Late last night the molecular diagnostics company genedrive (LON:GDR) declared that it is seeking to raise over £6m of fresh funds, through a deeply-discounted issue of new shares at just 1.5p each.

The shares of the Manchester-based company, which serves the medical, biotechnology, and pharmaceutical industries in the UK, Europe, the U.S., and internationally, closed at 3.25p each.

The Fundraising

After-hours it announced its intention to raise that sum through a combination of a Firm Placing, a Conditional Placing, a proposed retail offer through the REX portal and by way of an Open Offer to existing shareholders.

However, the issue of the new shares to raise not less than £6m will be at a price discounted by over 57.1% to the 1.5p nominal ordinary share price.

The Firm Placing is for 11,173,994 new shares to raise £0.17m.

The Conditional Placing is for around 155,492,673 new shares, raising £2.3m.

The REX Offer is for up to 233,333,333 new shares for £3.5m.

The Open Offer, a 1 for 1 to existing holders, could raise £2.1m.

The Retail Capital Markets ‘REX’ portal, which is owned and operated by broker Peel Hunt, has confirmed that intermediaries AJ Bell, Hargreaves Lansdown and interactive investor will be participating in the REX Offer.

The Use Of Funds

The net proceeds of the Fundraising will be used, amongst other things, to underpin and grow the group’s operations and accelerate commercialisation throughout the UK, Europe and the Middle East.

It will also be used to fund clinical studies and regulatory submissions in the U.S. for the group’s MT-RNR1 ID kit (“AIHL test”), having recently contracted with a leading multi-state physician organisation in the U.S. to support clinical studies required for engagement with the U.S. Food and Drug Administration (“FDA”). 

The Business

Pharmacogenetics informs on how your individual genetics impact a medicines ability to work for you, so by using pharmacogenetics, medicine choices can be personalised, made safer and more effective. 

This helps clinicians to quickly access key genetic information that will aid them make the right choices over the right medicine or dosage to use for an effective treatment, particularly important in time-critical emergency care healthcare paradigms.

Operating out of its facilities in Manchester, the company has a clear commercial strategy focused on accelerating growth through maximising in-market sales, geographic and portfolio expansion and strategic M&A.

The testing company is developing and commercialising a low-cost, rapid, versatile and simple to use point-of-need pharmacogenetic platform for the diagnosis of genetic variants. 

The Flagship Products

The company has launched its two flagship products, the Genedrive® MT-RNR1 ID Kit and the Genedrive® CYP2C19 ID Kit, both developed and validated in collaboration with NHS partners and deployed on its point of care thermocycler platform.  

Both tests are single-use disposable cartridges which are ambient temperature stable, circumventing the requirement for cold chain logistics.

The tests have undergone review by the National Institute for Health and Care Clinical Excellence and have both been recommended for use in the UK NHS.

The Genedrive® MT-RNR1 ID Kit

The group’s Directors believe the Genedrive® MT-RNR1 ID Kit is ‘a worlds-first’ and allows clinicians to make a decision on antibiotic use in neonatal intensive care units within 26 minutes, ensuring vital care is delivered, avoiding adverse effects potentially otherwise encountered and with no negative impact on the patient care pathway.

The CYP2C19 ID Kit

Its CYP2C19 ID Kit, which has no comparably positioned competitor currently, allows clinicians to make a decision on the use of Clopidogrel in stroke patients in 70 minutes, ensuring that patients who are unlikely to benefit from or suffer adverse effects from Clopidogrel receive an alternative antiplatelet therapeutic in a timely manner, ultimately improving outcomes. 

Runway Just Seven Weeks To Go

The company has noted that should it receive the net proceeds from the Firm Placing but no proceeds from the Conditional Placing, the Rex Offer or the Open Offer, its cash runway will remain extremely limited, it will only have around seven weeks of working capital.

In that case the company would urgently need to seek further financing which may or may not be available at all or, if available, may be on commercially unacceptable terms and could lead to more substantial dilution for its shareholders than would be the case under the proposed Fundraising.

A rally in low-sodium food technology company MicroSalt this week has served as a reminder of the deep value in Tekcapital, the AIM-listed investment company that founded, grew, and listed MicroSalt in London earlier this year.

MicroSalt shares have gained around 20% over the past week and is currently valued in the region of £35m. Tekcapital’s 77% stake in MicroSalt is worth circa £26m – far more than Tekcapital’s current £15m market cap.

Given Tekcapital has three other portfolio companies valued at around £20m – based on current share prices and the latest NAV calculations by Tekcapital – shares in the technology investment company are substantially undervalued.

MicroSalt is Tekcapital largest, and, importantly, most liquid holding. Investors will be watching closely for any developments in portfolio company Guident’s valuation but this remains a private company and there are no immediate plans to realise value in the autonomous vehicle safety specialist.

There is the matter of Tekcapital’s 12 month lock-in period in MicroSalt shares. There is risk premium attached to the uncertainty of where MicroSalt shares will be next February and this is probably the only reason Tekcapital shares aren’t trading two or three times higher than where it is today.

Tekcapital isn’t able to sell any MicroSalt shares yet due to a 12-month lockup after the IPO. There is no suggestion they will rush to sell as the date passes in February 2024, but as the time draws closer, Tekcapital shares will become increasingly attractive as the lock-in period risk premium dimishes.

It’s simple maths supporting a simple arbitrage opportunity. Should MicroSalt shares hypothetically remain at the same value until February next year, investors could buy Tekcapital shares and gain exposure to a listed stock in MicroSalt at a substantial discount.

Tekcapital has a strategy to pay investors special dividends from investments when they are sold. With such a strong performance following its IPO, MicroSalt may well be the first company that enables Tekcapital to do this.

There is a risk that MicroSalt shares fall. But even if the MicroSalt share price halved, Tekcapital’s stake would be worth not too far off TEK’s current market cap. There are three other portfolio companies to consider as well.

Like many other UK small and midcaps, Tekcapital is the victim of chronic market-wide undervaluation due to macroeconomics. Higher interest rates are holding back cash that would otherwise find its way into exciting UK technology growth companies such as Tekcapital. This, however, could all be about to change if the Bank of England’s comments this week are anything to go by.

In addition to MicroSalt and the macro enviroment, there’s Guident to consider. The autonomous vehicle safety company is a pioneer in safety solutions, which now span autonomous shuttles, surveillance robots, and buses. The applications and commercial opportunities are growing month by month.

Demonstrating the calibre of Guident’s partners, Auve Tech, the developer of the MiCa autonomous shuttle, has exported a fleet of autonomous shuttles to Softbank company Boldy in Japan. Guident is helping Auve Tech launch into the US market.

Guident has also received a grant from Space Florida to develop low-orbit satellite technology. The company is breaking new ground and laying the foundations for substantial revenue growth in the years to come.

Guident by itself is likely worth more than Tekcapital’s current market.

It is likely only a matter of time until the market wakes up to the potential locked away in Tekcapital shares.

The FTSE 100 spiked higher on Thursday after the Bank of England kept rates on hold at 5.25%, but signalled rate cuts are on the horizon.

London’s leading index touched fresh intraday record highs after the BoE said higher rates were helping to bring inflation down and ‘progress was encouraging’.

UK 10-year Gilt yields fell in the immediate reaction, and GBP/USD slid to 1.2463.

The weaker pound and hopes of near-term rate cuts helped the FTSE 100 reach 8,394 before falling back.

The nine-member voting committee voted 7-2 in favour of keeping rates on hold representing a division among members. It will be fascinating to see how many more join those voting for rate cuts at the next meeting.

“There’s been a shift in opinion around the table, with another member of the MPC, Dave Ramsden, voting for a rate cut, joining Swati Dhingra who has been vocal about the need for lower borrowing costs for some time,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

Inflation is still way above the Bank of England’s 2% target, and nobody expected a rate cut today. The focus was always going to be on the commentary around the decision, which was undoubtedly dovish.

The significant risk for the Bank of England is cutting rates when inflation is above their 2% target and inflation rising as a result of their actions. This could mean they are forced to raise rates again and risk sending shock waves through UK assets and the economy.

“The Bank is weighing the lesser of two evils: on one side of the scale higher mortgage rates and borrowing costs continue to put pressure on household finances; on the other side a cut to the interest rate, while positive for growth, likely decreases the value of the pound stimulating further inflationary pressure through rising import costs,” said James McManus, chief investment officer at Nutmeg.

The Monetary Policy Committee voted by a majority of 7-2 to maintain #BankRate at 5.25%. Find out more in our #MonetaryPolicyReport: https://t.co/2lnXthHbMt pic.twitter.com/HXZdRjxPnl

— Bank of England (@bankofengland) May 9, 2024

Equity investors were likely to take any signs of a rate cut well, and the FTSE 100 reacted accordingly. Fresh intraday highs were recorded in the rally, driven predominantly by overseas earners as the pound fell against the dollar.

Diageo, BP, Vodafone, GSK, and Unilever all notched up gains on the lower pound.

The housebuilders’ reaction after the sector rallied into today’s announcement was mixed. Persimmon was down 0.7%, and Taylor Wimpey gained 0.6%.

While the promise of lower rates is good for the sector, it can’t come soon enough for builders struggling with higher mortgage rates.

“A decision to hold the interest rate is no real surprise, but a disappointment nonetheless for borrowers hoping to see it slashed. Inflation, though dropping ever so slightly, is clearly still top of mind for the MPC, leading us all to await a first cut in either June or August,” said Joe Pepper, UK Chief Executive Officer, PEXA.

“It marks another blow for the housing market, which is seeing reduced activity as potential buyers await a reprieve in costs and remortgagers understandably wait for lower rates.”

BAE Systems gained 1.2% after maintaining full-year guidance, as higher defence budgets bolstered the defence group’s sales.

HSBC was one the biggest fallers as the stock traded ex-dividend.

BAE Systems has provided investors with a very healthy trading statement confirming sales growth guidance and a growing order book.

The UK Investor Magazine very recently published an article describing how a number of trends were going in BAE’s favour.

Today’s trading update confirmed those trends. Sales are expected to grow 10-12% this year as an increase in global defence spending filters through to BAE’s order book. 

BAE Systems highlighted a number of standout orders, including a $318m package for M109 Self-Propelled Howitzer support and a $754m order for the production of Armored Multi-Purpose Vehicles.

Margins are forecast to be robust and operating profit is expected to grow to 11-13% in the full year as the company integrates recently acquired Ball Aerospace.

The company expects to generate £1.3bn in free cash flow in 2024.

“There were no big surprises from BAE Systems in today’s update. Defence spending remains high across the group’s sectors and key markets,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.

Chiekrie continued to explain global geopolitics were acting as a major tailwind for BAE.

“Many governments are even expected to continue raising their defence budgets amid escalating global tensions. The recent passing of an additional aid package from the US to Ukraine, and the commitment by the UK to grow its defence spend to 2.5% of GDP by 2030 should build further positive momentum for the group, as it looks set to capture a good chunk of this extra spending. The orders placed with BAE are typically long-cycle too, spread over several years, so it gives the group multi-year revenue visibility. An enviable asset to have in uncertain times.

“That’s led BAE to reaffirm all of its full-year guidance, which calls for sales and underlying operating profits to grow by 10-12% and 11-13% respectively. These growth figures are being boosted by the group’s acquisition of Ball Aerospace which closed back in February this year. The integration of the business is going well, with the newly renamed business, Space & Mission Systems, already securing a number of key contacts.”

Traders shifted their attention to the Bank of England’s interest rate decision on Wednesday, with a drop in GBP/USD providing another welcome boost to the FTSE 100, which again touched fresh intraday record highs.

UK equity investors must be pinching themselves. The FTSE 100, the UK’s flagship equity index, has notched up another gain and continued its outperformance versus the S&P 500 and other major equity indices.

The FTSE 100 was 0.2% higher at the time of writing after touching a fresh intraday record high of 8,364 earlier in the session.

“The FTSE 100 was up over 0.4% just short of 8,350 in early trading. Over the last month it’ s risen 5% strongly outperforming the US market. The S&P 500 is down 0.3% over the same period,” said Derren Nathan, head of equity research, Hargreaves Lansdown.

During much of 2023, the FTSE 100 was a real dog. Its exposure to China, lack of technology stocks, and general defensive nature meant it trailed well behind its US counterpart and much of Europe.

However, resurgent miners and improving sentiments around UK-centric sectors such as banks and housebuilders have helped the index outperform.

On Wednesday, a dovish tone swept over UK assets sending the pound lower against the dollar on hopes the Bank of England would provide a hint of rate cuts at its meeting tomorrow.

The FTSE 100 tends to have an inverse relationship with the pound, and weakness in sterling played into the strength of the FTSE 100 on Wednesday.

“The FTSE 100 continues to forge to new all-time highs with sterling weakness providing the index with a bit of a kicker,” said AJ Bell investment director Russ Mould.

“A fall in the domestic currency is typically helpful to the FTSE 100 because it boosts the relative value of its dominant overseas earnings.

“Currency traders are betting against the pound ahead of the Bank of England’s latest meeting tomorrow, amid a growing expectation it will cut rates earlier than counterparts at the US Federal Reserve.

“It’s extremely unlikely there will be any action tomorrow but the market will be watching the surrounding commentary for any clues on when the Bank of England might take the plunge on rates.”

As one would expect, the weaker pound led to gains in overseas earners such as HSBC, BAE Systems, GSK, and Unilever. The gains weren’t spectacular but were enough to offset weakness in mining stocks such as Antofagasta and Glencore.

BP continued to fall after releasing very average results yesterday, and oil prices slipped.

Easyjet and IAG were among the top gainers as oil prices declined on hopes of a ceasefire in Gaza. IAG shares were 3.2% higher at the time of writing.

Wetherspoons shares were higher on Wednesday as investors cheered a decent quarter of sales growth driven by a recovery in traditional ales including Abbot Ale, Ruddles Bitter and Doom Bar.

Sales for the 13 weeks to 28th April 2024 were 5.2% higher on a like-for-like basis and were 8.3% higher year-to-date.

“Wetherspoons seems to be moving in the right direction, following a difficult few years. Like-for-like sales are growing and profits are expected to come in towards the top end of expectations,” said Charlie Huggins, Fund Manager at Wealth Club.

“Wetherspoons is being helped by moderating inflation combined with a proposition that is clearly resonating with the consumer.

“Despite higher interest rates, consumers are still spending. However, they are becoming increasingly discerning. Wetherspoon’s commitment to low prices and doing the basics well are helping to keep punters loyal.”

Although sales came in at the top end of expectations, margin pressure will still be a concern for the group. Energy bills remain steady, but are lacking of any meaningful declines that would help boost the pub group’s profitability.

“Rising energy and labour costs are still a concern, and while the share price has performed valiantly since the 2022 lows, it is still languishing well below pre-pandemic levels,” Mark Crouch, analyst at investment platform eToro commented.

“The cost of a pint in a London Wetherspoons has more than doubled since 2019, and the company, who are famous for offering a cheaper pint over their rivals, are having to yield to inflationary pressures in order to defend their margins.”