Inflation up to 0.7% as long-term outlook unclear

Liam Roche
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Inflation up to 0.7% as long-term outlook unclear

Increase in inflation due to price of food and household goods

UK inflation rose in January to 0.7%, up from 0.6% the month before, according to the Office for National Statistics. 

The increased prices of food and household goods contributed to a rise in inflation, measured by the Consumer Price Index. 

Jonathan Athow, deputy national statistician for economic statistics at the ONS, said: “Inflation rose slightly in January, with food prices increasing.

“Household goods also pushed up prices with less discounting this year on items such as bedding and settees. However, there were widespread January sales, with particular price cuts for clothing and footwear.”

While the inflation rate has remained below the Bank of England’s 2% target for some time, analysts are predicting a resurgence towards this benchmark in the near future. 

“In the short term it’s pretty nailed on that inflation will rise quickly towards the Bank of England’s 2% target in the coming months, as the big energy price drops of spring 2020 start to get lapped by fresh data and the temporary VAT cut for hospitality and leisure businesses expires in April,” said Laith Khalaf, financial analyst at AJ Bell.

“That all coincides with the anticipated lifting of the current lockdown, when price collection will start to more accurately reflect normal activity,” Khalaf continued. 

Experts have contrary views around the possibility that inflation could surpass the Bank of England target of 2% before 2021 comes to an end. 

“January’s small rise in CPI inflation marks the first step this year towards an above-target rate by the autumn,” Samuel Tombs, chief UK economist at Pantheon Economics said.

Whereas Yael Selfin, chief economist at KPMG UK suggested “overall inflation is unlikely to exceed the Bank of England’s 2% target and could reach just 1.7% in 2021 and 1.9% in 2022, allowing for a longer period of low interest rates to support the economic recovery.”

The impact on the FTSE 100 is difficult to discern as yet, according to Russ Mould, investment director at AJ Bell. 

“The FTSE 100 started Wednesday modestly on the back foot after UK inflation figures from which it was difficult to take anything tangible,” said Mould.

Markets reacted overnight as investors sought to protect themselves from a rise in prices.

“A surge in US Treasury yields overnight shows inflation is dominating investors’ thoughts as they look for a higher rate for holding ‘safe’ assets like government bonds,” said Russ Mould.

UK junior oil and gas shares spring back to life

UK Investor Magazine
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UK junior oil and gas shares spring back to life

Alan Green joins the UK Investor Magazine Podcast as oil production in the US grinds to a halt, sending oil prices higher.

We touched on the possibility of a commodities super cycle last week and we delve deeper into the oil market as the US shuts a third of production due to severe weather conditions.

This has coincided with a sharp move higher in the share prices of junior oil and gas companies listed in the UK and we explore the factors behind this. Oil major such have Shell have announced they have passed their peak production of oil and we question whether this is an opportunity for smaller players to help prop up supply.

We discuss Mosman Oil & Gas (LON:MSMN), Watches of Switzerland (LON:WOSG) and Open Orphan (LON:ORPH).

Mast Energy Developments set for IPO

UK Investor Magazine
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Mast Energy Developments set for IPO

Mast Energy Developments files for IPO to develop sustainable energy plants

Mast Energy Developments (LON:MAST) is set to list on the London Stock Exchange in the coming weeks in what will be a notable IPO in the sustainable energy sector. 

The company will raise up to £5.5m to help fund the expansion of their energy business that focuses on Reserve Power (RP) demand in the UK.

Reserve Power uses low-carbon sustainable gas to produce power at critical periods to ensure the UK meets its demand for electricity. 

Mast Energy Developments are setting out to develop a portfolio of Reserve Power plants throughout the UK. Each plant will produce using clean natural gas that will then be fed into the grid.

Mast Energy Development have identified a gap in the market left by the UK’s large producers who have neglected the opportunity to build smaller plants to accommodate the change in the UK’s power supply. 

Green Energy Revolution 

The UK is going through a dramatic shift in the way it generates its power. The need to adopt a lower carbon power generation model means that as fossil fuel plants are being phased out in favour of cleaner alternatives, potential shortfalls are risked in the continuous uninterrupted supply of base load electricity.

Renewable sources such as wind and solar are providing an ever-increasing amount of power to the UK grid, however, the consistency of wind and solar cannot yet be relied upon during the transition from fossil fuels to renewables.

This has created the need for a sustainable solution that can be quickly established to provide power in a targeted manner, and Reserve Power plants do just that by taking up the lag or loss of continuous uninterrupted supply.

Mast Energy Developments

Mast Energy Developments expansion plans will see the roll out of small gas-fired power Reserve Power plants between 5 and 50MW in size that can provide energy within 10 minutes directly into the grid. 

The plants will be unmanned and have the ability to run for long period continuously in line with demand for power.

The proceeds of the IPO will be allocated to the development of specific projects set to launch through 2021 and beyond. 

Kibo Energy spin-off

Mast Energy Developments was previously known as Sloane Energy, a subsidiary of Kibo Energy.

The IPO will see Mast Energy Developments spun out of Kibo Energy with Kibo retaining a 55% interest in the company on the day it floats. 

Sloane Group acquired a 100% interest in Mast Energy Developments in August 2020. 

Louise Coetzee, the current CEO of Kibo Energy, will take up the role of Non-Executive Chairman and Paul Venter will be the CEO.

“Following the LSE Admission of MAST, MAST and Sloane will be in a position to develop its portfolio at scale and pace, as opposed to a project-by-project basis and advance rapidly towards significant revenue generation,” Coetzee said.

“Upon successful completion of the IPO, Sloane will be in a position where it expects to have c.9MW in immediate production and c.20 MW in production within the first six months from listing and adding another c.20 MW in production over the next 6 months. The additional production capacity for the first c.20MW will come from Bordesley and 2nd acquisition sites, as well as the 3rd acquisition, announced on 28 October 2020. The capacity for the 2nd c.20MW is expected to come from a significant project pipeline, currently in an advanced stage of development”.

Plus500 to pay record dividend after ‘exceptional’ 2020

Liam Roche
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Plus500 to pay record dividend after ‘exceptional’ 2020

Plus500 expects to grow from more normal levels in 2021

Plus500, the online trading platform, has confirmed the company will buy back $25m worth of shares, as well as paying a special $30m dividend.

The announcement comes as Plus500 posts record pre-tax profits of $523.3m, up from $189.3 in 2019.

The company announced astonishing revenue growth which came about as small time traders flocked to the platform throughout the coronavirus pandemic, said Rob Murphy, managing director at Edison Investments.

“Key figures were in line with the record earnings already reported in the trading update in January, driven by the volatility of markets throughout the Covid-19 pandemic,” said Murphy. 

“EBITDA soared by 168% to $516m in the year to the end of December while revenue and customer income increased 146% to $873m and 161% to $998m respectively.”

A question mark remains over Plus500’s ability to sustain its performance into 2021. Rob Murphy anticipates revenue will retreat to more normal levels over the course of the coming year.

“After what management as ‘an exceptional year’ in 2020, revenues and profit will be under pressure in 2021. Revenues are expected to grow from more normalised 2019 levels but these were 59% lower than in 2020,” said Murphy. 

“Evidence of this is already clearly apparent in the Q4 figures which saw revenues down 4% yoy to $91.9m and EBITDA down 65% to $19.9% as margins shrank from 59% to 22%.”

Following a close at 1,3790p, Plus500’s share price dropped as low as 1,334.32p on Wednesday morning as the company managed expectations around its revenue. Into mid-morning the share price steadied around 1% down.

Over the last 12 months Plus500’s share price has risen by 55% from 878.6p to 1,366.29p.

Plus500 is a UK FTSE 250 company listed on the London Stock Exchange’s Main Market for Listed Companies

FTSE 100 on back foot while mining surge continues

Liam Roche
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FTSE 100 on back foot while mining surge continues

The FTSE 100 retreated today despite continued positive economic news, including rising commodity prices and a strong pound. Although it could be too early to draw any firm conclusions.

“The FTSE 100 started Wednesday modestly on the back foot after UK inflation figures from which it was difficult to take anything tangible,” says AJ Bell investment director Russ Mould.

“With consumption artificially depressed by lockdown there’s not a lot for the data crunchers to work with, though there are some signs that the widely anticipated increase in prices is starting to come through,” Mould added.

It was yet another day of promising news coming from the mining industry, as Rio Tinto announced a record dividend on the back of surging commodity prices. British American Tobacco recorded better than expected results as the cigarette manufacturer faces ongoing challenges.

FTSE 100 movers

Mining giants Rio Tinto (3.63%) and Antofagasta (3.39%) took the lead at the top of the FTSE 100, closely followed by Rolls-Royce (2.36%).

At the other end, Hargreaves and Lansdown (-6.84%), British American Tobacco (-5.84%) and M&G (2.62%) are the day’s biggest fallers so far on the FTSE 100.

Rio Tinto

Rio Tinto revealed a record $6.5bn final dividend as well as announcing new long-term carbon emission targets. Following the global economy’s ongoing recovery from worldwide lockdowns, Rio has benefited from a sustained rally in commodity prices, particularly iron ore, allowing the company to payout a generous dividend.

British American Tobacco

The FTSE 100 company outperformed expectations in 2020, announcing a pre-tax profit of £8.67bn, up nearly 10% from £7.91bn in 2019. While British American Tobacco expects the pandemic to continue to affect its performance, the company is well on track to achieve yearly cost savings of £1bn by 2022. 

The savings will be reallocated to fund investments in new categories, according to the company’s chief executive, Jack Bowles. 

British American Tobacco exceeds expectations by announcing increased profits

Liam Roche
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British American Tobacco exceeds expectations by announcing increased profits

British American Tobacco looks to invest in new categories

British American Tobacco outperformed expectations in 2020, announcing a pre-tax profit of £8.67bn, up nearly 10% from £7.91bn in 2019. 

Revenue during 2020 fell slightly from £25.88bn in 2019 to £25.78bn, however this was in line with the company’s expectations and up on a constant-currency adjusted basis.  

On market opening, British American Tobacco’s share price dipped by 5% to 2,579.52p. Over a twelve month period, the FTSE 100 company’s share price is down by over 21%. In June 2017, British American Tobacco was valued at 5,578p a share, well over double its current value. 

The board confirmed it would payout a full-year dividend of 215.6p a share, up 2.5% from the year before. 

While British American Tobacco expects the pandemic to continue to affect its performance, the company is well on track to achieve yearly cost savings of £1bn by 2022. 

The savings will be reallocated to fund investments in new categories, according to the company’s chief executive, Jack Bowles. 

“Our investment behind New Categories has increased by a further £426m compared to 2019, enabled by a 5th consecutive year of value share growth in combustibles,” said Bowles.

“Enabled by Project Quantum, we continued to simplify the company and drive efficiencies, delivering £660m of cost savings (being well on track to deliver our ambitious £1bn of savings by 2022), further supporting new capabilities investment.”

Executives at the company have previously said that sales of “alternative” cigarette products are expected to grow by more than £5bn by 2022.

Bowles also made reassurances over British American Tobacco’s commitment to meeting ESG targets. 

“Our ESG targets are transformational and support our A Better Tomorrow ambition. We will track and share our progress. We are committed to reducing the health impact of our business, whilst delivering sustainable results that create long-term multi-stakeholder value.”

Russ Mould likened the FTSE company’s predicament to those of major oil and gas companies.

“British American Tobacco in many ways faces a similar challenge to the oil and gas sector, replacing a revenue stream which is widely perceived as harmful with one which is as yet much less profitable and where its ability to dominate the market is less certain,” said Mould.

Rio Tinto announces bumper final year dividend

Liam Roche
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Rio Tinto announces bumper final year dividend

Rio Tinto reveals new emissions goals

Rio Tinto has revealed a record $6.5bn final dividend as well as announcing new long-term carbon emission targets. 

The mining giant will pay a dividend of $3.09 a share, plus a one-time payout of 93 cents per share. In addition to the company’s half-year dividend, Rio Tinto’s payout for the financial year will amount to $9bn. 

Following the global economy’s ongoing recovery from worldwide lockdowns, Rio has benefited from a sustained rally in commodity prices, particularly iron ore, allowing the company to payout a generous dividend. 

Rio Tinto also announced a 22% rise in annual net profit of $9.77bn for 2020, up from $8.01bn the year before. 

The world’s leading producer of iron ore also reported a 20% increase in underlying earnings to $12.45bn, above analyst forecasts of $11.75bn. 

Jakob Stausholm, chief executive of Rio Tinto, praised the company’s response to the coronavirus-induced slump during 2020, while acknowledging the events at Juukan George. 

“It has been an extraordinary year – our successful response to the COVID-19 pandemic and strong safety performance were overshadowed by the tragic events at the Juukan Gorge, which should never have happened,” Stausholm said. 

“During 2020, the agility and resilience of the business and our employees, coupled with strong commodity prices, enabled us to deliver underlying EBITDA of $23.9 billion and Return on Capital Employed of 27%.” 

Rio also outlined plans to deal with carbon emissions, by pledging to reduce its steelmaking carbon intensity by at least 30% from 2030. 

“My new executive team and wider leadership of the company are all committed to unleashing Rio Tinto’s full potential. We will increase our focus on operational excellence and project development and strengthen our ESG credentials,” Stausholm continued. 

“Working closely with the Board, we must earn the right to become a trusted partner for Traditional Owners, host communities, governments and other stakeholders but we all recognise that this will require sustained and consistent effort.”

S&P 500 reaches all-time high amid economic optimism

Liam Roche
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S&P 500 reaches all-time high amid economic optimism

The S&P 500 was trading well above yesterday’s close as the US index, up over 5%, continued its recent resurgence. The index reached an all-time high before 11am local time at a decimal point below 3,950 points. The S&P 500 was up 20% on its peak prior to the coronavirus-induced crash.

With high oil prices, along with optimism around vaccine roll-outs and a pending stimulus package, confidence in the US economy is growing.

“News of falling infection rates in the US is helping to feed the optimism as the Biden administration inches towards getting its $1 trillion-plus Covid relief package through Congress,” said Russ Mould, investment director at AJ Bell.

“The only creeping nervousness at present appears to be around the prospects for significant inflation driven by a combination of the emergence from Covid, generous stimulus packages and rising raw materials costs,” Mould added.

S&P 500 movers

At the top of the pile, Apache (6.84%), Marathon Oil Corp (5.87%) and Carnival Corp (5.49%), were the best performing stocks on Monday morning out of America’s top 500 companies. 

At the other end TechnipFMC (19.5%) dropped sharply as the company completed its split into two separate entities. The index’s other big fallers were NRG Energy (-6.51%) and Juniper Networks (-4.77%).  

Oil prices

A key driver of the S&P 500’s recent gains is the increase in oil prices. The commodity soared to its highest point since January 2020 as a cold spell in energy-rich Texas intensified demand.

Brent crude oil was up as high $63.76 before coming back down to $63.25 at midday. An increase of its opening price of 1.3%. West Texas Intermediate reached as high as $60.85, before settling at around $60.0, a rise of 1.9% from market opening.

Stimulus nears

On his first official trip outside of the US capital, Joe Biden will appeal directly to the public in a bid to pressure Congress to finalise a stimulus package.

Aviva share price could benefit from streamlining and consolidation in 2021

Liam Roche
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Aviva share price could benefit from streamlining and consolidation in 2021

After a tough year for Aviva, the insurance firm is taking measures to protect the value of the its share price. Amanda Blanc, chief executive of Aviva, will set about negotiating sales for non-core assets in the first half of the year as the insurance company looks to consolidate its steady yet tepid recovery, following a dramatic fall in its share price in March 2020.

Aviva share price

Aviva share price recovered steadily since the first lockdown

Aviva’s share price has been hit hard throughout the coronavirus pandemic. From a high of 423p in January 2020, its value had halved by March. The trendline has been moving steadily upwards since then, with a few troughs along the way. Year-to-date, the company’s share price is up by over 10% to 360p per share.

Aviva to sell-off non-core assets

Aviva is in the later stages of discussions to sell a number of its business operations. Reports have suggested the insurance company is looking to sell its Italian life insurance business to Paris-based CNP Assurances, as well as selling the company’s general insurance unit in the country. This follows similar sell-offs at the end of last year.

The sales are reported to be a part of chief executive Amanda Blanc’s strategy of streamlining the business in order to secure the company’s share price.

In January the insurance firm sent a warning out to fossil fuel companies that they will reallocate their investments if they fail do more to address climate change concerns. Aviva has said it will divest across its equity and credit portfolio if companies fail to meet its expectations over the next one to three years.

Argo Blockchain share price at all-time high as bitcoin continues to rally

Liam Roche
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Argo Blockchain share price at all-time high as bitcoin continues to rally

Argo Blockchain’s share price reached new heights of 252.68p today as bitcoin rallied past $50,000 for the first time ever. The rise of the crypto-mining service provider has coincided with increased institutional adoption of bitcoin, as Tesla, Mastercard and JP Morgan, among others, made respective announcements over recent weeks.

The mining company, founded in 2017, is currently one of the UK’s most popular stocks with retail investors. The company is listed on the London Stock Exchange Main Market. Argo Blockchain mines cryptocurrencies, including bitcoin and Zcash, through a combination of its hydroelectric powered machines and expertise. Institutional investors are able to invest in cryptocurrencies by buying them directly without having to go through an exchange.

Argo Blockchain share price (LON:ARB)

Argo Blockchain (LON:ARB) year-to-date share price

Since the turn of the year, Argo has seen a sharp upturn in the value of its stock. On the 31 December 2020, the mining company’s shares were priced at 33p. Within a week, Argo Blockchain had more than trebled to 125.5p, in line with spikes in the value of bitcoin. Now, as of February 16, Argo’s share price has soared up to 249.5p per share, over a 750% increase on the year-to-date.

Argo Blockchain buys stake in crypto venture capital firm

At the beginning of February the mining company announced it had bought a 25% stake in Pluto Digital assets, a crypto venture capital and technology company that connects decentralised technologies to the global economy.

Peter Wall, CEO of Argo Blockchain, commented: “Argo believes not just in Bitcoin, but in the entire cryptocurrency ecosystem. We have always been extremely bullish on how cryptocurrencies will transform the global financial system. Our early stage investment into Polkadot in 2019 was a perfect example of this belief and we are now excited to be using that same investment to buy a significant stake in Pluto, who are actively looking for projects with high yield potential.”

Argo Blockchain more recently announced plans to open a 200-megawatt facility in Texas.

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