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It’s been a tough start to 2022 for many ASX retail shares. Data released today shows just how tough it has been for Australian shops, and also provides mixed forecasts for the future.

The S&P/ASX 200 Consumer Staples Index (ASX: XSJ) has been underperforming the market over the course of 2022 so far, slumping 9%.

For context, the S&P/ASX 200 Index (ASX: XJO) has fallen 5% over that time.

Here’s what the future looks like for Australian retailers and, as an extension, ASX retail shares.

Data highlights tough January and mixed outlook

Data detailing how tough January was for retailers has dropped today, and it’s not a particularly pretty picture.

The Commonwealth Bank of Australia (ASX: CBA) announced that its Household Spending Intentions (HSI) index fell 10% last month, with retail spending intentions leading the fall with a 20.9% dip.

However, that fall followed a rallying over the previous months, landing retail spending intentions 4.4% higher than in January 2021.

Additionally, CBA noted credit card data highlighted an uptick in consumer spending in early February.

That’s potentially juxtaposed with Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Roy Morgan. They found consumer confidence fell 1.9% over the first week of February.  

ANZ head of Australian economics David Plank said the drop in consumer confidence was likely due to anticipation of rising interest rates and Western Australia’s bushfire events, COVID-19 outbreak, and continued border closure.

The pendulum also swung for Australian’s financial positions. Just 23% of Australians said their families are ‘better off’ financially than this time last year – representing a 4 point drop. That’s compared to 32% who said their families are ‘worse off’ – a 4 point increase.  

Looking to the future, 35% – 2 points fewer – believe their families will be better off this time next year. On the other side, 21%  – 3 points more – expect they’ll be worse off.

Finally, the latest monthly business survey conducted by National Australia Bank Ltd. (ASX: NAB) found business conditions had fallen 5 points in January with profitability, trading conditions, and employment all slipping lower.

Retail was once again among the hardest hit, falling 38 points.

In more positive news, business confidence rose 15 points in January after falling in December.

NAB chief economist Alan Oster said Australia’s economy is experiencing “a period of elevated inflation while supply chain issues remain unresolved”.

“Overall, the January survey shows significant disruption to business activity from the spread of the Omicron variant, albeit impacts on businesses were less severe than in past outbreaks,” said Oster. “However, we continue to expect a strong recovery as case numbers come down.”

How are ASX retail shares performing today?

Tuesday’s session brings a mixed performance from ASX retail shares.

The Nick Scali Limited (ASX: NCK) share price has fallen 7% while that of Best & Less Group Holdings Ltd (ASX: BST) and Accent Group Ltd (ASX: AX1) are down 4.1% and 1.9% respectively.

Meanwhile, the Super Retail Group Ltd (ASX: SUL) share price is 2.8% higher, while stock in Adairs Ltd (ASX: ADH) and JB Hi Fi Limited (ASX: JBH) is up 1.3% and 0.6% respectively.

For context, the ASX 200 is currently up 0.8% while the All Ordinaries Index (ASX: XAO) has gained 0.7%.

The post ASX retail shares have slumped in 2022. Could there be more pain to come? appeared first on The Motley Fool Australia.

More reading

• Why is the Nick Scali (ASX:NCK) share price dumping 13% so far this week?
• 2 ASX retail shares going cheap: Fund manager
• 2 ASX dividend shares with big yields to buy
• Got money to invest for dividends? Here are 2 ASX shares that could be buys
• 2 quality ASX dividend shares for income investors to buy

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. owns and has recommended ADAIRS FPO and Super Retail Group Limited. The Motley Fool Australia owns and has recommended ADAIRS FPO and Super Retail Group Limited. The Motley Fool Australia has recommended Accent Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Fortescue Metals Group Ltd (ASX: FMG) share price is on the rise during early afternoon trade on Tuesday.

It comes after Fortescue chair Andrew Forrest intensified his campaign against the federal government’s promotion of coal-made hydrogen as ‘clean energy’.

At the time of writing, the iron ore producer’s shares are up 3.2% to $22.22 apiece.

Fortescue amplifies ‘clean energy’ campaign

Making headlines today, Forrest took out a full-page colour advert in the Australian Financial Review challenging the federal government’s clean energy claims.

In the statement, Forrest rejected the Morisson government’s assertion that coal and gas-generated hydrogen can be billed as ‘clean’.

Forrest believes the term ‘clean hydrogen’ should be swapped for ‘green hydrogen’, which is made from renewable energy.

It’s worth noting the mining giant’s green offshoot Fortescue Future Industries (FFI) is focused on producing renewable hydrogen.

The company is aiming to generate 15 million tonnes of green hydrogen annually by 2030. 

Last week, the world’s first liquefied hydrogen tanker, the 116-metre Suiso Frontier, picked up coal-made hydrogen from Victoria’s La Trobe Valley.

The ship successfully loaded the hydrogen bound for Japan. The shipment is part of a $500 million pilot project hosted by AGL Energy Ltd (ASX: AGL)’s Loy Yang A brown coal-fired power station to produce hydrogen for Japanese giant Kawasaki Heavy Industries.

Brown coal, considered the dirtiest of its group, along with gas, produces emissions from burning fossil fuels.

Following the ship’s departure, Forrest commented that it should not be an opportunity to “pretend brown hydrogen is exporting green energy to the world”.

In 2021, FFI took on Australia’s biggest oil and gas companies over gas-produced hydrogen not being acceptable as ‘clean energy’. A senior executive from FFI spoke out saying that the so-called ‘blue hydrogen’ depends on carbon capture or offsets.

In addition, former prime minister and current FFI chair Malcolm Turnbull called gas supplies ‘a con’.

He also said that carbon capture storage (CSS) is a ‘no goer’, citing it’s yet to reach commercial-scale suitable for reducing emissions.

Fortescue share price summary

Up until the end of July, the Fortescue share price was enjoying strong gains, hitting an all-time high of $26.58. That all came crashing down in the following months with the company’s shares touching a low of $13.90 in early October.

Since then, Fortescue shares have rebounded to around the halfway levels achieved in the first half of 2021.

On valuation metrics, Fortescue commands a market capitalisation of roughly $68 billion and has approximately 3.08 billion shares on issue.

The post ‘Cringe-inducing’: Fortescue (ASX:FMG) boss takes aim at ScoMo over clean hydrogen claims appeared first on The Motley Fool Australia.

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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 Bruce Jackson.

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The Macquarie Group Ltd (ASX: MQG) share price has been a very strong performer on Tuesday.

In afternoon trade, the investment bank’s shares are up 4% to $201.73.

At one stage today, the Macquarie share price was up as much as 5.5% to $204.88.

Why is the Macquarie share price charging higher?

Investors have been bidding the Macquarie share price higher today following the release of its third quarter operational update.

Although the bank didn’t provide any financials with its update, it advised that it was “a record quarter.”

This was driven by strong performances from its market-facing business. Management advised that the Commodities and Global Markets (CGM) and Macquarie Capital businesses have delivered a combined profit contribution that was up “substantially” on the prior corresponding period. This is also the case financial year to date.

What was the reaction?

This update went down well with the team at Goldman Sachs, which suspects that Macquarie could outperform its expectations in FY 2022.

Goldman commented: “While no specific group guidance has been provided by MQG for FY22, the divisional outlook is incrementally more positive than what was provided at MQG’s 1H22 result in Oct-21, which leaves upside risk to our current forecasts.”

Looking longer term, the broker notes that Macquarie has highlighted that a whopping US$75 trillion of total infrastructure investment will be required globally by 2040.

Goldman appears to believe this bodes well given how “management highlights it was the number one global infrastructure financial advisor in 2021, driven by a tenured senior team, that continues to innovate and push into new markets.”

Is this a buying opportunity?

At present, Goldman has a neutral rating and $199.40 price target on the company’s shares. This is broadly in line with where the Macquarie share price is trading currently.

However, there is a chance that the broker will make some changes to its recommendation and valuation in the coming days once it has update its model to reflect this stronger than expected performance. So, stay tuned for that.

The post Macquarie (ASX:MQG) share price jumps after outperforming expectations and excitement over US$75tn opportunity appeared first on The Motley Fool Australia.

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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 recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Lynas Rare Earths Ltd (ASX: LYC) was certainly one of the hottest ASX shares on the share market last year. As we covered last month here at the Fool, Lynas managed to give its investors a very impressive 155% return over 2021. Last year proved to be a year in which ASX investors looked to what was perceived to be futuristic resources companies for returns. We saw enormous interest in lithium miners like Pilbara Minerals Ltd (ASX: PLS), battery tech companies like Novonix Ltd (ASX: NVX), as well as rare earths miners like Lynas.

Rare earths is a slightly misleading name for the minerals that Lynas extracts. Lynas’ rare earths like neodymium, praseodymium, lanthanum and cerium are not ‘rare’ in the traditional sense. In fact, they are some of the most abundant minerals on Earth. Rather, finding large, concentrated deposits of them is rare.

But we digress.

Zooming out, and the returns are even more impressive for Lynas shareholders. This company is one that remains up an eye-watering 910% over the past five years, and up more than 600% since March 2020.

I’m sure Wesfarmers Ltd (ASX: WES) is kicking itself for not getting a hold of Lynas when it made a bid for the company back in 2019. Its $1.5 billion offer certainly looks like a lost opportunity now that Lynas has a market capitalisation of $8.3 billion.

But now that shareholders have enjoyed such pleasing gains in recent times, many might be wondering when they might get rewarded for simply holding the shares. I’m talking about dividend payments, of course.

At Lynas, dividends are scarcer than rare earths

So do Lynas shares pay a dividend? The answer is a resounding no. Lynas Rare Earths has never paid out a dividend to its shareholders.

That’s not to say it couldn’t though. Over FY2021, the company made $235.3 million in earnings before interest taxes, depreciation and amortisation (EBITDA). That translated to an earnings per share (EPS) of 18.08 cents per share. If Lynas hypothetically wanted to pay out 10 of those 18.08 cents of EPS as a dividend, it would have given the Lynas share price a yield of roughly 1% on today’s pricing.

But it’s possible that due to this company’s far-from-secure earnings base, it has decided to keep its powder dry. To illustrate, although FY2021 saw the company report healthy earnings, the company actually lost money on an EPS basis over the preceding financial year, FY2020. Back then, Lynas reported negative EPS of -2.79 cents per share. Obviously, if a company is losing money on an earnings basis, it can’t really afford to fork out a dividend.

Resources companies like Lynas can never predict when the market for the commodities they extract might be favourable or unfavourable. But this can make all the difference between losing money and making a healthy profit. Perhaps Lynas’ management wishes to keep its balance sheet as fortified as possible for this reason. Thus, this might be why Lynas decided to not pay out a dividend over FY2021.

But who knows what the future might hold. If the company keeps growing the way it did in FY2021, then shareholders might eventually get some income from their Lynas Rare Earths shares.

The post Do Lynas Rare Earths (ASX:LYC) shares pay dividends? appeared first on The Motley Fool Australia.

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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 owns and has recommended Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Motley Fool Australia Chief Investment Officer Scott Phillips joined Nine’s Late News on Monday night to discuss the big jump in travel industry shares on the back of the Prime Minister’s announcement, the Australia and New Zealand Banking Group Ltd (ASX: ANZ) profit squeeze, and more pain for shareholders of Magellan Financial Group Ltd (ASX: MFG).

The post Travel soars, ANZ falters, Magellan sinks. Scott Phillips on Nine’s Late News appeared first on The Motley Fool Australia.

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Motley Fool contributor Scott Phillips owns Corporate Travel Management Limited and Webjet Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Helloworld Limited. The Motley Fool Australia owns and has recommended Helloworld Limited. The Motley Fool Australia has recommended Corporate Travel Management Limited, Flight Centre Travel Group Limited, and Webjet Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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BHP Group Ltd (ASX: BHP) shares are charging higher today, up 3.63% to $49.07 per share at the time of writing.

That well outpaces the 1.0% gain posted by the S&P/ASX 200 Index (ASX: XJO) at this same time.

It comes amid reports Australia’s largest mining company has finalised its investigation into the damage of a culturally signficant site in the Pilbara.

Below, we take a look at BHP’s ‘Juukan Gorge moment’ and how the incident has been quietly resolved.

Historical blasting cops the blame

It’s been just over a year since a rock shelter, a culturally significant Aboriginal heritage site, collapsed at a BHP mine in Western Australia in January, 2021.

It came less than a year after the more-publicised Rio Tinto Limited (ASX:RIO) destruction of the Juukan Gorge caves, also in the Pilbara, in May 2020.

Rio Tinto’s investigation into the incident ultimately led to the resignation of the company’s chair, its CEO and two senior executives.

BHP also undertook an investigation. But if you haven’t heard much about the incident, you’re not alone.

Now, The Australian reports, BHP confirmed on Sunday that “it had quietly finalised the investigation into the destruction of the registered heritage site six months ago”.

The cause of the shelter’s roof collapse looks to be historical blasting taking place from 2013-2016, rather than management failures in the immediate leadup to the heritage destruction. The miner said that under its new heritage policies, that historic blasting would not have taken place.

According to the report on the incident:

Heavy blasting close to the rock-shelter in the 2013 to 2016 period, which would have resulted in high and very high vibration levels at the site of the rock shelter, would have caused weakening and displacement of pre-existing rock discontinuities and joints.

This historic weakening left the rock shelter more vulnerable to blasting taking place at other parts of the project, with BHP noting the heritage site was not close to any current operations.

As BHP had approval from the Western Australia government to operate in the area, the company was not subject to any legal actions for the rock shelter’s collapse.

According to The Australian, “The results of the external review [were] handed to the Banjima Native Title Aboriginal Corporation (BNTAC) in August. The full report was not made public at the request of traditional owners.”

How have BHP shares been performing?

BHP shares have strongly outperformed so far in 2022.

Boosted in part by resurgent iron ore prices, the BHP share price is up 18% year-to-date, compared to a loss of around 5% posted by the ASX 200.

The post Own BHP shares? Here’s what this quiet investigation uncovered appeared first on The Motley Fool Australia.

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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 Bruce Jackson.

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The Westpac Banking Corp (ASX: WBC) share price is having a positive day.

In afternoon trade, the banking giant’s shares are up 1.2% to $21.83.

Why is the Westpac share price pushing higher?

While the big four banks are all pushing higher today, the Westpac share price is the best performer in the group. This is despite there being no market sensitive news out of Australia’s oldest bank.

However, it has released an announcement relating to its digital strategy that could have given investor sentiment a little boost.

According to the release, Westpac has signed a five-year strategic partnership with tech giant Microsoft to help drive the bank’s digital and hybrid multi-cloud strategy.

The partnership includes increased investment in Microsoft’s cloud computing service, Azure, which is expected to help Westpac continue to modernise its technology environment and expand use of cloud-based systems.

Westpac’s Chief Technology Officer, David Walker, commented: “At Westpac, our standard for all new systems, whether built by ourselves or sourced from others, is to be ‘built to change’ using ‘evergreen’ cloud-native technologies.”

“We are looking to significantly scale up our use of the cloud across the bank, especially with software-as-a-service partners to help deliver more digital-to-the-core experiences for customers. This includes areas such as digital, mortgages, business lending, our banking-as-a-service platform, artificial intelligence, and data,” he added.

The release explains that Westpac will look to leverage the ecosystem of services available on Azure to bring its application, data and artificial intelligence capabilities together in a more cohesive manner that can be scaled across the enterprise.

Microsoft Australia’s Managing Director, Steven Worrall, appears confident the tech giant can provide Westpac with what it needs for the future of banking.

He said: “Westpac has a clear vision for the future of banking – combining high performance, trusted and secure cloud-based platforms with a highly skilled workforce to allow iterative innovation that will ensure the bank stays at the leading edge of financial services. Microsoft is delighted to help build the digital foundations for this and support Westpac to grow its learning culture and instil digital capabilities that keep it match-fit for the future of banking.”

The post ‘Future-ready’: Westpac (ASX:WBC) share price lifts following Microsoft partnership appeared first on The Motley Fool Australia.

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Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor James Mickleboro owns Westpac Banking Corporation. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Microsoft. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Dividends this year may struggle to match last year’s boom but this should stop Rio Tinto Limited (ASX: RIO) from paying a big special dividend this month.

That is the expectation of the analysts at Macquarie ahead of the miner’s results on 23 February.

Rio Tinto’s special dividend forecast

“RIO has stated the intent to payout 40-60% of underlying earnings in ordinary dividends throughout the cycle, which can be flexed higher with special dividends,” said the broker.

“We have forecast a final dividend of US$4.75, which includes our estimated special dividend of US$1.28.”

This half-year payout alone translates to a yield of 5.6% for the Rio Tinto share price based on the current exchange rate. Throw in franking credits, and the yield is bolstered to around 8%.

If Rio Tinto does pay a special dividend this month, it will mark its third consecutive special dividend payment.

More capital returns on the horizon

Macquarie doesn’t think its estimate on the US$475.2 million ($666.5 million) in special dividends is too high. The total payout ratio of the regular and special dividends comes to 82%. This is largely in line with Rio Tinto’s historical payout ratios.

But the shareholder cashback party may not end at the February reporting season. High commodity prices are expected to keep Rio Tinto’s balance sheet flushed with cash.

“We believe there could be potential for additional capital management, likely in the form of a special dividend, given strong iron ore earnings and a healthy balance sheet,” said Macquarie.

“However, we also note that near[1]term cash outflows could constrain RIO’s additional cash returns to shareholders, such as the potential increased closure and rehabilitation costs.”

What to expect at Rio Tinto’s February results

These costs relate to Rio Tinto’s recent announcement on the Ranger uranium mine in the Northern Territory. The miner has also committed to investing to reach net zero carbon emissions.

The market is expecting the iron ore giant to deliver strong growth numbers this month. Stubbornly high prices for the steelmaking ingredient are forecast to see Rio Tinto’s iron ore division deliver a 48% increase in underlying earnings before, interest, tax, depreciation and amortisation (EBITDA) to US$27.8 billion in calendar 2021, compared to 2020, according to Macquarie.

Iron ore makes up around 73% of group earnings. Rio Tinto’s exposure to aluminium and copper are also tipped to bolster its EBITDA growth as these commodities have also rallied.

Not without risks

However, there are a few pain points to watch. One obvious risk is cost inflation as just about every ASX company has reported rising costs.

Meanwhile, COVID-19 remains a problem as other miners in the Pilbara have recorded cases recently.

Then there are geopolitical risks from Rio Tinto’s problem plagued Oyu Tolgoi mine in Mongolia. Don’t forget the cancellation of its lithium exploration licenses in Serbia either.

Nonetheless, Macquarie is recommending the Rio Tinto share price as outperform. Its 12 month price target on the shares is $130.

The post Rio Tinto (ASX:RIO) tipped to deliver $667m special dividend bonanza appeared first on The Motley Fool Australia.

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Motley Fool contributor Brendon Lau owns Macquarie Group Limited and Rio Tinto Ltd. 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 recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Telstra Corporation Ltd (ASX: TLS) share price is in the green today after the company signed its “largest-ever” Internet of Things deal in Australia.

Telstra shares are currently swapping hands at $4.09, up 1.36% on yesterday’s close. For comparison, the S&P/ASX 200 Index (ASX: XJO) is rising 1.14%.

Let’s take a look at what’s impacting the company.

New Internet of Things (IoT) deal

Telstra has entered a $100 million IoT deal with Intellihub Group. Intellihub is a Sydney-based company that provides smart metering and data services to the energy and utilities market.

The deal will involve Telstra providing more than 4 million IoT SIMS to the company within the next decade.

Internet of Things refers to any physical objects or “thing” that is connected with the internet. This could be a phone, microwave, coffee maker, lamp, car, sensor, bus, solar panel, or any other object.

The IoT SIMS will be integrated with Intellihub’s smart meters to help the company manage energy demand.

What did management say?

Commenting on the announcement, Telstra group executive David Burns said:

The deal comes at an exciting time for us, with more than 5 million devices now connected to our IoT network.

This solution demonstrates the power of Telstra IoT in finding real-world solutions and will enable Intellihub’s smart meters to get even smarter, providing Intellihub and its customers with deeper, real-time insights to manage the different elements of the energy network.

We have the largest IoT network in Australia – around 4 million square kilometres of NB-IoT coverage and around 3 million square kilometres of LTE-M coverage.

It has been a good few days for the Telstra share price. It has risen more than 4% over the past week amid plenty of positive news from the company.

Australian Financial Review reported today that Telstra will pay superannuation to its employees while they are on unpaid parental leave.

The telco also reported yesterday it had won a speed test award for Australia’s fastest mobile network. Telstra’s network and Infrastructure executive Iskra Nikolova said:

Ookla (a global speed test company) found not only that we were faster nationally, but that our mobile network was faster on both median download and median upload speeds in the three largest Australian cities, Sydney, Melbourne and Brisbane.

The latest news comes on the back of a positive response from the market to the company investing $1.6 billion in ‘nation-building’ projects.

My Foolish colleague James reported analysts are generally positive about the projects despite having varied opinions on them.

Share price snapshot

The Telstra share price has soared 29% over the past year but has descended 2% year to date.

For perspective, the benchmark ASX 200 Index has returned 4.6% over the past year.

Telstra has a market capitalisation of about $48 billion based on the current share price.

The post ‘Exciting time’: Telstra (ASX:TLS) share price climbs amid $100 million IoT deal appeared first on The Motley Fool Australia.

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• What are analysts saying about Telstra’s (ASX:TLS) $1.6bn ‘nation-building’ projects?
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• Energy stocks surge and RBA hoses down the chances of a rate rise. Scott Phillips on Nine’s Late News

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended Telstra Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Shares in Australian fund manager Magellan Financial Group Ltd (ASX: MFG) are rising today to now trade less than 5% in the green at $17.17 apiece.

Investors seem in unusually good spirits today with this buying activity – because Magellan shares have collapsed more than 20% since January 1, and are now down more than 66% for the year.

Perhaps investors are buying the 7-year lows, or perhaps they like Magellan’s current valuations with the recent downturn. Or it could be that the market has now fully priced in the fund manager’s recent woes, spurred on by a fling of internal dramas in past months – who knows.

One thing we do know is that the team at Swiss Investment bank UBS aren’t so rosy on the outlook for Magellan shares going through the remainder of 2022. Let’s take a closer look at what it said in a note to clients today.

Is there more downside for Magellan to be priced in?

Investors should recall that co-founder and Magellan name face Hamish Douglass recently took medical leave, not long after former CEO Brett Cairns departed the company on questionable terms.

Plenty of other drips and drabs have unfolded on top of this in recent months, leaving investors downbeat on the prospects of catching the falling knife in Magellan’s case.

Shares are now in a multi-year trough after melting from previous highs of $55.90 back in June last year, as investors ran for the hills when the calamity first began.

Not only that but it’s understood that several of the company’s directors are tied up in a scheme of equity loans, that must be paid back in order to release shares from escrow. Some directors even provided the loans when shares were trading at substantially higher values than now.

As a result of the downturn – which is more than just a pullback or correction – the team at UBS have cautioned investors on the outlook for Magellan.

Analysts at the firm note that Magellan’s share price now reflects a melting pot of key-person risks, outflows, unjustifiable active management fees and not to mention the substantial tracking error from benchmarks.

The firm believes this most recent consolidation should have demonstrated the funds’ “low downside capture”, however investors are running for the hills instead. “We note this in contrast to Global equity peers demonstrating downside protection in recent months”, the firm said.

Consequently, there are plenty of questions left unanswered in the fund manager’s case, not to mention that Douglass’ leave of absence could further “raise the risk of outflows [in the] near term”, UBS says.

This could further impact its share price by adding another drain and/or pull on cumulative performance, this time from outflows versus just a reduction of assets under management.

Still lagging in 2022 as well, UBS says

The broker reckons that Magellan’s premier funds would have lagged benchmarks across the board last month as well, estimating the Infrastructure fund underperformed by 260 basis points alone.

It also estimated that the Global equity strategy lagged by 0.6% and the Airlie fund lagged by a quarter of a percent in the month of January – even after a minor recovery mid-December.

“Incremental monthly performance does not appear to have turned the corner” UBS notes, alluding to recent weakness in tech giants Netflix and Facebook’s share price in the assessment.

UBS retains its sell rating on the stock – a rating that the Swiss Investment bank has held since August last year when it downgraded the company from neutral.

In fact, UBS has never really been constructive on Magellan, with its most bullish price target of circa. $63 still rated a neutral back in 2020.

Its last buy rating was way back in 2019 when it valued Magellan at $28.90 per share. The broker has a last published price target on Magellan of $17 per share.

The Magellan share price has faltered another 13% this past week and is now down almost 10% in the previous 5 days of trading.

The post Is all the recent turmoil now priced into Magellan (ASX:MFG) shares? appeared first on The Motley Fool Australia.

More reading

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• Who is Chris Mackay, Magellan’s (ASX:MFG) new CIO?
• ASX 200 (ASX:XJO) midday update: ANZ disappoints, Magellan shares crushed
• Magellan (ASX:MFG) share price sinks 11% as Douglass steps down for ‘medical leave’
• Why Boral, Magellan, REA, and SEEK shares are falling today

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 Bruce Jackson.

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