Tag: Motley Fool

Most investors know of the legendary Warren Buffett. Although Buffett is now well into his 90s, the performance of his company Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) continues to go from strength to strength. As does Buffett’s net worth. At current estimates, this is now sitting at US$107 billion and counting.

So it goes without saying that this is a person we should all be taking lessons from on how to invest.

I certainly am. And I’ll be using Buffett’s wisdom to try and buy ASX shares at deep discounts.

One of Buffett’s fundamental principles of investing is that price and value aren’t the same things. Just because the share market is telling us that Commonwealth Bank of Australia (ASX: CBA) shares are worth roughly $110 today, doesn’t necessarily mean they have a value of $110.

Let’s take another example that investors might be a little more envious over. Today (at the time of writing), one share of the US e-commerce giant Amazon.com Inc (NASDAQ: AMZN) is worth just over US$100. But back in February 2015, those same shares were worth just US$19. So are both prices ‘fair value’?

I would argue that the pricing Amazon was commanding back then was extremely undervaluing the business. That’s why investors have enjoyed more than a 400% return in just eight years. That’s a compounded annual return of 23% per annum.

Back in 2008, Buffett said the following in his annual letter to the shareholders of Berkshire Hathaway. Keep in mind that this was written in the midst of the global financial crisis:

…the market value of the bonds and stocks that we continue to hold suffered a significant decline along with the general market.

This does not bother Charlie and me. Indeed, we enjoy such price declines if we have funds available to increase our positions. Long ago, Ben Graham taught me that “Price is what you pay; value is what you get.” Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.

Now, recessions and a stock market crash like we saw in 2008 don’t come along very often. But that doesn’t mean we can’t still employ this timeless wisdom today.

How to buy ASX shares like Buffett

Although the ASX share market has had a very positive start to the year, I still think there are many ASX 200 shares out there that are being priced well below what they are truly worth.

Take the JB Hi-Fi Ltd (ASX: JBH) share price. It’s currently trading on a price-to-earnings (P/E) ratio of just 10. That gives the company a fully franked dividend yield of over 6.7%.

Contrast that with CBA shares. CBA is presently boasting a P/E ratio of 20.45, with a dividend yield of just under 3.5%.

Compared to CBA and the broader market, JB Hi-Fi looks like “merchandise that has been marked down” to me. Buffett has shown this method of value investing can reward investors handsomely. That’s why I’m still looking for ASX shares trading at deep discounts right now.

The post I’m listening to Warren Buffett and buying ASX shares at deep discounts appeared first on The Motley Fool Australia.

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More reading

• With interest rates heading higher again, the risk is to the downside for these popular blue chip ASX shares
• Should I buy CBA shares for 2023 dividend potential?
• ASX 200: Buy high and sell higher
• Will the stock market crash in 2023?
• Own CBA shares? Here’s the bank’s half-year results preview

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Sebastian Bowen has positions in Amazon.com and Berkshire Hathaway. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon.com and Berkshire Hathaway. The Motley Fool Australia has recommended Amazon.com, Berkshire Hathaway, and Jb Hi-Fi. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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There’s not much you can buy for 61.5 cents these days. Though, that amount of pocket change could see you owning a share of buy now, pay later (BNPL) company Zip Co Ltd (ASX: ZIP).

Shares in the one-time market darling and former S&P/ASX 200 Index (ASX: XJO) constituent are currently trading for 96% less than their all-time high of $14.53 each, clocked in 2021.

So, what went wrong for the BNPL stock, and could things improve from here? Let’s take a look.

What sent the Zip share price spiralling?

It’s been a rough few years for the ASX BNPL staple. Soaring inflation, resulting interest rate hikes, and concerns about bad debts all took their toll over the course of 2021 and 2022.

Higher interest rates also saw the emergence of a noticeable distaste for unprofitable tech outfits. While Zip technically isn’t a tech share, it tends to trade in line with the broader tech sector.

And, boy, did the tech sector suffer last year. The S&P/ASX All Technology Index (ASX: XTX) plummeted 33% in 2022. Meanwhile, the Zip share price tumbled a whopping 88%.

But could the worst be behind it? Let’s take a look.

Are things getting looking up?

The Zip share price has bounced back from a low of 43.5 cents in recent months, and I think it has the potential to continue rising.

Management is touting its growth strategy and profitability aspirations. And such aspirations appear to be showing up in its earnings.

The company’s revenue lifted 12% year-on-year last quarter, coming in at $188 million, while it posted a record $2.7 billion in transactions. Its bottom line was also helped by a reduction in cash burn, brought about by the simplification of its business.

Meanwhile, Zip announced its United States leg achieved cash earnings before interest, tax, depreciation, and amortisation (EBITDA) profitability.

Not to mention, it may well be fully funded through to cash EBITDA profitability.

That’s particularly good news as potential capital raising activities could dilute shareholders’ ownership – thereby likely draining the value of their investment.

Of course, all that points to a potential rebound in the Zip share price.

Are Zip shares worth the risk?

However, I doubt the current economic environment will allow it to return to its previous heights. Particularly as struggling ASX BNPL players may have put a spotlight on the sector.  

Openpay Group Ltd (ASX: OPY) entered receivership earlier this week while Laybuy Group Holdings Limited (ASX: LBY) is also attempting to abandon the ASX, saying — among other things — that the market appears to have failed to appropriately value its business.

Not to mention, the factors seemingly dragging it down in recent years haven’t abated yet.

For these reasons, I personally won’t be taking the risk on the Zip share price for the time being. Though, I expect the future could be brighter for the stock.

The post Cheap ASX shares: Is Zip worth the risk? appeared first on The Motley Fool Australia.

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More reading

• Are other ASX BNPL shares at risk of going down the same path as Openpay?
• Can the Zip share price ever recover?
• These are the 10 most shorted ASX shares
• If I buy $1,000 of Zip shares now, what could my returns be this year?
• Avoid my biggest mistake in investing: fund manager

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Zip Co. 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 Scott Phillips.

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Sure, 2022 was pretty rough. But it won’t be much easier in 2023 for ASX investors.

That’s according to Datt Capital portfolio manager Emanuel Datt, who said that punters will be “muddling through” this year trying to keep their portfolios in the green.

There are just a lot of mines to step around.

“We expect lower than forecast GDP growth for Australia, continuing inflation, high energy prices and moves to increase taxation,” he said.

“It’s an environment that will test investors.”

Inflation fight is far from over

The Reserve Bank of Australia, which was arguably late in fighting rampant inflation, hasn’t inspired much confidence either.

“Investors can expect continuing price inflation going forward, given the inability of the RBA to set the requisite cadence in terms of normalising interest rates to quell inflationary pressures.”

Datt added that “unemployment and underemployment rates remain extremely low by historical standards”, which would drive up wages.

“Labour cost inflation has the potential to influence other major components of CPI, making the present, higher than usual, inflation environment likely to persist.”

Datt predicts that commodity prices will head up, which might be great for ASX-listed resources companies, but will further fuel inflation going into 2024.

The fund manager is also worried about a bigger government.

“We also believe higher taxation and increased government intervention are also on the cards,” Datt said.

“As a result, it’s likely that independent self-funded retirees who sit outside the government pension system could have their benefits slashed via further changes to dividend imputation and superannuation laws, given the treasurer has recently expressed views on traditional capitalism.”

Energy crisis far from over

The energy crisis is set to continue well into 2023, reckons Datt.

“Energy prices are likely to remain escalated as energy commodities remain in short supply relative to 12 months ago,” he said.

“Despite the tighter supply side, governments continue to ignore the very real risks that lie ahead in terms of energy security.”

According to Datt, governments are enacting rules that are making the energy situation worse. For example, raising royalty rates that discourage new projects, stringent reservation policies, and slow approvals for new mines.

That’s why Datt’s two top stock picks for 2023 are coal miners Whitehaven Coal Ltd (ASX: WHC) and New Hope Corporation Limited (ASX: NHC).

Those who have held these stocks have done pretty well already. The Whitehaven share price has rocketed 170% upwards over the past 12 months while New Hope is 129.5% higher.

“Both are exposed to high-quality export thermal coal markets and long-life assets, whilst being conservatively valued and heavily cash generative,” he said.

“Both are expected to continue to return capital to shareholders via dividends and share buybacks going forward.”

The two miners each pay out very tempting dividends. Whitehaven is currently at 6% yield while New Hope is a whopping 8.2%.

The post 2 ‘high quality’ ASX 200 shares to navigate a turbulent 2023: expert appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• Why did ASX 200 coal shares have such a top run on Tuesday?
• Why Beach Energy, Medibank, Pushpay, and Whitehaven Coal shares are rising
• Here are the top 10 ASX 200 shares today
• Top ASX value shares to buy in February 2023

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 Scott Phillips.

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The ASX February reporting season has started in earnest, and it’s a critical one.

With consumers and businesses starting to reel from nine months of interest rate rises, all eyes will be on whether ASX companies can survive the downturn in one piece.

The team at Wilsons is upbeat.

“We believe the reporting season will be relatively positive,” equity strategist Rob Crookston said in a memo to clients.

“The cyclical sectors may provide more positive results than the market expects after continued strength in the global and domestic economies in the last half.”

However, investors will need to be selective about the ASX shares they buy, with every word of outlook statements pored over.

Fortunately, Crookston’s team has done the hard yards to come up with four stocks that they believe have the best prospects heading into their February updates:

Advertising businesses could surprise 

Late on Wednesday, Nine Entertainment Co Holdings Ltd (ASX: NEC) announced it had grabbed the Olympics off incumbent Seven West Media Ltd (ASX: SWM).

The $315 million agreement gives Nine the broadcast and digital rights for the next five games, consisting of three summer and two winter events.

Nine, due to report on 23 February, is one of Wilsons’ picks.

“We may see upgrades in the sector over reporting season as higher-than-expected consumer spend corresponds to higher-than-expected ad spend,” said Crookston.

“Nine should be a key beneficiary of this opportunity, especially as the stock derated over 2022 and currently sits on a relatively modest PE of ~11x.”

Jobs classified site Seek Ltd (ASX: SEK) has stunningly rallied 23.5% year-to-date, but Crookston reckons “there is still room” for its 21 February to positively surprise.

“We expect a strong showing from Seek as it benefits from a resilient jobs market.”

The Wilsons team is looking for a confirmation of its previously stated full-year guidance and “continued strength in the ANZ labour market”. 

“A strong interim result could lead to consensus earnings upgrades for FY23/FY24,” said Crookston.

“We also like the structural story for Seek — significant upside from dynamic pricing model, strategic initiatives and growth fund — that should mitigate any fallout in a cyclical peak in the job market.”

‘Start of an earnings upgrade cycle’

After years of underperformance, the share price for biotech giant CSL Limited (ASX: CSL) is finally starting to approach its pre-COVID highs.

The post-pandemic era could not come fast enough for healthcare stocks, according to Crookston.

“We expect CSL’s earnings recovery to be a beat, driven by better-than-expected plasma collections,” he said.

“This, coupled with new product approvals, could lead to a possible guidance upgrade.”

The signs point to a potential “start of an earnings upgrade cycle for CSL”, he added, revealing that his team is overweight on the stock.

CSL will report Tuesday.

The Qantas Airways Limited (ASX: QAN) share price is up 50% since June, but Wilsons reckons the party will continue into its 23 February results announcement. 

“Qantas is set for a bumper earnings season. After being forced to postpone travel plans due to the pandemic, consumers are shrugging off 15-year high ticket prices,” said Crookston.

“The business has the capacity to surprise the market positively, and we do not think the valuation is pricing a further upgrade.”

Wilsons analysts suspect China’s post-COVID reopening could give the airline another tailwind to take off on.

“We think the market underestimates the recovery in Chinese tourists as it did for domestic travel over the last 12 months. This could be discussed in trading updates of travel or international education stocks.”

The post 4 top ASX 200 shares to pounce on for reporting season: Wilsons appeared first on The Motley Fool Australia.

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More reading

• Why Morgans just added these ASX 200 shares to its best ideas list
• What’s going on with the Qantas share price today?
• These ASX 200 shares are top picks in Macquarie’s growth portfolio
• These ASX 200 shares are buys: experts
• With interest rates heading higher again, the risk is to the downside for these popular blue chip ASX shares

Motley Fool contributor Tony Yoo has positions in CSL and Seek. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL. The Motley Fool Australia has recommended Nine Entertainment and Seek. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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An anomaly not often discussed is that professional investors have a different remit to so-called retail investors.

While many retail investors are investing with a long horizon, fund managers are incentivised to make rapid changes to their portfolios because they have to report their performance every month, quarter, and year.

Mum-and-dad investors, therefore, actually have the advantage that they can persist with their investments for the long term. 

If the stock has a bad quarter or even a bad year, the average punter doesn’t have to anxiously cut it from their portfolio.

So it can be considered a bit of a gem if a professional investor picks a particular stock as a long-run prospect.

Here is one example from this week:

Invest in an ‘unregulated monopoly’

Speaking on a Market Matters Q&A, Shaw and Partners portfolio manager James Gerrish revealed a field trip his team went on.

“We visited this software developer in December hearing from their international technology teams who were out visiting their offices in Surry Hills,” he said.

“We believe this is a good company, with good people running it, a great product that has dominance in one area — audio.”

The business he’s talking about is Audinate Group Ltd (ASX: AD8).

Audinate is the creator of a networking protocol called Dante, which is used to digitally transmit audio data. It is useful for situations like concerts and conferences.

The protocol is fast becoming a standard, with many musical instruments and audio equipment from other manufacturers now selling with it built-in.

Audinate’s dominance of that market is such that Medallion Financial Group managing director Michael Wayne once called it a potential “unregulated monopoly”.

“You can liken it to Bluetooth, if you like. Except Bluetooth isn’t as good a technology and it’s owned by a cooperative.”

Gerrish’s team is also a believer.

“We maintain our bullish stance towards Audinate and see this as a medium to longer-term opportunity within our Emerging Companies Portfolio.”

Audinate shares closed Thursday at $7.25, which is more than 28% down from its August peak.

“We believe the stock’s good value under $8,” said Gerrish.

“Last week’s decline was a result of issues from the chip makers, with some chips now in oversupply but some remain hard to get. This has been an ongoing issue for companies like Audinate over recent years.”

The post ‘Great product, dominance in one area’: Expert names unique ASX share to buy appeared first on The Motley Fool Australia.

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More reading

• Expect 6%+ dividend yields from these ASX 200 shares: analysts
• 5 things to watch on the ASX 200 on Friday
• 3 small-cap ASX shares Celeste is riding off into the sunset on
• How to burn a billion dollars: AGL shares tumble 10% on painful half-year results
• Here are the top 10 ASX 200 shares today

Motley Fool contributor Tony Yoo has positions in Audinate Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Audinate Group. The Motley Fool Australia has positions in and has recommended Audinate Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Looking for ASX 200 dividend shares to buy for your income portfolio? If you are, then you may want to check out the two listed below that have been named as buys and tipped to offer big yields.

Here’s what analysts are saying about them:

ANZ Group Holdings Ltd (ASX: ANZ)

The first ASX 200 dividend share that has been named as a buy is ANZ Bank. It is of course one of the big four banks in the Australian market.

The team at Citi is bullish on the banking giant due to its belief that its net interest margin (NIM) will improve thanks to rising interest rates, boosting its top line. In addition, its analysts expect core earnings momentum to be supportive of dividend growth in the coming years.

For example, Citi is forecasting fully franked dividends of $1.66 per share in FY 2023 and then $1.76 per share in FY 2024. Based on the current ANZ share price of $25.92, this will mean yields of 6.4% and 6.8%, respectively.

Citi has a buy rating and $29.25 price target on the bank’s shares.

Stockland Corporation Ltd (ASX: SGP)

Another ASX 200 dividend share that could be a buy is Stockland. It is a residential and land lease developer and retail, logistics and office real estate property manager.

The team at Morgan Stanley is positive on the company despite the softening trading conditions in the property market.

Its analysts currently have an overweight rating and $4.30 price target on Stockland’s shares.

In addition, the broker is forecasting dividends per share of 26.7 cents in FY 2023 and FY 2024. Based on the current Stockland share price of $3.91, this will mean yields of 6.8% in both financial years.

The post Expect 6%+ dividend yields from these ASX 200 shares: analysts appeared first on The Motley Fool Australia.

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More reading

• ANZ share price falls on Q1 update
• Invest $20,000 in ASX 200 shares and get $1,500 each year without lifting a finger
• NAB shares: A top tip for passive income?
• ANZ share price slips amid $50m acquisition
• ANZ shares have been on a roll in 2023. Can it last?

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 Scott Phillips.

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On Thursday, the S&P/ASX 200 Index (ASX: XJO) was out of form and tumbled into the red. The benchmark fell 0.5% to 7,490.3 points.

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

ASX 200 expected to drop

The Australian share market looks set to fall again on Friday following another poor night on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open 21 points or 0.3% lower this morning. In late trade in the United States, the Dow Jones is down 0.5%, the S&P 500 is down 0.6%, and the NASDAQ index is 0.65% lower.

Oil prices fall

Energy producers Beach Energy Ltd (ASX: BPT) and Woodside Energy Group Ltd (ASX: WDS) could have a subdued finish to the week after oil prices dropped overnight. According to Bloomberg, the WTI crude oil price is down 0.45% to US$78.09 a barrel and the Brent crude oil price is down 0.6% to US$84.50 a barrel. A buildup of US inventories put pressure on prices.

REA results

The REA Group Ltd (ASX: REA) share price will be one to watch on Friday. That’s because the property listings company is scheduled to release its half year results and investors will be able to see how the slowing housing market has impacted its bottom line. Goldman Sachs expects a 3% decline in revenue to $606 million and a 6% decline in net profit to $208 million.

Gold price drops

Gold miners Newcrest Mining Ltd (ASX: NCM) and St Barbara Ltd (ASX: SBM) could have a poor finish to the week after the gold price slumped overnight. According to CNBC, the spot gold price is down 0.75% to US$1,877.3 an ounce. Traders appear nervous ahead of the release of key inflation data in the US.

AGL remains a hold

The AGL Energy Limited (ASX: AGL) share price may have crashed 10% on Thursday but Morgans isn’t recommending investors jump in just yet. In response to the energy giant’s half year results, the broker has retained its hold rating and slashed its price target to $6.89. Morgans said: “AGL’s 1H result was a significant miss on consensus and our forecast and FY23 underlying net profit guidance was reduced by $20m.”

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

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More reading

• How to burn a billion dollars: AGL shares tumble 10% on painful half-year results
• Here are the top 10 ASX 200 shares today
• Here are the 3 most heavily traded ASX 200 shares on Thursday
• Guess which ASX 200 giant is aiming to grow its dividends by 39% in FY23
• Why AGL, Dicker Data, Megaport, and Suncorp shares are dropping

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you subscribe to the theory that small-cap ASX shares are due for a massive resurgence in 2023, there’s just one question to ask.

Which stocks to buy?

Fortunately, the team at Celeste Funds Management this week explained why they love three of their holdings for the long run, despite mixed recent performance.

‘Strong’ update belying the share price tumble 

Insurance services provider PSC Insurance Group Ltd (ASX: PSI) saw its share price plunge 5.2% over January.

That puzzled Celeste analysts, who thought a late December operational update was “strong”.

“Trading in 1H23 was ahead of budget with underlying EBITDA growth of 18% to 20% on the prior corresponding period,” stated Celeste’s memo to clients.

“Given strong 1H23 performance, the full year result is expected to come in at the top-end of the guidance range.”

Last May, PSC announced that it was entering into a joint venture with AUB Group Ltd (ASX: AUB) for the retail business of UK brand Tysers.

Unfortunately, that still hasn’t got off the ground, due to delays with regulatory approvals from British authorities.

That may have had a bearing on PSC’s share price, but Celeste analysts insisted “both companies remain committed”. 

“On a global macro level, the January reinsurance renewals should underpin further hardening of insurance premiums and provide a solid tailwind for broker earnings growth.”

The PSC share price is up 1.94% compared to a year ago, while paying out a 2.5% dividend yield.

Big sale could return capital to investors

The HT&E Ltd (ASX: HT1) stock price went the opposite way last month, rising a spectacular 16.1%.

The Celeste team attributed this to its jettison of a peripheral business.

“Early in the month, the company announced it had signed a binding agreement to sell its 25% interest in CPaaS business Soprano to Potentia Capital for $66.3 million cash,” read the memo.

“The sale price implies an 8.8x multiple on FY22 EBITDA and comes after a previous non-binding agreement to sell the stake to Link Mobility Group AS (OSE: LINK) was terminated in September 2021.”

The sale means shareholders of the media company could benefit, either directly or indirectly.

“The disposal of the non-core asset likely moves HT&E to a net cash position providing capital flexibility to both continue to invest in the core radio business and potentially return capital to shareholders.”

Despite the great start to 2023, HT&E shares have still plunged more than 44% over the past 12 months.

Portfolio grows 10% in six months

Litigation finance provider Omni Bridgeway Ltd (ASX: OBL) enjoyed an 11.6% boost in its stock price in January.

According to Celeste Funds analysts, the company reported a “strong” December quarter that took the total estimated portfolio value up to $29.8 billion.

That’s 10% higher than what it was on 30 June.

“There remains $228 million of indicative opportunities in the investment pipeline, which, if converted, would make up an additional 41% of the FY23 commitments goal.”

The Celeste team also noted how a particular investment was offloaded during the quarter.

“The secondary market continues to prove useful in accelerating cash returns.”

Omni Bridgeway is also growing overseas.

“The business expanded its geographic footprints in Europe and the US, which should further the diversification of the portfolio and maintain OBL’s global competitive advantage.”

The Omni Bridgeway share price is up almost 9% over the past year.

The post 3 small-cap ASX shares Celeste is riding off into the sunset on appeared first on The Motley Fool Australia.

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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 positions in and has recommended PSC Insurance Group. The Motley Fool Australia has recommended Aub Group and PSC Insurance Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Shares in AGL Energy Ltd (ASX: AGL) were hit with the proverbial sledgehammer on Thursday as hopes of a profitable half were slashed.

The company’s share price powered down 10.33% to finish the day at $7.12 in reaction to the energy retailer’s first-half figures for FY23. Today’s disappointing performance was the worst for AGL shares in more than a year and seven months.

There’s a good chance shareholders were shocked by the staggering after-tax loss of $1.075 billion. A loss that big makes you wonder how?

Blowing out the bottom line by a billion

Once upon a time, Australia’s largest electricity generator was pumping out profits in excess of a billion dollars.

In 2018, AGL delivered revenue of $12.7 billion and net profit after tax (NPAT) of $1.26 billion. Today, the company posted $7.81 billion in revenue ($15.6 billion annualised). Despite achieving greater revenue years later, the energy giant is bleeding money — why is that?

For the most part, it comes down to standard accounting principles. This basically means financial statements need to recognise non-cash items on the profit and loss statement to provide a more accurate reflection of the business. And, oh boy, was the first half a pearler for non-cash items at AGL…

What wreaked havoc on the company’s statutory earnings — sending AGL shares downwards — was one ugly asset impairment.

AGL wrote down the carrying value of its Energy Generation Fleet cash-generating unit — in other words, its coal-fired power station assets — as it plans to bring forward their closure dates.

The magnitude of the impairment was a ground-shaking $706 million post-tax.

Secondly, the company recognised a $622 million reduction in the value of its financial instruments. Large companies, such as AGL, often make use of various instruments to hedge their exposure to the underlying commodity — for example, oil and gas futures contracts.

When combined, the two blew a $1,328 million hole in AGL’s earnings.

Where to for AGL shares from here?

Experts seemed to be split on the outlook for AGL following its first-half result.

On one hand, analysts at Barrenjoey considered it a ‘less positive’ foreshadowing for FY24. Whereas, Sarah Xie of Moody’s indicated that higher earnings could be on the cards from FY24 to FY25 as old hedges expire and wholesale power prices strengthen.

One thing is for sure — shareholders will be hoping there are fewer days like today for AGL shares.

The post How to burn a billion dollars: AGL shares tumble 10% on painful half-year results appeared first on The Motley Fool Australia.

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More reading

• Why AGL, Dicker Data, Megaport, and Suncorp shares are dropping
• The AGL dividend has just been slashed. Here’s what you need to know
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• 5 things to watch on the ASX 200 on Thursday
• Here are the top 10 ASX 200 shares today

Motley Fool contributor Mitchell Lawler 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 Scott Phillips.

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When share prices go down, I get excited by the opportunity to buy cheap ASX dividend shares at attractive prices.

Inflation and interest rates may have punished many valuations last year, but some have come soaring back. Look at the WiseTech Global Ltd (ASX: WTC) share price and the Lovisa Holdings Ltd (ASX: LOV) share price, both up more than 20% over the past 12 months.

Yet, other names are still trading at steep discounts to where they were a year to 18 months ago.

While the short term may seem uncertain, I think the long term is still positive for the below ASX dividend shares. With their significantly lower share prices, I think these names look like opportunities, with the share prices reflecting the possible short-term pain.

Nick Scali Limited (ASX: NCK)

Nick Scali is one of the leading retailers of furniture in Australia. Not only does the company have the Nick Scali business, but it also owns the Plush brand as well.

Since mid-November, the Nick Scali share price has dropped by more than 35%, which has significantly improved the dividend yield on offer.

Ongoing demand for furniture meant that the FY23 first-half net profit increased by 70%, while the interim dividend per share increased 14.3% to 40 cents.

Commsec numbers currently suggest the ASX dividend share could pay a grossed-up dividend yield of 10.2% in FY23.

With the company’s longer-term plans to roll out more stores (particularly Plush stores), grow its online sales (which are very profitable), and expand its ranges, I think Nick Scali has a promising future once we’re through this difficult economic period.

Pinnacle Investment Management Group Ltd (ASX: PNI)

Pinnacle is a business involved in funds management. It doesn’t manage money itself, rather the ASX dividend share operates by taking sizeable minority stakes in young (or new) funds management businesses and helping them grow.

The company can take care of a number of operational tasks for the fund managers such as legal, distribution services, seed funds under management (FUM), compliance, and so on. It enables the fund manager to focus on the investing side of things.

The Pinnacle share price has fallen more than 45% since November 2021. Investment markets have cooled significantly since then. However, I think this is only going to be a shorter-term headwind. I believe that investors will begin allocating new money to fund managers again in FY24 when interest rates have stopped rising.

Commsec estimates suggest that Pinnacle could pay a grossed-up dividend yield of 4.6% in FY23.

Beacon Lighting Group Ltd (ASX: BLX)

Beacon is a leading retailer of lights and fans. It’s another company to have suffered significant pain from the start of 2022.

Since mid-January 2022, the ASX dividend share has dropped by more than 35%. I think it’s understandable that there has been some pain because of the possibility of fewer homes being built, fewer renovations, and so on during this period.

However, I don’t think the business is worth 35% less than before, particularly with its long-term growth plans of servicing more trade customers, growing its Australian store count from around 120 to more than 180, selling more stuff online, and growing internationally (including in the US).

In FY23, the ASX dividend share could pay a grossed-up dividend yield of 6.7%.

The post 3 cheap ASX dividend shares (down more than 35%) to buy in February 2023 appeared first on The Motley Fool Australia.

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More reading

• Why right now is a once-in-a-decade opportunity to make passive income from ASX shares
• Why ARB, Centuria Capital, Nick Scali, and Tabcorp shares are dropping
• ASX share prices have rallied too hard to start 2023 says UBS equity strategist as one US analyst says don’t even think about turning bullish until 2024
• Why Brainchip, Core Lithium, IAG, and Nick Scali shares are dropping today
• Nick Scali share price plummets despite 70% profit boost

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 positions in and has recommended Lovisa, Pinnacle Investment Management Group, and WiseTech Global. The Motley Fool Australia has positions in and has recommended Pinnacle Investment Management Group and WiseTech Global. The Motley Fool Australia has recommended Lovisa. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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