In our last note we felt that the minor selling that had materialised could have been the start of another minor leg lower, so this is the first time in the past couple of months that we have got the sentiment wrong.

As the index has actually managed to reverse course quite quickly and moved back to post fresh all time highs in recent days. So that is the good news for the bulls. The bad news is that rather than being entirely wrong we may have just been a little premature.

As now the market again does look vulnerable to some profit taking. Some more bearish macroeconomic notes have come out of Wall Street in recent days highlighting how the recession, long heralded by the inverted yield curve, may finally be showing some signs of emerging. As the US economy does start to show some early signs of slowing. 

Can the Fed cool the economy enough to tame inflation while avoiding a harder landing? So far the market has priced in a very positive yes to this question. As any doubts emerge on this view however there is considerable space for downside moves.

To be clear we are not calling the top of the market here, but what we are suggesting is that some chinks in the armour to the soft landing argument have gathered pace in recent days, and while consumer sentiment is strong there are signs that suggest that this is late stage buying interest and that some early institutional investors in this bull run have already been taking profits. 

We do feel it is warranted therefore to flag up that there is the potential for this profit taking selling to gather pace, which could drop the market back into the previous channel in the coming days. Leaving a more cautious take profit stance for the week ahead.

The FTSE 100 was slightly weaker on Friday as investors took a step back from equities and assessed what has been a busy week for economic data, politics and corporate updates.

London’s flagship index was down 0.4% at the time of writing amid heavy selling of European equities that continued declines on the back of a surprise snap French elections that threatens to provide a platform for far-right nationalists that are opposed to the European project. The French CAC plummeted 2.5% as the German DAX fell 1.3%.

Heavy selling of European stocks followed reasonably robust US trading overnight, which helped the FTSE 100 swerve most of the European downside on Friday.

“Yes, we’ve seen several days of choppy trading on the markets but a robust session on Wall Street last night and resilience on the FTSE 100 at the end of the trading week doesn’t portray a picture of an investor with their head in their hands,” said Russ Mould, investment director at AJ Bell.

There has been a clear divide this week between mainland European stocks trading on political concerns and US and UK that continue to be driven by interest rate expectations.

Interest rate hopes

The Federal Reserve provided little insight into the timing of interest rate cuts at this week’s meeting, which would have disappointed some market participants.

That said, CPI data provided a dash of optimism that inflation was falling and the Federal Reserve would soon have the right economic conditions to warrant a cut.

This optimism kept a lid on any selling of US stocks, and investors are likely to remain positioned for a rate cut by sticking with long equity bets in the coming weeks and months. Strength in US stocks – should it be maintained – will help support UK equity sentiment in the coming week as investors look forward to the Bank of England’s interest rate decision on Thursday.

Tesco

Tesco was the made corporate story of the day with the group proving it has what it takes to fight of discount rivals amid the cost of living crisis by producing 4.6% sales growth in its last quarter.

“The UK’s biggest supermarket, Tesco, has announced trading is in-line to hit full year expectations,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.

“Crucially, in the first quarter, volumes continued to grow, which is an important milestone during slowing inflation. The emphasis on value for money is evident and has become markedly more pronounced in recent times. This is helping to attract and retain customers, but doesn’t come cheap. Convincing customers to put a higher number of items in their trolley is therefore the aim of the game. There’s recently been a launch of summer menu items, which sounds good in theory, but the very poor weather could put a pin in that BBQ-flavoured balloon.”

Crest Nicholson shares surged higher on Friday after the housebuilder announced it had received a bod from rival Bellway.

Just a day after Crest Nicholson took an axe to its dividend and profit forecast, sending shares sharply lower, its peer Bellway has announced an approach to potentially acquire a struggling competitor amid a broad market downturn.

In a move to strengthen its position in the UK housing market, Bellway made a non-binding all-share offer to acquire Crest Nicholson in early May. As one would expect with such an opportunistic bid, Crest Nicholson’s board rejected the proposed deal, saying it significantly undervalues the group.

The offer valued each Crest Nicholson share at 253p, representing a 30% premium to the company’s share price when the offer was initially made.

Under the terms of the offer, Crest Nicholson shareholders would receive 0.093 Bellway shares for each share they hold in Crest Nicholson. Based on Bellway’s share price of 2,718p at the close of business on June 13, 2024, the offer also represents a 20.5% premium to Crest Nicholson’s 3-month volume-weighted average price.

Bellway’s board believes that a combination of the two companies would bring together the strengths of each business. Crest Nicholson’s board are not buying it and has rebuffed the approach. Bellway have until 11 July to make a formal bid. On the face of it, such a tie-up would make little sense for Crest Nicholson shareholders.

Tesco shares perked up on Friday after the supermarket reaffirmed it profit guidance for the year as the group continued to grow market share.

Shares rose over 1% on Friday as Tesco reiterated guidance of adjusted operating profit of £2.8bn for the year after group sales grew 4.5% in the 13 weeks ended 25 May 2024.

“Tesco has maintained its profit guidance in this morning’s trading statement as underlying UK sales for the supermarket rose by 4.6% in the first quarter,” said Mark Crouch, analyst at investment platform eToro.

“Despite higher inflation vexing the sector, Tesco has stood fast and knuckled down on quality and value. By utilising the Clubcard scheme and offering a wider range of food products, Tesco managed to increase their market share in 2024.”

The key for investors is top-line growth. It’s accepted that there is little that can be done with margins in the current environment, so the main source of earnings growth will be top-line expansion. In this respect, there is a lot to encourage investors in today’s update with the group using its loyalty scheme to fight off the threat of the discounters.

“Tesco has done exceptionally well to grow market share given rising competition. Its full-line offering sets it apart from the likes of Aldi, and its product proposition puts it ahead of other big names,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown

“Tesco’s enormous scale means it operates more like a utility in some respects – everyone needs to put dinner on the table and an increasing number of customers are buying that at a Tesco. That helps underpin a reasonably generous dividend yield, too. Moving forwards, investors will want to see further growth kicked out from wholesaler Booker – as well as a clearer understanding on what the next chapter looks like for food.”

 Tesco will report interim results on Thursday 3 October 2024.

Are the shares of the £71m capitalised data transfer company Cirata (LON:CRTA) being chased by investors far above their real value?

In the last six weeks alone, they have risen almost 120% from 38p to a High of 85p – a performance that confounded many market observers who have looked at how the Sheffield-based company is progressing.

The company, which used to be known as WANdisco, is classed as a very high risk/reward play on the growth of data migration to the cloud and the ability of new management to scale its technology and pivot from firefighting to growth.

The shares have since eased back to 62p.

The Business

Cirata, accelerates data-driven revenue growth by automating data transfer and integration to modern cloud analytics and AI platforms without downtime or disruption.

With Cirata, data leaders can leverage the power of AI and analytics across their entire enterprise data estate to freely choose analytics technologies, avoid vendor, platform, or cloud lock-in while making AI and analytics faster, cheaper, and more flexible.

Cirata’s portfolio of products and technology solutions make strategic adoption of modern data analytics efficient and automated.

Core use cases include cloud analytics and AI activation, data modernisation, disaster recovery, and Hybrid cloud data architectures.

Impressive Client List

The company claims that its solutions are trusted by hundreds of global brands and industry leaders such as Allianz, AMD, Apple, Daimler, Envest | Yodlee, GoDaddy, HM Health Solutions, Juniper Networks, KOBIC, Manulife, NatWest and Sanlam, The University of Sheffield,

Analyst’s View

At Liberum Capital, its analysts Andrew Ripper and Caspar Erskine initiated the broker’s research coverage on the company in mid-April this year, rating the shares as a Buy at 43.5p, looking for 80p as their Price Objective, so that has already been left behind.

They noted that the company has a credible new management team that is pivoting from firefighting to a growth-orientated agenda.

Data is increasing fast and Cirata’s proprietary technology helps clients to migrate it to the cloud at scale.

The group has a growing pipeline and should deliver sequential acceleration of bookings and revenue over FY24-26E, post the Q1 low.

Their estimates for the current year to end December look for a 43% increase in sales to £10.0m (£7.0m) while pre-tax losses could more than halve to a £13.8m (£29.0m loss).

For 2025 they see £20.0m of sales helping to cut losses to £5.1m.

However, the brokers are going for £30.0m of sales in 2026 and breaking into £2.9m of profits, worth 0.02p per share in earnings.

Update Soon

The group should be announcing its Q2 Trading Update next month, with its Interims due in September.

Caution Advised

Very prudently the analysts comment that Cirata, is only suitable for investors with a very high-risk tolerance and there is uncertainty regarding whether it can scale quickly enough to become self-financing before running out of road.

The shares, which are now back to 62p, could so easily swing lower on profit-taking or rise phoenix-like back up to the 85p level again.

The FTSE 100 retreated on Thursday after the Federal Reserve kept interest rates on hold overnight and gave little away in terms of when interest rates may be cut.

London’s leading index burst higher yesterday after US CPI came in slightly lower than expected. However, a fairly benign instalment from the Federal Reserve yesterday evening did little to keep the FTSE 100’s run going and focus shifted back to domestic issues on Thursday.

“Fed chair Jerome Powell didn’t give a huge amount away, although it felt telling that he was fairly cautious about the cooler than expected inflation figures from earlier in the day. The central bank is clear that it wants further signs inflation is on the path to the magic 2% level before it is prepared to start cutting rates. One major sticking point being the continued tight labour market conditions,” said AJ Bell’s Russ Mould.

“The FTSE 100 was held back by weakness in the housebuilding sector although specialist engineering firm Halma was in demand as it delivered yet another record set of results. The company’s focus on niche areas and providing technology-enabled health, safety and environmental solutions proved to be a winning formula yet again.”

Housebuilders are approaching a fascinating juncture. Both the Tories and Labour have promised to boost housebuilding in the new parliament, yet higher interest rates are curtailing underlying activity, with affordability biting as more people end fixed-term mortgage terms and move on to higher rates.

However, the decline in housebuilders on Thursday was a result of a Crest Nicholson profit warning, which sent shares down over 10%. The builder said it was experiencing slowing demand and slashed its dividend and profit outlook.

Persimmon dropped 2% while Taylor Wimpey dipped 1.84% in sympathy.

Halma was the standout performer after releasing record-breaking profits and revenue for the full-year period.

“Halma’s attraction is simple. It’s a mash-up of businesses working to provide technology solutions in the safety, health, and environmental markets,” said Matt Britzman, equity analyst, Hargreaves Lansdown.

“These may not be the most exciting businesses, but Halma’s clear purpose and quality of execution mean performance is impressive. Revenue passed the £2bn mark for the first time in Halma’s history, and improving margins meant profits had an even bigger uplift, coming in ahead of expectations too.”

Halma shares were 11% higher at the time of writing.

Today’s AGM Trading Update from the Christie Group (LON:CTG) was really quite positive.

On 9^th April I featured the company suggesting that the group’s shares were ready to reflect the recovery that was underway.

The shares were then 92.5p and I reckoned that they could be a very interesting Recovery Stock, with aims of trading well in the 90p to 130p range.

The AGM Update

The company, which is a leading provider of Professional & Financial Services and Stock & Inventory Systems & Services to the hospitality, leisure, healthcare, medical, childcare & education and retail sectors, updated on its the current year trading in its first five months to end May.

The business continued to see a more positive trading environment for its transactional brokerage business compared to that experienced in the first half of 2023, and that was reflected in an improved year-on-year performance for the period.

Management Comment

CEO Dan Prickett stated that:

“The Board maintains its expectation for the Group’s improved performance in 2024, with PFS revenues once again expected to be weighted toward the second-half.”

Analyst View

Research analyst Rob Sanders at the House Broker, Shore Capital Markets, now has estimates out for the current year to end December to lift revenues to £75.8m (£65.9m) while the company stages a total recovery from last year’s adjusted pre-tax loss of £1.6m to a profit of £1.6m.

That should generate earnings of 4.6p (4.2p loss), while helping to increase its dividend from a totally uncovered 1.0p in 2023 to 1.5p this year.

He sees £81.4m revenues in 2025, with almost double profits of £3.1m, earnings of 9.2p and a double dividend to 3.0p per share.

My View

The shares today have reflected the good news with a near 6% rise to 121.68p.

So that has shown a healthy 31.5% uplift since 9^th April.

It would be sensible to anticipate some profit-taking on the positive news.

However, I do note that Sanders is estimating £5.6m profits and 16.4p earnings, with a 5.5p dividend per share for the 2026 year – which infers that the shares have even further to climb, so it may prove wise for medium-term investors to buy on any dips.

Tekcapital shares were ticking steadily higher on Thursday after two of the intellectual property group’s portfolio companies, MicroSalt and Innovative Eyewear, announced strategic developments.

Innovative Eyewear has ensured Samsung users now have the same seamless experience as Apple users when using its ChatGPT-enabled smart eyewear with the launch of a Bixby app. The new app will provide Samsung users with full handsfree voice functionality and interactivity.

Samsung users will no longer have to take their phones out of their pockets to access ChatGPT and other tools —a feature Innovative Eyewear’s Apple users have enjoyed since the service’s launch.

“After a year of rigorous development from our launch of handsfree ChatGPT access on iOS devices, we are extremely pleased to now offer this feature for one of the largest groups of smartphone users, those with Samsung phones,” said Harrison Gross, CEO of Innovative Eyewear.

“This is an important milestone in our mission to make smart eyewear accessible, enjoyable and useful for all. With our new Bixby app, Samsung users can enjoy more convenient access to numerous types of information, and experience the world’s most powerful AI simply and quickly on Lucyd eyewear.

“We are also excited about the potential of using our glasses in tandem with Samsung’s forthcoming smart ring to deliver health and exercise data through our eyewear. This could allow customers to learn about their health status and exercise metrics without having to look at a phone or smartwatch.”

The smart eyewear market is forecast to grow to $33bn by 2030 representing a substantial growth opportunity for Innovative Eyewear who can now provide hands free functionality for users of the world’s top-two mobile phone brands.

MicroSalt

After a storming start to life as a London-listed company, MicroSalt has released a series of commercial updates and has today announced a fresh partnership with e-commerce platform, Thrive Market.

Thrive Market, a membership-based natural and organic food retailer, provides its 1.2m members access to more than 6,900 products from over 800 brands.

Rick Guiney, CEO of MicroSalt, said: “We are extremely excited about the placement of our SaltMe! low sodium crisps on Thrive Market.  Thrive Market is an extremely well-regarded and national e-commerce platform offering natural and organic food products to their members. With over 1.2 million members, they speak directly to consumer looking for healthier snack options. This new placement across three new United Natural Food Distribution Centres allows us the opportunity for additional retail distribution and new account placements.”

In April, MicroSalt announced placement of its low-sodium salt into the food service sector through a partnership with Carma Hospitality Group.

Tekcapital shares were 1.2% higher at the time of writing.