ECB cuts interest rates and reinstates QE to tackle eurozone slowdown

Jamie Gordon
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12
ECB cuts interest rates and reinstates QE to tackle eurozone slowdown
The ‘goodbye kiss’ has been delivered! Quantitative easing was more modest – with lower-than-expected volumes of asset purchases – but the trajectory of interest rate cutting was continued today by incumbent ECB President Mario Draghi. The eurozone’s main interest rate has remained unchanged at 0%, but the deposit facility rate (paid by banks on reserves at the ECB), was dropped by 10bp to negative 0.5%. Regarding its first QE package since 2016, the ECB committed to buying €20 billion of debt per month – lower than the €30 billion commitment that was expected – which will commence from November 1st. Mr Draghi said the interest rate shift would remain “at their present lower levels” until eurozone inflation rates reached their target of 2%. The asset purchase programme announced today was more hawkish than expected, and perhaps geared towards giving incoming president Christine Lagarde additional flexibility. The ECB’s QE programme will, “run for as long as necessary”. Reasons given for the nature of today’s package involved an attempt to counter the “protracted slowdown” in the eurozone economy, which is “more marked than expected”. Further, it is intended to counteract the “persistence of downside risks”, of a trade and geopolitical nature – Brexit, for instance. Finally, because of the recent downward revision in projected inflation levels, and the muted nature of inflation at present. Ranko Berich, Monex Europe head of market analysis, commented on the ECB programme, “At first glance, the ECB has not quite thrown the kitchen sink at the eurozone economy,” “The QE package is shy of market expectations, which were €30bn a month. But the Bank is clearly back in the business of serious policy easing and more aggressive action could easily be taken in response to a worsening in conditions.” Alongside a No-Deal Brexit, the Joint Committee of the three European Supervisory Authorities warned that a prolonged low-interest environment represented a risk to the financial stability of the EU bloc. The Committee’s report today, read, “While the monetary policy response to weakening growth and inflation outlook has helped restore the confidence in the financial markets in the short term, over the medium term persistently low interest rates, combined with flattening yield curves, put pressure on the profitability and returns of financial institutions, incentivise search-for-yield strategies and increase valuation risks,” A couple of related, concluding questions about helicopter money, ‘giving money directly to citizens’ and ‘should central banks step in’ to do a job governments aren’t doing (one of the questions was inspired by a paper co-authored by Draghi’s thesis advisor) were palmed off by by Mr Draghi, who stated, “This is a fiscal matter, not monetary policy”. Though some will interpret this as an admission that the measures implemented by the ECB are insufficient. Elsewhere in large financial player and macro economic news, there have been updates from; Lloyds Banking Group PLC (LON: LLOY), Jo Johnson quitting, Hilary Benn’s Brexit delay bill, Parliament being prorogued, Barclays (LON: BARC) and Deutsche Bank (ETR: DBK).

IGAS Energy shares rally alongside H1 EBITDA growth

Jamie Gordon
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4
IGAS Energy shares rally alongside H1 EBITDA growth
Independent oil and gas company IGAS Energy PLC (LON: IGAS) saw its shares rise on consistent progress across its first half fundamentals. The Group’s revenues grew from £21.1 million to £21.2 million on a year-on-year comparison for the first half. More impressively, though, the Company’s adjusted EBITDA rose from £6.0 million to £7.7 million on-year, and the Group swung from a £1.2 million loss to a £0.8 million profit on continuing activities. Further, IGAS Energy net debt narrowed from £7.4 million to £5.9 million between the ends of the two periods. The Company added that their average production also increased from 2,292 boepd to 2,360 boepd during the first half, and that they had continued to make progress across their projects and core conventional business.

IGAS Energy comments

tephen Bowler, Chief Executive Officer, said:

“We have had a good performance from our existing producing assets in the first half of the year and we continue to generate strong operating cash flow.”

“From the results at Springs Road, we now know we have a world-class resource and early indications are that we can attain significant gas flow from this basin. We look forward to the full analysis of the data set and to moving forward to appraise this asset.”

“The independent Committee on Climate Change recognises natural gas has a significant role to play to meet the 2050 net zero emissions target. It is clear that the UK needs a secure long-term supply of methane to meet our net zero targets and that the UK sources that methane not only from a diverse supply but also with the lowest emissions footprint – that being domestically produced onshore gas.”

“We were encouraged by the recent statement from BEIS and look forward to a positive dialogue with the appropriate ministers to discuss the role of indigenous oil and gas production as we move to net zero emissions in 2050.“

Investor notes

The Company’s shares have continued to rally, up 6.69% or 3.38p to 53.93p 12/09/19 12:56 BST. Neither a p/e ratio nor a dividend yield are available for IGAS Energy stock, their market cap is £63.58 million. Elsewhere in the oil and gas sector, there have been updates from; Trinity Exploration & Production PLC (LON: TRIN), Baron Oil PLC (LON: BOIL), Cabot Energy PLC (LON: CAB), Reabold Resources PLC (LON: RBD), Eco Atlantic Oil and Gas Ltd (AIM: EOG), Valeura Energy Inc.(LON: VLU) and President Energy PLC (LON: PPC).

British American Tobacco stubs out 2,300 roles

Dina Caruso
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1
British American Tobacco stubs out 2,300 roles
British American Tobacco said on Thursday that it will cut 2,300 roles in an attempt to reinvest in the growth of its new products. Shares in the company were up during trading on Thursday. The multinational cigarette and tobacco manufacturing company hopes to simplify its business and become “more efficient, agile and focused”. It hopes to deliver savings that can be reinvested in the growth of its new products such as vapour, tobacco heating products and oral tobacco. British American Tobacco said that it will be reducing management layers, creating fewer larger more accountable business units and simplifying all key business processes. Additionally, the plans include cutting 2,300 roles globally. As it removes management layers, British American Tobacco expects over 20% of senior roles to be affected. It plans to substantially complete this by January 2020. “Since taking on the role of Chief Executive five months ago, I have been clear that I wanted to make BAT a stronger, simpler and faster organisation and ensure a future fit culture,” Jack Bowles, Chief Executive, said in a company statement. “My goal is to oversee a step change in New Category growth and significantly simplify our current ways of working and business processes, whilst delivering long-term sustainable returns for our shareholders. This is a vital first move to help achieve these goals,” the Chief Executive continued. “A programme of this significance involves decisions that will be difficult for our people, but ultimately it is the right thing for our business.” “As a result, BAT will be better placed to deliver on our target of generating £5 billion of revenues in New Categories by 2023/24.” The company revealed a “strong” full year performance in February for the 2018 financial year. There are a number of health risks associated with smoking. Moreover, with the growth of the vaping trend, health officials in the US have warned against the use of vaping as it has killed at least three people. Shares in British American Tobacco plc (LON:BATS) were trading at +1.68% as of 13:11 BST.

Yesterday’s exuberance leaves markets muted despite Trump’s tariff delay

Jamie Gordon
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0
Yesterday’s exuberance leaves markets muted despite Trump’s tariff delay
After preliminary optimism on chatter surrounding a return to more amicable exchanges between the US and China, the market’s reaction this morning was markedly more muted. This is perhaps unsurprising; not only will many assume the return of good will to be little more than hot air, buy yesterday’s index boom has left markets in an inflated position from which it has hard to make more progress (in essence Trump was late to the party). More importantly, though, today is the ECB meeting which will determine Draghi’s final round of rate cuts and asset purchases. Speaking on the morning’s movements, Spreadex Financial Analyst Connor Campbell stated,

“As investors wait and see whether Mario Draghi will deliver a goodbye kiss of stimulus to the Eurozone, Donald Trump rewarded investors’ recently renewed optimism by delaying October’s scheduled tariff hike on $250 million of Chinese goods.”

“Normally, such a move would be greeted with an explosion of green by the global markets (even if the delay is actually only a 2-week pause). And yet, the European indices were rather timid after the bell. The FTSE pushed up to 7350 as it rose 0.2%, while the DAX and CAC saw similar gains, rising 0.2% and 0.3% respectively.”

“There are likely a couple of reasons for this. The European indices really let rip yesterday, meaning the markets are sort of in the backwards position of having risen sharply BEFORE the ‘gesture of good will’ from Trump some would argue justifies said growth. And, it is worth stating, such a slender increase does still leave them at fresh multi-week highs.”

“The main muting factor, however, will be the relative uncertainty surrounding the day’s ECB meeting. Investors are after not only a rate cut, but a new round of the central bank’s asset purchase programme as well. Anything less than that may leave a bitter taste in the market’s mouth, and could cause the boards to turn red this afternoon.”

“The pound remained rather sanguine this Thursday – almost like Parliament’s prorogation has given it a holiday away from the political rollercoaster of the last few weeks. Against the pound it nudged up 0.1%, while against the euro it was unchanged at €1.1191.”

So, no surprises there then. Investors want the Earth from a central bank which is currently propping up liquidity across European markets. While a continued trajectory of rate cuts is unsustainable, indices will glow red if the ECB don’t comply – investors know the central bank want to foster growth and they’re happy to hold them to ransom for the positive fundamentals they’re seeking. Elsewhere in large financial player and macro economic news, there have been updates from; Lloyds Banking Group PLC (LON: LLOY), Jo Johnson quitting, Hilary Benn’s Brexit delay bill, Parliament being prorogued, Barclays (LON: BARC) and Deutsche Bank (ETR: DBK).

Morrisons pre-tax profits rise but Brexit weighs

Dina Caruso
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1
Morrisons pre-tax profits rise but Brexit weighs
Morrisons (LON:MRW) posted a rise in pre-tax profit on Thursday in its half year results, though it warned that the extended Brexit process had weighed on customer behaviour. Shares in the company were up during trading on Thursday. The supermarket chain said that for the half year to 04 August, profit before tax and exceptionals rose 5.3%, amounting to £198 million. Moreover, group like-for-like sales excluding fuel and VAT were up 0.2%. Morrisons added that sales comparatives were strong as 2018-19 was boosted by favourable summer weather, the World Cup and the royal wedding. The poor weather this year was unable to match the heatwave that hit the nation the year prior. “Very favourable summer weather last year became unfavourable this year, particularly in May and June, and there were no similar events to match last year’s boosts from the World Cup and royal wedding,” the supermarket chain said in its results. Additionally, Morrisons said that the extended Brexit process had weighed on customer behaviour. “Customer behaviour continued to be impacted by the uncertainties around the prolonged Brexit process, and consumer confidence continued to be low,” Morrisons added. Morrisons had previously warned back in a first quarter trading statement that political and economic uncertainty continued to impact consumer confidence. With the Brexit deadline fast approaching, the question remains – will the UK be able to secure a deal before its departure from the European Union? Data by Kantar earlier in July revealed the first overall growth decline in the supermarket sector since June 2016. Kantar did say, however, that this was not unexpected given the record sales experienced during the summer heatwave last year. Therefore, Morrisons is not alone in feeling the effects from last year’s stronger comparatives as all major grocers faced a challenging period. Shares in WM Morrison Supermarkets plc (LON:MRW) were trading at +4.14% as of 11:37 BST Thursday.

John Lewis warns against no-deal Brexit as profits plunge

Dina Caruso
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3
John Lewis warns against no-deal Brexit as profits plunge
John Lewis posted a loss on Thursday in its half year results as trading conditions for the British retailer “continued to be difficult”. The company posted a loss before its bonus, tax and one-off costs of £25.9 million, down from the £0.8 million profit it recorded the year prior. “Within that, operating profit before exceptionals and IFRS 16 improved in Waitrose & Partners by £14.1m to £110.1m, largely due to property profits this year, but we also saw an improvement in gross margins and a strong operational performance,” Sir Charlie Mayfield, Partner and Chairman of the John Lewis Partnership, said in the retailer’s half year results. John Lewis also warned that a no-deal departure from the European Union will have a “significant” impact on the business. “Should the UK leave the EU without a deal, we expect the effect to be significant and it will not be possible to mitigate that impact,” Sir Charlie Mayfield warned. “In readiness, we have ensured our financial resilience and taken steps to increase our foreign currency hedging, to build stock where that is sensible, and to improve customs readiness,” Sir Charlie Mayfield continued. “Brexit continues to weigh on consumer sentiment at a crucial time for the sector as we enter the peak trading period.” Indeed, with the extended Brexit deadline fast approaching, the question remains – will the UK be able to secure a deal by Halloween? For now, the only thing certain is additional uncertainty. With Brexit uncertainty looming, the UK high street has been struggling amid a gloomy trading environment as of late. Sports Direct (LON:SPD) acquired House of Fraser last year in a £90 million deal after the British department store had previously announced that it was going into administration. Just last September, John Lewis announced a 99% drop in profits. It rebranded last year, adding “& Partners” to its name.

LSE bid gives FTSE a short-term surge, ECB stimulus proposal galvanises European indices

Jamie Gordon
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0
LSE bid gives FTSE a short-term surge, ECB stimulus proposal galvanises European indices
As expected – and regardless of the long-term implications – today’s bid by HKEX for the LSE left the FTSE frothing at the jowls. Despite the surge, it should be considered more bad news than good. With Greene King being sold to Hong Kong’s richest tycoon, there needs to be some resistance against the sale of strategically important assets – such as the LSE which is the ‘beating heart of the Square Mile’ and London’s financial sector. Regardless, European market indices followed closely behind the FTSE rally, led by the promise of Mario Draghi’s ‘goodbye kiss’ market stimulus package. Speaking on this afternoon’s entertainment, Spreadex Financial Analyst Conor Campbell said, “Reports of a takeover bid for the London Stock Exchange by its Hong Kong counterpart helped the FTSE best its peers on Wednesday.”

“At its peak jumping 15%, before settling for a slightly less impressive 6% increase, the LSE provided the main thrust of the UK index’s afternoon gains. The FTSE added 1.1%, pushing it above 7340 for the first time since the start of August, and leaving it with a good chance of closing the right side of 7300, something it has struggled with since September began.”

“Though the FTSE was far and away the day’s biggest winner, the Eurozone indices still put a solid shift in. Anticipating that Mario Draghi will bestow upon the region a new round of stimulus as his departing present, the DAX and CAC climbed 0.7% and 0.5% respectively.”

“While trade war optimism has been given as a reason to explain Wednesday’s gains, it wasn’t enough for the Dow Jones to come out of the gates hot. Nevertheless, its meagre 0.2% rise still pushed it towards 26950, a level last seen at the end of July.”

“It was a mixed session for sterling, suggesting that some non-Brexit news took hold despite the Scottish courts ruling that Boris Johnson’s prorogation of parliament is unlawful. Against the dollar it fell 0.2%, the greenback aided by a better than forecast PPI reading; against the euro, however, it jumped 0.3%, the single currency fretful ahead of Thursday’s ECB meeting.”

Elsewhere in large financial player and macro economic news, there have been updates from; Lloyds Banking Group PLC (LON: LLOY), Jo Johnson quitting, Hilary Benn’s Brexit delay bill, Parliament being prorogued, Barclays (LON: BARC) and Deutsche Bank (ETR: DBK).

Sports Direct shareholders re-elect Mike Ashley

Dina Caruso
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2
Sports Direct shareholders re-elect Mike Ashley
Sports Direct (LON:SPD) said on Wednesday that its shareholders have voted to re-elect Mike Ashley as a director of the sports high street retailer. The company published the results of its Annual General Meeting (AGM) in which it revealed that 90.99% of votes were in favour of the re-election of Mike Ashley as a director. “We remain totally focused on delivering our elevated proposition which, following the AGM, continues to be supported by the investor community,” said a company spokesperson, according to the BBC. “We are already seeing some exciting milestones with the acquisition of Jack Wills, the opening of the new Flannels flagship store in London and plans for Frasers now in motion,” the spokesperson continued. “We are building a young and dynamic executive team to assist in this transition but making sure we retain the core values in the existing business that have allowed the business to prosper over the years.” “Mike Ashley was re-elected at the AGM with over 90% of the vote and the audited accounts for the year ended 28 April 2019 were also approved by over 99% of shareholders.” Sports Direct, which is roughly 62% owned by Mike Ashley, made headlines in July for delaying the publication of its annual results. The delayed results revealed a £605 million tax bill from Belgian authorities, whilst also warning the extent of House of Fraser’s financial difficulties. The company acquired House of Fraser last August in a £90 million deal after the British department store had previously announced that it was going into administration. Retailers across the UK have been struggling for survival amid a gloomy trading environment, with job cuts and store closures prevailing. Mike Ashley himself warned MPs at the end of last year that the internet is killing the high street. Shares in Sports Direct International plc (LON:SPD) were trading at +0.15% as of 16:35 BST Wednesday.

Brexit ‘taking back control’ undermined by £32bn bid for London Stock Exchange

Jamie Gordon
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8
Brexit ‘taking back control’ undermined by £32bn bid for London Stock Exchange
In a somewhat surprising move, the Hong Kong exchanges and Clearing (HKEX) have proposed a £31.6 billion merger deal, which would see the HKEX take over the London Stock Exchange (LON: LSE). The LSE said it “will consider this proposal and will make a further announcement in due course”. It described the proposal as, “unsolicited, preliminary and highly conditional”. The conditionality is important, with the deal being subject LSE’s £22 billion deal to buy data giant Refinitv falling through. In the meantime, the London Stock Exchange said it, “remains committed to and continues to make good progress on its proposed acquisition of Refinitiv”. However, based on the closing value of the LSE’s shares on the 10th of September, the £31.6 billion price tag offered by the Hong Kong exchange represents a 23% premium. HK exchange Chairman, Laura Cha, said that the proposal represents, “[A] highly compelling strategic opportunity to create a global market infrastructure group, bringing together the largest and most significant financial centres in Asia and Europe”. Charles Li, Chief Executive of HKEX, added, “Together, we will connect east and west, be more diversified and we will be able to offer customers greater innovation, risk management and trading opportunities.” This move, if successful, could mark one of many snatch-ups of key business assets in the UK, with a weak pound making it open season for foreign investors, even in sectors of strategic importance. It wouldn’t be the first, either, with a £4.6bn deal agreed for UK pubs operator Greene King (LON: GNK) by Hong Kong tycoon Li Ka-Shing. The deal would also be the largest in the LSE’s history, and regarding Brexit, it is a hammer blow against the drum-beating nationalists who lauded the opportunity to take back control. If the UK hopes to be a free market trading hub, and its own hub for free market trade is owned by a non-UK benefactor, where is the control? Ben Marlow of the Telegraph says it best, “The timing of a blockbuster bid for the London Stock Exchange from its Hong Kong counterpart could not be worse for a Government desperate to reposition itself as the pre-eminent global free trading hub.” “The City will be pivotal to any such attempt to build a thriving economy outside of the European Union and the LSE is the beating heart of the Square Mile. Yet the irony of the EU referendum is that it has turned UK companies into sitting ducks.” “The pound is at record lows, stock prices have tanked, and debt has never been cheaper, paving the way for any overseas investor with even modest aspirations to pick off targets at will. Blue-chip firms have been falling like dominoes.” He goes on to point out that the government should fear not only further foreign buy-ups but the potential ramifications of our government’s inaction. With China tightening its grip on Hong Kong, the success of this proposal could have worrying strategic implications for the UK going forwards. Last year the government supposedly tightened its Takeover Code, but that didn’t stop investment firm Melrose from breaching faith and shutting down a factory of its GKN acquisition within a year. The government’s lax attitude is not only bad for business but it is damaging to the fabric of society – it should be enough to inspire some resentment that our leaders are willing to let key parts of our way of life be bought up for momentary gain, irrespective of the long-term strategic, social and economic damage. If we can only afford hollow laughter, then take at least some enjoyment from this empty response from Business Secretary Andrea Leadsom, who heard about today’s approach for the London Stock Exchange while live on Bloomberg, “We’re always keen to see foreign direct investment, and collaboration with different international interests.” “But we’d have to look very carefully at anything that potentially had security implications for the United Kingdom.” Going forwards we should ask ourselves, if a deal like this is justifiable in the name of growth and ‘good business’, then what isn’t? This kind of nihilistic hand-to-mouth, mercantile attitude has some place in the darkest recesses of merchant banking, but in matters that are innately tied to international strategy and statecraft, it makes any kind of patriotic post-Brexit look laughable – come and buy us, everything is for sale here. Elsewhere in large financial player and macro economic news, there have been updates from; Lloyds Banking Group PLC (LON: LLOY), Jo Johnson quitting, Hilary Benn’s Brexit delay bill, Parliament being prorogued, Barclays (LON: BARC) and Deutsche Bank (ETR: DBK).  

Integumen stung by losses despite 540% revenue hike

Jamie Gordon
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2
Integumen stung by losses despite 540% revenue hike
Vertically integrated skin product test services company Integumen PLC (LON: SKIN) saw their shares dip as the Company made a consecutive loss, despite a notable spike in revenues. The Company posted 540% revenue growth in a year-on-year comparison of the first half, up to £0.35 million. This figure excluded revenues revenues from (their subsidiary) RinoCloud of £178,000 and H2 contracted recurring revenues of £134,785.

Despite reducing gross losses by 28% during the period, the Company still came in at negative £0.93 million, narrowing from negative £1.29 million on-year. Further, the Company’s EBITDA loss contracted 32% on-year, but remained a loss nonetheless at negative £0.37 million.

Integumen did add they had raised £2.52 million through a share placing and subscription (before expenses) and warrant share exercises raised £0.25 million. It also performed an all-share acquisition of RhinoCloud for £3 million and strategically reduced its indebtedness by a total of around £1.3 million.

Integumen comments

Gerard Brandon, CEO, said,

“We have seen a transformational 12 months from when I joined as CEO. Since the strategic review announced in August 2018, a fundamental restructuring of the Group and business model has taken place. Having initiated the disposal of underperforming subsidiaries in December 2018, we have now disposed of the final underperforming subsidiaries and this, along with other cost reduction measures has eliminated short-, medium- and long-term debts in excess of £2m. In addition, we have completed our first acquisition of Rinocloud, enabling Integumen to offer an automated, real-time, real-world skin-testing digital data platform service, brought in 4 new LabskinAI clients, announced development of our own Cannabidiol (CBD)-infused diabetic wound product range, as well as ramped up our facilities and senior management team, and, we have raised sufficient funding to enable this accelerated growth to continue. We very much look forward to building on this momentum in the coming months and to building Integumen’s reputation as the the skin testing partner of choice.”

Investor notes

After a slight recovery, the Company’s shares are down 6.77% or 0.13p to 1.79p per share 11/09/19 13:30 BST. The Group’s p/e ratio is 2.40, their dividend yield is not available. Elsewhere in health and medical news, there have been updates from; Medica Group PLC (LON: MGP), EMIS Group (LON: EMIS), OptiBiotix Health PLC (LON: OPTI) NMC Health (LON: NMC), Astrazeneca plc (LON: AZN) and ValiRx Plc (LON:VAL).  
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