One of the best, if not the best, performer in the market yesterday was a tiny loss-making company – Ferro-Alloy Resources (LON:FAR).
Its shares reacted to some very positive corporate news, rising throughout the day to close up over 120% higher at 5.16p, valuing the company at £24.9m.
The company, which is a vanadium producer and developer of the large Balasausqandiq vanadium deposit in Southern Kazakhstan, announced an update on its carbon black substitute product following the completion of a new marketing study.
The ore-resource at the Balasausqandiq deposit contains over...
Main Market miner Hamak Gold (LON: HAMA) has sold its 10.1% stake in Vela Technologies (LON: VELA). These are the remaining shares used to pay for £300,000 of convertible loan notes. The deemed issue price was 0.012375p/share. The Vela Technologies share price has recovered 27.3% to 0.007p.
Iron treatment provider Shield Therapeutics (LON: STX) says it will hit the 2024 target revenues of $31.5m, up from $13.1m, as revenue peer prescription has increased. Recruitment has been completed for an Accrufer phase III study in China. The proposed $10m investment by AOP Health still requires shareholder approval. Costs are being lowered by 10%. Cash flow breakeven should be hit by the end of 2025, if the sales growth momentum continues. The share price rebounded 21.5% to 3.25p.
Airline and tour operator Jet2 (LON: JET2) had a successful summer with first half operating profit improving from £617m to £701.5m. This was better than expected. The interim dividend is 10% higher at 4.4p/share. More than 80% of revenues come from holidays and consumers continue to spend on them. Winter sales are 14% ahead, which suggests market share gains. Canaccord Genuity has raised its full year pre-tax profit forecast from £535.5m to £563.9m. The share price rose 6.06% to 1504p.
Atome (LON: ATOM) says that the IDB proposes to increase its debt funding for the 145MW Villeta fertiliser project in Paraguay to $200m. Environmental and social appraisal has been completed. This means that all the proposals for debt funding outstrip the requirements for the project, although they have not been signed up yet. The share price increased 5.88% to 54p.
FALLERS
Nostra Terra Oil & Gas (LON: NTOG) raised £500,000 at 0.023p/share. This will fund the continuation of a major workover at the Pine Mills asset covering a further four wells. This will boost cash flow from operations. The share price slipped 37.3% to 0.0235p.
Proton Motor Power Systems (LON: PPS) is still falling after it confirmed yesterday that it is going ahead with winding down and leaving AIM. The company has net liabilities. The share price declined 10.4% to 0.145p.
Cambridge Nutritional Sciences (LON: CNSL) reported a 16% decline in interim revenues because of previous stockpiling by customers, but the diagnostics and health company still moved into positive EBITDA – although there was a pre-tax loss. Gross margins are improving, and overheads reduced. Cavendish has cut its full year forecast revenues from £9.4m to £8.8m, but the full year loss is still expected to be £200,000. The share price fell 10% to 3.15p.
Cornish Metals (LON: CUSN) is progressing the NCK shaft refurbishment at South Crofty tin mine. There is cash of £7.1m, including a £7m facility provided by 26% shareholder Vision Blue, which is repayable in March. This will have to be replaced by new financing. The plan is to be producing tin by 2027. The share price is 6.1% to 7.7p.
Ex-dividends
Cake Box (LON: CBOX) is paying an interim dividend of 3.4p/share and the share price dipped 7.5p to 192.5p.
Caledonia Mining Corporation (LON: CMCL) is paying a dividend of 14 cents/share and the share price is unchanged at 885p.
Cavendish Financial (LON: CAV) is paying an interim dividend of 0.3p/share and the share price is unchanged at 10.75p.
Fonix (LON: FNX) is paying a final dividend of 5.7p/share and the share price slid 8.5p to 217.5p.
FRP Advisory (LON: FRP) is paying a dividend of 0.95p/share and the share price is unchanged at 159p.
Jarvis Securities (LON: JIM) is paying a dividend of 1p/share and the share price fell 0.5p to 52p.
Tatton Asset Management (LON: TAM) is paying an interim dividend of 9.5p/share and the share price declined 6p to 696p.
Young & Co’s Brewery (LON: YNGA) is paying an interim dividend of 11.53p/share and the share price fell 3p to 975p.
Yu Group (LON: YU.) is paying an interim dividend of 19p/share and the share price is 20p lower at 1855p.
The FTSE 100 again showed no signs of conviction to move in either direction on Thursday, with a mix of corporate earnings driving trade.
Nvidia was the big talking point on Thursday after the chip maker missed sales guidance expectations for Q4, despite smashing Q3 revenue and earnings estimates.
A 3% drop in the US premarket reflected mild disappointment with the numbers rather than out-and-out fear the AI trade is over. The trend higher for Nvidia earnings is intact, but the massive beats of earnings estimates now seem to be a thing of the past.
Demand for its chips is rising, and there are no signs of a material slowdown. That said, like all growth stories, there will ultimately be a point when growth rates ease back. It doesn’t mean Nvidia sales are going to splutter, although the meteoric rise may be slowing.
The fall in Nvidia shares dragged on US equity futures, lowering the tone and leaving FTSE 100 range on Thursday.
JD Sport was the biggest FTSE 100 detractor on Thursday. The sports fashion retailer sank 15% after announcing a tough trading period and a warning on profits.
“A cautious consumer and unusual weather seems to be a familiar story for many retailers at the moment and JD Sports is no exception,” said Adam Vettese, market analyst at investment platform eToro.
“Cost of living is hardly news anymore but some pre-election trepidation seems to have seen Americans waver on acquiring their latest sportswear purchases. This side of the pond, a mild October caused sales to slump and as such, the company has warned that profit will come in at the lower end of guidance.”
Halma was at the top of the FTSE 100 leaderboard after announcing record sales driven by its ‘Sustainable Growth Model’, which allows its portfolio companies to operate like entrepreneurial smaller companies and capture opportunities.
“Halma continues to shine, delivering record-breaking results as sales pass £1bn for the first time off the back of strong growth across its safety and environmental businesses, even as healthcare faces challenges,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.
“The company’s focus on sustainability and long-term trends like stricter safety rules and climate change solutions keeps it ahead of the curve. With a series of smart acquisitions boosting its portfolio, Halma’s steady strategy and innovative approach show it’s not just growing – it’s thriving. Looking ahead, Halma’s proven resilience and commitment to making the world safer and cleaner leave it well-positioned for future success.”
George Barrow, co-manager of the Polar Capital Global Financials Trust
Rather than thinking of financials as UK banks plus a couple of insurance stocks, it might be time to see the sector as more like technology or healthcare. Although clearly different in many respects, they are all major global sectors with varied subsectors that diversify risk and offer superior risk-adjusted returns to the well-known large-cap stocks you might otherwise invest in.
Financials is in fact the second-largest global equity sector by market cap, representing 16%1 of the MSCI All Country World Index (ACWI): technology is bigger at 25%, but financials outweighs the next largest sectors – healthcare and industrials (both 11%), and consumer discretionary (10%). It is the most regionally balanced sector, with good exposure to Asia-Pacific and emerging markets. Crucially, it offers excellent diversification benefits against concentrated markets and would be the biggest beneficiary of a rotation from growth to value.
Generally, the sector is economically robust, well-regulated and in our view offers exceptional value. As with technology and healthcare, an informed way to gain exposure to its attractive dynamics, subsectors and themes is through a specialist fund, such as the Polar Capital Global Financials Trust.
Paradigm shift
Following a prolonged period of ultra-low rates which depressed bank returns, the normalisation in interest rates has supported the sector’s profitability. This shift has been recognised by investors, with the sector having outperformed over one and three years2.
The reworking of supply chains, shifts in demographics and the clean energy transition are likely to add to longer-term inflationary pressures. Consequently, we attach a low probability to a repeat of the post-global financial crisis world of zero or negative interest rates, particularly given the unintended social consequences of quantitative easing which exacerbated income inequality. Overall, this points to very different environment for investors to navigate and increases the potential for value stocks to outperform.
The sector dynamics are also attractive as shown by the recent results of the leading UK banks. Regulators’ efforts have paid off and the sector is now extremely well capitalised: indeed, investment returns from UK and European banks are expected to be boosted by strong dividends and share buybacks over the next three years. With around one third of their capital being returned to shareholders, they are projected to sustain around 10% total capital return per annum over the next three years (including dividends and buybacks), assuming a fall in interest rates to around 2%.
Banks and much more
The composition of global financials is also particularly interesting and far broader than many people realise. Banks may account for c43% of the MSCI All Country World Financials Index sector benchmark3, but this is made up of banks from the US, Asia, UK and Europe, and ‘other’, including Canada.
As an example, the Trust’s exposure to North American, UK and European banks (as mentioned above) is complemented by emerging market banks with strong economic growth, increasing penetration of the population, a fast-growing middle class and a shift from public to private sector banks.
We take genuinely active positions in the financials subsectors
Source: Polar Capital Global Financials Team, September 2024.
Otherwise, the subsectors are insurance (c20%: including general, life and multi-line insurers, brokers and reinsurance); diversified financials (c27%: financial exchanges and data, asset management and diversified financial services as well as some niche areas); and payments (c10%: most notably the large credit card operators but also core banking software providers).
Active management
The sector is widely diversified, but as active managers we can also use our insight and experience to allocate to the most attractive regions, subsectors and themes – including technology which is increasing the value of the proprietary data held by financial exchanges (see the chart above). In practice, this means that while financials are overall considered to be value investments, within the Trust we have sub-themes around quality, cyclical and recovery sectors and stocks (see the chart below).
As active managers, we can take advantage of different subsector dynamics
Source: Polar Capital Global Financials Team, September 2024.
Within insurance, which has a low sensitivity to interest rates, reinsurers are experiencing the hardest market for 10+ years, reflecting the higher frequency and severity of losses related to climate change and social inflation. Returns on equity have risen materially from below the cost of capital to the mid-high teens, with this summer’s active hurricane season set to sustain the hard market for at least another year.
The ‘secret sauce’ in the Trust, however, is arguably the diversified financials subsector, which includes financial exchanges and data, trading platforms and alternative asset managers. These can be difficult for generalist investors to follow, but the returns can be compelling as some of the companies are at the forefront of innovation and benefitting from structural trends in the sector.
Summary
The real kicker, however, is valuations: at 12x, the 2025 P/E multiple4 for the financials sector is still low compared to 22x for the broad market (MSCI ACWI)5, and relative to its historical levels. In our view, it is discounting a significant and unlikely deterioration in the macroeconomic environment. The potential for rerating is clear, particularly if there is a general rebalancing of the market away from technology.
2 MSCI All Country World Financials Index versus MSCI ACWI to 30 September 2024; Polar Capital, Bloomberg.
3 MSCI, September 2024.
4 P/E stands for price-to-earnings ratio, which relates a company’s share price to its earnings per share.
5 Polar Capital, September 2024.
This is a marketing communication. Capital at risk. For informational purposes only. This material is not intended to provide advice of any kind. Issued by Polar Capital LLP and Polar Capital (Europe) SAS. Polar Capital LLP is authorised and regulated by the United Kingdom’s Financial Conduct Authority (“FCA”) and the United States’ Securities and Exchange Commission (“SEC”). Registered address: 16 Palace Street, London SW1E 5JD. Polar Capital (Europe) SAS is authorised and regulated by France’s Autorité des marchés financiers (AMF). Registered address: 18 Rue de Londres, Paris 75009, France. Past performance is not indicative of future results. Some information contained herein has been obtained from third party source and has not been independently verified by Polar Capital. All opinions and estimates constitute the best judgement of Polar Capital as of the date hereof, but are subject to change without notice, and do not necessarily represent the views of Polar Capital, and may not be achieved.
Nvidia shares were lower in the US market after the chip maker smashed Q3 revenue and earnings estimates but fell short of analysts’ expectations for Q4 revenue guidance.
The 4% drop in Nvidia shares despite sales nearly doubling in Q3 compared to the prior year underscores just how high investors’ expectations are for the chip maker that has led the AI-fueled rally in US tech stocks.
Some called yesterday’s earnings release the biggest ‘macro’ event of the week, highlighting the narrow nature of the US equity rally focused on just seven tech shares and the impact their earnings can have on the global equity market.
Despite missing revenue guidance predictions, Nvidia’s results were nothing short of astounding. The company has nearly doubled its revenue in a year and expects revenue growth to continue apace through the rest of the year. Bloomberg News pointed out that Nvidia’s data centre revenue is larger than the total revenue of both AMD and Intel combined.
“Nvidia has once again breezed past expectations and set the scene for a blockbuster finish to the year. Data Center took the lion’s share of the glory, growing revenue 112% to $30.8bn,” said Derren Nathan, head of equity research, Hargreaves Lansdown.
“And the base of that demand is growing beyond the AWS’s and Azures of this world, with customers of note including Softbank, who are set to become an early adopter of next-generation Blackwell chips and the Danish government. It’s also helping to underpin AI infrastructure with local cloud providers across India, Japan and Indonesia.”
The big question for investors is whether Nvidia’s softer-than-expected sales guidance is enough to derail the broader AI rally. Lower US equity future indicates investors aren’t entirely happy with the results. However, the small scale of the declines suggests investors are marginally disappointed with the results rather than fearful the AI trade is over.
At the start of last month, it looked as though there was going to be a handbag-swinging duel between the two largest shareholders in the Mulberry Group (LON:MUL).
The Somerset-based company is the UK’s largest manufacturer of luxury leather goods.
There was a period, years ago, when the bags were totally ‘chic’ and could fetch well into four figures as the cognoscenti needed to be seen out ‘flashing’ their wares.
But times change and so do fashion trends.
Tightness of luxury spending in the last couple of years has not proved beneficial to the company, plunging it into...
CleanTech Lithium shares jumped on Thursday after the company announced a significant milestone by successfully producing its first batch of pilot-scale lithium carbonate at a facility in Chicago, USA.
The Chilean-focused exploration company is developing Direct Lithium Extraction (DLE) technology designed to produce environmentally friendly lithium.
The company has successfully processed its first tank of concentrated lithium solution, producing 50kg of lithium carbonate on November 19th, with expectations to yield approximately 150kg of battery-grade product from the complete tank within a week. This initial production represents just the first phase of processing, with a total of 88 cubic meters of concentrated solution shipped from the company’s Chilean pilot plant to Conductive Energy’s facilities in Chicago.
CleanTech Lithium has already initiated discussions with potential strategic partners interested in testing the product. Following laboratory analysis to confirm the grade and impurity profile, the company plans to distribute samples ranging from several to tens of kilograms to begin the product qualification process.
The milestone was celebrated with a site visit to what is currently the largest pilot plant operating in the northeastern United States.
“CleanTech Lithium has reached an important milestone by commencing pilot scale lithium carbonate production using a sustainable and innovative DLE based process,” said Steve Kesler, Executive Chairman and Interim Chief Executive Officer, CleanTech Lithium PLC.
“As a leader in the DLE sector in Chile with a focus on efficiency and sustainability, this accomplishment marks a significant step forward. Years of hard work have led to this important milestone, and it sets the stage for future development with a commitment to supporting the transition to electric vehicles and clean energy. Thank you to the partners involved and we look forward to enter the next phase of development.”
JD Sports shares sank on Thursday after the sportswear retailer announced a poor trading period that would impact full-year profits.
JD Sports has announced that, following challenging trading conditions in October, it expects full-year profits to be at the lower end of its previous guidance range of £955-1035 million.
The sports fashion retailer cited softer consumer demand and increased promotional activity in the market as key factors affecting performance.
JD Sports shares were down 9% at the time of writing.
The company reported mixed results in its third-quarter trading update, covering the 13 weeks to November 2, 2024. While the back-to-school period showed strength, the latter part of the quarter saw weakened consumer demand, particularly in the US, where spending appeared suppressed ahead of the upcoming election.
With JD Sports heavily reliant on Nike for new products, Nike’s recent troubles with sales and its share price will have also affected both JD Sports trading activity and sentiment around the stock.
“Nike’s recent struggles are creating uncertainty for JD Sports. Our experts say JD relies on Nike’s strength since its products typically have higher price tags than other brands, helping boost profits,” said Yanmei Tang, Analyst at Third Bridge.
“More margin volatility is inevitable as other brands gain more shelf space in stores. These brands usually have shorter product life cycles, leading to increased promotional activity.”
Despite these headwinds, the group maintained its focus on margin management, achieving a slight increase in gross margin of 0.3 percentage points to 48.1%.
The retailer’s expansion strategy remained robust, with organic sales growth reaching 5.4% during the period, driven by an aggressive store rollout programme. However, like-for-like sales declined by 0.3%, with strong performance in August and September offset by a weaker October. Physical stores outperformed online channels, while footwear sales yielded better results than apparel.
“Trading volatility picked up in October, particularly across North America and the UK, leading to increased discounting in the sector to help keep tills ringing,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.
“JD’s been reluctant to offer the same level of promotion as the competition, which has helped to protect its margins. But it’s also meant sales growth has slowed over the third quarter and full-year profits are now expected to come in at the lower end of previously downgraded guidance.”
Regionally, European operations demonstrated resilience, delivering both like-for-like and organic sales growth, while other markets experienced more challenging conditions. The company continued its expansion plans, opening 79 new JD stores during the quarter, bringing the total store count to 4,541, including 1,179 locations acquired through the Hibbett acquisition.
JD Sport is heavily reliant on new stores for growth, so suggestions that it is struggling to find the appropriate sites to facilitate this growth strategy will be an additional turn off for investors.
“JD Sports is finding it tough to translate its UK success to international markets. It’s grappling with site availability in Italy, affordability issues in Eastern Europe, and tricky market conditions in the US,” said Tang.
The company noted that its acquisition of Courir is nearing completion, which will add a female-oriented retail chain to its portfolio, further diversifying its market presence.
Digital technology services provider Made Tech (LON: MTEC) says the strong start to the year has continued into the second quarter. Sales bookings of £37.5m have been achieved so far this year. This means that revenues should be ahead of expectations with margins maintained. A full year pre-tax profit of £1.3m is forecast. The company should generate cash in 2024-25. The outlook for government spending on digital transformation is positive. The share price is 21.65 higher at 22.5p.
Kazera Global (LON: KZG) has secured environmental authorisation for the Perdevlei concession ahead of expectations. The next step is securing the mining right for the high-grade heavy mineral sands deposits. The share price increased 13.3% to 1.275p.
A positive trading statement from digital advertising services provider Silver Bullet Data Services (LON: SBDS) has won more contracts worth £1.5m and October was the best ever month. Clients include BMW and Visa. Committed 2024 revenues are £9.3m, compared with £8.3m for the whole of 2023. The share price is 8.08% ahead at 53.5p.
Restructuring and professional services provider FRP Advisory (LON: FRP) improved interim revenues by one-third to £77.6m and organic growth is 23%. That is mainly due to strong demand for restructuring services – The Body Shop was one of the clients. Litigation and contentious insolvency demand was also firm. The share price rose 7.85% to 158p.
FALLERS
Proton Motor Power Systems (LON: PPS) is going ahead with plans to leave AIM and winding down the business. Talks with a potential German industrial partner over funding have ended. The company has net liabilities. The share price slumped 70.6% to 0.125p.
In-content advertising company Mirriad Advertising (LON: MIRI) says full year revenues will be in the range of £1m to £2m. Progress has been slower than expected in the US and some contracts have been cancelled. Discussions with large advertising agencies continue but the timing of deals is uncertain. The annualised cost base is reduced to £8m. At the end of October there was £6m in the bank. The share price dived 41.8% to 0.16p.
Churchill China (LON: CHH) had a tougher second half than expected with a lack of seasonal uplift in the fourth quarter. This means that 2024 pre-tax profit will be well below expectations. Next year is expected to continue to be weak with hospitality businesses hit by higher National Insurance costs. There will also be a hit for Churchill China and costs are being reduced, but 2025 expectations are also downgraded. The balance sheet remains strong. The share price is 18.2% lower at 675p.
PHSC (LON: PHSC) interim revenues dipped 2% to £1.57m and it fell into loss. That was due to higher costs, particularly in terms of salaries. Recruiting and retaining staff has been difficult. A one-off security contract ended. There is no interim dividend. The share price fell 17.5% to 23.5p. Pro forma NAV is 31.7p/share, including cash of £505,000.
The FTSE 100 posted minor gains on Wednesday, which would have come as a welcome relief for UK equity investors, given the backdrop of geopolitical risks and rising UK inflation.
Concerns about possible escalation in the Ukraine-Russia war were reignited yesterday after Russia hinted at the use of nuclear weapons in response to missile attacks deep in Russian territory.
However, the spike in risk aversion didn’t last long, and the FTSE 100 was trading comfortably above 8,100 in early trade Tuesday. That said, the choppy nature of trade this week dictated that these gains may not last long, and the FTSE 100 slipped into negative territory as the session progressed.
“After yesterday’s wobble on heightened tensions between Russia and the West, the FTSE 100 was steady in early trading on Wednesday,” said AJ Bell investment director Russ Mould.
“For now, investors seem to have largely shrugged off concerns about the Ukraine war. Moscow said yesterday the Ukrainians had fired US-made long-range missiles into Russian territory after President Joe Biden gave them the green light to do so. However, investors will be watching closely for signs of further escalation.”
All eyes will be on the US and Nvidia earnings later this evening. Although the AI trade has slowed, it is still very important for broader sentiment and an upbeat report from Nvidia has the potential to power global equities higher.
Movers
Sage Group shares soared 18% higher after reporting an 11% jump in revenue and 21% increase in EBITDA. Share buybacks again played a bit part of the gains as investors dived into the latest UK share announcing a very respectable programme.
“Sage’s software produces payslips among other things and perhaps that’s exactly what they’re delivering to shareholders this morning. This update is ticking a lot of boxes – profits up by 21%, margins up and growing, dividend hiked and big share buyback programme announced. What’s not to like to investors?,” said Adam Vettese, market analyst at investment platform eToro.
Beleaguered housebuilder Vistry was bottom of the leaderboard again as shares sank another 6% on news of management shakeup. The builder has made major cost miscalculations, leading to an obliteration of the share price, and shareholders will be demanding action. The change shows Vistry is trying to address the problem but investors seem unimpressed.
Weakness in Vistry weighed on the rest of the housebuilding sector, with Persimmon and Barratt Redrow fell more than 2%.
