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Since Lloyds kicked off the UK banking earnings season earlier this week, UK-focused FTSE 100 bank earnings have improved steadily. Today, NatWest took the crown in terms of share price reaction with a 4.8% jump.
Investors were delighted with NatWest’s 2.3% increase in income in Q3 compared to Q2 and an upbeat assessment of future earnings.
“NatWest marks the third major UK bank to report better than expected results this week, but this time it’s not driven by impairments. Better income and costs drove the beat today, offset by higher impairments than expected, which does buck the trend we saw from Lloyds and Barclays. That said, default levels remain low at NatWest and that bodes well for performance over the medium term,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.
The results took NatWest shares to the highest levels since 2015.
NatWest wraps up earnings from the three FTSE 100 banks most heavily associated with the UK economy: NatWest, Lloyds, and Barclays. Going into the run of results, there were a number of potential risks, namely falling interest rates and softening economic growth. However, shareholders will be more than satisfied with better-than-expected earnings across the board and the absence of any signs of stress among their core customer base.
“It has been a pretty decent earnings season all-round for the UK banking sector and the positive trend continued with NatWest’s numbers,” said AJ Bell investment director Russ Mould.
“Better-than-expected income and lower-than-expected costs provided the cocktail for upgrades and investors have responded accordingly. The company, and its peer group, have been helped here by slower-than-anticipated rate cuts.”
The writing has been on the wall for some months now – boohoo Group (LON:BOO) has what could be terminal problems unless something really kicks its Board into proper remedial action.
Just standing back and agreeing to some fairly stringent and expensive funding terms as it desperately attempts to straighten its balance sheet could give the group even more problems.
The Business
Set up in Manchester in 2006, boohoo group describes itself as a fashion forward, inclusive and innovative business.
It believes that its brands are complementary, vibrant and scalable, delivering inspirational, on-trend fashion to group’s customers 24 hours a day, seven days a week.
The group’s five diverse core brands – boohoo, boohooMAN, PrettyLittleThing, Karen Millen and Debenhams – enable it to serve a broad customer base, globally, with a primary focus on the UK and US markets.
Since its acquisition in 2021, Debenhams has been transformed from a retailer into a digital marketplace, with a capital-light, low-risk operating model and a focus on fashion, beauty, as well as home.
The Background
We have all heard about the ‘ups’ of the fashion group, which have been well-publicised in almost every UK newspaper and investment website.
Over the last few years, we have read about ‘slave labour’ production lines at various of the clothing group’s suppliers, there was even a Competition and Markets Authority investigation into whether the group had breached any consumer protection laws
We have also seen tittle-tattle of various of the boohoo glitterati, flying here and there and everywhere on very expensive trips, of driving flashy cars, or enjoying multi-million pound family ceremonies – all this was happening as the online company’s profits were dwindling fast and while the luxury spending appeared to increase.
Admittedly times have been very challenging over the last year or so, with the group dropping some 13% on its gross merchandise values to £1.81bn (£2.09bn) in the year to end February this year, while its statutory pre-tax loss increased to a minus £159.9m (loss £90.7m).
In late May proposed option awards for three of the group’s main directors, over millions of shares, rapidly faced investor disapproval and were later withdrawn.
During the summer the group put one of its office buildings up for sale, based right in Soho in London’s West End.
Just last month the group declared, as part of its required cost-slashing measures, that it was changing its US operations, cutting out its distribution centre in Pennsylvania, and switching product delivery to its US customers directly from its Sheffield centre.
A week ago, the company updated that it had signed a £222m debt refinancing package, together with the declared undertaking of ‘a review of options for each division to unlock and maximise shareholder value’, it also announced that its CEO was stepping down.
Tally Ho The Frasers
Then, yesterday morning, the group confirmed that it had received letters and accompanying notices from Frasers Group, the online fashion group’s largest shareholder with 27% of the equity, demanding that Mike Ashley be appointed CEO and that Mike Lennon also be appointed a Director.
Just a day after Ashley and Frasers had stepped back from proceeding with the proposed £111m bid for the Mulberry Group, it published an Open Letter to the Board of the online retailer, detailing the Board Positions being sought.
In that letter, Frasers did not hold back; it pulled no punches; Ashley called Boohoo’s trading performance “abysmal” and considered that there had been “long-term mismanagement.”
It declared that the company’s recently announced debt refinancing was “wholly unsatisfactory” and created an “appalling outcome for shareholders“, which showed that the board “has lost its ability to manage boohoo’s business and investments“.
Accordingly, Frasers is requisitioning a general meeting of Boohoo to appoint Mike Ashley as a director and CEO of Boohoo and Mike Lennon as a director of Boohoo, to take effect without delay.
It stated that Frasers firmly believes that these appointments are in the best interests of boohoo, its shareholders and its stakeholders.
While also claiming that the Board appointments proposed by Frasers are now the only way to set a new course for boohoo’s future.
Market Reaction
Yesterday the shares of boohoo Group, on the back of a tripled dealing volume at 9.9m shares traded, closed 4% higher at 28.50p, valuing the group at £362m.
Frasers Group, valued at £3.61bn, saw its shares holding fairly steady at 800p.
Response To Frasers
This morning boohoo has responded to the Fraser’s Open Letter, by noting that Ashley is a 73% shareholder in Frasers; in addition, Frasers owns a 23.6% stake in ASOS, and that both Frasers and ASOS operate in similar markets to boohoo.
It declared that Frasers’ characterisation of Boohoo’s recent debt refinancing is inaccurate and unfair, considering that the refinancing provides certainty for the company around its future requirements and is supported by its existing group of high street banks.
The company stated that it will publish its interim results in November.
Early prices show boohoo at 28.35p and Frasers down 8.5p to 791.50p.
The UK Investor Magazine was delighted to welcome Melissa Cruz, CEO of GenIP, back to the podcast to discuss the Generative AI analytics company’s technology and the real-world benefits of its services.
We start by discussing technology transfer from research organisations to commercialisation, highlighting leading companies such as Google and Paypal, which started life as university discoveries.
We explore the value created by technological discoveries and how GenIP is helping more innovations reach full commercialisation.
Melissa provides deep insight into GenIP’s AI models and what differentiates them from existing services like ChatGPT.
There was mild optimism in equities on Thursday after several days of soggy trade dragged on the FTSE 100 and major US equity indices as corporate updates took centre stage.
Getting the European session off to a good start, Tesla shares surged in the US premarket on strong growth in key lines that was felt in US futures overnight. This was built on Thursday morning by a string of upbeat releases from London-listed companies.
Strong earnings releases by the London Stock Exchange Group, Barclays, and Unilever and firmer oil prices helped London’s leading index increase 0.5% to 8,299.
“Higher oil prices and some good corporate results helped UK stocks to strong gains on Thursday morning,” said AJ Bell investment director Russ Mould.
“Oil was higher amid continuing tensions in the Middle East with observers wary of an impact on supply. This lifted heavyweight energy stocks BP and Shell and their significant weighting in the FTSE 100 meant the index slightly outperformed other European indices.”
Barclays
Barclays was among the top risers with a gain of 3% after following Lloyds in releasing better-than-expected earnings largely driven by lower provisions for bad debts.
Investors were rightly concerned going into the banking earnings season with lower interest rates threatening to erode profits. While lower interest rate have softened the top line, analysts seem to have overegged the negative impact of impairment charges, which has led to banks beating on earnings.
“Barclays has squeezed out a profit beat after better-than-expected impairments and a good grip on costs,” said HL’s Matt Britzman.
“We’re always treated to a different perspective when Barclays reports, with US credit card and investment banking performance differentiating it from more UK-focused peers. On the US card front, after a period of edging higher, default rates look to have stabilised at relatively low levels.
“The slight disappointment comes from investment banking, where Barclays didn’t quite deliver the knockout performance that some might have hoped for in its trading division, especially after its US peers saw booming activity over the same period. The positive news is that investment banking profits were in line with expectations, and there was strong growth in fees & underwriting from the lulls of last year.”
“This should be taken as a decent set of results, but Barclays has had a material re-rating over the year so far. Much of that’s been justified, and the stock still looks to be trading at a discount to where it should be. However, the lack of visibility over the large investment banking division and how it meets medium-term growth targets is an anchor keeping things down”
Unilever shares enjoyed stronger-than-expected Q3 results, rising a little over 3%. Unilever announced a 4.5% increase in sales for its power brands, which account for more than 75% of group sales.
“A little over a year into the job and CEO Hein Schumacher has made genuine progress with the business. This is reflected in today’s slightly better-than-expected third-quarter sales,” Russ Mould said.
“This performance has been built on improved product innovation but also slowing down price increases. This helps explain why the company expects margin progression to slow overall in the second half of the year.
“Unilever faces a tricky balancing act between protecting its profitability and not alienating shoppers. This is a particular risk in developed markets where customers have the option of trading down to generic alternatives but less of an issue in emerging economies where these kinds of options are not readily available.”
Investors will hope the worst of Unilever’s troubles are behind them.
Alkemy Capital Investments (LON: ALK) says that its 100%-owned subsidiary Tees Valley Lithium is engaging ABG Sundal Collier ASA for a proposed $25m convertible bond and equity linked financing. The share price of the fully listed company jumped 71.8% to 73p, having been above 80p at one point.
Tees Valley Lithium is developing a lithium refinery project in Teesside. Planning and environmental permissions have been obtained and feedstock has been secured. The client base will be European vehicle manufacturers. The Tees Valley Lithium facility could have the capacity to supply all forecast UK automotive battery requirements by 2030 and have 35% of production available for export.
International trader Wogen will supply up to 200,000 tonnes of technical grade lithium carbonate feedstock each year. This should be enough to produce around 24,000 tonnes of battery grade lithium hydroxide and lithium carbonate equivalent.
The financing may be undertaken in more than tranche. The convertible bond will have a mandatory conversion mechanism into ordinary shares in Tees Valley Lithium if there is a flotation or trade sale. The conversion will be at a discount. Alkemy Capital Investments is hoping to list Tees Valley Lithium in 2025.
Quantum Blockchain Technologies (LON: QBT) reports that its predictive Bitcoin Artificial Intelligence model mining tool, Method C, has been implemented on hardware. The performance increased from 30% to 50% at lower mining difficulty. Method C can predict an input to the core algorithm to produce a winning hash. A patent application will be filed. The share price increased 18.5% to 0.8p.
Digital advertising services provider Silver Bullet Data Services (LON: SBDS) achieved record monthly revenues in September and it is on course to be EBITDA positive from October. A new working capital facility will help to finance growth. It is initially £2m but can increase to £4m depending on eligible receivables. The share price rose 14.1% to 52.5p.
Subsea equipment rental company Ashtead Technology Holdings (LON: AT.) is acquiring subsea electronics and tooling rental companies Seatronics and J2 Subsea for £63m in cash. They generate annualised revenues of £51.5m and operating profit of £9m. Ashtead Technology’s revolving credit facility will be increased by £70m. The deal increases the capability in the rental of survey and robotics equipment. There will be mid-to-high single digit earnings enhancement in the first full year. The share price is 9.85% higher at 596.5p.
Ariana Resources (LON: AAU) has reviewed the data for the Dokwe gold project in Zimbabwe. There are several zones of potential extensions to mineralisation. There are also gold-in-soil anomalies to follow up and drilling is planned. The in-pit resource is 1.2moz in two open pits at Dokwe Central and Dokwe North. Measured and indicated resources are 30Mt at 1.3g/t gold. Ariana Resources believes there could be annual production of up to 100,000 ounces of gold for up to 15 years. A revision of the pre-feasibility study is underway. The share price improved 6.38% to 2.5p.
Construction products supplier Alumasc (LON: ALU) announced at its AGM that trading is in line with expectations, and it continues to outperform the sector. Overall demand remains weak, but management is confident that Alumasc will continue to grow. Operational efficiencies will help to improve margins. Pre-tax profit is forecast to improve from £13m to £14.2m. The share price is 4.83% ahead at 271.5p.
FALLERS
Global Petroleum (LON: GBP) says Zhizhu Yu has resigned from the board after she was declared bankrupt on 21 October. The share price dipped 11.3% to 0.215p.
Specialist recruitment firm Gattaca (LON: GATC) reported an underlying 2023-24 pre-tax profit decline from £3.7m to £2.9m on 5% lower net fee income of £40.1m. There was a 3% increase in net fee income for contract work, but permanent income dropped by one-third. Despite the decline, Gattaca is gaining market share. Costs have been reduced and the US business has been sold. There could be a modest improvement in profit this year. The share price is 6.74% lower at 83p.
Aura Energy (LON: AURA) has updated its production target for the Tiris uranium project by 44% to 43.5Mlbs and the mine life to 25 years. Life of mine post tax cash flows are estimated to be $1.5bn, while NPV8 is $499m. The share price fell 5.26% to 9p.
ECR Minerals (LON: ECR) has been analysing rock chip samples from the Lolworth project in Queensland and there are some high grades of gold and silver identified. Trenching has identified broader zones of gold mineralisation and there are also newly discovered gold-bearing veins. The share price has slipped 4% to 0.3p.
Ex-dividends
Sanderson Design Group (LON:SDG) is paying an interim dividend of 0.5p/share and the share price is unchanged at 67.5p.
Serica Energy (LON: SQZ) is paying an interim dividend of 9p/share and the share price declined 8.7p to 134.8p.
FW Thorpe (LON: TFW) is paying a final dividend of 5.08p/share and the share price slumped 15p to 299p.
Touchstar (LON: TST) is paying an interim dividend of 1.5p/share and the share price fell 2.5p to 105p.
As value investors, one of the questions we have been asked a lot recently is, “why doesn’t value investing work anymore?”. The perception behind this question, however, depends hugely on the frame of reference because, from where we sit, it seems that value investing is working once more.
The long period of low interest rates and quantitative easing that followed the Global Financial Crisis clearly favoured growth investing but this is increasingly looking like an anomalous decade, as the long history of financial market evidence suggested it would. It seems that the Covid vaccination breakthroughs in November 2020 (which also roughly coincided with our appointment as managers of Temple Bar) marked an important turning point in equity markets. Below, we demonstrate that value stocks have tended to outperform growth stocks almost everywhere since then.
In our domestic market, the value index has beaten the growth index and the wider market since November 2020. By focusing on the better performing parts of the UK value universe, Temple Bar shareholders have done even better.
Meanwhile, in Europe, the same phenomenon can be observed, with value beating growth across all elements of the market cap spectrum.
The same is evidently true in Japan, with value delivering significant outperformance of growth and of the wider market, since November 2020.
In fact, the only place that value isn’t yet working appears to be the US. Peering beneath the surface though, we find that, even in this market, it is only within large caps that growth is still beating value.
This continued outperformance of growth in the US is almost exclusively a function of that small group of stocks that have become known as “The Magnificent Seven”. Between them, these stocks have contributed more than 40% to the US stock market’s return since November 2020.
Memories can be perilously short. Many investors seem to have already forgotten the large drawdowns that some of these stocks saw in 2022, and even though it was only two years ago, they can’t seem to imagine these share prices ever going down again.
The long-term empirical evidence behind the concept of value investing is robust. Lowly valued stocks have outperformed in every complete decade of the last 100 years, with one exception – the 2010s. From this perspective, it is not surprising to see value reasserting itself, almost everywhere, over the last few years1.
Indeed, the market’s continued infatuation with a handful of US technology stocks may be described as “the last shoe to drop” as far as the growth obsession of the 2010s is concerned. Everywhere else, value has resumed its former dominance.
The value renaissance has been good news for Temple Bar shareholders, and we are confident that this will continue. We are, and always will be, disciplined value investors, and the excesses that accumulated in the era of low interest rates and quantitative easing will take a very long time to unwind. We believe this should represent a tailwind for value investors that lasts many years into the future.
In other words, there remains plenty for value investors to look forward to.
Hat-tip to Lightman Investment Management for the inspiration.
1 Source: Kenneth R. French library, Morgan Stanley Research. Performance of Value factor (Book Yield) since 1926, Morgan Stanley, 27 May 2022.
Past performance is not a guide to the future. The prices of investments and the income from them may fall as well as rise and investors may not get back the full amount invested. Forecasts and estimates are based upon subjective assumptions about circumstances and events that may not yet have taken place and may never do so.
No investment strategy or risk management technique can guarantee returns or eliminate risks in any market environment. Nothing in this document should be construed as advice and is therefore not a recommendation to buy or sell shares. Information contained in this document should not be viewed as indicative of future results. The value of investments can go down as well as up.
This article is issued by RWC Asset Management LLP (Redwheel), in its capacity as the appointed portfolio manager to the Temple Bar Investment Trust Plc. Redwheel, is authorised and regulated by the UK Financial Conduct Authority and the US Securities and Exchange Commission.
Redwheel may act as investment manager or adviser, or otherwise provide services, to more than one product pursuing a similar investment strategy or focus to the product detailed in this document. Redwheel seeks to minimise any conflicts of interest, and endeavours to act at all times in accordance with its legal and regulatory obligations as well as its own policies and codes of conduct.
This document is directed only at professional, institutional, wholesale or qualified investors. The services provided by Redwheel are available only to such persons. It is not intended for distribution to and should not be relied on by any person who would qualify as a retail or individual investor in any jurisdiction or for distribution to, or use by, any person or entity in any jurisdiction where such distribution or use would be contrary to local law or regulation.
The information contained herein does not constitute: (i) a binding legal agreement; (ii) legal, regulatory, tax, accounting or other advice; (iii) an offer, recommendation or solicitation to buy or sell shares in any fund, security, commodity, financial instrument or derivative linked to, or otherwise included in a portfolio managed or advised by Redwheel; or (iv) an offer to enter into any other transaction whatsoever (each a Transaction). No representations and/or warranties are made that the information contained herein is either up to date and/or accurate and is not intended to be used or relied upon by any counterparty, investor or any other third party. Redwheel bears no responsibility for your investment research and/or investment decisions and you should consult your own lawyer, accountant, tax adviser or other professional adviser before entering into any Transaction.
To buyers of inexpensive wines, the name of Virgin Wines UK (LON:VINO) will be well known, probably from the group’s continual advertising programme.
To be fair, it is not just inexpensive, but also of higher quality bottles in which the company specialises.
Its marketing really appears to be building up its active customer numbers, especially through its subscription schemes, which help to drive repeat purchases.
The company’s customer acquisition model uses both physical and digital marketing to recruit new customers and then to convert them into active customers.
The Business
Virgin Wines was established in 2000 by the Virgin Group and was subsequently acquired by Direct Wines in 2005.
In November 2013, the Virgin Wines management team, led by CEO Jay Wright and CFO Graeme Weir, successfully completed a buyout of the business.
The business is headquartered in Norwich, with two fully bonded, national distribution centres in Preston and Bolton.
Virgin Wines was established in 2000 by the Virgin Group and was subsequently acquired by Direct Wines in 2005.
In November 2013, the Virgin Wines management team, led by CEO Jay Wright and CFO Graeme Weir, successfully completed a buyout of the business.
It joined AIM in 2021.
Over recent years the group has expanded its offering to include a high-quality craft beer and spirit collection, as well as corporate and consumer gift propositions, such as its highly popular Wine Advent Calendar.
Since it started over two decades ago, the company has sold more than 100m bottles of wine to its customers and it has won multiple independent awards.
Impressively, Virgin Wines today accounts for nearly 10% of the UK’s growing £850m online direct-to-customer wine market.
The company stocks over 650 wines, sourced from more than 40 trusted winemaking partners and suppliers around the world, which it then sells to its large active customer base, the majority of whom are on one of the group’s subscription schemes.
It has an active customer base totalling more than 150,000, most of whom are subscribed to one of the two subscription schemes, WineBank and WinePlan.
The company drives the majority of its revenue through its fast-growing WineBank subscription scheme, using a variety of marketing channels, as well as through its Wine Advisor team, Wine Plan channel and Pay As You Go service.
Earlier this month the company announced that it had agreed a strategic partnership with Ocado.com, the world’s largest dedicated online supermarket.
Ocado customers will have access to an exclusive selection of 50 wines from the Virgin Wines portfolio, carefully curated by both the Virgin Wines and Ocado buying teams.
Previously available only to Virgin Wines customers and sold as part of multi-bottle cases, this marks the first time these wines will be offered as individual bottles.
Latest Results
On Tuesday of this week, the company reported its Final Results for the year to 28th June.
On revenues of £59.0m (£59.0m), the group showed a £2.4m swing into a profit of £1.7m (£0.7m loss), with its earnings coming out at 2.4p (1.1p loss) per share.
Cash and cash equivalents were up at the year-end to £18.4m (£13.5m), which is a very strong feature of the group’s operating model, built up through monthly subscriptions by its customers, with cash deposits by WineBank clients of some £8.1m.
Management Comment
CEO Jay Wright stated that:
“In July 2024 we announced our FY24 Trading Update with both EBITDA and PBT ahead of expectations.
Today we are delighted to reiterate a positive full year performance, with strong profitability.
Despite a tough consumer backdrop, we are pleased to have increased new customer conversion rates, lowered cancellation rates and delivered a competitive cost per acquisition.
We have also introduced several strategic initiatives to enhance our growth and are particularly encouraged by the initial results of our Warehouse Wines offering as well as the Vineyard Collection and Five O’clock Somewhere Wine Club.
While the sector remains challenging, demand remains strong for our different subscription schemes and award-winning range of wines.
This differentiated offering, underpinned by our unique open-source buying model and loyal customer base, positions us well to continue delivering growth.
Looking ahead, and with Q1 trading being in line with our expectations, we remain confident of delivering a strong outturn in 2025 and beyond.”
Analyst’s Views
Analysts Wayne Brown and Anubhav Malhotra at Panmure Liberum rate the group’s shares as a Buy, with a Price Objective of 85p.
For the year now underway to end-June 2025, they estimate £63.0m sales and pre-tax profits of £2.3m, generating 2.9p per share in earnings.
For 2026, they foresee £66.0m sales, £2.6m profits and 3.3p earnings.
In My View
This group’s Management has disciplined its cost savings and built up its operating profile admirably.
I love the market cap value of £22m compared to the group’s own cash of £10m, the group’s shares, at just 38p, could easily lift 50% and still offer Upside Value.
Travis Perkins shares were deep in the red on Thursday after the building merchants released another downbeat assessment of their business and the wider environment.
Falling revenue and another reduction in their profit forecast were too much for some investors who offloaded the stock on Thursday and sent the shares down 6%.
Travis Perkins’ 5.9% revenue drop, driven by slow merchant trade, is at odds with the Labour government’s plans to fire up the economy with a wave of construction. The company’s Q3 update released today was devoid of any positives related to the promised recovery in housebuilding.
Indeed, Travis Perkins is so concerned about the near-term future that it reduced its 2024 operating profit guidance to £135m from the £150m guidance issued just a few months ago.
There were some bright spots in the group’s retail Toolstation unit, which enjoyed a 2.9% increase in sales in the UK and 9.6% in Benelux.
“It felt like only yesterday that Labour’s housing policy pledges were going to rejuvenate the UK property market and fire the sector back into favour,” said Mark Crouch, market analyst at investment platform eToro.
“However, Travis Perkins’ latest trading update does not offer any support to that narrative, in fact by the looks of these numbers, quite the opposite.
“Travis Perkins, the UK’s largest supplier of building materials, has slashed profit guidance for the second time in three months as revenues continue to fall. Weaker demand has been driven by a consumer that is still reluctant, and despite initial interest rate cuts, a feeling of uneasiness still lingers over the market.
“Along with battling the challenging market conditions, Travis Perkins, according to their new CEO, has become distracted and overly internally focused, which has further impeded the company’s overall performance, and is something they will need to put right fast if they are to reverse what is a worrying trend. While further rate cuts could be on the cards in November, for Travis Perkins, November can’t come soon enough.”
