hVIVO is going from strength to strength, as demonstrated by today’s trading update. Here’s the investment case for 2024.

In the hit 2015 film ‘the Martian,’ astronaut Mark Watney (Matt Damon) is SPOILER accidentally left stranded on the surface of MARS where he must survive until his crewmates, alongside scientists on Earth, engineer an escape plan.

Similarly, there’s probably at least one hVIVO investor who bought at the top of the market (38.5p) during the pandemic madness of mid-April 2021, having been encouraged by the rocket from 5p during a time of ultraloose monetary policy and meme hysteria.

This investor — who saw the share price fall from this giddy high to less than 10p by late 2022 — has now watched the stock return to 28.5p today. They may feel a little like Watney waiting for the rescue mission; dozens of small cap companies saw record highs during the pandemic era, and only a handful have managed to recapture those highs. Indeed, the AIM market has almost halved in value since August 2021.

But will hVIVO charge to new all-time highs in 2024?

Let’s dive in.

hVIVO explained

Where other small cap biotechs are concerned with highly risky clinical trials of a single flagship treatment — where success makes millionaires and failure means corporate bankruptcy — hVIVO is better thought of a growth stock within the pharmaceutical company.

The business is now an industry leader in full-service viral challenge studies — or in technical terms, it’s a growth-stage specialist contract research organisation (CRO) which acts as a world leader in testing infectious and respiratory disease vaccines and therapeutics using human challenge clinical trials.

No, I wouldn’t want to have to repeat that when handing over my business card either.

The company’s client base includes several of the largest biopharma companies in the world, with the services business including a portfolio of >10 human challenge models to help test an expansive range of clinical trial products.

It also offers agent manufacturing, drug development, and clinical consultancy services through its Venn Life Sciences brand. Then there’s the lab offering via its hLAB brand, which includes immunology biomarker, virology, and molecular testing.

The key business offering is the human challenge studies — where volunteers are intentionally exposed to disease for research. Subjects are recruited through the Flu Camp advertising campaign, with tests run from labs in London.

There is an ethical investing decision to be made here. While human challenge subjects are well paid (up to £4,400 for two weeks), there is always the outside risk of serious, lasting side effects — and a detractor could argue that many volunteers feel financially pressured to participate. However, human challenge studies are essential to medical advances, and almost every company has ethical trade-offs.

From a pure investing standpoint, hVIVO can be best thought of as the ‘picks and shovels’ stock for the biotech age. Companies arriving at the middling stage of clinical trials will need somewhere to run challenge studies, and investors can benefit from exposure to this demand rather than taking the high risk of directly investing in the trial results themselves.

Clearly this approach is resonating with the market — despite the volatility, HVO shares are up by 371% over the past five years.

H1 2023 progress

Results to 30 June 2023 evidenced strong progress. H1 revenue rose by 52% year-over-year to £27.3 million, while EBITDA more than doubled to £5.2 million. Meanwhile, EBITDA margin increased sharply to a healthy 19.1%.

The company ended the period with £31.3 million in net cash — a rare and happy place to be as a small cap — with a weighted contracted orderbook of £78 million.

In terms of operations, the development of a Human Metapneumovirus (hMPV) challenge model was already underway, supported by an end-to-end human challenge service contract with a North American biopharmaceutical company. Then there was the completion of the manufacturing process for Influenza H1N1 and Omicron human challenge viruses to consider.

The Asia-Pacific (APAC) region has been identified as a key long-term growth area — with HVO signing the first challenge trial contract with an APAC client in over a decade. Additionally Venn Life Sciences secured a substantial €3.2 million contract with a major pharmaceutical client.

The value proposition for hVIVO’s human challenge trials was further strengthened by positive outcomes for clients — notable successes included Pfizer’s ABRYSV obtaining FDA approval for RSV vaccines, Cidara’s influenza antiviral candidate receiving FDA Fast Track designation, and SAB Biotherapeutics securing FDA Breakthrough and Fast Track designations for its influenza antiviral candidate in 2023.

And post-period end, the company announced that clients were funding a new ‘state-of-the-art facility,’ mostly funded by hVIVO clients and due to open in this half. Further, its Flu B challenge model was under development, funded by a £13.1 million bespoke manufacturing and characterisation contract with existing top five global pharmaceutical client.

A savvy investor might wonder why clients would fork out to build the facility when HVO has significant cash on hand — however the 2022 Annual Report shows that the company also has circa £31 million of liabilities (matching its cash position at 30 June 2023). However, the very fact that its clients were prepared to help out with the expense suggests a high level of confidence in the company and business model.

Recent updates

On 5 October 2023, hVIVO reported that client Pneumagen reported successful clinical proof of concept for its broad-spectrum antiviral candidate Neumifil, demonstrated from a Phase 2a influenza human challenge study conducted by hVIVO.

The trial was comprised of 104 adult volunteers recruited through Flu Camp, and the client now plans further clinical studies — undoubtedly with HVO as its partner. CSO Andrew Catchnpole noted that ‘this is another example of the value of human challenge trials in delivering clinical efficacy data and de-risking later clinical development.’

On 13 December 2023, the company reported that it had signed a £16.8 million full service contract with an existing ‘top five global pharmaceutical client’ to test its RSV antiviral drug candidate using the hVIVO RSV Human Challenge Study Model. Most of the revenue will be recognised in 2024, with the Phase 2A trial to start in H2 2024. The study is planned to take place at the new state-of-the-art facility in Canary Wharf, which remains on track to be operational shortly.

Additionally (and perhaps not surprising given this news), the business announced that trading remained strong, with revenue ‘slightly ahead of previous market expectations.’ In addition, EBITDA margins were expected to exceed 20% for FY23.

CEO Yamin Khan enthused that ‘this contract is another example of the end-to-end full service offering that hVIVO has already successfully provided to several clients. We are also delighted with the Company’s strong operational performance in 2023.’

Then on 2 January, the business signed a £6.3 million contract with a biotech client to test its antiviral candidate using the hVIVO Human Rhinovirus Human Challenge Study Model. The study is also expected to commence in H2 2024, with the revenue recognised in 2024 and 2025. Catchpole noted that ‘with our new state-of-the-art facility, we are able to conduct significantly more multi-cohort challenge trials concurrently, providing quick efficacy data to accelerate drug development.’

Today’s trading update

All this good news was compounded by this morning’s trading update for FY23: revenue increased by 15.5% year-over-year to a record £56 million — driven by the continued strong delivery of human challenge trials and consulting services.

HVIVO’s growing operational team also delivered its highest number of inoculations to date, driving further revenues and improved margins. In addition, the company also brought in R&D tax credits of £2.6 million.

Even more encouragingly, EBITDA margins came in ahead of expectations at 22% and the cash position increased to £37 million.

Where next for hVIVO shares?

It’s worth noting that hVIVO is the only UK provider of full-service human challenge services across the entire value chain. It now boasts a weighted contracted order book of some £80 million.

The company gave revenue guidance of £62 million for 2024 — and an annual dividend expected to start being paid out this year. For context, it paid a one-off special dividend of £3 million in 2023.

The company is entering its ‘its strongest ever position with 90% of 2024 revenue guidance already contracted, and record revenue visibility into 2025. The Board is confident that the Group’s consistent year-on-year growth of revenue, orderbook, sales pipeline, and contract values are a strong indicator of the long-term health and growth potential of the human challenge trial market.’

Medium-term, HVO plans to grow group revenue to £100m by 2028, with the majority of this to be achieved through sustained organic growth complemented by small, strategic bolt on acquisitions. And as it has no debt, the company is strategically well placed to pursue both organic and inorganic growth.

Khan enthuses that ‘in 2023, hVIVO demonstrated strong financial and operational performance, delivering record-breaking results across all key parameters…the infectious disease market has witnessed increased interest from both commercial and non-profit entities, as well as a notable uptick in M&A activity. A significant highlight of the year was the market authorisation of the first-ever vaccine incorporating human challenge trial data as part of its submission package.’

Is Khan signalling a buyout offer in the near future? This would not be surprising. It’s growing fast, has a massive economic moat, and has proven its value to some of the largest pharmaceutical titans in the world.

An investor presentation will be made at 6pm today, and hVIVO will also be presenting at UK Investor Magazine’s conference on 13 March.

This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.

Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

All eyes will be on the United States and the technology sector today as behemoths Microsoft and Alphabet report earnings after the bell as big tech earnings season kicks off in earnest.

The FTSE 100 was 0.48% higher as general optimism helped lift sentiment across Europe. Tonight will be a big test of the rally over the past week, and investors will be on the edge of their seats as Microsoft and Alphabet earnings come in.

“The next two days will test investor sentiment thanks to the publication of financial results from two of the biggest names on the global stock market and the Federal Reserve’s next interest rate decision,” said Russ Mould, investment director at AJ Bell.

“Microsoft and Alphabet release numbers after the US market close tonight and investors will be hoping for some stellar results to help sustain positive momentum among equities. The S&P 500 and Nasdaq have been on a roll since early January and a successful showing from these two tech giants could easily keep the market rally going. However, positive results are not a given, and multiple stocks in the so-called Magnificent Seven group of mega-cap tech names have shown cracks in recent months.”

The S&P 500 has broken to all-time highs on several occasions this year, while the FTSE 100 has remained range-bound.

Investors will have one eye on tomorrow’s Federal Reserve interest rate decision in anticipation of any hints on where rates are going in H2 2024.

Diageo

Diageo was the FTSE 100’s top faller on Tuesday after the drinks company provided further insight into weakness in the Latin American and Caribbean region, where sales fell in the first half and are expected to fall further in the second half.

Diageo was down 3.2% at the time of writing.

“Persistent problems with too much inventory in Latin America have prolonged the hangover for Diageo. So much for the idea this was a short-lived issue,” Russ Mould said.

“Drinkers in Brazil have been switching from spirits to beer, which is traditionally a much lower margin product for the manufacturer. Furthermore, sales through the cash and carry channel have been weaker which has put Diageo in a difficult position. Distributors and retailers are sitting on too much unsold stock which has a negative knock-on effect for future orders from Diageo until that overhang works its way through the system.

“Perhaps drinks cabinets at home were well-stocked during the pandemic and people still have plenty of spirits left over, so there is no need to keep buying more for a while?”

3i Group was the FTSE 100’s top riser after receiving an upgrade from equity analyst at Barclays.

Diageo shares dipped on Tuesday after the drinks giant confirmed disappointing sales in the Latin American and Caribbean region, culminating in overall group revenue declining 1.4% in the first half.

Diageo signalled slower sales in a recent trading update, so today’s news wouldn’t have surprised investors expecting downbeat half-year results.

In addition to slower sales in  Latin America and the Caribbean (LAC), North American sales fell 1.5%, although Diageo said sales in the region have since bounced back. Asia Pacific, Africa and Europe were the bright spots for the company.

Diageo shares were down 3.8% at the time of writing on Tuesday but are still higher than the worst levels since the group first announced slowing LAC sales in November.

“Diageo shareholders will not be raising a glass to the company’s update this morning. The world’s top spirits maker missed first half sales estimates due to a sharp decline in Latin America which weighed heavily on the group results,” said Mark Crouch, analyst at investment platform eToro.

“A concoction of persistent economic pressures and supply chain disruptions will feel like a lingering hangover for the company and their investors, with a profit warning in November capping off a miserable year which saw the share price fall over 20%.”

Diageo expects further weakness in LAC in the second half, dragging on overall group profitability. However, this may prove to be a low point, with analysts suggesting the medium-term may be more favourable for the company.

“The profit outlook remains murky for the second half, with markets now forecasting a small decline in operating profit. The medium-term looks slightly brighter, but improvements in the Latin American and Caribbean market will be key to future margin expansion, and to a large extent, that’s outside of Diageo’s control,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.

hVIVO shares surged on Tuesday after the group announced strong revenue growth, an upbeat outlook, and regular dividends starting this year.

hVIVO, a leader in viral human challenge trials, expects strong revenue growth for 2023 as demand for its specialised studies continues to grow.

The company said its full-year revenue likely reached £56 million, up 15.5% from £48.5 million in 2022. EBITDA margins also expanded to around 22% thanks to higher facility utilisation and efficiency gains.

hVIVO shares were over 7% at the time of writing as investors digested an exemplary trading update.

hVIVO conducts trials where volunteers are intentionally exposed to viruses in controlled settings to test new antiviral products. The highly cash-generative company saw its cash balance hit £37 million at year-end.

Buoyed by new contract wins, hVIVO’s order book swelled to a record £80 million. Investors will be pleased to learn the firm also has strong visibility into 2025. This underpins its 2024 guidance for £62 million in revenue.

hVIVO is moving to a new state-of-the-art facility in Canary Wharf this year to meet rising demand.

Having paid a one-off £3m special dividend in 2023, the company plans to pay an inaugural ordinary dividend in 2024 as it targets £100 million in annual revenue by 2028.

“In 2023, hVIVO demonstrated strong financial and operational performance, delivering record-breaking results across all key parameters. The sustained success of the Group, coupled with a growing orderbook, reinforces the resilience of our business model and reaffirms the stability of the market,” said Dr Yamin ‘Mo’ Khan, Chief Executive Officer of hVIVO.

“The infectious disease market has witnessed increased interest from both commercial and non-profit entities, as well as a notable uptick in M&A activity. A significant highlight of the year was the market authorisation of the first-ever vaccine incorporating human challenge trial data as part of its submission package.”

1Spatial, the UK-based geospatial software company specialising in location data management, announced a fresh contract win on Tuesday.

A major Belgian electricity and gas utility has signed a three-year contract with 1Spatial to enhance the quality and accuracy of its network data.

1Spatial shares were 1.2% higher at the time of writing.

The €9 million deal will see 1Spatial deploy its location data management software and geospatial services to help the Belgian company build a digital twin of its distribution network.

1Spatial said its technology will enable the utility to more efficiently manage its grid, conduct repairs and connect new customers while ensuring safety. The company’s software validates and improves the quality of geospatial data.

Of the total contract value, 1Spatial will deliver €4.1 million itself, including €0.3 million in software licensing revenue. It will utilise partners to provide €4.9 million of services over the three years.

1Spatial CEO, Claire Milverton, commented on the contract award: 

“This is a great competitive win for 1Spatial, further expanding our presence in Europe. Our new customer will use our unique technology and solutions to produce and improve the quality and accuracy of its geospatial data. This contract win adds to our growing ARR revenues and demonstrates the credentials of our enterprise offering and with the potential for expansion, we are excited to be working with this leading-edge operator.”

The products, the management, the growth strategy, and the valuation — the distilled investment case for the busy investor.

MicroSalt — perhaps Tekcapital’s most promising portfolio company — is launching its IPO on 1 February 2024. Despite the delays, 2024 appears to be a little more welcoming to new companies than in 2023, especially given general expectations that inflation will continue to subside and interest rates will start to fall in the second half of the year.

While the entire business case is available within the Admission Document, this article has been written to capture the key details for investors new and old, as the company starts out on a life of its own.

Let’s dive in.

MicroSalt IPO: start with the product

When reviewing a ‘new tech’ company, it’s important to start with the product on offer. For example, Ondo InsurTech has its LeakBot and Abingdon Health its saliva-based pregnancy test — but perhaps the best comparator for MicroSalt is OptBiotix’s ‘SweetBiotix,’ a patented zero-calorie sugar alternative made from prebiotic fibres.

The company rocketed one day In July — as the business case for a product that could help partially solve the western obesity crisis took hold of investor hearts.

Of course, the sugar crisis has a twin: the salt crisis. The UK government’s salt reduction targets for 2024 were set out in 2020 and there is a significant way to go if these are to be met. In particular, the government warned that ‘businesses are expected to work towards achieving the 2024 salt reduction targets. Retailers and manufacturers should ensure their products meet…targets.’

If you don’t know about the salt overconsumption crisis, you have been living under a rock. Heart disease is responsible for one third of deaths globally, representing one death every 1.7 seconds.

Cardiovascular disease costs the UK £19 billion every year — and if the average salt intake was reduced by one gram each day, the data shows this would save £288 million a year and thousands of lives. There is a proven link between excess sodium intake and CVD, and the World Health Organisation (WHO) has stated that reducing sodium intake is one of the cheapest ways to improve public health — indeed, it wants sodium consumption to drop by 30%.

For context, the global sodium reduction market was estimated to be worth roughly $5.5 billion in 2021 and is expected to grow to $9.6 billion by 2032 — at a CAGR of 5.8%. And despite a huge variety of sodium-reduced alternatives to traditional salt already on the market, none have succeeded in establishing a dominant market position.

There’s one simple reason why — they all taste awful.

Chefs and customers add salt to almost everything because it improves the flavour of almost any savoury food you can imagine. And as most salt alternatives taste vile, they will never take off. More specifically, they have a bad aftertaste — as they contain potassium chloride which exudes a post-flavour akin to swallowing a bottle of Angostura.

MicroSalt’s ‘Crystal’ salt alternative contains only sodium chloride and non-GMO maltodextrin, so arguably actually tastes much closer to salt than competitors. It contains 50% less sodium than traditional salt —using a patent protected and scalable manufacturing process that produces a salt crystal 100x smaller than traditional salt. This means improved adhesion to food and faster dissolving on the tongue, achieving that distinct salty taste but with half the sodium.

The primary IP is a patent in the US which expires in September 2030 — though 30 more are pending globally. The patent covers both the manufacturing process and the product itself, creating a double-walled legal moat that would be difficult to penetrate. Usually, patents cover one or the other, and the company also has several trademarks in place across western markets to protect its brand identity.

Quality management

Of course, many promising products face an early death without competent management at the helm. Happily, MicroSalt is awash with managerial talent; CEO Rick Guiney has led the company since late 2021 and has a 35 year work history including stints at Anheuser-Busch and Quorn Foods, alongside 28 years as CEO and founder of the now well-known US-based Classic Snacks.

CFO Konrad Dabrowski is a chartered accountant who spent 5 years with Deloitte US — the chap was the global accounting manager for Restaurants Brands International, working alongside businesses such as Burger King, Tim Hortons and Popeyes.

Then there’s Non-Executive Chair Judith Batchelar, with over 35 years of experience in the UK food industry, including as a director of Sainsbury’s and Safeway, alongside additional roles at Marks & Spencer.

In addition to the experience, the management team have the equally valuable industry contacts needed to see further expansion.

Customers and growth

As is typical, the company has two main sales channels: business to business (B2B) and business to consumer (B2C). At present, the focus is firmly on larger volume B2B opportunities with multinational FMCG companies. For context, many opportunities are now through the standard R&D, production testing, and consumer testing processes.

In B2B:

The company has received purchase orders from two Tier-1 customers (A and B). Proof of concept has been demonstrated through the SaltMe! crisp consumer brands and crystal saltshakers which are currently on sale at over 1,000 shops across the US, and also on Amazon.

It’s worth noting that the company’s low sodium salt can also be used in various products including nuts, tortillas, popcorn, bread, cereals, and energy bars. And it has working relationships with three manufacturing facilities capable of producing up to 5,444 tpa, meaning that expansion should be relatively smooth.

MicroSalt has five key B2B clients at present. Customer A is a Fortune 500 pharmacy/food retailer, which has agreed to substitute the salt within four of its nut SKUs with MicroSalt’s alternative, across 800 shops initially. And it’s already started stocking the crisps and shakers — management expect these products to be rolled out across the company’s 9,000-strong estate in 2024. This leaves the question — who is this mystery customer?

Given that it has ‘more than’ 9,000 shops, then it’s most likely CVS as Walgreens trails behind at less than 9,000 at present. A further clue came on 19 October 2023, when MicroSalt secured distribution of the crisps into Long Drugs shops, the leading pharmacy chain in Hawaii. Long Drugs was acquired by CVS in 2008 — and the major has form in trialling new products outside of its own branded chains before moving them into mainstream stores.

Customers B and C are sperate entities but are part of the same group. Customer B has made an initial 9.5Mt purchase order, after global approved vendor status was achieved in November 2022. Further line additions and geographical expansion is expected.

Customer D is expected to make an initial purchase order in mid-2024 — and this is a future catalyst to watch as this major customer is expected to release a statement at this time citing MicroSalt solutions as a ‘key pillar’ in their low sodium strategy.

Customer E is in the early planning stages, but orders are expected in April 2024. Beyond these five, there are ‘active discussions with several prestigious FMCG and food producers in both the UK and US.’

In B2C:

As mentioned above, the company has two consumer products: SaltMe! crisps and the low sodium saltshakers. It has partnerships with major distributors including United Natural Foods and KeHE — and an agreement to provide a low sodium solution to US Salt LLC.

The shaker was launched on Amazon US in October 2022 in 2oz and 6oz sizes and are now sold in 440 shops across various retailers — including Hannaford Bros in parts of the US. They’re also now available on Amazon UK. The crisp offering is sold in four different flavours, with 113,000 bags having been purchased on Amazon US since November 2020.

It’s worth re-stressing that while the consumer side is important, the focus is squarely on B2B as the growth opportunity.

Finances and valuation

The company generated $300,000 of revenue in H1 2023, and while there was a significant loss of $2.5 million in FY22, this reflects the capital expenditure required to scale up the business. This is completely normal and is reflected in the valuation given in the Schedule One document.

MicroSalt expects to raise £3.1 million in primary proceeds during the IPO — giving the company an anticipated market capitalisation of £18.5 million on admission. At this point, 78.4% of shares would be held by Tekcapital (parent), inferring its stake would be worth in the region of £14m compared to a current Tekcapital market cap of £13 million. Tekcapital has three other portfolio companies.

It’s worth noting that TEK valued MicroSalt at £14 million in its interim results midway through 2023, so this latest figure may be slightly optimistic. However, there has been substantial recent progress — and given that TEK itself is only valued at circa £13 million, this one IPO could well be worth more than the parent’s entire market capitalisation.

Investors can make of that what they will, though of course, this is not financial or investing advice.

The bottom line

MicroSalt is an excellent IPO opportunity with a strong management team and carefully planned growth strategy. When details of its major B2B customers are made public, the company will hit the public investing consciousness fast.

As usual, there are risks — but the rewards on offer are correspondingly promising.

This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.

Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

The FTSE 100 was marginally higher on Monday ahead of a busy week of economic data, an interest rate decision and corporate updates in the US.

London’s leading index has been largely detached from a strong rally in US stocks so far this year but that could all change this week with a raft of globally significant events.

Microsoft, Google-owner Alphabet, Meta, and Amazon will all report this week. These are the largest companies in the world with the potential to set the tone, not only for US equities but for broad global indices.

In addition, the Fed’s highly anticipated interest rate decision and accompanying commentary will be released on Wednesday, providing 2024’s first official insight into the thinking of the world’s largest economy’s central bank on the trajectory of interest rates. Some market participants expect a dovish pivot that could fire up equity bulls.

On Friday, US Non-Farm Payrolls are expected to reveal the US economy added 180,000 jobs in the last month. A significant deviation from the consensus number will either confirm what the Fed says on Wednesday or throw it up in the air entirely.

With a packed schedule of major events in the week ahead, the FTSE 100 was pretty muted on Monday and was up just 1 point at the time of writing at 7,636.

Oil majors BP and Shell helped offset weakness in housebuilders, banks and consumer stocks. Fresh escalation in the Middle East supported oil prices and raised questions about inflation in the coming months.

“Continued attacks on vessels in the Red Sea are also making traders more skittish, with another fuel tanker targeted. Amid the escalating violence, oil prices have reached three-month highs as supply concerns rear up,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“Brent crude has risen above $83 a barrel, which have helped energy giants, Shell and BP make large strides in early trade.”

Fresnillo was the FTSE 100’s top gainer amid strength in precious metals prices.

This week could be pivotal for UK stocks and set the tone for the rest of Q1.

Despite the ongoing geopolitical and economic concerns, AJ Bell’s Russ Mould highlighted a general positivity among analysts rating FTSE 100 companies in early 2024.

“As we enter 2024, 59% of all analysts’ recommendations are buys and just 8% are sells for constituents of the FTSE 100, the highest and lowest scores over the past ten years, respectively. For the FTSE 350 index 62% of all recommendations are positive ratings and just 7% negative ones, again the highest and lowest percentages since 2015,” said AJ Bell investment director Russ Mould.

BP and Shell’s shares were firmly higher on Monday after dramatic events in the Middle East over the weekend sent oil prices higher and took the FTSE 100 oil majors with them.

Three US servicemen were killed and many more injured in attacks by Iran-backed militia near the Syria/Jordan border. The US President has promised retaliatory measures in response.

BP rose 1.5%, and Shell gained 1.2% after Brent oil traded near $84 on Monday before falling back.

BP and Shell shares have struggled with falling oil prices in recent months, and the two companies trade significantly below 52-week highs.

Although today’s news may boost their share prices in the short term, the ongoing crisis in the Middle East may have implications for the demand story should inflation jump and interest rates remain elevated as a result.

“Oil prices advanced thanks to a renewed escalation in Middle East tensions, with a further attack on shipping in the Red Sea by Houthi rebels and three US soldiers killed in a drone attack on a US service base on the border of Jordan and Syria,” said AJ Bell investment director Russ Mould.

“Crude hitting its highest level since November feels ominous given it adds inflationary pressure at a time when borrowers and the markets are hoping to see interest rates cut. Geopolitical factors seem to be propping up oil at a time when the wider dynamics of supply and demand look less than favourable for the energy market.”