Despite the recent volatility being largely isolated to US and Swiss banks, the rout in banking stocks was far reaching and UK banks, including NatWest, suffered.
With NatWest shares having given up all of this years gains after a questionable outlook for 2023 in their full year results and external pressures from global banking sector volatility, the company is now at a level that may provide an entry point for investors looking to add the bank to their portfolio.
US & UK Bank valuations
Notwithstanding the sharp drop in banking shares, the valuation of the world’s largest financial institutions have been under the microscope in recent weeks.
The valuation trends of UK banks differ significantly to US banks and much was made of the low price-to-book ratio of some of the US regional banks in the midst of the recent volatility.
In fact, after the US regional banks had lost around 80-90% of their value, their price-to-book valuation was the same as UK banks’ long term average.
For example, First Republic Bank trades around 0.2x book value, even after losing much of its value. Barclays trades at 0.3x book value and hasn’t traded a premium to book value for years.
NatWest, like most FTSE 100 banks, trades at a discount to their book value. This has become normal since the financial crisis but also suggests poor sentiment attached to UK banks. NatWest trades at 0.7x book value; the same as Lloyds, but slightly higher than Barclays.
Nonetheless, compared to their peers, NatWest will be starting to catch the eye of investors seeking a yield and opportunity for capital appreciation.
NatWest Dividend Yield
After years offering a dismal yield, NatWest has slowly become a company that provides a respectable yield to investors. With a 5.4% historical yield, NatWest has the attributes many income investors would look for. A dividend cover of 2.9 means ample space for increased payouts in the future.
With Natwest currently trading around 6.4x historical earnings, the shares don’t appear to look attractive compared to peers. However, Natwest was not as heavily hit during the recent bout of volatility which suggests the market feels the company deserves a premium valuation to peers.
2023 Outlook
Although total income grew 28.3% to £2,877 million in 2022, the outlook for 2023 was punctuated by a predicted peak in net interest margins.
This will curb enthusiasm for banking shares as it will cap earnings potential.
In addition, the fluid state of the UK economy should be a consideration for NatWest shares, despite forecasts from the OBR and Bank of England improving of late.
Natwest’s earnings growth isn’t the main event, rather relative value global banking averages.
Manx Financial (LON: MFX) increased its full year dividend from 24.43p a share to 37.64p a share. Pre-tax profit jumped from £2.2m to £5.2m. Management expects first half lending to be ahead of the same time last year, while provisions should not be higher than the norm. The share price jumped 22.2% to 27.5p.
Promotional retail company SpaceandPeople (LON: SAL) achieved 2022 revenues of £5.5m and momentum has continued into 2023 despite UK rail strikes. The full year results will be announced in early May. The share price rose 12.8% to 75p.
Production has commenced at the ASH-8 onshore Egypt well, where United Oil and Gas (LON: UOG) has a 22% working interest, at a net initial stabilised rate of 656 barrels of oil/day and 0.58 mmscf/day. The share price is 13% higher at 1.3p.
Alliance Pharma (LON: APH) reported a 28% decline in underlying pre-tax profit to £30.3m, but new marketing initiatives and a recovery in China augur well for 2023. There will be higher marketing costs this year and pre-tax profit is expected to bounce back to £37.1m. The focus will be on the current portfolio of consumer and prescription products. Cash generation should help net debt reduce to around £90m. The share price is 1.3% ahead at 58.35p, although it was above 62p earlier in the day.
Waste-to-energy technology developer and operator Eqtec (LON: EQT) is raising £3.5m at 0.22p, with potential for a further £550,000 to be added to the total. The share price dived by 28.1% to 0.205p. The cash will be used on market development centres (MDC), which are used to demonstrate the company’s technology. The first MDC should open in Croatia later this year. This is part of the process to move to a licensing model. There will also be some spending on developing sustainable aviation fuel.
Renalytix (LON: RENX) says the FDA will not complete the process for the marketing authorisation application for kidney disease diagnostic test KidneyIntelX until the second quarter of 2023.The FDA will prepare a reclassification order pending approval. This delay has hit the share price, which is down 13.9% to 77.5p.
Virtual reality technology developer Engage XR (LON: EXR) is dropping its Euronext Growth quotation on 19 April. The share price continues its recent decline with a further 12% drop to 3.4p, which is a new low.
Pressure Technologies (LON: PRES) says Grant Thornton requires additional time to complete the audit of the 2021-22 results, so trading in the shares will be suspended on 3 April. The share price fell 7.23% to 38.5p. Previous accounting policies accounting for defence contracts are deemed not to be compliant with accounting standards. This means that costs will be taken earlier meaning higher profit in future years. The accounting changes will make it easier to return to profit this year. The new finance director will join in May and new banking facilities are being negotiated. The AGM will still be held on 31 March. Richard Staveley, who works with 20% shareholder Harwood Capital, will join the board when after the results are published.
Atlantic Lithium stock is being dragged down by Blue Orca’s anchor. Putting the short-seller in its place could see shares spike rapidly.
As a long-time investor and loyal supporter of Atlantic Lithium (LON: ALL), I was annoyed — but not surprised — by the short-selling attack this month. Combined with the depressed lithium price, the allegations were sufficient to send ALL’s share price careering from 37.7p to just 22.6p, before recovering to 27.35p today.
Assuming that the allegations are baseless — and ALL strenuously denies all charges — there is still time to buy up shares on the dip.
Source: Google
Atlantic Lithium shares: in a nutshell
For the uninitiated, Atlantic Lithium owns rights to a 560 square kilometre tenure across Ghana and a 774 square kilometre tenure across the Ivory Coast. But the Crown Jewel is undeniably its Ghanian Ewoyaa Project, a large lithium pegmatite site which in all likelihood will become West Africa’s first lithium-producing mine.
Ewoyaa is fully funded up to production by billion-dollar US-based Piedmont Lithium to the tune of $102 million. As a strategic investor, Piedmont owns 9.39% of ALL’s shares, and there has been some speculation that it might acquire the remaining shares at some point, which could make strategic sense for both companies.
Encouragingly, some of the most common threats have been de-risked. Preliminary results are promising, the project is well capitalised, and the company’s management is actively involved in getting as much information to investors as possible.
At the start of February, Ewoyaa’s Mineral Resource Estimate (MRE) was increased to 35.3Mt at 1.25% Li2O, with measured and indicated resources now 79% of total resource. This is further evidence that when production is up and running, ALL will be the owner of a world-class lithium reserve — and despite the current lithium price falls, the longer-term supply gap means serious profits could be in the offing.
Short-seller attack
On 8 March, Blue Orca launched a short-seller attack, leading to both the sharp share price drop and a short trading suspension on AIM.
Blue Orca’s primary allegation — and which it continues to allege — is that ‘Atlantic paid and promised tens of millions of dollars in potential royalties to a company secretly owned by the son of a leading politician known as General Mosquito, who previously served in Ghana’s Parliament as Chair of the Mines and Energy Committee.’
This ‘textbook evidence of corruption’ will apparently be a problem, as ‘based on precedents in Ghana and around Africa, including a recent decision by Ghana’s highest court, (Blue Orca) do not believe that authorities in Ghana (including the Parliament) will ratify Atlantic’s mining licenses tainted by corruption.’
There are other details, but this is the key focus: and if Blue Orca is correct, then ALL shares would become essentially worthless.
But unsurprisingly, the FTSE AIM company has refuted its claims in full.
On 9 March — one day later, let’s hope nobody had any important plans — Atlantic issued a passionate defence, stating that Orca’s views were both ‘false and misleading.’ Further it noted that it holds ‘valid Prospecting Licences with operating permits for all of its current activities, in accordance with the Ghanaian government and the Minerals Commission’s requirements, and outrightly refutes the allegations of impropriety made by the Report.’
Further, ALL noted that it believes the ‘Minerals Commission will grant the Mining Licence for the Ewoyaa Lithium Project and Ghana’s Parliament will ratify the Company’s Mining Licence in due course.’
It also intoned that it ‘has a zero-tolerance policy on bribery and corruption and, in all of its activities, operates in accordance with the most stringent levels of corporate governance internationally.’
Addressing Blue Orca directly, Atlantic warned that all allegations are ungrounded, and that it plans to seek legal advice to address the claims made. Further, the company warned investors that the report was ‘clearly intended to benefit Blue Orca Capital, which, in the Report itself, has disclosed that it is short selling and stands to profit.’
Until these claims are completely eradicated from Atlantic Lithium’s reputation, its share price is going to remain depressed. Of course, for those who believe on balance that the short-seller attack is a fabrication, there is a solid opportunity to buy the dip.
Encouragingly, Executive Chairman Neil Herbert and Finance Director Amanda Harsas bought a combined £671,231 of shares on 20 March — at an average price of 27.34p each.
It’s unlikely that they would voluntarily choose to throw money away.
Interim Results
On 15 March, ALL released strong unaudited interim results covering H2 2022.
Financially, the company held a strong cash position of AU$19.1 million at the start of the year, while exploration expenditure on the balance sheet was AU12.7 million net of Piedmont contributions. It’s reasonable to assume that the company has slightly less cash at hand than this as Q1 has progressed.
Operationally in the half, it completed the pre-feasibility study into Ewoyaa, demonstrating ‘the significant profitability potential of this stand-out project.’ The company expects life-of-mine revenue to exceed US$4.84 billion, with a post-tax NPV of US$1.33 billion and an outstanding internal rate of return of 224% over 12.5 years of mine life.
The company now expects to build a 2Mtpa DMS plant with capacity to produce 255,000tpa of lithium spodumene concentrate.
Atlantic was also admitted to the ASX in September, a step with far more importance than most London-focused investors understand. Australia is the home of Pilbara Minerals, Core Lithium, Mineral Resources, and dozens of others lithium success stories — I have covered these ASX stocks extensively, and investors down under are always looking for the next Pilbara.
Herbert considers that ‘Ewoyaa is a low capex, low opex project with a simple processing flowsheet, soon to be producing highly sought-after, coarse grain spodumene concentrate. There are few spodumene projects that boast the existing infrastructure, minimal footprint and short timeline to production that Ewoyaa offers.’
While 50% of the offtake is destined for Piedmont, the other half can be sold on the open market — and given the still elevated price of lithium and its general supply problems, there will be no shortage of suitors. Indeed, there’s a good chance that if Piedmont doesn’t make an all-out bid for the company, it will offer an excellent price in exchange for exclusivity rights over the longer term.
Auger Drilling and where next?
Atlantic Lithium has now commenced drilling at Ewoyaa, and plans to drill circa 20,000m over the next five months both within the project area and the wider portfolio, with 6,500m of follow-up drilling at new targets to be done dependent on results.
Interim CEO Lennard Kolff notes that with ‘a significant MRE infill and extensional programme planned, we are confident of further resource upgrades. Importantly, these will not impact the planned delivery date of the DFS, which will be based on the current MRE.’
The definitive feasibility study should be released by the end of Q2, and the CEO thinks that ‘with the Pre-Feasibility Study delivered, the Mining Licence application submitted, the FEED engineering contract awarded and the funding agreement with our partner Piedmont Lithium in place, the Company is pushing ahead to achieve production and benefit from the ongoing lithium demand expected over the coming years.’
If all goes to plan, the Atlantic Lithium share price should re-rate soon.
Of course, until production starts only volatility can be reliably predicted.
This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.
Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
A resurgent FTSE 100 gained on Tuesday as fears about the implications of the fire sale of Credit Suisse subsided.
Global markets have been engaged in a game of banking crisis ping pong over the past two weeks with the US first showing signs of weakness after SVB failed, Europe joining the saga with the sale of Credit Suisse as First Republic Bank shares collapsed on Monday.
Investors will be hoping we are passed the worst of it. On Tuesday, UK banks signalled we could be.
Barclays and Standard Chartered have suffered dearly as a result of the crisis but exploded higher early on Tuesday. Barclays was 4.6% and Standard Chartered added 3%.
The FTSE 100 is now down 0.6% year-to-date after breaking through to the all-time highs earlier this year.
“Initially sceptical of the deal, the market’s mood changed over the course of yesterday, with UBS shares ending higher after a sharp initial fall,” said Steve Clayton, head of equity funds Hargreaves Lansdown.
“There was no respite for First Republic Bank though, with the Californian lender’s stock almost halving last night. First Republic is seen as vulnerable to the same losses on longer term bond values and liquidity squeeze that brought Silicon Valley Bank down.”
Fed Interest Rate Decision
As fears about the global financial system diminish, attention will shift to tomorrow’s Federal Reserve interest rate decision.
At the beginning of March, it appeared the Fed would hike 50bps. However, after the events of the last two weeks, it is anyone’s guess as to what the actual decision will be.
There is a school of thought that recent developments themselves tighten financial conditions and alleviate the need for another rate hike.
The counterargument is inflation remains elevated and the US economy is sufficiently robust to stomach a rate hike.
For investors seeking an entry to UK equities, the recent banking sector induced volatility may have provided an opportunity.
After breaking to all-time record highs in early 2023, London’s leading index has pulled back significantly and many UK equities trade below recent highs, and offer better value than they did just a few weeks ago.
We highlight two options for a diversified approach to gaining exposure to UK stocks with the Dunedin Income Growth Investment Trust and Temple Bar Investment Trust.
Dunedin Income Growth Investment Trust
According to data from Trustnet, the Dunedin Income Growth Investment Trust has returned 39.1% over the past five year period. This is a significant outperformance of the AIC UK Equity Investment Trust benchmark 17.5% return.
The outperformance has been achieved by an active approach to selection UK and European stocks. The current portfolio is heavily weighted towards UK shares which accounted for 73.7% of the portfolio as of 31/01/2023.
Recent changes to the portfolio include the selling down of Persimmon to replace the stock with Taylor Wimpey in late 2022. The managers of the fund felt Taylor Wimpey’s margins were preferable and was less likely to slash their ordinary dividend.
There is a significant weighting to stocks with bond-proxy attributes of reliable cash flows and attractive dividend yields. Unilever, Diageo and AstraZeneca are top ten holdings.
The Dunedin Income Growth Investment Trust is a solid income choice with a 4.6% yield.
Temple Bar Investment Trust
The Temple Bar Investment Trust is managed by Ian Lance and Nick Purves. Their focus is on value investing and buying companies trading less than their intrinsic value. Current portfolio companies include ITV, BP and Shell.
At the recent UK Investor Magazine Virtual Investment Trust Conference, Ian Lance detailed his empirical research into value vs growth stocks over the past 100 years, and how value beat growth in all but two decades.
One of these decades was the most recent period after the financial crisis and the years of record low interest rates. Despite the allure of growth and multiple expansion during this time, the Temple Bar team were unwavering in their pursuit of value.
Their top ten holdings clearly demonstrates their willingness to buy unloved stocks. Questions about ITV’s core advertising business has presented an opportunity to buy the stock for growth in their studios business. Although BP and Shell shares are up sharply in the past year, they still trade attractively on an earnings basis.
The Temple Bar Investment Trust has a more concentrated approach that peers – the portfolio consists of around 20 holdings.
The inclusion of BP and Shell in the top ten holdings are a material contributors to the trust’s 4% yield.
The UK Investor Magazine was thrilled to welcome Jeff Tweedy, CEO at Plant Health Care, for a deep dive into the food sustainability company.
Plant Health Care has developed a suite of products which help boost crop yields by protecting them against the environment and parasites such as nematodes.
Jeff details products including Harpin aß and Saori exploring the demand dynamics for each product.
We look at Plant Health Care’s pipeline of new products and the new markets Jeff would like to enter in the pursuit of their target to reach $30 million revenue by 2025.
London’s leading index was facing the pressures of international banking concerns on Monday after UBS took over Credit Suisse.
However, early losses for the index were reversed and the FTSE 100 was trading 0.4% at the time of writing.
Far from an orderly takeover of Credit Suisse, the deal was rushed through and has eroded confidence in the European banking system.
UK banks Barclays, Lloyds, NatWest, HSBC and Standard Chartered were down on the day, but were trading well off the lows.
Despite the swoop on the Swiss lender preventing a complete collapse, the terms of the deal were unfavourable for Credit Suisse share and bond holders.
UBS paid a little over $3 billion for Credit Suisse in a government-brokered deal. This was a massive discount to Friday’s closing price.
Banking confidence
The willingness of a European government to oversee and impose significant losses on bank investors rocked European banking shares with Deutsche Bank and BNP Paribas among the losers.
While shareholders suffered dearly as a result of the takeover, holders of AT1 bond were completely wiped out.
Credit Suisse’s $17bn worth of AT1 bonds were effectively marked to zero as part of the deal. These are high yielding, high risk assets.
AT1 bonds are designed to prevent the collapse of a bank by converting into equity in certain circumstances. They were employed as a result of the financial crisis and the losses incurred by investors in these assets have raised questions about these types of bonds at other banks.
“The Swiss financial regulator has ordered that Credit Suisse’s AT1 bonds be written down to zero. That appears to have spooked investors and has led to a sell-off in other bank debt and that’s weighed on share prices,” said Russ Mould, investment director at AJ Bell.
“It means the banking crisis we’ve seen over the past few weeks has started a new chapter rather than reaching its ending.”
“Spare a thought to investors holding exchange-traded fund Invesco AT1 Capital Bond ETF, whose share price slumped nearly 16%. It tracks the performance of an index of AT1 bonds including some issued by Credit Agricole, Barclays, Lloyds and UBS.”
Precious metals
The safe haven of Gold has been a major beneficiary of the chaos in the US and European banking system and again rallied on Monday. Gold was trading up $46 to $1977 at the time of writing.
Gold’s strength supported the FTSE 100’s precious metals focused miners Endeavour Mining and Fresnillo on Monday. The two miners were the FTSE 100 top risers on Monday, both up over 3%.
Diversified miners were also higher and were the driving force in taking the FTSE 100 into positive territory.
Xeros Technology (LON: XSG) has signed a third global domestic XFilter licensing agreement. This is with another component supplier to domestic washing machines manufacturer, which has facilities in Europe, the US and Asia. This is a ten-year agreement providing a royalty per filter. The share price moved ahead by 4.88% to 4.3p.
Ten Lifestyle Group (LON: TENG) grew interim revenues by 49% to £30.9m and has 316,000 active members of its customer loyalty platform for financial institutions. Net cash was £500,000 at the end of February 2023. The interims will be released on 3 May. The share price is 4.83% higher at 92.25p.
Thor Explorations (LON: THX) has updated the mineral resource estimate at Douta in Senegal. The indicated resource is 874,900 ounces of gold and an inferred resource of 909,400 ounces of gold. The total resource is 144% higher. A cut-off grade of 0.5g/t was used. A further 40,000 metres of drilling is planned. The share price rose 4.05% to 19.25p.
Africa-focused agriculture company Agriterra (LON: AGTA) is raising £200,000 at 1p a share with the possibility of up to £50,000 more. Magister Investments is converting £200,000 of debt at the same price. The share price slumped by 50.9% to 1.3p. The cash will be spent on purchasing cattle and working capital.
Nanyang Technological University is trying to terminate its software contract with Tribal Group (LON: TRB) and potentially claim damages. Tribal says mediation is required. This is a problem contract where a £4.5m provision was originally going to be taken in the 2022 results, which will be delayed. The share price dived by 15% to 42.5p.
Asiamet Resources Ltd (LON: ARS) has an updated BKM copper project feasibility study that estimates a capital cost of $236.5m, which is slightly higher than the previous estimate. The mine could generate more than $1.3bn over its life. The full feasibility study is near to completion. The financing process can then begin. The share price has fallen 11.8% to 1.125p.
Innovative Eyewear CEO, Harrison Gross, has outlined his vision for exponential growth in the smart eyewear market in an interview with FinTech TV on the floor of the New York Stock Exchange.
Research predicts the smartwatch industry is set to reach US$44.91bn in 2023. Innovative Eyewear CEO Harrison Gross feels smart eyewear can mirror smartwatch growth as adoption of the technology accelerates.
An important driver in the wider adoption of smart eyewear is the availability of products that feel ‘normal’. Increasing adoption of smartwatches was spearheaded by design innovation that eventually led to smartwatches outselling traditional watches for the first time in 2022.
It took a series of Apple smartwatch models for traditional watches to fall behind smartwatches. Harrison says this is an analogue for smart eyewear.
Harrison outlines growth across the smart eyewear industry and says new lines of Innovative Eyewear glasses, such as Lucyd Lyte 2.0 with new features and improved ergonomics, are central to increased use. Harrison sees smart eyewear becoming a mass market product in the coming years.
Features including bluetooth connectivity and the ability to create social media posts and make calls from smartglasses are a key innovations. These features are in addition to glasses that feel and weigh the same as normal eyewear.
The Innovative Eyewear CEO likens the technology to wearing glasses with the features of Apple’s Airpods.
Another key feature is long battery life. Running out of battery has been a problem for smart phones and watches, and ensuring smart glasses last the working day is crucial for wide adoption. The Lucyd Lyte 2.0 line has a 12 hour battery life.
Innovative Eyewear is listed on the NASDAQ and is a Tekcapital portfolio company.
UBS have agreed to the takeover of Credit Suisse in deal that rocked markets in early trade on Monday.
The deal was completed on Sunday evening and the initial sign in equity futures was positive as thin trade on Sunday focused on the alleviation of system-wide risk related to a Credit Suisse collapse.
However, the terms of the deal and destruction of value in Credit Suisse AT1 bonds sent European banks into a tailspin on Monday.
The deal is a warning to other European banks, and their investors, that governments will not stand for any sign of financial instability and will give no quarter to institutions that pose a systemic risk.
Deutsche Bank was down 6% at the time of writing; Barclays was off 4% and BNP Paribas was 3% weaker. European banks had rallied from their worst levels.
The takeover of Credit Suisse came after pressures mounted on the bank last week and eventually the Swiss government intervened to broker a deal between UBS and Credit Suisse. Their perilous position was evident in the knock down price paid by UBS.
“Credit Suisse was on life support and Swiss authorities believed only a full transplant of the banks divisions into UBS would restore stability to the banking system. But an operation of this magnitude is a big risk for UBS – that’s why it was only willing to pay $3.23 billion, less than half the price its shares valued the bank at on Friday,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
The deal was struck after a number of offers from UBS which started at around $1 billion.
The Saudi National Bank, Credit Suisse’s biggest investor, will suffer significant losses as a result of the deal after pumping cash into the bank in recent weeks.
