FTSE 100 continues decline as debt ceiling fears rise

UK Investor Magazine
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FTSE 100 continues decline as debt ceiling fears rise

The FTSE 100 fell on Thursday as debt ceiling fears stepped up ahead of the crunch date at the beginning of June.

The FTSE 100 was down 0.7% at the time of writing on Thursday.

“The FTSE 100 continued to lose ground on Thursday as the US debt ceiling crisis remained unresolved with the beginning of June deadline rapidly approaching,” said AJ Bell investment director Russ Mould.

“Asian markets hit two-month lows as investors looked for safe-haven assets in an attempt to build some insurance into their portfolios. This is aimed at protecting against the still unlikely risk that the US defaults on its debt.”

Washington regularly goes through political wrangling ahead of debt ceiling limits, and investors have become desensitised to the ramifications of shutting down key US government departments.

Nonetheless, traders took the opportunity to take cash off the table and await a resolution.

FTSE 100 movers

Centrica was one of few FTSE 100’s gainers after the UK government announced the energy price cap would be reduced in July. The move would make the domestic energy market more competitive and potentially help Centrica win new customers.

Coca-Cola HBC was the FTSE 100’s top faller despite raising revenue guidance and maintaining earnings forecasts. Coca-Cola HBC was down 5% at the time of writing.

BP and Shell were major drags on the index as oil prices fell on concerns about demand. Shell and BP were down 2.2% and 2.4%, respectively.

Add some rock & roll to your portfolio with Baillie Gifford’s Edinburgh Worldwide Investment Trust

UK Investor Magazine
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Add some rock & roll to your portfolio with Baillie Gifford’s Edinburgh Worldwide Investment Trust

Baillie Gifford’s Edinburgh Worldwide Investment Trust (LON:EWI) will add some rock & roll to your portfolio.

We’re not talking about electric guitars and biting off bat’s heads, but instead investing in naturally volatile young companies with the potential to shape the future. This is a long-term strategy; investors should be prepared to buckle up and ride out sharp swings.

Meeting with Baillie Gifford at their Edinburgh office last week, the Edinburgh Worldwide team described the trust as a ‘rock & roll’ strategy due to the composition of the portfolio.

The managers of this fund have picked some of the best winners of the last decade. However, the portfolio is highly volatile, and trust managers are prepared to ride out significant drawdowns in their holdings.

There is the acceptance that companies take time to create the impact on the world the Baillie Gifford team foresee. 

The Edinburgh Worldwide Investment Trust has an investment time horizon of around 10 years. Over this period, they target at least 100% gains in a stock as a base case. Many have risen well in excess of this. 

Manager Douglas Brodie explained how the trust first bought Tesla when the EV maker was worth $2 billion. They sold when it was worth £1 trillion. During this period, the stock fell as much as 47% before rebounding. The Edinburgh Worldwide team exited with a 25x total return. Tesla was held for more than 10 years.

The trust held STAAR Surgical through a 64% drawdown which turned into a 7x return.

Seeking sales growth

Edinburgh Worldwide targets companies that have the opportunity for rapid sales growth. The management identifies companies that can achieve substantial sales growth through their ability to shape the future, solve problems, and provide better and cheap solutions.

This approach has helped the strategy achieve sales growth over the past 5 years exceeding that of the S&P Global Small Cap benchmark.

Baillie Gifford’s test track

Edinburgh Worldwide’s strategy allows the portfolio to include companies which don’t meet the criteria of Baillie Gifford’s other strategies due to their size.

When we sat down with Baillie Gifford, they explained how the trust acted like a test track for young growth companies. Should earlier-stage companies succeed in the Edinburgh Worldwide portfolio, they may satisfy the requirements of other Baillie Gifford mandates.

Portfolio

Edinburgh Worldwide’s portfolio is a blend of both private and public equities. The nature of their strategy is perfectly demonstrated in the top holding, Space Exploration Technologies, or SpaceEx. Founded by Elon Musk, this is a privately held company with the aim of colonising Mars.

“It’s rare that you come across companies for which you can genuinely say ‘this might be a generation-defining company’, and with SpaceX everything points to that,” Douglas Brodie said.

Other top holdings include Alnylam Pharmaceuticals – a great example of a company finding its way into other Baillie Gifford strategies after initially being added to Edinburgh Worldwide.

Ocado accounted for 2.8% of the trust as of 30/4/23. Brodie explained this is a long-term holding that has produced excellent returns but faded to near original entry.

Brodie still believes in the company’s ability to become a major part of the global food distribution supply chain and highlights 50% of the economy is consumption, and 50% of consumption is food.

A rare opportunity alongside the majors with Challenger Energy Group

UK Investor Magazine
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A rare opportunity alongside the majors with Challenger Energy Group

The UK Investor Magazine was thrilled to be joined by Challenger Energy Group CEO Eytan Uliel and Uruguay Managing Director Randy Hiscock.

Eytan and Randy provide a comprehensive overview of the recent developments at Challenger Energy Group. The focus is on their Uruguay asset which could yield as much as 1-2 billion barrels of oil. This would make the project a world-class asset.

Our discussion starts with a technical overview of the Uruguay asset and we move on to what investors can expect over the 12 months.

Eytan describes how the Uruguay asset is a unique prospect as it sits alongside fields operated by oil majors and Challenger Energy is the only junior operating in close proximity.

Find out more about Challenger Energy Group here.

Fevertree sales build momentum

Andrew Hore
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Fevertree sales build momentum

Fevertree Drinks (LON: FEVR) have trimmed rrofit forecasts, although Fevertree has reiterated its guidance of revenues between £390m and £405m.

The AIM-quoted mixer drinks supplier has improved UK sales marginally, but that is on the back of a 5% price rise, so volumes have fallen. The share is still higher than in the first quarter of 2020, though. Cost inflation remains a problem.

US revenues and volumes grew in both the on-trade and off-trade. Europe and the rest of the world are growing, although Australia will have a tougher first half because of the change in distribution partner.

EBITDA guidance is maintained at between £36m and £42m, but the forecasts are moving towards the lower end of the range.  

The full year pre-tax profit forecast has been cut from £28m to £26.8m, down from £31m last year, which would mean that profit has more than halved over two years. The dividend forecast is still 16.9p a share, which is only just covered by forecast earnings.

The share price has slipped 1% to 1419.5p, but it is still nearly two-fifths higher than at the beginning of the year. The prospective 2023 multiple is 82, but that would fall below 50 for 2024 if the current forecasts are achieved.

AIM movers: Mercantile Ports contract and ex-dividends

Andrew Hore
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AIM movers: Mercantile Ports contract and ex-dividends

Mercantile Ports and Logistics Ltd (LON: MPL) has signed a five-year contract with Lucky Marine Shipping & Logistics to handle containers at the facility at Karanja in India. Volumes will build up over two years. Additional contracts are set to be signed for the facility. The share price improved 17.4% to 4.6p, but it is still 46% lower so far this year.

Analytics company Actual Experience (LON: ACT) has revealed that a previously announced contract is an extension of one with DEFRA in partnership with Vodafone. The client is transferring to the company’s new Digital Workplace Management Platform. The share price rose 9.09% to 0.9p.

Phoenix Copper (LON: PXC) had $4.7m in cash at the end of 2022. A feasibility study is being finalised for the Empire copper project in Idaho and there are plans for an $80m corporate bond, which would be listed on the International Stock Exchange in the Channel Islands, to fund the project. The interest rate would be linked to the copper price. Optimism about the completion of the funding has pushed up the share price by 9.09% from its all-time low to 24p.

Metallurgical test work shows lithium recovery of more than 95% from flotation concentrates from the Cinovec lithium/tin project, which is owned by 49% owned by European Metal Holdings (LON: EMH). CEZ owns the other 51% of the Czech-based project. An updated feasibility study is on course. The share price is 7.94% higher at 34p.

Premier African Minerals (LON: PREM) says that the first spodumene shipments from the Zulu lithium and tantalum project should be in June. However, there was a commitment to supply Canmax Technologies by the end of May, which means that the contract could be cancelled. Further funding may be required. Final optimisation of the plant should be in the fourth quarter and that could increase production by 25%. At present prices and production levels the mine should be profitable. The share price slumped 23.9% to 0.59p.

RA International (LON: RAI) 2022 results were in line with expectations with a 15% increase in revenues for the humanitarian services provider and a slump into loss. Canaccord Genuity has downgraded expectations for 2023, increasing the expected loss to $5.6m and it does not expect a return to profit in 2024. The order backlog was worth $79m at the end of March. The share price fell 17.5% to 13p.

Destiny Pharma (LON: DEST) chief executive Neil Clark has stepped down after six years and replaced on an interim basis by Dr Debra Barker, who was previously a non-executive director and has experience with multinational pharma companies.

Pathfinder Minerals (LON: PFP) reported 2022 results, which are for a period before the disposal of the main subsidiary. The share price slipped 9.52% to 0.475p.

Ex-dividends

Anexo (LON: ANX) is paying a final dividend of 1.5p a share and the share price is 0.3p higher at 78.5p.

Andrews Sykes (LON: ASY) is paying a final dividend of 14p a share and the share price declined 10p to 537.5p.

Ashtead Technology (LON: AT.) is paying a final dividend of 1p a share and the share price is down 3.5p to 376.5p.

Burford Capital (LON: BUR) is paying a final dividend of 5.03p a share and the share price fell 6.5p to 1053.5p.

Cenkos (LON: CNKS) is paying a final dividend of 0.5p a share and the share price is unchanged at 35p.

Empresaria (LON: EMR) is paying a final dividend of 1.4p a share and the share price fell 1.5p to 51.5p.

i3 Energy (LON: I3E) paying a dividend of 0.17p a share and the share price slipped 0.25p to 18.45p.

Lords Group Trading (LON: LORD) is paying a final dividend of 1.33p a share and the share price is unchanged at 68.5p.

Mincon Group (LON: MCON) is paying a final dividend of 1.05 eurocents a share and the share price is unchanged at 90.75p.

United Utilities hit by inflation and lower consumption

UK Investor Magazine
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0
United Utilities hit by inflation and lower consumption

United Utilities’ key measures of revenue and operating profit fell in the 2023FY after lower consumption hit the top line and rising prices eroded operating profit.

United Utilities’ recorded an operating profit of £441m in the year to 31st March, down from £610m in the same period a year ago. The company blamed falling profits on the rising price of electricity and chemicals.

Despite the dismal performance in the full year, United Utilities shares were around 1% higher at the time of writing on Thursday. The stock has sold off into the release of the results suggesting the poor performance was expected by investors.

“United Utilities appear to have a leak in their profit pipeline as we saw operating profits take a tumble. In return for providing a reliable and affordable water supply to North West England, the regulator allows the group to earn an acceptable return. The only issue is, high levels of inflation are really taking their toll on costs. Coupled with lower revenues as customers are actively being encouraged to save water, it’s no surprise to see profits dry up,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.

“But falling revenues should only be a temporary problem, since over the medium term the group’s able to increase its prices alongside inflation. And if the amount of water it bills its customers for falls below a certain threshold, the regulator will pay United Utilities the difference. But these funds are only received two years later. So in the short term, we’re seeing cash flows and earnings that are feeling the impact of rising costs and declines in water usage.”

United Utilities increased its full-year dividend 4.6% to 45.51p.

Rolls Royce: tech titan of the FTSE 100?

Charles Archer
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Rolls Royce: tech titan of the FTSE 100?

Rolls-Royce shares are skyrocketing in 2023. But CEO Tufan Erginbilgic’s crusade to modernise may come at the expense of its engineering pioneering.
Rolls-Royce (LON: RR) shares have been on a tear in 2023. The FTSE 100 company’s new CEO, Tufan ‘Turbo’ Erginbilgic has set a fire under the company, sending shares up 55% year-to-date to 154p.
The new CEO is ruffling feathers, having referred to the company as a ‘burning platform’ earlier this year and even complaining to the Financial Times that the key power systems division — which generated 25% of total underlying revenues in 2022 — has been ...

New standard listing: Admiral Acquisition

Andrew Hore
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New standard listing: Admiral Acquisition

Admiral Acquisition is a large shell founded by people involved in other large shells floated on the standard list and other stockmarkets. They include vehicles that acquired Burger King and Findus Frozen Foods.
Investors should be aware that there are one million founder shares which offer a dividend equivalent to 20% of the increase in the price of an ordinary share and on subsequent increases. The dividend is triggered after the first acquisition. This dividend can be paid in shares or cash.
The shares opened at $10 and ended the first day at 990 cents and in the following two days the shar...

Logistics: looking through short-term volatility

Aberdeen Investment Trusts
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Logistics: looking through short-term volatility

Troels Andersen, Fund Manager, abrdn European Logistics Income plc

It has been a tough period for commercial real estate, with interest rates rising and capital values falling. The logistics sector has not been immune to this change and even though it continues to see low voids, strong demand and robust rental pricing, sentiment has been damaged.

Despite this, it’s worth noting that logistics assets have been significantly more resilient than some other real estate sectors, such as offices and retail. As such, the structural growth story for logistics remains intact and the outlook for rental growth is encouraging.

The weakest areas within the wider logistics market have been those with a lot of liquidity but speculative capital has now left these markets and pricing has become more favourable.

Structural strength

Despite macro-economic headwinds, the long-term structural argument for the logistics sector is still strong. There is a chronic shortage of supply and the continued growth of e-commerce has created significant demand for urban logistics, where tenants need to be as close to consumers as possible.

The sector is also benefiting from companies reconfiguring supply chains and near-shoring production. Rising geopolitical tensions and the supply chain vulnerabilities exacerbated by the pandemic have encouraged companies to bring production closer to home and hold higher inventories, a trend we are seeing across all markets.

The strength of these trends is shown by continued demand for logistics assets even amid the recent weakness in the European economy. According to Savills’ report on the European logistics market this March, take-up reached nearly 38 million sq m in 2022, a total second only to 2021’s series high of 40.2 million sq m and 18% higher than the five-year average.

The overall vacancy rate across Europe is low at between 2% and 3%. For example, in abrdn European Logistics Income’s portfolio, we only have one void across our 27 assets. Higher borrowing costs are making it more difficult to bring new supply onto the market and while there have been short-term declines in capital values, the lack of supply is likely to put a floor under further price falls.

Buoyant rents

The lack of supply also means that rental prices remain robust. Logistics rents increased by 3.2% year-on-year in the second quarter of 2022, but even higher rental growth was recorded in the most supply -constrained parts of the market. 

European logistics rents also have a strong link to inflation. Around two-thirds of the abrdn European Logistics Income tenant portfolio has no cap on Consumer Prices Index (CPI) linkage, enabling rents to rise annually in line with inflation. The remainder also rises with inflation, but to a lesser extent. This further supports rental growth in the year ahead and helps offset yield expansion.

Trust positioning

Logistics doesn’t face the challenges of other parts of the commercial property market, such as the office market or high street retail. Its long-term investment credentials are robust. However, it still requires careful navigation and effective diversification.

As trust managers, we can’t influence pricing in the sector but we can influence what happens on the ground, working hard on lease renewals and unlocking additional rental value. We can ensure we have a balanced portfolio and that our tenant profile is robust.

In the longer-term, we are hopeful that more speculative capital has moved out of the sector. We are seeing new institutional investors taking an interest across Europe and the Middle East, with private equity capital waiting on the sidelines. These are long-term traditional real estate investors who are putting capital to work and bringing stability to the sector.  

Logistics is a core part of a commercial property portfolio which is supported by the tailwinds of record-low vacancies and structural demand drivers. Even if capital values are volatile in a rising rate environment, rental growth is expected to retain momentum in most European logistics hotspots.

Important information

Risk factors you should consider prior to investing:

  • The value of investments and the income from them can go down as well as up and you may get back less than the amount invested.
  • Past performance is not a guide to future results.
  • Investment companies can borrow money in order to enhance investment returns. This is known as ‘gearing’ or ‘leverage’.
  • However, the use of gearing can result in share prices being more volatile and subject to sudden or large falls in value. Where permitted an investment company may invest in other investment companies that utilise gearing which will exaggerate market movements, both up and down.
  • There is no guarantee that the market price of the Company’s shares will fully reflect its underlying Net Asset Value.
  • As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
  • Investing globally can bring additional returns and diversify risk. However, currency exchange rate fluctuations may have a positive or negative impact on the value of your investment.
  • The Company may hold a limited number of investments. If one of these investments declines in value this can have a greater impact on the fund’s value than if it held a larger number of investments.
  • Property values are a matter of the valuers’ opinions and can go up and down. There is no guarantee that property values, or rental income from them, will increase so you may not get back the full amount invested.
  • Property investments are relatively illiquid compared to bonds and equities and can take a significant length of time to sell and buy.
  • The Company invests in a specialist sector and it will not perform in line with funds that have a broader investment policy.
  • Derivatives may be used, subject to restrictions set out for the Company, for efficient portfolio management in order to manage risk. The market in derivatives can be volatile and there is a higher than average risk of loss.

Other important information:

Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG. abrdn Investments Limited, registered in Scotland (No. 108419), 10 Queen’s Terrace, Aberdeen AB10 1XL. Both companies are authorised and regulated by the Financial Conduct Authority in the UK.

Find out more at www.eurologisticsincome.co.uk or by registering for updates. You can also follow us on social media: Twitter and LinkedIn.

FTSE 100 tanks on interest rate fears after hotter-than-expected inflation

UK Investor Magazine
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FTSE 100 tanks on interest rate fears after hotter-than-expected inflation

The FTSE 100 tanked Wednesday as UK inflation data came in hotter than expected, sparking a selloff in bonds and equities.

Although inflation fell materially in the year to April, the 8.7% increase in prices was significantly higher than economists’ estimates of 8.2%.

The Bank of England will likely have to hike rates more than once if inflation remains elevated. Markets are now pricing that UK interest rates will rise to 5.5%.

Early signs markets were piling pressure on the Bank of England came from bond markets where yields on short-dated UK government bonds jumped over 20 bps in early trade on Wednesday.

“Bond markets took one look at the latest inflation figures and took the view that interest rates are going to keep going up. The UK 10-year Gilt rate jumped to 4.3% on the news, the highest level since last October and significantly ahead of the 3% level seen only three months ago,” said Russ Mould, investment director at AJ Bell.

“Sticky inflationary pressures, particularly in food, will strengthen the argument for the Bank of England to raise rates again. That will bring more pain to companies and consumers as the cost of servicing borrowings becomes more expensive.”

The pound soared to 1.24721 against the dollar before falling back. The hot inflation read sparked a selloff in UK-facing equities, and very few FTSE 100 stocks were gaining on Wednesday.

The FTSE 100 was down 2.1% at the time of writing.

FTSE 100 Movers

In recent months, stocks highly exposed to interest rates and consumer spending have made steady gains on hopes the BoE were nearly finished hiking rates.

These hopes were dashed today, and sectors reliant on the UK economy were heavily hit.

Persimmon led the housebuilding sector lower with sharp losses in Taylor Wimpey, Barratt Developments and Berkeley Group Holdings. Persimmon was the FTSE 100’s worst performer at the time of writing, down over 5% and approaching the lowest levels of 2023.

Gyrations in the bond market served as a reminder of the volatility after Truss’s doomed budget last, and asset managers and insurance companies fell heavily on Wednesday.

Aviva, Legal & General, Prudential and Pheonix Group Holding were among the top fallers.

Ocado was the FTSE 100’s top riser, up over 7%, despite indications the food retail and technology company would be demoted to the FTSE 250. According to data from the FCA, Ocado is one of the most heavily shorted stocks by funds, and today’s move may be a round of short covering.

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