Lloyds shares were sent sharply lower in the recent banking crisis as FTSE 100 banks sank on concerns we could be entering a financial crisis reminiscent of 2008.

These fears were quashed this week by the Bank of England Governor as he dismissed the current saga being anywhere near as severe as the 2008’s crisis.

This sparked a wave of optimism through markets and banking stocks globally have rallied from their worst levels.

“With banking worries put on the back burner for now, with no further stresses in the system emerging, investors’ appetite for a bit more risk is returning,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown, earlier this week.

The risk investors are prepared to take on is being channelled into US and European banks. The broad global banking sector is now significantly off the worst levels. The S&P Global 1200 Financials Sector Index is around 4% higher than last week’s low.

Lloyds shares

The collapse of SVB which spilled over into Europe and culminated in the takeover of Credit Suisse by UBS send waves through global banking shares. Many now trade at large discounts to recent highs.

This includes Lloyds shares which are over 10% below 2023 highs. This in itself is by no means a buying signal but for long term holders, the current Lloyds share price provides a more attractive entry point than it did just a month ago.

Lloyds now trades at just 6x earnings, lower than Natwest’s 6.5x earnings but higher than Barclays 3.5x. Banking earnings multiples have persistently been below the FTSE 100 average for many years now so comparisons against the FTSE 100 benchmark are of little use.

After a period of rising interest rates, the bank themselves said they see their net interest margins plateauing in the coming year. This would suggest capital appreciation will be a result of multiple expansion, as opposed to earnings growth, in 2023.

Lloyds dividend

One reason why investors may be attracted to Lloyds shares is the dividend. And the income case is compelling.

Lloyds currently yields 5.1% – among the FTSE 100’s top 20 yielding stocks based on historical payouts. Their dividend is covered 3.3x meaning there is plenty of scope for dividend hikes in the future.

In their recent annual report, Lloyds said: “The Board remains committed to future capital returns. Going forward, the Board intends to maintain its progressive and sustainable ordinary dividend policy alongside further returns of surplus capital at the end of the year as appropriate.”

Risks

Although Lloyds shares offer relative value and a progressive dividend, there are of course risks to consider. The banking crisis is not yet completely offer. A rout in Deutsche Bank shares due to a single bet on their Credit Default Swaps last week highlights nervousness around European banks.

In addition, the health of the UK economy – the UK property market in particular – could impact Lloyds share price in the coming months.

The point of care molecular diagnostics company Genedrive (LON:GDR) has announced that the UK’s National Institute for Health and Care Excellence (NICE) has given positive final guidance for its MT-RNR1 ID Test kit to be used by the NHS.

The NICE Early Value Assessment programme selects and recommends new technologies that will make a real difference to patients and provide the most value for the NHS.

The MT-RNR1 ID Kit rapidly and accurately identifies babies with the MT-RNR1 genetic variant who may be at risk of hearing loss if given aminoglycoside antibiotics.

It is stated that no other test is available to provide results quickly enough to inform decisions on antibiotic prescribing in emergency care.  

Genedive has been developing and commercialising a point of need molecular diagnostic platform that is low cost, rapid, versatile, easy to use and robust.

It is needed for the diagnosis of infectious diseases and for the use in genotyping which is the patient stratification process, for detection of pathogen and other indications.

The AIM quoted group has assays on the market for the detection of MT-RNR1, HCV, certain military biological targets, a high throughput SARS-CoV-2 assay and a point of care test for Covid-19.

It is also currently developing a genetic test for CYP2C19 metaboliser status.

NICE’s recommendation on using the Genedrive® MT-RNR1 test in NHS England and Wales through its EVA program will support additional data generation requirements whilst the test is being used routinely within NHS sites. It is anticipated that this data collection process will be several years in duration. 

CEO David Budd stated that:

“We are appreciative of the thorough review conducted by the NICE team. The final report issued today entirely reflects the preliminary conclusion published in February.

As we continue with commercial roll out and product adoption, the NICE EVA framework will give us the opportunity to support specific performance and impact data that NHS users and commissioners may look for in future guidance.

NICE, whose guidance is formally applicable to the NHS in England and Wales, is an internationally respected health authority and the tools and data supplied in its review will be relevant to the rest of the United Kingdom and to the other international markets which we are now accessing.”

Prior to today’s news the £34m capitalised group’s shares closed 8% lower last night at 36.75p.

Alibaba shares closed 12% higher overnight after the Chinese tech giant announced plans to break the company into six parts to help unlock value in the company’s business units and relieve pressure from authorities.

Alibaba shares are around 70% below their HK$298 high in 2020. Alibaba is listed in the US and Hong Kong.

Alibaba, and other China tech giant, have faced pressure from Chinese authorities and the Alibaba founder Jack Ma disappeared for many months after criticising the China regulator. He later resurfaced in Tokyo.

AJ Bell investment director Russ Mould explains the opportunity for unlocking value in Alibaba’s sprawling business by allowing specific units continue as their own entity.

“Often corporate reshuffles act as a catalyst for the share price on the basis that the individual parts of the business are worth more than the whole company. Breaking up the business could unlock this hidden value.”

“As overhauls go this is about as dramatic as you could get and follows damaging crackdowns on the company and the wider sector by the Chinese authorities. It looks like Alibaba is seeking to assuage Beijing’s concerns about monopolistic behaviour.”

Six separate companies

Under the proposed breakup, Alibaba will split into six different groups, each with their own specialist area.

• Cloud Intelligence Group
• Taobao Tmall Business Group
• Local Services Group
• Global Digital Business Group
• Cainiao Smart Logistics
• Digital Media and Entertainment Group

Each entity will undergo an initial public offering and new leadership will be appointed.

The FTSE 100 edged higher on Wednesday as investors dipped their toes back into stocks heavily beaten down by the mini banking crisis over the past two weeks.

A speech by the Bank of England’s Governor this week, in which he said the recent saga is not another crisis on the scale seen in 2008, appears to have marked a turning point in sentiment.

The FTSE 100 was trading up 0.75% to 7,540 at the time of writing. US futures were pointing to a strong open this afternoon.

“The FTSE 100 made a solid start on Wednesday morning, continuing the cautious recovery for markets from the trauma of the collapse of SVB and forced union between Credit Suisse and UBS earlier this month,” said AJ Bell investment director Russ Mould.

Mould was also upbeat about the reappointment of Sergio Ermotti as UBS CEO after the takeover of Credit Suisse.

“Bringing in Sergio Ermotti as CEO – a key figure in UBS’ recovery from the Great Financial Crisis – to oversee the combination between Switzerland’s two biggest banks is a move likely to help salve market wounds.”

UBS shares have stymied losses since the Credit Suisse takeover – another factor which will help boost confidence. FTSE 100 banks Barclays, Natwest and Lloyds were all higher on Wednesday.

“With banking worries put on the back burner for now, with no further stresses in the system emerging, investors’ appetite for a bit more risk is returning,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

Next

Next was the FTSE 100’s top faller on Wednesday. Despite a better than expected profit before tax of £870m for the year ending January 2023, the retailer said profit would fall to £795m in the year ahead.

“Sales and profit guidance for the year ahead has been maintained, with both expected to decline from the levels seen last year. The shares fell off the back of today’s announcement as the market woke up to the struggles ahead,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.

“Retail’s a tough sector to be in during an economic downturn, and continued inflation is expected to push costs up and impact sales. There’s plenty of challenges ahead for Next, reflected in the group’s valuation which is trading below the long-term average.”

Next share were down 5.5% at the time of writing.

Ocado was the FTSE 100’s top riser, gaining 6%, a day after the premium online retailer released disappointing figures for their most recent trading period.

Next shares were down sharply on Wednesday morning after the retailer forecast lower profit before tax for the year ahead and predicted full price sales would fall 1.5%.

Profit before tax for the year ending January 2023 was £870m, slightly better than the £860m guided for earlier this year. However, the group said they saw profit before tax falling to £795m in the coming full year.

In addition, the retailer marked down their selling price inflation predictions to 7% suggesting margins could be squeezed if input prices rise. A 7% increase in prices itself is a concern amid a cost of living crisis.

Next shares reacted negatively to the news and were down over 7% at the time of writing.

“Next delivered full year profits ahead of guidance. That was thanks to increased retail sales which are typically higher margin, as well as a strong end of season sale. Significant reductions in shipping costs eased pressure on the price hikes that Next is planning on passing through to customers,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.

“But with selling prices still expected to rise by 7% in the first half of this year, we think it could be tough for consumers to stomach given that a lot of consumers’ budgets are already stretched thin. Next’s position as a middle-of-the-road retailer means its customers could slide down the value chain rather than fork over a little more.”

Next is operating in a challenging retail environment with choppy economic data providing a gloomy outlook for the UK economy – albeit an improved outlook compared to the end of 2022.

“Overall, Next, and the rest of UK retail, are still facing a very difficult economy in 2023. But with inflation starting to moderate, things are not looking as bad as they were a few months ago,” said Charlie Huggins of Wealth Club.

The Alaskan North Slope is the location for the Project Phoenix in which 88 Energy (LON:88E) has a 75.2% working interest.

The group’s Hickory-1 has up to six conventional reservoir targets that are expected to be appraised.

In an Operations Update just issued by the company it has declared that Hickory-1 successfully intersected and drilled the SMV-A, B and C reservoirs.

Oil shows have been noted by the initial interpretation of logging-while-drilling data, which also showed elevated mud gas readings, high resistivity signatures and crossover of neutron density curves indicating potential hydrocarbon pay.

The current depth of the Hickory-1 exploration well is over 8,820 feet.

The work is ongoing and will take another 3-5 days, with a Target Depth of 11,000 feet.

Project Phoenix

Project Phoenix is located on the central North Slope of Alaska and encompasses approximately 82,846 gross acres.

It is situated on-trend to recent discoveries by Pantheon Resources Plc (LSE: PANR) in multiple, newly successful play types across top, slope and bottom-set sands of the Mid Schrader Bluff, Canning and Seabee Formations.

Independent mapping has demonstrated that these plays extend into the Phoenix acreage.

Project Phoenix holds an estimated unrisked conventional total of 647MMbbl of prospective oil resources (mean unrisked, net to 88E), independently assessed by Lee Keeling and Associates in Q3 2022.

The acreage has been significantly de-risked by the recent Pantheon drilling and flow tests on their adjacent acreage to the North, coupled with data from Icewine-1 well logs (encountered 380 ft of net oil pay within SMD sands) and a modern 3D seismic data set (FB3D).

Analyst Opinion

James Mccormack at Cenkos Securities noted that the £125m capitalised group had a A$17.5m Placing in February, which leaves it able to cover its required working capital and overheads for the year ahead.

He rates the group’s shares, currently 0.52p, as a Buy.