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Several things might catch your eye when you look at the AGL Energy Limited (ASX: AGL) share price as it stands right now. Yesterday, AGL shares closed at $8.06 apiece.

The first thing that might jump out at you from looking at that share price is how it’s at the same level it was back in mid-2004.

The second thing that might catch your eye is how AGL is now down more than 71% from its last share price peak back in April 2017.

But the third, and perhaps most intriguing, thing one might notice is the trailing dividend yield on AGL shares. It is now sitting at a very eye-catching 10.2%.

Can AGL shares really be offering a 10.2% yield right now? The more sceptical investors out there might be screaming ‘dividend trap’ at that number. So let’s dive in.

A 10.2% dividend yield?

Yes, AGL shares do indeed have a trailing yield of 10.2% at the time of writing. This comes from the last two dividends AGL shareholders received over the past 12 months. The first was a final dividend of 51 cents per share investors were paid on 25 September last year.

The second was the 41 cents per share dividend that was doled out on 26 March 2021. That consisted of an interim dividend of 31 cents per share, and a special dividend of 10 cents per share. In fact, including this special divided pushes AGL’s trailing yield even higher, from 10.2% to 11.46%.

Don’t get too wedded to this high yield though.

The ‘special’ part comes from AGL’s commitment to pay out 100% of its underlying earnings as dividends (up from 75%) that was announced last year. It isn’t to last though, with the company cancelling this arrangement 3 weeks ago to shore up cash reserves for its upcoming demerger.

Still, even without these special dividends going forward, a 10.2% AGL share price yield is nothing to sneeze at. Especially in these near-zero-interest-rate times. So can investors expect this yield to be forward as well as trailing?

Well, as mentioned earlier, AGL employs an earnings target method of 75% of underlying earnings to be paid out as dividends. So its dividends are directly correlated to the earnings it brings in. In this light, AGL’s most recent guidance won’t get too many investors excited.

Is the AGL share price a dividend trap?

On 30 June when AGL announced its special dividends would be cancelled, it also announced that it expects a “material step-down in earnings [for FY2022] as a result of the lower wholesale electricity prices of the last 2 years now being realised”.

Not a good omen for future dividends. Its payout history wouldn’t exactly fill investors with certainty and confidence either. The 92 cents per share it has paid out over the past 12 months pales against the previous two dividends that amounted to $1.15 in dividends per share. In other words, they have already been going backwards.

AGL hasn’t exactly laid out what its future dividends will now look like. But investment bank and broker Goldman Sachs has taken an educated guess.

Goldman is anticipating that AGL’s dividends will likely decline further over the next few years. It estimates AGL’s payouts will reach an estimated 47 cents per share by FY2023. That would imply a forward FY23 yield of 5.85% on the current AGL share price.

The post The AGL share price is now trading on a 10% dividend yield appeared first on The Motley Fool Australia.

More reading

• Top brokers name 3 ASX shares to sell today
• Why the AGL Energy (ASX:AGL) share price has fallen 15% in 3 months
• It hasn’t been a great 2021 so far for the AGL (ASX:AGL) share price
• Top brokers name 3 ASX shares to sell today
• How did ASX renewable energy shares perform in FY21?

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

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The Oil Search Ltd (ASX: OSH) share price will be one to keep an eye on Tuesday.

This follows the release of another announcement this morning in what has been an eventful week for the energy producer.

What is happening with the Oil Search share price?

On Monday the Oil Search share price came under pressure after it announced the surprise exit of its CEO Dr Keiran Wulff.

According to the release, Dr Wulff has resigned for health reasons after managing a long-term medical condition which has recently deteriorated.

However, in addition to this, the company revealed that it had been in discussions with Dr Wulff following the receipt of recent concerns and complaints about his behaviour. No details were given about the complaints, other than Dr Wulff allegedly behaved in a manner that was not consistent with the standards expected by the Board.

Takeover offer rejected

While the Oil Search share price was expected to continue to tumble lower on Tuesday following a sharp decline in oil prices overnight, an announcement released this morning could potentially support its shares.

According to today’s release, Oil Search has recently received a confidential non-binding and indicative change of control proposal.

That proposal has been carefully assessed by its Board, Senior Management (excluding Dr Wulff), and advisers Goldman Sachs and Macquarie Capital.

However, following that assessment, the proposal was rejected as it was determined to not be in Oil Search shareholders’ best interests on the terms and value proposed.

Unfortunately, no details were provided in respect to what the offer price was. But if it were at a 20% premium to the current Oil Search share price, it would be somewhere in the region of $4.40 per share.

Investors may now be hoping that the unnamed suitor returns with a better offer in the near future.

The post Oil Search (ASX:OSH) share price in focus after revealing takeover approach appeared first on The Motley Fool Australia.

More reading

• ASX energy shares on watch after oil prices sink 8%
• Why Altium, Evolution, Oil Search, & SEEK shares are tumbling lower
• Oil Search (ASX:OSH) share price slides on shock leadership change
• ASX 200 midday update: Altium sinks, Oil Search CEO resigns
• ASX energy shares in focus as OPEC+ strikes deal to lift oil production

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 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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Fortunately, in this low interest rate environment, there are plenty of shares offering investors attractive fully franked dividend yields.

Two dividend shares that are currently rated as buys are listed below. Here’s what you need to know about them:

Adairs Ltd (ASX: ADH)

The first ASX dividend share to look at is Adairs. It is a leading retailer of homewares and home furnishings through both retail stores and online channels.

It has been a very strong performer in FY 2021 thanks to a favourable shift in consumer spending. For example, for the six months ended 31 December, Adairs reported a 34.8% increase in sales to $243 million and a 166% jump in EBIT to $60.2 million.

And while the company is expected to struggle to build on this in FY 2022, analysts at Goldman Sachs expect its growth to resume in FY 2023.

As a result, Goldman currently has a buy rating and $4.80 price target on its shares. It is forecasting fully franked dividends per share of 26 cents in FY 2021, 25.1 cents in FY 2022, and then 26.8 cents in FY 2023.

Based on the current Adairs share price of $3.75, this will mean yields of 6.9%, 6.7%, and 7.15%, respectively.

Westpac Banking Corp (ASX: WBC)

Another ASX dividend share to consider is Westpac. If you don’t already have exposure to the banking sector, it has been tipped as a great way to achieve this.

Analysts at Citi currently have a buy rating and $30.00 price target on its shares. This compares to the latest Westpac share price of $24.69.

Citi is positive on Westpac due to its attractive valuation and cost base targets. The latter sees Westpac aiming to reduce its cost base to $8 billion in the coming years. This compares to its $12.7 billion cost base at present.

The broker is forecasting fully franked dividends of $1.16 per share in FY 2021 and then $1.18 per share in FY 2022. This represents yields of 4.7% and 4.8%, respectively, over the next couple of years.

The post 2 high yield fully franked ASX dividend shares rated as buys appeared first on The Motley Fool Australia.

More reading

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• The Westpac (ASX:WBC) share price has fallen 8% over the last 30 days
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• NAB (ASX:NAB) share price slides as potential Forum fraud deepens
• It hasn’t been a great week for the ANZ (ASX:ANZ) share price so far

Motley Fool contributor James Mickleboro owns shares of Westpac Banking Corporation. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended ADAIRS FPO. The Motley Fool Australia owns shares of and has recommended ADAIRS FPO. 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, Totus Capital portfolio managers Ben McGarry and Tim Warner reveal their two biggest stock holdings and why they have so much faith in them.

Investment style

The Motley Fool: How would you describe your fund to a potential client?

Ben McGarry: The Totus Alpha fund, we’re a long-short fund started in 2012 and we basically try to find companies with a strong track record of earnings, tailwinds for growth, clean accounting, preferably with owners and management with skin in the game.

We tend to hold them for the long term and then, against that, we balance out our portfolio with [shorted] companies, in a range of industries, that are facing challenges. They might have red flags in the form of aggressive accounting, insider selling, unsustainable business models. Occasionally, [they] fall into the bucket of fads, frauds, and failures.

So we’re a sort of quality long book, balanced out by a range of companies and industries facing challenges. And our point of difference is that the fund’s been going almost 10 years. We’ve delivered about just over 15% per annum, net of fees, but we’ve done that with extremely low correlation to Australian and developed market indices.

Our fund tends to do well when markets get volatile. One of our investors described us as a traditional growth long book with a put option. By that, he means not a new business model, growth that is unprofitable and unproven, but more traditional companies at reasonable valuations that are growing form the backbone of our long book. 

Then our short book provides that downside protection when markets fall.

ASX’s quiet achiever

MF: What are your two biggest holdings?

BM: I’ll give you one Aussie and one offshore. 

Amazon.com (NASDAQ: AMZN) is one we really like at the moment and have recently uploaded in our portfolio, but we’ve owned it for a number of years. Our biggest holding in the Australian market is Objective Corporation Limited (ASX: OCL), which is a mid-cap Aussie software stock.

Objective is a company we’ve owned for 4 or so years now. It’s a founder-run business. The founder, Tony Walls, still owns 67% of the shares on issue. We think he’s an outsider CEO — he’s done a great job of both growing earnings, but also a fantastic job of managing capital.

The business has never raised equity since its IPO and has actually bought back 31% of the share count since listing. 

The things we like about Objective Corp is that it’s profitable, it’s cash-generative, it sells mainly to local, state, and federal governments.

So it has a very sticky or a very safe customer base and its earnings are highly recurring. It’s also very conservative in the way that it accounts. It presents its earnings to the market and the software that it produces is in the area of compliance, and regulatory compliance in particular, which is a long-term growth industry.

We also like it because it’s not that well covered by investment banks and sell-side research. So, we think it’s still, despite a strong run in the last couple of years, a relatively undiscovered name.

MF: Just looking at the price graph now, it’s done very well the last few years, hasn’t it?

BM: Yeah, it has and it’s sort of knocking on the door of index conclusions, which can be very difficult, given the size of the founder’s holding. 

They’ve also done well in acquiring bolt-on businesses and plugging them into their software backbone. And they spend a very high proportion of sales on R&D and we think that there is a nice potential pipeline of acquisitions out there for them. 

So yeah, we’re still bullish — despite the strong run — over the next couple of years.

MF: It looks like it didn’t even dip that much during the COVID crash in March last year — pretty resilient.

BM: The beauty of having government customers is that when… the economy’s crashing, the governments, the last thing they want to do is cut back on spending. So [Objective’s] customers are still actively trying to pump money into the economy, and that’s still the case. 

They pre-released results for the June half and there was strong growth across the board. 48% increasing cash, 45% revenue gross — it’s growing very nicely.

Why investors should hold onto Amazon

MF: As for Amazon, investors have spent the last 15 years wondering “Has the growth now plateaued?” Where do you see the business going in the next few years?

BM: Despite it being one of the obvious COVID winners and experiencing explosive earnings growth over the last 12 months, the shares have basically gone sideways, apart from the last month or so, they’ve started to move up. And in Aussie dollar terms, the Amazon share price has actually not done a lot in 12 months. 

We think the business is in a much stronger position post-COVID and the valuation has been back-filled a lot and is now quite attractive in terms of a long-term entry point for Amazon.

The reason we think it’s very interesting here and have recently increased our weight in the stock is that the higher-margin parts of the business are becoming larger and larger and are experiencing the fastest growth in the overall business mix of Amazon. If you look at their cloud infrastructure business, AWS, its revenue growth has been decelerating in recent years, but in the last quarter started to reaccelerate above 30% revenue growth.

We think that bodes well, given the cloud hosting is a higher margin than their first-party retail business. The advertising business, which is the highest-margin advertising business in the world, [is] a very significant business already — about 1.5 times the size of YouTube. That’s growing very strongly and it’s extremely high margin because they don’t have to wear things like content moderation costs that Facebook Inc (NASDAQ: FB), Twitter Inc (NASDAQ: TWTR) and Instagram et cetera have to wear.

So it’s basically a reasonable valuation after the last 12 months of sideways share price and we think that it will be basically a margin expansion story from here.

The post Here’s our secret software ASX share that just keeps giving: analyst appeared first on The Motley Fool Australia.

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• Better than Amazon: This ASX share has multiplied 910 times in 20 years
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tony Yoo owns shares of Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Amazon, Facebook, Objective Corporation Limited, and Twitter. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool Australia has recommended Amazon and Facebook. 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 Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price will be one to watch closely on Tuesday.

This follows the release of an announcement after the market close on Monday.

Why is the ANZ share price on watch?

After the market close on Monday, ANZ released an update on its capital management plans. According to the release, ANZ intends to buy-back up to $1.5 billion of shares on-market as part of its capital management plan.

This news could give the ANZ share price a boost, especially given how many analysts felt the recent COVID-19 outbreak could mean the banks postpone capital management plans.

ANZ’s Chair, Paul O’Sullivan, commented: “Despite the very real challenges being experienced by many of our customers, we have the financial strength to continue to support our customers, while also returning surplus capital to shareholders. After reviewing options, we consider an on-market buy-back to be the most prudent, fairest and flexible method to return capital in the current environment.”

Positively, the capital returns may not stop there. Mr O’Sullivan commented: “Our capital position may allow future capital returns to be considered, however we will continue to focus on balanced and prudent outcomes for all stakeholders.”

ANZ’s Chief Executive Officer, Shayne Elliott, advised that the bank took into account the current lockdowns when making the decision to undertake an on-market buy-back.

He said: “After taking into consideration the ongoing pressures in some parts of the economy due to COVID, including the current lockdowns in parts of the country, the strength of our balance sheet and ongoing financial performance means we are in a position to return a modest amount of surplus capital to shareholders through a buy-back of shares on-market.”

“Just as we supported our customers through previous lockdowns we stand ready and able to provide assistance to those that need it. The strength of our business means we are well placed to fulfil needs of our customers and the broader community while still actively managing our capital,” Mr Elliott added.

The bank expects to begin purchasing shares on-market in August 2021.

Capital impact

The good news for shareholders and the ANZ share price is that ANZ’s balance sheet will remain strong even after this capital return.

The release explains that ANZ’s reported Level 2 and Level 1 Common Equity Tier 1 capital (CET1) ratios were 12.4% and 12.2% respectively, at the end of March. This was well in excess of APRA’s stated unquestionably strong capital requirement of 10.5%.

Following this on-market buy-back, ANZ’s March 2021 CET1 ratio would reduce by approximately 35 basis points. This would mean 12.05% and 11.85%, respectively.

The ANZ share price is up 18% since the start of the year.

The post ANZ (ASX:ANZ) share price on watch after announcing $1.5bn share buy-back appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Tuesday
• ASX 200 Weekly Wrap: ASX shakes off lockdowns to rise higher
• Does Google plan to disrupt the ASX banks of CBA, ANZ, NAB and Westpac?
• It hasn’t been a great week for the ANZ (ASX:ANZ) share price so far
• Why are ASX 200 bank shares in focus on Wednesday?

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 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 really good ASX tech shares out there that are rated as buys by brokers.

Brokers (hopefully) have a good understanding of the merits of the businesses and have given thought to whether, at the current share price, a business is a buy, hold or sell right now.

These two businesses are ones that brokers think are buys in the technology space at the moment:

FINEOS Corporation Holdings PLC (ASX: FCL)

FINEOS is a software provider for the employee benefits and life, accident and health industry. Its technology aims to improve operational efficiency, increase effectiveness and provide excellent customer care.

The ‘FINEOS AdminSuite’ is designed to manage the modern complex structures and relationships of group and individual insurance processing to optimise the plan, coverage and data management, operational processing and business intelligence.

It’s currently rated as a buy by at least three brokers including Macquarie Group Ltd (ASX: MQG). The price target from Macquarie is $4.63, which suggests a potential upside of around 20% over the next 12 months if the broker is right.

Macquarie believes that FINEOS looks good value when looking at its peers, yet the business continues to make good operational progress. The broker thinks that it has a good future.

The ASX tech share is expecting organic subscription revenue growth of 30% for FY21. Management said this demonstrates strong and consistent software as a service (SaaS) revenue growth. Around 71% of its revenue is cloud-based.

It’s also looking for strategic bolt on acquisitions to enhance the FINEOS platform, such as Spraoi which is a provider of machine learning capabilities for the employee benefits and life industry.

Temple & Webster Group Ltd (ASX: TPW)

Temple & Webster is an online furniture and homewares business which sells many thousands of products through its website.

It’s currently rated as a buy by at least two brokers including Morgan Stanley. The broker has a price target on the ASX tech share of $15.

The broker likes the tailwind for the business of the e-commerce growth story. There also continues to be good demand for the products that Temple & Webster sells. Morgan Stanley thinks that Temple & Webster can become much more profitable in the future.

A few months ago, Temple & Webster told the market that it’s going to invest heavily over the next few years to increase its market presence, improve its offering to customers and make the business even more efficient. During this scale-up period, it expects that revenue will increase by “strong double digit” amounts whilst the earnings before interest, tax, depreciation and amortisation (EBITDA) margin would be between 2% to 4%.

But the ASX tech share’s management believes that with scale it can achieve operating leverage and higher levels of profitability. That will include improved supplier terms, more repeat customers which will reduce marketing expenses, a slowing of investment in fixed costs and a higher percentage of exclusive products with higher gross profit margins.

Temple & Webster CEO and co-founder Mark Coulter has said:

You only need to look at the US to see how the e-commerce market is playing out, and why we remain bullish about the shift from offline to online. We are at the start of this once in a generation shift, and now is the time to put our foot down to secure market leadership and ensure we are the brand for the next generation of furniture shopper.

The post 2 top ASX tech shares rated as buys by brokers appeared first on The Motley Fool Australia.

More reading

• These are the 10 most shorted ASX shares
• Why is the Temple & Webster (ASX:TPW) share price up over 3% today?
• 3 ASX shares growing at a rapid rate
• Brokers name 3 ASX shares to buy today
• 3 ASX growth shares named as buys

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 shares of and has recommended Temple & Webster Group Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended FINEOS Corporation Holdings plc. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia has recommended FINEOS Corporation Holdings plc and Temple & Webster Group 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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Australian energy shares such as Beach Energy Ltd (ASX: BPT), Oil Search Ltd (ASX: OSH), and Santos Ltd (ASX: STO), and Woodside Petroleum Limited (ASX: WPL) could come under pressure on Tuesday morning.

This follows a sharp decline in oil prices during overnight trade on Wall Street.

What happened?

While energy shares were out of form on Monday, particularly the Oil Search share price after the exit of its CEO, these declines look likely to be extended during today’s session after oil prices sank as much as 8% overnight.

According to Bloomberg, the WTI crude oil price has sunk 7.6% to US$66.34 a barrel and the Brent crude oil price has tumbled 6.9% to US$68.52 a barrel.

Why are oil prices sinking?

Traders have been selling oil after a surprise announcement out of OPEC on Sunday. That announcement revealed that the oil cartel has agreed to remove all production cuts by September 2022.

According to CNBC, the group of 23 nations have agreed to increase production by 400,000 barrels per day each month from August. This means that by September 2022, the entirety of the almost 6 million barrels per day of oil being withheld will be back on the market.

Bullish analysts

Some analysts believe the news isn’t as bad as it appears. RBC’s Helima Croft told CNBC: “This was a renewal of OPEC+ vows. We think the market can absolutely absorb the additional 400,000 barrels per month…this is a constructive agreement.”

Goldman Sachs commented: “We view [Sunday’s] deal as supportive to our constructive oil price view with supply increasingly becoming the source of the bullish impulse and evidence of non-OPEC supply shortfalls likely in the coming months.”

In addition to this, the report reveals that the team at Credit Suisse has raised its oil price forecasts for the year. Its analysts are now expecting Brent crude oil to average US$70 per barrel in 2021, up from US$66.50 per barrel previously. It also boosted its WTI crude oil price forecast by US$5 per barrel to an average of US$67 per barrel in 2021.

Citi is even more positive, it said: “The summer season for petroleum markets should be stronger than usual this year on pent-up leisure demand.” It expects Brent and WTI to climb to US$85 per barrel or higher this year.

In light of the above, the recent weakness in energy shares could yet prove to be a buying opportunity for investors.

The post ASX energy shares on watch after oil prices sink 8% appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Tuesday
• Why Altium, Evolution, Oil Search, & SEEK shares are tumbling lower
• Oil Search (ASX:OSH) share price slides on shock leadership change
• ASX 200 midday update: Altium sinks, Oil Search CEO resigns
• ASX energy shares in focus as OPEC+ strikes deal to lift oil production

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 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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On Monday the S&P/ASX 200 Index (ASX: XJO) started the week on a disappointing note. The benchmark index finished the day 0.85% lower at 7,286 points.

Will the market be able to bounce back from this on Tuesday? Here are five things to watch:

ASX 200 expected to sink again

The Australian share market looks set to sink again this morning. According to the latest SPI futures, the ASX 200 is expected to open the day 70 points or 1% lower. This follows a very poor start to the week on Wall Street, which saw the Dow Jones crash 2.1%, the S&P 500 drop 1.6%, and the Nasdaq fall 1.1%. The Dow had its worst day since October amid concerns rising COVID-19 cases could stifle global economic growth.

Oil prices crash

Energy producers such as Beach Energy Ltd (ASX: BPT) and Woodside Petroleum Limited (ASX: WPL) could come under significant pressure today after oil prices crashed overnight. According to Bloomberg, the WTI crude oil price is down 7.6% to US$66.34 a barrel and the Brent crude oil price has tumbled 6.9% to US$68.52 a barrel. News that OPEC plans to remove its production limits hit oil prices very hard.

BHP fourth quarter update

The BHP Group Ltd (ASX: BHP) share price will be one to watch on Tuesday when it releases its fourth quarter update. Goldman Sachs is expecting a decent quarter and strong iron ore prices. It said: “June H realised pricing – Fe could be higher on better lump premium, but Jimblebar discounts may partly offset, expect coal discounts on pricing lags.”

Gold price softens

Gold miners Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) will be on watch after the gold price softened. According to CNBC, the spot gold price is down 0.15% to US$1,812.1 an ounce. A strong US dollar put pressure on the precious metal.

ANZ capital return

The Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price could be given a boost today by news that it is returning funds to shareholders. After the market close, ANZ announced that it will buy-back up to $1.5 billion of shares on-market as part of its capital management plan. The bank may not stop there, though. It advised that its capital position may allow future capital returns to be considered.

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

More reading

• ASX 200 drops, Telstra falls, Altium declines
• Here are the 3 most heavily traded ASX 200 shares this Monday
• Why Altium, Evolution, Oil Search, & SEEK shares are tumbling lower
• 2 defensive ASX 200 shares that brokers rate as ‘buys’ this Monday
• ASX 200 midday update: Altium sinks, Oil Search CEO resigns

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 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 Insurance Australia Group Ltd (ASX: IAG) share price will be one to watch on Tuesday morning.

This follows the release of an announcement late this evening relating to a potential asset sale.

Why is the IAG share price on watch?

The IAG share price could be on the move tomorrow amid news that it could be selling its 49% interest in Malaysian business, AmGeneral Holdings Berhad.

According to the release, AmGeneral Holdings Berhad has signed an implementation agreement for the proposed sale of its insurance business to Liberty Insurance Berhad.

AmGeneral Holdings Berhad is the general insurance arm of the AMMB Group (AmBank), which owns the remaining 51% interest. Its wholly-owned subsidiary AmGeneral Insurance Berhad sells general insurance products under the AmAssurance and Kurnia brands.

Agreement terms

The reasonably complex implementation agreement will see Liberty Insurance Berhad acquire 100% of the shares in AmGeneral, with AmBank then holding a 30% interest in the insurance operations of both Liberty Insurance and AmGeneral. IAG isn’t sticking around, though, and intends to exit its investment in AmGeneral.

The release explains that completion will be conditional on the Malaysian High Court approving a capital reduction and distribution of the sale proceeds to IAG.

At this stage, IAG’s share of the sale proceeds will be $340 million. This will be payable in cash and subject to post-close adjustments.

What’s next?

Pending regulatory processes and approvals, the transaction is expected to complete during IAG’s financial year ending 30 June 2022.

IAG expects to incur a loss on sale of approximately $901 million. This will be recognised in its FY 2021 results as part of amortisation and impairment. This is due to the asset now being recognised as held-for-sale.

The sale is expected to result in an increase in IAG’s regulatory capital position of approximately $150 million at completion.

The post IAG (ASX:IAG) share price on watch following asset sale update appeared first on The Motley Fool Australia.

More reading

• Brokers using the lockdown to upgrade earnings forecasts on these ASX 200 shares
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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 owns shares of and has recommended Insurance Australia 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 was out of form and dropped lower with the market on Monday.

The telco giant’s shares ended the day 0.3% lower at $3.76 even though it responded to media speculation.

What happened to the Telstra share price?

The Telstra share price came under pressure despite the telco giant confirming that it was in discussions regarding an acquisition.

This morning Telstra revealed that it has been in talks to acquire South Pacific telecommunications company Digicel Pacific in partnership with the Australian Government.

Digicel Pacific was founded in 2006 and is a leading provider of communications services across Papua New Guinea, Fiji, Nauru, Samoa, Tonga and Vanuatu. It has a strong market position and an extensive network coverage in the region. In calendar year 2020 it generated EBITDA of US$235 million and strong margins.

The release explains that if Telstra were to proceed with a transaction, it would be with financial and strategic risk management support from the Government. As well as significant Government funding and support package, any investment would have to be within certain financial parameters. This would mean that Telstra’s equity investment is the minor portion of the overall transaction.

Reaction

In response to the news, analysts at Goldman Sachs have retained their buy rating and $4.20 price target on the Telstra share price.

This implies potential upside of ~12% over the next 12 months excluding dividends. Including them, it stretches to ~16%.

At this stage, it is too soon for any changes to its estimates. However, the broker doesn’t appear to be objecting to the move.

Goldman commented: “Any acquisition would be in partnership with the Australian Government, with Telstra to only have a minor portion of the equity, and the Government would also provide Telstra with a significant funding, support, and risk management package (i.e. media reports suggest that Telstra has asked Digicel to underwrite its 3Y revenue.”

“Telstra noted that Digicel Pacific generated EBITDA of US$235mn in CY20, with a strong margin and extensive network coverage. We currently value Telstra International at 7.0X EBITDA. Using a similar multiple range for Digicel of 6-8X EBITDA, this implies a potential EV for Digicel of A$1.9-2.5bn. Assuming 3X gearing (vs. 1.9x for TLS but factoring in government support), the equity would then be worth A$1.0-1.6bn. This would imply that the speculated $200-300mn equity investment would represent 15-30% equity ownership,” it added.

The post Is the Telstra (ASX:TLS) share price good value amid acquisition news? 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 owns shares of 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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