FTSE 100 down as investors brace for UK inflation data and interest rate decision

UK Investor Magazine
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FTSE 100 down as investors brace for UK inflation data and interest rate decision

The FTSE 100 closed down on Tuesday as strength in defensive shares failed to offset losses in cyclical sectors such as miners and banks.

The FTSE 100 finished the session down 0.25% at 7,569.

Investors displayed little excitement at a halfhearted attempt by China to stimulate the economy after weeks of anticipation around what measures the world’s second-largest economy would take.

“China’s injection of stimulus in its flagging economy was expected, and so it’s failed to pump a bounce of sentiment into the markets,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“By cutting the 1-year and 5-year loan prime rates by 0.1%, the aim is to bolster lending, but investors appear a little underwhelmed by the action and are waiting until further moves promised to bolster the economy materialise.”

UK investors will be bracing for incoming inflation data released tomorrow and the Bank of England interest rate decision on Thursday.

The Bank of England looks nailed on to increase interest rates by 0.25% on Thursday, but tomorrow’s inflation data could provide hints on whether there will be another interest rate hike in the coming months.

“The current market expectations are for rates to rise as high as 5.75% and if the numbers show inflation is continuing to prove very sticky, those forecasts may be firmed up,” Streeter said.

FTSE 100 movers

A poor session in Asia overnight spilt over into a weaker start for China-exposed stocks that failed to recover through the session. Miners Anglo American, Glencore, Antofagasta and Rio Tinto had a disappointing session, with Anglo falling over 3%.

Prudential closed down 2.8% as enthusiasm around their Chinese business ebbed.

Ocado shares fell 2.3% after the food retailer was cut to underweight by JP Morgan and placed on ‘negative catalyst watch’.

Investors shunned cyclical stocks in favour of steady defensive plays on Tuesday, with Rolls Royce, B&M, Centrica, GSK and BAE Systems among the best performers on the day.

Frasers buys stake in boohoo

Andrew Hore
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Frasers buys stake in boohoo

Retailer Frasers Group (LON: FRAS) has taken a 5% stake in the online fashion retailer boohoo (LON: BOO), which itself is trying to gain control of the Revolution Beauty (LON: REVB). Frasers has been buying stakes in UK retailer including boohoo rival ASOS (LON: ASC), which it has built up a 10.6% shareholding.

Revolution Beauty has been beset with financial and governance problems and a new management team was installed to turn the business round. Legal proceedings are being brought against former chief executive Adam Minto.

There has been an improvement in performance, but boohoo wants to get rid of three directors, including chief executive Bob Holt, and appoint two new directors to the board, including one of its own directors. If successful, that would mean that there would be three board members.

A general meeting has been requisitioned by boohoo, which owns 26.6% of Revolution Beauty. It wants a management more focused on growth.

Revolution Beauty recently published its accounts for the year to February 2022 and it subsequently released the latest interims. The 2021-22 audit was delayed due to the investigation into the financials and how the business was run.

However, trading in the shares remains suspended until there is a review of working capital. Trading in the shares was suspended on 1 September 2022 and AIM has been generous in allowing it to last more than six months.

There was a reported £44.9m loss in 2021-22, and while the interim loss was more than halved it was still £13.3m. The interims still reflect a period when the company’s problems had not been tackled. Full year revenues are estimated to have grown in low single digits and trading since February 2023 has been improving. Net debt reached £15.9m at the end of August 2022, up from £7.9m six months earlier.

AIM movers: Vertu Motors higher on Lookers bid and Capital Metals discount placing

Andrew Hore
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AIM movers: Vertu Motors higher on Lookers bid and Capital Metals discount placing

Vertu Motors (VTU) has risen 4.94% to 65.9p on the back of the bid for fellow motor dealer Lookers (LON: LOOK). Canada-owned Global Auto Holdings is bidding 120p a share, valuing Lookers at £465.4m, which is a 35% premium to the previous closing price. Vertu Motors had net tangible assets of 65.3p a share at the end of February 2023 and this could rise to 73.6p a share by February 2024. The share price rose 4.94% to 65.9p.

Tekcapital (LON: TEK) investee company Innovative Eyewear has secured a licensing agreement with brand marketer Authentic Brands Group for a smart eyewear collections for men and women with Reebok International. This should launch in 2024. The share price increased 3.85% to 13.5p.

PetroTal Corp (LON: PTAL) says the illegal river blockade has ended in the Puinahua canal in Peru. Two convoys are continuing their journey, including one carrying 40,000 barrels of oil to the Iquitos refinery. PetroTal average daily production over the past seven days is nearly 22,000 barrels of oil and it hopes to maintain this level for the next few weeks. This would be enough to raise 2023 daily production guidance of 17,000 barrels by around 5%. The share price is 1.86% higher at 41p.

Capital Metals (LON: CMET) is raising £500,000 at 1p a share. The market price slumped 46.7% to 1.2p. The cash is required for working capital while Capital Metals attempts to end the suspension of its mineral sands licences in Sri Lanka.

Costs at in-video advertising company Bidstack (LON: BIDS) doubled to £5.3m in 2022, but the loss still increased from £7.96m to £8.77m. There was £8.7m in cash at the end of 2022, similar to the cash outflow from operations last year. The dispute with Azerion, which terminated its reseller contract, continues. The share price dived 35.7% to 1.125p.

Petrel Resources (LON: PET) used €219,000 in cash in its operating activities in 2022. The company has assessed a number of oil and gas projects but has not made significant progress. Management says that investors in Asia and Australia interested in buying shares in the company, but dilution is a concern. There is £166,000 in the bank. The share price fell 26.7% to 1.1p.

Expectations have been reduced for concrete levelling equipment supplier Somero Enterprises (LON: SOM) following delays in project starts this year. Production of a new machine is being increased to satisfy demand, which will help the second half. US revenues are likely to be lower, but they will grow in other markets around the world. The forecast revenues have been reduced by 10%, while earnings have been cut from 53.2 cents a share to 44 cents a share. The share price is 13.6% lower at 285p.

Shares in Advanced Oncotherapy (LON: AVO) have slipped 12.5p to 2.625p following the partial conversion of £100,000 of convertible loan notes at nominal at the nominal value of 25p.

Petro Matad – awaiting more news on Velociraptor-1, its brokers value the shares at almost four times current price

Mark Watson-Mitchell
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Petro Matad – awaiting more news on Velociraptor-1, its brokers value the shares at almost four times current price

Todays announcement of the final results from Petro Matad (LON:MATD) for the year to end December 2022 contained no surprises by the Mongolian oil company.

The group’s net loss after tax was $2.95m (loss $2.1m).

Operationally, the company is drilling ahead at Velociraptor-1, and making steady progress on securing the consents in order to begin its development programme on Heron.

Petro Matad holds 100% working interest and the operatorship of two Production Sharing Contracts with the government of Mongolia – Block XX which has an area of 218 sq km in the far eastern part of the country, and Block V which has an area of 7,937 sq km in the central part of the country.

The big focus is upon the Velociraptor-1 exploration well in the Taats Basin of Block V which was spudded on 13 June, targeting an inversion anticline prospect estimated to have 200m barrels of resource potential.

Encouraging results in the Velociraptor prospect would significantly de-risk two adjacent prospects on the Raptor Trend which together have Mean Prospective Recoverable Resource potential of an additional 375 MMbo.

Analyst Opinion – values range 14.5p to 17p a share

Analyst Craig Howie at Shore Capital, the group’s NOMAD and Joint Broker, states that he continues to see a very exciting time ahead for Petro Matad in news flow terms.

The Block XX arduous process to resolve the land access issue continues, with Howie looking forward to further updates regarding its resolution.

He is now expecting an initial result from Velociraptor-1 next month, believing that it could be one of the most important exploration wells to be drilled in the AIM-listed exploration and production sector this year.

Shore Capital sees considerable running room for the shares, maintaining its Risked NAV estimate of 14.5p for the shares.

Analyst Daniel Slater over at Zeus Capital, Joint Broker to the company, considers that Velociraptor is a potentially very significant catalyst for Petro Matad, with steep upside on success, and expects this to be the focus for the stock over the coming weeks.

What Lake Resources delays mean for CleanTech Lithium

UK Investor Magazine
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What Lake Resources delays mean for CleanTech Lithium

Lake Resources shares sank this week after the lithium miner announced production at their Argentinian Kachi mine will be delayed significantly and will cost a lot more to achieve.

Lake Resources also said their target 50,000 tpa lithium production would not be achieved until 2030 – six years later than the originally guided the 2024 date.

As a result of Lake Resources delays, questions will be asked of London-listed CleanTech Lithium, which is operating in the same geography and pursuing similar lithium extraction methods.

CleanTech Lithium and Lake Resources operate in the ‘Lithium Triangle’ of Argentina, Bolivia and Chile. CleanTech Lithium is focused on Chile, while Lake Resources’ Kachi asset is located in Argentina.

Both companies are pursuing lithium production from lithium brines by employing direct lithium extraction (DLE). The DLE process is experimental and requires companies to employ chemical extraction techniques that avoid environmentally damaging evaporation processes used by the world’s largest lithium brine producers.

Lake Resources delays

It appears those hoping for a quick buck have pulled their cash out of Lake Resources. 

Achieving the first production in 2024 would have provided cash flows to support further development of the mine. This is now firmly off the table.

An increase in estimated costs accompanied the dramatic change in the production commencement date. In the 2021 Pre-feasibility study, a capex of $544m was estimated to be required to facilitate the production of 25,500tpa.

Lake Resources now expects capex to be $1.1B -$1.5B for Phase 1. Some investors aren’t hanging around to find out how they will fund this.

Lake Resources CEO David Dickson spoke of managing the vision and reality of taking Lake Resources through to first lithium in 2027. There are huge lithium resources in the lithium triangle but significant work is required to extract them.

“There’s not a huge amount of experience” in building chemical plants required to facilitate direct lithium processing, Dickson said in an investor presentation and added they were bringing in specialists to lead construction.

He also discussed maintaining credibility during their journey to production, which is now considerably longer than first thought.

Highlighting the sheer size of the task in achieving first lithium through DLE, lithium mining giant Albemarle with all its resources and expertise, is targeting 2028 to commence its Chile DLE operation.

CleanTech Lithium

CleanTech Lithium shares fell in the session following Lake Resources announcement in Australia at the beginning of this week.

Although CleanTech Lithium is pursuing DLE lithium production, their specific techniques differ from Lake Resources. This eliminates direct comparison based on respective technology, but questions remain about CleanTech’s implementation timelines and extraction efficacy at scale.

Evaluation of their DLE techniques is ongoing, and investors await further updates.

CleanTech Lithium’s had targeted production in 2024; this has already been revised to 2026 and should alleviate the chance of a nasty surprise similar to Lake’s.

CleanTech released a JORC-compliant resource estimate for their Laguna Verde project of 1.51mt LCE in late 2022, and brokers Fox-Davies estimate CleanTech’s assets could have a collective 4mt resource estimate by H2 2024.

Tekcapital: Reebok Smart Eyewear to be powered by Innovative Eyewear

UK Investor Magazine
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Tekcapital: Reebok Smart Eyewear to be powered by Innovative Eyewear

Tekcapital’s Innovative Eyewear has signed a multi-year licensing agreement with Authentic Brands Group to power Reebok Smart Eyewear.

Reebok will be a high-profile addition to Innovative Eyewear’s smart eyewear brands, which already include Lucyd, Nautica, and Eddie Bauer.

Reebok is one of the world’s leading sportswear brands, and this agreement is arguably the most significant licensing agreement for Innovative Eyewear’s Lucyd technology signed to date.

“Few names are as renowned as Reebok in the athletic marketplace,” said Harrison Gross, CEO of Innovative Eyewear, Inc.

“Our forthcoming Reebok smart eyewear collection, powered by Lucyd®, will continue Reebok’s legacy of bold and beautiful craftsmanship coupled with innovation and will align perfectly with today’s active lifestyles. We believe sport enthusiasts are seeking designer eyewear that both protects their vision and allows them to remain connected to their digital lives in an open-ear, handsfree format.

“Our partnership with Authentic for Reebok represents a significant step towards revolutionizing the sport eyewear segment with the convenient access to info and audio content and freedom from reliance on phone screens made possible by our Bluetooth frame technologies.”

Reebok Smart Eyewear is expected to launch in early 2024.

“We are pleased to partner with Lucyd to pioneer Reebok’s smart eyewear offering,” said Steve Robaire, EVP – Reebok International at Authentic.

“Reebok is known for delivering innovation across all of its product categories. Through Lucyd’s Bluetooth® technology, we reinforce the brand’s standards in this emerging category.” 

Tekcapital has a 70% stake in Innovative Eyewear which is listed on the NASDAQ. Tekcapital shares were over 6% higher at the time of writing on Tuesday.

FTSE 100 slips ahead of Bank of England rates decision this week; Next shares spike higher

UK Investor Magazine
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FTSE 100 slips ahead of Bank of England rates decision this week; Next shares spike higher

The FTSE 100 started the week lower ahead of the Bank of England’s interest rates decision on Thursday. The Bank of England is expected to raise interest rates for the 13th time in a row by 0.25% to 4.75%.

Poor performance in Asian equities and a speech by Jerome Powell were also adding to investor worries on Monday.

“Investors are lacking Monday motivation today as caution returns amid worries about global growth, ahead of the Bank of England decision on interest rates and testimony from the world’s most influential central banker, the Fed’s Jerome Powell,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“European indices have opened lower with the FTSE 100 on the back foot as investors mull what’s ahead for the path of interest rates, given the stubbornness of inflation, while concerns persist about China’s recovery losing steam.”

Investors will not be so worried about the Bank of England’s rate decision on Thursday but more of the hints of where rates could go later in the year. Some traders are pricing UK interest rates as high as 6% this year.

The FTSE 100 was down 0.5% to 7,606 at the time of writing.

FTSE 100 movers

FTSE 100’s high-beta cyclical names led the way lower on Monday, with Ocado sinking around 3.8%.

Miners were weaker on concerns China’s recovery was under threat. Antofagasta and Anglo-American were both down more than 1%.

Although JD Sports have repeatedly proved they can successfully navigate economic uncertainty, the risk of 6% rates was hitting the sportswear group on Monday.

Next shares spiked higher during the session after saying trading in the most recent period was better than expected. Next shares were the FTSE 100’s gainers at the time of writing, up 3.8%.

Signs of recovery at musicMagpie

Andrew Hore
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Signs of recovery at musicMagpie

Mobile phone and technology recycler and reseller musicMagpie (LON: MMAG) managed to edge up its EBITDA profitability in the six months to May 2023. However, it is still likely to make a pre-tax loss for the year.

Books and media revenues continue to decline, and technology revenues are not growing fast enough to fully make up for that. In fact, in the first half technology revenues also declined, but they are expected to increase for the year as a whole. That is partly down to the rental model spreading revenues.

Interim EBITDA is 7.7% ahead at £2.8m, even though postal strikes hampered progress in the first quarter. Most of that profit was in the second quarter. Group revenues fell 13% to £62m, but gross margins are improving.

The business is second half weighted. An upgraded version of buy now pay later will be introduced by the technology division in the second half.

Full year EBITDA is forecast to improve from £6.5m to £8.7m, but a higher depreciation charge means that the pre-tax loss could increase from £1m to £1.5m.

The business will generate more cash from operations this year, but not enough to cover capital expenditure. Net debt is £13.7m and the upward trend is likely to increase – although there tends to be a higher debt level in May than in November. There is a £30m bank facility that lasts until July 2026.

Shore does not expect musicMagpie to make a pre-tax profit until 2024-25. The company was profitable prior to last year. The share price moved up 0.75p to 18.5p. The April 2021 placing price was 193p.

Trading strategies: Comparing fundamental and technical analysis

OANDA
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Trading strategies: Comparing fundamental and technical analysis

By Craig Erlam

In the 1930s, the economist John Maynard Keynes famously said: “markets can stay irrational longer than you can stay solvent.” In other words, it is nearly impossible to predict the markets – and those who try may find themselves in over their head.

I’ve seen this maxim proven right thousands of times – but that doesn’t mean there isn’t value in research. There are huge benefits to be gained from applying the two main approaches to investing in the financial markets: fundamental and technical analysis.

The art and science of fundamental analysis

Fundamental analysis involves assessing the intrinsic value of an asset based on various factors, including financial statements, economic indicators, industry trends, and company-specific information. If an investor believes an asset is undervalued based on their analysis, they may decide to invest.

Fundamental analysis is often used for long-term investment strategies, as it considers factors that may impact an asset’s value over an extended period. This is particularly useful for stocks, where it can help identify undervalued companies or industries poised for growth, or currencies, when determining a currency’s value.

Technical analysis – the astrology of investing?

Technical analysis, on the other hand, focuses on analysing historical price and volume data to identify patterns and trends. It assumes that all known information is already reflected in the market price, and the key is to use this information to interpret how prices may respond in the future.

Traders using this approach may aim to profit from short-term price fluctuations and capitalise on trends that emerge from market psychology. For that reason, critics call it the “astrology of investing”. But although it can be an inexact science, it can also be extremely valuable. When a company announces results or an economic report like the US jobs data is released, for example, it is not always immediately clear whether they are good, bad, or something in between. But technical analysis can often quickly offer valuable insight into what investors think of it as a collective. That doesn’t mean the initial reaction will always be sustained but there is value in it nonetheless.

Finding comfort in both worlds

Neither method is foolproof. For this reason, some investors prefer to adopt a hybrid approach, combining elements of both methods to give them extra conviction in trading decisions. For example, an investor may use fundamental analysis to form an opinion on a company’s long-term prospects and then use technical analysis to identify opportune entry or exit points based on price trends or indicators.

But those who favour a hybrid approach can fall victim to confirmation bias if they let their fundamental beliefs cloud their interpretation of technical signals, or vice versa. One way to mitigate this bias is by covering up the name of the instrument being analysed during technical analysis to ensure an objective assessment of the chart. This helps traders make more informed decisions based on technical market signals rather than preconceived ideas.

Carving a reliable path forward

The choice between these two approaches often boils down to personal preference – traders and investors are drawn to the method that resonates with their investment style and personality, while others find value in a hybrid approach.

It’s impossible to predict the markets with absolute certainty. The art of investing lies in finding a balance between carrying out rational analysis and recognising the irrationality of market behaviour. By finding the approach that works for them, investors can gain valuable insights into the underlying factors driving asset prices and market trends.

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AIM movers: Litigation Capital award and Allergy Therapeutics returns from suspension

Andrew Hore
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AIM movers: Litigation Capital award and Allergy Therapeutics returns from suspension

Litigation Capital Management (LON: LIT) has won a successful award in an arbitration investment. The company provided litigation funding of A$2.3m and will receive revenues of A$16.9m as a return and a success fee. There is also a performance fee of A$15.1m relating to the return for the managed fund. The share price jumped 18.7% to 82.4p.

Animal feed ingredients developer Ocean Harvest Technology (LON: OHT) has positive trial results for feeding hens, catfish, shrimp and piglets. This shows that the seaweed-based OceanFeed products improves production yields over a wide range of species. There are more trials underway. The share price initially went to a significant premium to the flotation price of 16p, but it subsequently fell back. The latest news has pushed up the share price by 15.8% to 16.5p.  

Abingdon Health (LON: ABDX) and Salignostics have launched the saliva-based Salistick pregnancy test. Abingdon Health will manufacture the test and is exclusive UK distributor. It will be launched in 400 Superdrug stores as the Abingdon Simply Test. There are 12.5 million pregnancy tests each year in the UK. The share price has come off its pea for the day and is up 7.14% to 15.75p.

Creo Medical (LON: CREO) says that its Speedboat Inject product has received a CE mark for use in the gastrointestinal tract. This means that it can be used for endoscopic procedures from the mouth to the lower gastrointestinal tract. The share price is 14.1% ahead at 36.5p.

Allergy Therapeutics (LON: AGY) has returned from suspension following the publication of full year and the subsequent interim results. The interim revenues declined by 18% to £39.9m and there was a swing from operating profit of £7.4m to a loss of £8m. Net cash was £13.2m at the end of 2022. Additional cash will be required by September. The share price slumped 73.6% to 1.65p. The most recent fundraising was at 1p.

Trading has also resumed in Hong Kong-based CCTV installer UniVision Engineering (LON: UVEL) after publishing its interims. It is still waiting final payments for the terminated MTRC contract. Other disputes have been settled or negotiations are at a final stage. Dimension Data is suing UniVision Engineering. Interim revenues slumped from £4.98m to £653,000 and the company fell into loss. Management believes it has enough working capital for the short-term. The share price slipped 22.2% to 0.175p.

In 2022, Tower Resources (LON: TRP) used $283,000 in its operations and a further $3.05m was spent on exploration. There was $231,000 in cash at the end of 2022, while a placing at 0.05p a share raised £2.3m in May. There was a £351,000 VAT rebate received after the year end. The share price fell 5.75% to 0.041p.

Kistos (LON: KIST) says that the Benriach exploration well, West of Shetland, encountered gas bearing sands in the Royal Sovereign formation, but it appears sub-commercial. The share price dipped 5.88% to 256p.

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