The FTSE 100 was slightly weaker on Friday as investors digested another tepid reading of UK GDP and Chinese stocks weakened overnight.

There is a sense investors are waiting for the next major catalyst for equities as the FTSE 100 traded down just 5 points to 8,233 at the time of writing.

“The FTSE has opened down a touch, as investors digest news that the UK economy returned to growth in August. The Office for National Statistic’s  estimates that real GDP grew by 0.2% after two months of stagnation,” said Derren Nathan, head of equity research, Hargreaves Lansdown.

“This small rebound in growth was largely expected, but the lacklustre reaction echoes global markets struggle to find a clear direction. That’s perhaps unsurprising given high levels of geo-political tension, an upcoming US election and continued concerns about growth in China.

“Chinese stocks gave up some of this week’s gains overnight as traders look to Finance Minister Lan Fo’an’s scheduled Saturday press conference, where he’s widely expected to unveil additional stimulus measures. There are a range of opinions as to the potential size of any fiscal injection, ranging from anywhere between two and ten trillion yuan. The market is likely to be disappointed should the number be on the low side.”

Despite the weakness in China, miners were fairly flat on Friday with Rio Tinto trading 0.8% higher and ANTO down by the same amount. Should a fresh wave of stimulus be announced in China, one would expect this sector to fire up once more.

Sainsbury’s was down heavily on Friday on the news a large investor hold sold a stake in the supermarket.

After a fairly reasonable rally in Sainsbury’s shares over the past year, the Qatar Investment Authority has locked in profits raising questions about their motive for doing so.

Investors seemed to have concluded Qatar don’t see a great deal of upside and have followed them in dumping the stock, sending shares down 5%.

“Sainsbury’s shares fell nearly 5% following reports that its biggest shareholder, the Qatar Investment Authority (QIA), had sold £306 million worth of shares at 280p each. Prior to the transaction, QIA owned 14.2% of the supermarket,” said Dan Coatsworth, investment analyst at AJ Bell.

“The Middle Eastern investor has a reputation for backing financially strong companies across a wide range of industries. While it invests with a long-term view, like any asset manager it does make changes to its portfolio from time to time. QIA has been trimming stakes in other holdings of late, including Barclays, Shell, Vinci, Iberdrola and Accor. In contrast, it has been increasing positions in the likes of OQ Gas Networks, Kingdee International Software and Haleon.

“QIA might feel that now is a good time to trim its stake in Sainsbury’s, selling into a market where other investors have become more interested in the supermarket. The fact it managed to offload a large chunk of shares at only a 2.8% discount to last night’s closing price implies there was decent demand.”

Fears about the budget are sucking the life out of the AIM market. 

The private individuals London’s junior bourse is reliant on for day-to-day liquidity are paralysed with fear about what Keir Starmer’s Labour government might to do taxes and the implications for AIM.

After the a strong start to the year for AIM, it’s been pretty much one way traffic for the index since July. Fears about whether Labour will scrap IHT and other tax relief for investing in AIM shares are largely to blame.

Should the measures implemented in the upcoming budget be anything better than the worse case scenario, one would hope we see a relief rally in AIM shares.

Over time, markets always recognise value in companies, no matter the tax incentives for investing. The market is littered with exciting companies that deserve a higher valuation.

Here are just eight of them.

hVIVO

hVIVO have set an ambitious £100m revenue target for 2028 and everything coming from the company suggests this target will be hit. The company is a specialist in viral challenge studies working with the world’s largest drug companies. Revenue for the first half of 2024 rose 30% to £35.6m as the company launched a new state-of-the-art facility in Canary Wharf, recruited a record number of volunteers for its challenge trials, and implemented automation at FluCamp, it’s flagship virus testing brand.

Avacta

Like any early stage biotech stock, Avacta comes with a high level of risk. However, for those investors willing to accept those risks, the potential returns for shareholders are enormous. The company is focused on developing a drug delivery platform designed to reduce damage to normal tissue during chemotherapy. Should Avacta succeed, the returns for investors will be sizeable, but the outcomes for patients and their families will be immeasurable.

GenIP

The Generative AI analytics specialist listed in October and has already announced orders for one month that totalled 40% of the prior year’s revenue. The company is targeting the technology transfer market with Generative AI tools that help commercial new technologies. Around 70% of potentially groundbreaking innovations produced by Universities and research institutions never reach their full potential in commercial enterprises. GenIP is helping ensure more innovations maximise their commercial potential with the power of Generative AI. Given the size of the addressable market, GenIP shares present very good value.

Yu Group

Yu Group is simply screaming out for a higher valuation and it wouldn’t be a surprise if the power supplier and smart meter installer is snapped up by private equity in a takeover. Trading at just 8.8x historical earnings, the market isn’t efficiently recognising the 60% increase in revenue in the first half of the year. Nor is it appreciating the rapidly growing dividend and capacity for it to ramp the dividend up further in the years to come.

Optima Health

A recent AIM IPO, Optima Health is the UK’s leading provider of technology-enabled corporate health and wellbeing solutions in the occupational health sector, with a revenue 1.8 times larger than its closest competitor. Optima health generated revenue of £110.9m in the year to year to end of March 2024. The company has set out clear ambitions to capture 25% of the £1.4bn occupational health market representing a significant opportunity for growth. Optima is new entrant to AIM, and like all recent IPOs, should have had a better reception.

Cadence Minerals

Long term investors with a propensity for the risky early stage mining sector should spend time looking at Cadence Minerals. The company’s flagship Amapa Iron Ore mine has the potential to produce annual EBITDA many multiples of Cadence’s current market cap. Cadence doesn’t own the entire asset, but its majority stake should eventually yield the company significant cashflows. In addition to Amapa, Cadence has investments in European Metals Holdings, Evergreen Lithium, and Hastings Technology Metals. At £5m market cap, Cadence offers plenty of potential upside.

Yellow Cake 

There’s not two ways about it, nuclear power will be a vital part of the world achieving its net zero targets. Yellow Cake is London’s foremost uranium pure play and any investor seeking exposure to the energy transition should pay particular attention to the company. With a market cap in excess of £1.2bn, Yellow Cake is one of AIM’s heavy weights. The company acquires and holds physical U₃O₈ and engages in uranium-related commercial activities providing investors with direct exposure to uranium prices, which are forecast to increase further, even after more than doubling over the past three years.

Cornish Metals

Cornish Metals working towards restarting production at the South Crofty Tin mine in Cornwall. Once an operating mine at the heart of Cornwall’s mining industry, operations were ceased in 1998 as low tin prices made continuing extraction uneconomical. Fast forward to 2016 and higher prices supported by demand from electronics and industry, Cornish Metals acquired 100% of the South Crofty mine. Cornish Metals is undergoing dewatering of existing South Crofty mine infrastructure with a view to begin production soon after.

The FTSE 100 was slightly weaker on Thursday despite another record high for the S&P 500 in the US overnight as weakness in housebuilders and another step down in miners dragged on London.

The S&P 500 hit its 44th record of the year last night even after mixed feelings on Federal Reserve minutes raised questions about the outlook for interest rates.

Notwithstanding the ongoing certainty around Fed policy and interest rates, many are still positive on US stocks choosing to focus on earnings rather than the macro picture.

“I remain bullish, as I have done for the bulk of the year, though the start of Q3 earnings season on Friday does present a risk for the bulls to navigate,” said Michael Brown Senior Research Strategist at Pepperstone.

“Nevertheless, with consensus EPS expectations having been downwardly revised by around 4% during the last quarter, there’s plenty of room for firms to deliver upside surprises, while the season should result in a 5^th straight quarter of overall earnings growth, leaving the bull case firmly intact.”

In the UK, where the equity market’s dynamics are very different to the US, the FTSE 100 was down 0.2% at the time of writing with minor losses in housebuilders, miners and retail stocks weighing on the index.

Taylor Wimpey was the top faller after trading ex-dividend. Vistry was again weaker as shares in the builder continued to suffer after revealing cost miscalculations.

Mondi slipped back 2% following a bounce on acquisition news yesterday. Miners remained under pressure as the China stimulus rally continued to unwind.

GSK was the top riser, gaining around 5%, on the news it had reached an agreement for the Zantac litigation which has dogged the stock since cancer allegations came to light.

“Pharmaceutical firm GSK is looking to leave its litigation woes around its heartburn medicine Zantac behind with a $2.2 billion settlement to resolve the vast majority of cases, brought on the basis of an alleged link to cancer,” said Russ Mould, investment director at AJ Bell.

“The company has not accepted liability and today’s news is welcomed by the market for two big reasons. First, investors would have been pleased to see the company get this monkey off its back almost regardless of the cost. Second, while clearly a lot of money, estimates of how much GSK might have been on the hook for were substantially higher.

“Since Morgan Stanley estimated GSK’s liability could run to $27 billion in 2022, nearly £30 billion has been wiped off its market value.”

“While some cases are still outstanding, it is a small proportion of the total and GSK will now seek to tidy up the loose ends.”

GSK shares were top of the FTSE 100 on Thursday after the pharma giant announced it had reached an agreement in the vast majority of litigation cases related to its Zantac heartburn drug.

Although the settlement will cost GSK $2.2bn, it draws a line under the litigation which alleged Zantac was a cause of cancer among users. GSK said they will recognise a £1.8bn charge in its Q3 results.

GSK shares were 5% higher on Thursday but they are still near the lows of the year.

“Pharma giant GSK has taken a giant leap towards drawing a line under the long-running legal battle concerning alleged cancer to heartburn remedy Zantac. It’s agreed to settle around 93% of cases pending in the US State Courts for a payment of up to $2.2bn as well as an additional $70mn in a separate but related action,” said Derren Nathan, head of equity research, Hargreaves Lansdown.

“In sterling terms, it’s expecting to recognise a £1.8bn charge for the settlements, which also covers the remaining 7% of outstanding claims, with some analysts seeing scope for the final quantum to come in a little lower. This is a significantly better outcome than initially expected, with some estimates standing at as much as $45bn just a couple of years ago. Since then, GSK and other drugmakers implicated in the case, Sanofi and Boehringer Ingelheim, have seen several key rulings go in their favour. GSK continues to accept no liability.”

Ahead of next week’s announcement of its Interim Results to end-July, due on Monday morning, 1Spatial (LON:SPA), one of the global leaders in Location Master Data Management software and solutions, yesterday informed the market of a significant $1.4m contract for the United States Forest Service. 

That is yet another key federal department as a client for the supplier of LMDM software, solutions and business applications. 

And it is another additional figure going on the group’s annual recurring revenues total, in this case some $300,000 yearly. 

Management Comment 

CEO Claire Milverton stated that: 

“We are proud to announce that we have been selected by the US Forest Service to improve their data governance.  

This significant contract marks a major milestone for our Company, as it represents our first engagement with this federal agency.  

Our patented rules engine, 1Integrate, combined with our innovative 1Data Gateway for ArcGIS Pro, offers a tailored solution to meet the USFS’s specific data management needs.  

We are confident in our ability to improve data accuracy, expedite processing, and ultimately support the agency’s mission of protecting and managing America’s forests and grasslands.” 

The Business 

Based in Cambridge, with operations in the UK, Ireland, USA, France, Belgium, Tunisia, and Australia, the group supplies primarily to Government, Utilities and Transport sectors via the 1Spatial platform and SaaS offerings.  

The group’s solutions ensure data governance, facilitating the efficient, effective and sustainable operation of customers around the world.  

1Spatial’s products allows the group’s various customers to master their data on any device, anywhere, anytime and can be deployed as SaaS in the cloud, on-premise, or as a hybrid of both.  

Globally the group’s clients include national mapping and land management agencies, utility companies, transportation organisations, government and defence departments. 

Analyst View 

Analyst Dan Ridsdale at Edison Investment Research is looking for the current year, to end-January 2025, to show revenues of £35.8m (£32.3m), with EBITDA of £5.7m (£5.5m), with a standstill in earnings at 1.4p per share. 

For next year Edison goes for £38.7m revenues, £7.6m EBITDA, with 2.5p earnings per share. 

In My View 

Come next Monday we can expect both Panmure Liberum and new joint broker Cavendish Capital Markets to issue updated current and prospective year estimates for the group as it progresses globally. 

The group’s shares have been up to 77p this year, that was in May, shortly after the company presented to UK Investor attendees at our set of presentations at the London Stock Exchange. 

However, they had slipped away to a recent 51p Low, before yesterday’s contract news spurred a lift-up in the price to see them close at 61p. 

Market reaction could well be bettered next Monday, especially if there is further good news being announced.