Federal Reserve to keep interest rates at zero and raises US GDP forecast

Liam Roche
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Federal Reserve to keep interest rates at zero and raises US GDP forecast

Federal Reserve Chair Jerome Powell says ‘no one should be complacent’ about US recovery

The Federal Reserve is anticipating stronger than previously forecasted growth this year, as the vaccination roll-out continues apace and the government’s stimulus efforts start having an impact.

The US central bank has forecasted growth of around 6.5% this year, an increase of its initial expectation of 4.2% in December.

The Fed also confirmed a brighter outlook for the jobs market on Wednesday.

However, the central bank decided against raising interest rates, with most members expecting to keep borrowing costs close to zero until after 2023.

Chair of the Federal Reserve Jerome Powell said he wanted to see a more full recovery before changing policies which are aimed at stimulating the economy.

Jerome Powell stated that ‘no one should be complacent’ about the US recovery.

Commenting on the Fed keeping a zero-rate outlook, Olivier Konzeoue, fx sales trader at Saxo Markets, said:

“A cautious Fed decided to keep rates near zero and to maintain the pace of its monthly assets purchase at $120Bn but upgraded its economic outlook resulting in a change in the dot plot with seven out of 18 fed officials seeing a rate hike in 2023,” Konzeoue said.

“The Fed therefore deems it important to maintain accommodative financial conditions and is happy to see inflation run hot for some time in order to return to full employment by 2023.”

Powell described any rise above the 2% target as ‘transitory’, and that such an increase would not meet the standard required for a shift in monetary policy.

Connor Campbell, financial analyst at Spreadex, commented on the Chair’s remarks:

“In other words, an increase in interest rates is still off the table until at least 2024, even if 4 members of the FOMC would seek a hike in 2022, and 7 in 2023.”

The Dow reacted accordingly, closing nearly 190 points high to stick its foot across 33,000 for the first time in its history.

With the EU regulator set to announce its decision on the safety of the AstraZeneca vaccine, and automakers up in the aftermath of the Fed decision, the DAX easily outstripped its peers. Climbing 1%, the German index crossed 14,740 for the first time. The CAC, by contrast, added 0.1%, leaving it at a 13-month peak.

Fever-Tree expects strong growth in 2021 as bars set to reopen

Liam Roche
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Fever-Tree expects strong growth in 2021 as bars set to reopen

Fever-Tree sees strong growth in America

Fever-Tree (LON:FEVR) announced on Thursday that it expects its revenues to rebound this year past pre-pandemic levels.

The company expects a lift by increased at-home drinking as well as the gradual easing of lockdown restrictions increasing its sales at bars and restaurants.

The producer of tonics and other mixers also confirmed its preliminary sales numbers during 2020 showed a 3% fall to £252.1m. The company anticipates revenue growth of between 12% and 16% in the coming year, while its adjusted core profit dropped by 26%.

Robust growth in America, where people are having drinks at home, has offset a 22% dip in UK sales.

In a show of confidence Fever-Tree proposed a full-year dividend of 15.68p per share, an increase of 4% from the year before.

Tim Warrillow, Co-Founder and CEO of Fever-Tree, commented on Fever-Tree’s performance throughout the pandemic:

“Our performance in the Off-Trade was especially strong, exceeding our expectations across all our regions. Numerous periods of lockdown during the year encouraged increased consumer interest in premium spirits and stimulated excitement about mixing drinks at home, attracting more households and new consumers to the Fever-Tree brand than ever before. Consequently, we have increased our penetration in the UK, driven value share gains in the US, and Europe, and gained real traction in Canada and Australia.”

“Despite the restrictions and closures that impacted the On-Trade for a large proportion of the year we didn’t furlough any of our team enabling us to support our customers across the On-Trade and Off-Trade, strengthening our relationships and securing new contracts.”

“Our resilient performance can also be attributed to the proactive and rapid actions taken by the business to respond to the evolving consumption and purchasing habits that emerged during the pandemic. Crucially, we did this while remaining focused on the longer-term opportunity. We expanded our team across all our regions, as well as acquiring our sales agent in Germany, and began local production in the US for the first time. We also launched new products with our Premium Soda range in the UK targeting the significant vodka category and Pink Grapefruit in the US targeting the fast-growing tequila category. Both launches were very encouraging, delivering an excellent rate of sale growth as well as attracting new consumers to the brand.”

National Express swings to a £381m loss

Liam Roche
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National Express swings to a £381m loss

National Express cancels dividend payment for 2020

National Express (LON:NEX) reported a £381.4m operating loss on Thursday as the pandemic brought the company to a standstill during 2020.

The firm saw an 80% fall in passenger numbers as lockdowns first came into effect, causing its profit and revenue to plummet.

Having made an operating profit of £242m during 2019, National Express posted a loss of £326.7m.

Revenue also declined from £2.7bn in 2019 to £1.94bn the following year.

The company confirmed it would not be paying out a dividend in 2020 as a result of a tough year.

Ignacio Garat, chief executive of National Express Group, commented on the group’s performance during the pandemic.

“I am immensely proud of the performance of the National Express team in tackling the challenges faced in the past year and I have been impressed by the professionalism and dedication of my colleagues across the Group, who have done an outstanding job in delivering safe and reliable services for our customers during the most testing of times,” Garat said.

“I am also grateful for the support we have received from both customers and authorities, which demonstrates not only the essential nature of our services but also the strength of the relationships that we have built and the extent to which we are perceived as a trusted partner. This partnership approach, and the non-discretionary nature of the majority of our services positions us well for a strong recovery as travel restrictions are lifted in the months ahead. This is boosted by the sustainable cost savings made, and new contracts won during the period.”

“As a business we have an important role to play in modern society and I want us to continue to be at the forefront of the debate on climate change and the role we can play in social mobility. We have a strong and diverse international transport platform that has demonstrated its resilience in recent months. We have a clear set of priorities to ensure we will return to growth in a prudent and safe manner. We will be competing to win”

The Gym Group swings to loss as centres closed due to pandemic

Liam Roche
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The Gym Group swings to loss as centres closed due to pandemic

The Gym Group retained a high number of customers since the turn of the year

The Gym Group (LON:GYM) announced on Thursday that it was in a position recover from a tough year as the organisation suffered a heavy loss during 2020.

The company recorded a before tax loss of £46.52m, a swing from a £14m profit during 2019.

The Gym Group‘s revenue fell by 47.4% from 2019 to £80.47m.

As a result of the pandemic unfolding during 2020, the firm had to shut down its centres for 45% of trading days in the year.

The Gym Group did retain a a high proportion of its members during the recent lockdown, with levels at 547,000 at the end of February 2021, compared to 578,000 at the beginning of the year.

Gyms are expected to re-open for individual exercise on 12 April, as a part of the government’s roadmap out of the current lockdown.

97% of the current members anticipate returning to the gym as soon as it re-opens, while 75% have said their fitness has become more of a priority since the pandemic began.

The company will open three new centres in April and one in May, with an additional four starting on-site imminently.

Richard Darwin, chief executive of the Gym Group, commented on his company’s resilience and the planned rebuild as lockdown measures ease.

“During 2020 we demonstrated the resilience of our business and its culture even in the most challenging of times,” Darwin said.

“By freezing subscriptions when closed and by providing an excellent COVID-secure environment in our gyms when open, we have retained most of our members; by supporting colleagues with topped-up furlough pay, honest communications and a comprehensive wellbeing plan we have high levels of staff retention and engagement; and by managing cash carefully we will emerge from the crisis with manageable levels of debt.”

“We are ready to start rebuilding our memberships levels and growing our estate from 12 April, extending affordable fitness at a time when health and fitness has never been more important.”

Antofagasta Share Price: boosted by strong production guidance

Liam Roche
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Antofagasta Share Price: boosted by strong production guidance

Antofagasta Share Price

Over the past 12 months the Antofagasta (LON:ANTO) share price has risen by 175%, and since the turn of the year, the mining giant is up by 18.6%. The company’s strong performance coincided with the surge in the price of copper during 2020.

Antofagasta Share Price

Results

Antofagasta confirmed a 6% rise in its net profit during 2020 as well as raising its dividend, while mining giant’s net profit reached $893.9m, up from $843.1m in 2019. Lower costs and stronger prices more than offset a fall in copper production levels.

Antofagasta’s EBITDA increased by 12% to $2.74bn ahead of analysts’ expectations of $2.7bn. The copper miner also announced a final dividend of 48.5 cents per share, bringing the full-year number to 54.7 cents, and up from 50.9 cents in 2019.

Production

The London-based Chilean miner said its copper production had fallen 5% last year to 733,900 tonnes because of lower grades of copper, but would pick up in 2020 to between 730,000 and 760,000 tonnes.

“The year has been challenging, but we have successfully kept our people safe and healthy, achieved our production and exceeded our cost targets,” chief executive Iván Arriagada commented.

“Full year copper production was 733,900 tonnes and net cash costs were $1.14/lb, reflecting the company’s agility in changing operating conditions,” Arrigada added.

Copper

The red metal makes up a significant portion of Antofagasta’s revenue and has made a robust start to 2021, now valued at just below $9,000 per tonne. This bodes well for Antofagasta’s prospects. The question will be if copper can keep the momentum that was established in 2020 amid talk of a supercycle.

CRU director of base metals research and strategy, Vanessa Davidson, believes the copper price will peak in H1 of 2021, with the prices beginning to tail off towards the end of the year.

“Our expectation is that prices will drop next year. We see a peak in copper prices in the second quarter of this year, and then we expect to see prices coming off a little bit,” she said. “The supply from the new products will start hitting the market from the second half of the year.”

CRU is forecasting a 5.2% rebound in global copper consumption in 2021, with China increasing by 3.5% and the rest of the world increasing by 7.1%. “In order to get that recovery of 5.2% in global refined copper demand, we need the rest of the world to recover by 7.1%,” Davidson explained.

While the price of copper may not soar, providing the world economy recovers, demand will remain firm, and Antofagasta will be well positioned to capitalise.

BHP Share Price: mining sites offer advantage over Rio Tinto

Liam Roche
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BHP Share Price: mining sites offer advantage over Rio Tinto

BHP Share price

BHP (LON:BHP) performed well during the pandemic on account of the soaring price of iron ore. Additionally, BHP Group saw record output at its Western Australia Iron Ore (WAIO) operations, the company reported in its results. Over the past 12 months BHP is up over 100%, while year-to-date the share price is up by 8.16% despite a recent retreat.

Results

BHP posted strong results in February with robust margins and a record interim dividend payment.

The company revealed in February underlying EBITDA at $14.7 billion at a margin of 59%. While the mining giant’s underlying profit increased to $6.04bn from $5.19bn in the first half of 2020.

BHP’s operating cash flow is $9.4bn, while its free cash flow was confirmed at $5.2bn. The mining firm also recently announced its dividend at $1.01 per share for H1 2021, up from $0.65 the year before.

Production

BHP could be a preferable option for investors based on its advantages with its own mining sites. Goldman Sachs research suggests BHP’s mine sites and mining hubs could bring its capital intensity in Pilbara to average U$7 per tonne over the next five years, compared to Rio Tinto at around U$11 per tonne. The investment bank feels that Rio Tinto will have more mines to replace, requiring more capital expenditure, in addition to the ongoing fall-out from the Juukan George incident.

Iron Ore

Iron ore’s price thrived throughout 2020 as the company produced 280m tonnes of the commodity. BHP’s outlook will depend on whether or not the iron ore can continue its rise into 2021.

However, a recent pollution crackdown by China began to suppress the price of iron ore. There are now question marks over the future prospects of the commodity, which could in turn lead to concerns over the FTSE 100 company’s future prospects.

Having risen from $80 per tonne in March 2020 to nearly $180 per tonne a year later, the commodity has retreated following China’s new policies. 

Nicholas Snowdon, analyst at Goldman Sachs, predicts the Chinese government will increasingly look to limit emissions which will cap the production of iron ore, causing downward pressure on the price of the commodity. 

“We now see iron ore prices turning lower in the coming months,” said Snowdon, who has set a 12-month price target of $100 a tonne. “This reflects mounting evidence that supply is shifting toward a sustained recovery and also that China’s environmental policies will reinforce a peak in iron ore imports.”

Equity markets, inflation and the growth of NFTs

UK Investor Magazine
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Equity markets, inflation and the growth of NFTs

Alan Green joins the Podcast for a broad ranging discussion around the most pressing factors in financial markets.

We look at the equity markets and explore the threat of inflation in the medium term and whether investors should be concerned about a policy mistake by central banks that could derail the current equity market run.

NFTs have grabbed headlines in recent weeks as artwork fetched $60 million at a recent auction by Christies. Alan explains the NFT market and ties it in with the operations of a London-listed stock harnessing the wave of interest in digital artwork and collectables.

We also discuss Power Metal Resources (LON:POW) and Coinsillium (LON:COIN).

Rio Tinto Share Price: vulnerable to overweight iron ore exposure

Liam Roche
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0
Rio Tinto Share Price: vulnerable to overweight iron ore exposure

Rio Tinto Share Price

At one point, Rio Tinto (LON:RIO) doubled its valuation over the past year, from 3,212p per share in March 2020 to 6,352p per share in February 2021, as a result of a sharp rise in commodity prices.

During March 2020 the Rio Tinto share price has seen a dip, to 5,496.82p per share, which was caused by iron ore prices dropping from recent highs.

Results

Rio Tinto announced in February 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. While its revenue in 2020 grew by 3.3% year-on-year to $44.6bn.

In addition to a positive cash flow in each of the past five years, Rio Tinto’s free cash flow was $9.4bn in the 2020.

Rio Tinto revealed a record $6.5bn final dividend, or $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 amounted to $9bn.

Production

Rio Tinto maintained expenditure of $625 million on exploration and evaluation, as the company progressed its greenfield programmes and other evaluation projects, in particular Resolution Copper in Arizona, Jadar lithium-borates in Serbia and Winu copper-gold in Western Australia.

The FTSE 100 mining company also is due to start negotiations with the government of Mongolia as it seeks to complete the $6.75bn expansion of a large-scale copper project in the Gobi dessert.

Commodities

Iron ore’s price thrived throughout 2020, and Rio Tinto’s outlook will depend on whether or not the commodity can continue its rise into 2021, as it makes up 63% of the mining company’s revenue.

However, a recent pollution crackdown by China began to suppress the price of iron ore. There are now question marks over the future prospects of the commodity, which could in turn lead to concerns over the FTSE 100 company’s future prospects.

Having risen from $80 per tonne in March 2020 to nearly $180 per tonne a year later, the commodity has retreated following China’s new policies.

Nicholas Snowdon, analyst at Goldman Sachs, predicts the Chinese government will increasingly look to limit emissions which will cap the production of iron ore, causing downward pressure on the price of the commodity.

“We now see iron ore prices turning lower in the coming months,” said Snowdon, who has set a 12-month price target of $100 a tonne. “This reflects mounting evidence that supply is shifting toward a sustained recovery and also that China’s environmental policies will reinforce a peak in iron ore imports.”

FTSE 100 quiet as investors wait patiently for Federal Reserve meeting

Liam Roche
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0
FTSE 100 quiet as investors wait patiently for Federal Reserve meeting

The FTSE 100 dipped by 0.3% to 6,784 as European and Asian markets barely moved on Wednesday.

“Investors were waiting patiently for the Federal Reserve’s latest meeting, which is expected to see the central bank upgrade its forecasts for the US economy,” said Russ Mould, investment director at AJ Bell.

“It tends to be the case on Fed Wednesdays, the markets were cautious-to-negative out on the gate,” Connor Campbell, financial analyst at Spreadex, added.

“The spotlight is going to be put on the issue by this evening’s Federal Reserve meeting, and Thursday’s Bank of England chaser,” Campbell said.

FTSE 100 Top Movers

BT was the top riser (5.22%) on Wednesday morning after its mobile and internet service provider EE won a new 5G spectrum in an auction, followed by Rolls-Royce (3.32%) and RELX Group (2.44%).

The day’s top fallers so far are Evraz (-3.10%), Anglo American (-2.65%) and Johnson Matthey (-2.36%).

Dignity

Dignity confirmed a £19.6m loss last year even though the number of deaths soareddue to the scourge of the coronavirus pandemic. The company confirmed the total number of deaths for the year to 25 December was 663,000, up by 14% from 2019, and the highest since 1918.

Dignity organised a record breaking 80,300 funerals last year, nearly 11,000 more than the year before.

Hostleworld

Hostelworld (LON:HSW) swung to a loss as the company’s bookings dropped by 79% during the past year. The Dublin-based accommodation provider also reported a €17.3 million loss at ebitda level, down from €20.5 million profit in 2019. Net annual revenue fell by 81% from €80.7 million to €15.4 million in 2020.

Funeral provider Dignity swings to loss despite high death toll during pandemic

Liam Roche
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0
Funeral provider Dignity swings to loss despite high death toll during pandemic

Dignity spent more on PPE while earning less per service

Dignity (LON:DTY) confirmed a £19.6m loss last year even though the number of deaths soared due to the scourge of the coronavirus pandemic.

The company confirmed the total number of deaths for the year to 25 December was 663,000, up by 14% from 2019, and the highest since 1918.

Dignity organised a record breaking 80,300 funerals last year, nearly 11,000 more than the year before.

The company confirmed it became stretched on a number of occasions as deaths during the peak of the pandemic in Q2 47% higher than a year before.

Dignity faced rising costs in addition to limitations on the type of funeral service the company was able to offer.

The company spent more money on personal protective equipment while earning less per service as it withdrew the use of limousines, in addition to limiting the number of guests and, at times, ceasing church services.

Clive Whiley, Chairman of Dignity plc, commented: “During 2020, we have continued to be focused and resilient in the light of many changes, however the business has remained robust.”

“Whilst COVID-19 featured heavily in our day-to-day activities into the first quarter of 2021, we did not lose sight of the numerous project work-streams initiated in the last year, aimed at affording the Board the time and collateral necessary to allow the business to self-heal, without recourse to dilutive funding initiatives,” Whiley added.

“In a unique and challenging year, it is the dedication of our staff that has enabled continued delivery of our services, supported by a refreshed strategy and management team. Our people are fundamental to both the Group’s success and sustainability and I would like to thank them for their significant contribution, resilience and commitment to service during what has been an exceptional time for society, bereaved families, our people and our business.”

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