Challenger Energy Group has secured £3.3m funding to develop their Uruguay prospects and operations in Trinidad.

Challenger Energy Group has established a convertible loan note facility of £3.3m of which £550k was initially drawn.

The primary use of the facility will to be develop Challenger’s OFF-1 and OFF-3 block offshore Uruguay. The results from the AREA OFF-1 work program have been extremely promising, in that the company now has a technically supported prospect inventory of between 1-2bn barrels in that globally attractive exploration hotspot.

Challenger Energy’s neighbours in Uruguay include majors Shell and Total. Shell has the block adjacent to OFF-1 and has substantial operations offshore Namibia which shares geological similarities with Uruguay.

“In the last year, across the broader Challenger Energy business, we have completed value-enhancing technical work, improved production operations, high-graded our portfolio, secured new assets, and ensured a range of options are available to deliver additional funds into the business,” said Eytan Uliel, Chief Executive Officer of Challenger Energy Group.

“Progress has been substantial, but the timing of when we need to spend and when we will see cash inflows is not always within management’s control. We have therefore now taken steps to ensure that we have flexible additional funding available, if and when needed, so that we can press on with accelerating new licences and high prospect business development opportunities in both Uruguay and Trinidad. In the current market we see benefit in having an established facility in place, even if we ultimately do not use it all.

“Personally, I am excited with how Challenger Energy is now poised – a honed portfolio, a clear focus on those assets which are world-class and have the potential to deliver a major value uplift in the near term, and the financial flexibility to take disciplined portfolio decisions when opportunity presents. Day by day I believe we are creating intrinsic value which I strongly believe will ultimately be rewarded, and which is why I am increasing my personal holding in the Company at this time. I look forward to sharing news of continued progress with fellow shareholders over the coming months.”

Premier African Minerals has made another critical step forward in developing their Zulu lithium project by securing an additional £5m in funding from their offtake partner, Canmax.

After renegotiating the terms of their offtake agreement, the latest round of investment signifies Canmax’s commitment to both Premier African Minerals and the Zulu project.

George Roach, CEO commented:

“Our interests are aligned, our intentions are clear. Zulu must produce now, and we must look to expand the capacity. We deeply appreciate this Subscription, that is as positive a statement of support and alignment as we could ever have asked for.”

Canmax made their commitment to Premier African Minerals by way of a £5m placing at 0.35p. Canmax now has a 17.4% stake in Premier African Minerals.

The placing has been taken well by the market, with Premier African Minerals shares trading down just 2% to 0.45p at the time of writing.

Such is the dilutive nature of placings; one could have expected shares to tank on the news. However, the market reaction today suggests the placing was already priced in and investors are confident in the longer-term prospects for the company.

Zulu progress

Premier plans to use the proceeds from its recent share subscription primarily to fund optimizations at its Zulu lithium processing plant and for working capital.

Specifically, the company expects to allocate the funds, along with proceeds from the share placing announced on August 25, to cover costs related to an interim mill installation scheduled to begin 1,000-ton-per-month spodumene production in November 2023.

Additionally, Premier anticipates using the capital to install a thickener and larger ball mill, upgrades projected to enable the Zulu plant to achieve full design capacity starting in Q1 2024.

Belluscura shares soared in early trade on Wednesday after the medical device developer said they had entered into a ‘groundbreaking’ license and royalty agreement with Chinese partner InnoMax.

The agreement will provide InnoMax with exclusive rights to distribute Belluscura’s portable oxygen concentrator devices in China, Hong Kong, Macau and Singapore and is subject to a minimum of $55m in royalties over the life of the agreement.

Belluscura shares were 21% higher at 50p at the time of writing on Wednesday.

“I am very excited to build and strengthen our relationship with InnoMax,” said Bob Rauker, Chief Executive Officer, Belluscura.

“An estimated 100 million people suffer from COPD in China alone, approximately six times the number of patients in the US, demonstrating the need for oxygen therapy in China and associated Territories. This agreement provides the basis for an extremely financially beneficial partnership for both companies as we jointly broaden the reach of Belluscura’s next-generation technology.”

The agreement runs for a total of 10 years with the option for both parties to mutually agree for the agreement to become non-exclusive after 5 years.

There are minimum royalties attached to the agreement including $27.5m if the license is converted to non-exclusive from year 6 and up to $55m in royalties if the license remains exclusive for the entire term.

After announcing orders for 6,500 units earlier this month for around $15m, today’s announcement is another landmark development for Belluscura which now has clear revenue generation visibility over multiple years.

The FTSE 100 surged on Tuesday in the first trading session after the Bank Holiday as the index played catch-up with a strong session for global equities yesterday.

China moved to support their domestic equity market by cutting levies on trading over the weekend, which resulted in a sharp jump in Chinese stocks that rippled through global equities on Monday.

In addition, the absence of any negative fallout from the Jackson Hole Symposium helped boost sentiment and US and European equities gained even as the Chinese stock market rally faded.

The FTSE 100 was 1.4% higher at the time of writing on Tuesday.

“The market may have been underwhelmed by China’s initial efforts to restore confidence, but that doesn’t seem to be the case with the latest measures, which have given Chinese and global stocks a real boost,” said AJ Bell investment director Russ Mould.

“Whether the medicine Beijing is doling out will deal with the causes rather than just the symptoms of its economic challenges is debatable, but for the time being it is at least doing enough to restore sentiment.

“The lack of any big shocks in US Federal Reserve chair Jerome Powell’s Jackson Hole speech also seems to have helped create the conditions for a late summer rally.”

FTSE 100 movers

The FTSE 100 gains were broad on Tuesday, with 98 of the 100 constituents in positive territory shortly after 2pm.

Persimmon was the top riser, gaining 4% after the Department for Levelling Up, Housing & Communities said they would ease water pollution regulations that would help push through the construction of an additional 100,000 homes.

Taylor Wimpey and Barratt Developments joined the action with gains of 2.7% and 3.8%, respectively.

Bunzl was among the gainers after their revenue edged higher and margins increased despite ongoing inflationary pressures.

Positive sounds from China helped Prudential higher with an increase of 3.8%.

The Lloyds share price has undergone a period of consolidation, and the charts suggest the FTSE 100 bank has built a base for a leg higher.

Lloyds are navigating a challenging economic environment. On the one hand, they are enjoying the benefits of higher interest rates on net interest margins while, on the other hand, we are starting to see housing activity slow.

Higher interest rates are proving to be a double-edged sword for Lloyds after reaping the rewards in the first half and subsequently feeling the wrath of the FCA for not passing these on to their customers.

As we move firmly into the second half and approach the 4th quarter, the question remains whether Lloyds have squeezed all they can from the current cycle. This question has led to a period of consolidation in the 42-43p region – a key level of support.

“Much will be made of Lloyds Banking Group’s 23% jump in first-half profit amid the backdrop of a cost-of-living crisis and increased pressure from regulators to share the benefits of interest rate hikes with savers,” commented Danni Hewson, head of financial analysis at AJ Bell after Lloyds reported last month.

“The net interest margin, the difference between what a bank earns in interest from loans and what it pays out, is slightly higher than analysts had forecast for the quarter, though down on where it had been in the three months previously.

“There are storm clouds gathering as the country’s biggest mortgage lender has to consider how many of its customers are likely to struggle as they face a jump from ultra-low fixed rates to the unexpected ‘new normal’.

“Lloyds boss Charlie Nunn admitted that customers were facing “significant challenges” and said that over 200,000 of its mortgage customers were among those worst affected by rising costs, a number that’s likely to be dwarfed over the coming months. To that end the bank has set aside an extra £662 million to cover expected ‘bad’ loan losses.

“For investors the bank delivered a mottled picture, with financial performance expected to slow and despite a sweetener for shareholders with a 15% jump on last year’s dividend pay-out the uncertainty has been enough to prompt a sell-off this morning.”

The clouds Hewson alludes to look now priced in, and the Lloyds share price looks set for a move to the upside. The 5.7% yield is extremely attractive and will compensate investors for any wait for capital growth.

Lloyds trades at 5.4x earnings and at just 0.6x book value. Value investors will appreciate these metrics.

A move higher could be derailed by a material deterioration in the UK economy, but we have no evidence this will occur in the immediate future. The second half will be softer than the first, and investors have quickly baked this into Lloyd’s cake.

If optimism prevails, 50p could be on the cards.

The point of maximum despondency in any financial market cycle is the point at which investors and traders have the maximum financial opportunity. However, many fail to take advantage of this opportunity due to despondency with their investments.

It is now clear the euphoric conditions during the pandemic were the worst time to invest in the broad FTSE AIM All-Share that peaked above 1,300 in late 2021.

Fast forward two years, the index has nearly halved, and the AIM has more or less completed the down leg of market emotions. We outline five reasons why AIM is near the point of maximum financial opportunity.

Interest rates have nearly peaked

The Bank of England hiking cycle has killed AIM. The natural revaluation of equity due to a higher risk-free rate has dented valuations, and this is particularly felt at the small cap end of the market.

Predicting the Bank of England’s next move has proved a fool’s errand, with the Monetary Policy Committee consistently surprising markets with rate decisions. Nevertheless, there is an abundance of evidence suggesting we are near the end of the hiking cycle.

While the BoE may hike again this year, markets are pricing only one or two more rate hikes before a period of plateauing rates.

This period of steady rates will provide the opportunity for investors to regain their confidence and reassess their finances. Such a period favours high-growth opportunities, and the eventual rate cut could provide a catalyst for significant inflows into small cap shares.

Consumer confidence is improving

Day-to-day liquidity in London’s AIM is driven predominately by UK-based private investors.

The propensity of these private investors to invest their savings in high-risk/high-reward opportunities is highly cyclical, and their perceptions of the economic landscape and general mood have as much of an impact on London’s AIM as the underlying fundamentals of constituent companies. 

One of the biggest predictors of London’s AIM has long been UK consumer confidence, and GfK’s monthly reading has a strong correlation with AIM’s performance.

GfK’s consumer confidence reading has traditionally been an early predictor of a turn in London’s AIM. Each significant move in AIM since 2007 has been preceded by a shift in GfK Consumer Confidence, although there is a variable lag in AIM’s performance.

In the 2008 financial crisis, consumer confidence fell in line with AIM but since then, a turn in GfK’s reading has preceded a turn in the AIM by periods ranging from a month to a couple of years.

Consumer confidence has been gradually improving since October last year, while AIM has continued to decline. If history is anything to go by, one would expect a rally in AIM before long.

IPOs have dried up

Capital markets activity is dead. There has been a dearth of AIM IPOs this year as companies push back listings to await more favourable conditions.

Historically, capital markets activity peaks near market tops and a trough in activity occurs near the bottom of the market cycle. It is difficult to imagine capital markets activity getting any worse, and the aforementioned considerations around consumer confidence and interest rates may well spur companies to push ahead with listing.

The relationship between new issues and market emotions is highly correlated, although one would hesitate to claim one causes the other.

Nonetheless, when companies start floating their shares on AIM again, it will lift the mood and mark another step forward after a period of depressed activity.

Good news is being taken badly

There are countless examples of AIM companies issuing good news only for their shares to be met by selling. The market is destroying those releasing bad news.

This is representative of the general despondency of market participants and reflects the underlying pessimism among investors.

Of course, exceptionally good news still propels AIM stocks higher, but there are still questions about whether their share prices are reaching their full potential.

This is symptomatic of underlying investor despondency and reinforces the need for many AIM constituents to improve their communication with the market.

67% of AIM constituents are negative year-to-date

The fifth and final reason AIM could be near the point of maximum financial opportunity is the simplistic performance of constituents this year.

Roughly two-thirds of AIM constituents are trading negatively since the beginning of 2023, highlighting the market’s poor performance in general.

Poor performance is by no means a precursor to positive performance. However, statistical mean reversion would suggest individual constituents are due a rally.

For two-thirds of the index to be down on the year is a clear demonstration of investor despondency, and while things could deteriorate further, one would think the worst is behind us.

Important considerations

As we have outlined five reasons why AIM could be approaching the point of maximum financial gain, it is important to balance these arguments with potential risks.

Firstly, interest rates could continue to rise if inflation doesn’t fall materially. This would negate our first two points.

In addition, we haven’t yet had out-and-out capitulation in the AIM. There has been steady selling, but the bottom hasn’t completely fallen out of the market during severe volatility. However, one may argue the extent of the declines since AIM’s 2021 high more than compensates for highly volatile capitulation.