlier share sales in 2007, 2015, and 2017.

Westpac’s Acting Chief Financial Officer, Gary Thursby, explained that this divestment will allow the bank to focus on its core operations.

He said: “Pendal is a highly regarded, independent business, and given Westpac’s commitment to simplify its operations and focus on banking in Australia and New Zealand, now is the right time to complete our divestment.”

What impact will this have?

Once the offer completes, Westpac expects it to add approximately 2 basis points to its Common Equity Tier 1 capital ratio and result in a post-tax accounting gain of $32 million.

It will also have an impact on Pendal’s funds under management. Westpac has gradually been withdrawing its funds from Pendal over the last 12 months and will continue to do so over the next 12 months.

Another withdrawal is expected to occur in two tranches. The first tranche of approximately $1 billion will occur later this calendar year and a further tranche of up to $0.08 billion is expected in 2021.

But unfortunately for Pendal, it may not stop there. Westpac is currently undertaking a strategic review of its wealth businesses and has warned that following this review, “there may be a loss of some or all of the funds that Pendal manages on behalf of the Westpac Group.”

This would be a big blow for the fund manager, given that it currently manages approximately $14 billion for Westpac.

More reading

• Is the Telstra share price a buy?
• Why I think Telstra shares are a strong buy
• Got $3,000? These 5 beaten-down ASX shares are begging to be bought
• ASX 200 Weekly Wrap: ASX bears take control as market volatility returns
• Why I would buy Telstra and this ASX dividend share today

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. 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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Is the Telstra Corporation Ltd (ASX: TLS) share price a buy?

Telstra shares are still down 14% from the level it was at on 21 February 2020. But it hasn’t actually recovered much from the date when the S&P/ASX 200 Index (ASX: XJO) hit the COVID-19 low. Since 23 March 2020, the Telstra share price is only up 4.2%.

Perhaps that underperformance now means that Telstra is comparatively good value?

Maybe Telstra’s regular earnings aren’t given enough credit. We all need to pay our telecommunications bill to stay connected to the internet. The last few months has shown how important the internet is for many of us to work at home, be entertained or connect with family and friends.

However, Telstra’s revenue and earnings doesn’t increase by 10% if we use 10% more data in a month. These days consumers get a very generous amount of data so you’d have to watch a lot of online movies in ultra-high definition to use all of your allocated data.

Telstra’s share price has suffered in recent years as Australia shifted to the NBN. It was much easier for Telstra to make good profit when it owned all of the cable infrastructure. Now Telstra must compete on a level playing field with everyone else, with lower profit margins. The NBN has to recoup the money spent on it, which hurts the telco margins.

What is there to be positive about Telstra’s share price?

The FY20 half-year result was actually fairly positive. Telstra’s underlying earnings before interest, tax, depreciation and amortisation (EBITDA) declined by 6.6% to $3.9 billion. However, excluding the in-year NBN headwind, underlying EBITDA increased by approximately $90 million. That’s the first time this figure had grown since FY16. But then COVID-19 hit the world. 

Telstra is now expecting its free cashflow and underlying EBITDA to be at the bottom range of its guidance range. Free cashflow after operative lease payments was expected to be between $3.3 billion to $3.8 billion.

Considering how low interest rates are now, I think Telstra’s cashflow should be valued higher than before. Therefore the Telstra share price should be higher too, in theory. The same could be said about the dividend. The Telstra dividend should be more valuable than it was before interest rates were reduced.

I don’t think Telstra will want to cut the dividend any lower than the current 8 cents per share it’s paying every six months. I don’t think the annual fully franked dividend will go lower than 16 cents per share in the foreseeable future. This equates to a grossed-up dividend yield of 7%. I think that’s solid in today’s environment.

The best reason to be positive about Telstra is the coming of 5G. The world has changed a lot since 4G was released. There will probably be new services that we can’t even think of yet. Automated cars will need a high-quality connection for what they’ll do. The ‘Internet of Things’ change is going to need a good connection to enable our devices to connect where they need to connect. 

Is Telstra a buy today?

Telstra is currently trading at 21x FY22’s estimated earnings. I fear that 5G could turn into a race to the bottom for telcos again like how 4G has done. There’s lots of low-price competition for Telstra like Aldi Mobile, Boost Mobile and Amaysim Australia Ltd (ASX: AYS).

As investors we should want to invest in businesses that can grow over the long-term with good economic moats.

I’m not sure what Telstra’s future looks like because the economics of 5G look unclear. It was companies like Facebook, Alphabet and Netflix that managed to capture a lot of the value creation by the 2010s technology changes. Will telcos be able to change that with 5G? If you think so, then perhaps Telstra is cheap today. But I’m not convinced it is a good buy.

More reading

• Westpac share price on watch after dumping its Pendal stake
• Why I think Telstra shares are a strong buy
• Got $3,000? These 5 beaten-down ASX shares are begging to be bought
• ASX 200 Weekly Wrap: ASX bears take control as market volatility returns
• Why I would buy Telstra and this ASX dividend share today

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra 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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