The Aurora Investment Trust’s research process often takes years. The trust takes extraordinary steps to build a picture of a company before investing, including ‘hanging around with Games Workshop fanatics’ and monitoring cricket bat prices to assess Sports Direct. The outcome for investors is a highly concentrated portfolio of between 12-20 high-conviction selections. The portfolio’s top holdings are comprised of names such as Frasers Group, Barratt Developments, Netflix and Easyjet.
Marston’s revenue boosted by England’s Euros run
Marston’s, the UK pub operator with approximately 1,370 establishments, has released its latest trading update, revealing substantial revenue growth amid what is still a challenging market for pubs. The company noted a jump in sales during the Euros after England reached the final.
Marston’s share was 1.67% higher at the time of writing, as investors toasted the company’s resilient performance during the period.
Year-to-date figures show a 5.2% increase in like-for-like sales, while total retail sales across Marston’s managed and franchised pubs rose by 6.2%.
The 16-week period to 20 July 2024 saw a 2.4% uptick in like-for-like sales compared to the previous year, despite adverse weather conditions and strong prior-year comparatives.
The Euro 2024 football tournament provided a significant boost to Marston’s bottom line, with like-for-like sales surging 8% during the week of the semi-final and final matches. The company noted particular success in food sales, attributing this to recent menu changes that have resonated well with customers.
In a move that marks a strategic pivot, Marston’s announced on 8 July 2024 the sale of its 40% stake in Carlsberg Marston’s Limited (CMBC) to a Carlsberg subsidiary for £206 million in cash. This transaction is poised to transform Marston’s into a focused, pure-play pub company and is expected to reduce the Group’s net debt to below £1 billion, significantly ahead of previous timelines.
“The continued positive trading momentum carried through from H1 has been encouraging,” said Commenting, Justin Platt, CEO.
“This is a testament to the focus and energy of our team, who are dedicated to giving our guests the very best pub experiences. The disposal of our 40% stake in CMBC marks a pivotal step for Marston’s, allowing us to become a pure play hospitality business. I look forward to delivering on the opportunities a focused pub business will provide.”
FTSE 100 near breakeven as French luxury brands and US tech sour sentiment
Poor earnings updates from US technology shares and a sharp sell off in French luxury names translated into a soggy start for UK equities as the FTSE 100 began trade deep in the red. Although the index recovered some of the losses as the session progressed, it was unable to turn positive by lunchtime.
Tesla and Google reported earnings overnight with both of the tech giants trading down in the pre-market curtailing demand for risk assets.
The French CAC started the session down over 1% as luxury brand LVMH plummeted taking the index with it. The negative sentiment from overseas was too much for the FTSE 100, which was trading down 0.05% at the time of writing.
“The FTSE 100 was lower after disappointing corporate results in the US and a lacklustre session on Wall Street,” said Dan Coatsworth, investment analyst at AJ Bell.
“A volatile US presidential race presents an unhelpful backdrop for markets, with a first reading of US second-quarter GDP and the Federal Reserve’s preferred inflation measure later this week providing some insight into whether the ‘soft landing’ narrative still holds water.
“Weak results from LVMH and Rémy Cointreau suggest the malaise in the luxury goods sector is yet to abate and this puts further pressure on battered British fashion brand Burberry.”
Although concerns from overseas weighed on the index, Wednesday saw many positive stories for FTSE 100 companies.
After a sharp selloff on the back of a downbeat update from its peer, EasyJet shares soared on Wednesday on news the airline’s profit grew in the its third quarter as passenger. In stark contrast to Ryanair’s performance, EasyJet seem to be enjoying the current environment and could even be eating Ryanair’s lunch.
“easyJet’s third-quarter numbers landed a little better than expected. That’s a welcome relief after disappointing numbers from Ryanair earlier this week caused some share price turbulence for UK airlines,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.
“Revenue moved 11% higher in the period as the group’s increased capacity was filled by a growing number of passengers. The group’s striking ability to sell extras to existing passengers also contributed to top-line growth. These include things like extra baggage, legroom, and food and are a great way to grab a larger share of sunseekers’ budgets.”
Reckitt Benckiser was another standout on Wednesday, not because of its share price performance on the day, but because the management is finally doing something about dismal share price performance over the past year by announcing plans to shake up the consumer goods company’s portfolio by disposing of non-core brands to focus on core brands it dubs ‘Powerhouses’.
Alongside plans to reduce its portfolio, Reckitts outlined a target to achieve £1 billion in costs savings which should be welcome news to investors.
The plan was outlined alongside the release of its half-year report which revealed falling operating profits despite volume growth across many of its categories.
“Investors will be happy to see Reckitt streamline the business,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.
“Half-year results were solid despite lowering the sales outlook, partly due to extreme weather events impacting the nutrition business. But the real story here is the strategy shift. Selling assets that generated £1.9bn in sales last year is a bold move, but rightsizing is the aim of the game for many consumer goods companies these days. It’s no longer about size at all costs, and it gives Reckitt a chance to refocus.”
AIM movers: Nexteq hit by destocking and Shield Therapeutics boss leaves
Shield Therapeutics (LON: STX) chief executive Greg Madison is stepping down and non-exec Anders Lundstrom will take over on an interim basis. Iron deficiency treatment ACCRUFeR generated revenues of $6.9m in the second quarter, which was 69% higher than the previous quarter. This is a combination of more prescriptions and higher selling prices. The interim revenues are $11m. Cash is still flowing out of the business. The share price recovered 38.2% to 2.35p.
Braveheart Investments (LON: BRH) has increased its stake in Image Scan (LON: IGE) from 5.21% to 7.22%, which boosted the share price 2.7% to 1.9p. Investee company Kirkstall has appointed a new distributor in China for its Quasi Vivo, a system of chambers for cell and tissue culture in laboratories. Another investee company, detectors developer Paraytec, has filed a UK patent for the analytical method for its CX300 instrument. The Braveheart Investments share price rose 37.5% to 5.5p.
Bezant Resources (LON: BZT) has signed a letter of intent for the delivery of renewable solar energy for the Hope & Gorob copper gold project in Namibia. This is subject to a binding power offtake agreement. This will reduce costs. The share price rebounded 31.1% to 0.0295p.
Hydrogen and fertiliser projects developer Atome (LON: ATOM) has signed heads of terms for a fertiliser offtake agreement with Yara. This covers the Villeta project in Paraguay. This will help to achieve full financing of the project by the end of 2024. The Villeta facility could produce 260,000tpa of fertiliser. Yara is the largest fertiliser and ammonia trader and the fertiliser produced at Villeta should be sold at a premium price. The share price is 24% higher at 77.5p.
FALLERS
Gaming platforms and displays supplier Nexteq (LON: NXQ) shares slumped 33.9% to 81p. There is destocking in the gaming and other sectors with larger customers delaying new product launches. Interim revenues fell 15% to $48.2m and management is cautious about the second half, so second half revenues could fall at a similar rate. Operational gearing means that Cavendish has cut its 2024 pre-tax profit forecast by 39% to $9.1m and assuming it will be flat next year. The chief executive and finance director are stepping down but are staying on until replacements are appointed.
Graphene technology developer Versarien (LON: VRS) has raised £550,000 at 0.065p/share. This will finance the purchase of concrete and mortar testing equipment for the Cementine admixtures developed using 3D construction printing. The share price slipped 27.4% to 0.0685p.
Healthcare services provider Totally (LON: TLY) made a small loss in the year to March 2024, but it is expected to return to profit this year even though revenues are set to continue to decline. Annualised cost savings of £3.5m have been made. There have been delays to tender activity around the General Election, but this is changing. The investigation into the NHS should report in September and this could provide opportunities. The share price fell 22.4% to 8.25p.
Like-for-like sales fell 5.9% at Tortilla Mexican Grill (LON: MEX) in the first half and Panmure Liberum has cut its full year forecast from breakeven to a £300,000 loss. There was a small improvement in margins in the first half, but the decline in like-for-like sales is likely to continue at a similar rate in the second half. French business Fresh Burritos was acquired after the end of the first half and will contribute for most of the second half. The share price is 24.8% lower at 47p.
Aurora Investment Trust Case Study: Barratt Developments
Gary Channon, a Partner at Phoenix Asset Management Partners, the manager of the Aurora Investment Trust, details their investment thesis for Barratt Developments, explaining the extensive research techniques employed to value the company when the rest of the market shunned the housebuilding company
Top Digital Tools Every Investor Should Use for Better Performance
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1Spatial – Do Not Underestimate The Significant Growth Potential Of This Global Spatial Awareness Specialist
Investors prepared to take early-stage positions in companies offering massive market potential really should be putting 1Spatial (LON:SPA) into their portfolios.
Today this group is only capitalised at £78m, yet it is on the verge of boosting its revenues significantly within just a few years, which could see it valued at several times more than currently.
Some 92% of the company’s equity is held by investment professionals, which is a very good pointer of its prospects.
The Business
A global leader in Location Master Data Management, the group helps more than 1,000 organisations unlock the value of their data by validating, auditing, cleansing, correcting, synchronising and enhancing their spatial and non-spatial data.
Demand for current and authoritative geospatial data has never been greater.
In every sector, organisations are using location data to make better decisions – improving profits, saving time and saving lives.
Its solutions ensure data governance, facilitating the efficient, effective and sustainable operation of customers around the world.
Its global clients are primarily within the Government, Utilities and Transport sectors and include national mapping and land management agencies, utility companies, transportation organisations, government and defence departments.
The Cambridge-based group has operations in the UK, Ireland, the USA, France, Belgium, Tunisia, and Australia.
Going For Strong ARR
I love to see company’s building up their annual recurring revenues and that is one of the aims of this enterprising group.
Earlier this month it demonstrated material progress on the group’s US expansion plans, when it declared that it had secured several new contracts in the US, an area of importance in its global growth.
1Spatial now has contracts or framework agreements with 21 US States, up from 18 US States at the year end.
The group states that its US business has considerable expansion potential, where it has an ambition to generate on average $1m ARR from each State per annum.
These repeatable solution sales contribute to the Group’s increasing levels of recurring revenue and provide good revenue visibility from the Group’s US operation.
CEO Claire Milverton stated that:
“We continue to see considerable opportunity in the US, supporting the digital transformation of transport and emergency services departments, for which accurate, reliable, and up to date location data is vital.
These wins and the renewal demonstrate the quality of our product and underpin our ambition to generate on average $1m in ARR from each State per annum. Alongside our newly launched SaaS offerings, the Company has a number of growth vectors available to deliver on its ambitions.”
AGM Trading Update
Earlier this month, at the group’s AGM, Chairman Andrew Roberts updated investors stating that:
“Trading for the full year is expected to be in line with expectations.
We have secured several new contracts in Europe and the US in recent months, and we continue to make progress with our innovative 1Streetworks SaaS offering.
Planned targeted headcount increases across the US Enterprise and 1Streetworks businesses are well underway.
With the onboarding of an NG9-1-1 (public safety) specialist in May and a highly experienced sales director joining the Company early in H2 to strengthen the 1Streetworks team.
This reflects our approach to ensure our sales and delivery teams have a greater sector focus.
The Group has a strong order book, a growing recurring revenue stream and substantial sales pipeline underpinning the Board’s confidence in the outturn for FY25.
We believe the investments we continue to make in people and technology have positioned the business well to take advantage of the huge opportunity ahead.”
The Equity
There are some 111m shares in issue.
Around 92% is held by institutional investors.
The largest holder is Threadneedle Asset Management with 19.94% of the equity.
Other large holders include Canaccord Genuity Wealth (16.62%), Azini Capital Partners (12.37%), Harwood Capital (6.70%), BGF Investment Management (6.25%), Liontrust Investment Partners (4.92%), Perpetual Investment Management (3.96%), Herald Investment Management (3.56%), Octopus Investments (3.48%), and Hargreaves Lansdown Asset Management (3.42%).
Analyst’s Views
At Panmure Liberum analysts Andrew Ripper and Caspar Erskine rate the group’s shares as a Buy, looking for 80p a share as their Price Objective.
They are going for the current year to end January 2025 to show through with sales of £37m (£32m) and pre-tax profits of £2.4m (£2.1m), lifting earnings to 2.1p (2.0p) per share.
For the coming year they see £40m revenues, with £3.9m profits and 3.0p per share in earnings.
My View
ARR – I just love it!
Any sensible Finance Director wants to enjoy the strong build-up of annual recurring revenues, it strengthens financial armour when funding growth, especially on a global scale.
It will be a slow accretion of contracts but there will soon be a point where 1Spatial’s business will almost be self-feeding.
At the current 71p this group’s shares are a cracking growth stock for patient and risk-tolerant investors.
Note – Investors should review further articles and presentations on this group featured on this website in March this year.
Easyjet profits jumps as passenger numbers increase
Easyjet investors will be delighted Ryanair’s problems are not industry-wide. Easyjet shares sank earlier this week after its peer announced falling profits and said it would cut its fares. Easyjet is experiencing no such problems.
EasyJet has reported a strong performance in its third quarter with headline profit before tax increasing 16% to £236 million as passenger numbers increased by 8% year-on-year, reflecting robust demand absent from Ryanair’s recent update.
Revenue per seat (RPS) also saw a modest increase of 1% year-on-year, aligning with the company’s guidance.
The easyJet holidays division performed exceptionally well, delivering £73 million in profit before tax, up from £49 million in the same quarter last year. This represents a remarkable 49% growth in profitability, accompanied by a 33% increase in passenger numbers for the holiday segment. The success of this division is contributing significantly to the overall positive performance of the company.
“Our strong performance in the quarter has been driven by more customers choosing easyJet for our unrivalled network of destinations and value for money,” said Johan Lundgren, CEO of easyJet.
“This result was achieved despite Easter falling into March this year, demonstrating the continued importance of travel and this means we remain on track to deliver another record-breaking summer, taking us a step closer to our medium term targets.”
Looking ahead, the airline said it expects to reach a capacity of approximately 100 million seats for FY24. Furthermore, the fourth quarter of 2024 is anticipated to continue the positive trend seen in Q3, with revenue per seat expected to maintain its upward trajectory. Easyjet may well be eating Ryanair’s lunch.
The holiday division is projected to deliver over £180 million in profit before tax, representing more than 48% profit growth year-on-year.
Bookings for the fourth quarter are strong, with 69% of capacity already sold, which is 1 percentage point higher than the same period last year. Additionally, easyJet has 7% more capacity on sale. This translates to 1.5 million more seats sold for the peak summer period compared to the previous year.
Reckitt Benckiser announces simplification strategy disposing of leading brands
Reckitt Benckiser shares underperformance has elicited a response from management who today announce a strategy to streamline the business by disposing of non-core brands and focusing on so-called ‘Powerbrands’.
In the face of margin pressure and shifts in consumer behaviour, Reckitt Benckiser is embarking on a major transformation with plans to sharpen its brand portfolio, focusing on high-growth, high-margin Powerbrands that dominate their categories. This strategic shift top acheive a ‘sharper, simpler Reckitt’ follows a comprehensive nine-month review.
The reshaping involves significant disposals. Reckitt will exit its ‘Essential Home’ portfolio by the end of 2025, which includes well-known brands like Air Wick, Mortein, Calgon, and Cillit Bang. These brands generated £1.9 billion in revenue for FY2023. Additionally, the Mead Johnson Nutrition business, featuring Enfamil and Nutramigen, is now considered non-core. Reckitt will explore all strategic options for these assets to maximise shareholder value.
The focus will now be on ‘Powerbrands’ – Reckitt’s core portfolio is thriving. Powerbrands such as Mucinex, Strepsils, Gaviscon, Nurofen, Lysol, Dettol, Harpic, Finish, Vanish, Durex, and Veet have demonstrated strong performance. This group has achieved a 7% net revenue CAGR between FY2018 and FY2023, with an impressive 61% gross margin in FY2023. Emerging brands like Move Free and Biofreeze, along with local heroes such as Lemsip and Airborne, will also be part of the future-focused portfolio.
Cost optimisation is a key component of the new strategy. Reckitt aims to streamline its organisation, reducing management layers and duplication. The company will transition to a unified category structure operated through three geographical regions: North America, Europe, and Emerging Markets. This restructuring is expected to yield significant savings, with a targeted 300 basis point reduction in fixed costs by 2027. The end goal is to reduce the fixed-cost base from 22% to approximately 19%. However, this transformation comes at a price, with estimated one-off cash restructuring and transformation costs of around £1.0 billion.
The new Reckitt will emerge on January 1, 2025, reporting financials in three segments: Reckitt, Essential Home, and Mead Johnson Nutrition. While the core Reckitt business focuses on health and hygiene, dedicated teams will manage the Essential Home and Mead Johnson Nutrition segments to maximize their potential value. Through these strategic moves, Reckitt aims to create a leaner, more agile company poised for long-term growth and shareholder value creation.
FTSE 100 reverses early losses as Compass Group leads index higher
The FTSE 100 reversed early losses on Tuesday after traders bought into a sell-off in mining companies in the very early hours of the session. Strong results from Compass Group helped the index carve out gains.
Having touched lows of 8,152, the FTSE 100 rebounded to trade at 8,226, 0.3% higher on Monday.
“The FTSE 100 was dragged down by a poor showing from the mining sector off the back of a weak copper price,” said Dan Coatsworth, investment analyst at AJ Bell.
“Copper futures have fallen by nearly 7% over the past five days amid concerns about sluggish demand from China as it struggles with a slowdown in economic growth. The market has taken the view that China isn’t digging deep enough with stimulus measures to fire up the economy and therefore commodities demand is at risk.”
However, concerns about China took a back seat as the session progressed, and investors shifted their attention to Compass Group’s strong earnings and a reassuring statement from Beazley.
Compass Group was the FTSE 100’s top riser after delivering a very respectable 10.3% increase in organic revenue in its third quarter, helped by strength in North America and Europe. The food services company upgraded its profit outlook, saying it expected operating profit growth for the year would be above 15%, and shares reacted accordingly with a 4% increase.
“Food service giant Compass continues to attract new business at pace, helping to support a second upgrade to annual forecasts this year,” Coatsworth said.
“This suggests the company’s decision to ease prices in line with inflation is a good one as it helps drive loyalty among existing customers and attract new ones, bolstering an already strong market position. It also suggests a return to the office – as hybrid working policies are adjusted – is proving beneficial.
“The company and its management team see plenty more business to go after, with a large chunk of catering still done in-house.”
Beazley was the second-highest riser after issuing a statement to calm any fears about the impact of last week’s tech outage. The cyber security insurer’s shares were hit heavily by concerns it would have to fork out for claims but today said its guidance for the year remained unchanged by the events.
The bottom of the leaderboard was littered with miners such as Anglo American, Glencore and Rio Tinto as the impact of commodities selloff lingered.