Tag: Motley Fool

If you’re looking to make some new additions to your portfolio in July, then look no further. The team at Morgans have picked out a number of ASX shares that they class as their best ideas.

Below are three ASX shares that the broker rates highly this month. They are as follows:

Aristocrat Leisure Limited (ASX: ALL)

The first ASX share that Morgans rates among its best ideas this month is Aristocrat. It is a leading gaming technology company with a portfolio of popular poker machines and mobile games. Morgans is very positive on the company’s outlook due to this portfolio, its strong balance sheet, and its plans to move into real money gaming.

The broker explained:

We expect ALL to continue to take market share in all its product segments. Demand for its gaming machines and digital games is resilient to economic cycles. […] With $3.3bn of currently available liquidity, ALL has significant funding capacity for growth, even after the buyback. It has a stated ambition to build a meaningful presence in the rapidly growing online real money gaming segment, which we believe may be achieved both through organic investment and inorganic acquisitions.

Morgans has an add rating and $43.00 price target on Aristocrat’s shares.

Treasury Wine Estates Ltd (ASX: TWE)

Another ASX share that makes the broker’s best ideas list this month is wine giant Treasury Wine. Morgans is bullish on the company due to its strong brands, positive growth outlook, and attractive valuation.

Morgans commented:

TWE owns much loved iconic wine brands, the jewel in the crown being Penfolds. We rate its management team highly. The foundations are now in place for TWE to deliver strong earnings growth from the 2H22 over the next few years. Trading at a material discount to our valuation and other luxury brand owners, TWE is a key pick for us.

Morgans has an add rating and $13.93 price target on Treasury Wine’s shares.

Wesfarmers Ltd (ASX: WES)

Finally, this conglomerate makes the broker’s best ideas list again this month. It is a fan of Wesfarmers due to its talent management team, strong retail portfolio, and recent share price weakness.

Morgans explained:

WES possesses one of the highest quality retail portfolios in Australia with strong brands including Bunnings, Kmart and Officeworks. The company is run by a highly regarded management team and the balance sheet is healthy. While COVID-related staff shortages are proving to be a challenge, the core Bunnings division (>60% of group EBIT) remains a solid performer as consumers continue to invest in their homes. We see the pullback in the share price as a good entry point for longer term investors.

Morgans has an add rating and lofty $58.40 price target on Wesfarmers’ shares.

The post Broker names 3 of the best ASX shares to buy in July appeared first on The Motley Fool Australia.

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More reading

• Brokers name 3 ASX shares to buy today
• How does the Woolworths dividend compare to Wesfarmers over the last 5 years?
• Why I think the current Wesfarmers share price is a steal
• 4 ASX dividend shares to buy that aren’t banks or miners: expert
• 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 no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Wesfarmers Limited. The Motley Fool Australia has recommended Treasury Wine Estates 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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June was a tough month for the S&P/ASX All Ordinaries Index (ASX: XAO) which lost 9.6% of its value over the period.

But these ASX shares had a ripsnorter, with the top-performer gaining more than 60% in new value.

Here are the five best-performing ASX shares of the month.

• Silex Systems Ltd (ASX: SLX) up 60.9%
• Tassal Group Limited (ASX: TGR) up 30.9%
• Tabcorp Holdings Limited (ASX: TAH) up 17.7%
• Sigma Healthcare Ltd (ASX: SIG) up 16%
• Pacific Smiles Group Ltd (ASX: PSQ) up 14.6%.

Why did these ASX shares fly…

It appears these five ASX shares went higher largely because their companies had great news to share with the market in June.

Their share price rises are likely a result of factors unique to their businesses. Put simply, that’s why they went up while the All Ords went down.

The companies released the following positive news to the ASX in June:

• Silex Systems announced the execution of a non-binding letter of intent with the largest producer of carbon-free energy in the United States
• Tassal got a third, increased takeover offer from Canada’s Cooke Inc
• Tabcorp announced it had settled its legal dispute with Racing Queensland
• Sigma did not release any price-sensitive news to the ASX in June, but it experienced a two-day price spike after its former general manager was jailed for insider trading
• Pacific Smiles announced an increase in patient fees in May 2022 vs. May 2021, which was the first positive comparable result since November 2021.

And why did the ASX All Ords drop?

The index fell due to investor concerns over macro-economic issues, namely rising inflation and interest rates.

At the start of the month, the Reserve Bank of Australia raised the official cash rate by 50 basis points. This was a big move and the first time the RBA has made a change of this size in a decade.

Meantime costs of living are rising — particularly electricity.

The resulting negative sentiment has led to less buying support in the ASX share market and a drop in value for the All Ords.

The post 5 best ASX All Ordinaries shares in June appeared first on The Motley Fool Australia.

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More reading

• These 3 ASX All Ords shares are delivering double-digit gains on Friday
• These were the best performing ASX 200 shares in June
• 3 ASX All Ords shares dodging selling pressure on Wednesday
• These 3 ASX All Ordinaries shares are hitting new 52-week lows today
• Here are the 3 most heavily traded ASX 200 shares on Tuesday

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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The Pointsbet Holdings Ltd (ASX: PBH) share price has been a winner this week, gaining 15% despite no news having been released by the company.

At the time of writing, the Pointsbet share price is $2.92, 8.77% higher than its previous close.

For context, the S&P/ASX 200 Index (ASX: XJO) has lifted 0.22% on Friday.

Let’s take a look at what might be going on with the ASX-listed bookmaker today.

What’s going on with the Pointsbet share price?

The Pointsbet share price is on a roll this week. It’s following up yesterday’s 10% gain with a 7.4% increase today.

At the same time, the company’s home sector – the S&P/ASX 200 Consumer Discretionary Index (ASX: XDJ) – is in the green for the first time this week, gaining 0.98% today.

Perhaps unsurprisingly, Pointsbet is the sector’s best performer right now.

Its stock is shadowed by that of Idp Education Ltd (ASX: IEL) and Corporate Travel Management Ltd (ASX: CTD). They’ve currently gained 3.2% and 2.2% respectively.

Today’s rise included, the Pointsbet share price is 35% higher than it was when the market last heard news from the company on 20 June.

Then, it announced SIG Sports Investment Corp had snapped up a $94.16 million stake in the company through a placement of shares, each issued at $2.43. At the time, that represented a 15% premium on Pointsbet’s previous close.

Additionally, as my Fool colleague James reported yesterday, Goldman Sachs and Bell Potter have slapped Pointsbet shares with respective price targets of $5.78 and $5.25.

That means the stock has been tipped to have an approximate upside of between 80% to 98%.

The post Up 15% this week, what’s going on with the Pointsbet share price? appeared first on The Motley Fool Australia.

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More reading

• Why Argosy Minerals, Cann, OZ Minerals, and PointsBet shares are pushing higher
• Why is the PointsBet share price storming 13% higher today?
• ASX 200 midday update: Energy shares drop, PointsBet jumps
• Why is the PointsBet share price sinking on Tuesday?
• ASX 200 midday update: Tech shares tumble, Collins Foods jumps

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 positions in and has recommended Goldman Sachs, Idp Education Pty Ltd, and Pointsbet Holdings Ltd. The Motley Fool Australia has recommended Corporate Travel Management Limited and Pointsbet Holdings Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The S&P/ASX 200 Index (ASX: XJO) is giving investors a mild break so far as we end the trading week this Friday. At the time of writing, the ASX 200 is up, but only just, having recorded a gain of 0.14% at just under 6,580 points. 

So let’s dive deeper into these market moves and check out the ASX 200 shares currently at the top of the market’s share volume charts today, according to investing.com.

The 3 most traded ASX 200 shares by volume this Friday

Evolution Mining Ltd (ASX: EVN)

Evolution Mining is our first share to check out today. This ASX 200 gold miner has had a notable 10.99 million shares swap hands as it currently stands. There hasn’t been any news or announcements out of Evolution today. Nor has the company’s share price done anything too remarkable.

It’s currently up 0.63% at $2.40 a share. But Evolution has been experiencing elevated trading volumes all week, thanks largely to its monster drop on Monday following a disappointing trading update. Perhaps that drop is still percolating through the markets today.

Regis Resources Limited (ASX: RRL)

Another ASX 200 gold miner in Regis Resources is next up today. So far this Friday, a sizeable 12 million Regis shares have been bought and sold. This is likely down to the news we got this morning regarding Regis.

As we covered at the time, investors were treated to the news that mining billionaire Andrew Forrest was potentially looking to acquire a 15% stake in the gold miner. Although the transaction was reportedly unsuccessful, we still saw Regis shares leap by 11% at one point today.

Pilbara Minerals Ltd (ASX: PLS)

And our third, final and most traded ASX 200 share today goes to lithium stock Pilbara Minerals. This Friday has seen a hefty 13.91 million Pilbara shares trade on the share market so far. We haven’t had any news out of Pilbara itself today. So it’s probable that this elevated volume is the result of the volatility of the Pilbara share price itself.

Pilbara initially rose this morning, going as high as $2.34. But investors seem to have gotten cold feet since, with the lithium company now down a nasty 1.75% at $2.25 a share. It’s this bouncing around that has probably elicited so many shares trading today.

The post Here are the 3 most heavily traded ASX 200 shares on Friday appeared first on The Motley Fool Australia.

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More reading

• Why Austal, Mesoblast, Regis Resources, and Zip shares are charging higher
• Embattled ASX 200 retail shares primed for a comeback: experts
• Why is the Northern Star share price more green than gold on Friday?
• ASX 200 midday update: Regis Resources jumps, BHP and Rio Tinto drop
• These ASX 200 mining shares are digging a deeper hole on Friday

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 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Pinterest (NYSE: PINS) has seen its stock fall by nearly 80% since hitting its peak in Feb. 2021. The stock surged to elevated levels amid COVID lockdowns and fiscal stimulus. But as users returned to their offline activities and inflation worsened, consumers — and investors — turned away from Pinterest. On top of that, investors have most recently had to contend with the resignation of co-founder and CEO Ben Silbermann.

However, monthly active user levels have begun to rise again, and given the much lower valuation for the social media stock, investors may want to take another look at this company.

The state of Pinterest

Pinterest may arguably be the site most geared to individual tastes. Instead of typical user profiles, users “pin” items based on their likes or passions. This information allows the company to generate revenue through “promoted pins” — ads targeted specifically to users interested in a related product or service. Hence, instead of relying on demographics or psychographics, Pinterest focuses purely on individual tastes.

Also, its users typically have money to spend. About 45% of its U.S. users live in households earning $100,000 or more per year. This level of disposable income should be attractive to advertisers.

Its highest-spending users are in the U.S. and Canada, though it has heavily emphasized attracting non-U.S. users in recent years. Still, in the first quarter of 2022, U.S. and Canadian users contributed an average revenue per user (ARPU) of $4.98. This was well higher than Europe’s ARPU of $0.72 or the rest of the world at just $0.08. Thus, challenges in North America will still affect revenue disproportionately.

The new leadership direction

Additionally, another cloud of uncertainty has appeared as co-founder Silbermann steps down as CEO. Silbermann announced his resignation on June 28, and Bill Ready, who headed the commerce, payments, and next billion users segment at Google, will take over as Silbermann becomes executive chairman.

The company wants to embrace e-commerce more directly, and Silbermann feels Ready will be a better CEO for such a transition. Ready has a background in payments, having previously served as the CEO of Braintree and Venmo. He also held various positions at PayPal, including Chief Operating Officer. Though leadership changes tend to bring added risk, his experience in commerce and fintech should enhance Pinterest’s retailing and payments-related capabilities.

Why the focus on e-commerce should help

The emphasis on e-commerce should improve ARPU, a bright spot in the company’s recent performance. In the first quarter, the company reported 433 million MAUs. While that was up from 431 million in the previous quarter, MAUs were down 9% year over year.

Still, users on the site became more valuable as global ARPU increased 28% year over year to $1.33. Revenue of $575 million was also up 18%, but this extends the company’s trend of decelerating top-line growth, falling well short of the 78% growth reported in the prior-year period, and the 20% growth from the fourth quarter. On the bottom line, Pinterest’s net loss shrank from $22 million last year to just $5 million last quarter.

But amid the tech sell-off, investors have focused on the slowing revenue growth and MAU stagnation. This has forced the stock down 50% year to date. Nonetheless, the price-to-sales (P/S) ratio has fallen to 4.6, just about its lowest level ever.

Should you consider Pinterest stock?

A low valuation and management’s focus on monetizing the platform could motivate investors to buy Pinterest stock. But the MAU results in recent quarters are underwhelming.

Though any major leadership change will bring some uncertainty, Ready has a lot to offer with his experience in e-commerce and payments. Meanwhile, ARPU growth remains robust, and MAU levels do seem to have stabilized. Such conditions could create the foundation needed for Pinterest to inspire a recovery. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Pinterest is down 78% — Is it time to buy? appeared first on The Motley Fool Australia.

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More reading

• Here are the 3 most heavily traded ASX 200 shares on Friday
• Why did the Rio Tinto share price plunge 11% in June?
• Brokers name 3 ASX shares to buy today
• What happened to the Woodside Energy share price last month?
• Why Argosy Minerals, BHP, Ingenia, and Woodside shares are dropping today

Will Healy has positions in PayPal Holdings and Pinterest. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended PayPal Holdings and Pinterest. The Motley Fool Australia has recommended PayPal Holdings and Pinterest. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Rio Tinto Limited (ASX: RIO) share price dived 11% last month despite the company keeping a relatively quiet profile.

In contrast, the S&P/ASX 200 Resources (ASX: XJR) sector also tracked a disappointing finish, down 12% in June.

Investors headed for the exits across the board following one of the most volatile months on the ASX since COVID-19.

Let’s take a look below at what happened to the mining giant’s shares over the course of June.

What happened to Rio Tinto shares last month?

The Rio Tinto share price headed south last month following weak investor sentiment amid selling pressure on iron ore prices.

External factors such as news surrounding China’s ploy to secure cheap iron ore through a domestic centralised buyer caused concern.

This led the steel marking ingredient price to deteriorate from US$145 to roughly US$130 at the end of June.

When the news broke out, Rio Tinto shares fell almost 10% from 15 June until 20 June.

In addition, investors feared that a global economic downturn sparked by monetary tightening from major central banks would dampen iron ore demand.

A couple of brokers weighed in on Rio Tinto shares following the turmoil across global markets.

As reported by ANZ Share Investing, RBC Capital Market cut its price target by 12% to $97 for the mining outfit’s shares.

Based on the current share price of $100.52, this represents a downside of about 3.5%.

On the other hand, Jefferies lifted its rating by 1.1% but still had a more bearish tone of $93 for Rio Tinto shares.

Rio Tinto share price snapshot

Since the beginning of 2022, the Rio Tinto share price has moved in circles to register nil gains for the period.

Although, when looking at the past 12 months, its shares are down 20%.

Rio Tino has a price-to-earnings (P/E) ratio of 5.68 and commands a market capitalisation of roughly $38.12 billion.

The post Why did the Rio Tinto share price plunge 11% in June? appeared first on The Motley Fool Australia.

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More reading

• ASX 200 midday update: Regis Resources jumps, BHP and Rio Tinto drop
• These ASX 200 mining shares are digging a deeper hole on Friday
• How have ASX 200 mining shares fared over June?
• Own Rio Tinto shares? Here’s how the company is ‘canning’ carbon emissions
• What was the highest Rio Tinto share price ever recorded?

Motley Fool contributor Aaron Teboneras 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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It has been another busy week for Australia’s top brokers. This has led to the release of a large number of broker notes.

Three broker buy ratings that you might want to know more about are summarised below. Here’s why brokers think these ASX shares are in the buy zone:

IGO Ltd (ASX: IGO)

According to a note out of UBS, its analysts have retained their buy rating and lifted their price target on this battery materials miner’s shares to $12.25. UBS has bumped its earnings estimates higher to reflect stronger than expected lithium prices. The broker also highlights that despite weakness in other commodity prices due to recession fears, lithium prices continue to rise. The IGO share price is trading at $9.86 on Friday.

Treasury Wine Estates Ltd (ASX: TWE)

A note out of Citi reveals that its analysts have retained their buy rating and $13.78 price target on this wine giant’s shares. Citi believes that wine demand should be relatively more resilient to inflation and interest rates compared to other alcohol segments. In light of this, it feels that Treasury Wine’s FY 2022 guidance could prove conservative. Looking ahead, the broker sees potential for EBITS growth of 33% in FY 2023. This reflects price rises, wine demand resilience, and a full year contribution from the Frank Family acquisition. The Treasury Wine share price is fetching $11.43 on Friday.

Xero Limited (ASX: XRO)

Analysts at Morgans have initiated coverage on this cloud accounting company’s shares with an add rating and $90.25 price target. Morgans is bullish on Xero due to its significant market opportunity. It also sees potential for the company to boost its revenue per user metric through its app store. And while the broker acknowledges that rising interest rates are a negative for the valuations of growth companies, it appears to see a favourable risk reward here. The Xero share price is trading at $77.32 this afternoon.

The post Brokers name 3 ASX shares to buy today appeared first on The Motley Fool Australia.

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More reading

• Why this top broker just slapped a buy rating on Xero shares
• Here’s why ASX 200 tech shares are taking a beating on Wednesday
• Why is the Xero share price slipping 6% today?
• Why are ASX tech shares struggling today?
• Analysts tip big returns from these ASX growth shares

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 Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool Australia has recommended Treasury Wine Estates 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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Well, June is done and dusted as we embark on a new financial year today.

The S&P/ASX 200 Index (ASX: XJO) is in a mildly celebratory mood to mark this occasion, with the index gaining 0.19% so far today at the time of writing.

But that doesn’t take away from the fact that it was a pretty bleak month for the ASX 200. The index lost close to 9% over June, in what has been an especially tough start to winter for investors. But what of the Woodside Energy Group Ltd (ASX: WDS) share price?

Woodside Energy is now the biggest energy share on the ASX by a mile after the company completed its merger with BHP Group Ltd (ASX: BHP)’s petroleum business in early June. We all know about the high oil prices that have been lifting the energy sector in 2022. But how has June treated Woodside shares?

Well, Woodside started June at a share price of $29.76. Yesterday, the company closed at $31.84 a share. That means Woodside shares recorded a gain of 6.99% for the month.

Not only is that a pretty stellar one-month gain, but it also represents an outperformance of almost 16% over the ASX 200. So, all in all, a very pleasing month for Woodside shares and shareholders.

What happened with the Woodside share price over June?

There wasn’t a lot of news out of Woodside last month, aside from the BHP merger taking effect. Nor was there much news out of the sector as a whole.

But, as my Fool colleague Brooke covered yesterday, Woodside was actually one of the few ASX 200 oil shares to record a gain over June. Beach Energy Ltd (ASX: BPT) was flat last month and Santos Ltd (ASX: STO) fell by more than 9.5%.

These moves follow a mellowing of the crude oil price over the month. As we noted yesterday, oil recorded its first monthly fall in price since November last year over June.

So it appears Woodside’s good fortunes over the month are likely due to investor goodwill following the BHP deal. No doubt Woodside investors will be hoping for a repeat performance this July.

At the current Woodside share price, this ASX 200 energy share has a market capitalisation of $58.6 billion, with a dividend yield of 6.06%.

The post What happened to the Woodside Energy share price last month? appeared first on The Motley Fool Australia.

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More reading

• Why Argosy Minerals, BHP, Ingenia, and Woodside shares are dropping today
• Why are ASX 200 energy shares dragging on the market today?
• 5 things to watch on the ASX 200 on Friday
• Why BWX, Sayona Mining, Tyro, and Woodside shares are sinking
• How did ASX energy shares perform in June?

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 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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As we enter the new financial year, you might want to kickstart your dividend income with these ASX 200 shares.

Let’s take a look at which companies’ shares are set to trade ex-dividend next week.

What dividends are the companies offering?

First up, the GrainCorp Ltd (ASX: GNC) share price will trade without rights (ex-dividend) on Wednesday.

The board declared a fully franked dividend of 12 cents per share at the company’s half-year results in May.

The interim dividend represents an increase of 50% over the prior corresponding period (8 cents per share).

Additionally, a fully franked special dividend of 12 cents per share had also been elected by the board.

Together, the 24-cent dividend will be paid to eligible shareholders on 21 July.

The grain exporter’s shares are currently trading 1.37% higher to $9.64. This means that the company has a 1.91% dividend yield.

Next up, the Collins Foods Ltd (ASX: CKF) share price is also going ex-dividend next week, but on Friday.

Earlier this week, the board announced a fully franked final dividend of 15 cents per share at the company’s FY22 results.

This brings the full-year dividend to 27 cents, and reflects a 17.4% lift from the previous financial year.

For those shareholders who will become eligible for the dividend, you will receive payment on 1 August.

At the time of writing, the restaurant operator’s shares are up 1.31% to $10.04. This means its shares have a dividend yield of 2.7%.

Foolish takeaway

To qualify for any of the above dividends you’ll need to make sure you are on the company’s share registry before the ex-dividend date.

If you do buy GrainCorp or Collins Foods shares on or after the ex-dividend date, then the upcoming dividend will go to the seller.

However, if you decide to offload the company’s shares on or after the ex-dividend date, you’ll still qualify for the dividend.

The post These 2 ASX 200 shares are going ex-dividend next week appeared first on The Motley Fool Australia.

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More reading

• These were the best performing ASX 200 shares in June
• Here are the top 10 ASX shares today
• Top brokers name 3 ASX shares to buy today
• Top broker backs a tasty 20% upside for the Collins Foods share price
• Why BlueBet, Collins Foods, Northern Star, and Tassal shares are charging higher

Motley Fool contributor Aaron Teboneras 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 Collins Foods Limited. The Motley Fool Australia has recommended Collins Foods 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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Brambles Limited (ASX: BXB) shares are up 3.2% to $11.05 following an announcement that will reportedly save the company $1 billion.

In an ASX release after the close of trading on Thursday, Brambles announced its decision to say ‘no’ to a request from Costco Wholesale Corporation (NASDAQ: COST) in the US to provide plastic instead of wooden pallets to its supply chain network.

According to reporting in the Australian Financial Review (AFR), saying ‘yes’ would have meant a $1 billion-plus capital investment.

For those unfamiliar with Brambles, it provides returnable pallets, crates, and containers to companies who use them to transport their goods. If you’ve ever noticed a blue crate with the word ‘CHEP’ on it in a supermarket carpark, that’s Brambles.

They own approximately 345 million pallets, crates, and containers and operate in 60 countries.

The power of saying ‘no’

In 2019, Costco announced it wanted to transition away from wooden to plastic pallets in the US.

Since then, Brambles has developed and trialled “an industry-leading plastic pallet” that complied with US fire regulations. Together with Costco, they also worked out ways to save on system costs through new efficiencies.

But those savings didn’t cover the additional capital cost of plastic pallets, which is four times higher than wooden pallets. So, Brambles had to up the price to provide Costco and its suppliers with the new plastic pallets. In turn, they decided they didn’t want to absorb this higher cost.

What did Brambles management say?

Brambles CEO, Graham Chipchase explained the decision:

Our decision not to proceed demonstrates our disciplined approach to capital allocation.

As the market leader, we have leveraged our scale and expertise to exhaust every operational and commercial lever to find a viable solution for Costco’s supply chain in the current environment.

The trial results confirmed the unique efficiencies in Costco’s supply chain and sound operational foundations of a digitally enabled plastic pallet pool.

However, in the current economic and market conditions, a conversion to plastic pallets was deemed commercially prohibitive by Costco’s suppliers and, without adequate cost recovery, dilutive to Brambles’ ROCI (return on capital invested).

We believe today’s decision is the best course of action for our business as we concentrate on helping our customers through the current challenges across global supply chains.

In its statement, Brambles said it continues to have a “strong relationship with Costco and its suppliers”. It also said it “is committed to supporting them through any potential transition”.

However, Brambles also reassured shareholders that any transition by Costco to plastic pallets would take years. Brambles is also confident it can offset any loss of business from Costco and its suppliers.

“… Brambles would seek to offset any associated financial and operational impacts through new business wins and transformation initiatives. Any wooden pallets released from the Costco system during a transition would be redeployed to new and existing customers, resulting in lower capital expenditure.”

Brambles said approximately 50% of the US market was addressable and provided “material opportunities for longer term growth”.

Guidance for FY22 earnings

In its FY22 third-quarter update released on 21 April, Brambles upgraded its FY22 guidance.

It’s now expecting sales revenue growth of 8-9% (previous guidance of 6-8%); and underlying profit growth of 6-7% (previous guidance of 3-5%). And that’s including US$50 million in one-off costs.

Brambles will report its FY22 full-year results during the upcoming earnings season on 17 August.

Brambles share price snapshot

Over the past 12 months, the Brambles share price has decreased by 2.2%.

Year to date, the shares have gained 2.8% in value and outperformed the broader market.

The benchmark S&P/ASX 200 Index (ASX: XJO) has declined by 13.5% year to date.

The post Brambles share price rises amid $1 billion investment decision appeared first on The Motley Fool Australia.

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More reading

• 3 dividend-paying and ethical ASX shares to buy now: fund manager
• Leading brokers name 3 ASX shares to buy today

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 positions in and has recommended Costco Wholesale. 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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