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Are you interested in adding some ASX tech shares to your portfolio for 2022?

If you are, you may want to look at the ones listed below that have recently been named as buys. Here’s what you need to know about them:

Altium Limited (ASX: ALU)

The first ASX tech share to look at is Altium. It is the printed circuit board (PCB) design software provider behind the popular Altium Designer and cloud-based Altium 365 platforms. The company’s platforms help many of the biggest tech companies in the world, such as BAE Systems and Tesla, to develop and manufacture electronics products faster and more efficiently. And given the explosion of electronic devices globally due to the rapidly growing Internet of Things and artificial intelligence markets, demand is expected to grow strongly over the next decade.

Jefferies is positive on Altium and currently has a buy rating and $48.83 price target on its shares. The broker believes the quality and price of Altium’s platform has positioned it well to win a significant share of the enterprise market.

Hipages Group Holdings Ltd (ASX: HPG)

Another ASX tech share to look at is Hipages. It is a leading Australian-based online platform and software as a service (SaaS) provider connecting consumers with trusted tradies.

Hipages has been growing at a rapid rate in recent years and appears well-placed to continue this trend in the future. Particularly given its strong market position in Australia and the recent agreement to acquire New Zealand-based rival Builderscrack for A$11.8 million. It is a leading online tradie marketplace with 4,000 active tradies and 200,000 registered homeowners across the NZ$26 billion total addressable market.

In response to the news, the team at Goldman Sachs maintained their buy rating and lifted their price target on the company’s shares to $5.15. The broker sees a meaningful growth opportunity from here and is forecasting a 24% revenue CAGR and a 38% EBITDA CAGR from FY 2021 to FY 2024.

The post 2 exciting ASX tech shares to buy in 2022 appeared first on The Motley Fool Australia.

More reading

• 2 ASX growth shares analysts rate as buys
• The Altium (ASX:ALU) share price has risen 20% this year. What’s the outlook for 2022?
• 3 excellent ASX growth shares to buy right now
• Altium (ASX:ALU) share price falls amid broker downgrade
• 5 things to watch on the ASX 200 on Tuesday

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 Altium and Hipages Group Holdings Ltd. The Motley Fool Australia has recommended Hipages Group 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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Could the share prices of these two ASX shares offer tasty returns, or are these food stocks going to sour further?

COVID-19 has impacted various elements of the food economy for a long time. The share prices of these two businesses have dropped in recent months. This raises the question – are they now looking like opportunities?

Inghams Group Ltd (ASX: ING)

Inghams is one of the largest suppliers of poultry products to Australia.

Since the end of September 2021, the Inghams share price has fallen by around 18%.

Analysts like the ones at Macquarie Group Ltd (ASX: MQG) thinks that COVID impacts will hurt underlying profit in FY22. The broker thinks that Inghams’ profit could decline by mid-single digits in FY22 because of impacts like lockdowns and higher feed costs.

However, there is one broker that is very positive about the ASX share – Citi. It thinks that that the company will be able to pass on higher prices to consumers in the coming months. The broker notes that poultry volumes in Australia saw growth in the three months to September 2021, which seemingly would suggest optimistic things for Inghams.

Based on Citi’s numbers, the Inghams share price is valued at 13x FY22’s estimated earnings. Turning to the potential dividend, the broker has estimated that Inghams could have a grossed-up dividend yield of 6.6%. The price target is $4.55.

Domino’s Pizza Enterprises Ltd. (ASX: DMP)

Domino’s is one of the largest fast food businesses in Australia, as well as several other countries. It’s now in several European countries as well as Japan and Taiwan.

However, the Domino’s share price has dropped 29% since the middle of September 2021.

The broker Morgans has a price target on the fast food business of $135, which suggests a potential increase of the Domino’s share price of around 15% over the next year.

In a trading update released at the annual general meeting (AGM), Domino’s said that in the first 18 weeks of FY22, network sales were up 8%, with same store sales (SSS) rising by 4.3%. Domino’s called this growth strong during difficult and uncertain times.

However, sales growth has been uneven across different regions. Japan was seeing negative sales after lockdowns ended, meaning it may not beat FY21’s Japanese earnings in FY22. However, Japanese store openings remain “very strong”.

The ASX share is planning to add a record number of stores in FY22, by adding the equivalent of more than one store each day.

The company is experiencing inflation in a few of its cost areas including energy and food.

Its three to five year outlook was unchanged, with same store sales growth of 3% to 6%, new store openings of 9% to 12% and net capital expenditure of between $100 million to $150 million.

Looking at broker expectations, the Domino’s share price is valued at 50x FY22’s estimated earnings and 41x FY23’s estimated earnings. The current rating on Domino’s by Morgans is a hold.

The post Do these two unloved ASX shares offer tasty returns? appeared first on The Motley Fool Australia.

More reading

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• 3 fantastic ASX growth shares to buy right now

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Dominos Pizza Enterprises Limited and 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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It has been a difficult year for the A2 Milk Company Ltd (ASX: A2M) share price. Could things turn around in 2022?

In 2021 to date, A2 Milk shares have dropped 53%.

But from here, is the outlook good for the business? Or could things turn even more sour?

Analyst opinions on the A2 Milk share price’s prospects in 2022

Brokers are mixed on the business.

Credit Suisse is neutral on A2 Milk, with a price target of $5.75. That implies a mid-single digit return over the next 12 months with A2 Milk starting to regain some pricing power.

Citi has a buy rating on the business, with a price target of $7.30. UBS is also a buy, with this broker expecting a good recovery in the next few years. UBS is noticing the recovery in the first quarter of infant formula with an English label.

The brokers at Macquarie Group Ltd (ASX: MQG) currently rate the business as a sell/underperform, with a price target of $5.20. That would be a mid-single digit decline over the next 12 months if the broker is right. Macquarie thinks that the profit margins don’t seem as though they will be strong in the next few years.

Recovering demand but lower margins?

In the fourth quarter of FY21, A2 Milk ‘recognised’ stock write-downs and deliberately slowed sales, together with other planned initiatives, to reduce inventory levels and rebalance English label infant formula pricing across channels. It also swapped older distributor inventory with more recent stock to improve on-shelf product freshness.

When A2 Milk gave its latest trading update, it noted that English label infant formula sales in the first quarter of FY22 were down on the first quarter of FY21, but were “significantly up” on the fourth quarter of FY21. That fourth quarter of FY21 was constrained to reduce channel inventory levels.

English label infant formula sales are expected to be down in the first half of FY22 on the prior corresponding period, but ahead of expectations.

Turning to A2 Milk’s earnings before interest, tax, depreciation and amortisation (EBITDA) margin expectations, A2 Milk said that the target margin is probably in the “teens” in the medium-term due to “expected” market conditions, investment and innovation.

Management also said that the target margin was “possibly” in the low-to-mid-20s in the medium-to-long-term subject to a market recovery that was better than expected, English label channel growth and market share gains.

A2 Milk share price valuation

Looking ahead to 2023, the Macquarie analysts think that A2 Milk shares are valued at 30x FY23’s estimated earnings.

On Citi’s numbers, the A2 Milk share price is valued at 27x FY23’s estimated earnings.

The post What’s the outlook for the A2 Milk (ASX:A2M) share price in 2022? appeared first on The Motley Fool Australia.

More reading

• Is the A2 Milk (ASX:A2M) share price now too cheap to ignore?
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• Experts tip 2 beaten up ASX shares for gains in 2022
• What I’d do with these ASX dogs of 2021: expert
• This broker thinks the A2 Milk (ASX:A2M) share price is heading to $7.70

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk and 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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Ask A Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In this edition, Perennial Value Management portfolio management director Stephen Bruce explains why he currently loves 3 particular ASX shares.

Hottest ASX shares

The Motley Fool: What are the 3 best stock buys right now?

Stephen Bruce: I just touched on iron ore — we think it’ll be potentially a really good trade over the coming 6 months or so. 

Another one would be United Malt Group Ltd (ASX: UMG), the malt company. It’s been a terrible laggard the last year or two. It was spun out of Graincorp Ltd (ASX: GNC) and it was meant to be a defensive business. It would be defensive in an economic downturn, but unfortunately, COVID has caused significant disruptions to its business — pubs being closed has affected the types of beer that get drunk in pubs versus drunk in your living room, et cetera. And some of its supply chain issues have hurt them as well.

But we think as we go into next year, some of that’s going to start to get resolved and the earnings are going to bounce back. But what’s really quite interesting is that the global malting industry is really undergoing a lot of consolidation. And we’ve seen some transactions at prices that would value UMG sort of closer to $6 than the mid-$4s where it’s trading now. 

So that’s one where we think [we] could do really well. Simply from our recovery and reopening, but then with the potential of corporate activity on top of it.

MF: I see United Malt’s price to earnings (P/E) ratio is reasonably high. Are you guys concerned about that at all?

SB: I guess if you look at the P/E ratio just on this year’s earnings, it’s still depressed. But if you look out to say 2023 when earnings start to get more normalised, it’s starting to look more attractive. When you’re thinking about it from a corporate point of view, 12 times EBITDA [earnings before interest, taxes, depreciation, and amortisation] is a level that transactions are being done on and that compares to, I think, UMG’s trading about 8 times.

Virgin Money UK CDI (ASX: VUK) is another unusual stock we like. It’s the biggest challenger bank in the UK, used to be owned by National Australia Bank Ltd (ASX: NAB) till it was spun out a couple of years ago. It’s really well placed to take market share in the UK banking market, we think, and the Virgin brand’s attractive to a younger banking consumer cohort.

And they’ve been investing in a pretty slick IT front-end to make them sort of easier to deal with and more efficient. And the UK banking sector we think overall is poised to do really well because the economy — the most recent headlines have been a bit negative — but by and large that economy has come out of COVID very, very strongly. 

Importantly with inflation, where it is there, it looks like the Bank of England is going to be one of the first to start raising rates and that’s really good for bank profitability.

MF: And your third ASX share pick?

SB: I suppose Independence Group (IGO Ltd) (ASX: IGO) is an interesting one. It’s had a really, really strong run, but if you’re a believer in the electric vehicle thematic, then potentially there’s still a lot of upside there. 

They just announced that they were trying to acquire Western Areas Ltd (ASX: WSA). And when you look at Independence Group, there’s a couple of high-level things [that] make it really attractive. Firstly it’s got basically the whole suite of the metals, being copper, nickel, lithium, and cobalt. So pretty much everything you can put into a battery, they make. 

An increasingly important thing [is] simply being located where they are. In Australia, it’s just an easy geography where you’ve got high levels of good regulation, high ESG standards, low levels of political risk and it’s easy to get things done. Although it’s not the cheapest place to do business, it’s a safe place to do business. I think over time that’ll become increasingly appreciated by investors.

MF: Is it ironic that in this ESG era that many miners are still quite buoyant because you still need those raw materials to create products like batteries?

SB: Absolutely. I think people have to be pragmatic about what is required, like to say mining is bad as a blanket statement is obviously not right and not practical either.

The post Drinking, banking, and EVs: 3 value ASX shares I’d buy right now appeared first on The Motley Fool Australia.

More reading

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• 5 things to watch on the ASX 200 on Monday
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• Is the NAB (ASX:NAB) share price great value? Goldman thinks it is

Motley Fool contributor Tony Yoo 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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There are some ASX dividend shares that have relatively low valuations, or low price/earnings ratios. This helps them deliver quite high yields for investors.

Some businesses in the retail sector trade at a lower earnings multiple compared to other sectors, so it can be a fertile place to look for income opportunities, such as these:

Nick Scali Limited (ASX: NCK)

Nick Scali is one of the leading furniture companies in Australia. It operates a national network of showrooms. It has also acquired the business Plush-Think Sofas.

The combined business has around 100 showrooms in Australia and New Zealand, with pro forma revenue of $533 million and underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $153 million in FY21.

Nick Scali likes what it can now offer customers. It has a dual brand strategy targeting a broader customer demographic. Nick Scali believes the enhanced market position provides diversity in its store format, location and geographic exposure.

Management noted that the two brands are highly complementary ‘made to order’ models with similar inventory and working capital profiles. The ASX dividend share says that there are opportunities for further growth, including a new store roll out for both brands in Australia and New Zealand.

The acquisition adds to profit and the company thinks there are material synergies which can be realised after an integration period.

Nick Scali also plans to ramp up the overall online sales, which is expected to help profit over time.

It’s currently rated as a buy by the brokers at Macquarie Group Ltd (ASX: MQG), with a price target of $15.50. On Macquarie’s numbers, Nick Scali is valued at 15x FY23’s estimated earnings with a projected FY23 grossed-up dividend yield of 7.4%.

Accent Group Ltd (ASX: AX1)

Accent is one of Australia’s leading shoe companies, selling through a number of brands (owned and as a distributor) including VANS, Trybe, The Athlete’s Foot, Stylerunner, Skechers, Platypus, Glue, Dr Martens and CAT.

The business is embarking on a large store rollout across various brands. At the end of FY21 it had 638 stores. It’s now expecting to open more than 120 new stores, including new concepts, in FY22. However, it could also close up to 10 stores where sustainable rent cannot be agreed. New stores are reportedly performing strongly.

The business made $25.6 million of sales from vertical and owned brands. It’s targeting at least $70 million of sales in FY22 – since the lockdowns ended its run rate of sales has been around $1.3 million per week.

Digital sales are another part of the equation for Accent. In FY21, digital sales increased by 48.5% and made up 20.9%. These sales come with attractive profit margins. The ASX dividend share is targeting 30% of sales to be digital over time.

It has signed a number of new distributions recently including Herschel, Hoka, Timberland Pro, Autry and Reebok.

Based on estimates on Commsec, the Accent share price is valued at 14x FY23’s estimated earnings. The projected grossed-up dividend yield for FY23 is 8%.

The post 2 cheap ASX dividend shares with big yields appeared first on The Motley Fool Australia.

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• Analysts say buy these ASX dividend shares
• Bell Potter names the best ASX retail shares to buy in 2022
• Brokers name 3 ASX shares to buy today
• Analysts name 2 ASX dividend shares to buy now

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Accent Group and 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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On Tuesday, the S&P/ASX 200 Index (ASX: XJO) was back on form and recorded a strong gain. The benchmark index rose 0.85% to 7,355 points.

Will the market be able to build on this on Wednesday? Here are five things to watch:

ASX 200 expected to edge higher

The Australian share market looks set to edge higher on Wednesday following a strong night of trade on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open the day 9 points or 0.1% higher this morning. In late trade in the United States, the Dow Jones is up 1.45%, the S&P 500 is up 1.55%, and the Nasdaq is trading 2.1% higher.

Chalice demerger

The Chalice Mining Ltd (ASX: CHN) share price is likely to trade notably lower on Wednesday. This morning the company’s gold exploration business Falcon Metals Ltd (ASX: FAL) will begin trading separately on the ASX boards following the completion of its demerger. Eligible Chalice shareholders received 1 Falcon share for approximately every 3.0341 Chalice shares.

Oil prices jump

Energy producers such as Beach Energy Ltd (ASX: BPT) and Woodside Petroleum Limited (ASX: WPL) could have a great day after oil prices jumped. According to Bloomberg, the WTI crude oil price is up 3.7% to US$71.17 a barrel and the Brent crude oil price has risen 3.5% to US$74.03 a barrel. Oil prices rebounded after investors’ appetite for risk improved.

Gold price falls

Gold miners Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) could come under pressure today after the gold price dropped. According to CNBC, the spot gold price is down 0.35% to US$1,788.4 an ounce. The gold price fell as investors rotated to risk assets.

Dividends being paid

More dividends are being paid to investors on Wednesday. KFC-focused quick service restaurant operator Collins Foods Ltd (ASX: CKF) and commercial explosives company Orica Ltd (ASX: ORI) are rewarding their shareholders with 12 cents per share and 16.5 cents per share dividends, respectively, later today.

The post 5 things to watch on the ASX 200 on Wednesday appeared first on The Motley Fool Australia.

More reading

• Here are the top 10 ASX shares today
• Here are the 3 most heavily traded ASX 200 shares this Tuesday
• Why is the Woodside (ASX:WPL) share price on the slide this week?
• ASX 200 (ASX:XJO) midday update: Magellan rebounds, Pilbara Minerals sinks
• What are these top brokers betting for Beach Energy (ASX:BPT) shares in 2022?

Motley Fool contributor James Mickleboro owns Collins Foods 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 recommended Collins Foods 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 Australian Clinical Labs Ltd (ASX: ACL) share price has hit a record high on Tuesday morning.

At the time of writing, the pathology services provider’s shares are up 10% to $5.47.

Why is the Australian Clinical Labs share price charging higher?

Investors have been bidding the Australian Clinical Labs share price higher this morning after it upgraded its guidance for the first half of FY 2022.

According to the release, the company expects its first half revenue to be between $497.3 million and $517.2 million. And on the bottom line, Australian Clinical Labs’ net profit after tax (NPAT) is expected to come in at between $116.3 million and $128 million.

As a comparison, the company’s previous guidance was revenue of $437.5 million to $454.9 million and NPAT of $86.3 million to $94.9 million.

At the mid-point of all ranges, this represents an upgrade of 13.7% for its revenue guidance and 35% for its NPAT guidance.

What drove the upgrade?

Management advised that the revenue guidance upgrade reflects continued strong demand for COVID-19 testing, particularly in VIC and NSW, as well as a sustained resilient performance of the non-COVID-19 business.

Whereas the profit guidance upgrade was driven by a combination of revenue growth and expanding margins from increased scale and operating leverage.

Positively, while the company has not provided guidance for the full year, management appears confident demand for testing will remain strong in the second half.

Australian Clinical Labs’ Chief Executive Officer, Melinda McGrath, commented: “We anticipate heightened volumes of COVID-19 testing to continue during the remainder of FY22 due to the impact of new variants and outbreaks, the lifting of travel restrictions and increased demand for both commercial and travel testing.”

The post Why the Australian Clinical Labs (ASX:ACL) share price is up 10% to a record high appeared first on The Motley Fool Australia.

More reading

• Why Australian Clinical Labs, Magellan, Sandfire, and Telix shares are rising
• Why the Australian Clinical Labs (ASX:ACL) share price is up 10% to a record high
• Why Australian Clinical Labs, Humm, Neometals, and Viva Energy are rising
• Analysts are tipping huge gains for these small cap ASX 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 no position in any of the stocks mentioned. The Motley Fool Australia has recommended Australian Clinical Labs 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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Investing in the small side of the share market carries more risk than other areas. However, if your risk tolerance allows for it, having a bit of exposure to this side of the market could be a good thing for a balanced portfolio given the potential returns on offer.

With that in mind, here are three small cap ASX shares that analysts rate highly:

Ai-Media Technologies Ltd (ASX: AIM)

The first small cap ASX share to watch is Ai-Media Technologies. This global media access provider’s cloud-based technology platform offers live and recorded captioning, transcription, subtitles, translation and speech analytics. And these services are certainly in demand! So much so, globally, Ai-Media technology delivers 7 million minutes of live and recorded media content, and online events and web streams every month. Bell Potter is positive on the company. It currently has a buy rating and $1.50 price target Ai-Media Technologies’ shares.

Mydeal.Com Au Ltd (ASX: MYD)

Another small cap to watch is MyDeal. It is an online retail marketplace focused on home and lifestyle goods. At the end of FY 2021, MyDeal had more than 1,800 sellers on its platform with over 6 million product SKUs listed across over 2,000 categories. And with its customer numbers nearing 1 million, the company looks well-placed to benefit from the shift to online shopping over the long term. The team at Morgans is positive on the company’s outlook and has an add rating and 90 cents price target on its shares. It feels MyDeal would be a good option for investors that want exposure to a high growth ecommerce opportunity with a strong balance sheet.

SILK Laser Australia Limited (ASX: SLA)

A final small cap ASX share to watch closely is SILK Laser. It is one of Australia’s largest specialist clinic networks, offering a range of nonsurgical aesthetic products and services. SILK’s five core offerings comprise laser hair removal, cosmetic injectables, skin treatments, body contouring and skincare products. Demand has remained strong for its services during the pandemic, underpinning stellar sales and profit growth. The good news is that management still sees significant room to expand its clinic over the next decade. This gives it a long runway for growth. Wilsons is bullish on SILK and has an overweight rating and $5.25 price target.

The post 3 exciting small cap ASX shares analysts rate highly appeared first on The Motley Fool Australia.

More reading

• 3 buy-rated small cap ASX shares with major upside potential
• This fund manager thinks the MyDeal (ASX:MYD) share price is appealing

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 SILK Laser Australia 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 ASX 200 index is home to 200 of the largest listed companies on the Australian share market.

While there are a number of quality options on offer in the index, two that could be in the buy zone with material upside are listed below.

Here’s what you need to know about these ASX 200 shares:

BHP Group Ltd (ASX: BHP)

The first ASX 200 blue chip share to look at is BHP. The Big Australian’s shares have pulled back materially in recent months following a sharp decline in the iron ore price.

While the weakness in the price of the steel making ingredient is disappointing, it still notably higher than BHP’s cost of production. As a result, the company’s operations are still generating significant free cash flow. As are many of its non-iron ore operations which are benefiting from rises in other commodity prices.

Macquarie remains very positive on the company. It currently has an outperform rating and $52.00 price target on BHP’s shares.

CSL Limited (ASX: CSL)

Another ASX 200 share to look at is CSL. It is one of the world’s leading biotherapeutics companies.

CSL has been a very positive performer over the last decade. This has been driven by successful acquisitions, its high level of investment in R&D activities, its growing plasma collection network, and its leading therapies and vaccines.

In respect to the latter, CSL’s portfolio includes lucrative and life-saving products such as Privigen, Hizentra, Idelvion, and Afstyla. It will soon add leading iron deficiency, nephrology and cardio-renal therapies to these with the acquisition of Vifor Pharma for $17 billion.

But it doesn’t stop there. Thanks to its ~US$1 billion spend on R&D annually, CSL has a pipeline of lucrative products under development to drive its future growth.

Last week Citi upgraded the company’s shares to a buy rating with a $340.00 price target.

The post 2 high quality ASX 200 shares with huge upside potential appeared first on The Motley Fool Australia.

More reading

• Here are the top 10 ASX shares today
• Interested in the $750m CSL (ASX:CSL) share purchase plan? Here are the details
• Fed up with term deposits? How to get 10% income from ASX shares
• 2 value ASX shares ready for a big 2022: fund manager
• Why is the BHP (ASX:BHP) share price having such a lousy start to the week?

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 CSL Ltd. 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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Shares in fund manager Magellan Financial Group Ltd (ASX: MFG) were rangebound today and trade more than 4% higher at $20.56.

Magellan shares have pared long-term gains and now trade deep in the red across all relevant time frames after a string of headwinds has plagued its manager performance lately.

What do the experts think? Let’s take a look at what analysts from leading investment firms are saying on the outlook for Magellan investors.

What is Morgans saying about Magellan’s outlook?

Morgans takes immediate note of UK based wealth management giant St James Place withdrawing its investment mandate from Magellan’s book, and also takes a balanced view of its outcome.

On the one hand, it notes the contagion risk for its flagship fund, however also notes that the withdrawal makes Magellan’s headline valuation look attractive.

Despite the optimism, however, Morgans remains unconfident on Magellan’s funds under management and the stability of its fees, saying that “medium term earnings risk are still present” in that regard.

Moreover, the risk of contagion or loss of another large institutional investor from St James Place’s exit is a real risk which investors must consider, Morgans says. This could impact retail outflows and force retail fee reductions, Morgans says.

In the end, the broker states that “we would avoid the stock until there is more certainty in the funds under management base and earnings outlook”.

It is neutral on the shares and values Magellan at $24.15 per share, in line with Jarden who have Magellan as a sell at $24.

Is Magellan a sell?

Meanwhile, Morgan Stanley says that Magellan’s bear case is finally playing out after St James Place’s exit, causing the broker to slash its price target by 40% to $17.50.

Morgan Stanley notes that a particular institutional client accounted for around 12% of Magellan’s annual revenues, and the broker is now worried about the lumpy revenues from other large clients.

It too recognises a threat to Magellan’s retail fees, which already sit at the highest amongst its peer group, and reckons a cut to Magellan’s 90%+ payout ratio is likely on the horizon. Morgan Stanley thinks Magellan is a sell.

UBS is also bearish, noting that St James Place’s withdrawal is a sign for broader concern. UBS notes that the institutional wealth manager accounted for 16% of Magellan’s funds under management, which could risk a follow on event.

UBS says that “with the stock down 33% on the news, investors are righty, in our view, factoring in broader contagion of institutional outflows”.

The investment bank itself forecasts $23 billion of net outflows over the next 2-3 years in its own modelling, according to the note.

UBS rates Magellan as a sell with these risks in mind on a valuation of just $17 per share.

Magellan share price summary

Magellan’s share price is down 64% in the past 12 months after falling another 63% this year to date. Over the past month is has extended losses and has plunged 43%, and has tanked more than 32% in the last week.

The post Is it a sell? Why is Morgans saying “avoid” the Magellan (ASX:MFG) share price? appeared first on The Motley Fool Australia.

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• Magellan (ASX:MFG) shares just lost $1.8b of market cap. What now?
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• ASX 200 (ASX:XJO) midday update: Magellan shares crash 28%, CIMIC tumbles

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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