Diageo shares dipped on Tuesday after the drinks giant confirmed disappointing sales in the Latin American and Caribbean region, culminating in overall group revenue declining 1.4% in the first half.

Diageo signalled slower sales in a recent trading update, so today’s news wouldn’t have surprised investors expecting downbeat half-year results.

In addition to slower sales in  Latin America and the Caribbean (LAC), North American sales fell 1.5%, although Diageo said sales in the region have since bounced back. Asia Pacific, Africa and Europe were the bright spots for the company.

Diageo shares were down 3.8% at the time of writing on Tuesday but are still higher than the worst levels since the group first announced slowing LAC sales in November.

“Diageo shareholders will not be raising a glass to the company’s update this morning. The world’s top spirits maker missed first half sales estimates due to a sharp decline in Latin America which weighed heavily on the group results,” said Mark Crouch, analyst at investment platform eToro.

“A concoction of persistent economic pressures and supply chain disruptions will feel like a lingering hangover for the company and their investors, with a profit warning in November capping off a miserable year which saw the share price fall over 20%.”

Diageo expects further weakness in LAC in the second half, dragging on overall group profitability. However, this may prove to be a low point, with analysts suggesting the medium-term may be more favourable for the company.

“The profit outlook remains murky for the second half, with markets now forecasting a small decline in operating profit. The medium-term looks slightly brighter, but improvements in the Latin American and Caribbean market will be key to future margin expansion, and to a large extent, that’s outside of Diageo’s control,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.

hVIVO shares surged on Tuesday after the group announced strong revenue growth, an upbeat outlook, and regular dividends starting this year.

hVIVO, a leader in viral human challenge trials, expects strong revenue growth for 2023 as demand for its specialised studies continues to grow.

The company said its full-year revenue likely reached £56 million, up 15.5% from £48.5 million in 2022. EBITDA margins also expanded to around 22% thanks to higher facility utilisation and efficiency gains.

hVIVO shares were over 7% at the time of writing as investors digested an exemplary trading update.

hVIVO conducts trials where volunteers are intentionally exposed to viruses in controlled settings to test new antiviral products. The highly cash-generative company saw its cash balance hit £37 million at year-end.

Buoyed by new contract wins, hVIVO’s order book swelled to a record £80 million. Investors will be pleased to learn the firm also has strong visibility into 2025. This underpins its 2024 guidance for £62 million in revenue.

hVIVO is moving to a new state-of-the-art facility in Canary Wharf this year to meet rising demand.

Having paid a one-off £3m special dividend in 2023, the company plans to pay an inaugural ordinary dividend in 2024 as it targets £100 million in annual revenue by 2028.

“In 2023, hVIVO demonstrated strong financial and operational performance, delivering record-breaking results across all key parameters. The sustained success of the Group, coupled with a growing orderbook, reinforces the resilience of our business model and reaffirms the stability of the market,” said Dr Yamin ‘Mo’ Khan, Chief Executive Officer of hVIVO.

“The infectious disease market has witnessed increased interest from both commercial and non-profit entities, as well as a notable uptick in M&A activity. A significant highlight of the year was the market authorisation of the first-ever vaccine incorporating human challenge trial data as part of its submission package.”

1Spatial, the UK-based geospatial software company specialising in location data management, announced a fresh contract win on Tuesday.

A major Belgian electricity and gas utility has signed a three-year contract with 1Spatial to enhance the quality and accuracy of its network data.

1Spatial shares were 1.2% higher at the time of writing.

The €9 million deal will see 1Spatial deploy its location data management software and geospatial services to help the Belgian company build a digital twin of its distribution network.

1Spatial said its technology will enable the utility to more efficiently manage its grid, conduct repairs and connect new customers while ensuring safety. The company’s software validates and improves the quality of geospatial data.

Of the total contract value, 1Spatial will deliver €4.1 million itself, including €0.3 million in software licensing revenue. It will utilise partners to provide €4.9 million of services over the three years.

1Spatial CEO, Claire Milverton, commented on the contract award: 

“This is a great competitive win for 1Spatial, further expanding our presence in Europe. Our new customer will use our unique technology and solutions to produce and improve the quality and accuracy of its geospatial data. This contract win adds to our growing ARR revenues and demonstrates the credentials of our enterprise offering and with the potential for expansion, we are excited to be working with this leading-edge operator.”

The products, the management, the growth strategy, and the valuation — the distilled investment case for the busy investor.

MicroSalt — perhaps Tekcapital’s most promising portfolio company — is launching its IPO on 1 February 2024. Despite the delays, 2024 appears to be a little more welcoming to new companies than in 2023, especially given general expectations that inflation will continue to subside and interest rates will start to fall in the second half of the year.

While the entire business case is available within the Admission Document, this article has been written to capture the key details for investors new and old, as the company starts out on a life of its own.

Let’s dive in.

MicroSalt IPO: start with the product

When reviewing a ‘new tech’ company, it’s important to start with the product on offer. For example, Ondo InsurTech has its LeakBot and Abingdon Health its saliva-based pregnancy test — but perhaps the best comparator for MicroSalt is OptBiotix’s ‘SweetBiotix,’ a patented zero-calorie sugar alternative made from prebiotic fibres.

The company rocketed one day In July — as the business case for a product that could help partially solve the western obesity crisis took hold of investor hearts.

Of course, the sugar crisis has a twin: the salt crisis. The UK government’s salt reduction targets for 2024 were set out in 2020 and there is a significant way to go if these are to be met. In particular, the government warned that ‘businesses are expected to work towards achieving the 2024 salt reduction targets. Retailers and manufacturers should ensure their products meet…targets.’

If you don’t know about the salt overconsumption crisis, you have been living under a rock. Heart disease is responsible for one third of deaths globally, representing one death every 1.7 seconds.

Cardiovascular disease costs the UK £19 billion every year — and if the average salt intake was reduced by one gram each day, the data shows this would save £288 million a year and thousands of lives. There is a proven link between excess sodium intake and CVD, and the World Health Organisation (WHO) has stated that reducing sodium intake is one of the cheapest ways to improve public health — indeed, it wants sodium consumption to drop by 30%.

For context, the global sodium reduction market was estimated to be worth roughly $5.5 billion in 2021 and is expected to grow to $9.6 billion by 2032 — at a CAGR of 5.8%. And despite a huge variety of sodium-reduced alternatives to traditional salt already on the market, none have succeeded in establishing a dominant market position.

There’s one simple reason why — they all taste awful.

Chefs and customers add salt to almost everything because it improves the flavour of almost any savoury food you can imagine. And as most salt alternatives taste vile, they will never take off. More specifically, they have a bad aftertaste — as they contain potassium chloride which exudes a post-flavour akin to swallowing a bottle of Angostura.

MicroSalt’s ‘Crystal’ salt alternative contains only sodium chloride and non-GMO maltodextrin, so arguably actually tastes much closer to salt than competitors. It contains 50% less sodium than traditional salt —using a patent protected and scalable manufacturing process that produces a salt crystal 100x smaller than traditional salt. This means improved adhesion to food and faster dissolving on the tongue, achieving that distinct salty taste but with half the sodium.

The primary IP is a patent in the US which expires in September 2030 — though 30 more are pending globally. The patent covers both the manufacturing process and the product itself, creating a double-walled legal moat that would be difficult to penetrate. Usually, patents cover one or the other, and the company also has several trademarks in place across western markets to protect its brand identity.

Quality management

Of course, many promising products face an early death without competent management at the helm. Happily, MicroSalt is awash with managerial talent; CEO Rick Guiney has led the company since late 2021 and has a 35 year work history including stints at Anheuser-Busch and Quorn Foods, alongside 28 years as CEO and founder of the now well-known US-based Classic Snacks.

CFO Konrad Dabrowski is a chartered accountant who spent 5 years with Deloitte US — the chap was the global accounting manager for Restaurants Brands International, working alongside businesses such as Burger King, Tim Hortons and Popeyes.

Then there’s Non-Executive Chair Judith Batchelar, with over 35 years of experience in the UK food industry, including as a director of Sainsbury’s and Safeway, alongside additional roles at Marks & Spencer.

In addition to the experience, the management team have the equally valuable industry contacts needed to see further expansion.

Customers and growth

As is typical, the company has two main sales channels: business to business (B2B) and business to consumer (B2C). At present, the focus is firmly on larger volume B2B opportunities with multinational FMCG companies. For context, many opportunities are now through the standard R&D, production testing, and consumer testing processes.

In B2B:

The company has received purchase orders from two Tier-1 customers (A and B). Proof of concept has been demonstrated through the SaltMe! crisp consumer brands and crystal saltshakers which are currently on sale at over 1,000 shops across the US, and also on Amazon.

It’s worth noting that the company’s low sodium salt can also be used in various products including nuts, tortillas, popcorn, bread, cereals, and energy bars. And it has working relationships with three manufacturing facilities capable of producing up to 5,444 tpa, meaning that expansion should be relatively smooth.

MicroSalt has five key B2B clients at present. Customer A is a Fortune 500 pharmacy/food retailer, which has agreed to substitute the salt within four of its nut SKUs with MicroSalt’s alternative, across 800 shops initially. And it’s already started stocking the crisps and shakers — management expect these products to be rolled out across the company’s 9,000-strong estate in 2024. This leaves the question — who is this mystery customer?

Given that it has ‘more than’ 9,000 shops, then it’s most likely CVS as Walgreens trails behind at less than 9,000 at present. A further clue came on 19 October 2023, when MicroSalt secured distribution of the crisps into Long Drugs shops, the leading pharmacy chain in Hawaii. Long Drugs was acquired by CVS in 2008 — and the major has form in trialling new products outside of its own branded chains before moving them into mainstream stores.

Customers B and C are sperate entities but are part of the same group. Customer B has made an initial 9.5Mt purchase order, after global approved vendor status was achieved in November 2022. Further line additions and geographical expansion is expected.

Customer D is expected to make an initial purchase order in mid-2024 — and this is a future catalyst to watch as this major customer is expected to release a statement at this time citing MicroSalt solutions as a ‘key pillar’ in their low sodium strategy.

Customer E is in the early planning stages, but orders are expected in April 2024. Beyond these five, there are ‘active discussions with several prestigious FMCG and food producers in both the UK and US.’

In B2C:

As mentioned above, the company has two consumer products: SaltMe! crisps and the low sodium saltshakers. It has partnerships with major distributors including United Natural Foods and KeHE — and an agreement to provide a low sodium solution to US Salt LLC.

The shaker was launched on Amazon US in October 2022 in 2oz and 6oz sizes and are now sold in 440 shops across various retailers — including Hannaford Bros in parts of the US. They’re also now available on Amazon UK. The crisp offering is sold in four different flavours, with 113,000 bags having been purchased on Amazon US since November 2020.

It’s worth re-stressing that while the consumer side is important, the focus is squarely on B2B as the growth opportunity.

Finances and valuation

The company generated $300,000 of revenue in H1 2023, and while there was a significant loss of $2.5 million in FY22, this reflects the capital expenditure required to scale up the business. This is completely normal and is reflected in the valuation given in the Schedule One document.

MicroSalt expects to raise £3.1 million in primary proceeds during the IPO — giving the company an anticipated market capitalisation of £18.5 million on admission. At this point, 78.4% of shares would be held by Tekcapital (parent), inferring its stake would be worth in the region of £14m compared to a current Tekcapital market cap of £13 million. Tekcapital has three other portfolio companies.

It’s worth noting that TEK valued MicroSalt at £14 million in its interim results midway through 2023, so this latest figure may be slightly optimistic. However, there has been substantial recent progress — and given that TEK itself is only valued at circa £13 million, this one IPO could well be worth more than the parent’s entire market capitalisation.

Investors can make of that what they will, though of course, this is not financial or investing advice.

The bottom line

MicroSalt is an excellent IPO opportunity with a strong management team and carefully planned growth strategy. When details of its major B2B customers are made public, the company will hit the public investing consciousness fast.

As usual, there are risks — but the rewards on offer are correspondingly promising.

This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.

Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

The FTSE 100 was marginally higher on Monday ahead of a busy week of economic data, an interest rate decision and corporate updates in the US.

London’s leading index has been largely detached from a strong rally in US stocks so far this year but that could all change this week with a raft of globally significant events.

Microsoft, Google-owner Alphabet, Meta, and Amazon will all report this week. These are the largest companies in the world with the potential to set the tone, not only for US equities but for broad global indices.

In addition, the Fed’s highly anticipated interest rate decision and accompanying commentary will be released on Wednesday, providing 2024’s first official insight into the thinking of the world’s largest economy’s central bank on the trajectory of interest rates. Some market participants expect a dovish pivot that could fire up equity bulls.

On Friday, US Non-Farm Payrolls are expected to reveal the US economy added 180,000 jobs in the last month. A significant deviation from the consensus number will either confirm what the Fed says on Wednesday or throw it up in the air entirely.

With a packed schedule of major events in the week ahead, the FTSE 100 was pretty muted on Monday and was up just 1 point at the time of writing at 7,636.

Oil majors BP and Shell helped offset weakness in housebuilders, banks and consumer stocks. Fresh escalation in the Middle East supported oil prices and raised questions about inflation in the coming months.

“Continued attacks on vessels in the Red Sea are also making traders more skittish, with another fuel tanker targeted. Amid the escalating violence, oil prices have reached three-month highs as supply concerns rear up,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“Brent crude has risen above $83 a barrel, which have helped energy giants, Shell and BP make large strides in early trade.”

Fresnillo was the FTSE 100’s top gainer amid strength in precious metals prices.

This week could be pivotal for UK stocks and set the tone for the rest of Q1.

Despite the ongoing geopolitical and economic concerns, AJ Bell’s Russ Mould highlighted a general positivity among analysts rating FTSE 100 companies in early 2024.

“As we enter 2024, 59% of all analysts’ recommendations are buys and just 8% are sells for constituents of the FTSE 100, the highest and lowest scores over the past ten years, respectively. For the FTSE 350 index 62% of all recommendations are positive ratings and just 7% negative ones, again the highest and lowest percentages since 2015,” said AJ Bell investment director Russ Mould.

BP and Shell’s shares were firmly higher on Monday after dramatic events in the Middle East over the weekend sent oil prices higher and took the FTSE 100 oil majors with them.

Three US servicemen were killed and many more injured in attacks by Iran-backed militia near the Syria/Jordan border. The US President has promised retaliatory measures in response.

BP rose 1.5%, and Shell gained 1.2% after Brent oil traded near $84 on Monday before falling back.

BP and Shell shares have struggled with falling oil prices in recent months, and the two companies trade significantly below 52-week highs.

Although today’s news may boost their share prices in the short term, the ongoing crisis in the Middle East may have implications for the demand story should inflation jump and interest rates remain elevated as a result.

“Oil prices advanced thanks to a renewed escalation in Middle East tensions, with a further attack on shipping in the Red Sea by Houthi rebels and three US soldiers killed in a drone attack on a US service base on the border of Jordan and Syria,” said AJ Bell investment director Russ Mould.

“Crude hitting its highest level since November feels ominous given it adds inflationary pressure at a time when borrowers and the markets are hoping to see interest rates cut. Geopolitical factors seem to be propping up oil at a time when the wider dynamics of supply and demand look less than favourable for the energy market.”

Chill Brands shares lost around a third of its value on Monday after the UK government announced it would introduce measures to ban disposable vapes entirely to stop them getting into the hands of children.

The news sent Chill Brands into a tailspin and they were trading down around 22% at the time of writing after recovering from the worst levels.

“Chill Brands implies it is not affected by the latest announcement because recharging ports on its products mean they are not classified as disposable,” said AJ Bell investment director Russ Mould.

“The market seems to question this logic given the fierce share price sell-off. Effectively, investors are saying there is a major risk to earnings, whether it is from Sunak’s latest announcement or the general direction of travel by the government to stop young people getting into the vaping habit.”

According to Action on Smoking and Health (AS), 7.6% of 11 to 17-year-olds now vape on a regular basis, compared to 4.1% in 2020. Health experts have publicly welcomed today’s news.

Chill Brands has developed a range of vaping products containing zero nicotine and are stocked by WH Smith, Morrisons, and Shell and BP roadside garages. Chill’s zero nicotine vapes are not designed in the garish colours associated with the explosion of use among children.

The company said they are working on a new range that will be fully compliant with incoming laws.

In response to the UK government’s ban, Callum Sommerton, Chief Executive Officer of Chill Brands, said:

“The vaping landscape is constantly evolving, creating opportunities for businesses that are able to navigate the regulatory environment. The Chill brand has gained rapid traction with the support of major retailers, and I am confident that it will continue to do so as we move forward with our plans to launch reusable pod system vapes.

“Chill Brands Group is an agile company, and we are prepared to adjust to any legislation that may be enacted. In the meantime, our existing high-puff count and rechargeable devices will continue to be sold by US and UK retailers who have demonstrated a strong appetite for products brought to market under the Chill brand.”