Lloyds shares are falling back to a key support level where buyers have previously stepped in.

The Lloyds share price has remained in a relatively tight range over the past year and the price has undulated between 45p-55p. On the face of it, this range looks like a trader’s dream. 

The 45p level has held on three occasions over the past year and on two of these occasions, Lloyds shares have subsequently rallied to 50p and 55p, before falling back.

With the stocks now approaching 45p once more, investors will be weighing an entry. If support levels hold at 45p, one could expect a move back up to 50p-55p. However, a significant break of this level would open the door to 40p, possibly lower.

There is of course no certainty the price will simply bounce off 45p and fundamentals must be taken into consideration.
Lloyds has two core elements driving their fundamentals from a macro perspective. 

Lloyds fundamentals

Firstly, UK inflation remains stubbornly high and the Bank of England will likely hikes rates again to control soaring prices.
Higher rates are good for Lloyds profitability and further rate hikes may lead to better than expected earnings later in the year.

However, the counterbalance to the upside scenario is the prospect of deteriorating UK economic health. If the UK’s economy is hit due to higher borrowing costs, Lloyds will have to set aside provisions for bad debts. This may offset higher net interest margins.

Nonetheless, investors confident of Lloyds earnings potential in the long term will be keenly watching LLoyds share price behaviour around the key 45p level.

Tekcapital’s MicroSalt has taken another substantive step in bolstering their distributive network, with an additional 400 stores now stocking MicroSalt products across the United States.

MicroSalt is a Tekcapital portfolio company and shares their objective of creating products that can help improve the lives of a significant number of people with patent-protected technology. MicroSalt’s products contain 50% less sodium than traditional table salt and can help individuals with cardiovascular diseases exacerbated by high sodium consumption.

MicroSalt’s products will now be stocked in stores including Brookshire Brothers, Pete’s Fresh Market, Heinen’s, Dick’s Fresh Market, Zerbos, Better Health Market, Tdych’s Marketplace and Associated Supermarkets.

“We are proud of our efforts thus far to build product distribution as it underscores the retail need for full flavor, low-sodium products. These efforts are working in parallel with our efforts to provide low-sodium products for private-labeled retail brands. Excess sodium consumption is one of the leading contributors to hypertension, and partnerships like this are the best way to provide consumers with great tasting products with less sodium,” said Rick Guiney, CEO of MicroSalt.

The Tekcapital portfolio company has previously announced products are stocked in thousands of Kroger stores, a major US supermarket chain.

MicroSalt appointed Zeus Capital as their NOMAD last year ahead of a proposed AIM IPO in 2023.

London’s leading index closed down as investors digested a raft of economic data from the United States and China.

The FTSE 100 closed down 0.3% at 7,750.

On Tuesday, markets were contending with Chinese and US economic data that suggested the world’s two largest economies are showing signs of slowing.

Overnight, Chinese industrial production, retail sales and fixed asset investment for April were all weaker than expected. The data added to disappointing economic readings in recent months and provided further evidence China’s bounce back from the end of stringent COVID restrictions was fading.

Equity markets were dealt a major blow on Tuesday afternoon when US retail sales rose less than expected, sparking a sell-off in global equities.

The FTSE 100 had been positive before the release, and the S&P 500 was 0.3% weaker at the time of writing.

Many economists have been predicting a US recession, and today’s data corroborates their forecasts. Retail sales rose 0.4% vs 0.7% estimates, following disappointing US manufacturing data released yesterday. The US Empire manufacturing index for May fell to -31.3.

FTSE 100 movers

DDC was the FTSE 100 top riser after releasing solid 2023 numbers. Operating profit grew 11.3% as revenue jumped 25%.

Vodafone was down heavily after a stark warning from the new CEO the telecoms company must improve performance.

“Our performance has not been good enough,” Vodafone CEO Della Valle said. Vodafone shares were down over 8% on Tuesday.

Vodafone’s free cash flow fell in 2023, and revenue was static.

“Lacklustre performance has been something markets have come to expect from Vodafone of late, and full-year results didn’t buck the trend. Higher energy costs and continued weakness in Germany meant underlying cash profit came in below the recently downgraded company guidance,” said Matt Britzman, equity analyst at Hargreaves Lansdown.

Ocado finished 4% weaker after JP Morgan analysts cut Ocado’s price target to 450p yesterday.

The precious and base metals mining development and exploration group Greatland Gold (LON:GGP) has responded to an article in The Australian Financial Review’s Street Talk column, which was entitled ‘Greatland ramps up listing preparations, BofA nabs role’.

In today’s announcement answering the press mention, the group has not specifically confirmed that it has appointed Bank of America to assist with the ASX listing, nor the suggestion that it has been chosen to raise between A$50m and A$100m in the process.

As we highlighted earlier this month the group has appointed a new Non-Executive Director that could help speed the procedure in the ‘cross-listing’ for the £407m capitalised resources business.

The company has confirmed that it has held preliminary talks with various potential advisers, but no decisions have been made as yet.

The whole Australian gold mining scene has perked up over the last few days as the Newmont Corporation $17.5bn bid for Newcrest Mining has been recommended by the latter to its shareholders.

Newcrest Mining is a partner with Greatland Gold on the Havieron gold-copper project in Paterson Province in Western Australia.

Greatland Gold, whose shares have eased 11% today to 7.35p, has a number of exploration interest in WA, while it is expected that Havieron will be developed into a significant scale project.

Vodafone shares sank on Tuesday and approached multi-year lows as investors reacted to the telecom group’s preliminary results.

Vodafone shares were down 3.7% to 86.4p at the time of writing. The stock traded around 83p in December 2022, the lowest level since 1997.

The grave state of the telecoms group was reflected in the action taken by the new CEO with the slashing of around 11,000 in an effort to cut costs and boost profits.

Indeed, Vodafone CEO Margherita Della Valle was quite clear in her views of Vodafone’s progress in 2023. “Our performance has not been good enough,” Della Valle said. It’s hard to argue otherwise.

Although operating profit jumped significantly, it was due to the disposal of Vantage Towers. Underlying business performance was poor.

Revenue grew just 0.3% to €45.7bn and service revenue declined to €37.9bn. Adjusted free cash flow decreased to €4.8bn in 2023 from €5.4bn.

“Lacklustre performance has been something markets have come to expect from Vodafone of late, and full-year results didn’t buck the trend. Higher energy costs and continued weakness in Germany meant underlying cash profit came in below the recently downgraded company guidance,” said Matt Britzman, equity analyst at Hargreaves Lansdown.

“New CEO, Margherita Della Valle, has been very vocal about the host of challenges she’s facing in her new role – the honesty is refreshing but not enough to keep shares from falling on the news.

“Today, Vodafone outlined some of its new strategies to combat poor performance, which include cutting around 11,000 jobs over the next three years, streamlining operations and focusing on Vodafone Business. This makes sense on paper, but markets will need to see tangible results over the coming year before they get more excited.”

It is now all about rebuilding profitability and getting back to growth for the boohoo Group (LON:BOO) after the latest set of results.

The £487m capitalised Manchester-based multiple brand-owning retail group, which has built up significantly over the last few years, reported revenues down 11% at £1.77bn (£1.98bn), while its adjusted pre-tax profits fell from £82.5m to a £1.6m loss.

Cost pressures including raw material price inflation, the increased cost of freight, combined with stock clearance and lower sales volumes had significant impact over the year to end February 2023.

Over the last year it spent some £91m on building up its infrastructure to handle efficiently a brand with over £4bn of sales. In so doing it has invested heavily in the automation of its Sheffield site and in its US distribution centre.

It has a clear target of an addressable market of up to 500m potential customers.

The group last year had 18m active customers, which was 10% down from 19.9m the previous year.

Changes in customer behaviour saw it handle 11% less orders at 55.5m (62.4m), while the average order value actually increased 11% to £53.32 (£48.16).

CEO John Lyttle stated that:

“Over the last three years, the Group has achieved significant market share gains.

Looking ahead, we are investing for the future growth of this business with automation, local fulfilment capacity in the US and building global brand awareness.

We will deliver sustainable returns on these investments. We will continue to give our customers the latest trends, outstanding value and a great experience.

Our confidence in the medium-term prospects for the group remain unchanged, and as we execute on our key priorities we see a clear path to improved profitability and getting back to double digit revenue growth.”  

Analyst Opinion – 63.5p per share valuation

Rachel Birkett at Zeus Capital expects lower growth this year and next but is impressed with the medium-term guidance in a return to double-digit growth and increased profitability.

Her estimates for the current year to end February 2024 are for £1.72bn sales and a £13.4m adjusted pre-tax loss.

But going into the following year she sees £1.81bn sales giving a profit of £1.2m.

She does, however, have an intrinsic valuation of the group’s implied enterprise value at £801.5m, which equates to 63.5p per share, after net debt.

Conclusion – recovery time is necessary

Cost headwinds have certainly taken their toll, however, given time this group is determined to return to substantial profits and in doing so give its shareholders a meaningful return for their investment.

The return to double digit revenue growth will certainly take time, possibly another three years, so the big question now is just where its shares are going?

After this morning’s news the shares were up 13% at 43.75p.