The FTSE 100 dropped on Tuesday as investors trimmed their positions in mining companies as a China-induced rally in commodity companies paused for breath.

London’s leading index was down over 1% at the time of writing, with the lower end of the leaderboard dominated by mining companies and other China-focused companies.

“Beijing’s ‘whatever it takes’ economic stimulus programme continued to drive a strong rally in Chinese shares. Shanghai’s CSI 300 index jumped another 5.6% as trading resumed after a week-long holiday, with healthcare, technology and industrials leading the charge,” said Russ Mould, investment director at AJ Bell.

However, Mould continued to explain that while mainland Chinese stocks were in full-blow euphoria, there were doubts evident in Hong Kong indices, which were too much for UK investors to handle, and China-focused miners were dumped on Tuesday.

“The market wants firm details on fiscal stimulus which hasn’t been forthcoming. It explains why some cracks were starting to appear in the China euphoria, with Hong Kong’s Hang Seng index slipping back 7% as investors trimmed positions in consumer-facing companies, real estate and financials,” Mould said.

“You can tell some scepticism is already creeping in, given how the mining sector was firmly in the red on Tuesday. Metal producers have been keeping their fingers crossed for stronger demand from China following a miserable time for industrial commodity prices of late. However, the negative share price performance of Antofagasta, Rio Tinto and Anglo American would imply that China’s latest economic stimulus measures might not live up to the initial hype. Or it might simply be canny investors locking in some of the recent gains on the stocks just in case we see a broader pullback.”

Anglo American was down 5% while Antofagasta dropped 4.9%.

Vistry

Vistry was the FTSE 100’s top faller after the group issued a disappointing update on costs, which has rocked shares on Tuesday. Vistry shares were down 22% on the news it was lowering its profit forecasts due to the miscalculation of build costs at several of its development sites.

“Vistry announced its first major misstep this morning since changing its strategy away from traditional housebuilding. Its new Partnerships model focuses on teaming up with local authorities to provide affordable housing, which has seen the group buck the trend of a housing market slowdown in recent times,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.

“But it’s come to light that total costs at 9 of its roughly 300 developments have been understated by around 10%. That may not sound like much, but as a result, Vistry’s underlying pre-tax profit expectations have been wound back by £80mn, £30mn and £5mn for the current and following two years respectively. That marks a nearly 20% hit to what market forecasts had pencilled in for this year, and Vistry now expects underlying pre-tax profits of around £350mn for the full year.”

Imperial Brands share were higher on Tuesday after the tobacco and tobacco alternative group demonstrated it is still a reliable source of income for investors. 

Despite a broad decline in the number of smokers in the western world, Imperial Brands is managing to pivot and realign its business to maintain very attractive shareholder distributions.

Investors will also be pleased to see Imperial Brands can offset the impact of lower combustibles volumes with higher prices.

The company has prepared for a rapid reduction in the number of people who smoke traditional cigarettes by building a presence in alternatives such as vapes. 

Traditional cigarettes still make up a large proportion of the group’s revenues, but a 20-30%% forecast increase in the sales of new-generation products shows where the business is going. 

“Imperial Brands is managing to drive growth not only in its fledgling next generation brands, but also in ‘legacy’ tobacco products which still make up the lion’s share of the business,” said Derren Nathan, head of equity research, Hargreaves Lansdown.

“In aggregate, tobacco volume pressures have eased across the company’s focus markets, and despite slowing price hikes for the pleasure of lighting up, pricing has been strong. However, market share declines in Germany and the UK remain a source of concern. 

“In Next Generation Products, net revenue growth is expected to land between 20-30%, suggesting a significant acceleration over the second half, boosted by a swathe of new product launches in vapes, non-tobacco options and oral pouches.

“Imperial’s execution and narrowed focus on core markets are helping it keep organic growth moving when larger rivals have been going in reverse. It’s confident of meeting expectations for the year just ended, with underlying operating profit growth firmly in the mid-single digit range.”

The high price-to-earnings ratio of the shares of Netcall (LON:NET), standing at some 26 times pe does not put me off having a very positive view of its prospects. 

In fact, I am looking forward to seeing just what the leading provider of intelligent automation and customer engagement software reports tomorrow morning when it is due to be announcing its 2024 Final Results. 

The Business  

The UK-based enterprise software company helps organisations achieve digital transformation.  

The group’s Liberty software platform, with its Intelligent Automation and Customer Engagement solutions, helps organisations to digitally transform their businesses faster and more efficiently, while empowering them to create a leaner, more customer-centric business.  

Its AI-driven tools enable users to transform at speed, it can automate processes and streamline workflows while making the managing of tasks and customer engagement easier, quicker and more productive.  

Netcall’s customers span enterprise, healthcare and government sectors.  

These include two-thirds of the NHS Acute Health Trusts and leading corporates including Legal and General, NCP, Lloyds Banking Group, the BBC, Aon, Nationwide and Santander. 

Recent Trading Update 

On Thursday 18^th July, the company issued a Trading Update for the year to end-June, it confirmed strong trading, with results expected to be in-line with market expectations.  

The consensus market expectation for the 2024 year is for revenue of £39.1m, with adjusted EBITDA of £8.1m and net cash of £28.9m. 

Latest Acquisitions 

On Wednesday 7^th August the company announced the £13m earnings enhancing acquisition of a digital process automation company called Govtech Holdings, which has a complementary offering to Netcall’s existing suite of Liberty solutions, expanding the portfolio and increasing the group’s customer base within Local Government. 

This technology company specialises in digital process automation, with a strong focus on local government revenues and benefits processes.  

Its platform handles approximately 30m transactions annually, achieving up to 80% automation for its customers.  

This high level of automation results in significant productivity savings, with up to a 50% increase in efficiency for revenues and benefits teams, leading to an improved citizen experience and faster service delivery. 

It serves around 50 local authorities including Leeds City Council, The City of Edinburgh Council and Bristol City Council.  

On Monday 16^th September, Netcall acquired Smart & Easy NV, trading as Parble, a provider of intelligent document processing software for €8.7m. 

This deal will extend the group’s footprint outside the UK and increase its exposure to the financial services sector. 

Analyst Estimates 

At Canaccord Genuity Capital Markets, its analysts Hayley Palmer and Kai Korschelt have a Buy note out on Netcall, looking for 130p as their Price Objective. 

They look for the year to end- June to show revenues of £39.1m (£36.0m), with adjusted pre-tax profits of £7.2m (£6.5m), generating earnings of 3.3p (3.1p) and a dividend of 0.9p (0.8p) per share. 

For the year now underway they go for £47.5m sales, £8.0m profits, earnings of 3.7p and a 1.0p dividend. 

Harold Evans, analyst at Singer Capital Markets, also has a Buy for the shares, with 140p as his Price Aim. 

His estimates for 2024 are very similar, while he looks for £47.4m revenues this year, £7.7m profits, 3.7p earnings and a 0.97p dividend per share. 

In My View 

As I stated at the top of this article, this group’s high pe ratio does not disturb me. 

Estimates by the brokers suggest that the group at the end of this year, to end-June 2025, will have some £27m of cash in the bank, which gives it a far buffer as it continues upon its strategic acquisition programme.  

Having been up to 100p in March this year, its shares now at 85.5p, value the group at £141m.  

I agree with the analysts that the shares are a Buy. 

GenIP shares rose in early trading on Tuesday after the Generative AI analytics company announced a sharp increase in sales.

According to a market update released on Tuesday, GenIP has already sold 40% of a year’s revenue for its legacy product in just one month since the launch of its Generative AI services.

GenIP shares were up 8% at the time of writing.

The company said they were ‘encouraged’ by early orders which included a Fortune 500 technology company doubling its order rate.

“We are highly encouraged by the strong demand for GenIP’s Generative AI analytic services over the past five weeks, with total orders amounting to approximately $121,000,” said Melissa Cruz, CEO of GenIP.

“We remain laser-focused on building on this momentum, expanding our client base, and delivering our services to research organisations globally.”

The current rate of orders suggests annualised revenues of around £1m, which implies a forward price-to-sales ratio of just 5x at the current share price for GenIP. Technology companies tend to trade at 10x, suggesting an element of value in the current share price.

When you take into consideration the new Gen AI services were launched just one month ago and the company is in ongoing discussions with new and existing customers, it’s not inconceivable GenIP’s sales will be a lot higher over the following one year period.

Indeed, the company said its ‘anticipates the level of new orders from current and new customers to grow’.

While the UK equity market is still getting comfortable with this company, recent orders suggest that GenIP’s clients are more than comfortable with its service.

The FTSE 100 ticked higher on Monday as upbeat UK housing data helped lift the banking sector, while Shell and BP rallied amid rising oil prices and corporate developments from both.

London’s leading index was trading 0.4% higher at the time of writing.

NatWest was top of the pile, gaining 2.3%, after Halifax said UK house prices were up 4.7% over the past year – the fastest pace of growth since 2022.

“In the UK, house prices grew at their strongest rate since November 2022, according to Halifax’s latest survey. The year-on-year price growth of 4.7% suggests the Bank of England’s interest rate cut in August has breathed new life into the property market, helped by falling mortgage rates making the dream of getting on the housing ladder a reality for more people,” said Russ Mould, investment director at AJ Bell.

“A pick-up in housing market activity should drive more business to mortgage lenders, hence why the likes of NatWest and Lloyds were among the top risers on the FTSE 100.”

BP and Shell were the biggest contributors to the FTSE 100 in terms of the number of points added to the index. 

BP rose 2% on reports it was planning to slow the pace of its transition to clean energy and ensure shareholders with see the benefits of its fossil fuels business well past 2030.

“Reports suggest BP chief executive Murray Auchincloss is planning to water down the company’s commitment to sustainability goals,” Russ Mould explained.

“BP may feel it is being punished by the market for a strategy which included a 25% cut to oil and gas output by 2030 – already down from the original 40% reduction outlined in 2020 – so it appears this plan will now be ripped up completely.

“The problem with reducing hydrocarbon production is it generates most of the cash which allows BP to reward shareholders with dividends and share buybacks. There is speculation that BP will not only scrap the output reduction plan, but it will also seek to increase the volume of oil and gas it produces by investing in geographies like the Middle East and Gulf of Mexico.”

Rising oil prices also acted as a tailwind for the oil majors, with tensions in the Middle East maintaining a bid in oil. Higher oil prices on the day helped Shell shares overcome questions about its refining business after it released an earnings teaser.

“Energy giants have been making gains over the past week, as oil prices have headed higher,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“However, Shell’s update this morning has indicated that it’s not been firing on all cylinders. Refining profit margins dropped sharply in the third quarter, compared to the previous one. The energy major has also highlighted that earnings from oil product trading has also come in lower. However, it’s also revised its outlook for upstream oil and gas production, and looks broadly neutral overall compared to previous guidance.’’

‘Be Bold, Be Open, Be Responsible, Be Imaginative’ – those are the values that the Mulberry Group (LON:MUL) promotes to its employees. 

I would guess that Mike Ashley, who controls 73.3% of Frasers Group (LON:FRAS) and his CEO son-in-law Michael Murray, may well have different views about those corporate edicts. 

The £84m capitalised loss-making handbag maker, whose signature bags sell at around £1,395 each, is in dire trouble and needs a shed load of cash to keep itself as a ‘going concern’ – especially having lost £34.1m last year on sales of £152.1m.  

That means it loses £311 for every handbag it sells, that does not sound like good business to me. 

However, two billionaires are now locked in a tussle to save the Somerset-based brand. 

And who knows, others may well be interested too. 

The Business 

I remember meeting Mulberry founder Roger Saul and his wife, former Dior model, Monty, years ago when I went down to Chilcompton, near Bath to look around the group’s leatherworks and factory. 

Founded in 1971 in Somerset, Mulberry, which listed on AIM in 1996, is known for classic leather bags such as the iconic Bayswater and Alexa, as well as accessories and womenswear.  

It is the largest manufacturer of luxury leather goods in UK, its two Somerset factories produce 50% of bags, boasting class-leading quality representing best value for price in the sector. 

However, in recent years the group has hit a number of hurdles, including the removal of tax-free shopping for tourists in the UK, forcing it to close its Bond Street store in February 2023.  

It claims to have 1,400 employees globally, with its head office in London, two factories in Somerset, and five international offices (Paris, New York, Hong Kong, Tokyo, Seoul). 

Ong Beng Seng 

The 80-year-old Singaporean property billionaire Ong Beng Seng, and his 77-year-old wife Christina, control Challice Limited, which owns 56% of the Mulberry equity, has within his empire investments in the Singapore Grand Prix, Hard Rock Resorts, and Four Seasons hotels, and he is said to be worth $1.5bn. 

He was charged in Singapore last Friday with abetting a public servant in obtaining gifts and with abetting the obstruction of justice. 

The two charges are linked to the Corrupt Practices Investigation Bureau’s investigations into former transport minister S. Iswaran, who the day before was charged among other things, with accepting a number of valuable items like hotel stays and Formula 1 tickets from Ong. 

Mike Ashley 

Said to be worth some $5bn 60-year-old Ashley, through his 77.3% stake in the Frasers Group, has interests in Currys, AO World, ASOS, boohoo Group, Hugo Boss and a myriad of other investments. 

It is believed that Frasers first invested in Mulberry way back in February 2020, buying a 12.5% stake for some £19m.  

At that time, it said its focus was building stronger relationships with premium third-party brands as a key strategic priority for the group was the elevation of its retail proposition. 

In late 2020 Frasers Group ruled out making a bid for the luxury brand. 

Mulberry has long been available to shop via Fraser’s Flannels brand and its House of Fraser department store chain. 

Late last week Frasers purchased another 3.96m shares in Mulberry, taking its holding up to 37.26% of the equity. 

The Refunding 

After announcing a poor set of Trading results on Friday 27^th September, Mulberry announced that Challice was subscribing £10m for 10m new shares in the company at 100p a share, alongside offering Retail Investors the ability to subscribe for 750,000 new shares at the same price. 

It has been announced this morning that Retail Investors only took up 392,013 of the 100p shares on offer, but then it is a strong pointer that the two billionaires control 93% of the equity between them, leaving not many shares held by private punters. 

Former MD and Life President Godfrey Davis holds some 1.5% 

The group stated that the net proceeds of the Capital Raising will be used to strengthen its balance sheet and provide financial flexibility to support plans being developed by Andrea Baldo, the new CEO and the management team to return the business to profitability and drive future growth. 

Frasers Group was not made aware of the cash call until immediately prior to its announcement, so it obviously did not appreciate being left in the dark and accused the luxury brand of a total lack of engagement. 

“As a committed long-term investor in Mulberry, Frasers would have been willing to underwrite the subscription in its entirety, potentially on better terms for the company.  

Given this total lack of engagement, we believe the status quo to be an untenable position for Frasers and the other minority holders of Mulberry shares.” 

Mulberry posted a pre-tax loss of £34.1m in the year to March 30, down from £13.2m profit previously and said that sales had fallen 18% in the first 25 weeks of its current financial year. 

Frasers Offer 

Last Monday, 30^th September, Frasers stated that it was considering making an £83m Offer of 130p for every Mulberry share, which was at a 30% premium to the Challice price. 

The two sides are said to have ‘talked’ but the result was a firm rejection of Frasers possible bid. 

It has until Monday 28^th October to firm up on its proposal. 

Mulberry – another potential partner lined up? 

Sector professionals take the view that Ong will not sell up his stake to Frasers – so what now? 

Founder Roger Saul thinks that LVMH could be just the right owner for Mulberry, which he suggests could fit in very well into its luxury fashion goods portfolio. 

In July this year the 52-year-old Andrea Baldo was appointed CEO of Mulberry. 

At that time Chairman Chris Roberts stated that: 

“Andrea’s international fashion brand expertise, creativity and strategic thinking meant he was absolutely the right person for this role,” 

He was previously CEO of GANNI, which is one of the fastest growing advanced contemporary fashion brands in the dynamic global affordable luxury womenswear market.  

Founded in Copenhagen, Denmark in 2000, GANNI is a leading advanced contemporary fashion brand offering differentiated women’s ready-to-wear clothing, it has established an international presence through its owned stores and more than 400 premium retailers in 20 countries including Denmark, Norway, Sweden, the UK, Germany and the U.S.  

GANNI is owned by L Catterton, the $34bn AUM investment empire which invested in the business in 2017.  

L Catterton, which claims to be the largest and most experienced consumer-focused private equity group in the world, has made more than 250 investments in leading consumer brands across all segments of the consumer industry.  

The question is whether Andrea has the guts for this billionaire turmoil? 

Or could L Catterton, LVMH or A N Other be interested in taking both Ashley and Ong Beng Seng out of their holdings and then fund Baldo’s attempts at refocusing Mulberry and take it downmarket?