Next shares gain as full-year profit guidance increased

UK Investor Magazine
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Next shares gain as full-year profit guidance increased

On Wednesday, Next shareholders cheered a brief, yet upbeat, trading statement from the retail bellwether after a solid quarter of sales growth driven by online activity.

Next shares rose 2% in early trade after reporting a 4% increase in full price sales for the third quarter compared to last year, beating guidance of 2% growth.

Strong performance in the most recent quarter gave the fashion retailer the confidence to increase its profit forecast by £10 million to £885 million for the full year.

Full price sales were up across both online and retail divisions in Q3 and year-to-date. However, performance varied week-to-week due to changing weather impacting shopping patterns and Next believes sales volatility reflects weather conditions rather than underlying consumer demand.

This is certainly an optimistic assertion, given the softer UK economic conditions creeping in in recent months. That said, Next has consistently surprised to the upside this year and seems immune to wider economic concerns.

The company raised its full year guidance for full price sales growth to 3.1% and pre-tax profit to £885 million, up from previous guidance of 2.6% sales growth and £875 million profit. Next also increased its earnings per share outlook based on higher projected profit.

Three AIM companies that will benefit from Network Rail spending

Andrew Hore
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Three AIM companies that will benefit from Network Rail spending

The Office of Rail and Road (ORR) has approved Network Rail’s five-year capital investment plan worth £43.1bn in total. The focus is on improving train performance for freight and passengers. This involves reducing cancellations and improving punctuality.
The plan covers the five years to the end of March 2029. There will be an additional £600m of spending on track, structures and earthworks taking the figure to £10.3bn. The ORR wants Network Rail to spend more on assets that are subject to changes in weather patterns. Decarbonisation is another area important to the ORR.
There are three parti...

FTSE 100 clings on to gains, BP drags after earnings miss

UK Investor Magazine
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FTSE 100 clings on to gains, BP drags after earnings miss

The FTSE 100 was clinging on to gains at the time of writing on Tuesday as a turbulent month of October drew to a close.

London’s leading index had started the session firmly in positive territory before US futures fell, taking European stocks with them.

Investors were digesting a raft of economic data on Tuesday, including weaker US manufacturing data and slower retail sales in Germany.

The ongoing human tragedy in the Middle East also continued to weigh on sentiment.

“We’re at the end of a difficult month for equity markets, shaken by conflict in the Middle East and a mixed set of corporate results. The FTSE 100 and Dax indices are on track to end the month down 4%. In the US, the S&P is looking at a 3% decline on the month. Investors will be hoping for an end-of-year rally to help repair portfolios,” said Russ Mould, investment director at AJ Bell.

Earnings season in the US and UK has been mixed to date, with many companies missing already conservative analyst estimates.

Mould highlighted a number of big losers in October, adding; “NatWest has had a shocker of a time with its share price down more than 23% in October. Rat-catcher Rentokil has shown that its business is not as defensive as one might have thought, with its shares down 30% on the month.”

BP was the latest casualty on Tuesday as shares slipped 4% after missing analyst earnings estimates. The oil major was suffering from lower gas trading activities, and falling oil prices piled further pressure on their refining business.

“The third quarter has been something of a mixed bag for oil & gas supermajor BP. But overall the strong cash flows is still enabling it to invest in new projects, make inroads into the debt position and make generous payouts to shareholders,” said Derren Nathan, head of equity research at Hargreaves Lansdown.

“Whilst the oil pricing outlook remains strong there are some headwinds blowing into the fourth quarter. The high oil price is favourable to the upstream operations but the profits it makes in its petrol station forecourts remain sensitive to the cost of supply. And in refining margins are expected to trend significantly lower. Production is expected to be flat, but with four major projects due to have been completed by the end of the year its building a solid foundation for the future and it has upped its longer-term profit guidance.

“Despite a strong run in the shares, the valuation remains well below the long-term average. The market has been disappointed by today’s results and concerns remain around the Group’s renewable ambitions, but fundamentally BP is well placed to continue building shareholder value.”

Shell will report on Thursday.

Scottish Mortgage Investment Trust: two alternatives to the underperforming trust

UK Investor Magazine
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Scottish Mortgage Investment Trust: two alternatives to the underperforming trust

The Scottish Mortgage Investment Trust (LON:SMT) has performed badly since the pandemic leaving investors understandably frustrated. 
The trust's share price is down 12% over the past year compared to a 3% gain for the FTSE 100 and 15% increase in the NASDAQ.
This article provides two alternatives to the Scottish Mortgage Investment Trust that possess the attributes that have attracted investors to Baillie Gifford's flagship trust over the years.
The first of our picks employs a similarly unconstrained approach to growth stocks, and the second is focused on global technology shares.
The natur...

Foresight Sustainable Forestry will benefit from a global supply deficit and increasing demand for carbon credits

Eve Katz
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Foresight Sustainable Forestry will benefit from a global supply deficit and increasing demand for carbon credits

There is a global shortage of sustainably sourced timber. Current World Bank data shows that there is a base of billion cubic metres of global timber supply deficit; the numbers are expected to triple by 2050.

Due to its inflation-beating properties, forestry has long been an attractive investment encompassing strong ESG characteristics. Forestry investment can also provide appealing tax incentives.

However, the supply/demand dynamics for timber are now increasingly underscoring the economic opportunity in forestry investments.

The forestry situation in the UK is dire. Given the high percentage of rural territories, the country is lagging behind the rest of Europe, where the average afforested areas account for 45–48% of each country’s territory. Only 13% of the UK is forested.

The UK has so much untapped sustainable forestry potential, yet we import 80% of all our timber. Indeed, importing so much timber is highly supportive of the UK’s 2050 sustainability goals.

The Foresight Sustainable Forestry Investment Trust is tackling the global long-term structural supply imbalance of timber, as well as bolstering the UK’s timber supply, through expansive afforestation projects and sustainable timber production.

Foresight Sustainable Forestry Investment Trust

Managed by the Foresight Group since its IPO, the fund has consistently delivered returns in forestry and natural capital. Utilising a proprietary pipeline of acquisition opportunities, Foresight has meticulously mapped the entire UK forest area, identifying 4,500 properties with high potential and approaching landowners as part of a direct origination campaign.

The cornerstone of Foresight Forestry’s returns lies in afforestation, which can constitute up to 50% of the fund’s investments at any given time.

Since its initial public offering (IPO) on the London Stock Exchange two years ago, Foresight Forestry Fund has invested in over 1.5 million trees at six new forests, which adds up to around 289,500 tonnes of sustainable timber for sale.

Between 2023-2025, Foresight plans on planting circa 9 million trees.

All managed forests adhere to the Forest Stewardship Council (FSC), which is the most renowned Sustainable Forestry Certification, and Programme for the Endorsement of Forest Certification (PEFC) standards.

In addition to contributing to the UN’s fight against climate change and deforestation, Foresight Forestry Investment Fund actively creates meaningful impact for local communities. In Wales, it has provided local communities with a three-week skills training programme. The participants were able to go on working on Foresight’s new afforestation schemes.

Foresight delivered a weighted average return uplift of 98.4% across their first six afforestation projects.

Currently, Foresight Forestry Sustainable Investment Trust is the only forestry and natural resource fund on the London Stock Exchange.

Like every single other asset class, forestry has its downsides. One of them being that the investment takes a long time to yield, as forests can take up to 30 years to mature.

The attractiveness of forestry, however, partly lies in the fact that the supervisors have the ability to leave mature timber on the stump for a long period of time. In the meantime, the fund diligently monitors the market, calculating the optimal time for selling timber.

Voluntary Carbon Credit

In addition to timber, Foresight Sustainable Forestry is on track to produce 1 million carbon credits.

The extraordinary innate value of trees lies in the well-known fact that forests capture carbon. Companies across the globe can buy carbon credits, which are produced when trees are planted, removing carbon from the atmosphere. One metric tonne of carbon removed from the air at Foresight’s afforestation properties equals one carbon credit.

According to Richard Kelly, Managing Director at Foresight Sustainable Forestry, there is now a global rise in high-integrity corporate pledges, meaning that many organisations promise to go carbon-neutral (or mostly carbon-neutral) by 2050.

Demand for carbon credits is predicted to increase a hundredfold by 2050.

Gold and oil prices gain on Middle East conflict escalation

Eve Katz
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Gold and oil prices gain on Middle East conflict escalation

Oil and gold prices rose on Tuesday as the Israeli-Hamas war showed signs of escalation with flare-ups across the region, including Saudi Arabia.

Brent crude oil price is +0.91% at the time of writing, while WTI crude is up by 0.86%. Natural gas price is up by 1.22% in the Tuesday morning trade. 

Gold flirted with $2,000 and is once again behaving like a safe haven asset during the ongoing Middle East crisis, David Morrison, Senior Market Analyst at Trade Nation, explained. 

Gold had been trading at around $1,830 the day before Hamas launched an attack on Israel 7th October. Since then, gold has steadily ticked higher as investors pile into the safe haven.

According to David Morrison, “for now, investors are spurning US government debt as the ultimate go-to safe haven, as they worry about the increased supply of bonds, federal debt and the loss of the Federal Reserve as a strong buyer.”

Oil consolidation

In the context of the ongoing Israel-Hamas conflict, the WTI price has consolidated at around $83 after trading near $90 in the early days of the war.

The conflict is yet to materially disrupt the oil supply in the region and the initial bid in oil has diminished through October.

“But prices could shoot higher if there should be an escalation which threatens supply”, David Morrison warns.

AIM movers: Real Good Food recovery and Velocys cash problem

Andrew Hore
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AIM movers: Real Good Food recovery and Velocys cash problem

Real Good Food (LON: RGD) says first half revenues were 2% ahead at £16.1m, although volumes fell by 10%. October revenues appear set to be 6% higher. The cake decorations supplier has significantly reduced its loss due to higher margins. A shortage of cash has held back growth, but the company could be profitable for the full year. Talks continue concerning the extension of the loan agreement with Hilco Private Capital. Interim results will be published in December. The share price recovered 50% to 1.8p.

Ondine Biomedical Inc (LON: OBI) customer Alberta Health Services has expanded the use of Steriwave photodisinfection to reduce surgical site infections in orthopaedic surgery. These infections can cost more than C$100,000/case. There is a one-third increase in the share price to 14p.

Sunrise Resources (LON: SRES) says a review of chemical analyses from surface mineralisation has identified anomalously high levels of gallium in high-grade zinc samples – up to 69ppm gallium – at the Reese Ridge project in Nevada. Gallium is used in semiconductors and solar panels and 80% is produced in China, which has restricted exports. A follow-up exploration programme is planned. The share price rose 15.4% to 0.075p.

Kromek (LON: KMK) has secured three orders worth more than $1m, including one from a new customer. They are in nuclear security and bio-security. This helps to underpin the current forecasts. The share price improved 8.9% to 4.9p.

FALLERS

Velocys (LON: VLS) is the worst performer today because the conditions for the $15m strategic investment from Carbon Direct have not been met. To receive this cash the sustainable fuel developer needs to raise $40m, including $8m already raised, and management is still trying to secure investors. The $15m cash injection is no longer binding. Velocys needs more cash before the end of the year. There is a significant market opportunity in sustainable aircraft fuel, but Velocys is in a weak position when discussing additional funding and the share price slumped 69.6% to 0.306p.

Kore Potash (LON: KP2) chief executive Brad Sampson has resigned, and the chairman will take on the role until the financing proposal for the Kola potash project is received. Kore Potash has raised $2.5m at 0.38p/share. That includes $750,000 invested by the chairman. This will be used for the development of the Kola potash project. The share price slipped 27.3% to 0.4p.

Vast Resources (LON: VAST) is in discussions with Mercuria and Alpha for extensions to the repayment of debt, while the company waits for the proceeds of a past claim. The current repayment date is 30 November. There was $6.4m used in operations last year with a further $1.87m outflow from investment. The share price fell 13.5% to 0.16p.

Technology businesses developer Frontier IP (LON: FIPP) moved into loss last year because of realised and unrealised losses on its portfolio against a large gain in the previous year. The value of the portfolio fell 17% to £33m, although there were net disposals of nearly £5m. There was a £3.25m cash outflow from operations offset by disposals, leaving £4.6m in cash at the end of June 2023. The share price dipped 10.8% to 41.5p.

BP shares sink as profit misses estimates, lower gas earnings weigh

UK Investor Magazine
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BP shares sink as profit misses estimates, lower gas earnings weigh

BP shares sank in early trade on Tuesday after the oil major announced slowing profit that missed analyst estimates.

Earlier in October, we published a premium article explaining BP offers little value above 550p. We argued that the move higher in BP due to Saudi Arabian and Russian supply lacked conviction, and the BP share price was vulnerable to a pullback.

We also voiced concerns about the energy pricing mix and how this could impact BP’s earnings.

Today’s results revealed a punishing reduction in Q3 2023 profit that missed estimates. Underlying replacement cost profit was $3.3bn in Q3 2023 as revenue slipped to $54bn from $57bn a year ago.

BP shares were down 4.1% at the time of writing on Tuesday.

The main culprit in BP’s falling revenue and profit was weaker gas prices and trading activities. Lower oil prices also weighed on profit as oil refining margins fell.

BP is not alone in the oil sector in missing estimates; Chevron and Exxon recently released earnings weaker than analyst forecasts.

However, market sentiment is clearly turning against BP – a $1.5 billion share buyback did little to offset the shareholder disappointment around lower-than-expected earnings.

BP maintained its dividend at 7.27 cents per share.

With oil prices failing to maintain strength despite heightened geopolitical risks, the outlook for BP is increasingly uncertain, which is reflected in BP’s share price action today.

Earnings season and the outlook for UK & US stocks with Fiona Cincotta

UK Investor Magazine
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Earnings season and the outlook for UK & US stocks with Fiona Cincotta

The UK Investor Magazine was delighted to be joined by Fiona Cincotta, Senior Market Analyst at City Index, for a deep dive into the latest UK and US earnings season.

Fiona provides insight into the ongoing earnings season and frames recent updates in the context of the underlying economy. Fiona discusses the strength of earnings so far and performance versus analyst expectations.

After recent drops in major US indices, we explore what the rest of the year could hold for US stocks, as well as UK equity markets.

The ‘Magnificent 7’ US Tech stocks with exposure to AI were a core driver of global stocks in the first and second quarters of 2023, we look at how these technology companies may perform going into the close of 2023 and implications for broader indices.

Fiona discusses Q3 UK banking results and how they reflect the health of the underlying UK economy and wider sentiment.

We finish by running through potential scenarios for central banks, currencies and the global economy.

Lok’nStore discount too attractive to ignore

Andrew Hore
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Lok’nStore discount too attractive to ignore

Self-storage sites operator Lok’nStore (LON: LOK) continues to increase its NAV despite the effect of higher interest rates. That reflects the new openings and higher prices. Momentum is being maintained and there should be a greater increase this year.
NAV was 1% ahead at 986p/share at the end of July 2023. Occupancy in stores operating for more than three years is 80.6%, while pricing has risen by 6.8%. There were also increases in the value of newly launched sites.
The lack of supply of self-storage outlets means that there is potential to continue to increase prices, while there is a decel...

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