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The S&P/ASX 200 Index (ASX: XJO) is home to a good number of quality options for investors to choose from.

To narrow things down, I have picked out four ASX 200 shares that are highly rated right now. Here’s what you need to know about them:

Afterpay Ltd (ASX: APT)

The first ASX 200 share to look at is this buy now pay later (BNPL) focused payments company. It has been growing at an explosive rate in recent years and has been tipped to continue its growth over the 2020s. This is thanks to its leadership position in the rapidly growing BNPL market, its international expansion, and new product launches such as Afterpay Money. Morgan Stanley currently has an overweight rating and $145.00 price target on Afterpay’s shares.

Breville Group Ltd (ASX: BRG)

Another ASX 200 that is rated highly is Breville. It is one of the world’s leading appliance manufacturers. Due to the company’s increasingly popular products, favourable industry tailwinds, international expansion, and its ongoing R&D investment, Breville appears well-placed for growth over the next decade. UBS believes this will be the case. Its analysts have a buy rating and $35.70 price target on its shares.

Lendlease Group (ASX: LLC)

Another ASX 200 share to look at is Lendlease. It is a global property and infrastructure company undertaking a major transformation. This new strategy is shifting its earnings mix and business model to be more like high-flying Goodman Group (ASX: GMG). Goldman Sachs is positive on the transformation and sees a lot of value in its shares. The broker has a buy rating and $16.54 price target on the company’s shares.

Sonic Healthcare Limited (ASX: SHL)

A final ASX 200 share to consider is Sonic Healthcare. It is a medical diagnostics company with operations across the world. While the company is benefiting greatly from COVID-19 testing, the rest of the business is performing positively as well and looks well-placed to benefit from pent up demand for healthcare services. Sonic also has a strong balance sheet, giving it the opportunity to accelerate its growth through acquisitions. Credit Suisse currently has an outperform rating and $40.00 price target on the company’s shares.

The post 4 top ASX 200 shares analysts rate highly appeared first on The Motley Fool Australia.

More reading

• Afterpay (ASX:APT) onboards Amazon, Nike, Target to ‘one-time card’
• 2 top blue chip ASX 200 shares rated as buys
• Up another 6%, Zip (ASX:Z1P) share price hits 2-month high
• ASX 200 down 0.5%: Costa’s acquisition, Afterpay & Zip charge higher
• Top brokers name 3 ASX shares to buy today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool Australia has recommended Sonic Healthcare 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 Woolworths Group Ltd (ASX: WOW) share price is sinking on Thursday morning.

At the time of writing, the retail conglomerate’s shares are down a sizeable 15% to $35.95.

Why is the Woolworths share price sinking?

The good news for shareholders is that the declining Woolworths share price has nothing to do with a trading update or broker note but everything to do with the spin-off of its drinks business.

This morning the company’s drinks business landed on the ASX boards as Endeavour Group Limited (ASX: EDV). This spin-off sees Woolworths shareholders receive one Endeavour Group share for every Woolworths share they own.

In light of this, the Woolworths share price has declined to reflect the loss of the drinks business from its valuation.

Spin-off thoughts

Goldman Sachs has been looking at the spin-off and sees a lot of positives from it. This is particularly the case with the company’s plan to make a capital return of up to $2 billion post-merger.

It said: “The demerger of Endeavour Group simplifies WOW towards a more tightly focused supermarket offering across Australia and New Zealand and eliminates the ESG issues associated with the gaming and alcohol aspects of Endeavour Group. A demerger would also leave the company in a strong balance sheet position with excess capital even after a proposed A$1.6-2.0bn capital return (post demerger). We expect FCF post Dividend obligations to return to >A$1bn in FY23e, in line with FY20, despite the demerger. We also forecast Woolworths Group ex. Endeavour to turn to a net cash position by FY23e.”

Though, the broker notes that the demerger is not without risks.

Goldman explained: “While this increased focus is a benefit for the group, the demerger also exposes investors to a more concentrated supermarket operation and leaves Big W looking more of a strategic outlier. As a more concentrated supermarket operation, WOW post demerger will expose shareholders to a range of risks including: (a) potential increase in online competition and capacity in the next three years, (b) capacity utilisation in physical stores at risk of declining and (c) the supply chain upgrades in the sector could impact WOW’s relative competitiveness, potentially compelling WOW to upgrade as a countermeasure.”

The post Why is the Woolworths (ASX:WOW) share price down 15% today? appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Thursday
• ASX 200 down, Woolworths falls, Costa acquires more farms
• Woolworths (ASX:WOW) share price slides following update
• Which ASX 200 shares are winners from the latest retail trade figures?
• ASX 200 Weekly Wrap: ASX makes it 5 out of 5

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 Splitit Ltd (ASX: SPT) share price is pushing higher on Thursday morning.

At the time of writing, the buy now pay later (BNPL) provider’s shares are up 2.5% to 60.5 cents.

Why is the Splitit share price pushing higher?

Investors have been buying the company’s shares following the release of an announcement this morning.

According to the release, the company has completed its integration with US healthcare payment platform, Green Feather. This follows its entry into a partnership agreement in the first quarter of FY 2021.

Green Feather has a focus on improving patient payment experience for healthcare providers. Its Feather Pay payment platform offers patients total flexibility in paying for their care, with access to multiple payment options and the ability to combine multiple payment types in a single transaction.

Management notes that the professional services industry is a high-priority target vertical for Splitit.  And while the economic materiality of the partnership with Green Feather is unknown at this point, Splitit considers that the launch of its solution on Green Feather’s platform demonstrates its progress as it expands in this important strategic growth channel.

Splitit’s CEO, Brad Paterson, commented: “Splitit’s goal is to meet consumers where they need us the most. Paying for healthcare can be stressful enough, and having to fill out applications for financing just makes it even more trying. Patients can easily select Splitit at the point of care with just a few simple clicks, helping ease the stress, while healthcare providers can focus on delivering exceptional care and patient experiences.”

This sentiment was echoed by Green Feather’s CEO and co-founder, Craig Haynor.

He said: “We are excited to partner with SplitIt to bring their powerful installment plan capabilities to our healthcare customers through an integration into our payments platform, Feather Pay. SplitIt is a fantastic product and company, led by a purpose-driven team that understands the affordability problem in healthcare. This partnership will enable all of us as patients to receive the care we so deserve and to live healthier lives because of it.”

The Splitit share price is down a disappointing 53% since the start of the year.

The post Splitit (ASX:SPT) share price higher on US update appeared first on The Motley Fool Australia.

More reading

• These ASX shares just sank to 52-week lows
• Splitit (ASX:SPT) share price higher on BNPL network partnership

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

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

What happened

Shares of electric-car maker Tesla (NASDAQ: TSLA) rose sharply on Wednesday. The stock rose as much as 5.2%. As of 1:10 p.m. EDT, however, the stock was up 4.7%.

The automaker’s stock was likely trading higher due (in part) to a sharp jump in Bitcoin prices. In the past, Tesla shares have moved sharply up or down on days of volatile Bitcoin trading. Investors often associate the car company with Bitcoin because it has bought $1.5 billion worth of the cryptocurrency. But an upbeat day for some growth stocks like Tesla may be helping as well.

So what

Bitcoin has rebounded more than 15% after briefly sinking below $30,000 on Tuesday. As of this writing, Bitcoin is trading near $34,000.

Some investors may be concerned about how Bitcoin’s price at the end of Tesla’s second quarter could impact the company’s reported profits. The recent rebound in the cryptocurrency’s price may soothe some concerns about how a falling price in the digital coin could impact the company’s earnings report — though there’s no telling where the digital coin will be trading at the end of the period.

Tesla shares may also be getting a boost from recent momentum in growth stocks.

Now what

Investors should keep in mind that Tesla’s Bitcoin investment is small relative to the automaker’s total cash balance. The company wrapped up Q1 with $17.1 billion of cash and cash equivalents. Tesla’s Bitcoin investment is particularly small in relation to the company’s $630 billion market capitalization.

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

The post Why Tesla stock jumped on Wednesday appeared first on The Motley Fool Australia.

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Daniel Sparks 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 Tesla. 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.

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

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The Earlypay Ltd (ASX: EPY) share price is under pressure on Thursday morning.

At the time of writing, the payment advance company’s shares are down 8% to 44 cents.

Why is the Earlypay share price tumbling?

This morning Earlypay announced that it has received commitments to raise $18.85 million via a placement to new and existing institutional and professional investors.

According to the release, the company is raising the funds via the issue of 44,897,846 new shares at a price of $0.42 per new share. This represents a 12.5% discount to its last close price.

Why is Earlypay raising funds?

The release explains that the proceeds of the raise will be used to fund the expansion of its new trade finance product while the company puts in place a new $50 million warehouse facility.

Once the proposed warehouse facility is complete, Earlypay expects the majority of cash to be released back onto the balance sheet. After which, that cash will be used for the repayment of its remaining expensive bonds and potential acquisition opportunities.

The new trade finance product is expected to enhance Earlypay’s offering by supporting SMEs with a financing option for purchasing inventory. Then once the clients sell the final product to their customers, the loan converts to its established Invoice Finance product. Management notes that it builds on the record lending volumes Earlypay is experiencing in its established products.

Earlypay’s CEO, Daniel Riley, commented: “Earlypay has continued its strong momentum in CY’2021, with our new Trade Finance product garnering significant demand from new and existing clients. Importantly, we expect the capital raise and product expansion to be earnings accretive in FY’22.

“The performance of the new Trade Finance product, combined with our record business lending volumes in established products, has provided strong validation for the Board to endorse a capital raising to support the new business pipeline while a proposed $50m warehouse facility to support the Trade Finance product is established.“

Trading update

Earlypay took this opportunity to also provide the market with an update on its performance in FY 2021.

It has reiterated its FY 2021 guidance of NPATA of $8.5 million. It is then expecting NPATA of ~$12 million in FY 2022, before the net returns on the new Trade Finance product.

Mr Riley commented: “New initiatives are well advanced and include expansion of Trade Finance and broader promotion of Equipment Finance. The new initiatives leverage existing staff and technology capability and have the potential to contribute substantially to topline growth during FY’22 and beyond with little corresponding cost.”

Despite today’s sizeable decline, the Earlypay share price is still up 16% year to date.

The post Why the Earlypay (ASX:EPY) share price is sinking 8% today appeared first on The Motley Fool Australia.

More reading

• 5 reasons interest rate hikes won’t smash your ASX shares
• 2 high-quality ASX shares that could be buys
• Westpac (ASX:WBC) share price on watch after NZ update
• Afterpay (ASX:APT) onboards Amazon, Nike, Target to ‘one-time card’
• Leading broker tips South32 (ASX:S32) share price to rocket higher

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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It looks like the ‘free money’ party is nearing the end as the Reserve Bank of Australia and other central banks consider winding down their COVID-19 assistance.

“The US Federal Reserve is starting to ‘talk about talking about tapering’ (or slowing) its bond buying, and Fed officials are signalling the start of rate hikes in 2023,” said AMP Capital chief economist Dr Shane Oliver.

“In Australia, the RBA is also slowly heading towards the exit of easy money with 0.1% funding for banks ending this month… and a speech by Governor [Philip] Lowe dropping a reference to the conditions for a rate hike as being ‘unlikely to be met until 2024 at the earliest’.”

But Oliver, writing on a AMP Ltd (ASX: AMP) blog, reckons stock investors have little to worry about.

The volatility seen the last few weeks may continue, he said, but that would be all standard cyclical behaviour.

“Shares are vulnerable to a correction. They have run very hard and we are now in a seasonally weak period of the year – so the rough patch could have further to go,” said Oliver. 

“However, we would see this as just normal gyrations for this stage in the cycle.”

Oliver presented 5 reasons why he thought shareholders are in the clear.

Monetary policy is still ‘ultra-easy’

While money might not be quite as ‘free’ as now, it’ll still remain pretty cheap.

“Tapering of bond purchases is not monetary tightening, it’s just slower easing,” said Oliver.

“While some emerging country central banks have raised rates, rate hikes in the US and Australia are still 18 months to 2 years away and the ECB and Bank of Japan are further behind.”

Oliver added that the current inflation spike was temporary anyway.

“Various commodity prices have rolled over – eg US timber prices down nearly 50%,” he said.

“US wages pressure will subside as enhanced unemployment benefits end and schools return, sending workers back into the jobs market, and it will be similar in Australia when backpackers return.”

Good news is good news

Oliver reminded investors that the central banks’ hawkish shift simply reflected the positive recovery in economies around the world.

“With monetary stimulus having done its job, the need for emergency monetary settings is starting to recede,” he said.

“The recent shift in tone from central banks is most unlikely to signal that they are backing away from their commitments to getting inflation sustainably back to target – rather it reflects the reality that as recovery has been stronger than expected, they will likely meet their objectives earlier than previously expected.”

Shares rose through the last ‘taper’

The last prolonged period of stimulus tapering in the United States was from December 2013 to September and October 2014, according to Oliver.

And stocks actually rose through it.

“This is likely because tapering is a slowing in easing — not actual tightening — and rates were still low,” he said.

“There is no reason to expect a different outcome through the next taper, particularly given that the start of tapering is being well flagged.”

Maybe a short dip but shares will rise again

History is on the side of share investors, according to Oliver, even when the interest rate hikes arrive.

“The experience of the last 30 years suggests an initial dip in share markets around the first rake hike but then the bull market resumes.”

He presented 1994, 2004 and 2015 as examples where rate rises depressed stock markets for a short while, then it was back to gains again.

“Recession did not come for 7 years after the February 1994 first hike, for 3.5 years after the June 2004 first hike and for 4 years after the December 2015 first hike — and that was due to the pandemic,” said Oliver.

“This is because the first rate hike only takes monetary policy from very easy to a bit less easy. And it’s only when monetary policy becomes tight after numerous rate hikes that the economy gets hit. This is all a long way off as even the first hike is a while away.”

Current times are consistent with the investment cycle

Even if you don’t believe anything else that he said, Oliver reckons the current bumpy ride in markets perfectly fits into the narrative of the investment cycle.

“Right now, we are likely in phase 2 of the investment cycle. Monetary support is likely starting to diminish (albeit only slowly), and we are now more dependent on earnings growth,” he said.

“This shifting of the gears from the phase 1 valuation driven gains typically sees some slowing in average share market gains. But the trend remains up and we are likely still a fair way away from the unambiguous overheating and exhaustion evident at the end of a cyclical bull market.”

The post 5 reasons interest rate hikes won’t smash your ASX shares appeared first on The Motley Fool Australia.

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• Here are the 3 most traded ASX 200 shares today

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 shares that could be quality picks for the long-term at the current prices.

Some businesses are generating pretty predictable cashflow because of the nature of the underlying businesses.

These two ASX shares could be long-term opportunities:

TPG Telecom Ltd (ASX: TPG)

TPG is one of the largest telecommunication businesses in Australia with a market capitalisation of around $11 billion.

It’s the combined business of the old TPG business which merged with Vodafone Australia.

The TPG share price has fallen around 16% over the last six months, though it has risen more than 22% during the last six months, so it has gone through a bit of recovery.

TPG has a number of initiatives and strategic priorities.

For example, it recently launched ‘felix’, the first telco brand that is powered by 100% renewable electricity.

The business is working on the synergy benefits of bringing TPG and Vodafone Australia together. It’s targeting $70 million in 2021 alone, along with organisational integration.

The ASX share is trying to grow its share of converged households. It can sell both mobile and fixed broadband products.

TPG is also trying to make the most of its network infrastructure assets by providing compelling broadband services to more customers.

The final priority is to drive competition and growth in enterprise, government, wholesale with whole-of-business telecommunications solutions.

TPG will continue rolling out 5G to grow in the next phase of the telco industry.

Magellan Infrastructure Fund (ASX: MICH)

This is a fund that is concentrated on global infrastructure businesses. It’s actively managed to try to find investments that achieve attractive risk adjusted returns over the medium to long-term, whilst reducing the risk of permanent capital loss.

The ASX share is invested across a number of different sectors.

There’s 6% in airports, 9% in communications, 15% in toll roads, 8% in rail, 7% in energy infrastructure, 8% in gas utilities, 17% in transmission and distribution, 18% in integrated power and 6% in water utilities.

In terms of the actual businesses in the portfolio, its top 10 holdings (in alphabetical order) are: American Tower Corporation, Atmos Energy Corporation, Crown Castle International, Enbridge, Eversource Energy, Red Electrica Corporation, Sempra Energy, Transurban Group (ASX: TCL), Vinci and Xcel Energy.

Looking at the historical performance, after the annual management fee of 1.05%, the net returns over the last four years has ben 4.9% per annum. That’s 2.2% per annum better than the global infrastructure index returns over the same time period.

The post 2 high-quality ASX shares that could be buys appeared first on The Motley Fool Australia.

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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 Magellan Infrastructure Fund. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Westpac Banking Corp (ASX: WBC) share price will be one to watch on Thursday.

This follows the release of an update on its New Zealand operations this morning.

What did Westpac announce?

In March, as part of Westpac’s fix, simplify and perform strategy, the bank revealed that it has been actively considering the businesses it operates in.

One of those businesses was the Westpac New Zealand business. It advised that it was assessing the appropriate structure for its New Zealand business and whether a demerger would be in the best interests of shareholders.

At that point, the company was in the very early stage of this assessment and no decision had been made. It noted that Westpac NZ was a valuable part of the Westpac Group and had been for over 160 years. However, given the changing capital requirements in New Zealand and the RBNZ requirement to structurally separate Westpac’s New Zealand business operations from its operations in Australia, it felt it was time to assess its options.

Westpac to keep the NZ business

This morning Westpac revealed that it has decided to retain its 100% ownership of the Westpac New Zealand business and will not proceed with a demerger.

Westpac CEO, Peter King, said: “After a detailed review, we believe a demerger of the WNZL business would not be in the best interests of shareholders. Our review identified opportunities to improve service for customers and value across the WNZL business and we will progress these with the WNZL Board and management team.”

“WNZL is a strong business that has been serving New Zealand for 160 years. We remain committed to delivering for customers and fulfilling our purpose of helping Australians and New Zealanders succeed,” Mr King added.

Westpac will now focus on finding a permanent replacement for its NZ CEO, David Mclean. The bank previously revealed that Mr Mclean is retiring on 25 June 2021. Simon Power, General Manager Institutional and Business Banking, will act as CEO from tomorrow.

The post Westpac (ASX:WBC) share price on watch after NZ update appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking Corporation. 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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Afterpay Ltd (ASX: APT) has dramatically expanded its ‘one-time card’ that US customers can use, onboarding big-name merchants that represent much of the online shopping market in America.

The buy now, pay later provider revealed Wednesday night that the likes of Amazon.com Inc (NASDAQ: AMZN), Nike Inc (NYSE: NKE), Target Corporation (NYSE: TGT), Sephora, Macy’s and Dell Technologies are now available through its app.

Customers can now generate a single-use card to enter at checkout for any of these brands. The transaction is then facilitated by Afterpay, with all the usual benefits of instalment payments.

Nordstrom Inc, Walgreens Boots Alliance Inc, CVS Health Corp, Kroger Co, Victoria’s Secret and Yeti Holdings Inc were also onboarded during the expansion.

The 12 brands, according to Afterpay, represent “almost half” of all the e-commerce volume processed in the United States.

Afterpay North American general manager Zahir Khoja said that consumer demand for online shopping remained high in the post-COVID era.

“Consumers still want the convenience and flexibility of buying with the click of a mouse as part of their ‘new normal’,” he said.

“We are thrilled to continue to support our customers by allowing them to shop every day at their favourite brands with Afterpay for things they need and want in their lives.”

Adding more ways to use Afterpay to fuel growth

The development in North America comes after Afterpay revealed that more than 650,000 Australians signed up in the first 3 weeks of its contactless virtual Mastercard (NYSE: MA) offering.

That product enables customers to use the buy now, pay later service regardless of whether the merchant has an agreement with Afterpay.

“In-store [activity] is expected to further accelerate following the launch of the Afterpay Card in Australia,” the company stated in its April quarterly update.

Afterpay shares have had a wild ride this year. Starting the year at $119, it surpassed $160 during intra-day trading in February, then dipped as low as $84.50 last month.

They were sitting at $122.90 after close of trading on Wednesday night, after gaining 3.17% during the day.

Morgan Stanley this week retained its overweight rating and $145 price target for the Australian fintech’s stocks.

The post Afterpay (ASX:APT) onboards Amazon, Nike, Target to ‘one-time card’ appeared first on The Motley Fool Australia.

More reading

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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. Motley Fool contributor Tony Yoo owns shares of AFTERPAY T FPO and Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, Amazon, Mastercard, and Nike. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended CVS Health and 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 owns shares of and has recommended AFTERPAY T FPO. The Motley Fool Australia has recommended Amazon, Mastercard, and Nike. 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 South32 Ltd (ASX: S32) share price could be great value according to one leading broker.

This morning analysts at Goldman Sachs looked through the mining sector and picked out South32 as a top pick.

Why is the South32 share price great value?

According to a note out of Goldman Sachs, its analysts have reiterated their conviction buy rating and lifted their price target on the mining giant’s shares to $3.80.

Based on the latest South32 share price, this price target implies potential upside of 32% over the next 12 months.

Furthermore, this potential return stretches materially if you include dividends. Goldman currently estimates that its shares will provide an 11% dividend yield in FY 2022.

What did the broker say?

Goldman Sachs’ commodities team has become very positive on aluminium and has upgraded its price forecasts for the metal. This is on the back of expected material cost-inflation, combined with a sharp deceleration in primary metal production.

The latter is expected to lead to the lowest supply growth forecast in close to 40 years. So much so, Goldman is forecasting a deficit of 3Mt by the end of 2023 and as high as 9Mt by the middle of the decade.

The broker expects this will lead to an average aluminium price per tonne of US$2,450 in 2021, US$2,900 in 2022, US$3,250 in 2023, and then US$3,500 mid-decade.

As a result, the broker has “little doubt that investors should view aluminium as in the early stages of a multi-year bull market.”

South32 recommendation

Commenting on South32, Goldman said: “We increase our FY21-23 EPS estimates by 1%/11%/20% and NAV by 19% to A$3.86/sh to reflect changes to the GS commodities team’s aluminium price forecasts, and raise our 12-month TP 12% to A$3.8/sh. Our TP is based on 50:50 NAV and EV/EBITDA with a 5.5x target multiple.”

“We retain our Buy rating (S32.AX on the ANZ Conviction List) on: (1) Valuation: The stock is trading at 0.75x NAV (A$3.86/sh). (2) Strong FCF outlook: We forecast a FCF yield of c. 16% in FY22, driven mostly by higher base metal prices (combined c. 70% of FY22 EBITDA), (3) Increased capital returns: We assume the buyback is extended (at US$250mn p.a) and S32 pays out 70% of earnings as dividends (40% ordinary, 30% special dividend component). On our estimates, S32 is on a dividend yield of c. 11-13% in FY22 & FY23,” it concluded.

The post Leading broker tips South32 (ASX:S32) share price to rocket higher appeared first on The Motley Fool Australia.

More reading

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• Here are the 3 most active ASX 200 shares today
• Here are 3 of the most traded ASX 200 shares today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has 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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