FTSE hit as commodities stocks dip on Russia-OPEC loggerheads
Today Brent Crude was down 7% to $46.25 per barrel, a $25 price cut from the first week of 2020, and representing its lowest price since mid-2017. This came on the back of fresh talks between OPEC and Russia, on potential production cuts, with Russia apparently refusing to agree to a deal. The effect this has had in real terms, has been another hit to already-flustered commodities stocks, with knock-on effects to oil-laden indexes such as the FTSE.
The FTSE fell to post-Brexit referendum levels, closely followed by its European peers falling around 4%, while the Dow Jones fell by around 2% – after receiving a better-than-expected nonfarm jobs report.
Speaking on OPEC, Russia and commodities, Spreadex Financial Analyst Connor Campbell stated:
“There was no solace to be found this Friday, the session getting increasingly ugly as a deal between OPEC and Russia failed to materialise.”
“With the Russians reportedly refusing to agree to the latest round of production cuts, Brent Crude lost its head, [with oil down] 7% to $46.42 per barrel. That’s its worst price since mid-2017, and close to $25 dollars a barrel off the levels struck in the first week of the year.”
“Understandably the commodity-heavy FTSE was hit hard. As BP (LON:BP) and Shell (LON:RDSB) lost 4.4% apiece, the FTSE dropped 260 points, sinking to 6450 – a price last seen in the weeks after Britain voted to leave the EU. Further harming the UK index was a nasty 9% decline from Anglo American – the worst of an already bad set of mining stocks – and a sharp 0.7% rise from cable.”
“Like the pound, the euro took advantage of the dollar’s weakness, climbing 1.2% to cross €1.133. This as a collapse in US government bond yields left the dollar facing its worst week is around 4 years.”
“The euro’s gains also did a number on the Eurozone indices. The DAX lost 420 points as it fell to 11550, while the CAC shed 4%, taking it to 5150.”
“Though not quite as dramatic as its European peers – it was aided by a better than forecast nonfarm jobs report – the Dow Jones nevertheless lost 2%, slipping back to 25650. That is, however, still a bit higher than the sub-25000 lows struck earlier in the week.”
Brexit related holiday home buying an uncertainty only in 2021
British people are known for buying property in other European countries like Spain and France for a plethora of reasons. Some want to be as close as possible to a selection of the world’s finest wines in Bordeaux or Alsace. Others are happy to trade the often-dreadful British weather for the rocky backdrop and nightlife that Ibiza is famous for.
The process of foreigners buying property across Europe was made simple thanks to arrangements under the European Union. But now that Brexit is signed into law and became official in January 2020, many people are unsure if the foreign real estate environment will be as friendly to invest in.
Travel Changes In 2021
British holiday-goers will see zero near-term change to how they travel across Europe due to a pre-agreed transition period prior to Brexit becoming official. However, this will expire at the end of 2020 at which point there will likely be changes to how British people travel.
As part of some of the pre-Brexit negotiations, all parties agreed British people won’t need to acquire a visa to enter Europe, and vice-versa. The most likely outcome will consist of British people requiring a European Travel Information and Authorisation Scheme (ETIAS). The good news: this will likely cost a mere seven euros for a pre-travel authorization period of three years and this documentation can be applied for online.
Now that it is abundantly clear British people will be able to freely travel across Europe, let’s explore if a holiday home represents a suitable investment.
How To Exchange Pounds To Buy A Home
British residents who earn their living in pounds will need to transfer their money to euros if they are buying a holiday home inside the Eurozone. Most foreign sellers would be happy to accept pounds for a real estate transaction but at a hefty premium.
Online platforms like XE.com specialises in property purchases and can handle the first step of buying a home: exchanging British pounds for euros. These types of platforms are also known for offering competitive exchange rates, especially on six- or seven-digit transactions. Consumers who exchange pounds for euros through online money transfer services could often do so below the interbank rate. The ability to save even a fraction of a pound can add up to a lot of money in a multi-million-pound transaction.
Online money exchange platforms surged in popularity in the early 2010s as consumers grew tired of the old and outdated traditional banking system known for adding extra fees. XE.com alone handles more than $75 billion in transactions throughout the world.
The process of transferring 1 million pounds to euros is as simple and straightforward as transferring 100 pounds. A client can set up an online account with one or several money transfer services and have it linked to a bank account of their choice. The client also needs to establish an end destination for the euros. If they have a bank account in their own name in France or elsewhere, the funds can end up there. Alternatively, the client can instruct the money transfer service to send euros to a notary or directly to the seller of a home.
The entire process from start to finish can be completed in around four business days. But the ultimate length could be delayed a few days if an intermediary bank is involved in the process behind the scenes.
The opposite side of the transaction remains the same. Suppose a holiday homeowner decides to rent their property when it is not in use and collects revenue in euros. Online money transfer services can just as easily accept euros to be converted to pounds so it can be deposited directly to a British bank, also at a rate that is likely more competitive than traditional banks.
Importance Of Money Transfer Services
As such, the money transfer companies thrive off thousands of real estate transactions occurring each year. From April 2017 to April 2018, British people bought 8,500 units in Spain alone. One out of five prime real estate purchases in France is conducted by British people. Nearly every single one of these transactions requires the use of money transfer services with the rare exception occurring when a British person already derives their income in euros.
In the event that foreign real estate deals involving British people slow down in the post-Brexit world, the financial impact on the money transfer industry could be large. Since money transfer services earn themselves a commission on each exchange, the industry could stand to lose millions of pounds. The opposite holds true that if vacation buying activity increases, money transfer services would see more business and can potentially pass along incremental savings to customers.
Regulatory Changes Unlikely
Spain and most European countries have minimal restrictions on foreign ownership as it represents a form of outside investment in the country. But what happens in 2021 and beyond remains a giant question mark.
If the British government and its European counterparts sign a tax treaty it will likely signal the current status quo will remain unchanged. The U.K. and Spain already have tax treaties that cover income tax, but there is no tax treaty-related to inheritance tax,according to Keystone Law.However, the U.K. government will factor into account any inheritance taxes paid to Spain when it comes time to filing with HMRC, the U.K. department responsible for the collection of taxes.
If there is no signed tax treaty on the books, British citizens may be subject to identical taxes other non-EU nationals pay, including income tax. This would need to be factored into any and every investment decision made ahead of any sort of confirmation a treaty will be enacted.
How To Make A Profit
Generally speaking, a British investor who bought a home in Europe can realize a profit in one of two ways. First, and perhaps most obvious, the value of real estate appreciates over time.
France, in particular, is known for soaring real estate prices as demand for homes far outpaces the available supply. Data fromParis’ association of notariesshows the average selling price in the most sought after region, the Sixth Arrondissement, rose from 11,300 euros a square meter in 2015 to 14,000 euros by January 2019. Similar data from what is considered to be the most affordable region, the 19th Arrondissement, the average sale price jumped from 6,500 euros a square meter to 8,350 euros a square meter over the same time period.
Investors can also walk away from a real estate transaction with a profit if the British pound appreciated in value, or the euro depreciates. This is based on simple math: suppose a British investor paid 1 million pounds (1.203 million euro) for a house in France. If the same house is sold for the exact same 1.203 million euro but the British pound appreciates by 10%, well, their 1.203 million euros will be worth 1.1 million pounds.
The Bottom Line
Investing in foreign real estate or buying foreign property has an intangible value attached to it. Families will make long-lasting memories in some of the most beautiful regions of the world. And the best part is they can claim to do so in their own home — not a hotel or someone else’s property that was borrowed for a weekend.
So while Brexit does bring some uncertainty in 2021 and beyond, the current worst-case scenario consists of British people having to sign up for a few forms and wait in a non-EU passport line. But this can all change rapidly and anyone buying an investment home will need to pay close attention to any new developments.
Why is the 3.1% pay rise for MPs so insulting?
The Independent Parliamentary Standards Authority announced on Thursday that MPs would be receiving a 3.1% pay rise to £81,932, effective from 1 April.
The 3.1% bounce follows a 2.7% increase in 2019, a 1.8% rise in 2018, 1.4% for 2017, 1.3% in 2016 and a significant jump from £67,000 to £74,000 in July 2015. The key for many, perhaps, is that the increase is far ahead of inflation, with the CPI up by only 1.8%.
We’ve been told that pay rises are pegged against the change in average weekly earnings in the public sector for October, and that MPs will be receiving additional expenses to cover staff costs.
Attempting to justify the decision, IPSA interim chair Richard Lloyd said:
“Our review of MPs’ staffing budgets in 2019 found demands on MPs’ offices were high, with staff doing difficult and stressful casework with constituents on a very wide range of problems.”
“There was often high staff turnover, with salary levels below comparable roles elsewhere, based on independent benchmarked evidence.”
“In many MPs’ offices, relatively little time or money was spent on staff training, wellbeing and development.”
“As a result, we have provided additional funding in MPs’ 2020-21 staffing budgets for staff training and welfare, security, and changes to the salary bands and job descriptions for MPs’ staff to bring them into line with the jobs they actually do.”
One seat in office, multiple revenue streams
So, why should the increase annoy us? It’s not necessarily because of the sum of money itself. £82,000 is a very good wage, and arguably one befitting some of the most powerful and pressurised individuals in our society. What we need to take issue with is the deliberate attempt to mislead us: and the idea that £82,000 is all that MPs are taking home. The well-known secondary income of MPs – their extortionate expenses – aren’t something that vanished with the departure of Peter Mandelson. For the 2017-2018 full-year, the highest expenses claims came from the DUP, with individuals within the party claiming an average of £194,537. At the lowest end of the spectrum were the Lib Dems, who on average claimed a hardly poxy sum of £135,414. Without meaning to appear naive, I understand that expenses can go towards valid resource costs. However, there are enough historical cases to substantiate claims that expenses encourage questionable – or at best a spendthrift approach – to deploying public funds. While I think expenses are a worthwhile consideration when discussing a wage increase in any profession, they’re well-documented. I think the more worrying source of income that MPs enjoy – and one I think it is deceptive of the IPSA not to mention – are the advantages of office which MPs take advantage of. In the context of this article, by ‘advantages of office’ I mean the fees, roles and informal pay-for-favour opportunities offered to MPs by outside sources (usually private entities). Discussing this in an academic blog about the government-business overlap, I state: “The discussion of whether this dynamic exists is frankly arbitrary, but off the cuff I’d cite: the negotiation of a £6 billion MoD contract with a Viasat (NASDAQ:VSAT), led by Priti Patel, after she received £1,000 p/h to advise the company; the position of AI company Babylon Health to receive a chunk of a £250 million government fund, after it paid Dominic Cummings to provide communications strategy and senior recruitment consultancy services; discrepancies in number of postal votes, which is largely overseen by Idox, a company whose Non-Exec Director until 2018 was Peter Lilley, a Conservative MP; and perhaps most notably, at the same time as the government was outsourcing (privatising) NHS services, 72 Conservative MPs worked with or had stakes in private healthcare companies and hedge funds, many of which had and continue to enjoy access to government contracts via (now) anonymous bidding processes.” “I’d like to clarify two things at this point. Firstly, that the purpose of my argument isn’t necessarily a partisan one, these are merely examples pertaining to government officials within the last decade. Secondly, and more importantly, I’d like to stress that these are just a few and VERY explicit conflicts of interest which have been flagged up by organisations such as the Electoral Commission and Transparency International, and do not account for the informal quid quo pros made by MPs before entering or after leaving office.”What can we take away from this?
As I said, I’m not against MPs making good money. We want the brightest and best leading our country in a sincere and focused manner, and their pay should reflect that. Rather than encouraging dagger-and-cloak behaviour and transactions which represent clear conflicts of interest within public policy-making, I’d gladly advocate for MPs to receive a large pay rise (an arbitrary sum may be £100,000-£150,000), but then demand they forgo their expenses, and be banned from receiving payments from outside bodies while in office. I don’t think these suggestions are unreasonable, nor do I think they’d be off the mark for anyone who knows the value of good leadership and transparency within positions of authority. Sadly, the response from the political sphere seems to have completely missed the mark. Also commenting on the pay rise, deputy general secretary of public sector union Prospect, Garry Graham, said: “The announcement that MPs will receive a 3.1 per cent pay increase will be viewed with surprise by many civil servants whose experience has been average pay increases capped at 2% over the past year.” “If MPs are to avoid being accused of hypocrisy, they need to ensure the staff who serve and support the government receive pay awards of at least this level this year.” (Prepare for a sardonic ending) Well, its good to know the anger surrounding the pay-rise hasn’t gone entirely unheeded. Also, after five years of indecision and political bluster, it’s nice to see there’s still one issue where MPs can reach a unanimous agreement.Equities gains unravel on prevailing Coronavirus fears
After the leap year horror show took its fair share of casualties, global equities were keen to defiantly claw back ground, only to be halted as Coronavirus fears gripped the hearts of investors once again.
Despite becoming apt at finding any source of optimism to grab onto, markets were knocked back into correction mode on Thursday. By no means as bad as the losses suffered in the final week of February, the collapse of Flybe (LON:FLYB) and the first UK Coronavirus death prompted a day of reaffirmed pessimism.
The FTSE moved well away from its all-time high, while the Dow Jones dropped 700 points after the open. What seems to be really hitting investors is the realisation that it isn’t only the obvious sectors that are being hurt, but the impact of secondary risk factors, such as the virus’s effect on consumer habits, and on supply chains.
Speaking on the turnaround in global equities on Thursday, Spreadex Financial Analyst Connor Campbell stated,
“What started as a fairly calm session unravelled as the day went on, with investors once again gripped by panic about the cost of the coronavirus.”
“The Dow Jones – which is lurching from green-to-red on a day-by-day basis – shed 700 points as trading got started on Wall Street, plummeting back under 26400 in the process.”
“This ensured that the European indices spent another session struggling under the weight of the current outbreak uncertainty. The FTSE, which was already having a bad one, saw its losses expand to 125 points, forcing it below 6700. The DAX, which had started the day flat, ended up shedding 1.5%, while the CAC lost more than 100 points as it fell towards 5350.”
“How things pan out on Friday morning may well be dictated by just how bad things get by the US close. The Dow has really shown a willingness to MOVE in the last week and a half, posting insane triple or quadruple-digit shifts that come to inform the Asian and European sessions.”
“Investors appear to be caught between the brief bursts of optimism that tend to greet the various stimulus announcements we’ve seen, and the growing awareness that the coronavirus isn’t going away any time soon, and that its economic impact will hurt sectors far beyond those– like travel firms and commodity stocks – that immediately come to mind.”
Blue Star Capital shares dive 18% as net assets fall across 2019
Blue Star Capital PLC (LON:BLU) shares have dived on Thursday afternoon, as the firm published its’ full year results.
The firm reported that its’ net assets had fallen, as the esports and gaming markets described as ‘a year of consolidation’.
Blue Star noted that net assets were 4.6% lower totaling £5.2 million compared to £5.5 million a year ago.
The firm did add that the value of their key investments had grown marginally from £5 million to £5.1 million.
Blue Star noted that they incurred a loss the period of £684,964 compared to a profit for the previous period of £1,471,319.
The firm said that this was caused by the difference in the significant uplift achieved in SatoshiPay valuation in the prior year and the write off of the historic investment in DTL.
Tony Fabrizi Chief Executive Officer of Blue Star Capital plc, commented:
“2019 has been a year of consolidation as the Company came to terms with the disappointment and costs associated with the termination of the proposed reverse take-over of SatoshiPay in January 2019. An unfortunate consequence of the transaction terminating was that, as the Company had incurred significant transaction fees, it was forced to raise equity on two separate occasions to fund ongoing operations. Despite these setbacks, the Company’s portfolio has continued to develop with both SatoshiPay and Sthaler making good progress and post year end the Company invested in a portfolio of six esports businesses which offer significant potential.
The last year was one of consolidation with our main portfolio companies making solid progress in developing their businesses. Post year end, we have invested in a portfolio of esports businesses which offer significant potential and both SatoshiPay and Sthaler have more recently announced key strategic developments which offer great hope for the future. Overall, we are pleased with recent progress and the Board views the future with confidence.”
Blue Star invest into Esports
In October, Blue Star announced that they had invested into the Esports arena. Jonathon Bixby, one of the original founders of bitcoin miner Argo Blockchain Plc (LON:ARB) encouraged six installments of £150,000 into different Esport fields. Blue Star have aimed to go global with this shift, having stated the intent to start operations in UK, USA, Canada, Australia and Singapore. Blue Star’s Chief Executive, Tony Fabrizi has committed £20,000 in the first placing, giving him a 2.3% stake. Additionally, the new Chairman, Derek Law has invested £100,000. The company’s main investment is SatoshiPay, where it owns 27.9% of total capital. In Satoshipay’s most recent fund raise in March 2019, this valued BlueStar’s investment at £4.6 million. Satoshipay have plans for vertical movement into the cross border B2B payments which is estimated at £160 billion, giving investors reason to expect future revenue growth. Shares in Blue Star Capital trade at 0.090p (-18.18%). 5/3/20 14:02BST.Coats Group lower costs significantly leading to 36% annual profit spike
Coats Group PLC (LON:COA) have seen their annual profits rise within a strong update from the firm.
The FTSE 250 listed firm recorded profit increases, despite lower growth and market fluidity.
The CEO commented: ‘I am pleased to report a year of continued growth in profits and cash, despite a market backdrop where we saw lower than normal growth in retail sales of Apparel and Footwear, and temporary softness in some of the industrial end-markets that we serve in Performance Materials. In Apparel and Footwear, this meant taking further market share by delivering high quality products with world class levels of speed, customer service and support. In Performance Materials, we delivered innovative thread and yarn-based solutions that solve our customers’ technical problems across a variety of industries. ‘
Coats Group, who make industrial thread said that pretax profit across 2019 was $166.8 million. Notably, this sees a 36% jump from $122.8 million in 2018.
Revenue fell despite the strong profit gains from $1.41 billion to $1.39 billion.
The firm said that profits rose due to a drop on exceptional and acquisition related items in the year.
These costs include the initial costs elating to a business transformation program. Interestingly, Coats also saw their exceptional charges fall to $4.4 million from $47.8 million – which represents a massive drop.
Looking at divisional performance, Coats noted that Apparel & Footwear recorded revenue growth of 1.0%, and Performance Materials revenue jumped 1.4%.
Additionally, Personal Protection saw 6% growth and Telecoms & Energy saw a 7% spike. Finally, revenue from Transportation division slipped 5%.
Coats proposed a final dividend of $1.30 per share, which gives an annual total of $1.85 – seeing a 11% rise from the 2018 which was $1.66.
‘During the year, we also made significant progress on our strategic priorities of M&A, Digital, Innovation and Sustainability. The acquisition of Pharr High Performance in North America makes Coats a market leader in Personal Protection yarns. ESG and Sustainability are key differentiators for Coats and a source of competitive advantage.
Rajiv Sharma, Group Chief Executive, said:
‘At an operational level we continue to grow margins through self-help programmes and cost management, whilst continuing to recover raw material cost increases. Cash delivery was once again strong which provides us with the funds to invest selectively in the most attractive organic and inorganic opportunities. Over the last two years the delivery of our Connecting for Growth transformation programme has resulted in less complexity, lower cost, more organisational agility and funds to invest in growth. The organisation is now fitter, faster, more agile and able to respond rapidly to fast-paced changes in the market.
‘We enter 2020 as a lean and agile organisation, having delivered significant positive strategic change through 2019. We are well placed to take advantage of the fast-paced and rapidly changing modern world, by capturing the many opportunities this presents to Coats as a truly global business.
‘Absent a material impact from Covid-19, Coats remains well placed to execute our strategy and deliver another year of growth in 2020.’
Shares in Coats Group PLC trade at 60p (+3.70%). 5/3/20 13:42BST.
Saga unable to fully assess coronavirus impact
Saga PLC (LON:SAGA) have seen their shares crash on Thursday afternoon, as the firm gave an update on its operations.
The financial services provider said that the current situation with the coronavirus has been affecting results.
However, Saga noted that the impact cannot yet be quantified – but did note that cancellations and lower bookings have been since since the outbreak of the COVID-19.
“Saga is closely monitoring the evolving situation with respect to COVID-19 and our focus is to ensure customers, guests and colleagues are safe and reassured in all circumstances. We have taken significant steps to safeguard everyone and will continue to do so throughout this time.”
Saga also noted that their Cruise business has forward sales for 80% targeted revenues, for their financial year ending January 2020.
However, the Cruise business has faced some troubles following cancellations since the outbreak of the coronavirus. Looking at their tour operations unit, the firm also noted that there has been further cancellations and lower demand.
Saga have remained confident in their ability to make up lost ground, as they said they have lower exposure to the Far East and Northern Europe – shifts in demand and coronavirus issues should be handled.
Saga commented: “The evolution of COVID-19 and the impact this will have on full year earnings for 2020/21 cannot be predicted with any certainty at the current time. While our Travel business will be impacted, the Group expects the performance and cash generation of the Insurance business to be largely unaffected. There are a range of actions the Group can take to mitigate against weaker trading in the Travel business, such as the cost efficiency actions already underway and announced in the recent trading statement.
The Group will provide a full update with full year results for the year ended 31 January 2020 on 2 April 2020 and reiterates that underlying profit before tax is expected to be in line with expectations.”
Shares in Saga trade at 22p (-9.33%). 5/3/20 13:23BST.
Admiral see ‘freight train’ 2019, as CEO announces his retirement
Admiral Group plc (LON:ADM) have given shareholders a bullish update, with strong fundaments for their recently ended financial year.
The Group Chief Executive Officer, David Stevens called 2019 a ‘freight train year’ – saying that it was a record year with strong consistent performance.
The CEO noted: “Was 2019 another “freight train” year? Very much so. In so many ways.
It was a year which saw profits exceed £500 million for the first time, on the back of substantial reserve releases. We crossed the million mark in household policyholders, and added 200,000 new car insurance customers overseas.
The percentage of staff saying they are proud to work for Admiral was stuck in a narrow band in the mid-90’s. As was the percentage of customers who said they wanted to renew with Admiral following a claim. Consistently happy staff, consistently happy customers. Hopefully happy shareholders.”
The insurance firm posted a pretax profit of £522.6 million for 2019 – which was noted as a company record. This pretax profit figure saw a 10% rise on the 2019 figure, and met internal guidance range.
Customer numbers also rose for the firm, with this metric jumping 7% to just shy of 7 million customers.
UK Insurance numbers also rose 4% to 5.5 million whilst international customers climbed 16% to 1.4 million.
Insurance premium also rose 5.8% to £2.2 billion, Admiral noted – as net insurance premium revenue also jumped 5.6% to £709.4 million. In addition to this, net revenue saw a 7.1% boost to £1.35 billion.
The company’s return on equity was 52%, down from 56%, with the Solvency ratio post-dividend 190% from 194%.
Admiral have decided to pay a 77p per share final dividend, with the addition of a 20.7p special dividend. This boosts the annual dividend to 140p – which sees an 11% rise from 2018.
Annette Court, Admiral Group Chair, commented:
“I am delighted to report another year of record profit in 2019 and a strong set of results. It was also pleasing to receive a recent award as the only company to appear in the Sunday Times Best Large Company to Work For shortlist every year since the inception of the awards 20 years ago.
These results are testament to our people, who continue to be at the core of our success and highlight every day the real difference that they make through their focus on great customer service.
Having been through a comprehensive and robust succession process, the Board is confident that in Milena Mondini we have a natural successor and a leader for the next generation, supported by a very strong management team. Milena brings a deep appreciation of the special Admiral culture, entrepreneurial spirit, commercial track record and people development skills.”