The FTSE 100 ticked higher on Friday as strong miners buoyed the index and took it briefly to the highest levels since mid-October.

London’s leading index was 0.6% to the good in mid-afternoon trade on Friday.

Miners soared as investors digested better-than-expected Chinese manufacturing data which raised hopes of improving activity in the world’s second-largest economy.

“Miners led the charge after Chinese manufacturing data beat expectations, raising hopes that the Asian superpower will require more commodities from the big natural resources companies on the stock market. The Caixin China General Manufacturing PMI index rose to 50.7 in November from 49.5 in October – a figure above 50 implies expansion and a figure below 50 is contraction,” said Russ Mould, investment director at AJ Bell.

On Friday, Anglo America, Glencore, Rio Tinto and Antofagasta were among the top risers. Anglo American stormed ahead with a 5% gain, and Antofagasta jumped 3.5%.

Housebuilders were in focus after Nationwide said UK house prices had increased for the third consecutive month amid a lack of supply.

However, early gains for Taylor Wimpey, Barrat Developments and Berkeley Group Holdings had subsided by the afternoon as investors considered the dynamics behind rising prices.

“This looks like a welcome bump for the market, but it’s not quite as positive as it seems. A dearth of homes for sale has put a floor under prices, which rose slightly during November. But life remains tough for sellers,” said Sarah Coles, head of personal finance at Hargreaves Lansdown.

“Prices are on the up for the third successive month, which feels like good news. However, in order to get these higher prices, you have to actually sell your home – which is easier said than done. Sales have slowed to a crawl. October figures out this week from HMRC showed property sales were down a fifth in a year.”

Tesco was among the fallers after JP Morgan downgraded their price target to 230p from 240p. Tesco shares were down 1.8% to 280p at the time of writing.

Tesco shares fell on Friday after the supermarket’s price target was slashed by equity analysts at JP Morgan.

JP Morgan cut its price target to 230p from 240p sending Tesco shares to the bottom of the FTSE 100. Tesco shares were trading at 281p on Friday morning.

Tesco sales, excluding fuel, grew 8.9% on a constant currency basis in the first half of 2024FY, and adjusted operating profit rose 14%.

Pressure from the discounters is making the grocery market an increasingly competitive space, which risks a race to the bottom in terms of sacrificing margins to maintain market shares.

“Tesco was the top faller on the FTSE 100 after JPMorgan cut its target price to 230p from 240p. That knocked the supermarket’s share price by 1.8% to 280.6p and ended a rally in the stock which has been in motion since August. The company has gained market share this year but still faces intense competition,” said Russ Mould, investment director at AJ Bell.

It’s always darkest before the dawn. This is particularly relevant for two AIM-listed investment companies, Tekcapital and Cadence Minerals.

The interest rate tightening cycle has done AIM companies no favours, and some have been hit harder than others. Companies structured as investment companies, including Tekcapital and Cadence Minerals, are among the hardest hit.

Rising risk-free rates have dented the market pricing of investment vehicles holding privately held assets. This includes not only AIM-listed investment companies but also some of London’s largest investment trusts. Even constituents of the FTSE 350.

Many private equity investment trusts with a market capitalisation of over £1bn trade at a discount in excess of 35%.

These discounts are more pronounced in AIM-listed investment companies, and here lies the opportunity.

The disconnect between Tekcapital and Cadence Minerals shares and their respective underlying valuations, combined with the prospect of interest rate cuts in 2024, provide investors with potential multi-bagging returns over the next year.

The opportunity in these two companies sits nearly as much with the external macro environment and cyclicality of early-stage companies as it does with Tekcapital’s and Cadence Minerals’ business models. The macro environment is also a risk consideration for these companies over the next year.

While we have highlighted the disparities in the valuation of privately held assets and current market pricing, Tekcapital and Cadence Minerals hold both private companies and public companies listed to major global exchanges with clear and transparent pricing, this further strengthens the case for a rerate.

Tekcapital

Tekcapital has a portfolio of four technology companies with the market opportunity to improve the lives of millions of people.

Two companies, Innovative Eyewear and Belluscura, are listed on the NASDAQ and AIM, respectively.

MicroSalt is preparing for an AIM listing, and Tekcapital is likely waiting for more favourable market conditions to pull the trigger.

Autonomous vehicle safety company Guident is privately held, and there are no signs from Tekcapital that a listing is planned in the near term.

Tekcapital’s market cap is currently £13m compared to the portfolio’s net asset value of $53.1m as of 30th June. Equity analysts separately valued the portfolio at a similar level shortly after the release of the half-year results.

If the NAV were calculated today, it would almost certainly be lower due to declines in the underlying share prices of portfolio companies. That said, it wouldn’t be dramatically lower.

The case for Tekcapital sits in the rerating of underlying portfolio companies and the listing of MicroSalt, which will crystalise the value created in the low-sodium salt technology business. Tekcapital recently said MicroSalt had secured deals with top-tier customers, including one of the world’s biggest snack food producers.

There will be arguments for and against individual portfolio companies’ future potential.

To demonstrate the Tekcapital team’s ability to identify technologies with substantial commercial opportunity, we would highlight Belluscura’s multimillion-dollar orders and commitments, representing a step change in revenue generation.

This will likely filter through to Belluscura’s share price once their recent funding package is completed.

Indeed, Tekcapital recently said they saw multimillion-dollar revenue for each of their portfolio companies in the next year as they move away from being early-stage intellectual property-heavy technology companies to gaining significant market traction.

Should this be achieved, the $53.1m net asset value as of 30th June would be a distant memory.

Trading at 8p, Tekcapital has the potential to rally to many multiples of the current share price to move back in line with the current NAV, let alone the potential future NAV of their portfolio companies as they factor in further commercial success.

Cadence Minerals

Cadence Minerals is a mining investment company with holdings providing exposure to iron ore, lithium, and rare earths.

Like Tekcapital, it trades at a significant discount to its holdings’ NAV. However, Cadence Mineral’s potential to multibag in the coming year rests with one individual portfolio holding, the flagship Amapa iron ore project.

Equity analysts at Edison Research recently attributed a 23.9p valuation to the Amapa iron ore project by itself. This compares to the 6p share price Cadence Minerals currently changes hands for.

The Amapa iron ore project located in Brazil was once valued at over $600m by Anglo American. Cadence Minerals has a 32% stake in the asset and has an option to increase its holding.

Cadence is currently working towards bringing the mine back into production and pursuing the necessary permits and licenses to do so. The company was given a boost earlier this year after announcing the acceleration of an operational license, which shortened the issuing time from 36 months to around 12 months.

As is typical of mining projects, investors will likely become increasingly interested in Cadence as production at Amapa nears.

The project benefits from an existing railway line and port, meaning the capex required to start producing iron ore is significantly lower than it otherwise would be.

Cadence has recently entered into an MoU with a party to explore the financing of the Definitive Feasibility Study and eventual mine construction.

In addition to Amapa, Cadence has notable investments in lithium companies Evergreen and European Metals Holdings. Cadence also has a stake in ASX-listed Hastings Technology Metals. The sum of these investments totals very roughly £5m.

With a market cap of £11.3m, this would mean the market is attributing a value of circa £6m to Amapa. The Pre-Feasibility Study released by Cadence Minerals in January 2023 gave the Amapa project a $949 million Net Present Value and $2.96 billion profit before tax over the life of the mines.

Sentiment around junior mining assets soured during the interest rate hiking cycle, hence the low valuation of Cadence Minerals. This can turn on a dime.

The FTSE 100 gained on Thursday as higher oil prices helped BP and Shell contribute a significant number of points to London’s leading index.

BP shares were 2.9% at the time of writing, while Shell added 1.7%. After a slow start to the week, the FTSE 100 was playing catch up with global equity indices that have so far produced notable gains driven by interest rate hopes.

The FTSE 100 was up nearly 1% shortly before 2pm on Thursday.

OPEC+ are meeting to discuss supply quotas with early reports suggesting they will commit to a 1 million barrel per day production cut. Brent oil was up 1.3% to $84.25 at the time of writing.

The FTSE 100 has been held back this week due to its weighting to commodities and global financial institutions that won’t share in the benefits of lower interest rates hinted at by US central bankers.

The S&P 500 has had a comparatively better week and is set to close the month with its best performance of the year so far.

“US indices are on course to chalk up their best month of the year in November. Data points and commentary from the Federal Reserve have largely reinforced the idea that the current rate hiking cycle is at its end,” said AJ Bell’s Russ Mould.

“It now feels like the market is waiting for the next big kicker to push it higher with forthcoming US jobs figures, inflation readings and central bank meetings as potential catalysts.”

US bond yields continued to fall on Thursday, providing additional support for US stocks, which were set to open higher. High-profile investors are betting on a rate cut in q1 2024, much sooner than the current expectation of June 2024.

Anything that fuels the fire of speculation around interest rate cuts sooner than market pricing will be supportive of equities, although it may not be overly helpful for the FTSE 100’s big banks, such as HSBC and Standard Chartered.

Risk on rally

There was a clear risk-on rally underway on Thursday, demonstrated by the positioning in FTSE 100 shares.

Miners, banks, and housebuilders rallied while utilities and consumer staples slipped. Severn Trent was the biggest faller as the company traded ex-dividend.

Forget the 12 days of Christmas; this is the 12 FTSE AIM shares with a strong chance of staging a Santa’s rally and providing investors with a well-deserved Christmas present after a tough year for UK small-caps.

We have highlighted 12 AIM shares we feel have the potential to close 2023 at a higher point than they were trading 1st December.

UK small-caps are inherently higher risk than larger-cap shares and may not be suitable for all investors. This article is not advice.

Big Technologies

Big Technologies provides monitoring services for individuals through a SaaS model used in healthcare and criminal justice applications. In the half-year ending 30th June, Big Technologies’ revenue grew to £27.3m from £22.9m in the same period a year prior. Adjusted EBITDA increased to £16.1m from £13.7m. Subsequent to the results, Sara Murray, Chief Executive Officer of Big Technologies, purchased around £200,000 worth of the stock at 195p.

Shares have since dipped but are starting to form a gentle uptrend, which could take the stock higher during December.

Van Elle Holdings

Van Elle shares have been undulating in a range since the beginning of 2022 and are currently trading above a support level, which has been held on three occasions over the past two years. On each occasion, the company staged 20%-30% rallies. Despite a challenging economic environment, the groundwork company saw revenue grow to £148m in the year to 30th April and has since said trading is in line with expectations, although profit expectations are lower than last year.

The Van Elle said it has a strong pipeline of Canadian construction projects and has recently acquired a piling business with £10m revenue per year.

From a valuation perspective, it trades at just 8.3x historical earnings.

Tekcapital

Tekcapital has pushed back the proposed listing of their portfolio company, MicroSalt, until mid-December. The listing of MicroSalt could confirm the value of Tekcapital’s portfolio of readily realisable technology companies trading on major exchanges is worth far more than the current market cap. Tekcapital’s management said they saw multi-million revenue for their portfolio companies in 2024, promising a step change in investor sentiment when this is achieved.

Tekcapital shares have dropped below 10p in recent weeks and are primed for a recovery during the festive season.

Angling Direct

Angling Direct has around a 12% market share of the UK angling market, and its revenue has grown 4x since its IPO in 2017. Despite revenue growing exponentially, at 40p, the group’s shares are well below the listing price. This has been picked up by Kelso Group, who took a 3% stake in the business at the end of November. One would expect this to grab the market’s attention and support a rally through December.

Greatland Gold 

Greatland Gold investors are awaiting an updated MRE (mineral resource estimate) for the Havieron gold project in Australia. The project holds one of the biggest gold discoveries of recent years. It could be about to get bigger. If the update MRE unveils a major increase in the resource, one would expect shares to tick nicely higher and provide GGP holders with an early Christmas present.

Fusion Antibodies 

Fusion Antibodies provides antibody engineering services for the discovery and development of antibodies to be used in drugs and therapies. The company has a blue-chip client base and has developed over 250 antibodies.

Fusion Antibodies has recently announced an important agreement with a US government agency that will provide further insight into their OptiMAL® antibody platform at little cost to Fusion. Should the tests be fruitful, the sky is the limit for Fusion’s shares, although investors are in for a wait for results. Anticipation could well send shares higher through December. The company is revenue-generating, although a recent trading update revealed revenue would be behind market expectations in the current half-year.

Cadence Minerals

Cadence Minerals is in for an exciting 2024. Cadence recently announced that the licensing process for company’s Brazilian flagship Amapa iron ore project had been accelerated, meaning the new year could see a volley of developments as the project moves towards restarting production.

Anglo American once valued the Amapa mine at more than $600m. Cadence has a 30% interest in the asset and an option to increase its stake. Cadence also has investments in rare earths and lithium, promising positive updates in the coming year.

RWS Group

Intellectual property and technology company RWS Group has rolled out AI-enabled services this year, and we’ll learn more about the new offering’s traction in December. In a year-end trading statement released in October, the company said it was enjoying growth in many business areas but saw revenue falling circa 2% for the period. Shares sank but have since recovered. RWS Group is due to publish preliminary results 12th December and will provide further insight into the year ahead.

Power Metal Resources

Power Metal Resources shares are on their knees, and if a Santa’s Rally can’t pick the share price up, it’s difficult to see what will. The company has a diverse portfolio of mining assets, both geographically and in terms of minerals. Most recently, Power announced positive exploration results from their Canadian uranium prospects. Power Metals shares may prove to be a great stocking filler for mining enthusiasts.

ECR Minerals

We recently summarised ECR Mineral’s upcoming activities on a UK Investor Magazine podcast. We should learn more about these activities during December, and one would think any positive developments would send shares higher into the new year. Listen to the Podcast here.

Boohoo

Boohoo have had a torrid time in 2023. However, starting from a low base, investor sentiment around Boohoo shares is starting to improve. The company still has a lot of progress to make in its turnaround strategy, which promises better news in the coming reporting season than investors have become accustomed to this year. Investor positioning for a better 2024 could see Boohoo involved in any end-of-year rally.

CleanTech Lithium

Lithium companies have been dogged by lower carbonate and hydroxide prices during 2023 and CleanTech shares now trade at just 21p after nearly reaching 90p in early 2023. The company has recently raised £8m to fund the development of their lithium brine projects. Investors are gearing up for strong newsflow in 2024 as the company releases early results from pilot direct lithium extraction projects.