Green shoots

Shell has hiked its dividend for the past two quarters, owing to stronger revenues and a return to profitability. It posted a profit of $3.4 billion on revenues of $60.5 billion for Q2 2021, which is impressive, given that global demand for oil is still projected to be below 2019 levels for 2021. Shell is also focusing on improving its environmental credentials by investing into technologies such as carbon capture and storage (CCS) and clean hydrogen. The latter of the two it plans to maintain its position as a world leader and expand its footprint substantially, by installing new hydrogen fuelling stations across its retail network.

Shell remains overwhelmingly an oil and gas company though, and almost all of its cash generation comes from the production and refining of crude oil. This carries less of a stigma for many investors at the moment as gas prices in the UK have skyrocketed, showcasing the global need for fossil fuels even with extensive government support for renewable energy. Even for those who are less convinced about the future of oil and gas, the company’s push to move towards hydrogen and lower-carbon alternatives offers the potential for longer-term growth.

An opportunity not to be missed?

Although Shell’s CEO remains (unsurprisingly) confident about the company’s push towards net-zero, questions still remain. For example, how profitable will it be during this transitory phase? With a forward-looking price-to-earnings (P/E) ratio of close to 10, Shell’s share price may be cheap looking forwards, but it is uncertain whether oil and gas will remain close to their current high prices or fall, which would harm Shell’s earnings significantly.

Although the immediate outlook for Shell is positive, I can’t help but feel that a combination of tighter environmental regulation, increased costs and the uncertainty surrounding the global economy and energy transition leave the company vulnerable in the long term. Its dividend yield is also lower than that of its closest FTSE 100 competitor, BP. If Shell does manage to capitalise on the current oil price and successfully invest in the future, then it may become attractive to many investors, but uncertainty still looms overhead.

With all this in mind, I wouldn’t add Shell to my portfolio because I prefer to seek longer-term security, rather than an immediate reward.

The post The Shell share price has exploded! Should I buy now? appeared first on The Twelfth Magpie.

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Guy Quelch has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Losing its shine

Fresnillo operates seven mines in Mexico and is the world’s largest primary silver producer. It also has significant gold operations, which contributed 46.7% of its revenues in H1 2021, with silver accounting for 40.7%.

Total revenues were up almost 40% on H1 2020, which gives the impression of a strong performance by Fresnillo. Miners have always profited (and suffered) from fluctuations in metal prices, however, which goes a long way to explaining the company’s recent good financial performance. The majority of the increase in revenue in H1 was accounted for by higher commodity prices in the first six months of 2021, compared to H1 2020. This masks the fact that silver prices especially have fallen over the past few months, but still remain above early 2020 lows. Clearly, many investors have been shying away from Fresnillo over fears that this trend will continue.

Weakened demand may have been accentuated by China’s recent economic instability, which has seen the stocks of companies such as iron ore giants Rio Tinto and BHP suffer. Having been elevated for a while, it seems that many people are expecting a further fall in precious metal prices, as shown by Fresnillo’s flagging share price. Unfortunately, no one knows for sure what will happen.

Therefore, have investors overestimated the potential for a crash in commodity prices and is this a good time to buy this FTSE 100 stock?

Reasons for optimism

Despite fears over prices, Fresnillo has shown resilience by increasing its output this year and building a pipeline of new projects outside Mexico. These should increase its long-term resilience and help to maintain its position as a low-cost producer well into the future. Gold prices haven’t fallen over the past six months, which is also a positive sign for Fresnillo. Therefore, Fresnillo’s stock may have been unfairly over-sold recently, as silver actually accounts for a smaller proportion of its revenues than gold, despite its position as the world’s largest silver producer! Long-term demand for precious metals is also unlikely to go away, which should offer reassurance to potential investors.

My conclusion

Fresnillo’s position as a primary producer means that its fortunes are cyclical. A significant amount of the recent weakness in Fresnillo’s share price has undoubtedly been caused by the belief that gold and silver prices are at an apex and may continue to fall from August 2020 highs in the near future.

Although I like Fresnillo’s ambition to increase its geographical footprint with new mines, I’m staying on the sidelines for now. I think that there are better bargains on offer in the FTSE 100.

The post Shares in freefall! Should I buy one of the FTSE 100’s biggest losers of the last 12 months? appeared first on The Twelfth Magpie.

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Guy Quelch has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Aviva’s share price has stagnated over the last six months, which may be due to uncertainty about its sale of joint ventures in Italy and Turkey and the further disposal of other joint ventures later in the year. In my view this is a positive step, though, because it will allow Aviva to focus on its more profitable and mature markets in the UK, Ireland and Canada to ensure adequate future returns.

Aviva is already the leading life and general insurer in the UK, as well as being the largest equity release provider, which saw revenue growth of 43% between H1 2020 and H1 2021. With further cost-cutting and a shift to digitalisation, the long-term outlook for the company is positive, in my opinion. As long as imminent disposals of more of the insurer’s foreign business go smoothly, then Aviva looks like a sound pick for my portfolio, especially with the recently increased dividend and the announcement of a £750 million share-buyback to sweeten the deal.

A sleeping giant of the FTSE 100

My second choice from the FTSE 100 is Vodafone (LSE: VOD). With a recognisable brand and a strong presence in markets all over the world, including Europe, Africa and Asia, Vodafone is in a strong position to consolidate its position as a market leader in telecommunications. In its most recent trading update, Vodafone reported a revenue increase of 5.7% over the comparable quarter last year. This is solid growth for a company that is already the market leader in business and consumer mobile services in many of the markets in which it operates.

As cross-border travel returns, roaming charges will provide an extra boost for Vodafone, especially with the introduction of charges for UK customers travelling in the European Economic Area. Furthermore, the largest provider of mobile data and payment services in Africa is Vodafone, which is appealing for me as a potential investor. I also see its M-Pesa and VodaPay payment apps as evidence that the company is willing to embrace new ideas and is prepared to invest in its expansion to the benefit of shareholders in the long run.

Despite Vodafone’s rather sluggish performance over the last few years, I see it as a long-term investment that I’d add to my portfolio. The 6% yield is too good to miss, as I don’t believe the FTSE 100 company to be a value trap, but rather just a value stock at its current price.

The post 2 bargain FTSE 100 dividend stocks I’d buy today appeared first on The Twelfth Magpie.

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Guy Quelch has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Further to this, Royal Mail reported “overwhelming” demand for its parcel services last Christmas and business has continued to flourish for online food ordering app Deliveroo in 2021. So, taking all this into account, you’d be forgiven for assuming that logistics provider DX Group (LSE: DX) has had a stellar year. Well… not really. In its last annual report, DX reported a loss of £1.8 million on revenues of £329.3 million. Although, to its credit, it has reported a profit for H1 2021.

Since its IPO in 2014, the penny stock’s shares have plummeted by an eye-watering 75%. Despite this, DX has seen its share price rise by a similar percentage in the last 12 months, indicative of positive investor sentiment in the individual business.

Turning the tables

DX has been in the process of turning around its fortunes since a new board and CEO were appointed in October 2017. After two disastrous years prior to this, there have been notable improvements in the business’ resilience and recent results have been encouraging, with a profit reported in each of the last two sets of interim results. DX is also expanding its network of depots, with two more planned for H2 of 2021, taking its total to almost 80 and consolidating its position as a leader in irregular dimension and weight (IDW) freight. This aggressive expansion has paid dividends, as the freight division saw its H1 revenues rise 19% year-on-year, which overshadowed a poorer performance by the business-to-customer division. Debt has also been reduced significantly, so much so that the company now has a positive net cash position.

What could go wrong?

DX is still significantly smaller than some of its rivals, such as Royal Mail, which disadvantages it in terms of economies of scale. This is especially pertinent now with the current HGV driver shortage and fuel prices pushing costs up for many businesses. If DX is unable to effectively pass costs on to consumers for the foreseeable future, then it will struggle to reach sustained profitability and growth. The recent weakness in its mail and courier division is also concerning, as prevailing market conditions are currently favourable.

Conclusion

There are many aspects of DX’s business that I like, including its ambitious expansion plans. However, it faces tough challenges from rising costs in the short term and additional Covid-related restrictions could further hamper its recovery. At the moment I am keeping this penny stock on my watchlist because it represents slightly too much risk for my liking. I’m happy to wait for its full year results on October 14^th to make a more informed decision about the company’s potential.

The post This penny stock is up 75% in the last 12 months. Is it a buy now? appeared first on The Twelfth Magpie.

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Guy Quelch has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

This gives me confidence that Airtel Africa (LSE: AAF) is the right choice for a long-term play, as the answer to the previous question is yes. Despite being one of Africa’s largest telecommunication providers, Airtel Africa is relatively unknown to many investors, which makes it somewhat of a dark horse of the FTSE 250.  

Financials

The Airtel share price is up 26% this year, which is attributable to a very solid set of financials, including its most recent quarter, in which constant currency growth reached 33.1% year-on-year. Many companies have seen strong revenue and profit growth in the past 12 months due to the negative impact of government restrictions, which caused abnormally bad results last year. However, Airtel never stopped growing, and Q1 revenues increased from $796 million to $851 million between financial years 2020 and 2021 and then to $1112 million for the current financial year. The FTSE 250 stock’s operating free cash flow was also up by 38.7%, indicative of the underlying strength of the business.  

Add to this the fact that Raghunath Mandava (the CEO) proclaims that “We have posted strong double-digit growth across voice (26.0%), data (37.4%) and mobile money (53.7%), and across all our regions”, and Airtel looks seriously impressive. On a side note, Mandava has been at the company since 2003, so has overseen large parts of its growth.

Exciting emerging markets

Apart from Airtel’s financial strength, it is attractive in a macroeconomic sense too. It is the second largest telecom operator in Africa, the pinnacle of emerging markets. It has extensive infrastructure in countries such as Kenya and Niger, which combines more mature and less developed countries, giving Airtel some balance to its client base.

Headwinds for Airtel

Airtel, like any other business, comes with risk. By far its largest single market, Nigeria has suffered from currency devaluation and regulation over the last year, including a ban on USD charges on mobile payment services and new regulations on SIM registrations, which has negatively affected customer base growth. This is a problem quite specific to Airtel and is one of the drawbacks of operating in relatively unstable territories.

Financial review for the quarter ended 30 June 2021

Nigeria

Source: Airtel Africa Q1 22 results

My takeaway

Overall, Airtel still remains a company that has strong long-term credentials across mobile money, data and phone services and a consistently increasing customer base. I would therefore be happy to buy this FTSE 250 stock for the long term.

The post A small-cap FTSE 250 company to buy now and hold forever appeared first on The Twelfth Magpie.

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Guy Quelch owns shares in Airtel Africa. The Motley Fool UK has recommended Airtel Africa. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.