British American Tobacco share were weaker on Thursday despite strength in their New Categories unit and a 6% dividend hike.
Total group revenue rise 7.7% to £27.6bn in 2022 and operating profit grew 2.8% to £10.5bn.
The group said they were confident their vapes and no-tobacco business would hit £5bn by 2025 as volume growth continued. However, it was weakness in their traditional combustibles core business causing concern with sluggish growth and further contraction of the market predicted.
“It’s hard to tell how much of this came from smokers feeling the squeeze of rising prices, and how much came from a drive by smokers to become more healthy,” said Derren Nathan, head of equity research at Hargreaves Lansdown.
“BATS’ cigarette brands include the likes of Rothmans, Camel and Newport. Despite the significant fall in volume of its biggest sales category, profits have done well. This has been helped by cost savings and strong pricing.”
Cash generated from operating activities grew 7% in the period and BATS said they were hiking their dividend by 6%.
“Another year of 100% cash conversion underpins the 8% dividend yield as well as investment in new categories but we note the statement of intent around debt repayment, with improved balance sheet strength now a priority. In the short term we see further approvals of US pre-market tobacco product applications (PMTAs) for new categories as pivotal to investor sentiment,” Nathan said.
Genedrive (LON: GDR) has received preliminary approval from the National Institute of Clinical Excellence (NICE) for its antibiotic-induced hearing loss (AIHL) genetic test. NICE concluded that the test can identify babies at risk of hearing loss if given certain antibiotics. The NHS can use the test following this approval, which should be ratified on 21 February. Before trading commenced this morning, finnCap said that this is “unlikely to be a major value driver for Genedrive or for the shares in the short-term”. There has been publicity about this news and that has helped to push up the share price by 35% to 33.75p.
Shield Therapeutics (LON: STX) revenues were slightly lower than forecast. The share price recovered 14.6% to 7.05p. Investor appear to be looking ahead to the possibilities for iron deficiency treatment Accrufer in the US following the signing of the joint venture with Viatris.
Fusion Antibodies (LON: FAB) has launched a new service for high volume mammalian cell surface expression and screening of antibodies called Mammalian Display. This comes out of the OptiMAL research programme. The share price is 5.56% higher at 47.5p.
In 2022, transport information systems supplier Journeo (LON: JNEO) increased revenues by 35% to £21.1m. The order intake increased by 50% to £27m. The number of vehicles connected to Journeo’s platform jumped by 150% to 10,000. The acquisition of Infotec was completed on 18 January. The share price rose 3.89% to 133.5p.
Touch sensors manufacture Zytronic (LON: ZYT) is being affected by continuing global supply chain issues. This has increased costs and wage negotiations have commenced which will lead to a further rise in costs in the second half. There are opportunities with a projected lifetime value of £61m. Net cash was £6.8m at the end of January. Mark Cambridge will concentrate on his chief executive role, and he will be replaced as chair by Mark Butcher. John Walter, the largest individual shareholder, is joining the board until the 2024 AGM. The shares have also gone ex-dividend – 2.2p a share. The share price slumped 15% to 127.5p.
Beowulf Mining (LON: BEM) has launched the Swedish Depositary Receipts rights issue and Primary Bid offer at 2.06p a share. It is raising up to £9.1m to finance the development of the Kallak iron mine. The cash will fund a pre-feasibility study and resource drilling, as well as reducing debt. The share price fell 11.8% to 2.875p.
Strategic Materials (LON: SML) was hit by lower sales volumes from the Cobre magnetite tailings operation in the fourth quarter. There were lower sales to cement customers in the US. A 20% price increase in July helped offset this so fourth quarter revenues so fourth quarter revenues were $464,000, down from $493,000 in the fourth quarter of 2021. There was $341,000 in cash at the end of 2022. Funding negotiations for restarting production at the Leigh Creek copper mine are at an advanced stage. The share price declined by 7.69% to 0.3p
TPXimpact (LON: TPX) executive director Michael Dearing has transferred a 1.61% stake in the digital transformation company to his former spouse following their divorce. He still owns 2.08%, but it is uncertain whether the shares transferred will be held for the long-term. The share price slipped 4.55% to 21p.
Ex-dividends
Impax Asset Management (LON: IPX) is paying a final dividend of 22.9p a share and the share price declined by 31.5p to 846.5p.
Renew Holdings (LON: RNWH) is paying a final dividend of 11.33p a share and the share price rose 8.5p to 734.5p.
Titon (LON: TON) is paying a final dividend of 0.5p a share and the share price is unchanged at 70p.
Victorian Plumbing (LON: VIC) is paying a final dividend of 1.1p a share and the share price fell by 2.8p to 90.2p.
Zytronic (LON: ZYT) is paying a final dividend of 2.2p a share and the share price slumped 22.5p to 127.5p.
Managed IT and networking services provider AdEPT Technology (LON: ADT) is being snapped up by a private equity backed Wavenet, which provides telecom services. The high level of debt has held back the AdEPT Technology share price in the past couple of years and although the 201p a share bid is a 75% premium to the previous market price it is still well below past levels. The share price was more than 300p less than two years ago and was double the offer price in 2018.
However, shareholders will not get the 2.5p a share interim dividend. The bid values the AIM-quoted company at £50.3m. Net deb...
Songtradr Inc has launched an agreed bid for AIM-quoted music streaming technology developer 7digital Group (LON: 7DIG) and the 0.695p a share offer values the company at £19.4m. The share price has not been at this level since September 2021.
Songtradr is a music licensing company with a platform and technology that connects music rights holders to brands and content creators. Combining the businesses will simplify licensing and potentially accelerate growth. Video games and other digital demand for music is expanding.
Songtradr has raised more than $100m and it has the financial clout and scale to take full advantage of the 7digital technology. In September 2020, 7digital raised £6m at 2.25p a share and that cash has been used up. Previous fundraisings have been done at much higher share prices.
In the six months to June 2022, revenues grew by 21% to £3.9m, with licensing revenues jumping to £2.5m. The company is still losing money but moving towards breakeven. Cash was running out and a £500,000 loan was obtained from 27.3% shareholder Magic Investments, taking the total owed to £1m.
Songtradr will pay back the Magic Investments loan and a £2m loan facility from Investec.
7digital has a radio production business and it is unclear if this will fit in with the enlarged group strategy. It was generating cash for 7digital.
F3 Uranium’s drill campaign at the Patterson Lake North (PLN) project has produced further promising mineralisation encounters that build on bumper uranium grades discovered in December.
Having confirmed the discovery of uranium with grades up to 59.2% U3O8 in December, F3 have drilled 8 of 20 holes planned for their winter drill programme to further map deposits at PLN’s JR Zone.
Today’s announcement further confirms the prospectiveness of the PLN project and F3 Uranium shares jumped 10% to C$0.34 on Wednesday.
There was a standout hole, PLN23-048, which yielded 14m total composite mineralisation from 246.5m – 260.5m with high levels of radioactivity.
“The drill program started by testing the depth extent of the zone, while also testing it along strike from the discovery area on line 00N,” said Raymond Ashley, Vice President Exploration at F3 Uranium.
“The team is becoming familiar with the geology and controls on mineralization on the JR Zone which is currently defined over an area measuring approximately 45m by 50m and have identified strong continuity of high grade mineralization along strike towards the south as the program continues to explore that direction to increase the total mineralized strike length. Additionally, we are continuing to drill test further towards the unconformity, with the objective to test the intersection of the A1 main shear zone at the unconformity.”
The FTSE 100 once again broke to all-time highs on Wednesday as optimism around UK economic growth boosted sentiment in UK stocks.
The index was also support by another strong session from BP after their shares received an ambitious 1,000p price target from analysts at Barclays. BP shares were 3% at the time of writing on Wednesday.
General sentiment improved on Wednesday after the National Institute of Economic and Social Research (Niesr) Think Tank said they expected the UK economy to avoid recession.
⚡️The return of the ‘squeezed middle’⚡️
The UK is likely to avoid a ‘protracted #recession’ in 2023, but for million of #households it will certainly feel like a recession⚠️
— National Institute of Economic and Social Research (@NIESRorg) February 8, 2023
The Think Tank’s prediction is at odds with the Bank of England’s forecast of a recession – although the bank have recently improved their outlook from a prolonged downturn, to a short and shallow contraction.
“The tide of optimism washing over the London market is being pushed higher with the latest economic assessment judging that the UK could avoid a recession,” said Susannah Streeter, senior investment and markets analyst Hargreaves Lansdown.
With the outlook for the UK economy improving in most quarters, the FTSE 100 was helped 0.6% higher to 7,919. The index had hit 7,933 earlier in the session – a fresh intraday all-time FTSE 100 high.
UK domestic stocks
While BP was doing a lot of the heavy lifting on Wednesday, the FTSE 100’s UK-focused stocks provided support for the index after the more optimistic UK economic prediction.
Housebuilders and retailers were among the top risers.
The homebuilding sector was spurred on by an upbeat release from Barratt Developments. Barrett’s said although forward sales were considerably lower than this time last year, they had seen signs of a revival in January.
“While the outlook for the second half of Barratt’s financial year remains uncertain, we’re cautiously optimistic for the group’s prospects in the long run. Recession fears have put housebuilders in a tricky spot, but Barratt’s significant net cash position of £965m gives it plenty of breathing room, even if the housing market deteriorates further,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.
Barratt’s shares rose 2.2% but it was Persimmon, storming ahead by 3.2%, that was the FTSE 100’s top riser at the time of writing. Persimmon will release final results 1st March.
Fraser Group’s consumers will enjoy a healthier UK economy and investors bid their shares up by 3% to 808p. The same sentiment was shared by Next with the bellwether retailer adding 2.8%.
URU Metals (LON: URU) shares are higher on news about 74.28% owned Zeb Nickel Corp that was released yesterday afternoon. Analysis of drilling shows a higher grade nickel mineralised zone below the historical resource. Deeper drilling should increase the resources grade. There will also be infill drilling on the gold discovery. The share price is one-third higher at 200p.
There was a small rise in the share price of clinical communications technology developer Feedback (LON: FDBK) on Tuesday when it reported its interim results, but today it has jumped 19.1% to 146.5p. Progress has been slow but there are signs that it could accelerate. The £450,000 contract with a Sussex community diagnostic centre is up for renewal and should be worth much more when it is renewed. Other NHS trusts are showing interest in the company’s services. There was cash of £9.23m at the end of November 2022, so Feedback can finance further development and cover losses.
Deltic Energy (LON: DELT) says that there is a 300bcf gas discovery on Shell-operated Pensacola well in the southern North Sea, where it has a 30% working interest. Management will decide whether to fund further development or sell the interest. The share price rose 16.7% to 3.15p.
Training and software services provider Pennant International (LON: PEN) confirmed that it was profitable in 2022 even though revenues declined. Gross margins improved because software revenues are a greater proportion of revenues. Net debt has fallen to £400,000 and there should be net cash by the end of 2023. The order book is worth £25m.The share price recovered by 14% to 32.5p.
Chain and transmission equipment supplier Renold (LON: RNO) has sparked an upgrade with its latest trading statement. In the 10 months to January 2023 trading has continued to be strong. Sales growth was 17%. Even excluding the major military contract, order intake was more than one-fifth higher. The 2022-23 earnings forecast has been raised by 6% to 4.8p a share. The share price moved up by 10.4% to 27.05p.
Online fashion retailer Sosandar (LON: SOS) is raising £4m at 22p a share and up to £500,000 more from a retail offer. The retail offer closes on 16 February. The share price slipped by 12.9% to 23p. This cash will finance higher stock levels for third parties, including Sainsbury, and further investment in building up the customer base.
A placing by kidney diagnostics developer Renalytix (LON: RENX) has generated £16.9m at 90p a share or $2.17 for an American Depositary Share, which represents two shares. The majority of the cash will be used for clinical product development and marketing. The share price fell 10.2% to 110p.
Laundry technology developer Xeros Technology (LON: XSG) will report a higher than expected loss for 2022. This is due to the timing of milestone payments and restructuring costs. Cash is lower than forecast at £6.5m. Cash burn should reduce from £500,000/month this year. finnCap still assumes that Xeros Technology can become profitable in 2025. The share price declined by 7.14% to 4.55p.
We start by looking at the UK economy and a Think Tank prediction a UK recession will now be avoided. The FTSE 100 has reached new all-time highs above 7,900 – we look at the future trajectory for London’s leading index. We also the FTSE 250 and AIM, and the correlation with certain UK economic data points.
After a torrid year for Barratt Developments shares in 2022, there was reason for optimism in this morning results after the homebuilder said they were encouraged by January sales figures. We delve into the numbers.
The industrial chains and related power transmission products group Renold (LON:RNO) has issued a very positive Trading Update, it is noting record order books and is now expecting to beat market profit forecastsfor the year.
The group, which is a global leader in the manufacture of industrial chains, is also a manufacturer of a range of torque transmission products.
Its products, which are sold throughout the world to a broad range of original equipment manufacturers and distributors, are used in a wide variety of industries including manufacturing, transportation, energy, steel and mining.
For the ten months to the end of January 2023 the group’s order intake was £216.5m, some 19.2% better, leaving the current order book at a record £104.1m.
Its order intake is running far ahead of its sales, with its turnover for the first ten months of the current year to end March, showing a 25.4% growth at £199.0m.
In excess of market expectations
The group stated that given the continued sales growth, a strong orderbook, benefits of the cost reduction and efficiency programmes, and the successful recovery of cost inflation on raw material and energy, the company is confident the current trading momentum will deliver revenues and underlying operating profit for the full year in excess of market expectations.
Analyst Opinion – Target Price of 52p
David Buxton at brokers finnCap has estimated that the current year to end March will see revenues lift to £238.3m (£195.2m) generating adjusted pre-tax profits of £14.3m (£11.5m) and taking earnings up to 4.8p (4.0p) per share.
For the coming year he has pencilled in £233.8m sales, £13.9m profits and 4.6p of earnings.
Anticipating a rerating for the group’s shares over the next two years he has a 52p Target Price out on the shares.
Conclusion – a very healthy upside on 5.4 pe
This group’s shares are currently on a very low rating, trading at 24.5p which puts them on only a 5.4 times price-to-earnings ratio.
Fiinu Bank (LON:BANK) will soon offer a Plugin Overdraft solution to millions of customers without anyone needing to switch their existing bank. The stand-alone unbundled overdraft can potentially be a Monzo-like phenomenon, and the long-term investing opportunity is immense.
About four years ago, 32 million people — or 62% of the population — used some form of overdraft annually. Today, only about 20% of the 100 million personal current accounts population include access to overdraft, whilst the cost-of-living crisis is increasing the demand.
The gap between supply and demand has resulted in over £10 billion short-term credit funding gap in the market and an increase in non-bank lending. By way of example, more than 21 million have resorted to BNPL, and according to FCA, some of these alternatives can have adverse effects on credit files. Fiinu’s primary research suggests that 53% of the population would be very likely to add a Plugin Overdraft to their current account for as long as they didn’t need to change their bank. Fiinu Bank plans a soft launch in late spring and a full launch this summer.
According to Panmure Gordon’s research (Jan 2023), the FTSE AIM fintech group with a ticker “BANK” could fetch a valuation of £1.2 billion — though, as usual with AIM investing, this is not a risk-free trade.
Plugin Overdraft: how it works
Fiinu was founded in 2017, by second-time entrepreneur Dr Marko Sjoblom, as a fintech platform and a provider of consumer banking products. The publicly listed group comprises two separate businesses: Fiinu Bank, which has been granted a restricted deposit-taking, will offer the flagship Plugin Overdraft, and Fiinu Services Ltd, which will provide Bank Independent Overdraft platform to other banks.
The Plugin Overdraft is an ‘unbundled’ overdraft solution. Fiinu provides customers with an overdraft facility by intelligently using the Open Banking scheme without anyone needing to switch their current account away from their present bank. Fiinu Bank loan book is funded through one-year fixed-term deposits, FSCS-guaranteed of up to £85,000.
The solution gives the customer access to mainstream credit, an overdraft, from a third-party bank, and unlike some non-bank alternatives, it does not negatively impact their credit score. According to the Experian website, an overdraft in the credit file can improve credit scores.
After receiving the restricted deposit-taking licence in July 2022, Fiinu is now in the ‘mobilisation’ period, where newly authorised banks typically operate for 12 months before fully opening up to trade.
As with any other retail bank authorised by the Bank of England regulators, the PRA and the FCA, the company is currently undergoing its technical audit. It is also advancing its operational capabilities, recruiting senior managers, building out risk, internal audit, and compliance functions, investing in IT systems, contracting with third-party suppliers, and finalising the company’s recovery plan. At the same time, the PRA/FCA continue to assess whether the group is ready to exit mobilisation and become fully operational.
For context, the total deposits a new bank can accept in the mobilisation period is just £50,000 — little more than pocket change in banking terms. Fiinu plans to exit the mobilisation by 7 July 2023 after submitting a Variation of Permission to the PRA/FCA alongside evidence that required actions and capital is in place.
Fiinu FTSE AIM IPO
Fiinu launched its IPO mid-July with a valuation of circa £53 million (20p a share). In common with most tech-focused companies, the AIM company has fallen in value to circa £35 million just after launch. However, it’s risen by a third over the past month, with the volatility suggesting it remains in price discovery.
It’s worth noting that gaining its banking licence and launching the IPO was a five-year process. CEO Chris Sweeney argues that the company’s ‘unique Plugin Overdraft is the gateway to better financial inclusion and a welcome addition of a product made possible through Open Banking.’
Meanwhile, the founder, Dr Marko Sjoblom, believes the platform will ‘create a new market where unbundled overdrafts will increase financial fairness and freedom for everyone, everywhere.’ The company raised £14 million when it became public and expected to raise further funds by the end of the mobilisation period.
Recent developments
On 19 December, Fiinu announced that TransUnion will be ‘supporting Fiinu Bank to help enable its innovative overdraft solution, using TransUnion Open Banking capabilities and credit reference data.’ The Open Banking information will be used to check eligibility without impacting anyone’s credit score.
TransUnion director Stephen Wishart notes that ‘the use of TransUnion Open Banking capabilities, alongside our credit reference data, will provide a comprehensive view of the individual’s financial situation, helping Fiinu to assess the finance that’s right for the individual’s needs.’
Most recently, the FTSE AIM company provided an operational update on 26 January in advance of full year-financial results expected in April. Describing the ‘significant progress’ made since the IPO, the company listed a reel of achievements; signing a contract with core banking platform Tuum, hiring key management personnel, signing a contract with a decision engine services provider, and selecting a critical Payment Initiation Service Provider.
In addition, Fiinu has received regulatory senior management functions (SMF) approval for the CFO, chief risk officer, and chair of the board risk committee. As is the core banking platform configuration and testing, all key microservices to support new customer onboarding and payments are now completed. System integration testing is currently ongoing with support from contractor Maveric NXT to provide assurance testing.
And most importantly, the FTSE AIM company remains on target to ‘exit from mobilisation following the required capital raise and subject to regulatory approval’ in July 2023.
However, the bank needs to raise £35-40 million before it exits mobilisation. But confident it will achieve this in the set timeframe and promises to ‘provide further regular updates as the business plan progresses over the coming months.
Potential valuation
Before getting into the specifics, there are three general points to consider for a potential valuation.
First, the UK and the world are generally on the straits of tightening monetary policy, with the UK base rate at 4% and rising. This is sub-optimal for a fintech like Fiinu seeking to get finance on decent terms — and it will need further financing to become self-sustaining; however, retail deposits tend to be the cheapest form of loan-book funding, especially in comparison to wholesale funding.
Second, valuing a company on its potential is, by its very nature, an imprecise exercise with a wide degree of variance. Fiinu has a banking licence, an excellent business idea, and a solid roadmap to profitability. However, things do go wrong, and this is not a risk-free investment — capital risks, credit risks, interest rate risks, liquidity risks, operational risks, and even potential conduct risks are the common pitfalls. Fiinu is not immune to these problems.
The third point is that Fiinu has serious potential. Other fintechs which have spotted a lucrative gap in the market — including Monzo and Wise — have jumped to multi-billion-dollar valuations. Wise has unbundled international transfers from the personal current accounts and proven the model as its valuation is nearly £6 billion.
This could be a similar opportunity to get in on the ground floor for those with a healthy risk appetite. Getting a UK banking licence is no easy task — possibly the most significant hurdle — which has already been cleared.
Now for the details.
Panmure Gordon analysts have put together an excellent research note and extrapolated their opinions based on a realistic hypothetical future model.
Under their model, they expect that Fiinu will grow to 500,000 customers within five years of operation, breaking even in year three, becoming fully profitable in year four, and will have broken even in aggregate by the end of year five.
Breaking this prediction down, they expect 75,000 net new customers in year one, another 75,000 in year two, and then further scaling up in years three to five. Panmure assumes initial average lending of £300 per client, with each use of the Plugin Overdraft lasting for circa 120 days per year/10 days per month. In terms of pricing, it assumes a competitive 32bps.
However, as previously mentioned, Fiinu must find £35-40 million in equity funding in the next four months. Panmure estimates this will need to rise to £100 million based on ‘conservative base case assumptions over the first few years of operation.’ To put this in context, Monzo needed to raise over £450 million in the same period, which is still loss-making.
For perspective, more rapid growth or collaboration with other financial services companies will require more capital to scale up and ensure smooth customer access to credit. However, such an increased growth rate would act as proof of work to potential lenders; therefore, additional financing would be reasonably easy to access.
But under Panmures, many assumptions, including that the customer base grows to 700,000 customers by year 10 — which seems a reasonable target — a DCF valuation would suggest an implied value of £1.2 billion within the next decade.
I think the terms and sourcing of Fiinu’s required financing is the key hurdle to overcome. After that, one problem that the company may have understated is getting those first 75,000 customers in year one; they may be underestimating just how hard it is to get UK consumers on board with new products, especially credit products, even if it is in their own best interests.
My final comment is Fiinu’s future competition problem.
Fiinu is currently targeting customers excluded from arranged overdrafts by traditional banks who must now seek far more expensive finance elsewhere. Suppose Fiinu can demonstrate that it can profitably offer overdrafts to these excluded customers. In that case, banks may again offer these customers overdrafts on better terms.
Fiinu would then compete for customers with the multi-billion-dollar titans. However, this is a future problem, most likely for the 2030s rather than today.
And at 13.2p per share, Fiinu is a solid speculative FTSE AIM opportunity for 2023.
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.
