Tag: Motley Fool Australia

ASX reporting season is upon us. A handful of companies have already released their full year or quarterly results. But the bulk are yet to come. ASX bank shares will be among those dominating the financial news headlines, particularly when the big four banks release their reports. 

Tomorrow, Commonwealth Bank of Australia (ASX: CBA) releases its full year report. It’s the first of the big four banks to do so.

National Australia Bank Ltd. (ASX: NAB) is up next, releasing its third quarter results on Friday.

Next week, Westpac Banking Corp (ASX: WBC) releases its third quarter report on Tuesday 18 August. Australia and New Zealand Banking Group Limited (ASX: ANZ) follows with its third quarter results next Wednesday.

Avert your eyes!

Why this reporting season really is different

That may seem like odd investment advice. And ordinarily it would be. But these are no ordinary times.

We’re not talking about the trade ructions between the United States and China here, disputes that inevitably envelop Australia. Or the diplomatic wrangling between the United Kingdom and the European Union over who gets to fish where post-Brexit. Or even the nuclear sabre rattling by despots like North Korea’s Kim Jong-un.

Unfortunately, all these events — and a laundry list of others — are very much part of our ordinary times. But the COVID-19 pandemic — and the lockdown measures put in place around the globe to contain it — are not.

Which is why I believe you should take the results from the current reporting season with a very large grain of salt. But don’t just take my word for it.

ST Wong is the Chief Investment Officer of Prime Value Asset Management, which manages more than $1.5 billion in assets. Here’s what he wrote in last Wednesday’s Australian Financial Review:

“Compared to previous years, financial guidance from companies will be less forthcoming, leading to large dispersions in analysts’ estimates for the 2021 financial year. Companies’ cash flows will be distorted by provisions for bad debts, inventory and working capital build-ups. Against this backdrop, companies that demonstrate visibility in earnings growth, strong cash flow conversion, robust balance sheets and management adaptability to change will be bid up”.

And it’s not just companies struggling to forecast their financial outlooks. States and governments are also mired in uncertainty.

In her speech last Friday, the Reserve Bank of Australia’s Assistant Governor, Luci Ellis, outlined the economic ambiguities thrown up by the coronavirus, saying:

“The course of the virus is very uncertain, and so will be people’s responses to it. Given this uncertainty, we have again presented the outlook in the form of three scenarios. The difficult situation in Victoria is an example of how quickly this can change”.

Treasurer Josh Frydenberg concurred, stating, “We’re living in unprecedented times, with a once in a century pandemic, and it’s a very fluid situation”.

‘Invest to hold’

With uncertainty claiming the day — and the coming months — day trading shares has never been riskier.

Traders with cast iron stomachs will tell you that along with that higher risk comes the potential for higher rewards. And that’s true. But that’s not unlike your potential rewards going up when you bet on the long-shot horse winning the Melbourne Cup.

The odds of consistently correctly guessing the next phase of Australia’s battle against the virus —and which shares stand to gain or lose short term — are long indeed.

That’s why The Motley Fool’s own Scott Phillips recommends the ‘buy to hold’ investing style. That’s to discern it from ‘buy and hold’, which traders are quick to criticise as they see that as holding onto every share you buy and never checking in on its performance or outlook again.

But as Scott writes: “In whatever form, using whatever words, the idea of buying great businesses and holding them for as long as it makes sense is a tried and tested approach to investing well. It’s our preferred approach, and one we’re using in our continued quest for market-beating returns”.

With ASX bank shares facing a potential hit during the coming reporting week, some traders will be betting against them by shorting their shares. That may, or may not work out in the short run.

But longer term, you should keep in mind that ASX bank share prices are still well down from their February highs: CommBank’s share price is down nearly 17%; ANZ’s share price is down just under 32%; NAB’s share price is down over 34%; and the Westpac share price is down nearly 31%.

If you have a long-term investing horizon (at least 3 to 5 years), you may want to see how the market reacts to the banks’ upcoming reports, then consider buying shares of what have historically been some of the best dividend paying shares on the ASX.

More reading

• ASX reporting season reveals some upside surprises
• Forget term deposits and buy these ASX dividend shares
• Should you buy CBA shares before the dividend announcement?
• Bank savings rates fall as Buffett racks up record cash pile and analysts tip Qantas share price rebound
• ASX 200 jumps 1.2%: Big four banks rise, Qantas update, Mesoblast surges

Motley Fool contributor Bernd Struben 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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The Silver Mines Limited (ASX: SVL) share price is up almost 150% in the last month alone. At the same time, the silver price has risen more than 50% as well. It has been an impressive month all round for the silver industry, so is now a good time to buy Silver Mines shares?

Why Silver Mines?

Silver Mines holds the largest undeveloped silver project in Australia which, according to the company website, is also one of the largest projects in the world. 

Already holding high grade projects New South Wales, Silver Mines has also recently acquired the Bowden Silver Project.

In 2018, Silver Mines completed a feasibility study into Bowden and established that it had an estimated 16 years of life in the mine. It predicted that for the first three years of production, the mine would produce 5.4 million ounces of silver per year.

While Bowden might be its most exciting project coming up, Silver Mines also runs the following projects:

• Conrad Project, a silver and polymetallic operation
• Webbs Project, another silver and polymetallic operation
• Tuena Project, a gold and silver operation

The Silver Mines share price

The Silver Mines share price hit an all time low in October 2018. Since then, the price has risen a staggering 1,000%, from around 2.5 cents to almost 30 cents.

Although this may seem like a huge return (and it is), the Silver Mines share price in the past has reached lofty heights of more than $20. While there is no real way to know whether previous highs are attainable again, this gives me more confidence buying at the current price, even after the recent rally.

The price of silver

Silver is currently trading around USD $28 per ounce. If we look back to 2012, the commodity back then almost reached USD $50 per ounce, so it may have a lot more room to move today.

We have seen gold reaching new highs recently, making a strong case that silver could do the same. And rising prices mean more profit for producers.

Silver is an important commodity

Silver is widely used in our society. When most people think of the precious metal, they think of jewellery, coins and bullion. But silver has a huge number of commercial uses as well. It is used in the solar industry, electronics, bearings, in the automobile industry, medicine and even water purification – to name a few.

According to the World Silver Survey 2020, total supply is predicted to fall this year by 4%. Demand is also predicted to fall by 3%, however this is still a net positive for the metal.

The market is due to see a surplus in supply again this year, but the surplus looks to be more than 50% less than 2019. Again, this may be a surplus, but it is less of a surplus than previous surveys.

The report goes on to say that the global silver mine production is set to fall by 4.6% in 2020. A large part of the problem is due to COVID-19 and its impact on mining operations. Interestingly, the survey also states that it expects silver to outperform gold in 2020.

Foolish Takeaway

Although there are many silver producers, Silver Mines is the largest project owner here in Australia. With the encouraging findings of the World Silver Survey, and Silver Mines developing their large new project at Bowden, the future looks positive for both the company and the Silver Mines share price.

More reading

• The Silver Mines share price has hit a 52-week high. Here’s why.

Motley Fool contributor glennleese 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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I firmly believe that if you want to grow your wealth, you need to think long term.

This is because the longer you spend in the market, the longer you have to take advantage of compounding.

Compounding is the interest you earn on interest and explains why $10,000 generating a return of 10% per annum will turn into $26,000 in 10 years.

But which shares would be great buy and hold options? Here are two that I would buy:

Afterpay Ltd (ASX: APT)

I think this payments company could be a great buy and hold option for investors. Once again, in FY 2020 Afterpay has smashed the market’s expectations with incredible sales and customer growth. This has been driven by the increasing popularity of its buy now pay later platform with both consumers and retailers.

Adoption of its platform has been particularly strong with younger demographics, which are turning away from credit cards in their droves and looking for better ways to budget. Particularly during the pandemic as more spending shifts online. I expect this trend to continue for the foreseeable future and drive strong customer growth. This should also be boosted by further geographic expansion in the coming years.

Xero Limited (ASX: XRO)

Another top option for investors to consider as a buy and hold investment is Xero. It is one of the world’s leading cloud-based business and accounting software providers and, like Afterpay, has delivered impressive growth in recent years.

In May Xero reported its FY 2020 results and revealed further strong growth in sales and operating earnings. This was driven by stellar customer growth, prices increases, and its sky high retention rate. I believe the latter demonstrates both the quality and stickiness of its platform. Another positive is its modest market share in North America. At the end of the financial year, Xero had just 241,000 subscribers in the key market. This compares to 914,000 subscribers in a materially smaller ANZ market. I feel this gives it a very long runway for growth.

More reading

• Why Afterpay, Challenger, IVE Group, & Mesoblast shares are dropping lower
• 3 tips for beginners investing in ASX shares
• If you invested $10,000 in Afterpay shares last year, you’d have this much today…
• 4 ASX shares I’m expecting big things from this reporting season
• Why the Afterpay share price is yet to be impacted by Tencent’s US troubles

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 Xero. 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 Mesoblast limited (ASX: MSB) share price has been the worst performer on the S&P/ASX 200 Index (ASX: XJO) by some distance on Tuesday.

In afternoon trade the biotechnology company’s shares are down 26% to $3.62.

At one stage, the Mesoblast share price was down as much as 29% to $3.46.

Why is the Mesoblast share price crashing lower?

Investors have been hitting the sell button in a panic on Tuesday after the U.S. Food and Drug Administration (FDA) released a briefing document ahead of Mesoblast’s meeting with the Oncologic Drugs Advisory Committee (ODAC) on Thursday evening.

This meeting is in relation to its remestemcel-L product candidate as a treatment for paediatric steroid-resistance acute graft versus host disease (paediatric SR-aGvHD).

The ODAC is a key player in the regulation of cancer drugs and plays a big role in whether a drug gets approval or not.

Unfortunately for Mesoblast, the FDA’s briefing document appears to have cast doubts on whether or not it will receive approval from the regulator.

What did the briefing document say?

According to the briefing, the FDA has concerns about the clinical performance of the drug product (DP).

It stated: “[The] FDA’s position is that the product attributes the Applicant has identified as related to potency and activity, however, do not have a demonstrated relationship to the clinical performance of specific DP lots, and that the product’s proposed immunomodulatory mechanism of action has not been demonstrated in vivo in study subjects receiving remestemcel-L.”

“Without a demonstrated relationship with clinical effectiveness and/or in vivo potency/activity, controlling these CQAs [critical quality attributes] may not be sufficient to ensure the manufacturing process consistently produces remestemcel-L lots of acceptable quality,” it added.

Before adding: “We ask the committee to consider the product attributes identified by the Applicant as CQAs and discuss whether they are adequate to ensure that the manufacturing process will continue to produce lots of consistent quality.”

The FDA also wants the committee to “discuss other product characteristics not previously identified as CQAs for remestemcel-L that might provide more meaningful measures of product quality and potency and therefore provide better assurance of product quality from lot-to-lot.”

Mesoblast is due to meet with the committee overnight on Thursday, which may mean an update is available Friday morning in Australia. Shareholders will no doubt be waiting nervously until then.

More reading

• ASX 200 up 1%: Challenger disappoints, Sydney Airport to raise $2bn, a2 Milk names new CEO
• Why Afterpay, Challenger, IVE Group, & Mesoblast shares are dropping lower
• Up 377% since March: Is the Mesoblast share price a buy?
• Why Kogan and these ASX shares just hit new record highs
• ASX 200 jumps 1.2%: Big four banks rise, Qantas update, Mesoblast surges

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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Much has been made of gold’s recent record price rise. And fair enough, too. It’s not every day that the price of an asset reaches a new all-time high. And when that asset has thousands of years of history as an investment (predating every share market on the planet), it’s an even more remarkable event.

Piles of gold

Yes, late last month, gold finally broke its 2011 high of US$1,921 an ounce. Today, it is well over US$2,000 an ounce. That means in 2020 so far, gold is up around 33%.

This has (predictably) caused a lot of excitement. When an asset experiences a climb like that, it gets the ‘investor on the street’ very interested.

And when buying into the gold market is as simple as buying units in an exchange-traded fund (ETF), it can result in a positive feedback loop that can cause a ‘temporarily exponential’ rise in prices. I do think we have seen this to some extent in gold prices this year so far.

Normally, I would caution against anyone jumping on a bandwagon like this. It does have some hallmarks of being an asset bubble in the making. After all, anyone who tried to buy into gold when the last record high was hit in 2011 has had 9 long years of waiting before seeing gold back at those prices.

But, after considering what an expert on the matter has to say, I am prepared to make that fatalist statement: ‘perhaps this time is different’.

Views of a gold expert

The expert of whom I speak is Ray Dalio. Dalio is one of the most successful investors in history, having built his firm Bridgewater Associates into the largest hedge fund manager in the world, with more than US$130 billion in funds under management.

Dalio has long been something of a gold bug, but he has doubled down on his bullish views on gold since the coronavirus pandemic began. Why? Well, according to reporting in the Australian Financial Review (AFR) last month, Dalio believes that we are witnessing markets that are “no longer free” due to the unprecedented intervention of central banks around the world, particularly the US Federal Reserve.

“Today the economy and the markets are driven by the central banks and the co-ordination with the central government,” the AFR quotes Dalio as stating. “As a result, capital markets are not free markets allocating resources in traditional ways.”

Governments around the world are now running massive deficits as a result. And this is what has Dalio worried: “You’re going to see central bank balance sheets explode, they have to because the choice is the sinking ship”.

As a result of this, governments are likely to be issuing more and more bonds to fund these deficits. And with interest rates already at record lows around the world, Dalio reckons there are only so many bonds paying effectively nothing that investors will buy. And if they stop buying, that’s not good news for those who already hold bonds.

The solution?

Gold, of course. Dalio thinks the choice between gold (an unprintable, physical asset) and a government bond paying no real interest is a non-starter.

As such, Dalio sees gold as an asset well-placed to navigate this Brave New World. So if you think it’s too late to buy gold, I would take Dalio’s advice and reconsider your objections. I still think ASX shares are the best vehicle for long-term wealth creation. But a bit of insurance in your portfolio never hurts either, in my view. Especially in these unprecedented times.

More reading

• Why this reporting season is different, and now’s a great time for ‘buy to hold’ investors in ASX shares
• The Silver Mines share price is up, so is now a good time to buy?
• Why I would buy and hold Afterpay and Xero shares
• Mesoblast share price crashes 29% lower on FDA doubts
• ASX stock of the day: Moneyme share price surges 36% as lender enters buy now, pay later space

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The Moneyme Ltd (ASX: MME) share price leapt more than 36% this morning after the lender announced the launch of a buy now, pay later (BNPL) solution. The company has launched MoneyMe+, a point of sale payment solution that allows merchants to offer customers a shop now, pay later option up to $50,000. During intraday trade, the Moneyme share price reached as high as $1.47 before being sold down to its current price of $1.27.

What does Moneyme do? 

Moneyme is an online lender offering personal loans of up to $50,000. Founded in 2013, it recently surpassed the $500 million in loans milestone. Loans are originated through a risk-based lending platform to tech savvy customers seeking fast and convenient access to credit from mobile devices. Moneyme has made more than 240,000 originations to customers since inception. Loan volumes have accelerated recently, with FY20 accounting for 35% of all lending since inception. 

How has the Moneyme share price been performing? 

Moneyme outperformed prospectus revenue and loan origination forecasts in FY20. Revenue was up 50% year on year to $48 million, beating prospectus forecast revenue of $45.8 million. Loan originations were up by 52% to $178 million, beating the prospectus forecast of $168.2 million. The Moneyme share price has reflected this success, and is currently up 140% from its March low. Nonetheless, the Moneyme share price remains 33.2% down from its high for the year. 

About the Moneyme BNPL venture

Moneyme has positioned its MoneyMe+ product to compete alongside the thriving BNPL distribution channels. The online lender is pivoting its offering to take advantage of consumer demand for instalment-based, merchant funded, interest-free payment solutions. The product roll out is being led by an experienced team of ex-Zip Co Ltd (ASX: Z1P) sales professionals, with 55 merchant partnerships in place. 

MoneyMe+ is launching in the solar, healthcare, cosmetics, home improvements, education, automotive, trades services and other sectors. It provides finance of $1000 to $50,000 and interest-free repayment terms from 6 to 48 months with fast online approval at checkout. As at 30 June 2020, MoneyMe+ had a gross loan book of $6 million. 

What’s next for the Moneyme share price? 

Moneyme is expanding its offering beyond the online lending space with the launch of new products. In May, the lender launched its Rent Ready product aimed at landlords. The product is designed to support landlords with capital and operational spend requirements, providing a line of credit up to $15,000 with repayment over 24 months. The company is also planning to establish a new funding facility to support asset growth and lower funding costs. The new facility is expected to be executed in 1Q FY21. The initiatives will see Moneyme expand its potential customer base and improve margins, assisting profitability. 

More reading

• 4 ASX shares I’m expecting big things from this reporting season
• These are the 10 most shorted shares on the ASX
• Are you a growth investor? Then take a look at these exciting ASX shares
• Why these ASX tech shares are skyrocketing
• Afterpay and Qantas were among the most traded shares on the ASX last week

Kate O’Brien 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 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 Sheffield Resources Ltd (ASX: SFX) share price jumped to a seven-month high on the back of what management described as a “transformational” deal.

The SFX share price surged 51% to $0.32 in late morning trade after it signed a non-binding term sheet with a subsidiary of YGH Australia Investment Pty Ltd (“Yansteel”).

The agreement will see Yansteel pay $130.1 million to Sheffield for a 50% stake in the ASX miner’s Thunderbird mineral sands project.

Sheffield share price boosted by capital raising premium

If this agreement is finalised, it will represent a triple win for the Western Australian explorer. Not only will it have a large joint-venture partner to de-risk the project, Yansteel will also buy a 9.9% stake in Sheffield via a placement.

While most capital raisings are priced at a discount to the stocks’ current share price, this isn’t the case for Sheffield.

Yansteel is paying $0.376 a new share, which is a 131% premium to Sheffield’s 10-day volume weighted average price (VWAP). The placement will inject an extra $12.9 million into Sheffield.

Offtake agreement to underpin Thunderbird

Further, the Chinese steel group will sign a “take of pay” offtake agreement to buy all of the ilmenite produced in stage one of the project.

Yansteel will pay market prices for the mineral and will have first right of refusal to buy the commodity produced in subsequent stages of the project development.

There are a few more hoops that both parties will have to jump through to consummate the deal. They need to work out the final details for the JV partnership and the Foreign Investment Review Board (FIRB) will have to give its blessing too.

Thunderbird finally taking flight

“The Joint Venture with Yansteel, if completed, will provide the project equity presently estimated to fund Stage 1 of the Thunderbird Project,” said Sheffield’s chief executive Bruce McFadzean.

“To attract such a strong partner is testimony to the quality of the Thunderbird Mineral Sands Project.   

“This outcome achieves all of the objectives of the strategic partner process undertaken by Sheffield over the past 18 months and, if completed, will provide the means by which Sheffield shareholders can realise the underlying value of the Project.”

Who is Yansteel

Yansteel is a wholly-owned subsidiary of Tangshan Yanshan Iron & Steel Co., Ltd (“Tangshan”). Tangshan is a privately-owned steel manufacturer, which produces around 10 million tonnes a year of steel products and has annual revenues of circa $6 billion.

The JV agreement will underpin the Chinese partner’s entry into titanium dioxide production. Tangshan commenced construction on a 500,000 tonnes per year processing facility that will consume the ilmenite offtake from stage one of the Thunderbird project.

More reading

• Why this reporting season is different, and now’s a great time for ‘buy to hold’ investors in ASX shares
• The Silver Mines share price is up, so is now a good time to buy?
• Why I would buy and hold Afterpay and Xero shares
• Mesoblast share price crashes 29% lower on FDA doubts
• This expert says you should have gold in your portfolio. Here’s why.

Motley Fool contributor Brendon Lau 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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On Monday I looked at three ASX shares that brokers have given buy ratings to this week.

Unfortunately, not all shares are in favour with them right now. Three that have just been given sell ratings are listed below.

Here’s why these brokers are bearish on these ASX shares:

GPT Group (ASX: GPT)

According to a note out of Morgan Stanley, its analysts have retained their underweight rating and cut the price target on this property company’s shares to $4.00. This follows the release of a softer than expected first half result on Monday. In addition to this, the broker notes that GPT doesn’t expect to recover the majority of its uncollected rent. The GPT share price is currently trading below this price target at $3.92.

Medibank Private Ltd (ASX: MPL)

A note out of Goldman Sachs reveals that its analysts have retained their sell rating and $2.83 price target on this private health insurer’s shares. This follows the release of an update from rival BUPA. It notes that BUPA’s ANZ business delivered a 4% increase in first half revenue but a 35% decline in underlying profit. BUPA also advised that it faces challenges in its Australian Health Insurance business. This is particularly the case with affordability issues. Goldman appears to see this as a sign that Medibank will continue to underperform. The Medibank share price is changing hands for $2.85.

Sonic Healthcare Limited (ASX: SHL)

Analysts at UBS have retained their sell rating and $28.00 price target on this global medical diagnostics company’s shares. According to the note, the broker expects Sonic to deliver a 10% increase in revenue but a 7% decline in earnings in FY 2020. In light of this, it believes its shares are overvalued at the current level and retains its sell rating. The Sonic share price is trading at $33.96 this afternoon.

More reading

• Has the CSL share price lost its ASX 200 market darling status?
• 3 dirt cheap ASX real estate shares
• The ASX stocks that could enjoy a consensus earnings upgrade this reporting season
• ASX 200 jumps 1.2%: Big four banks rise, Qantas update, Mesoblast surges
• Results: GPT share price on watch as net profit falls 247%

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Sonic Healthcare 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 Telstra Corporation Ltd (ASX: TLS) share price is going to be on watch this reporting season.

The telco is an interesting one. Its report is highly anticipated with everything that’s going on with COVID-19 at the moment.

There are some ASX blue chips that are likely to reveal a substantial profit hit because of COVID-19 like Commonwealth Bank of Australia (ASX: CBA). Whereas others like Wesfarmers Ltd (ASX: WES) seem to have had a strong year. Where will Telstra fall on this scale?

Telstra’s FY20 guidance

Before COVID-19, the company was expecting underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to be in the range of $7.4 billion to $7.9 billion.

In Telstra’s guidance update during the early part of COVID-19, it said it’s expecting both free cash flow and underlying EBITDA to be at the bottom end of its guidance. It’s also expecting its underlying EBITDA (excluding the in year NBN headwind) to be at the bottom end of its growth range of $0 to $500 million.

Whilst a reduction of profit expectations is not good news, I think that underlying profit being flat would be a good result considering all of the difficulties that Telstra has suffered this year.

Despite the profit difficulties, Telstra is expecting its capital expenditure to be at the top end of its guidance. The company is investing heavily in its new 5G network which will support the next generation of devices which will have very fast operating capabilities.

Where is the profit growth going to come from?

I think the only way for a business to deliver a sustainable increase in valuation is to increase the profit. The Telstra share price hasn’t done much over the past three years. 

In the FY20 half-year result it reported good growth in customer numbers, particularly with the mobile division. During the half year it added 137,000 retail postpaid mobile services (including 91,000 customers from Belong) 135,000 retail prepaid mobile services and 173,000 pre and postpaid and IoT wholesale services.

Adding new customers is essential for Telstra to maintain (let alone grow) its profit. The NBN is hurting Telstra’s profit due to the lower profit margin for each customer. Telstra used to own the cable infrastructure and earn a higher return.

5G services will hopefully add a lot more devices for Telstra’s network. Services like automated cars, wearables and so on will need a data connection to operate efficiently.

5G will need to be successful at attracting new customers if Telstra’s share price and earnings are going to rise from here. More 5G-capable devices are regularly being released by suppliers like Samsung and Apple, which will add to Telstra’s revenue base.  

I think 5G could be a turning point for Telstra’s home internet customers too. 5G may be so fast that customers made decide to switch from the NBN to 5G-enabled wireless internet. That wouldn’t be so good for the NBN’s earnings, but Telstra could benefit if its speeds and capacity are up to the challenge.

What about the Telstra dividend?

There has been a clear decline of the Telstra annual dividend over the past few years. It’s now paying an annual dividend of 16 cents per share, which includes the special dividends relating to the NBN payouts.

At the current Telstra share price it offers a grossed-up dividend yield of 6.75%. That’s not bad in this era of low interest rates. But I think income investors can do better than Telstra shares – either with better income growth or a higher starting yield. I don’t think the Telstra dividend is going to change over the next couple of years. For that reason I’d rather buy something like Future Generation Investment Company Ltd (ASX: FGX) or Vitalharvest Freehold Trust (ASX: VTH).

More reading

• These were last week’s best performing ASX shares
• ASX 200 Weekly Wrap: Surging commodity prices snap ASX 200’s losing streak
• 2 ASX dividend shares with generous yields to buy today
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Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN FPO. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of Wesfarmers 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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If you are looking to expand your ASX share portfolio, here are 3 good options for you to take a look at.

Here’s why Ramsay Health Care Limited (ASX: RHC), Nanosonics Ltd. (ASX: NAN) and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) are all in my buy zone right now.

3 five-star ASX shares to buy this month

Ramsay

Ramsay has grown over the past few decades to become Australia largest private healthcare provider. The healthcare operator also now has a presence in 11 countries around the globe, including the United Kingdom, France and Italy.

The Ramsay share price took a significant hit during the early phase of the coronavirus pandemic. A ban on non-essential surgery, especially during February and March, was a significant reason for this. Since then its share price has only made a partial recovery.

While there could be further restrictions in some operating markets in the months ahead, eventually the pandemic will pass. I believe that Ramsay will be well positioned for long-term growth, driven by the growing global demand for quality hospital services over the next decade.

Nanosonics

Nanosonics is a niche healthcare product supplier. It manufactures and distributes a market-leading disinfection system for ultrasound probes. Over the past few years it has witnessed strong growth across Asia, Europe and the Middle East. Despite a dip in the early phase of the pandemic, Nanosonics has been a very strong ASX share price performer since beginning of 2019.

The company’s recent financial performance has been strong. Total revenue for the first half of FY20 was 19% up on the prior period to $48.5 million.

There is now an even stronger growing global trend towards stricter disinfection control in light of the coronavirus pandemic. I think this could help to push the Nanosonics share price even higher in the years ahead.

Soul Patts

Soul Patts has been a consistent performer on the ASX for over a decade now. Due to a strong level of market diversification, it is more resilient to economic downturns than many other ASX 200 shares.

The Soul Patts share price has lost a bit of ground since the beginning of the coronavirus pandemic. However, looking back over the past 10 years, the Soul Patts share price has risen strongly by 59%. I believe that Soul Patts is well placed to tap into its investments across a broad range of industries in the coming decade. These include pharmacies, telecommunications and mining.

Foolish takeaway

Ramsay, Nanosonics and Soul Patts are all high quality ASX shares that I believe have above-average growth prospects over the next 5 years.

More reading

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• These ASX healthcare shares could be fantastic long term options
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Phil Harpur owns shares of Nanosonics Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Nanosonics Limited. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Nanosonics Limited and Ramsay Health Care 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.

The post 3 quality ASX shares to buy in August appeared first on Motley Fool Australia.

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