Esken falls despite significant break up value

Andrew Hore
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Esken falls despite significant break up value

Aviation and renewables company Esken (LON: ESKN) is the largest faller on the Main Market today following its full year results. The share price slumped 23.8% to 2.82p. The company does have significant break up value, though.

In the year to February 2023, revenues increased from £104.6m to £130m, while the underlying loss reduced from £35.7m to £27.7m. However, the loss is expected to increase this year on lower revenues following disposals. The forecasts loss ranges from £43m to £53.7m.

Net debt jumped from £88.1m to £166.7m at the end of February 2023. That was before the announcement of the £9m disposal of Mersey Biomass and even after this sale net debt is expected to increase to more than £190m by next February.

Divisional prospects

London Southend Airport is the focus of the aviation operations. This is a high fixed cost business so increasing volumes will move the operation closer to profitability. Canaccord Genuity believes that passenger numbers could nearly double to 160,000.

Larger London airports are becoming busier and that provides scope for demand to switch to an airport such as London Southend, particularly the shorter flights. Operational gearing means that the financial performance could improve rapidly.

Esken has a portfolio of renewable assets, where it has invested small amounts in equity, and this provides significant upside. Biomass outages are continuing, but there are improvements in plant performance and gate prices.

The strategy is to dispose of the main businesses when there are realistic selling prices. The renewables business is likely to be sold first with the timing of a sale of the aviation business depending on the rate of recovery in operations.

Canaccord Genuity has a target share price of 12p, which is similar to its current break-up value estimate – although that rises to 15.4p by February 2026. Zeus has a range of sum of the parts valuations from 14.8p at the low end to 19.8p at the high end.  These are all much higher than the share price, which reflects high debt levels and the risks of the different businesses.

AIM movers: i-nexus convertible funding and Live Company’s late accounts

Andrew Hore
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AIM movers: i-nexus convertible funding and Live Company’s late accounts

Software company i-nexus Global (LON: INX) is raising £500,000 through unsecured convertible redeemable loan notes with a conversion price of 10p a share. The share price jumped by one-fifth to 4.5p. The cash will provide working capital. Existing convertibles will have their redemption dates extended.

Offshore services provider Tekmar Group (LON: TGP) increased interim revenues by 36% to £17.7m and the loss was reduced. Management believes the company can reach EBITDA breakeven for the full year. That is based on forecast revenues of £40m, which is 90% covered by existing revenues and orders. The share price is 12.2% ahead at 10.375p, although it is still 10% down since the beginning of 2023.  

Oriole Resources (LON: ORR) has discovered significant mineralised intervals at Mbe in Cameroon. The best of the six sample lines showed 2.2 metres at 8.47g/t gold. Maiden drilling is planned in 2023-24. Project funding for the wider licence area should be completed by the third quarter. The share price rose 10.5% to 0.21p.

Avacta Group (LON: AVCT) says that following the fifth dose escalation cohort in a phase I clinical study of AVA6000 for tumour targeted chemotherapy. There has been a marked reduction in frequency and severity of toxicities associated with doxorubicin chemotherapy. The sixth dose will be increased as Avacta tries to identify the maximum tolerated dose. The share price improved 8.06% to 114p.

Live Company Group (LON: LVCG) will not be able to publish its 2022 accounts by the end of June, so trading in the shares will be suspended on 3 July. MHA MacIntyre Hudson has been appointed as auditor. The accounts should be reported by the end of July. The share price slumped 29% to 1.35p.

Fortune Mojapelo is stepping down as chief executive of Bushveld Minerals (LON: BMN) and former De Beers director Craig Coltman will take over the role. There was a $24m impairment loss in 2022. Revenues were 39% higher at $148.4m. The share price declined 14.6% to 3.075p.

A strong performance in the US by Haydale Graphene (LON: HAYD) has led finnCap to edge up its 2022-23 revenues forecast from £4.1m to £4.3m, although admin expenses were higher. However, growth expectations have been reduced. The share price fell 9.52% to 0.95p.

Polarean Imaging (LON: POLX) has appointed Dr Christopher von Jako to replace Richard Hullihen as chief executive. Dr von Jako has been chief executive of BrainWay, a Nasdaq listed developer of non-invasive neurostimulation treatments for mental disorders. He has been granted 5.325 million options with an exercise price of 29p each. The share price is 6.96% to 26.75p.

FTSE 350 Housebuilders sink on mortgage worries

UK Investor Magazine
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FTSE 350 Housebuilders sink on mortgage worries

FTSE 350 housebuilders were deep in the red in Wednesday morning trade as hotter than expected increased the chances of higher mortgage rates in the coming months.

Hundreds of thousands of households will see fixed-rate deals come to an end this year and will face significantly higher mortgage rates. Variable-rate mortgage holders have suffered higher mortgage payments over the last year and will continue to do so.

“For anyone with a variable mortgage, the likelihood of another rate rise tomorrow means yet more pain. Plenty of those who moved onto a variable deal when their fixed rate expired had expected rates to have started to ease by now, so there’s a growing risk of rises that people hadn’t expected and cannot afford,” said Sarah Coles, head of personal finance, Hargreaves Lansdown.

“For anyone looking for a fixed rate, the picture is even bleaker. It has already been a torrid few weeks, as mortgage rates have shot up. The market is pricing in several hikes over the coming months. Just ahead of the announcement, it was expecting rates to peak at 5.81% in February, and only start to fall gradually from there. 

“This has pushed the average two-year fixed rate mortgage over 6%. Higher core inflation is likely to reinforce the market’s conviction that rates will need to go significantly higher, and could power even higher rate expectations further down the line. Even the concern that rates could rise would bring more mortgage misery for anyone looking for a new deal or facing a remortgage.”

The UK government has ruled out providing direct fiscal support to mortgage holders. Instead, they are encouraging lenders to work with households in financial difficulties and provide options to avoid repossessions. Some are sceptical of the real-world outcome of these efforts.

FTSE 350 Housebuilders

The headwinds facing the UK housing market were reflected in the FTSE 350’s housebuilders on Wednesday with Persimmon, Taylor Wimpey, Barratt Developments, Crest Nicholson, Redrow and Vistry among the worst performers.

Berkeley Group Holdings was down over 3% despite releasing upbeat full-year results on Wednesday.

“Berkeley delivered a solid set of results despite the housing market sitting on shaky ground. The group sold more houses in the period and pricing remained resilient across the group’s London-focused operations, helping pre-tax profits to rise higher,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.

Markets price in 0.75% UK interest rate increase as inflation tops estimates

UK Investor Magazine
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Markets price in 0.75% UK interest rate increase as inflation tops estimates

UK CPI inflation for May came in hotter than expected at 8.7%, topping estimates of 8.4%.

“UK CPI rose 8.7% in May, the same level we saw in April but ahead of forecasts that were looking for 8.4%. Everyone’s new favourite metric, core inflation, which strips out things like energy and food was also disappointing rising 7.1% on expectations of 6.8%,” said Matt Britzman, equity analyst at Hargreaves Lansdown.

“This read won’t do policymakers any favours who are under increasing pressure to keep inflation coming down in the UK, but it’s looking stickier as the months roll by.”

Markets are now pricing 0.75% in UK interest rate increases over the next two Bank of England rate decisions. Some traders are now pricing a terminal rate – the highest point rates will rise to – of 6.2% by December.

The upside surprise in inflation sent waves through markets, with the UK 2-year gilt yields jumping back above 5% and FTSE 350 housebuilders sinking on the prospect of higher mortgage rates. GBP/USD spiked higher before traders faded the rally.

The Bank of England will issue their interest rate decision tomorrow, and the subsequent press conference and accompanying commentary will be closely scrutinised for hints of the future rate trajectory.

Gear4Music has platform for recovery

Andrew Hore
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Gear4Music has platform for recovery

Online musical instruments retailer Gear4Music (LON: G4M) has put in place measures to help it improve its performance, but the benefits will take time to show through. It should be enough to return the business to profit this year, though.

In the year to March 2023, revenues improved from £147.6m to £152m with all the growth coming from Europe. The business made an underlying pre-tax loss of £200,000, compared with a £5.1m profit the previous year.

A reduction in inventories helped to cut net debt to £14.5m. Even with growing revenues, the net debt figure should continue to fall.

AIM-quoted Gear4Music plans to build its own-brand sales, which are currently around one-quarter of the group total, and this will help to improve margins. The Premier drums range has been redesigned and a new brand called Vision will compete with third party Amazon sellers.

The company has moved into the second hand market with a new platform. Gear4Music will offer an instant price and collect the instrument, then list it for sale on the website. This has launched in the UK and will be launched in other European countries.

The new AV.com consumer electronics platform is being rolled out to other European countries. It is still early days for this platform, but it is a large potential market.

There are concerns about discretionary spending, so the recovery could be slow. Singer forecasts a 2023-24 pre-tax profit of £1.1m, but there is a long way to go to get near to the bumper profit of £14.8m in 2020-21. The broker believes that Gear4Music has the capacity for revenues of up to £400m and EBITDA of £30m.

The share price fell to 95.5p, which is not far above the all-time low. The prospective multiple is 27, falling to ten the following year. Once there is more confidence in the recovery, the share price should start to rise.

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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0
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.

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