Coca-Cola HBC, the FTSE 100 strategic bottling partner of Coca-Cola, has raised their profit guidance for the first half of the year after enjoying a strong end to the period.

The company said they had experienced strong top-line growth during the period and now expect organic EBIT growth for 2023 of 9-12%. Previous guidance was for EBIT growth of -3% to +3%.

The group noted particularly strong performance during the month of June as a driver of the upgrade to profit forecasts.

Coca-Cola HBC shares were 4% higher and the FTSE 100’s top riser at the time of writing on Friday.

The company have kept their guidance from 2024 onwards the same. Half-year results are due to be released 9th August.

Shell released their Q2 earnings and production teaser on Friday and signalled lower production and prices are likely to lead to lower earnings in the second quarter.

Shell’s teaser is brief but provides an insight into their production forecasts and where they see earnings heading.

The main takeaways are maintenance across their upstream business will result in lower production while their gas and trading businesses are set for lower earnings.

Shell shares were 0.2% weaker at the time of writing.

“Shell has trailed its second quarter results and the good news is there may be a little less ammunition for advocates of harsher windfall taxes. The bad news is this is because its results are likely to be somewhat less impressive than they have been in recent quarters,” said Russ Mould, investment director at AJ Bell.

“How much the drop in earnings from its natural gas trading operation is a function of what Shell describes as ‘seasonality’ in the market, and how much it is just cyclical weakness linked to a softening economy is an open question. Investors appear to be sitting on their hands rather than coming down on one side or another judging by this morning’s share price reaction.

“The company also expects the numbers to be marred by field maintenance which will limit production. Even considering a record first quarter of the year Shell has fallen behind its US peers and there is a danger a weak showing could undermine it further.”

Shell will release their full Q2 results on 27th July.

Avacta, Oxford Biomedica, Abingdon Health, PureTech Health, and GSK could be on the radar of merger and acquisition teams. Here’s why.

A few short days ago, Novacyt decided to swoop in on Yourgene, offering £16.7 million for the junior at a 168% premium to the previous day’s closing price.

Both companies saw significant share price jumps, with Yourgene CEO Lyn Rees enthusing that ‘the prospect and scale of what the new enlarged group could bring to our customers, employees and other stakeholders are exciting given the complementary fit of both businesses.’

Of course, the deal is unlikely to have excited long-term Yourgene holders, but going forward, the question is this: Which biotech is going to be bought out next?

To start with, it’s worth noting that both private equity and public companies have prepared war chests for takeovers. Both know that promising new biotechs tend to become undervalued and struggle for cash during downturns, so can buy them up on the cheap for their research. Peel Hunt considers that European private equity houses have amassed €270 billion of dry tinder alone.

Let’s take one UK life sciences titan — £164 billion AstraZeneca. In recent months, it’s bought out CinCor Pharma for $1.8 billion, Neogene Therapeutics for $320 million, and LogicBio for $68 million.

The way the buyout scene works is actually rather simple: while AstraZeneca and the other titans develop their own drugs — see the company’s new state-of-the-art facility in Ireland — it’s actually far cheaper and often better to allow a junior biotech, often spun out from a university, to take on the earliest and riskiest stage 1 clinical trials for their potential treatments.

90% of these fail, leaving one in 10 to succeed. These successes are then targeted by the titans for buyouts at large premiums, which reflects the cost of research, potential future revenue, and investor reality that many investments will have failed by this stage.

Junior biotechs are often happy to be bought out as the wet labs required for scaling simply don’t exist in the UK. And the cycle is essentially endless as larger life sciences companies have to keep buying up more drugs as they constantly see their own patents run out.

Five potential FTSE biotech merger targets

1. Avacta

Avacta shares have dropped from a record 185p in early February to just 104p today, leaving the junior with a £286 million market cap. While it remains highly capitalised with £27 million on the balance sheet, it’s a very strong potential buyout target.

Even after making multiple purchases of its own — including Coris Bioconcept for £7.4 million recently — the majors are almost certainly watching the FTSE AIM company closely.

Flagship AVA6000 — a novel form of standard chemotherapy Doxorubicin — which is coming towards the end of phase 1A clinical trials, recently reported back on its successful fifth dose escalation. Crucially, the company noted that ‘several patients in cohort 5 and earlier cohorts remain on treatment as their disease has not progressed.’

Further, AVA6000 patients are seeing a ‘marked reduction in the incidence and severity of the typical toxicities associated with the standard doxorubicin chemotherapy administration,’ with clinicians reportedly unable to tell whether patients are even on the drug. And the next cohort will be treated with 2.7 times the standard dose of Dox.

Having taken on board multiple persons of note, Avacta has also just appointed Consilium Strategic Communications as the company’s investor and media relations advisor.

2. Oxford Biomedica

Oxford Biomedica shares were changing hands for as much as 1,560p in September 2021, but the life sciences company has now fallen to 422p leaving it with a market cap of circa £408 million. This undervaluation is arguably due to the tightening monetary environment, and not because of any underlying business issues.

The company operates in the gene and cell therapy business, specialising in viral vectors. For the uninitiated, this involves re-engineering viruses to deliver genetic material into patient cells. Cutting-edge stuff, and far beyond my scientific ability.

While the company is developing its own treatments, the real money is in licensing out its tech to other businesses through it LentiVector platform. This cuts costs for the client while Oxford claims a licensing fee and royalty on sales of any drug developed using the platform.

Clients include AstraZeneca and Novartis among other heavy hitters, and a buyout has been heavily speculated for some time.

3. Abingdon Health

Abingdon Health shares have shot up by 131% over the past six months, despite poor prior performance as a result of delivering its covid-19 test to the market far too late to be of practical use.

However, the £15 million biotech has finally officially launched its Salistick pregnancy test in partnership with Salignostics, revolutionising the industry by introducing a saliva-based testing method instead of relying on urine.

This groundbreaking development has tremendous potential, considering that in the UK alone, approximately 12.5 million pregnancy tests are conducted each year. Furthermore, the global market for pregnancy test kits is expected to reach a staggering $2.28 billion by 2028.

What makes this launch even more compelling is the strategic distribution plan. Abingdon has secured a deal to sell the test at 400 Superdrug locations, in addition to making the product available on Superdrug.com. This level of accessibility positions the Salistick pregnancy test for tremendous success — as one reviewer notes, ‘Why has it taken 80 years to develop this…why did someone just think one day: Saliva has pregnancy hormones in, why not make a test?’

Of course, the company faces several challenges: building brand recognition in a fiercely competitive market, coping with a limited cash runway, and generating positive cashflow.

A buyer with deep pockets could easily decide to step in.

4. PureTech Health

PureTech Health is a £616 million Main Market biotech, which specialises in creating therapies for illnesses with no or extremely limited existing treatment options. More precisely, it works in medical trials involving the immune system, brain, and gut.

PureTech has two drugs out with both EU and US approval, another soon to be filed for FDA approval, 15 more in clinical trials and 27 candidates being investigated through its R&D engine.

Further, it owns a healthy stake in eight other biotechs, three of which already have commercial products on the market.

The stock has fallen from 294p in December to 222p today, leaving an already profitable business at an attractive valuation for a larger pharma company to take it off the market — though the premium would need to be large to gain shareholder approval.

5. GSK

GSK, formerly GlaxoSmithKline, is a £55 billion FTSE 100 pharma behemoth responsible for developing dozens of treatments in ailments ranging from cancer to HIV to immunotherapy to respiratory illness. The company is a truly global operation, with staff and factories operating worldwide.

GSK maintains 1,500 partnerships with other pharma companies and governments, but CEO Emma Walmsley has been under fire from activist investors who believe that her stewardship of the business has been underwhelming. For context, GSK shares have fallen by 25% over the past year, losing billions in market capitalisation.

In addition, GSK has also spun off its consumer healthcare division, Haleon, making the parent a more attractive proposition for a potential blockbuster merger with obvious cost synergies.

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.

At long last it looks as though Petro Matad (LON:MATD) is going to be granted access to the Block XX Exploitation Area.

That is very important news for the group and could well lead to the first oil flow from its significant Heron oil discovery, before the end of this year.

The group is involved oil exploration, as well as future development and production in Mongolia.

The company holds a 100% working interest and the operatorship of two Production Sharing Contracts with the Government of Mongolia.

Block XX has an area of 214 sq.km in the far eastern part of the country and Block V has an area of 7,937 sq.km in the central western part of the country.

Analyst Daniel Slater at Zeus Capital considers this approval as removing the main impediment for development work on the group’s key asset, and paving the way for first oil later this year – a significant moment for Petro Matad that will herald the start of production and cash flow growth.

He notes that the £69m company needs to complete the various procedures to formalise the land access consent, which could take a number of weeks.

Slater suggests that it will also need to pick up its discussions with Petro China on selling its Heron production.

PetroChina produces oil next door to Heron, and the mooted plan is to truck Heron production to the Petro China facilities, before then selling via Petro China’s established trucking offtake route into China.

Against the Zeus Capital Total Risked NAV of 17p, the shares after the announcement are up 62% at 6.20p, offering still further upside.

The needed upgrades to the field gas gathering system for Canadian Overseas Petroleum (LON:COPL) are nearing completion.

President and CEO Arthur Millholland stated that the group is now progressing on all fronts and, after the temporary shutdown of certain induction and production wells, is quickly returning to its previous production peaks, while also looking to increase its producing profile.

The group is an international oil and gas exploration, development, and production company actively pursuing opportunities in the US with operations in the Converse and Natrona counties in Wyoming.

It is operating three Units: the Cole Creek, where it has a 100% working interest; the Barron Flats Shannon (Miscible), with a working interest of 85%; and the Barron Flats Federal (Deep) (85%).

The company’s Wyoming operations are one of the most environmentally responsible with minimal gas flaring and methane emissions combined with electricity sourced from a neighbouring wind farm to power production facilities.

The construction of the Barron Flats Shannon Unit’s $4.5m high-pressure gas gathering pipeline system upgrade is on target for completion in July.

Following a recent Site Visit analysts at Joint Broker Hannam & Partners consider that after its various challenges have been faced and resolved, the group’s shares have a risked NAV of 16p per share.

In reaction to the increased downtime due to shutdowns, the £11m capitalised company has seen its shares fall steeply from a 17p High in early January this year, to trade now at around the 2.0p level.

The FTSE 100 closed down 1% on Wednesday after poor Chinese economic data hit the natural resource heavy index.

Miners were among the FTSE 100’s top losers following news China’s economy was continuing to slow. Anglo American and Antofagasta closed down over 2%.

China-focused Prudential was 3.75% weaker at the close.

“The Caixin China Composite PMI fell from 55.6 in May to 52.5 in June, the softest pace since January. Service providers have seen a big slowdown in growth, which will stir the pot for the argument that China’s post-Covid economic rebound is losing momentum fast,” said Russ Mould, investment director at AJ Bell.

“Expectations for China’s economic reopening were arguably too high at the start of the year, with many people expecting the country to effectively flick a switch and everything to run at full power instantly. While there was a strong first quarter, it’s now clear this is going to be more of a slow-burner recovery than wads of money suddenly sloshing around.”

As we noted earlier this week, the current macroeconomic backdrop means investors are likely to trade headline to headline resulting in sharp shifts in market pricing. Today’s developments in Asia were another such headline that caused a knee-jerk reaction in UK stocks.

Financial assets are carefully balanced between the potential upside offered by easier monetary as a result of falling inflation and the lingering prospect of recession in major economies. 

Investors will be preparing for Friday’s Non-Farm Payroll and an insight into the resilience of the US jobs market and how the Federal Reserve may proceed with interest rates.

Despite forecasts of a US recession, the US labour market has been remarkably strong and consistently beaten economist predictions for job growth.

Ocado was the FTSE 100’s top faller, down 6.8%, as takeover hysteria faded into the rearview mirror.