There was a clear divergence between the FTSE 100 and US counterparts on Wednesday as the FTSE 100 was hit by corporate updates, and US equities recovered overnight losses.

After announcing full-year results, British Land and JD Sports were among the top losers. Melrose was the FTSE 100 top riser after the company said strength in their aerospace unit was reason enough to lift full-year guidance.

Melrose closed up 3.8%.

US debt ceiling

Debt ceiling fears gripped markets early Wednesday as the prospect of a US default grew closer. However, these fears subsided as US stocks opened and the S&P 500 rebounded from yesterday’s selloff.

“The first ever default on US debt is unthinkable and the likeliest outcome is an eleventh-hour deal but, as the beginning of June deadline for raising the debt ceiling signalled by US Secretary of the Treasury Janet Yellen draws closer, nervousness is likely to build,” said AJ Bell investment director Russ Mould.

“The extremely partisan nature of US politics is an obstacle to a deal as both parties seek to use the threat of the cliff-edge to secure concessions from the other side.”

US economy

As we reported yesterday, US economic conditions were back at the top of some investors’ concerns following weaker-than-expected data points this week.

The most significant were retail sales figures suggesting the US consumer was feeling the pressure of higher inflation and borrowing costs.

If US consumers hold back on spending materially, fear is it could tip the US into recession. Compounding poor US retail sales, major US DIY stores said they were seeing a slowdown in demand.

“A trio of unwelcome developments helped push down stocks on Wall Street, with April’s US retail sales coming in lower than expected, Home Depot results showed homeowners are putting off projects and Elon Musk saying Tesla would not be immune to the global environment,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

The FTSE 100 closed down yesterday due to soggy US data, and the selling persisted on Wednesday.

Although the FTSE 100 has suffered this week, the defensive nature of the index was demonstrated in the mild nature of selling. Indeed, most of the selling on Wednesday was stock-specific and there were few major movers.

JD Sports 

Despite the doom and gloom around consumer spending, FTSE 100 retailer JD Sports is eyeing £1 billion profit for the year for the first time.

Demand for the latest trainers and designer sportswear has proved to be more inelastic than other consumer products and JD Sports expansion in recent years is paying off.

“JD Sports has raced ahead as the demand for the latest shoes and athleisure-wear shows little sign of abating. It’s expecting profit to exceed £1 billion for the first time this year,” said Susannah Streeter.

“Brand power is showing little sign of losing its prowess on the retail track with a pair of the new must-have trainers still proving a huge draw, despite pressures on budgets. 

“As JD Sports has hurdled the cost-of-living crisis, pre-tax profit for the year to January came in at £991.4 million, ahead of guidance. It’s now ramping up new store openings, taking advantage of the renewed enthusiasm to browse in bricks and mortar shops once more.”

Despite to positive update, JD Sports shares closed down 3.7%.

British Land followed Land Securities in marking down the value of their portfolio due to economic uncertainty and flexible working trends. Britsh Land’s portfolio value fell 12% in the last year. However, their CEO was optimistic about the outlook for the coming year.

British Land closed down by 5%.

The Isle of Man-based Challenger Energy Group (LON:CEG) has an intensive programme of investor presentations over the next two weeks, which will inevitably generate fresh interest in the group and its various prospects.

Challenger Energy Group engages in the development, production, appraisal, and exploration of oil and gas properties.

It is a Caribbean and Atlantic-margin focused oil and gas company, with a range of oil production, development, appraisal and exploration assets and licences.

The company’s portfolio of opportunities represents a mix ranging from valuable production assets located onshore in Trinidad and Tobago, near-term appraisal and development projects in Trinidad and Tobago and Suriname, and high impact offshore exploration assets located in The Bahamas, Uruguay and Trinidad and Tobago.

The group’s-management team and staff base have a broad range of skills as well as deep technical and industry experience.

Its property portfolio consists of five producing fields and one dormant field in Trinidad and Tobago; a 100% working interest in AREA OFF-1 block in Uruguay; 100% interest in four exploration licenses in the Bahamas; and a 100% interest in Wag naar Zee Project, Suriname. 

I understand that its interest in Suriname and in the Bahamas are now considered ‘non-core’ and that a disposal programme is well underway, the funds from which will be easily reinvested.

The Namibia connection

The company considers that the conjugate margin super-discoveries in Namibia have also validated its early entry strategy in Uruguay.

Specifically, the company was the first operator to enter Uruguay in 2020, pre-dating the conjugate margin discoveries offshore Namibia.

Until the start of 2022, the Company was the only offshore acreage holder in Uruguay, having bid for the AREA OFF-1 licence on the basis of a modest, low-cost work programme.

However, since the discoveries offshore Namibia, five blocks offshore Uruguay have been awarded, all in 2022, to Shell, APA Corporation (formerly, Apache) and YPF (the Argentinian state-owned oil and gas company), such that now all but one available Uruguay offshore blocks is licenced, and the company is the only junior present.

Those blocks secured by the majors surround the Challenger Energy acreage, with those companies having already committed exploration work programs of over $230m.

The Uruguay asset is core to the business and is both highly marketable and highly prospective.

CEO Eytan Uliel stated that:

“In 2020, when no other parties were ready to commit, Challenger Energy was first-mover into offshore Uruguay, securing the AREA OFF-1 block on an uncontested basis and on highly advantageous work terms.

Since then, margin-opening discoveries offshore Namibia by TotalEnergies and Shell have made it possible to correlate what are now proven, oil producing source rocks directly across into the conjugate margin basins of Uruguay’s waters.

As a result, Uruguay has become a new global exploration hotspot, evidenced by the fact that in the last 12 months all but one of the available offshore blocks have been licenced by oil majors and NOCs, bidding sizeable work programs.

The results from the AREA OFF-1 work program have been extremely promising, in that the company now has a technically supported prospect inventory of between 1-2bn barrels in that globally attractive exploration hotspot.

The group’s next-step objective is to farm-out to an industry partner, so that it can fast-track a 3D seismic acquisition. The high-quality data set now compiled, and the intellectual property created, positions the company well, and it is shortly expected to initiate a formal farm-out process.

Significant Shareholders

The Aim-quoted company some 9,620,199,479 shares in issue.

Larger holders include Hargreaves Lansdown Asset Management (10.22%), Bizzell Capital Partners (Stephen Bizzell NED)(9.51%), Choice Investments (Dubbo)Pty (8.70%), Rookharp Capital Pty (5.49%), Jarvis Investment Management (4.35%), Merseyside Pension Fund (4.34%), GP (Jersey) (4.05%), RAB Capital (London) (3.80%), Interactive Investor (3.59%) and Maybank Kim Eng Securities (3.12%).

Private name holdings include Eytan Uliel (CEO) (5.67%), Baktash Manavi (3.51%) Simon Potter (NED)(0.74%) and MHCNZ Trustee (Mark Carnegie) (5.82%).

Analyst Opinions – looking positive

Brendan Long at WH Ireland, the group’s NOMAD and Joint Broker, has produced a lengthy evaluation of the company and is very expressive and positive about its Uruguay interests, describing the company as a ‘hot property’.

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.