Interest rate rises are really picking up steam. There are a few ASX shares that I think would make solid buys at the current prices.
Yesterday, the Reserve Bank of Australia (RBA) announced that it was increasing the interest rate by 50 basis points (0.50%) to 0.85%.
It’s tricky to invest in this era of higher interest rates, strong inflation and supply chain impacts. However, there are businesses that have fallen that now look like good opportunities. There are also ones which can benefit from rising interest rates.
EML Payments Ltd (ASX: EML)
EML is a diversified payments business that provides clients with a number of potential payment services including gift cards, virtual accounts, payouts, salary packaging and so on.
Growth has slowed from the business in recent times, but it is still growing. In the EML FY22 third quarter, revenue rose by 21%. Over the longer-term, increased scale should help with profit margins. The company noted that underlying EBITDA (EBITDA explained) was down 14% to $13.6 million.
The ASX share’s expenses have increased with an investment in headcount in Europe, increased IT expenditure and inclusion of the acquired business Sentenial. I think that investing within the business will help growth in the long-term, so I think the lower price represents good value for EML. The world is increasingly moving toward digital payments over time.
However, one of the main reasons that it could benefit from rising interest rates is that it holds a lot of clients’ cash, which it hasn’t been earning much interest on, but as interest rates rise it should benefit and this could add millions of dollars to profit at the EBITDA level.
Charter Hall Long WALE REIT (ASX: CLW)
The share price price of Charter Hall Long WALE REIT has dropped more than 12% since 29 April 2022. For a business paying a good dividend, this really boosts the prospective yield.
With some of the real estate investment trust’s income growth linked to inflation, the higher rate of inflation will help boost the ASX share’s rental earnings. Higher rental income will help cushion the underlying value of the properties.
At 31 December 2021, the business’ net tangible assets (NTA) per unit was $5.89. That means the current share price is at a 20% discount to the underlying value. That’s a good margin of safety in my opinion.
I think the REIT has a quality portfolio and the guided earnings and distribution of at least 30.5 cents per unit in FY22 translates into a yield of 6.5%.
