Lloyds shares are unlikely to trade above 50p again in 2023

UK Investor Magazine
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Lloyds shares are unlikely to trade above 50p again in 2023

The Lloyds share price has been a beneficiary of the Bank of England’s surprise pause in interest hikes last week but the direction for shares from here is less than certain.

The Lloyds share price is up around 10% from the September lows at 41p and has met the trend line to the downside started in February this year.

Investing in Lloyds shares in 2023 has involved the delicate balancing of the benefits of higher interest rates on Lloyds profitability with the damage higher rates are doing to their customers.

This has been reflected in the downtrend in Lloyds share price since the beginning of 2023 which looks unlikely to break before the end of the year.

With the Bank of England opting to keep rates on hold at last week’s meeting, Lloyds customers will enjoy some reprieve, but the bank’s key profitability metric, net interest margin, is now probably past the peak.

The bank themselves guided for a lower net interest margin in the second half of 2023 and a pause in interest rate hikes all but confirms this.

In addition, the UK housing market is starting to slow while key economic indicators deteriorate. Ultimately, provisions for bad debts are likely to increase through the rest of the year.

Unfortunately for Lloyds investors, there is very little on the immediate horizon which will make Lloyds look attractive at 45p.

There is of course the 5.4% dividend yield for income seekers but it is difficult to see the Lloyds share price above 50p in 2023.

Gulf Keystone Petroleum shares look good value for adventurous investors

UK Investor Magazine
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Gulf Keystone Petroleum shares look good value for adventurous investors

Gulf Keystone Petroleum shares (LON:GKP) perked up on Monday after the company said local sales of crude from their Kurdistan oil field had increased during September.

Even after Monday morning’s 12% rally, GKP shares are down heavily over the past six months and look good value for investors prepared to take high levels of risk.

Earlier this year, Turkey shut the Kirkuk–Ceyhan export pipeline, also known as the Iraqi–Turkish pipeline, due to infighting between the KRG and the central Iraqi government which resulted in Turkey paying $1.5bn in damages to the central Iraqi government due to the breach of an old oil transit agreement.

The inability of Gulf Keystone Petroleum to make deliveries through the pipeline cut off their revenue and sent shares into freefall.

Gulf Keystone Petroleum is owed $151m by the Kurdistan Regional Government (KRG) for oil shipments between October 2022 to March 2023. The payment of the outstanding amount and the resumption of oil exports are crucial for the future of GKP and shareholder returns.

Hopes exports would soon recommence were given a boost when officials met in August but little has changed since.

Talks between the KRG, the Iraqi Ministry of Oil and Turkish authorities have been ongoing for some time, yet no concrete timeline for resumption of exports has been announced.

Gulf Keystone Petroleum has resorted to local sales to support operations. Today, the company announced crude sales amounted to 28,800 bopd between 1st-24th September, an increase on the 17,200 bopd sold in August.

Local sales pale in comparison to export revenue and the company is undergoing substantial cost-cutting in the absence of payments from the KRG. The company said current localised sales to refineries in Kurdistan are now covering costs.

The company is reasonably well-capitalised as a result of the cost-cutting exercise and securing local crude sales. As of 30th August 2023, Gulf Keystone has cash balances of $82m and no debt. Cash was $80m earlier in August.

Should Gulf Keystone Petroleum receive the $151m owed to them, cash would total over $230m – marginally below the current market cap.

This would make GKP tremendously good value. Bear in mind, that this company was paying a healthy dividend to investors before the pipeline shut this year.

That said, ‘when’ and ‘if’ Gulf Keystone Petroleum receive this payment is a major uncertainty, as is the resumption of export sales.

DP Eurasia gains momentum

Andrew Hore
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DP Eurasia gains momentum

DP Eurasia (LON: DPEU) is prospering in its core market in Turkey and profit is set to grow rapidly, yet the share price does not fully reflect this despite the jump since the interim results.
DP Eurasia is the master franchisee for Domino’s Pizza in Turkey, Russia, Azerbaijan and Georgia. There are also coffee shops under the COFFY name, and this has increased the addressable market.
The loss of the Russian business, which is filing for bankruptcy due to economic sanctions and the failure to sell the business, has not helped progress in recent years. External debt of £4.3m has already been se...

Foresight Sustainable Forestry Company Skills Training Programme

UK Investor Magazine
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Foresight Sustainable Forestry Company Skills Training Programme

Foresight Sustainable Forestry Company provides investors the opportunity for real returns and capital appreciation driven by the prevailing global imbalance between supply and demand for timber; the inflation-protection qualities of UK land freeholds; and biological tree growth of 3% to 4% not correlated to financial markets. The Company targets a net total return of more than CPI +5%.

Aquis weekly movers: Apollon Formularies disposal progress

Andrew Hore
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Aquis weekly movers: Apollon Formularies disposal progress

Apollon Formularies (LON: APOL) has executed a binding letter of intent with Sproutly Canada Inc, who will acquire the assets of the cannabis-based drug discovery company. After completion of due diligence, the assets will be acquired in return for shares equivalent to 49% of Sproutly. The effective valuation is C$7m (£4.2m). Sproutly has to go through audits and other regulatory requirements to become active and trading on the Canadian Stock Exchange. The share price soared 117% to 0.1625p.

Fuel additives SulNOx Group (LON: SNOX) says it requires new equity investment from existing and new investors in order to achieve faster and sustainable revenue growth. There would additional industry hires for the board and sales personnel. There will also be increases in stock levels and new products will be developed. The board is seeking shareholder authority to issue new shares. Mohanned Nawaz Haq does not agree with the new strategy and the board recommends voting against his appointment at the AGM on 26 September. The share price jumped 24.6% to 21.5p.

Wishbone Gold (LON: WSBN) says drilling has started at the Red Setter project in Western Australia. Initial targets are at a shallow depth and the company is seeking broad spreads of mineralisation. Drilling at the Cottesloe prospect reinforces previous findings. Additional drilling will be 50% funded by the Western Australian government’s EIS scheme up to a total of A$220,000. The share price is 23.1% higher at 2.4p.

Invinity Energy Systems (LON: IES) says that Canadian company Elemental Energy has commenced operation of the company’s 8.4MWh Invinity VS3 vanadium flow battery. This is the largest operation so far. The share price rose 11.4% to 44p.

EPE Special Opportunities (LON: EO.P) directors and the managing partner of EPIC Investment Partners bought a total of 16,837 shares at 160p each. The share price was up 9.68% to 170p. NAV was 308p/share at the end of July 2023.

Aquis Stock Exchange owner Aquis Exchange (LON: AQX) reported interims showing growth in all four divisions of the group and the Aquis Stock Exchange remains profitable. Group revenues improved from £7.85m to £9.34m, while pre-tax profit rose from £699,000 to £1.15m. Net cash is £13.9m. The share price improved 3.49% to 385p.

FALLERS

Shares in Silverwood Brands (LON: SLWD) have halved to 30p (25p/35p) on the back of the extension of the time to deliver its defence to the legal action by Lush and VSA resigning as corporate adviser and being replaced by Peterhouse. Lush is refusing to recognise the transfer of a 20% stake to Silverwood Brands. VSA owns 0.88% of Silverwood Brands and the value of the investment has slumped.

Medical device developer TruSpine Technologies (LON: TSP) has appointed Victoria Sena and Samuel Ogunsalu to the board. The company is not appealing the disciplinary notice from the Aquis Stock Exchange and the new appointments will improve corporate governance. The share price declined 15.8% to 1.6p.

Cadence Minerals (LON: KDNC) investee company Evergreen Lithium has completed the final analysis of its EXOSPHERE BY FLEET Ambient Noise Tomography geophysics survey at Bynoe. Nine pegmatite targets have been identified. Approvals are required for drilling. The share price fell 9.09% to 7.5p.

Watchstone Group (LON: WTG) had net assets of £7.6m at the end of June 2023, including cash of £8.3m. By 19 September, cash had fallen to £7.6m. The claim against PwC was dismissed by the High Court and Watchstone had to settle legal costs. Canadian legal action continues. The share price fell 8% to 5.75p.

Africa-focused battery metals company Marula Mining (LON: MARU) is considering moving to the standard list as an alternative to AIM. Management believes that this would not add any additional time to the process, and it believes that the proposed investment by Q Global Commodities will make Marula Mining large enough to be eligible for the standard list. It is also planning listings on the Nairobi Securities Exchange and the Johannesburg Stock Exchange. Warrants exercised at 4p/share raised £50,000. A shipment of 27.5 tonne high-grade material processed from stockpiles at the Blesberg lithium and tantalum mine in South Africa has been delayed. The offtake agreement with Southern Jade Resources has been terminated and an alternative agreement is being finalised. Additional drilling at Blesberg is progressing and initial assay results should be published in late October. The share price slipped 7.78% to 10.375p.

Brewer Adnams (LON: ADB) says trading improved in the second quarter and cost savings started to kick in. This partly offset the decline in revenues in the first quarter, but the interim revenues were still slightly lower at £30m. Operating costs and interest charges increased, and the loss trebled to £3.13m. Adnams is taking on new customers, but the average order size has reduced. Trading conditions are uncertain, but the new customer sand listings will help to boost the second half. The share price is 5.98% lower at 5500p.

Newbury Racecourse (LON: NYR) improved interim turnover by 3% to £8.03m, but the company fell into loss because gross margins slumped. The nursery increased its contribution, but there were lower attendances at races. An event in July had the highest attendance for four years. Next year will get the full benefits of the media rights deal. The share price is 3.77% lower at 765p.

Broker and wealth management company Oberon Investments (LON: OBE) has raised £2.5m via a placing at 3.6p/share and a retail offer could raise a further £500,000. The share price dipped 2.78% to 3.5p. The cash will fund expansion, including the recruitment of revenue generating teams. The Winterflood Retail Access Platform offer has a minimum subscription of £50. Investors can apply for shares via their broker or intermediary and the closing date is 4.30pm on 25 September.

AIM weekly movers: Orcadian Energy farm out

Andrew Hore
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AIM weekly movers: Orcadian Energy farm out

Shares in Orcadian Energy (LON: ORCA) were the best performer on the week and the price quadrupled to 14.25p following the announcement that it has entered non-binding heads of agreement with a North Sea operator to farm out the Pilot project for a full carry until first oil. Orcadian Energy would retain a 18.75% working interest. The agreement includes the drilling of five subsea wells. Orcadian Energy will receive $100,000 when the agreement is completed, plus $100,000 if it is awarded an additional licence. Field development plan approval would trigger a payment of $3m. The company joined AIM in July 2021 at a placing price of 40p.

Scancell (LON: SCLP) reports that early data from the phase II SCOPE study of SCIB1 in combination with checkpoint inhibitors as a treatment for advanced melanoma are positive. Tumour reduction at 13 weeks is 31-94%. This is for a relatively small number of patients, but it does indicate that there is strong potential for the treatment. The second stage of the study has a strong probability of success. This data will be available in the first half of 2024. Potential partners are likely to be interested. The share price improved 60.4% to 16.2p. This is the highest the share price has been since April.

Clean water technology developer MYCELX Technologies Corp (LON: MYX) increased interim revenues by 51% to $5.6m and reduced its loss. The momentum is continuing in the second half and this should continue as environmental regulations are tightened. Canaccord Genuity forecasts a full year loss of $1.6m and it expects at least breakeven in 2024. The share price jumped 49.5% to 72.5p.

Vela Technologies (LON: VELA) shares jumped 44.7% to 0.0275p on the news that Conduit Pharmaceuticals was completing its IPO and started trading on Nasdaq on Friday. This will trigger the option to sell the interest in AZD1656, which relates to a Covid application, to Conduit Pharmaceuticals for £4m.

FALLERS

Eqtec (LON: EQT) announced that the Billingham waste-to-energy project is not going ahead. Potential customers have closed facilities and the project is behind schedule. So far, £4m has been invested. There is a possibility of getting some of this cash back. Eqtec is also taking legal action against its partner in the Deeside project, seeking repayment of £4m of loans. The focus is other European markets. Forecast 2023 revenues have been slashed by more than three-quarters to €2-3m. Net debt is expected to be €5.7m and double that at the end of 2024. More cash will need to be raised. The share price dived 51.6% to 0.075p.

Trading has deteriorated since August at replacement windows supplier Safestyle (LON: SFE) and it is expected to lose £10m in 2023. Order levels are falling short of budget. Net debt could reach £6m at the end of 2023 – the credit facility is £7.5m. Management wants to strengthen the balance sheet. The share price slipped 39.9% to 4.81p.

Harvest Minerals (LON: HMI) reported interims showing a near-doubled loss as demand for fertiliser fell and pricing was lower in the period. The second half sales are normally much greater than in the first half, but they continue to be disappointing. Low crop prices mean that farmers are not investing to boost production. Cash has declined and the company has moved into net debt of £1.4m, partly due to a jump in inventories. The share price fell 39.5% to 1.3p.

Shares in Strix (LON: KETL) slumped on the decision to cut the interim dividend from 2.75p/share to 0.9p/share because of high borrowings. Acquisitions have pushed up net debt to £93.1m. There was a strong contribution from recent acquisition Billi, but the economic recovery has been slower than expected hitting kettle controls revenues. Revenues are recovering, but higher interest rates meant that interim pre-tax profit has dived from £11.6m to £5.7m. Chief executive Mark Bartlett bought 51,732 shares at 57.7p each, which helped the share price to recover at the end of the week, but it was still down 34.4% to 59.9p.

Signs of improvement at Mothercare

Andrew Hore
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Signs of improvement at Mothercare

International retailer Mothercare reported a decline in full year pre-tax profit, but there are some positive signs. Yet the share price is not much higher than the level it was at the height of the Covid-related stockmarket slump in March 2020. The AIM-quoted share price did jump 10.8% to 4.6p on the results announcement, though.
Refinancing debt and the implementation of new IT should help the retailer to improve its profit performance and provide a base for when the retail market starts to recover. Mothercare may be worth a look.
Mothercare is a pure franchise brand, and it generates income...

FTSE 100 supported by domestic-facing stocks, weaker pound

UK Investor Magazine
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FTSE 100 supported by domestic-facing stocks, weaker pound

The FTSE 100 was supported by domestic-facing UK shares and weaker sterling on Friday after the Bank of England paused its hiking cycle on Thursday.

A rally in UK banks and housebuilders reflected relief from the pressure of constantly rising interest rates as Lloyds rose 3% and Barratt Developments added 1.3%.

Stocks reliant on the UK consumer also enjoyed marginal improvements in UK retail sales data and consumer confidence released on Friday.

“UK retail sales have edged up 0.4% following a sharp drop in July caused by wet weather. This coincides with news that UK consumer confidence has reached a 20-month high, with GfK’s consumer confidence index showing a four point rise to a net minus 21,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

Frasers Group and Auotrader were among the gainers in Friday afternoon trade.

However, improving UK economic data was not enough to provide support for the pound which hit multi-month lows against the dollar on Friday.

The Bank of England’s decision to keep rates on hold has been bearish for the pound while the Federal Reserve’s suggestion they will keep rates higher for longer has helped lift the dollar.

Weaker GBP/USD provided additional support for the FTSE 100 with many overseas earners in positive territory. Miners were higher as commodity prices rallied.

Ocado was the top riser after recovering some of their 20% decline yesterday.

Although neither company is listed in London, the big news on Friday was the UK CMA’s approval of the Microsoft takeover of Activision.

Microsoft’s Activision takeover is set to be approved in the UK

Eve Katz
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Microsoft’s Activision takeover is set to be approved in the UK

The UK’s Competition and Markets Authority (CMA) announced that it has revised its view on Microsoft’s acquisition of Activision Blizzard and paved the way for the takeover to proceed.

At the end of 2022, the tech giant announced its intentions to buy Activision Blizzard for $95 per share, valuing the deal at $68.7 billion.

The deal faced some obstacles related to the CMA’s concern about Microsoft monopolising the online gaming industry. That changed after Microsoft’s decision to sell Activision Blizzard´s cloud streaming rights to Ubisoft, which prevents the tech giant from having complete control over Activision’s cloud gaming content.

But, according to the Market Authority´s report, “The CMA considers that the restructured deal makes important changes that substantially address the concerns it set out in relation to the original transaction earlier this year”. 

“In particular, the sale of Activision’s cloud streaming rights to Ubisoft will prevent this important content—including games such as Call of Duty, Overwatch, and World of Warcraft—from coming under the control of Microsoft in relation to cloud gaming.”

According to Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, Microsoft’s decision to sell Activision’s cloud streaming rights to Ubisoft “eradicates concerns that Microsoft would be able to gatekeep Activision’s content and withhold it from rivals. The loss of the cloud gaming rights is not an ideal concession for Microsoft to have to make, but it is necessary collateral if the deal is to be waved through. This looks to be the final bump in the road, and approval should be just around the corner in what is ultimately a win for Microsoft.”

The merger is still likely to pave the way for Microsoft to become a major stakeholder in esports and to consolidate its leading position within the cloud gaming industry.

The merger is still pending in the US but has already been approved in the EU, Japan, Brazil, Chile, China, Ukraine, Saudi Arabia, South Africa, Serbia, South Korea, and New Zealand.

AIM movers: OPG Power Generation prospects improve and Comptoir moves into loss

Andrew Hore
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AIM movers: OPG Power Generation prospects improve and Comptoir moves into loss

OPG Power Ventures (LON: OPG) is the highest riser today even though it will not publish its 2022-23 accounts by the end of September and trading in the shares will be suspended on 2 October. The figures should be in line with expectations. The Indian coal-based power generator says demand for electricity has grown 9% and renewables capacity is not expanding as quickly as expected. Coal prices are falling, and plant load factors should improve. Net cash was £18.6m at the end of August 2023. The share price increased 30.3% to 10.75p.

OptiBiotix Health (LON: OPTI) has secured the launch of its SlimBiome, GoFigure and Snacksmart products on Boots online store. They will go on sale in the first quarter of 2024, and they could be in stores by May. The share price continued its recovery and is 18.9% higher at 26.75p.

Insurance company R&Q Insurance Holdings (LON: RQIH) confirms that it is in talks to sell its programme management business, Accredited to Onex Corporation. The company is also considering legally separating R&Q Legacy. The share price is 13.6% ahead at 55.6p.

Invinity Energy Systems (LON: IES) says that Canadian company Elemental Energy has commenced operation of the company’s 8.4MWh Invinity VS3 vanadium flow battery. This is the largest operation so far. The share price rose 4.76% to 44p.

FALLERS

Restaurants operator Comptoir (LON: COM) grew like for like interim revenues by 6%, but it fell into loss because of increasing costs and the removal of government assistance. Net cash was £5.7m. There are plans for two new sites. The share price declined 15.8% to 6p.

Katoro Gold (LON: KAT) reported a cash outflow of £376,000 in the first half before cash generated from a share issue. There was £25,000 in the bank at the end of June 2023. The share price slid 11.8% to 0.075p.

Vast Resources (LON: VAST) says a small number of workers at the Baita Plai polymetallic mine have gone on strike. Salary payments were delayed because the company was waiting for a cash from a concentrate shipment. The cash has been received. The share price fell 9.52% to 0.19p. Gemfields (LON: GEM) is not paying an interim dividend as revenues declined from $193m to $153.6m, while EBITDA dipped from $105m to $73m. The cash balance fell from $82m to $62m. Production is declining at the Kagem emerald mine and gemstone prices are lower. The Montepuez ruby mine is expected to come into production in the first half of 2025. The share price is 5.36% to 13.25p.

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