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The S&P/ASX 200 Index (ASX: XJO) has made new record all-time highs on Thursday with an intraday high of 7,281. Here’s the breakdown of which ASX 200 sectors are driving the market higher.

Financial Services

According to Market Index, the Financial Services sector weighs in at 28.2% of the ASX 200. The S&P/ASX Financials Index (ASX: XFJ) is up 3.5% in the past month, with the big four banks all clearing February 2020 pre-COVID levels.

A special mention goes to the Commonwealth Bank of Australia (ASX: CBA) share price for closing above $100 in May. CBA is the only big four bank to make a new record all-time high in the past few years. The remaining three banks still trade at a significant discount to 2015 highs. Its outperformance and position as the ASX’s largest stock has likely given the market an extra ‘kick’.

Energy

Oil prices have recently hit a two and half year high of US$69 per barrel. This has seen a surge in the S&P/ASX Energy Index (ASX: XEJ), which has risen ~9% in the last three trading sessions and 8% in the past month. While the energy index might have jumped the most out of all ASX 200 sectors, it only constitutes 3.6% of the overall index.

Materials

Despite the recent volatility in the iron ore price, the S&P/ASX Materials Index (ASX: XMJ) is up ~5% in the past month with a 21% weighting.

This is supported by the BHP Group Ltd (ASX: BHP), Fortescue Metals Group Limited (ASX: FMG) and Rio Tinto Limited (ASX: RIO) recovering after China’s plans to keep hot commodity prices at bay.

Foolish takeaway

Materials and financial services account for almost half the weighting of the ASX 200. With financial services, particularly the big four banks, making a strong statement in May, and materials keeping it together despite spot price volatility, these two sectors have arguably carried the market to new all-time record highs.

The post Which sectors are driving the ASX 200 to record highs? appeared first on The Motley Fool Australia.

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Analysts have downgraded the Fortescue Metals Group Limited (ASX: FMG) share price in response to ongoing issues with the miner’s troubled Iron Bridge project.

The magnitite project in Western Australia has raised questions in the past due to potentially higher than expected capex expenditure. Pushback on the project deadlines and increasing costs are also some of the catalysts noted.

What do the brokers say?

Goldman Sachs is one of the brokers that has changed its investment rating on Fortescue Metals. 

In its report last Friday, Goldman said it expected a strong June quarter and a record final dividend in August, but rated the company a sell based on its valuation.

According to the report, Fortescue’s net asset value (NAV) is trading at 1.6 times while rival iron ore miners BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) trade at just a 1 time multiple.  NAV is the value of an entity’s assets minus the value of its liabilities. 

Grade depletion and ramp-up risks from Fortescue’s troubled Iron Bridge project and its mines were also factors, the broker said.

In addition, Goldman expressed some doubt about the company’s new green energy arm, Fortescue Future Industries (FFI).

FMG is targeting a 10% allocation of net profit after tax (NPAT) to Fortescue Future Industries (FFI) renewable energy projects (green hydrogen, solar, wind, etc) but only when a project is investment-ready.

Melbourne broker Shaw and Partners also expressed some doubts over Fortescue. In its newsletter to investors, it rated the miner a hold, also citing Fortescue’s 12-week review of the Iron Bridge project as the main reason.

The company reminded investors that Fortescue was a success story and had produced more than a decade “of best in class track record at delivering large/complex mining projects on time and budget”. But the report noted “it wasn’t just cost and capex that got in the way, but ‘culture issues’ reared as an issue in early 2021”.

Addressing the latter is critical to FMG’s overall way forward.

As reported by Motley Fool, analysts at Morgan Stanley have retained their underweight $17.45 price target. The blowout from the Iron Bridge project and the fear of grade downgrades were again the main reasons stated. 

At the time of writing, the Fortescue share price is trading at $23.42, up 0.6%

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Exchange-traded funds (ETFs) can be a great way to easily boost your ASX share portfolios diversification. That’s because an ETF can hold dozens, hundreds or even thousands of underlying shares within it. As such, you are technically adding exposure to all such shares when you buy a single ETF.

The most popular ASX ETFs on the market today are index funds – those that track a broad-market benchmark like the S&P/ASX 200 Index (ASX: XJO) However, there are others out there that could prove even better for diversification purposes. Here are 2 such funds:

iShares Global Consumer Staples ETF (ASX: IXI)

This ETF from iShares invests in a basket of companies that all dwell within the consumer staples sector. Consumer staples are goods or services that we humans tend to need, rather than want. As such, companies that sell food, drinks, household essentials and other life basics make up most of the holdings of this ETF. ‘Sin stocks’ that manufacture vices like alcohol and tobacco are also included. The appeal of this sector rests on this ‘essential nature’. Companies that sell consumer staples are arguably likelier to be resistant to recessions, inflation and other economic troubles. That’s simply because they are the last things that people tend to stop buying in times of trouble.

This iShares ETF invests in a global basket of more than 90 of these companies. Most of its holdings hail from the United States, with names like the Coca-Cola Co (NYSE: KO), Colgate-Palmolive Company (NYSE: CL), Altria Group Inc (NYSE: MO) and Walmart Inc (NYSE: WMT). But there are other geographies represented too, including our own with the inclusion of Woolworths Group Ltd (ASX: WOW) and the A2 Milk Company Ltd (ASX: A2M).

This ETF charges a management fee of 0.46% per annum.

BetaShares Global Cybersecurity Etf (ASX: HACK)

This ETF from BetaShares invests in an area that’s a little different. Cybersecurity is arguably one of the most important industries of the 21st century, and will likely only grow in importance as more and more ‘stuff’ is done online. That’s the trend that this ETF tries to capture.

HACK invests in a basket of global companies all dedicated to cybersecurity efforts. Like IXI, many of its holdings are from the USA. But there is still some representation from Israel, Britain and Japan here too. Some of this fund’s top holdings include names like Cisco Systems Inc (NASDAQ: CSCO), CrowdStrike Holdings Inc (NASDAQ: CRWD), Zscaler Inc (NASDAQ: ZS) and Cloudflare Inc (NYSE: NET).

HACK charges a management fee of 0.67% per annum.

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It certainly has been a fantastic day for the Sezzle Inc (ASX: SZL) share price on Thursday.

In afternoon trade, the buy now pay later (BNPL) provider’s shares are up 22% to $9.15.

At one stage today, the Sezzle share price was up as much as 26% to $9.45.

Why is the Sezzle share price on fire today?

Investors have been bidding the Sezzle share price higher today following the release of a major announcement this morning.

According to the release, Sezzle has successfully concluded its proof of concept with US retail giant Target Corporation.

The proof of concept, which was announced in September 2020, included limited tests with a small portion of Target.com guests in two product categories to evaluate the efficacy of the Sezzle platform for Target’s retail operations.

At the time of launch, Sezzle warned that it was preliminary in nature and did not represent any guarantee of a future commercial contract.

Positively, the proof of concept appears to have gone very well, leading to the two parties signing a three-year agreement.

Under the agreement, Sezzle’s product will be used in-store and across Target’s digital platforms. This will provide shoppers with access to interest-free payment plans for purchases made at Target.

Deal could be a “step change”

Analysts at Ord Minnett responded to the news by suggesting that it could be a step change for Sezzle.

It notes that if only a small fraction of Target’s revenue went through the Sezzle platform, it would make a material difference to the company’s volumes and revenue.

Ord Minnett also believes that having a top ten US retailer on its books will be a boost to customer numbers.

At present, the broker has a buy rating and $11.50 price target on its shares. However, it is reviewing its price target following this news. This could mean a higher price target is put on the Sezzle share price in the coming days.

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The Cimic Group Ltd (ASX: CIM) share price is in the red today despite the engineering company announcing another contract award for one of its subsidiaries.

At the time of writing, Cimic shares are down 0.56% to $21.34.

The Cimic share price rose yesterday after the company announced another of its subsidiaries, UGL, had secured a contract to connect the first pumped hydro storage project in Queensland.

CPB Contractors get green light

The company’s release today has not had quite the same impact on investors as yesterday’s, with the Cimic share price trending lower.

In its announcement, Cimic said its subsidiary CPB Contractors had been confirmed as the builder of a new Sydney residential tower.

The 39-storey tower, to be built over Sydney Metro’s Pitt Street Station in the central business district, will house 234 build-to-rent apartments. It will be retained by Oxford and Investa, which will offer the apartments to the rental market. The building will also include facilities such as a wellness floor and rooftop terrace, and will be connected to retail stores.

The contract for the design and construction of the tower is expected to generate about $150 million in revenue for CPB Contractors. The project was awarded by Pitt Street Developer South Pty Ltd.

In 2019, CPB Contractors was awarded the $463 million contract to build the new Pitt Street Station. That project is already underway.

Cimic group executive chair and CEO Juan Santamaria commented:

As well as building Sydney Metro’s Pitt Street Station, CPB Contractors is delivering the design and construction of this high-rise tower above the station, working collaboratively with our clients at every stage. This project brings together the global and in-market development experience of Oxford and Investa with CPB’s 50 years of building experience to provide a residential project that is seamlessly integrated with the metro.

CPB Contractors managing director Jason Spears added:

CPB Contractors is proud to be working closely with Oxford and Investa to deliver this major project in Sydney’s CBD. This is a high-profile addition to the building projects that CPB Contractors is already delivering across Australia in the defence, health and social infrastructure sectors.

Cimic share price summary

Since hitting a 52-week low of $16.86 in April, the Cimic share price has rebounded by more than 25%. However, Cimic shares are still trading at similar levels to those seen in mid-February, when their value nosedived 16% on the group’s full-year results.

Cimic has a market capitalisation of around $6.64 billion, with approximately 311 million shares outstanding. The company ranks 78th on the ASX in terms of market value.

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The Magellan Financial Group Ltd (ASX: MFG) share price is having a pretty decent day today. Magellan shares are up 1.69% at the time of writing to $48.82 each.

That puts them up more than 8.5% over the past 2 weeks, but still down 8% year to date. Over the past year, Magellan has also been a disappointing investment, losing 17.3% over 12 months.

But some news this week might have Magellan shareholders’ hearts aflutter.

The fund manager has finally launched its long-promised retirement-focused product, which hit the share market just yesterday. It’s known as ‘Magellan FuturePay’ and is listed on the Chi-X exchange under the ticker code ‘FPAY’.

FuturePay is designed with a secure income stream in mind. It invests in a portfolio of global shares like Microsoft Corporation (NASDAQ: MSFT), Netflix Inc (NASDAQ: NFLX) and Visa Inc (NYSE: V) in a manner similar to the company’s flagship Magellan Global Fund (ASX: MGF). However, it also targets a 4.2% distribution yield. This yield is paid out in monthly instalments and is designed to grow with inflation.

There are certainly some investors out there (such as retirees) who might not want to be in the share market. However, with interest rates at record lows, they are forced to turn to shares because of the paltry returns now offered by ‘safe’ investments like cash term deposits. It’s these investors this kind of fund might appeal to.

FuturePay charges a management fee of 1% per annum, with no performance fees attached.

Since Magellan has been promoting this idea since at least 2019, many investors might be excited over its eventual launch this week. But is this new fund a gamechanger for Magellan?

Could Magellan shares be a post-FuturePay buy?

Well, one broker that is less than enchanted over Magellan’s future is investment bank Goldman Sachs. According to CommSec, Goldman has reiterated its ‘sell’ position on Magellan shares in the wake of FuturePay’s launch, with a 12-month price target of $47.97.

Goldman doesn’t think FuturePay will be much of a gamechanger for Magellan amid a perceived lacklustre debut. It notes that its appeal to retirees may be tempered by a lack of capital preservation or income guarantees, and a structure “not without complexity”. Goldman doesn’t believe FuturePay will result in any meaningful impact on Magellan’s bottom line in the immediate future.

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National Australia Bank Ltd (ASX: NAB) has responded to an open letter from several climate-focused organisations urging it to stop lending towards new fossil fuel projects.

At the time of writing, the NAB share price does not appear to have been adversely affected by any criticism within the letter. It’s currently 1.08% higher than yesterday’s closing price, swapping hands for $27.17.

The open letter was also sent to 2 other big banks: Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC).

Let’s take a closer look.

Open letter to big banks

Among the letter’s signatories are the Australian Conservation Foundation, the Australian Centre for Corporate Responsibility, the Climate Council, Greenpeace Australia Pacific, and GetUp.

In the letter, the group pointed to the findings of the International Energy Agency’s (IEA) Net Zero by 2050 report, released last month. Commissioned as a roadmap for the global energy sector, the report describes itself as “the world’s first comprehensive study of how to transition to a net-zero energy system by 2050”. 

The organisations have called on NAB, the Commonwealth Bank, and Westpac to stop financing gas projects in Australia. They pointed to the Scarborough project in Western Australia as an example of a project that shouldn’t receive bank financing.

The Conservation Council of Western Australia found Woodside Petroleum Limited (ASX:WPL) and BHP Group Ltd‘s (ASX:BHP) Scarborough project could be Australia’s most polluting development.

Additionally, the organisations assert the banks should remove all their investments in oil and gas projects by 2030, saying:

As leaders of the Australian banking sector you have committed to align your lending portfolio with the Paris Agreement and achieve net zero emissions by 2050…

The IEA report states that investment in new fossil fuel supply is inconsistent with the pathway to net zero emissions…

We call on you to update your lending policies so they are in line with the IEA net zero emissions by 2050 pathway and the latest climate science.

In its response, NAB stated it was currently reviewing its financing of oil and gas projects. The results of the internal review will be announced later this year.

The bank said the review would consider the IEA’s report. It also stated its executive leadership team has met to discuss its findings.

NAB share price snapshot

The NAB share price has performed well on the ASX lately.

Currently, the NAB share price is 18% higher than it was at the start of 2021. It’s also gained 44% since this time last year.

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The Electro Optic Systems Hldg Ltd (ASX: EOS) share price is out of form on Thursday and has failed to follow the market higher.

This is despite the communications, defence, and space company being the subject of a positive broker note this morning.

In afternoon trade, the Electro Optic Systems share price is down 1% to $4.27. This means its shares are now down a disappointing 27% since the start of the year.

Is this a buying opportunity?

According to a note out of Citi, the recent weakness in the Electro Optic Systems share price could be a buying opportunity for investors.

This morning the broker upgraded the company’s shares to a buy (high risk) rating with a price target of $5.15.

Based on the company’s current share price, this implies potential upside of 20% over the next 12 months.

Why did Citi upgrade the Electro Optic Systems share price?

The note reveals that the broker made the move largely on valuation grounds. This follows the aforementioned weakness in its share price in recent months.

In addition to this, the broker notes that the company’s annual general meeting revealed a significant sales pipeline. That update shows that Electro Optic Systems has a pipeline of $1 billion in potential work.

Citi commented: “AGM reveals $1 billion of potential work in advanced stages. We upgrade EOS to Buy/High Risk from Neutral/High Risk, following the -19% share price decline since 29 April 21, noting i) cash collection from a key customer has resumed, with scope for further cash collection in mid CY21 subject to when the first 30 RWS units are invoiced, and ii) EOS is working towards diversifying its revenue base. Further, the current share price appears to be factoring in limited upside from new defence opportunities and other medium to long term opportunities.”

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The Alpha HPA Ltd (ASX: A4N) share price is having a woeful day, continuing its recent downhill trajectory.

This follows the mineral exploration and development company’s announcement of a successfully completed placement.

During late afternoon trade, Alpha shares are swapping hands for 59 cents, down 4.84%.

Alpha to accelerate commercial production plans

A possible catalyst for investors dragging down Alpha shares is an impending share dilution.

In a statement to the ASX, Alpha revealed it has raised $50 million (before costs) by a way of placement. Approximately 90.9 million new ordinary shares will be issued at a price of 15.5 cents each to participating institutional and sophisticated investors. This represents a discount of 11.3% on the last closing price of 60 cents per share.

The company will use its existing placement capacity to create the new shares. Under listing rule 7.1, this allows up to 15% of its shares to be issued without shareholder approval.

Funds raised from the placement will be allocated primarily towards accelerating the construction of Alpha’s Precursor Production Facility (PPF). The remaining monies will be used for the fast-tracking of long-lead items, land acquisition, and general working capital purposes.

What did the managing director say?

Alpha managing director, Rimas Kairaitis welcomed the successfully placement, saying:

We are delighted with the level of support received from new and existing shareholders and the strong endorsement for our PPF strategy. The Company is extremely excited by the opportunity to fast-track commercial production of its ultra-high purity precursors and establish itself as a premium supplier of these products into a rapidly growing array of end user markets.

Furthermore, Mr Kairaitis went on to talk about the company’s PPF strategy, adding:

The ability of the PPF to be integrated into our commercial plant will not only enable us to pull forward valuable additional cash flows for the business but importantly will facilitate the fast-tracking of several important work streams for the full-scale commercial facility. With the PPF now fully funded we look forward to executing on its timely delivery and positioning the Company as a recognised global producer of high purity aluminium products.

About the Alpha share price

Since this time last year, Alpha shares have posted a gain of more than 280%, reflecting positive investor sentiment. The company’s share price reached an all-time high of 67.5 cents late last month.

On valuation grounds, Alpha commands a market capitalisation of around $408 million, with 692 million shares on issue.

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There is a group of ASX dividend shares that have a history of growing the dividend each year.

Plenty of businesses had to, or decided to, cut their dividend in FY20 because of the impacts of COVID-19.

But these two have kept increasing the dividend:

APA Group (ASX: APA)

APA is one of the largest ASX dividend shares that have a long-term dividend growth streak that goes back to before the GFC.

It’s a large energy infrastructure ASX share that owns a national gas pipeline delivering around half of the nation’s natural gas. It also has investments in a number of gas-related and renewable energy assets.

Its distribution growth is funded by long-term operating cashflow growth. FY21 half-year operating cashflow grew 1.4% to $519 million and the interim distribution rose 4.3% to 24 cents per security.

APA recently announced an investment that could unlock further cashflow growth. It is going to commence the expansion of the transportation capacity on its east coast grid, linking Queensland with southern markets, by approximately 25% through expansion two stages. It also signed a “significant” new gas transportation agreement with Origin Energy Ltd (ASX: ORG).

This expansion by the ASX dividend share is going to come at a cost of around $270 million. Engineering and design works continue on a potential third stage expansion on the east coast grid to add a further 25% transportation capacity.  

The latest distribution increase means the APA distribution yield is currently 5.5%.

JB Hi-Fi Limited (ASX: JBH)

JB Hi-Fi is one of the largest retailers in Australia and it sells a number of essential items for daily life including laptops, appliances and phones.

The ASX dividend share is currently rated as a buy by Credit Suisse. The broker has a price target on the retail business of $57.39, which suggests a potential upside of almost 20% over the next 12 months.

JB Hi-Fi has been increasing its dividend every year for almost a decade.

Strong retail sales growth of 23.7% saw net profit after tax and earnings per share (EPS) both increase by 86.2% to $317.7 million and 276.5 cents respectively.

It was this profit growth that funded a 81.8% increase in the interim dividend to $1.80 per share.

The business is benefiting from operating leverage as it gets bigger, with a focus on cost discipline and efficiency.

Despite the huge growth in online volume, JB Hi-Fi’s supply chain and logistics were able to keep up. Online sales soared 161.7% to $678.8 million.

Looking at Credit Suisse’s estimates for FY21, it’s expecting JB Hi-Fi to pay an annual dividend of $2.69 per share. That translates to a grossed-up dividend yield of 8%. JB Hi-Fi is valued at 15x FY22’s estimated earnings according to the broker.

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