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The Metcash Limited (ASX: MTS) share price is starting the week positively.

In morning trade, the wholesale distributor’s shares are up 1% to $4.29.

This follows the release of Metcash’s half year results this morning.

Metcash share price higher on earnings and dividend boost

• Group revenue up 8.2% to $7.7 billion
• Group underlying earnings before interest and tax (EBIT) up 10.3% to $255.1 million
• Underlying profit after tax up 9.1% to $159.9 million
• Fully franked interim dividend up 9.5% to 11.5 cents per share
• Outlook: strong start to second half

What happened during the half?

For the six months ended 31 October, Metcash reported an 8.2% increase in revenue to $7.7 billion thanks to growth in all pillars despite cycling the impact of extensive lockdowns. Management advised that this was underpinned by continued strong demand, inflation and acquisitions.

On a three-year basis, which the company notes provides a comparison with pre-COVID trading, group revenue including charge-through sales increased 31.7% on a normalised basis.

Pleasingly, Metcash’s margins expanded, leading to a 10.3% increase in underlying EBIT to $255.1 million. The key drivers of this earnings growth were its Hardware and Liquor businesses.

Hardware EBIT increased 17.9% with growth in both IHG and Total Tool after underlying demand in the Trade and DIY segments remained robust.

Liquor EBIT increased 11.3% over the prior corresponding period. This was thanks to strong sales to retail customers and a recovery in sales to on-premise customers post-lockdowns and easing of other COVID-related restrictions.

The Food pillar delivered a more modest 3.2% increase in EBIT. However, this was achieved despite cycling the impact of extensive lockdowns in New South Wales and Victoria a year earlier, which led to demand for food being elevated. This reflects continued shopper support for local neighbourhood stores, underpinned by their differentiated offer and a further improvement in network competitiveness.

This increase in earnings and its strong financial position ultimately allowed the Metcash board to lift its interim dividend by 9.5% to a fully franked 11.5 cents per share. This dividend will be paid to eligible shareholders on 30 January.

Outlook

All pillars have continued to trade well in the first four weeks of the second half, with group sales up 6.2% over the prior corresponding period. This comprises Food sales growth of 4%, Hardware sales growth of 8%, and Liquor sales growth of 8.9%.

Management advised that this growth reflects consumers continuing to enjoy the improved competitiveness and differentiated offer of the network’s local neighbourhood stores.

And while sales growth rates have moderated compared to the very high levels during COVID, they continue to be driven largely by robust underlying demand and inflation, with volume growth remaining broadly positive.

However, management acknowledges that there is a lot of economic uncertainty which could impact its second-half performance. This could be holding back the Metcash share price a touch today. It concluded:

While supply chain challenges have improved, they continue to be a risk for all pillars in 2H23, as do additional fuel, freight and labour costs. There continues to be uncertainty over the level of inflation going forward, as well as how the impact of inflation and other cost of living increases may impact consumer behaviour in the retail networks of our pillars, and Metcash.

The post Metcash share price higher on dividend boost appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Monday
• Almost ready to retire? How to generate $70k per year of passive income from ASX dividend shares
• 3 ultra-high-yield ASX dividend shares you might regret not buying at these prices
• 3 key things I look for when buying ASX dividend shares
• How I’d invest in ASX dividend shares now to make a $50k passive income in retirement

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 Metcash. 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 has been a lot of damage done to a wide range of ASX shares. But, 2023 could be the year that some names surge higher if things go well.

ASX shares that are hoping to grow substantially in the coming years could get some traction next year.

Of course, just because a business is growing doesn’t necessarily mean that investors are going to recognise that potential within a 12-month time period, but I think underlying growth of the ASX share can indicate good things for the potential shareholder returns. That’s why I’ve got my eyes on these three ideas:

Healthia Ltd (ASX: HLA)

Healthia is a small cap ASX share with over 300 clinics. This healthcare share has three segments that are aimed at helping people across ‘bodies and minds’, ‘feet and ankles’ and ‘eyes and ears’.

I think that, over time, scale can greatly add to this business’ profitability as it grows the number of clinics through acquisitions and organic growth.

If the business can execute a steady pipeline of bolt-on acquisitions, it will naturally become a larger business over time.

The business already has a small presence in markets outside of Australia, in New Zealand and the USA, which gives it a longer growth runway.

According to Commsec, the business is valued at just 10x FY23’s estimated earnings with a potential grossed-up dividend yield of 5.7%.

Monash IVF Group Ltd (ASX: MVF)

This ASX share is about providing IVF services to help families have children. The company says that the maternal birth age has increased by two years over the last 20 years and is expected to further increase.

The IVF industry saw a 5% compound annual growth rate (CAGR) of volume between FY17 to FY22. After a disrupted period of COVID, 2023 could be a good year. It managed to slightly increase its market share in FY22.

It’s gaining “momentum” in south east Asia with five IVF clinics across the region. It is planning to open two or three new clinics each year. By FY26, Asia could be contributing 25% of the group’s stimulated cycles.

FY23 has started strongly – market share was up another 1.4% to 23.8%. According to Commsec numbers, it’s priced at under 16x FY23’s estimated earnings.

Volpara Health Technologies Ltd (ASX: VHT)

Volpara is a leading provider of software relating to screening for breast cancer and lung cancer.

It has built an impressive market share in the US. Of the women that are screened for breast cancer, at least one of Volpara’s products is used on 40.5% of women’s images.

The ASX share has an impressive gross profit of more than 90%, so extra revenue can help it power towards profitability. Its FY23 first-half result showed total revenue growth of 22% in constant currency terms.

I think a big step towards breakeven in 2023 will go some distance to quell investor concerns about potentially needing to do a capital raising.

Growth of average revenue per user (ARPU), geographic expansion and large client wins could be good tailwinds for the Volpara share price next year.

The US Food and Drug Administration (FDA) is expected to release breast density legislation, which could also be a boost for Volpara if it means more dialogue with patients about cancer risk.

The post 3 ASX shares I think are primed to break out in 2023 appeared first on The Motley Fool Australia.

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• Leading brokers name 3 ASX shares to buy today

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 Healthia. The Motley Fool Australia has recommended Healthia. 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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Fortescue Metals Group Limited (ASX: FMG) shares are in my portfolio even though it’s one of Australia’s leading carbon emitters.

The iron ore company digs up a lot of raw material. But it takes a significant amount of fossil fuels to get the iron out of the ground, onto trucks and trains, and then onto boats.

Fortescue recently made an announcement that indicated it emits three million tonnes of CO2 equivalent emissions per annum.

It also means the business is exposed to fuel price volatility, currently costing Fortescue a significant sum of money.

But it’s the company’s plans relating to decarbonising and green energy that attracted me to the business.

Net zero by 2030

Fortescue has announced a US$6.2 billion plan to “eliminate fossil fuel use and achieve real zero terrestrial emissions (scope 1 and 2) across its iron ore operations by 2030″.

Management believes his initiative will avoid three million tonnes of CO2 per annum. Fortescue pointed to the displacement of approximately “700 million litres of diesel and 15 million GJ of gas per annum by 2030”.

The net operating cost savings are expected to be US$818 million per annum from 2030. Cumulative operating cost savings of US$3 billion are expected by 2030, with a payback of capital by 2034. That’s at market prices at the time of the announcement. This might be helpful for the Fortescue share price as it saves on operating costs.

The business also suggests this will establish a “significant new green growth opportunity by producing a carbon-free iron ore product and through the commercialisation of decarbonisation technologies”.

So while Fortescue is one of the worst offenders when it comes to emissions, it has a huge plan to eliminate those fossil fuels from the business.

I also appreciate the company’s plan to produce green hydrogen and green ammonia to help various parts of the economy to decarbonise. This includes areas such as aviation, boating, and machinery. I believe this can help the Fortescue share price over the long term.

Positive management commentary

Fortescue founder Andrew Forrest has a vision of what the business can achieve in the green space. When the decarbonisation plan was announced, Forrest said:

We are already seeing direct benefits of the transition away from fossil fuels — we avoided 78 million litres of diesel usage at our Chichester Hub in FY22 — but we must accelerate our transition to the post fossil fuel era, driving global scale industrial change as climate change continues to worsen. It will also protect our cost base, enhance our margins and set an example that a post-fossil fuel era is good commercial, common sense.

Fortescue, FFI and FMG, is moving at speed to transition into a global green metals, minerals, energy and technology Company, capable of delivering not just green iron ore but also the minerals, knowledge and technology critical to the energy transition.

Fortescue share price snapshot

Over the last month, shares in the iron ore miner have risen by 29%.

The post I consider myself an environmentalist, but I still bought Fortescue shares. Here’s why appeared first on The Motley Fool Australia.

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More reading

• The iron ore price just posted its biggest-ever monthly gain. What’s going on?
• 10 ASX dividend shares paying more than 10% yield right now
• Fortescue’s green hydrogen ambitions: Prosperous or preposterous?
• How the Fortescue share price defied the bears and jumped 32% in November
• What’s boosting the Fortescue share price on Wednesday?

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group. 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 Pilbara Minerals Ltd (ASX: PLS) share price is on the move on Monday morning.

At the time of writing, the lithium miner’s shares are up 2.5% to $4.98.

This means the Pilbara Minerals share price is now up over 40% since the start of 2022.

Why is the Pilbara Minerals share price pushing higher?

Investors have been buying this lithium miner’s shares this morning for a couple of reasons.

The first is a positive night of trade for lithium shares on Wall Street on Friday. This saw the likes of Albemarle Corporation, Livent Corp, and Sociedad Quimica y Minera de Chile record solid gains during the session.

Also giving the Pilbara Minerals share price a boost today has been the release of the quarterly index rebalance update from S&P Dow Jones Indices.

That update revealed that Pilbara Minerals will be promoted to the illustrious ASX 50 index when indices next rebalance on 19 December. It will join the index at the expense of engineering company Lendlease Group (ASX: LLC).

This wasn’t overly surprising. With the Lendlease share price down by almost a third this year, its market capitalisation was the lowest in the ASX 50 index. Whereas Pilbara Minerals’ market capitalisation has ascended to a level that puts it firmly in the top 50 companies listed on the Australian share market.

Is this good news?

This could be good news for the Pilbara Minerals share price as it potentially opens the company up to fund managers with strict investment mandates that only allow them to invest in shares in the ASX 50 index.

And while Mineral Resources Limited (ASX: MIN) is also in the blue chip index, Pilbara Minerals is the only pureplay lithium share in it. This could make it popular with any fund managers wanting exposure to the decarbonisation megatrend.

The post Why is the Pilbara Minerals share price charging higher on Monday? appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Monday
• Can the Pilbara Minerals share price regain its lustre in December?
• Here are the 3 most heavily traded ASX 200 shares on Friday
• Here are the 3 most heavily traded ASX 200 shares on Thursday
• Down 10% in November, why did the Pilbara Minerals share price power down?

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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There are many ASX dividend shares that have gone through share price pain in 2022 as inflation and higher interest rates hurt valuations.

However, there are a few that have been sold off not just because of an interest rate valuation reset, but also for other reasons. Now they find themselves close to 52-week lows.

Time will tell whether they will be able to recover, though they are expected to pay sizeable dividends in the meantime.

Baby Bunting Group Ltd (ASX: BBN)

Baby Bunting is a leading retailer of baby products like prams, car seats, toys, furniture, and so on.

The Baby Bunting share price has suffered. It’s currently down more than 50% in 2022. In terms of its expected dividends, Commsec numbers currently suggest an annual dividend of 14 cents per share. That translates into a forward grossed-up dividend yield of 7.7%.

So what’s going on for the ASX dividend share? The sell-off accelerated after the AGM update. As at 7 October 2022, financial year-to-date total sales growth was 12%. But, despite that, the first quarter gross profit margin was down 230 basis points and the FY23 first-quarter pro forma net profit after tax (NPAT) was $3 million lower than the first quarter of FY22.

The business highlighted that over the last few years, it has made significant gross profit margin gains. It continues to emphasise value and maintain entry price points, despite competitors discounting top-selling items. There have been some unrecovered cost increases where input costs have risen faster than retail prices. The loyalty program has also caused a reduction in the gross margin.

Management says the business has plans to address the first half impacts and recover earnings over the full year. The company is also expected to open eight new stores during the year, with six in Australia.

Collins Foods Ltd (ASX: CKF)

KFC and Taco Bell franchisee business Collins Foods has seen its share price sold off by more than 40% in 2022 to date.

In FY23, it’s expected to pay an annual dividend of 25 cents per share. This would translate into a grossed-up dividend yield of 4.6% according to Commsec.

The ASX dividend share recently reported its FY23 half-year result which showed a 15% rise in revenue and statutory NPAT of $11 million, down from $26.4 million in the prior corresponding period.

The numbers included $11.9 million of impairments relating to eight Taco Bell restaurants. Management said it’s a challenging landscape as it suffers from inflation pressures. Margin pressures are also expected to remain for the rest of FY23 and it’s holding off on opening more Taco Bells beyond the planned five.

Medibank Private Limited (ASX: MPL)

The Medibank share price has suffered from a sell-off as the company told investors about a cybersecurity problem with hackers stealing important information.

The ASX dividend share is currently down 14% for the year as investors digest what this may mean for policyholder numbers and growth.

Commsec has an estimated the possible FY23 dividend at 14 cents for Medibank. This would translate into a grossed-up dividend yield of 6.8%.

Time will tell how much damage this does to the company’s profit, or if it does much at all.

Medibank is now heavily focused on improving its cybersecurity systems.

The post 3 high-yielding ASX dividend shares near their 52-week lows appeared first on The Motley Fool Australia.

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More reading

• The ASX 200 share to buy that just took a 24% dive: expert
• Rebound: I’m finding cheap ASX shares to buy before it’s too late!
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• Morgans names the top ASX dividend shares to buy before it’s too late
• The Collins Foods share price has been decimated this week, and 4 directors are buying the dip

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 Baby Bunting Group and Collins Foods. The Motley Fool Australia has recommended Baby Bunting Group and Collins Foods. 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 Rio Tinto Limited (ASX: RIO) share price jumped 24% last month. This compares to a 6% rise for the S&P/ASX 200 Index (ASX: XJO).

It was a very strong performance by the ASX iron ore share, though it helped that it was starting from an extremely low point in terms of share price at the end of October.

The thing for investors to remember with a business like Rio Tinto is that its fortunes are highly linked to commodity prices. How much it can sell its production for can make a big difference to its profit, considering the costs to produce 1mt of iron ore don’t really change much month to month.

Iron ore price rises

According to reporting by the Australian Financial Review, the iron ore futures in Singapore went above US$100 last week.

The apparent thinking behind the rise for investors is that China seems to edging closer to abandoning its COVID zero policies.

As reported by Reuters, COVID testing booths in Beijing have been removed and Shenzhen residents won’t need to present a negative test result to travel or enter parks, despite COVID cases being close to their highest level in the country. The change for Shenzhen is after Chengdu and Tianjin have made similar moves.

People no longer need to present a negative test to enter places like supermarkets, though offices and other locations still require testing.

Reuters also reported that “China is set to further announce a nationwide easing of testing requirements as well as allowing positive cases and close contacts to isolate at home under certain conditions, people familiar with the matter told Reuters this week.” Before, the guidance was that people need to go to “central quarantine”.

However, the news organisation referred to “many analysts” that don’t think a significant reopening will come until at least after March as the country works on a vaccine effort targeting the elderly.

An open economy could mean more economic activity, stronger demand for steel and iron, and better profitability for the iron ore miners.

Can the Rio Tinto share price rise further?

Brokers have different views on the ASX iron ore share.

For example, UBS is currently neutral on the business. But, the price target is $90, which implies a possible reduction of around 20%.

Macquarie is another broker that is neutral on the business. But, with a price target of $94, this implies a possible drop of around 16%.

One of the more positive brokers is Morgan Stanley, which has a price target of $121 – this implies a possible rise of 8%.

The post Why did the Rio Tinto share price rocket 24% in November? appeared first on The Motley Fool Australia.

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More reading

• The iron ore price just posted its biggest-ever monthly gain. What’s going on?
• Brokers name 3 ASX shares to buy today
• Why Coronado, IDP, Mayne Pharma, and Rio Tinto shares are dropping today
• Why Appen, Evolution Mining, Rio Tinto, and Xero shares are racing higher
• Rio Tinto share price lifts despite lukewarm iron ore outlook

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 Macquarie 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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The S&P/ASX 200 Index (ASX: XJO) is full of ASX dividend shares. However, I think only a certain number of them will be able to pay good passive income for decades to come.

I’m not going to talk about the big ASX bank shares like Commonwealth Bank of Australia (ASX: CBA) and Australia and New Zealand Banking Group Ltd (ASX: ANZ). They may well be around for decades, but there are other ASX 200 dividend shares that are worth considering.

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

Soul Pattinson may be the leading idea when it comes to dividend longevity. The investment business has been listed on the ASX since 1903. It has also paid a dividend every year since it listed. On top of that, the company has grown its dividend every year since 2000, the longest record on the ASX, though of course nothing is guaranteed going forwards.

I think it will be able to keep paying long-term dividends because of its ability to shift its portfolio to be future-focused and become more diversified.

It is investing in various sectors for long-term growth such as electrical parts, agriculture, and swimming schools, while also having its traditional portfolio of blue chips and strategic positions in names like Brickworks Limited (ASX: BKW), TPG Telecom Ltd (ASX: TPG), and New Hope Corporation Limited (ASX: NHC).

It’s the name in my portfolio that I think is the one I’ll likely hold the longest. At the current Soul Pattinson share price, it has a grossed-up ordinary dividend yield of 3.6%.

APA Group (ASX: APA)

APA is one of the largest energy infrastructure businesses in Australia. It owns national gas pipelines, renewable energy generation assets, gas storage, and gas power generation.

The ASX 200 dividend share has been listed since 2000. Its energy asset portfolio continues to grow as it builds more pipelines. It also recently acquired the Basslink – a cable that links Tasmania with the mainland and enables the island state to export renewable energy.

Gas could be an important part of the energy mix for decades, particularly as a replacement for coal. Plus, the business is working on a way to transport hydrogen through its pipelines. APA is also looking at renewable energy and other electricity transmission assets.

It has grown its distribution every year for a decade and a half. It’s expecting to pay an annual distribution of 55 cents per security in FY23, translating into a distribution yield of 4.9%.

BHP Group Ltd (ASX: BHP)

BHP is the largest company on the ASX, with a market capitalisation of $235 billion according to the ASX. The company itself was incorporated in 1885, but it can trace its roots back to the 1850s.

The ASX 200 dividend share has been paying dividends for many years, and I think this can continue. I believe that the world will continue to need resources, perhaps forever. BHP can produce what the world needs. It’s focused on growing in areas like copper, nickel, and potash but in the future, it could be something else. BHP can adjust its resource portfolio over time as it sees fit.

I don’t think BHP is the type of business that can pay ever-growing dividends. But its dividends can rise with the cash flow when times are good. I think it makes sense to invest in BHP shares when the company seems to be going through a cyclical low point.

The post 3 ASX 200 dividend shares that could provide a lifetime of passive income appeared first on The Motley Fool Australia.

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More reading

• Can investors bank on a strong finish to 2022 for NAB shares?
• Bought $1,000 of BHP shares 10 years ago? Here’s how much dividend income you’ve received
• The ASX 200 share to buy that just took a 24% dive: expert
• The iron ore price just posted its biggest-ever monthly gain. What’s going on?
• ‘Long & bullish’: Expert picks 2 ASX shares to buy as investors flock back to market

Motley Fool contributor Tristan Harrison has positions in Brickworks and Washington H. Soul Pattinson And. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks and Washington H. Soul Pattinson And. The Motley Fool Australia has positions in and has recommended Apa Group, Brickworks, and Washington H. Soul Pattinson And. The Motley Fool Australia has recommended Tpg Telecom. 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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AGL Energy Limited (ASX: AGL) shares used to pay large dividends. In 2018 and 2019 the business was paying an annual dividend per share of more than $1.15. That would be a grossed-up dividend yield of close to 20% at the current AGL share price.

But, the dividend has been sinking since then. The FY22 total dividend was 26 cents per share, unfranked. It has dropped a long way from those pre-COVID years. At the current AGL share price, that translates into a dividend yield of 3.2%.

So, should investors look at the energy business for dividend income today?

Dividends to rebound?

Ultimately, the dividend decisions are up to the board of directors. But, the level of profit that a business makes can have a big impact on the amount of extra cash flow a business has to pay dividends.

In FY23, AGL Energy is expected to generate underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of between $1.25 billion to $1.45 billion, while underlying net profit after tax (NPAT) could be between $200 million to $320 million.

AGL said that those ranges, with an anticipated increase in underlying EBITDA of approximately $100 compared to FY22, reflects the “resilience of AGL’s earnings on the back of its largely hedged position for FY23.”

In per-share terms, the numbers on Commsec suggest that AGL could generate 40 cents of earnings per share (EPS) in FY23 and 80 cents per share in FY24.

The dividend estimate for FY23 is 29 cents, which would be a yield of 3.6%. FY24 could see an annual dividend per share of 6.7%

FY24 is expected to be stronger because management expects AGL to “benefit from sustained higher wholesale electricity pricing as historical hedge positions roll-off.”

Cash flow to be directed to renewables?

AGL now has an ambitious plan to exit coal-fired generation by the end of FY35 and accelerate its transition to an integrated low-carbon energy leader.

The company’s annual greenhouse gas emissions are expected to reduce from 40 million tonnes to net zero after the targeted closure.

It’s going to progressively decarbonise its asset portfolio with new renewable and firming capacity. The goal is to supply customers with up to 12GW of new energy generation and firming capacity, requiring a total investment of up to $20 billion, before 2036, funded from a combination of assets on AGL’s balance sheet, offtakes and partnerships.

This includes an interim target to have up to 5GW of new renewables and firming in place by 2030.

It will be a tricky balance for AGL’s leadership to spread the money between dividends and decarbonisation. I’m not sure if a high dividend payout ratio will return any time soon.

AGL share price snapshot

Over the last month, AGL shares have risen by around 10%.

The post Buying AGL shares for the dividends? Read this first appeared first on The Motley Fool Australia.

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More reading

• How did the AGL share price outperform the ASX 200 by 11% in November?
• Are AGL shares a good investment right now?
• Here are the top 10 ASX 200 shares today
• Why is the AGL share price falling on Thursday?
• How much dividend income would $20,000 worth of AGL shares have netted you in 2022?

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 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 Qantas Airways Limited (ASX: QAN) share price flew higher in November. But does strong demand mean the airline can take off in December?

Certainly, the lockdown era of COVID was very difficult for the airline. But now that people are allowed to fly again, it’s a boom time for the business.

Let’s look at what the business said in its latest update about the current situation.

FY23 update

Qantas said that continued strength in travel demand has resulted in the airline upgrading its profit expectations for the first half of FY23.

It’s expecting underlying profit before tax of between $1.35 billion to $1.45 billion. That updated guidance represented a $150 million increase to the profit range given in early October. So, in less than two months, the company’s seen a big increase in expected profit. Of course, more profit is usually a bonus for the Qantas share price.

Why is this happening? Qantas says consumers continue to put a “high priority on travel ahead of other spending categories and there are signs that limits on international capacity are driving more domestic leisure demand, benefiting Australian tourism”.

Qantas has put $200 million towards rostering additional staff, continued recruitment, and reserve aircraft. This is aimed to help the airline to be the “most on-time domestic airline”, as it reportedly was in October.

Going into December, the business is expecting its net debt to drop to between $2.3 billion to $2.5 billion by the end of the month, around $900 million better than previously expected. It is due to an “acceleration of revenue inflows as customers book flights”.

Qantas is also expecting to add capacity “as quickly as possible in the second half of the year while maintaining operational reliability”.

Do experts rate the Qantas share price as a buy?

A number of brokers rate Qantas shares as a buy, including UBS, Ord Minnett, and Morgan Stanley which have price ratings of $7.60, $8.50, and $9 respectively. That implies a possible rise in the Qanta share price of between 20% to 45% over the next year.

The brokers think that the strength can continue into FY24 and the better-than-expected balance sheet could lead to more capital initiatives for shareholders. Qantas is already carrying out a share buyback of $400 million announced in August. It is more than 76% complete at an average price of $5.66.

Qantas itself said:

Low levels of net debt put the board in a position to consider future shareholder returns in February 2023 consistent with the group’s financial framework and phasing of capital expenditure for fleet renewal.

Snapshot

Over the last two months, the Qantas share price has climbed 16%.

The post Can the Qantas share price fly even higher in December? appeared first on The Motley Fool Australia.

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More reading

• Why did the Qantas share price take off in November?
• Why is the Qantas share price smashing the ASX 200 on Tuesday?
• The Qantas share price is flying again. Why this fundie is concerned
• Top brokers name 3 ASX shares to buy next week
• Own Qantas shares? Guess what the airline is being accused of now

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has 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 National Australia Bank Ltd (ASX: NAB) share price has seen plenty of volatility this year. But, despite everything, it’s up more than 6% for the year. This means it has outperformed the S&P/ASX 200 Index‘s (ASX: XJO) decline of 3.8% by more than 10% year to date.

Now it seems NAB could have an interesting end to the year. Comments by central banks have suggested interest rates could see smaller increases than we’ve seen so far this year.

For example, US Federal Reserve boss Jerome Powell recently said:

It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down.

The time for moderating the pace of rate increases may come as soon as the December meeting. It is likely that restoring price stability will require holding policy at a restrictive level for some time. History cautions strongly against prematurely loosening policy. We will stay the course until the job is done.

Time will tell whether this will lead to a strong run for ASX bank share prices going into the end of the year.

What does this mean for NAB shares?

It would have been illogical to think that central banks were going to keep increasing interest rates forever. At some point, the size of the increases was going to reduce.

Banks pay close attention to interest rates, as they are key to banks both getting funding and lending out money.

Higher interest rates are having a positive effect on the net interest margin (NIM) of NAB as it passes on higher interest more quickly to borrowers compared to savers. The NIM is the measure of profit that compares the cost of the lending (for example, interest paid for the bank’s savings accounts) to the loan rate for lending.

NAB revealed in its FY22 result that its FY22 fourth quarter NIM was 1.72%, a 10 basis point (0.10%) increase on the third quarter.

So, surely another RBA interest rate increase of 0.25% in December would be a boost for the NAB share price?

Maybe not. Investors are already expecting the RBA will increase the interest rate this month. Plus, NAB noted the estimated benefit of cash rate increases from October 2022 is expected to be lower. The NIM impact of RBA cash rate increases on unhedged deposits is expected to peak in the FY23 first half, according to the bank.

But, it also noted that “housing lending competitive pressures are likely to intensify”.

Time to invest?

The NAB share price has fallen by 4% since early November.

Broker UBS is currently neutral on the ASX bank share, with revenue and costs under scrutiny. The price target – which is where the broker thinks the share price will be trading in 12 months – is $33. That implies a mid-single-digit rise over the next year.

Ord Minnett, another broker, is one of the most optimistic about the ASX bank share. It rates it as accumulate with a price target of $33.80, suggesting a possible rise of around 8%.

But, while the broker Morgan Stanley rates NAB as equal-weight (which is like a hold), the price target of $30 implies a possible mid-single-digit drop for NAB shares. Expectations of higher costs led to the broker decreasing its expectations for profit.

On Morgan Stanley’s numbers, the NAB share price is valued at under 13 times FY23’s estimated earnings with a projected grossed-up dividend yield of 7.5%.

The post Can investors bank on a strong finish to 2022 for NAB shares? appeared first on The Motley Fool Australia.

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More reading

• Bought $1,000 of BHP shares 10 years ago? Here’s how much dividend income you’ve received
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• Here are the 3 most heavily traded ASX 200 shares on Friday

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 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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