Tag: Motley Fool

Key points

• Westpac shares are down more than 4% since January 1
• JP Morgan isn’t so rosy on the outlook for Westpac in 2022
• According to the broker, Westpac’s outlook is “highly uncertain”
• Westpac shares tanked almost 4% in the last 12 months

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Westpac Banking Corporation (ASX: WBC) shares have started the year poorly and are now down more than 4% since January 1.

At the time of writing, the Westpac share price is rangebound today, currently trading at $20.34 cents apiece, up 0.2%.

The graph below charts Westpac’s performance relative to the other banking majors and the S&P/ASX 200 Financials index (XFJ) over the last 12 months.

The whole group is down so far in 2022. But Westpac is now substantially trailing its peers on the bottom of the group’s performance band.

With that in mind, let’s hear what the team at JP Morgan had to say about Westpac in a note to clients from last week.

Westpac’s outlook is ‘highly uncertain’: JP Morgan

The team at investment bank JP Morgan isn’t so rosy on the outlook for Westpac in 2022. It assigns a neutral rating on the stock and values the company at $23.30 per share, implying around $3 of upside protection.

According to the broker, Westpac’s outlook is “highly uncertain, with weak customer franchise metrics and revenue under pressure driven by compression on mortgage margins”.

“Westpac’s FY24 cost plan ($8bn target ex Specialist) is highly ambitious given it requires an approximate 20% reduction from the FY21 cost base, but we expect the market to remain sceptical on achieving this,” the broker says.

Even though the bank has a robust capital surplus, this doesn’t distinguish Westpac from its peers – as they too are well-capitalised – plus provision coverage now rests at the bottom end of the peer group.

The broker estimates Westpac’s net interest income to decrease by around 4% in FY22 to $16.1 billion. It expects the bank won’t make a recovery to FY21 levels until 2024.

As such, the broker also bakes in a 16 basis point decline in Westpac’s net interest margin (NIM) for FY22 and a subsequent 6 basis point decrease in FY23.

Curiously, JP Morgan estimates that Westpac should deliver the strongest pre-provision profit growth in FY23/24, “largely on lower costs”.

However, in the same breath, it estimates the bank’s solid pre-provision profit growth will be dampened by higher impairment charges in FY22.

“Given our long-term concerns about the sustainability of mortgage margins across the industry (where WBC has a heavy exposure), we see the risk/reward as unattractive,” the broker concluded.

A bit more on Westpac shares

Westpac shares are substantially underperforming their peers and have tanked almost 4% in the last 12 months.

This year to date, things aren’t any better, with Westpac shares down 4.19%, well behind the benchmark indices.

At the time of writing, Westpac has a market capitalisation of $75 billion and trades on a price to earnings ratio (P/E) of around 15x.

The post Own Westpac (ASX:WBC) shares? Outlook ‘highly uncertain’ says this broker appeared first on The Motley Fool Australia.

More reading

• Brokers rate these 2 top ASX shares as buys in February 2022
• How does the Macquarie (ASX:MQG) dividend compare to the big four banks?
• Here’s what higher interest rates could mean for ASX bank shares
• Top broker sees 43% upside for the Westpac (ASX:WBC) share price
• Are these beaten down ASX 200 shares now too cheap to ignore?

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 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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Key points

• The Allkem share price has fallen heavily this year
• One leading broker believes this could be a buying opportunity for investors
• Its price target implies upside of ~46% over the next 12 months

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Like many in the lithium sector, the Allkem Ltd (ASX: AKE) share price has had a tough start to 2022.

Despite pushing higher today, this lithium miner’s shares are still down over 12% since the turn of the year.

Is the Allkem share price in the buy zone?

While the Allkem share price weakness is disappointing for shareholders, it could be a buying opportunity for others.

According to a recent note out of Morgans, Allkem is the broker’s top pick in the sector and sees significant upside potential from current levels.

The note reveals that the broker has an add rating and $13.25 price target on the company’s shares.

Based on the current Allkem share price of $9.10, this implies potential upside of almost 46% for investors over the next 12 months.

What did the broker say?

Morgans was pleased with Allkem’s recent quarterly update and highlights its better than expected production, strong lithium pricing, and production growth potential from new operations.

The broker said: “Our preferred stock for lithium exposure, Allkem. AKE announced a 68% qoq increase in revenue at Olaroz and a 7% CY21 beat of production guidance at Mt Cattlin with large increases in realised prices at both projects. AKE expects USD20k/t for lithium carbonate sales in 2HFY22 at Olaroz. Production growth continues with Naraha commissioning, progress on Sal de Vida and FID expected on James Bay in 2QCY22. Construction is expected to commence the following quarter.”

And while the broker suspects that lithium prices could be volatile, it sees scope for them to keep rising.

It explained: “We expect ongoing volatility in the sector as the market seeks to understand how supply and demand will be balanced. We think that while this cycle has moved out of the early stages it still has some room to run in the short term.”

All in all, this could bode well for Allkem in 2022.

The post Is the Allkem (ASX:AKE) share price a bargain buy after dropping 12% so far this year? appeared first on The Motley Fool Australia.

More reading

• Analysts name 2 ASX 200 mining shares to buy in February
• Why Allkem, Nuix, Whitehaven Coal, and Zip shares are sinking today
• ASX 200 (ASX:XJO) midday update: Whitehaven sinks, BHP to unify
• Why Allkem, Beacon Lighting, Northern Star, and Virtus Health shares are charging higher
• Top broker tips Allkem (ASX:AKE) share price to shoot 20% higher

Motley Fool contributor James Mickleboro owns Allkem shares. 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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Key points

• Investors are responding positively to an update from Resapp today
• The company was awarded a patent in China
• UBS says the Chinese telehealth market is expected to reach US$54 billion by 2025
• In the last year, the Resapp share price has climbed 20% into the green

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Shares in digital health company Resapp Health Ltd (ASX: RAP) are walking higher today following a company announcement.

At the time of writing the Resapp share price has spiked 5% from the open and is now fetching 7.9 cents apiece after rallying as high as 13% in early trading.

Investors are responding positively to an update regarding a cough analysis patent that was awarded in China, piling into the company on a volume of 193% of its 4-week average volume.

Resapp has cough analysis patent granted in China

Resapp touts itself as a “leading digital health company developing smartphone applications for the diagnosis and management of respiratory disease”.

The company integrates machine learning algorithms that use sound to diagnose and measure the severity of respiratory conditions.

It has two flagship products in the field, called ResAppDx – a smartphone app for respiratory diagnostics and telehealth; and SleepCheck, another app that assesses sleep apnoea.

As such, the company had applied for a patent in China under the title “A method and apparatus for processing patient sounds”, according to the release.

Today the company advised that the China National Intellectual Property Administration has accepted for grant the company’s patent application.

The patent covers the use of a “cough sound-based audio processing pipeline for diagnosing respiratory disease”, Resapp says, and is owned by The University of Queensland. It will be licensed exclusively to ResApp for the lifetime of the patent.

Resapp says this “pivotal patent family” has also been granted in Australia, Japan, Korea and the US, and is currently pending approval in Europe.

Management commentary

Speaking on the announcement, Resapp CEO and Managing Director, Dr Tony Keating said:

Receiving this patent grant for our core technology is a key step in our market entry plans for China. China presents multiple large market opportunities for ResApp’s products. According to UBS, the Chinese telehealth market is expected to reach US$54B by 2025, and there is a critical need for triage tools in China’s overburdened hospitals. China also has over 45 million people with asthma and 100 million people with COPD, which brings large opportunities in chronic disease management. Our team has discussions underway regarding pathways to enter the Chinese market and realise the value of these opportunities.

Resapp share price snapshot

The chart below shows Resapp’s underperformance relative to the S&P/ASX 200 Index (ASX: XJO) and the S&P/ASX Small Ordinaries Index (ASX: XSO) over the last 12 months.

Note the wide-reaching volatility Resapp shareholders have had to endure in this time, meaning that the stock’s risk-adjusted performance might be called into question.

Even still, with a breakout of 21% since January 1, shares are now back in line with the broad market once more. In the last year, the Resapp share price has climbed 20% into the green.

The post Resapp share (ASX:RAP) price climbs 5% on Chinese patent news appeared first on The Motley Fool Australia.

More reading

• ASX 200 shares offer 12% upside after sell-off: JP Morgan
• Why did the Tritium (NASDAQ:DCFC) share price just leap 7%?
• Pure Hydrogen (ASX:PH2) share price surges 8% on deal-filled quarter
• Broker says PointsBet (ASX:PBH) share price could have 90% upside
• Argosy (ASX:AGY) share price powers up on lithium project update

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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Key points

• Investors should buy the dip after ASX 200 shares suffered a weak start to the year, JP Morgan said
• The broker is forecasting strong GDP and EPS growth and notes ASX share valuations are cheap
• The ASX 200 could deliver 12% gains but this could be as high as 30% for JP Morgan’s “Super 7” ASX shares

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Those too afraid to buy the dip could find comfort in a leading broker’s prediction that the S&P/ASX 200 Index (ASX: XJO) can deliver double-digit gains this year.

With the ASX 200 having tumbled around 8% since the start of 2022, investors have been fretting that we could be on the cusp of a much bigger sell-off.

But there seems to be little doubt by JP Morgan that this is a buying opportunity, The Australian reported on Tuesday.

Why have ASX 200 shares suffered such a weak start to 2022?

The sell-off isn’t confined to ASX shares. Global equities have been struggling as expectations grew that the US Federal Reserve will need to move aggressively to lift interest rates this year. The rest of the world is likely to follow suit, including the Reserve Bank of Australia (RBA).

Record low global interest rates sitting around zero have fuelled the incredible rise in shares and property prices. Now higher rates are threatening to derail the bull market.

But the party isn’t over for ASX 200 shares. JP Morgan’s head of research, Jason Steed, believes shares are cheap given the economic outlook.

Good growth at discounted prices

The sharp drop in our share market has depressed the ASX 200 price-to-earnings (P/E) multiple back to its five-year average of 16.4 times.

“In 2022, our economists expect GDP growth of 3.1% y/y [year-on-year] for the calendar year, and a stronger rate of 4.4% on a 4Q/4Q basis,” Steed said.

“The consumer is the dominant force driving the lift, continuing the recovery evident through most of last year.

“With our economists projecting above-trend growth this year and our analyst team forecasting a strong uplift in EPS, the valuation backdrop is compelling.”

Double-digit EPS growth for ASX 200 shares

The broker is expecting ASX 200 shares, excluding the materials sector, to deliver 15% earnings per share (EPS) growth in FY22.

This should be enough to see the ASX 200 hit 7,800 by December this year, according to Steed. If he’s right, this will represent a gain of almost 12% from Monday’s close.

But you can probably do better than 12% if you picked the right shares to buy. Some are tipped to outperform the market.

Super 7 ASX shares to buy now

JP Morgan’s analysts pooled their best buy ideas for each sector to form the “Super 7” list. These ASX shares stand out from their peers in terms of valuation and outlook.

These include the Charter Hall Group (ASX: CHC) share price, James Hardie Industries plc (ASX: JHX) share price, National Australia Bank Ltd (ASX: NAB) share price, Qantas Airways Limited (ASX: QAN) share price, QBE Insurance Group Ltd (ASX: QBE) share price, South32 Ltd (ASX: S32) share price and the Santos Ltd (ASX: STO) share price.

The average return from the Super 7 ASX 200 shares based on JP Morgan’s forecasts stands at around 30%.

The post ASX 200 shares offer 12% upside after sell-off: JP Morgan appeared first on The Motley Fool Australia.

More reading

• ASX 200 (ASX:XJO) midday update: Credit Corp impresses, Boral’s $3bn capital return
• Buy this ASX share with 48% upside: expert
• These were the worst performing ASX 200 shares in January
• These were the best performing ASX 200 shares in January
• Why the share market pessimists are wrong

Motley Fool contributor Brendon Lau owns James Hardie Industries plc, National Australia Bank Limited, Santos Limited, and South32 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 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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Key points

• Tritium is an Australian-born manufacturer of DC fast chargers for electric vehicles
• It listed on the US Nasdaq exchange just a fortnight ago
• Let’s check out what happened with Tritium shares last night…

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It’s been a pretty fantastic day for the Tritium DCFC Limited (NASDAQ: DCFC) share price. Shares of this manufacturer of direct current fast chargers for electric vehicles shot up 7.1% on the US markets last night (our time) to close at US$7.84 a share. That’s more than 10% above the lows this company reached last Friday.

The Brisbane-based Tritium only launched on the Nasdaq just over a fortnight ago on 14 January. As my Fool colleague Brooke covered last week, Tritium was able to merge with a special purpose acquisition corporation (SPAC) called Decarbonization Plus Acquisition Corporation in listing on the share market. In doing so, it forwent the traditional initial public offering (IPO) process that we’re all familiar with.

However, Tritium shares remain down around 15% from where they were trading at on their first day of Nasdaq life on 14 January.

So why did this company rocket more than 7% last night?

Why did Tritium shares rally 7% last night?

Well, it’s not entirely clear. The company did put out a press statement last Friday which could have had an impact. Tritium announced that it had entered into an agreement with the Saudi company Electromin. Electromin is reportedly a “leading provider of e-mobility solutions across the Middle East and Africa”. The agreement will see Electromin purchase 200 DC fast chargers from Tritium.

But the market’s latest moves could also have contributed to Tritium’s stellar night last night. Overnight, the US markets enjoyed a convincing rally. The NASDAQ-100 (INDEXNASDAQ: NDX) was up a very pleasing 3.3%. Some major tech shares did even better. For example, electric vehicle and battery manufacturer Tesla Inc (NASDAQ: TSLA) saw its stock price surge by more than 10%.

It’s possible that Tritium shares just got caught up in this rush back into the tech space that we’ve seen investors shun in recent weeks.

Whatever the reasons for last night’s rally in Tritium DCFC shares, it would certainly be a welcome development for investors.

At Tritium’s last share price, this company had a market capitalisation of US$1.06 billion. 

The post Why did the Tritium (NASDAQ:DCFC) share price just leap 7%? appeared first on The Motley Fool Australia.

More reading

• Here’s how Tritium (NASDAQ:DCFC) has been performing since listing in the US

Motley Fool contributor Sebastian Bowen owns Tesla. 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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Key points

• The Pure Hydrogen share price is currently up 8%, trading at 51.5 cents
• The gains come on the back of the release of the company’s quarterly report
• Over the quarter just been, Pure Hydrogen made progress with both its hydrogen business and its gas assets

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The Pure Hydrogen Corporation CDI (ASX: PH2) share price is soaring on Tuesday after the company released its report for the December quarter after the ASX closed yesterday.

At the time of writing, the Pure Hydrogen share price is 51.5 cents, 8.42% higher than its previous close.

Though, earlier today, it reached a high of 53 cents – marking an 11.5% gain.

Pure Hydrogen share price surges on exciting quarter

• During the quarter, Pure Hydrogen launched a range of hydrogen fuel cell power generation units
• The company also bought a 24% stake H2X Global
• Pure Hydrogen signed a term sheet to build hydrogen waste plants across Australia
• Finally, it was a successful period for the company’s gas assets
• At the end of the December quarter, the company held $12.1 million of cash

Pure Hydrogen spent around $311,000 on operating costs over the quarter just been. It ended the period with funding for another 29 quarters of similar expenses.

And there was plenty to celebrate last quarter aside from the company’s finances.

The Pure Hydrogen share price launched 6.9% when it announced its plan to acquire a 24% stake in H2X Global – a hydrogen-powered vehicle manufacturer. The acquisition was completed in November.

Pure Hydrogen and H2X Global paired up in December to launch a range of hydrogen fuel cell power generation units. That announcement saw its stock surge 25%.

The company also announced its plan to build waste hydrogen plants in Queensland, New South Wales, and Victoria. The plants will be built in partnership with CAC-H2 and are expected to produce green hydrogen capable of being used in fuel cell vehicles.

The Pure Hydrogen share price gained a massive 31% when the company announced its partnership with CAC-H2.

Finally, the company’s 51%-owned Botswana-based Serowe Gas Project received a resource update last quarter.

What else happened during the quarter?

Like many, the company continued to respond to COVID-19 over the December quarter.

Pure Hydrogen says its response means its well-placed for markets to stabilise.

So far, none of its employees or contractors has tested positive for the virus.

What’s next?

There are plenty of upcoming happenings to keep Pure Hydrogen investors excited this year.

The company is expecting the first waste hydrogen plant, located in Caboolture, to be operational by the end of 2022.

Additionally, H2X Global is planning to launch its first hydrogen-powered ute to the Australian market in the first half of 2022.

Pure Hydrogen share price snapshot

The Pure Hydrogen share price gained a whopping 129% over the December quarter.

However, it has slipped 6% since then. Right now, it is trading for 202% more than it was 12-months ago.

The post Pure Hydrogen (ASX:PH2) share price surges 8% on deal-filled quarter appeared first on The Motley Fool Australia.

More reading

• Why the Pure Hydrogen (ASX:PH2) share price is rocketing 30% today
• Here are the 5 best performing ASX hydrogen shares of 2021

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 Bruce Jackson.

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Key points

• The PointsBet share price is jumping on Tuesday
• One leading broker sees scope for its shares to rise a further 90%
• Broker sees massive opportunity in the US

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The PointsBet Holdings Ltd (ASX: PBH) share price has been a very strong performer on Tuesday.

In afternoon trade, the sports betting company’s shares are up 8% to $5.24.

Why is the PointsBet share price storming higher?

Investors have been bidding the PointsBet share price higher on Tuesday for a couple of reasons.

The first is a rebound in the tech sector and particularly the sports betting industry. For example, larger rival Draftkings saw its shares jump 7% overnight on the Nasdaq index.

In addition, a bullish broker note out of Goldman Sachs appears to have given its shares a boost. According to the note, the broker has reiterated its buy rating with a trimmed price target of $9.97.

Based on the current PointsBet share price, this implies 90% upside over the next 12 months for investors.

What is Goldman saying

Goldman was pleased with PointsBet’s second quarter update and particularly its stabilising market share in the United States.

It commented: “Overall US market share of 4.2% was pleasing, with trends stabilizing vs. 1Q despite only US$29.7 mn of marketing spend, which in our view remains low and showcases the strength and resilience of its US franchise.”

The broker was also pleased with the performance of its Australian business which “continues to go from strength to strength, with Gross Win 44% ahead of GSe in 2Q.”

All in all, this appears to give Goldman confidence on the future, which it feels is very bright thanks largely to its massive US opportunity.

Goldman explained: “Reiterate our Buy rating on PBH, with our thesis underpinned by i) PBH’s leverage to the burgeoning US Sports Betting and Gaming market which we forecast to be a ~US$60 bn TAM opportunity at maturity, ii) our view that PBH remains well placed to capitalise given its in-house tech stack, iii) upside risk to long-run sustainable margins in Aus and the US, and iv) Scalability benefits ahead from NBCUniversal leads and broader coverage from state rollouts.”

The post Broker says PointsBet (ASX:PBH) share price could have 90% upside appeared first on The Motley Fool Australia.

More reading

• ASX 200 (ASX:XJO) midday update: Credit Corp impresses, Boral’s $3bn capital return
• These were the worst performing ASX 200 shares in January
• 5 things to watch on the ASX 200 on Tuesday
• These were the worst performing ASX 200 shares last week
• ASX 200 (ASX:XJO) midday update: ResMed and PointsBet disappoint

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. owns and has recommended Pointsbet Holdings Ltd. The Motley Fool Australia has recommended Pointsbet Holdings 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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Key Points

• Argosy shares accelerate on back of positive update at Rincon Lithium Project
• Over half of the total works have now been completed
• On track for production of lithium carbonate in mid-2022

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The Argosy Minerals Limited (ASX: AGY) share price is charging ahead on Tuesday. This comes after the company announced an operational update on the construction works at the Rincon Lithium Project.

Argosy holds a 77.5% interest in the Rincon project, located in Salta Province, Argentina. The mine is situated within the ‘lithium triangle’ – the world’s dominant lithium production source.

At the time of writing, the lithium miner’s shares are up 4.48% to 35 cents apiece.

Argosy on schedule with Rincon

Investors are buying up Argosy shares following the company’s snapshot of its progress at the Rincon Lithium Project.

According to its release, Argosy stated that around 56% of the total works have now been completed to bring the Rincon Lithium Project online. The development of the modular 2,000tpa (tonnes per annum) of lithium carbonate production plant remains on schedule and on budget.

The company is targeting to achieve the first commercial production of lithium carbonate product from mid-2022.

Major construction works such as building the process plant, equipment and associated installations, and expansion of the brine system have all progressed. As such, Argosy provided a summary of the current progress:

• 99% of earthworks/land movements completed;
• 86% of site works completed (site camp/accommodation, laboratory, office, and other works);
• 76% of the brine system completed (pumping station and plant settling ponds);
• 52% of the process plant completed (plant equipment acquisition and plant warehouse); and
• 53% of utilities and associated services (vapour system, communication system and ancillary services).

Argosy managing director, Jerko Zuvela provided some upbeat observations, saying:

The lithium market remains very positive and with lithium carbonate prices continuing to increase at these record levels, Argosy’s transformation into a battery quality lithium carbonate producer and cashflow generator is nearing, whilst also progressing toward the next stage 12,000tpa phase operations.

With such plans and backed by convincing lithium fundamentals, we look forward to a significant near-term growth phase from our operations this year and beyond at our Rincon Lithium Project.

Argosy share price review

Since the beginning of 2022, the Argosy share price has gained around 10% on the back of the positive investor sentiment.

The company’s shares reached a 52-week high of 45.5 cents earlier this month, before retracing slighty lower in the days following.

Based on today’s price, Argosy commands a market capitalisation of roughly $457.06 million, with approximately 1.29 billion shares outstanding.

The post Argosy (ASX:AGY) share price powers up on lithium project update appeared first on The Motley Fool Australia.

More reading

• Here’s why the Argosy (ASX:AGY) share price just rocketed 9% to a multi-year high

Motley Fool contributor Aaron Teboneras owns Argosy Minerals Limited. 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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Key points

• ASX lithium shares have benefited from soaring prices for the battery metal
• Labour shortages are hampering production increases
• EV sales expected to drive continued demand growth

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ASX lithium shares are in the spotlight as industry leaders warn of continuing supply squeezes for the key battery metal.

Western Australia, home to some of the world’s richest lithium deposits, has opted to keep its borders closed. That’s creating serious labour shortages for the mining industry, which is dependent on interstate workers.

And some lithium producers have been hesitant to ramp up demand, still stinging from the lithium price crash following the onset of the global pandemic in mid-2020.

Falling prices at that time threw up headwinds for leading ASX lithium shares like Pilbara Minerals Ltd (ASX: PLS) and Mineral Resources Ltd (ASX: MIN).

Today it’s a very different picture.

With electric vehicle (EV) production taking off, lithium demand looks to be outpacing supply. It’s a situation many in the industry believe will continue through the year.

Lithium prices could gain another 50% in Q1

Lithium prices have surged over the past 18 months, ushering in some outsized gains among many ASX lithium shares.

The Pilbara share price, for example, is up an eye-popping 921% since August 2020. The Mineral Resources share price has also gained a respectable 120% over that same period.

And there could be more to come.

As the Australian Financial Review reports, Pilbara Minerals’ CEO Ken Brinsden believes the price for lithium-rich spodumene concentrate, already up 4-fold in 18 months, could rise another 50% over the next 2 months.

Part of the supply crunch is due to hesitancy among some ASX lithium shares to up their production, with the 2020 price crash still all too fresh in management’s minds.

According to Brinsden:

It is tough to bring on additional capacity in an environment where you were previously being punished. A very low pricing environment had meant that every producer had slowed down.

It is highly likely that on the supply side there will be challenges and it is probably the case that the supply response is already being overstated, so it is against that challenging environment that the price is surging.

But even the miners actively looking to up their production are facing hurdles, namely due to border restrictions imposed by Western Australia to mitigate the impact of COVID-19.

Brinsden said that’s making it difficult for Pilbara and other miners to source temporary labour to upscale their production.

According to Brinsden (quoted by the AFR):

When something breaks or when we have got to do a shutdown, you typically can’t get the labour, at least not in the way we used to, to create the peak load that is required to get the jobs done quickly.

A shutdown that should have taken 36 hours takes 72 hours and a broken ball mill coupling takes 56 hours to fix when it should have taken 24 hours.

As for the outlook for the strong EV demand that’s been pushing lithium prices and ASX lithium shares higher, Fastmarkets analyst Benedikt Sobotka sees that continuing in 2022.

Noting that global EV sales more than doubled in 2021, Sobotka said, “The pace of EV adoption shows few signs of losing momentum, being supported by the global transition to a greener future.”

How have these ASX lithium shares performed this year?

Neither of the 2 ASX lithium shares named above has escaped the wider selloff impacting the S&P/ASX 200 Index (ASX: XJO).

While the ASX 200 is down 8% so far in 2022, both companies are still in the green year to date. The Mineral Resources share price is up 2% and Pilbara shares have risen by 2.8%.

The post ASX lithium shares in focus amid potential supply squeeze appeared first on The Motley Fool Australia.

More reading

• These 3 ASX 200 shares are topping the volume charts on Monday
• ASX 200 (ASX:XJO) midday update: Ansell crushed, ResMed upgraded
• Pilbara Minerals (ASX:PLS) share price races higher after strong lithium prices offset potential guidance downgrade
• 5 things to watch on the ASX 200 on Monday
• These were the worst performing ASX 200 shares last week

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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Key points

• Zip is reportedly interested in buying Sezzle
• Would a potential transaction add a lot of value for the Zip share price?
• Brokers are mixed on whether Zip is actually good value today or not

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The Zip Co Ltd (ASX: Z1P) share price is in focus as a potential acquisition of Sezzle Inc (ASX: SZL) is considered.

How close is a deal to being done?

Last week, Zip noted recent media speculation about a potential acquisition by Zip of Sezzle.

Zip confirmed that it is in discussions with the US-based buy now, pay later operator. It noted that it’s always interested in pursuing options that are in the best interests of shareholders, though discussions are preliminary in nature and there is “no certainty that the discussions will result in a transaction of any kind”.

The Zip board also said that it remains committed to ensuring any transaction delivers value to shareholders and will always be disciplined in its assessment of potential opportunities. It will only pursue transformational transactions that help accelerate the delivery of Zip’s broader strategic objectives such as enhanced scale in core markets, improved customer and merchant propositions and a faster path to profitability through synergy opportunities.

Would a deal add value to the Zip share price?

As the board said, scale will help improve underlying profitability. Sezzle is also growing in several markets that Zip is also interested in.

Zip is well established in Australia and New Zealand. However, it’s growing in places like the UK, as well as ‘expansion markets’ such as Canada, Mexico, Europe and the Middle East.

Sezzle is predominately focused on the US. It has linked up with some major retailers there including Target and IKEA.

Sezzle is currently targeting growth in Europe (Germany, France, Spain and Italy), India and Canada.

In Canada, Sezzle has surpassed 3,500 active merchants and in the fourth quarter of 2021 it saw underlying merchant sales (UMS) of more than US$41 million – 55.2% growth quarter on quarter. Active customers rose 131.7% year on year to over 225,000.

How much total volume would Sezzle add to Zip and potentially help the Zip share price if acquired? In the three months to 31 December 2021, total UMS increased 74.9% year on year to US$561 million (A$772.2 million, which was 21.8% quarter on quarter growth). Its total income grew 49.1% year on year to US$32.9 million – 5.9% of UMS.

Sezzle’s UMS reached an annualised run-rate of US$2.5 billion based on the month of November’s performance.

Let’s compare that $772.2 million of UMS from Sezzle to Zip’s performance in the three months to 31 December 2021. Zip generated quarterly transaction volume of $2.6 billion (which was up 53%). Going by those numbers, Sezzle’s UMS was approximately 30% of Zip’s total. It would be a very sizeable increase for Zip’s US business.

Are the share prices of Zip and Sezzle buys?

Brokers are mixed on Zip shares.

Macquarie currently rates Zip as a sell with the US part of the business seeing slowing growth and underperforming against expectations, the price target is $3.40. Citi rates Zip as ‘neutral’ with lower growth and increasing net bad debts, the price target is $3.65. Ord Minnett still rates it as a buy, with a price target of $6.

When it comes to Sezzle, Ord Minnett’s latest rating is a buy, with a price target of $9.90. But this was before the recent volatility and commentary about interest rates.

The post How much value would buying Sezzle add to the Zip (ASX:Z1P) share price? appeared first on The Motley Fool Australia.

More reading

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• ASX 200 (ASX:XJO) midday update: Ansell crushed, ResMed upgraded
• Sezzle (ASX:SZL) share price higher after reporting 75% Q4 sales jump
• Zip (ASX:Z1P) share price tumbles 10% as top broker questions possible Sezzle play

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. owns and has recommended ZIPCOLTD FPO. 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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