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Owners of Commonwealth Bank of Australia (ASX: CBA) shares may want to consider how the banking landscape may be affected by Australia and New Zealand Banking Group Ltd (ASX: ANZ)’s plan to buy the banking division of Suncorp Group Ltd (ASX: SUN).

For readers that didn’t see it, ANZ is proposing to pay $4.9 billion for Suncorp’s banking operations so that it can become larger and gain more exposure to the Queensland economy.

It’s raised some questions about what this may mean for competition in the banking sector. But ANZ  thinks the deal could strengthen competition because it will be better placed to challenge other large players more effectively. So is this bad news for CBA shares?

What ANZ said

The ANZ CEO Shayne Elliot said with the announcement:

We know there will rightly be questions from government and regulators about the competition aspects of this transaction. As the smallest of the major banks, we believe a stronger ANZ will be able to compete more effectively in Queensland offering better outcomes for customers.

The Australian Financial Review reported that Elliot said:

This is a big step forward, but I don’t think moving from 13% to 15% market share somehow gives us some dominant position or some pricing power that we didn’t have before.

It’s a modest uplift, and we get to be a better competitor, with the really big players in the market who are people like CBA. Just as Suncorp probably feels dwarfed by ANZ, we feel dwarfed by CBA.

Despite the huge addition of $47 billion of home loans and $11 billion of commercial loans, it would still leave ANZ as the fourth largest business lender. However, it would rise above NAB to become the third largest bank in terms of mortgages and retail deposits. Yet it will still be comfortably below CBA’s share of the market.

ANZ is particularly attracted to the customers that will be coming with the deal.

Competition can hurt margins

Prior to the Reserve Bank of Australia (RBA) increasing interest rates, CBA was warning that price competition was hurting its net interest income.

For example, in the FY22 third quarter update, net interest income was 2% lower due to a lower net interest margin (NIM). It was influenced by “home loan margin compression from higher swap rates, portfolio mix effects and price competition.”

Other banks have also been complaining of the effects of competition on their margins.

The RBA’s rate hikes are expected to help bank profit margins. CBA has been passing on the full rate rises to borrowers, so competition doesn’t seem to have been much of a factor there.

Where is the CBA share price headed next?

Brokers are mixed on what could happen for CBA.

UBS is ‘neutral’ on the biggest bank, with a price target of $105. That implies a possible rise of around 10% over the next year.

But Morgan Stanley has an ‘underweight’ rating on the bank, which is much like a ‘sell’. The price target is $79, implying a drop of around 16%. It’s concerned about the bank’s higher bad debts.

The post Should owners of CBA shares be worried about ANZ’s mega deal? appeared first on The Motley Fool Australia.

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More reading

• Why Allegiance Coal, Hub24, Suncorp, and WiseTech shares are dropping
• How to beat the market with ‘boring’ ASX shares: fundie
• 5 things to watch on the ASX 200 on Tuesday
• ‘Not bricks and mortar’: The real value in ANZ acquiring Suncorp’s banking operations
• Here are the top 10 ASX shares today

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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One ASX financial company is soaring ahead today following the release of its initial FY22 results.

The Harmoney Corp Ltd (ASX: HMY) share price is currently surging 20.29% higher, trading at 83 cents a share. In comparison, the S&P/ASX 200 Index (ASX: XJO) is down 0.58% at the time of writing.

Let’s take a look at what the company reported today.

What did this ASX financial company report?

Highlights of Harmoney’s FY22 preliminary unaudited results include:

• Delivered proforma cash net profit after tax (NPAT) profitability in FY22
• Total group proforma loan book jumped 37% on previous corresponding period (pcp) to $685 million
• Australian loan book soared 113% to $287 million pcp
• New Zealand loan book jumped 3%

What else did Harmoney reveal?

Harmoney is an online personal lender targeting the Australian and New Zealand markets.

A huge growth in customers appears to be underpinning the company’s projected profit growth.

The company says its platform is gaining more than 12,000 new customer accounts per month. Of these, 8,000 are providing bank statement information.

It said it passed on a weighted average interest rise of greater than 100 basis points on new lending, in response to rising interest rates.

Commenting on the results, Harmoney CEO and managing director David Stevens said:

Harmoney continues to deliver on its high margin, consumer-direct growth strategy, with its Australian loan book growing by 113%, whilst achieving an enviable net interest margin of 12%, Net lending margin (after losses) of 8.4% and delivering proforma cash NPAT profitability.

Our credit performance has remained strong with losses and arrears at historic lows.

What is ahead?

Looking ahead, Harmoney is expecting Australian loan book numbers to be higher than New Zealand by the first half of FY23.

The company is expecting higher account acquisition, new loans, and net lending margin increases to drive cash NPAT growth in FY23.

Commenting on potential central bank rate rises, Stevens added:

With the second half of the year and the likelihood of increasing central bank rates putting upward pressure on funding costs, Harmoney’s hedging program, with around 73% of floating rate borrowings hedged, dampens this impact over the course of the year.

Shareholders will be updated with the company’s official FY22 results on 31 August.

Share price snapshot

Harmoney shares have jumped 10% in the past week and around 3% in the past month.

However, this ASX financial company’s shares have lost 63% in the past year, and 54% year to date.

For perspective, the benchmark ASX 200 index has lost nearly 9% in the past year.

Harmoney has a market capitalisation of about $83 million based on the current share price.

The post This ASX financial company just became profitable, and its share price is surging 20% appeared first on The Motley Fool Australia.

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More reading

• How to successfully invest using only ASX ETFs: expert
• Why Allegiance Coal, Hub24, Suncorp, and WiseTech shares are dropping
• Could ASX earnings season be ‘a lot better than what the market is positioned for’?
• Why are Pendal shares in a trading halt?
• These ASX 200 coal shares are smashing 10-year highs on Tuesday

Motley Fool contributor Monica O’Shea has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Exchange-traded funds (ETFs) are increasingly popular as a method of investing in shares and other assets on the ASX. The rise of the ETF over the past decade or two has been a well-documented trend, including here on the Fool.

But there are so many ETFs out there these days, covering almost anything one can think of, that it can be difficult to know which ones are the best to have one’s money in.

Between index funds, commodity funds and sector-specific ETFs, it can quickly become overwhelming to sift through the cornucopia of ETFs available on the ASX.

So today, let’s look at just five ETFs that one exchange-traded fund expert reckons are all you need to successfully invest.

Expert names the only five ASX ETFs you need

When it comes to ASX ETFs, one of the leading experts on the matter is Chris Brycki. Brycki is the founder and CEO of investment company Stockspot. Stockspot builds an investment portfolio for its clients using only ETFs. He recently sat down with Livewire for an interview.

Brycki starts off by naming the five ETFs that he likes to use to build his investors’ portfolios.

The first is none other than the Vanguard Australian Shares Index ETF (ASX: VAS). VAS is the most popular ETF on the ASX by funds under management. It is also the only ASX index ETF that tracks the S&P/ASX 300 Index (ASX: XKO), rather than the more popular S&P/ASX 200 Index (ASX: XJO).

This is one of the reasons why Brycki likes this ETF for exposure to Australian shares, also pointing to its low fees, greater liquidity and long-term returns.

But when it comes to international shares, Brycki is happier to go against popular opinion. Currently, the two most popular ASX-listed international shares ETFs are the iShares S&P 500 ETF (ASX: IVV), and the Vanguard MSCI International Shares Index ETF (ASX: VGS). But neither of these funds are Brycki’s preferred avenue to international shares.

Instead, Stockspot favours the iShares Global 100 ETF (ASX: IOO). This fund holds only 100 of the world’s largest companies. These hail from the US, as well as Europe, Japan, Korea and the United Kingdom. Stockspot uses IOO for its liquidity and longer-listed track record. Not to mention its habit of outperforming its rivals.

Diversifying with exchange-traded funds…

For access to emerging markets, the iShares MSCI Emerging Markets ETF (ASX: IEM) is Stockspot’s fund of choice. This ETF holds more than 800 companies from emerging countries like China, India and Taiwan. IEM is also preferred by Stockspot for both its liquidity and long pattern of generating returns. That’s despite some of its rivals offering lower fees.

Turning to assets outside the sharemarket now, and we have Brycki’s preference for accessing fixed interest bond investments. The iShares Core Composite Bond ETF (ASX: IAF) holds bonds issued by Australian governments. As well as some investment-grade corporate bonds.

Stockspot chooses this bond for fixed-interest asset exposure for “its size, liquidity, track record, high credit quality and relatively short duration”. Not to mention its lower fees compared to its rivals.

Stockspot’s final ETF covers a different asset class again. And this time, it’s gold. For this precious metal, Brycki’s choice is the ETFS Physical Gold ETF (ASX: GOLD).

This ETF is backed by physical gold bullion, stored in a vault in London. Stockspot also likes the fact that it is unhedged. This means investors can benefit from a falling Australian dollar. Stockspot also appreciates GOLD’s size, as well as the fact that it has the tightest spreads in buying and selling units.

The post How to successfully invest using only ASX ETFs: expert appeared first on The Motley Fool Australia.

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More reading

• The Vanguard Australian Shares Index ETF hit an all-time high in FY22 … and finished down more than 10%
• How did the Vanguard Australian Shares Index ETF perform in June?
• Down 15% in 2022, is it time to jump on Vanguard Australian Shares Index ETF?

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Vanguard MSCI Index International Shares ETF. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF and iShares Trust – iShares Core S&P 500 ETF. 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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In afternoon trade, the S&P/ASX 200 Index (ASX: XJO) is on course to record a disappointing decline. At the time of writing, the benchmark index is down 0.6% to 6,649 points.

Four ASX shares that are falling more than most today are listed below. Here’s why they are dropping:

Allegiance Coal Ltd (ASX: AHQ)

The Allegiance Coal share price is down a massive 66% to 18.5 cents. Investors have been selling this coal miner’s shares following the release of a very disappointing update. Allegiance Coal has been unable to successfully ramp up production to previous expectations at its two operating mines. This has left it in a precarious position financially. In order to keep the lights on, the company has established a $5 million equity facility.

Hub24 Ltd (ASX: HUB)

The Hub24 share price is down 7% to $22.13. The catalyst for this was the release of the investment platform provider’s fourth quarter update. Although that update revealed that Hub24 achieved a record annual increase in platform inflows of $11.7 billion in FY 2022, its soft finish to the year appears to have spooked investors. Hub24 revealed that it finished the period with funds under administration (FUA) of $65.6 billion. This was an increase of 11.8% year on year, but down 4% quarter on quarter.

Suncorp Group Ltd (ASX: SUN)

The Suncorp share price is down over 4% to $11.27. This morning the team at Ord Minnett downgraded this insurance giant’s shares to a hold rating and cut the price target on them to $13.25. It isn’t a fan of the company’s decision to sell its banking operations.

WiseTech Global Ltd (ASX: WTC)

The WiseTech share price is down over 5% to $44.80. As well as being hit by weakness in the tech sector, the logistics solutions software company’s shares were dealt a blow from Macquarie this morning. The broker has downgraded them to an underperform rating with a $42.00 price target. The broker suspects that the company’s margins may be peaking, which it fears could weigh on its valuation.

The post Why Allegiance Coal, Hub24, Suncorp, and WiseTech shares are dropping appeared first on The Motley Fool Australia.

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More reading

• Why did ASX coal share Allegiance just plunge 65%?
• ASX 200 midday update: BHP’s Q4 update, JB Hi-Fi delivers record result
• Hub24 share price sinks 7% despite record year
• ‘Not bricks and mortar’: The real value in ANZ acquiring Suncorp’s banking operations
• Here are the top 10 ASX shares today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Hub24 Ltd and WiseTech Global. The Motley Fool Australia has positions in and has recommended Hub24 Ltd and WiseTech Global. 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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ASX earnings season is almost upon us.

Investors have been inundated with macro news surrounding global and national inflation levels and rising interest rates over the past months. Now we’re about to drill into the company specifics.

Commencing in August, we can expect the majority of the 2,000-plus ASX listed companies to report their full-year results, and we’re likely to see some volatility on some of those results.

In the first-half results reported six months ago, more companies beat earnings expectations than fell short of them.

But with rising labour and energy costs, supply chain snarls, and the above-mentioned rate hikes, there are some bearish speculations circling that this time around the number of companies falling short of guidance could be significantly higher.

James Gerrish, author of Market Matters, isn’t among those bears. Speaking to Livewire, Gerrish said he believes “earnings season will be a lot better than what the market is positioned for”.

Uncertainty ahead of ASX earnings season

Gerrish said there’s a lot of uncertainty about what to expect from ASX shares when they report their earnings in a few weeks’ time.

“The forecasting on one side is difficult, so we haven’t seen a lot of analyst revisions leading up to it. When uncertainty is high, they tend to sit on their hands,” he said.

However, the market hasn’t been idle, with some big falls for the major indexes.

“We’re probably priced for a recession,” Gerrish said. “To me, I think that earnings season will be a lot better than what the market is positioned for.”

According to Gerrish (quoted by Livewire):

I think there will be some big moves at the stock level. It’s going to be the nuances on how companies are managing the uncertainty that really counts. I think we’ll go into a period of earnings downgrade and re-rates to the downside. That’s why we’ve seen an artificially depressed valuation in the market. But that’ll change. You’ll see a transition back to more normal multiples.

Look for companies walking the talk

It’s easy for companies to say they’re handling the uncertainties. But Gerrish advises looking beyond the companies, saying that’s what they’re doing to those actually walking the talk.

“It’s the nuances in the statement, and the quality of the balance sheets,” he said. “Not just throw away lines about managing uncertainty, but proper things they are doing to handle supply chains, lock in supplies at costs, manage wage pressures … real actions rather than hollow rhetoric.”

Gerrish said investors might want to investigate ASX shares that have already been beaten down on expectations of increasing costs or decreasing earnings.

“You think about property, for one. There’s a lot of Armageddons built into property stocks, in my view. You’ve got the upside potential for distributions,” he said.

Gerrish named Dexus (ASX: DXS) and Stockland Corp Ltd (ASX: SGP) as property shares that could outperform.

He also tipped big-name retail shares Metcash Ltd (ASX: MTS) Wesfarmers Ltd (ASX: WES) as companies that will provide earnings certainty and some forward guidance.

However, income investors expecting another record half of payouts from the big miners could be disappointed.

“Earnings are high so dividend expectations are high. I think there could be some disappointment on the dividends announced by resources, energy companies, and the like,” Gerrish said.

The post Could ASX earnings season be ‘a lot better than what the market is positioned for’? appeared first on The Motley Fool Australia.

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More reading

• ASX 200 retail shares rise as consumer confidence improves
• Brokers: Buy these 2 leading ASX 200 shares in July
• AMP share price in focus as Mirvac wins control of $7.7 billion office fund
• What I love about these 2 ASX dividend shares
• ‘High quality’: Why Wesfarmers shares are a buy in this broker’s books

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Wesfarmers Limited. 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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Shares of Pendal Group Ltd (ASX: PDL) are in a trading halt on Tuesday.

Whilst the company opened the session, trading of its stock was paused due to a company-requested trading halt just before midday.

Before the halt, investors had bid Pendal shares more than 4% higher to $4.29 apiece.

Why are Pendal shares on ice?

The company made the request amid ASX Listing Rule 17.1, asking for an immediate one-day halt from 19 July.

Pendal says this is due to a pending announcement on a potential transaction. It said:

[T]he trading halt is requested for the purpose of issuing an announcement to the market concerning
discussions in relation to a potential control transaction.

PDL expects that the ASX Announcement will be made as soon as possible, and in any event,
prior to the open of trading on 20 July 2022.

The ASX granted the request shortly after and Pendal shares have been on ice ever since.

As such, investors will now wait for the next update.

In the last 12 months, Pendal has sunk more than 46% into the red. It bounced from 52-week lows last week after a year of drawdown.

It now trades well below its pre-pandemic levels, as illustrated below.

The post Why are Pendal shares in a trading halt? appeared first on The Motley Fool Australia.

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More reading

• Why JB Hi-Fi, Mesoblast, Pendal, and Woodside shares are pushing higher
• Here are the top 10 ASX shares today
• Why BHP, Jumbo, Pendal, and Rio Tinto shares are sinking today
• Pendal share price slumps 10% to multi-year low amid continued outflows
• ASX 200 midday update: Rio Tinto’s update, BHP and Fortescue sink, AVZ remains suspended

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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S&P/ASX 200 Index (ASX: XJO) coal shares have been on an upwards trajectory lately, leading these market favourites to peak at near-10-year highs today.

The Whitehaven Coal Ltd (ASX: WHC) share price lifted to its highest point since 2011 today – touching $6.19 in afternoon trade.

Meanwhile, shares in New Hope Corporation Limited (ASX: NHC) surged to trade at $4.52 today – the highest the stock has been since October 2012.

Shares in the coal companies have now gained 123% and 92% respectively year to date. For comparison, the S&P/ASX 200 Energy Index (ASX: XEJ) leapt nearly 24% this year while the ASX 200 has slumped 12%.

Let’s take a look at what’s been behind ASX 200 coal shares’ recent strong performance.

What’s driven these ASX 200 coal shares to 10-year highs?

There’s a reason behind ASX 200 coal producers’ recent brilliant performance. And it’s a simple one.

The price of coal has rocketed in 2022, driven higher by an energy crunch brought about by Russia’s invasion of Ukraine.

Newcastle coal futures are currently trading at US$396.05 a tonne, according to Trading Economics. That’s 133% higher than it was at the end of 2021 and around 9% lower than its record high of US$435 a tonne.

On that note, Whitehaven expects to report “its strongest ever” earnings for financial year 2022.

It’s flagged that its full year earnings before interest, tax, depreciation, and amortisation (EBITDA) could come in at a whopping $3 billion yesterday. That’s up from just $200 million in financial year 2021.

The positive outlook saw the Whitehaven share price lift 5% yesterday while that of New Hope gained nearly 3%.

And growing expectations China could soon welcome back Australian coal exports have also likely bolstered the ASX 200 coal shares.

No doubt all eyes will be on the energy giants when they release their full year earnings later this year.

The post These ASX 200 coal shares are smashing 10-year highs on Tuesday appeared first on The Motley Fool Australia.

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More reading

• Why Ansell, EML, Suncorp, and Whitehaven Coal shares are charging higher
• Could ASX coal shares be set for a boost?
• 11-year high: Whitehaven share price surges 8% on record $3b profit
• ASX 200 midday update: ANZ to buy Suncorp Bank for $5bn, Whitehaven Coal’s update
• Will it flip? Rumours stir up interest in ASX 200 coal mining shares

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Lake Resources NL (ASX: LKE) share price is pushing higher today.

At the time of writing, the lithium share is trading 11% higher at 69.5 cents apiece, bouncing from its 52-week low of 60.5 cents on 14 July.

In broader market moves, the S&P/ASX 300 Metals and Mining Index (ASX: XMM) is rangebound, currently 0.23% lower in early afternoon trading.

Why’s the Lake Resources share price lifting?

Investors have pushed the share higher on no news today. Noteworthy though is the price of lithium carbonate.

It has remained buoyant these past few months at $103,154 per tonne, while other commodity sectors have come down from earlier peaks.

For example, before its recovery today, Brent Crude – the world’s oil benchmark – had been flailing over the past month coming down off multi-year highs in March.

Hence, as a basket, lithium shares have strengthened lately. Nevertheless, they are yet to recover from a large drawdown incurred earlier in the year.

Lake fell from a 52-week high of $2.45 on 5 April. After plateauing around May, the rug was pulled beneath it again amid the June selloff, as illustrated below.

Moreover, the Lake Resources share price is recovering from the effects of a scathing research report from short seller J Capital.

Lake Resources refuted the claims, saying the report “puts forth incorrect information on technical matters and inaccurate assertions on Lake Resources’ progress to date”.

Although Lake issued a response to the report’s claims, the fallout added to the company’s losses in 2022 so far.

The share also was one of the most shorted names on the ASX last week.

As reported by TMF on 15 July, “[a]round 9.6% of its stock was in the hands of short sellers at the last count”.

Over the last year, the Lake Resources share price has held a gain of more than 80%.

The post Why is the Lake Resources share price rallying 11%? appeared first on The Motley Fool Australia.

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More reading

• ASX 200 midday update: BHP’s Q4 update, JB Hi-Fi delivers record result
• These are the 10 most shorted ASX shares
• Why are Lake Resources shares receiving the most attention on Friday?
• Here are the 3 most heavily traded ASX 200 shares on Thursday
• Why Aurizon, Bega Cheese, Flight Centre, and Lake Resources shares are sinking

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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In afternoon trade, the S&P/ASX 200 Index (ASX: XJO) has followed Wall Street’s lead and dropped into the red. At the time of writing, the benchmark index is down 0.5% to 6,653.4 points.

Four ASX shares that are not letting that hold them back are listed below. Here’s why they are pushing higher:

JB Hi-Fi Limited (ASX: JBH)

The JB Hi-Fi share price is up 4% to $42.43. Investors have been buying this retail giant’s shares after it reported a record result in FY 2022. JB Hi-Fi expects to post a 3.5% increase in sales to $9,232 million and a 7.7% increase in net profit after tax to $544.9 million. Both will be records for the retailer and were driven by growth across the business.

Mesoblast limited (ASX: MSB)

The Mesoblast share price is up 7% to 91.5 cents. The catalyst for this was the release of an update on the biotechnology company’s rexlemestrocel-L product candidate. That update revealed promising results from a trial treating patients with class II/III chronic heart failure with reduced ejection fraction.

Pendal Group Ltd (ASX: PDL)

The Pendal share price was up over 4% to $4.29 before being placed into a trading halt. The trading halt request reveals that the fund manager has received another takeover proposal. No other details have been provided. Earlier this year, the company rejected a $6.23 per share offer from Perpetual Limited (ASX: PPT).

Woodside Energy Group Ltd (ASX: WDS)

The Woodside share price is up 3% to $32.28. Investors have been buying Woodside and other energy shares today after oil prices surged higher overnight. Traders were bidding oil prices higher amid concerns over Russia’s gas supply to Europe. The S&P/ASX 200 Energy index is up 2.1% this afternoon.

The post Why JB Hi-Fi, Mesoblast, Pendal, and Woodside shares are pushing higher appeared first on The Motley Fool Australia.

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More reading

• ASX 200 retail shares rise as consumer confidence improves
• Why are ASX 200 energy shares having such a stellar Tuesday?
• How to beat the market with ‘boring’ ASX shares: fundie
• ASX 200 midday update: BHP’s Q4 update, JB Hi-Fi delivers record result
• Why is the Woodside share price leaping today?

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The Allegiance Coal Ltd (ASX: AHQ) share price has cratered on Tuesday.

The move follows the ASX coal miner releasing its quarterly activities and cash flow report and announcing an equity facility and strategic review.

The company’s coal production was “considerably below our target” in the June quarter. The company has also secured a $5 million equity facility to tide it over while it reviews its liquidity requirements.

Allegiance Coal is focused on the development, operation, and supply of steel-making coal to the seaborne market. It has operating mines in the United States and a development project in Canada.

It currently has three mines online called Tenas, Black Warrior, and New Elk.

Allegiance share price crashes 65% on liquidity concerns

The ASX coal share has plummeted by 63.39% to trade at 21 cents at the time of writing.

Here are the key points from its activities report for the three months ending 30 June:

• Coal sales revenue totalled US$32.1M compared to US$14.5M in the prior quarter
• Cash receipts from customers of A$50.5M (approximately A$6.2M were carryover receipts)
• Positive net cash from operating activities of A$13.6M
• Run-of-mine (ROM) coal production totalled 220kt against 148kt for the March quarter. This was up 48% and “continuing the strong upward trend, but still considerably below our target”.

What happened in the June quarter?

Allegiance Coal told ASX investors that “severe labour shortage within BNSF [Railway] and Union Pacific rail systems due to COVID lay-offs” had caused problems at New Elk.

This includes “a build-up of coal inventory at New Elk’s rail load-out and mine stockpiles and, more critically, a delay in getting coal to port for sale”.

In its statement, the ASX coal miner said:

New Elk is due to receive a second rail set end of this month which will double capacity to move coal to port notwithstanding an increase in train cycle times. Ongoing delays at McDuffie Coal Terminal caused a New Elk 80kt vessel scheduled to load on 25 June to be delayed with loading now scheduled in July.

The impact of strong commodity prices

Allegiance reported average coal sales prices of US$258/t in the June quarter against US$261/t in the March quarter.

The prices ranged from US$360/t for high-vol A to US$222/t for a trial cargo of high-vol B product.

The price for premium low-vol hard coking coal continued its recent downward trend but remained historically high.

Allegiance said thermal coal prices “look extremely strong”. This is due to the European ban on Russian coal purchases, and the threat of imported Russian gas disruptions.

Allegiance said this meant ” excellent opportunities for high energy low sulphur coals sales into Europe”.

The company said weakening demand for steel in Asia and Europe amid recession fears had resulted in coking coal prices falling “quite dramatically” in the June quarter, with thermal coal prices now outperforming coking coal.

“We have already taken advantage of the strong prices for thermal coal contracting two small cargoes for delivery in H1 FY 23 into Europe and are assessing medium-term opportunities in this market”.

What did management say?

Allegiance Coal CEO Jon Romcke said:

The results for the June quarter demonstrate the impact of strong coal prices coupled with improvement in the production capability of both the Black Warrior and New Elk mines where the quarterly ROM production figures were the best on record since Allegiance commenced operations.

Unfortunately, the ability of the mine to port logistics chain to keep pace with production has affected the timeliness of cashflow receipts for the Company from sales and inventory finance arrangements.

We are working to address the logistics constraints and improve the working capital position at Allegiance.

What’s next for Allegiance coal?

Allegiance Coal has entered into a A$5 million equity facility with Regal Funds Management. It has already drawn down $3 million. In exchange, the fund will be issued with shares at a discount.

Allegiance Coal explained why it had decided to obtain the equity facility:

The Company has been unable to successfully ramp up production to previous expectations at its two
operating mines. In addition, the Company has been unable to secure medium term equipment financing at both Black Warrior and New Elk, which has driven lower than expected performance.

In light of the lack of available financing, the Company is considering different capital initiatives to fund equipment acquisition and upgrades at both mines.

Legacy coal sales contracts at New Elk, coupled with production constraints, staffing issues and poor logistics performance in transporting coal to port, have meant that the mine is running at an operating cash flow loss which has significantly constrained cash flows.

It is currently unclear if Black Warrior or New Elk have the capability to meet, within a material margin,
previously advised target production rates.

Allegiance expects to complete the strategic review before the end of August.

The value of the ASX coal miner’s shares is down 71% over the past 12 months. This compares with a 9% loss for the S&P/ASX All Ordinaries Index (ASX: XAO).

The post Why did ASX coal share Allegiance just plunge 65%? appeared first on The Motley Fool Australia.

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More reading

• Why JB Hi-Fi, Mesoblast, Pendal, and Woodside shares are pushing higher
• Why has the Piedmont Lithium share price tumbled 30% in a month?
• Why is the Santos share price on such a tear today?
• What’s the outlook for the iron ore price in 2023?
• ASX 200 retail shares rise as consumer confidence improves

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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