FTSE 100 edges back with major news yet to come

Liam Roche
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FTSE 100 edges back with major news yet to come

The FTSE 100 fell by 0.2% this morning to below 6,690 as the index gradually retreated following heavy gains from Monday and the week before. Next Monday will provide a clearer indication of where the UK economy is at as an announcement is expected around the easing of lockdown restrictions.

“The latest day of destiny for investor sentiment feels like it is coming on Monday when Boris Johnson is set to reveal the pace at which coronavirus restrictions will be eased in England,” said Russ Mould, investment director at AJ Bell.

Barclays reported its end of year results, while on the FTSE 250, Moneysupermarket confirmed losses due to a slump in demand over 2020. Barclays is the first of the major banks to release results over the coming days, with Natwest posting on Friday, while HSBC and Lloyds will provide updates early next week.

The FTSE 100 movers

Rio Tinto (3.54%), Evraz (3.19%) and Ashtead Group (3.07%) head up the index as the day’s biggest risers so far.

Down at the bottom, Smith and Nephew (5.4%), Imperial Brands (4.8%) and Barclays (3.54%) have seen the biggest drops at mid-morning trade on Thursday.

Barclays

Barclays announced a 68% loss in Q4 net profit following the company’s decision to set aside funds as an insurance for bad loans. This offset strong results from the bank’s investment banking arm during the coronavirus pandemic.

Barclays’ profits dropped from £618m in the fourth quarter of 2019 to £220m a year on. However, the results exceeded analyst expectations of  a small loss. Overall, the FTSE 100 bank announced a 30% dip in pre-tax profits to £3.1bn for the year, down from £4.3bn in 2019.

Moneysupermarket

On the FTSE 250, Moneysupermarket’s profit and revenue slumped in 2020 as lockdowns resulted in a fall in demand for the price-comparison website’s travel insurance and credit products. The company confirmed pre-tax profit had fallen to £69.3m in 2020, down from £94.9m the year before. Moneysupermarket also announced a dividend of 11.7p per share, which is the same level as 2019.

Barclays Q4 profits down by 68% due to bad loan provisions

Liam Roche
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Barclays Q4 profits down by 68% due to bad loan provisions

Barclays will resume dividend payments

Barclays announced a 68% loss in Q4 net profit following the company’s decision to set aside funds as an insurance for bad loans. 

This offset strong results from the bank’s investment banking arm during the coronavirus pandemic. 

Barclays’ profits dropped from £618m in the fourth quarter of 2019 to £220m a year on, however, the results exceeded analyst expectations of  a small loss. 

Overall, Barclays announced a 30% dip in pre-tax profits to £3.1bn for the year, down from £4.3bn in 2019.

The bank held back £4.8bn as it anticipated loans not being repaid due to the coronavirus pandemic. 

Barclays’ balance sheet was supported by its investment banking department which recorded robust revenues from its equities and fixed income businesses as customers rushed to the markets in 2020. 

The fixed income, commodities and currencies entity confirmed a 53% rise in income, while equities saw a 31% increase. Barclays’ banking fees rose by 8% 

Despite the fall in profits, Barclays confirmed it would be resuming dividend payments, as well as offering to buy investors’ shares back. 

Barclays will pay a full-year dividend of 1p per share and will buy back £700m worth. The bank’s previous dividend payments were 3p, 2.5p and 1p in December of 2019, 2018 and 2017 respectively. 

Russ Mould, investment director at AJ Bell, said a low dividend level was to be expected as the regulator has “stipulated that any dividends for 2021 have to be accrued rather than doled out”.

“There may also have been some disappointment at the pretty nominal nature of the dividend – though anyone who thought payouts were going straight back to pre-pandemic levels in a hurry wasn’t paying attention,” said Mould.

This comes following the Bank of England’s announcement at the end of last year that banks may again payout dividends. 

Barclays’ share price is down by 1% to 152.78p during morning trading, following a year of sideways movement in the bank’s share price. 

James Staley, Barclays’ chief executive, reflected on the bank’s performance in 2020.

“In a year in which the COVID-19 pandemic affected people across the globe, 2020 demonstrated our strengths, our values, and our resilience,” Staley said.

“Throughout the pandemic we have focussed on preserving the financial and operational integrity of the firm so that we can maximise our support for clients and customers, for colleagues, and for the communities in which we live and work.”

Moneysupermarket profit down to £69.3m as demand drops due to pandemic

Liam Roche
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Moneysupermarket profit down to £69.3m as demand drops due to pandemic

Moneysupermarket share price up 6% on Thursday mid-morning trade

Moneysupermarket’s profit and revenue slumped in 2020 as lockdowns resulted in a fall in demand for the price-comparison website’s travel insurance and credit products. 

The company confirmed its pre-tax profit had fallen to £69.3m in 2020, down from £94.9m the year before.

Total revenue dropped by 11% to £344.9m, while adjusted earnings per share fell to 13.1p, down by 28%.

The company announced a dividend of 11.7p per share, which is the same level as 2019. 

In addition to lockdowns, challenging market conditions are making life difficult for Moneysupermarket, according to analysts. 

“In 2020 the availability of credit products was a real challenge for Moneysupermarket, as banks and credit cards tightened lending criteria. This resulted in a less compelling range of alternatives for consumers,” said Dan Thomas, senior analyst at Thirdbridge. 

“Players like Experian and Clearscore are also moving into Moneysupermarket’s territory offering competing services alongside their more traditional credit bureau products,” Thomas continued. 

Moneysupermarket could raise its prices to counteract the impact on revenue from a drop-off in demand, said Thomas. 

“Price comparison websites like Moneysupermarket could offset potential volume headwinds by negotiating higher fees with insurers as they seek to reflect the increased customer lifetime value associated with lower churn.”

Moneysupermarket’s share price traded over 6% up on Thursday at mid-morning trade at 284p, while the company remains some way off its price point from 12 months ago of 367.7p. 

Peter Duffy, chief executive of Moneysupermarket Group, believes there is work to be done to get customers back after a tough year for the company. 

“We have again helped millions of UK households save on their bills, while providing indispensable financial advice throughout the Covid-19 pandemic,” said Duffy. 

“Our job now is to encourage consumers to engage with us more and save on more of their bills. We will use our data better so consumers find our sites easier to use and are reminded when there are savings available to them.”

Kanabo shares continues surge on second day as a listed company

Liam Roche
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Kanabo shares continues surge on second day as a listed company

Kanabo shares up by 700% in less than two days of trading

Following its impressive stock market debut on Tuesday, Kanabo, the medical cannabis company, soared again on day two. 

Kanabo made further gains of 108% at mid-afternoon trade on Wednesday, with the Kanabo share price up to 38.4p. At one point, Kanabo peaked at 48.95p per share.

Kanabo closed on 18.38p per share on its debut, more than 292% up from its opening price of 4.75p. The company had set an IPO price of 6p.

Since the company was floated on Tuesday morning, Kanabo shares are up by over 700%. 

Avihu Tamir, chief executive of Kanabo shared his excitement around the company’s initial public offering (IPO). 

“We share the enthusiasm shown by the investment community in the UK for this important day. The reaction we have seen since we published our prospectus two weeks ago has been overwhelming,” Tamir said.

Kanabo follows MGC Pharmaceuticals, another medicinal cannabis company, which listed on the LSE recently. Analysts are predicting more of the same following the FCA’s ruling permitting cannabis firms to join the stock market.

“[The FCA’s decision] could create a major European trading hub for cannabis companies which is currently dominated by Toronto and New York,” said Neil Wilson, the chief market analyst at Markets.com. 

The money generated by the IPO will be reinvested into research into a cannabis treatment for insomnia, among other areas. 

Avihu Tamir believes his company’s float is just the beginning. 

“With the support of the Financial Conduct Authority (FCA) and the London Stock Exchange, the medical cannabis industry is set to take off in the UK and in Europe, similar to what’s happened in North America in recent times. This is just the beginning.”

Oil prices keep marching higher

Liam Roche
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Oil prices keep marching higher

Oil reaping the benefits from economic optimism

The only way is up for the price of oil as the commodity’s recent resurgence shows no signs of slowing down. 

Brent crude oil was up at $64.62 on Wednesday, a gain of over 2% on the previous day’s close. 

West Texas Intermediate climbed to $61.11 during the same trading day, with slightly a more modest 1.77% increase. 

Both benchmark oils are following recent upward trends which have seen all-time highs. 

For the year-to-date Brent crude oil has seen a 23.1% increase from $51.09 per barrel, while the price of West Texas Intermediate has risen by 24.1% from $48.4. 

The commodity is benefiting from a number of favourable macroeconomic factors. 

As Texas froze over this month, there were pressures on both the demand and supply, causing oil prices to rise. 

While Joe Biden is yet to pass his $1.9trn stimulus package through Congress, the President of the US appears to be inches away, and markets have reacted accordingly. 

Covid-19 appears to be on the retreat in America, and across many parts of the world, causing hope of lockdowns coming to an end. 

In the UK, the FTSE 100 has benefited from strong performances from oil companies, in addition to mining firms, relying on both sectors for recent gains.

“Between them they provide a fifth of the index’s market capitalisation and are forecast to provide 31% of total profits and 28% of aggregate dividends in 2021,” according to Russ Mould, investment director at AJ Bell. 

However, Mould warned that things could quickly change as the recent performances of mining and oil companies is dependent on a favourable economic climate.

“The danger is that the global economy double-dips, as the virus refuses to go away, debt proves too onerous and corporate and consumer confidence slips away. Neither commodity prices nor mining and oil stocks are likely to thrive in such an environment.”

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. 

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