Alan Green joins the Podcast as we discuss and review UK Equity Markets in the first quarter of 2021.
Despite the FTSE 100 posting gains of around 4% in Q1 2021, London’s leading index has traded largely sideways within a range. However markets have experienced bouts of volatility on concerns over COVID-19 and rising bond yields providing plenty of opportunity for positioning for the rest of the year.
Travel and Leisure shares were, unsurprisingly, among the top risers in the first quarter alongside those industries that fall into the ‘value share’ category such as banks, financials and commodities.
We touch on the UK’s small cap index and explore a number of companies posting strong gains in 2021 before detailed analysis of Echo Energy (LON:ECHO), Cadence Minerals (LON:KDNC) and Trident Royalties (LON:TRR).
Oilex has been looking to purchase 55% of Cambay field since 2016
Oilex (LON:OEX) shares soared on Thursday as the firm made progress towards settling a dispute over an Indian gas project which it has been aiming to secure control of for a number of years.
The AIM-listed company has been looking to purchase 55% of the Cambay field since 2016. However, the company found itself in the midst of a dispute with the state-backed Gujarat State Petroleum Corporation Limited (GSPC) over costs, which even went as far as an Indian courtroom.
The disagreement now appears to be on the road to a resolution. Oilex has now confirmed that GSPC has given the green light for the sale of its stake for $2.2m, as well as the state government of Gujarat, giving Oilex 100% of the field.
The oil company still needs further approval of the Indian government for the sale to go ahead, including the finalisation of a binding sales and purchase agreement, and finalisation of funding arrangements, which the company expects will go ahead in Q2 of 2021. At this point Oilex will be able to resume field work.
Joe Salomon, managing editor of Oilex, expressed relief at the news and provided a roadmap forward.
“We are pleased that Oilex and GSPC have been able to work together to agree this outcome and in doing so a major milestone has been achieved by the Company in the face of many challenges,” Salomon said.
“The long-awaited resolution provides the Company with a pathway to evaluate the significant gas resource potential identified at Cambay. Oilex and GSPC continue to work together to finalise past pending costs related to certain field costs and regulatory spending prior to 2018.”
The news has sent the company’s AIM-listed shares up 142% or 0.4p.
UK Manufacturing PMI rose sharply in March to 58.9
The pound held steady vs the dollar on Thursday, while down slightly against the euro, as traders are optimistic over its outlook.
During Q1 of 2021 the pound enjoyed its strongest performance since 2015, gaining 4.8%.
UK Manufacturing PMI rose sharply in March to 58.9, a ten-year high, according to research by IHS MARKIT / CIPS, as optimism around an economic recovery intensifies.
Just before lunchtime on Thursday, the pound was at $1.37725, while versus the euro, the pound was down by 1% at 85p per euro.
The public mood around the government’s handling of the pandemic and recovery has become an optimistic one.
A survey conducted by the British Chambers of Commerce said over half of companies anticipated higher revenue levels in the coming year.
This is despite the present business environment remaining worse than the levels prior to the pandemic as the UK entered 2021 in a lockdown.
“While the GBP may continue to struggle vs. the USD in the current environment, we expect that it will remain well supported vs. low yielding G10 currencies such as the CHF, JPY and the EUR,” Rabobank senior FX strategist Jane Foley wrote.
PMI measure soared to 62.5, up from February’s level of 57.9
Manufacturing in the eurozone performed robustly during March, as operating conditions improved by the highest level in 24 years of records.
The PMI figure, a measure of the prevailing direction of economic trends in manufacturing, soared to 62.5, up from February’s level of 57.9, indicating a substantial improvement in the sector’s performance.
The index has now registered above 50.0, the level which reflects no changes in output, for nine months in a row.
Germany
66.6 (flash: 66.6)
record high
Netherlands
64.7
record high
Austria
63.4
39-month high
Italy
59.8
252-month high
France
59.3 (flash: 58.8)
246-month high
Ireland
57.1
8-month high
Spain
56.9
171-month high
Greece
51.8
13-month high
Countries ranked by Manufacturing PMI: March
Growth was broad-based across the region, with Germany and the Netherlands leading the way. Both nations recorded their highest ever PMI levels in March.
Greece, in contrast, recorded only modest growth, despite enjoying its best PMI reading for over a year.
The further strengthening of trade, orders and production placed further strain on already stretched supply chains.
According to the latest data, average lead times for the delivery of inputs lengthened at an unprecedented rate as challenges in sourcing inputs due to product shortages, stronger global demand and ongoing logistical challenges linked to COVID-19 continued in March.
According to the latest data, the rate of increase in buying was the strongest ever recorded by the survey, although with continued delays in delivery, firms sought to utilise their existing stocks wherever possible. Whilst falling at a slightly slower rate, input stocks declined in March for a twenty-sixth successive month.
Commenting on the final Manufacturing PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:
“Eurozone manufacturing is booming, with production and order books growing at rates unprecedented in nearly 24 years of PMI survey history during March,” Williamson said.
“Although centred on Germany, which saw a particularly strong record expansion during the month, the improving trend is broad based across the region as factories benefit from rising domestic demand and resurgent export growth.”
“Driving the upturn has been a marked improvement in business confidence in recent months, with expectations of growth in the year ahead running at record highs in February and March. This has not only boosted spending but has also led to rising investment and restocking, as firms prepare for even stronger demand following the vaccine roll-out.”
Climbing 0.6%, the FTSE 100 found its way back above 6,755 after the bell. The index spent the final week or so of March repeatedly hitting its head on 6,775 before retreating, even with the confidence boost of Monday’s re-opening.
“The biggest contributors to the FTSE 100 in index point terms were miners Glencore and Rio Tinto as plays on stronger commodities demand and positive read-across from US President Joe Biden’s plan to invest heavily in infrastructure,” said Russ Mould, investment director at AJ Bell.
““In backing these companies, investors are effectively looking past any short-term noise and potential setbacks to getting the pandemic under control, and instead looking well into the future and taking the view that earnings will not just start to recover in 2021 but also keep improving thereafter,” Mould added.
Despite the Dow Jones failing to finish March at an all-time high, the European indices had a spring in their step on the first day of April.
“Though the DAX was only slightly ahead of the FTSE with a 0.6% increase, given their relative levels that means something very different for the German index. It is now at a fresh record peak of 15,090 and will be keen to stretch its neck to 15,100 before the day is over,” Campbell added.
FTSE 100 Top Movers
Melrose (4.54%), IAG (3.56%) and Aveva Group (3.32%) were the top risers on the FTSE 100 during the morning session on Thursday.
Phoenix Group Holdings (-2.47%), Smith & Nephew (-0.94%) and AstraZeneca (-0.92%) have not fared so well, seeing the biggest falls so far.
Next
Next navigated the coronavirus pandemic by growing the scope of its online business which accounted for nearly 50% of the company’s revenue.
The fashion retailer confirmed that its online sales have exceed estimates during the first eight weeks of the year, up 60% compared to two years ago. Subsequently the FTSE 100 company is raising its profit guidance by £30m to £700m.
“That its pre-tax profit was still so strong is to be applauded. The high street staple has been able to shield itself from the full impact of lockdown thanks to its online store, with Lord Wolfson also pointing out the fortune of its strongest growth areas being those with a low return rate,” Campbell said.
“Adding an extra layer of shine to the FTSE 100’s open, Next itself rose 2.8% to a 2 and a half month high of £80.86 per share.”
Guidehouse will provide the crypto miner with a full climate action plan
Argo Blockchain (LON:ARB) confirmed on Thursday that the company has hired Guidehouse, the consultancy firm, to research and advise on its long-term goal of being carbon neutral via science-based solutions.
Guidehouse will provide the crypto miner with a full climate action plan to assists in its target of becoming a net-zero greenhouse gas (GHG) company.
Argo Blockchain is trying to set an example to others in the industry and is actively researching “numerous strategies to be a climate friendly cryptocurrency miner”.
The AIM-listed firm said that Guidehouse is best positioned to provide strategic recommendations to become net-zero based on its depth of expertise as a global sustainability leader and its extensive experience providing advisory services to the technology industry.
Argo said Guidehouse would not inhibit its mining operations and would allow the company to continue to prosper an an ever-changing sector.
Argo chief executive Peter Wall expressed his delight at the new partnership with Guidehouse:
“We are delighted to be working with Guidehouse to assess the options available in order to achieve our goal of becoming net-zero and a climate friendly cryptocurrency miner,” Wall said.
“At Argo, we pride ourselves on being pioneers within this hugely exciting sector, and we aim to become the gold standard for other miners to ensure we are doing everything we can to secure a sustainable future for generations to come”, he added.
Argo Blockchain confirmed earlier this month that it had finalised a fund-raising to allow the company to complete an investment in Pluto Digital Assets.
In addition, Argo intends to pursue strategic opportunities in crypto mining, capital investment, decentralised finance (DeFi) and Web 3.0 initiatives.
Guidehouse is a leading global provider of consulting services to the public and commercial markets with broad capabilities in management, technology, and risk consulting.
Equiniti (LON:EQN) said 2020 had been a challenging year as the firm announced a fall in revenue, EBITDA and profit.
The payments and technology company saw its turnover fall by 15% in 2020 to £471.8m, while its underlying EBITDA was down 32.6% to £91.7m.
Equiniti announced a pre-tax loss of £6.6m, a swing from a profit of £40m in 2020.
The FTSE All-Share company also confirmed it would not be offering a dividend during 2020, having done the same in 2019.
Cheryl Millington, chief executive of Equiniti, outlined the impact of the pandemic on the business:
“Our financial results for 2020 have been significantly impacted by the challenging macro environment. However, the fundamental strengths of our business model remain and EQ is well positioned for an improvement in market conditions and economic and capital market recovery,” said Millington.
“While uncertainty continues, the outlook for capital market activity in 2021 is encouraging and we have started the year well with a number of important new business wins. Our focus is on driving performance and market share, while reducing the Group’s debt and delivering on our cost initiatives to offset reduced interest income in a low interest rate environment.”
“We look forward to welcoming Paul Lynam as CEO from 1 April. I would also like to thank all of my colleagues for their ongoing commitment in continuing to deliver a seamless service to our clients throughout the COVID-19 crisis. As CEO I have witnessed the consistency and quality of the service that EQ delivers, which has been so critical in these challenging times. The depth of our client relationships provides me with confidence as we look to the future.”
Next grew its online customer base by 40% to 8.4m last year
Next (LON:NXT) navigated the coronavirus pandemic by growing the scope of its online business which accounted for nearly 50% of the company’s revenue.
The fashion retailer confirmed that its online sales have exceed estimates during the first eight weeks of the year, up 60% compared to two years ago. Subsequently the FTSE 100 company is raising its profit guidance by £30m to £700m.
Next also said it grew its online customer base by 40% to 8.4m last year, thanks to online sales which amounted to nearly 50% of the company’s turnover.
Pre-tax profit was recorder at £342m, matching a trading update by the company in January, while brand full price sales for the year fell by 15% and total sales were down by 17% from the year before.
Despite shops remaining closed for most of the year Next cut its net debt by £502m to £610m. In addition, the company said it will further reduce its net debt to £435m by generating £175m of surplus cash.
Next said it would not pay a final dividend for the year “given the continuing uncertainty” after suspending payouts last April.
Michael Roney, chairman of Next, commented on the company’s ability to weather the storm caused by the pandemic, as well as outlining future trends for the industry.
“In last year’s Full Year Results, published just as the UK went into lockdown, we stated that our sector was facing a crisis unprecedented in living memory. We also stated that our strong balance sheet and profit margins would allow us to weather the storm,” Roney said.
“We expect the shift in consumer behaviour towards Online sales to continue for some time and one of our priorities during the year has been to continue the development of our Online platform. We accelerated part of our planned capital expenditure in the Online business, spending £121m on warehousing and systems.”
“Rather than proposing a dividend at this time, the directors consider it sensible to wait and see how the business performs once the current lockdown comes to an end and COVID restrictions are lifted.”
Demand for the expertise of video games services provider Sumo Group (LON: SUMO) remains high with the current year forecast practically underpinned by work that is already contracted.
The UK games market is worth £7bn a year, up 30% in 2020, and there is increasing need for creative talent. The global games market is expected to be valued at $196bn this year.
2020
In 2020, revenues increased from £49m to £68.9m, while underlying pre-tax profit improved from £12.6m to £14.8m. There were contributions from acquisitions, but there was also organic revenue growth of 24%.
Sumo’s development teams ...
2020 UK economy’s worst performance in over 300 years
The recovery of the UK economy has been stronger than expected, according to data released by the Office for National Statistics (ONS), demonstrating higher household savings than figures previously suggested.
The ONS said the British economy grew by 16.9% in Q3 of 2020 and 1.3% in Q4%, up from its initial forecasts of 16.1% and 1%.
Analysts are saying that the stronger than expected recovery is a signal that the UK could grow more during the current year.
However, while the ONS described a strong second half of 2020, it also said the recession during the first half of the year was more substantial than previously thought.
GDP fell by 19.5% in the second quarter of 2020, more than the initial forecast of 19%.
Over the course of the year, the UK economy shrank by 9.8%, 0.1% lower than expected by the ONS, but still the UK’s worst performance for over 300 years.
Disposable incomes held steady in 2020, up by only 0.1%, having been adjusted for inflation. The lack of opportunities to spend money due to lockdowns meant that many homes gathered savings that exceeded the ONS’s initial estimates.
Cash saved as a proportion of disposable income, otherwise known as the savings rate, rose from 14.3% in Q3 of 2020 to 16.1% in Q4.
Philip Shaw, an economist at the investment firm Investec, commented: “Our estimate of excess or pent-up savings now stands at £121bn, equivalent to close to 10% of total household consumption in cash terms last year.”
This could mean that households spending will surge from its position as the weakest sector of the economy to the strongest.
Shaw told The Guardian that he expects the third lockdown to push down GDP by 1.8% in Q1 of 2021, to be followed by a rebound that would push GDP 7.3% higher in 2021 as a whole.
The UK economy recorded among the largest contractions of all the large countries in the Organisation for Economic Cooperation and Development, with only Spain and Argentina reporting steeper falls.
