We have already had a pointer that the coloured stones group was facing some challenging markets with lower auction prices received and expected for its gemstones. 

However, I believe that the shares of the Gemfields Group (LON:GEM) are substantially undervalued, so if they come back in price after this Friday’s Interim Results announcement, I suggest that risk-tolerant investors should be ready to pick up some cheap stock. 

The Business 

The group, which is also listed on the Johannesburg Stock Exchange, describes itself as a world-leading responsible miner and marketer of coloured gemstones.  

It is the operator and 75% owner of both the Kagem emerald mine in Zambia (believed to be the world’s single largest producing emerald mine) and the Montepuez ruby mine in Mozambique (one of the most significant recently discovered ruby deposits in the world).  

Additionally, the group also holds controlling interests in various other gemstone mining and prospecting licences in Zambia, Mozambique, Ethiopia and Madagascar. 

The company has developed a proprietary grading system and a pioneering auction platform to provide a consistent supply of coloured gemstones to downstream markets, which is a key component of its business model that has played an important role in the growth of the global coloured gemstone sector. 

Faberge 

The group has outright ownership of Fabergé – which is an iconic and prestigious brand of exceptional heritage. 

That ownership enables the company to optimise positioning, perception and consumer awareness of coloured gemstones through Fabergé designs, advancing the wider group’s ‘mine and market’ vision. 

Latest Auction Results 

Earlier this month the group participated in an auction of predominantly commercial quality sapphire, corundum and commercial-quality ruby, which covered three days. 

There was a strong attendance and good demand, with auction revenues of $2.3m ($1.5m), some 5.7m carats were offered in ten lots, with the average sales price of $0.41 per carat. 

The period from 27^th August to 13^th September saw an auction of commercial-quality rough emeralds. 

Some 46 lots were put up for sale, but just 28 were sold, creating total auction revenues of $10.8m, with the average price of $4.47 per carat. 

At the beginning of last week, the company stated that: 

“The luxury-good, diamond and gemstone markets are experiencing distinct headwinds as conflicts, elections, economic uncertainty in China and broader economic turbulence take their toll. 

Today’s overall result is weaker than expected, exacerbated in part by a competing emerald producer scheduling their own auction to finish in early September 2024, in the middle of ours, and selling through their emeralds at what customers reported as low prices. 

Gemfields remains committed to acting responsibly by withholding auction lots when fair market prices are not achieved, as is demonstrated by the lots we withdrew from our auction which comprised both considerable volume and value. 

We hope that market conditions improve as we work towards the auction of higher-quality emeralds scheduled for November 2024.” 

Analyst’s Views 

In reaction to that news, Panmure Liberum analysts Ben Davis, Tom Price and Yuen Low, published a note on the group flagging market headwinds for the company. 

They concluded that the latest auction results for commercial-quality emeralds were weaker than expected, with total revenues of $10.8m and 61% of lots sold, although importantly, an emerald producing competitor unusually scheduled their auction to overlap with GEM’s, likely impacting prices. 

For the current-year to end-December they estimate group revenues to be steady at $261m, but with pre-tax profits of $55.7m ($16.6m), generating earnings of $0.02 (loss of $0.01), while paying out a dividend of 0.74p (0.69p) per share. 

For the coming year they estimate $366m sales, $111.0m profits, $0.05 in earnings and a 0.81p dividend per share. 

The broker’s have a Price Objective of 23p on the group’s shares. 

In My View 

We have the £136m capitalised group’s Interim Results being published on Friday morning, due to the weakening in the latest auction results they may well have something of a dampening effect on the group’s share price, now 11.65p. 

Even so investors, prepared to sit patiently when taking a view, may well use any rapid price drops as opportunities to load up on positions in what I consider to be a very undervalued situation. 

GenIP has issued an update to its Schedule One form filed with the London Stock Exchange, revealing the Generative AI company enjoyed strong investor demand during its IPO fundraise.

The company is set to be one of very few Generative AI-dedicated companies listed in London, which was reflected in the strong demand for shares during the fundraising process.

After initially setting out to raise £1.5m, the company has raised £1.75m, according to a stock exchange announcement released on Thursday.

“We believe that GenIP’s unique business model offers investors a valuable opportunity to engage with the rapidly expanding Generative AI analytics market and the research institutions and technology companies that fuel much of the world’s innovation,” said Melissa Cruz, CEO of GenIP.

GenIP is the latest IPO from Tekcapital, the technology incubator listed on AIM. Tekcapital’s most recent IPO was low-sodium food technology company MicroSalt, whose shares triple within six months of listing on AIM.

GenIP’s first day of dealing is scheduled for 2nd October.

Novacyt is still loss-making, but half-year results show the company has turned a corner and is now well placed for growth in the coming periods.

Novacyt reported H1 2024 revenue of £10.3m, of which £7.8m was from the recently acquired Yourgene Health.

The company saw encouraging growth in Reproductive Health, which jumped 34% year-on-year, and Non-Invasive Prenatal Testing with a more modest 5% increase.

Despite an EBITDA loss of £5.6m and a loss after tax of £17.7m, largely due to exceptional costs related to the DHSC settlement, Novacyt made progress in integrating Yourgene, delivering £5.0m in annualised cost savings.

The company maintains a strong cash position of £32.9m as of 30 June 2024.

Looking ahead, Novacyt aims to continue reducing its cost base, rationalise its product offering, and develop new products over the next three years.

Management expects full-year revenue to remain at a similar run-rate and is focused on positioning the company for long-term growth through its comprehensive strategy for the combined group, which they say will be detailed in H1 2025.

“We made good progress during first half of 2024, which saw encouraging growth in our Reproductive Health and NIPT businesses and the delivery of £5.0m of annualised cost savings. Whilst the continued reduction of our cost base remains our core priority, we are also investing for the future and bolstering our R&D team who are developing an exciting pipeline of new products, to expand our capabilities and meet the needs of our growing customer base, which we expect to bring to market over the next three years,” said Lyn Rees, CEO of Novacyt.

“The conclusion of the DHSC dispute has enabled the management to focus on driving the growth of the combined business and with our robust product portfolio, first-class team and strong cash position we are well placed to deliver future growth.”

Recent growth in Ocado’s retail food delivery arm and joint venture with Marks & Spencer is making Ocado shares attractive again after a period of share price underperformance compared to the wider market.

Ocado has been the fastest-growing food retailer for seven months in a row. 

However, the company still sits just above ‘other retailers’ in Kantar’s list of supermarkets’ market share. Ocado had a market share of 1.8% in the 12 weeks to 1 September. Iceland is just above them with a market share of 2.3%.

Although they are probably no more of an annoyance to the likes of Tesco and Sainsbury’s than a major threat, Ocado is building momentum.

Investors who may have discounted the food business and focused on Ocado’s technology solutions may be having a rethink. Ocado Retail’s sales surged around 15% in the 13 weeks to 1 September. That is no small increase, and it is all the more remarkable given the pressure the UK consumer is under.

A recent trading update unveiled a 10% increase in active customers to just over 1 million who are now shopping with Ocado more frequently. Ocado shares surged in early trade on the morning of the release as investors cheered the offering’s traction.

For many, the key interest in Ocado sits with their fulfilment centres. And rightly so. Ocado are working with the world’s largest grocers and establishing distribution channels that may provide Ocado revenues long into the future. 

That said, investors consider the opportunity in Ocado Retail’s aspirational attractions and the potential to steal more market share.

“Our strategy remains focused on giving our customers unbeatable choice, unrivalled service and reassuringly good value. We’re seeing the momentum of this, with more customers shopping with us more often, getting even better service at better value,” said Hannah Gibson, Ocado Retail’s Chief Executive Officer in a comment attached to the recent trading statement.

If more people can get the bulk of their shopping at reasonable prices from Ocado and treat themselves with the odd indulgence, Ocado’s food delivery service could become a viable option for millions more people in the UK. As interest rates fall and discretionary budgets grow, the middle classes may even aspire to switch to doing their weekly shopping at Ocado. 

As we’ve outline above, many people already are switching to Ocado. A mixed approach to pricing is drawing people in. If the momentum continues, Ocado may be more than an annoyance to Tesco and Sainsbury’s. 

Ocado shares will benefit in such a scenario. 

The FTSE 100 was in consolidation mode on Wednesday morning after a China-induced rally on Tuesday. However, the bulls took control after lunch and sent the index over 0.3% higher.

The impact of China’s stimulus measures fizzled out on Wednesday morning, although the key beneficiary mining sector was still higher for the week. 

London’s leading index even managed to carve out gains despite weakness in oil heavyweights BP and Shell who slipped back with oil prices.

“Brent Crude remains close to $75 a barrel as supply concerns continue to swirl. Although crude prices remain well below the peak in 2022, when they were nudging $120 a barrel, the intensity of the Israel’s attacks on targets in Lebanon has increased concerns that that the conflict will spread further across the Middle East,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

The stocks leading the rally at midday included Rentokil, Fresnillo, and Croda. Rentokil was the top riser, up 4%, after an activist investor took a board seat following a period of poor performance.

“Pest control outfit Rentokil was not in a strong position to refuse any requests from activist investor Nelson Peltz, so news that a representative from his Trian Fund Management vehicle is joining the board shouldn’t come as a big surprise,” said AJ Bell’s Russ Mould.

“After serving up a doozy of a profit warning earlier this month, Rentokil’s board is hardly in a position to suggest it doesn’t need help or fresh ideas, and it will be interesting to see where Peltz looks to exert pressure. 

“Weaker than expected revenue at Rentokil has been compounded by internal problems around the integration of acquired branches and poor cost control as the company strained to hit sales targets. This state of affairs does not reflect well on the company’s discipline.”

With little economic news on Wednesday, the big story in London is the Rightmove takeover interest from Rupert Murdoch’s REA Group and the third revised bid announced on Wednesday. Like the two prior bids, the third was rejected by Rightmove.

“While there was a shift in the tone of Rightmove’s announcement earlier this week in that it was ‘carefully considering’ REA’s latest proposal, it didn’t take long for the property portal to go back to its dismissive ways,” Russ Mould said.

“REA looks to be running out of patience with Rightmove after it rejected a third takeover proposal, banging the drum even louder that it’s bad form not to properly engage in a conversation. This sets the tone for REA taking a hostile approach, bypassing the board and negotiating directly with shareholders.

“Rightmove’s biggest investors are asset management firms and they will all have a price at which they’d be happy to let their shares go. Names like Kayne Anderson Rudnick, BlackRock and Lindsell Train won’t be emotionally attached to a business like Rightmove in the way a founder or company employee might be. They’re holding Rightmove stock to make money and it’s clear that REA continues to want the business.”