Pets at Home, Halfords, and Harland & Wolff with Alan Green

UK Investor Magazine
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Pets at Home, Halfords, and Harland & Wolff with Alan Green

Alan Green joins the Podcast to dive into three Uk equities and the key themes driving markets this week.

We discuss:

  • Pets at Home (LON:PETS)
  • Halfords (LON:HFD)
  • Harland & Wolff (LON:HARL)

We start by looking at the FTSE 100 and whether we could see all time highs in London’s leading index – at the same time the UK economy enters a recession.

Pets at Home and Halfords were big winners during the pandemic but their shares have drifted since. We crunch the numbers from their interim updates.

Harland & Wolff have received a game changing contract win for 3 battleships from the Ministry of Defence. We question how high Harland & Wolff shares could go?

5 Things Moving Markets 23rd November

UK Investor Magazine
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5 Things Moving Markets 23rd November

Manchester United shares jump on sale reports

Manchester United is reportedly being put up for sale by the Glazer family after years of poor performance on the pitch, and pressure from fans off it. Manchester United shares closed around 10% higher overnight in US trade.

“It’s expected there will be plenty of interested parties wanting to get a slice of the action whether through a partnership, full or partial sale, but it will come at a hefty price,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.

Halfords EBITDA falls

Halfords shares sank on Wednesday after first half underlying EBITDA fell 20.5% compared to 2021 as spending on discretionary items fell. The group said they would focus on lines providing reoccurring revenue in the face of the cost-of-living crisis.

“Halfords’ decision to focus on building its more reliable service revenue stream couldn’t have come soon enough, as consumers battling cost pressures are moving away from more discretionary spend,” said Matt Britzman, Equity Analyst at Hargreaves Lansdown.

FTSE 100 outperforms Europe

Strong commodities stocks helped the FTSE 100 outperform European indices on Wednesday. The FTSE 100 was 0.49% higher at 7,489 with Glencore, BP and Shell leading the gains.

Federal Reserve minutes eyed

Investors were awaiting the Federal Reserve’s minutes on Wednesday for any hints of the trajectory on interest rates. US inflation has been falling, but still remains stubbornly high. With the US economy showing no signs of major weakness there is little impetus for the Fed to change the current course or rate increases.

Bitcoin rebounds

Bitcoin has bounced off major support at $16,000 as the FTX saga continues. A break below this level would mark a major deterioration in the cryptocurrency.

CML Microsystems beats expectations

Andrew Hore
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CML Microsystems beats expectations

CML Microsystems (LON: CML) reported better than expected interim results. Demand is increasing for existing semiconductor products and newer products are being designed-in to a wide range of wireless communications equipment.
Products that the company’s components will be included in include a cellular repeater, private mobile radio, fire alarms and industrial IoT. There is still some supply chain disruption, but this is more than offset by the underlying growth in demand.
There will be more new components launched and the newer products are becoming commercial earlier than in the past. The a...

Severfield orders provide second half visibility

Andrew Hore
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Severfield orders provide second half visibility

Structural steel supplier Severfield (LON: SFR) improved interim profit and still has a strong order book covering a variety of sectors. The outlook remains positive with good visibility for the second half and beyond.

In the six months to September 2022, revenues improved from £195.9m to £234.9m through a combination of underlying growth and higher steel prices. Underlying pre-tax profit rose from £10.3m to £12.1m, including a doubled contribution of £600,000 from the India business.

Net debt was £15.8m at the end of September and the interim dividend was raised from 1.2p a share to 1.3p a share.

In the UK, strong markets include nuclear, transport, distribution and data centres. The latest statement from the Chancellor of the Exchequer appears to confirm that major infrastructure spending will continue.

The facility in India is nearing its capacity of 100,000 tonnes and a second site is being identified. Demand for structural steel is expected to be significant for many years.

The UK and Europe order book is worth £464m and the India order book is £143m. Those figures are slightly lower than in June, but this still means that 95% of forecast revenues for 2022-23 are covered and 50% for 2023-24. Tendering activity continues at high levels.

Singer maintains its full year pre-tax profit forecast at £31.3m, up from £27.1m, although it has raised its forecast revenues due to higher steel prices and other cost increases. At 58.6p, the shares are trading on seven times prospective earning and the forecast yield is 5.6%.

AIM movers: Positive Italian news for Eqtec and Osirium Technologies raises cash

Andrew Hore
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AIM movers: Positive Italian news for Eqtec and Osirium Technologies raises cash

Waste-to-energy technology supplier Eqtec (LON: EQT) says that its Italia Market Development Centre in Gallina should commence commercial operations in December. Final equipment deliveries should be this month. The plant will turn agricultural waste into energy. Annual revenues could be €2.7m. Additional funds have been raised for vehicle that owns the Italia MDC and Eqtec maintains its 20% stake. The share price is nearly one-third higher at 0.425p.

Promotional products services provider Altitude (LON: ALT) says full year results will be well ahead of expectations. The share price jumped 15.6% to 26p. Zeus has doubled its 2022-23 pre-tax profit estimate to £540,000, on a 19% increase in forecast revenues to £16.5m. This indicates the operational gearing of the business. Net cash should reach £1.2m.

Helium explorer Helium One Global (LON: HE1) has selected Exalo as preferred drilling contractor because of legal problems concerning the previous contractor and drilling should start in the first quarter of 2023. This should not materially increase costs. The rig will be moved from South Africa to Tanzania. The share price rose 10.2% to 6.5p.

Tatton Asset Management (LON: TAM) continues to generate impressive net inflows to its assets undermanagement. They were £907m in the six months to September 2022, helping to offset market declines. The 50%-owned 8AM Global added a further £1bn taking the group total to £12.3bn, which has already risen to £12.9bn in November. Pre-tax profit improved from £6.77m to £7.68m and the dividend was raised by 12.5% to 4.5p a share. The share price is 8.77% ahead at 440.5p.

Legal services provider Knights Group Holdings (LON: KGH) says interim revenues were 18% higher at £71m and pre-tax profit improved by the same percentage to £9m. That is in line with expectations. Net debt has reached £35.6m. The share price is 3.34% higher at 83.5p.

T42 IOT Tracking Solutions (LON: TRAC) is selling Tetis tracking and monitoring units to US logistics firm Overhaul Group Inc. There is an initial two-year contract. The share price improved 6.9% to 7.75p.

Osirium Technologies (LON: OSI) is raising £1.53m at 2p a share. The share price slumped 36.3% to 2.55p. This cash will provide additional working capital and help the cyber security business reach cash breakeven earlier. Annualised cost savings of £1m have been identified and £650,000 have already been implemented. Sales director Stuart McGregor is replacing David Guyatt as chief executive and he will become executive chair. Allenby has increased its forecast 2022 revenues to £1.8m and slightly reduced the expected loss to £3.22m. Osirium will go back into net debt during 2023.

Electrolyser developer Clean Power Hydrogen (LON: CPH2) is having problems with the design and operation of its cryostat unit in the MFE 220 test unit. Scaling up the unit has been a challenge. This delayed deliveries of two initial MFE 220 units, which were supposed to happen in October. One customer has cancelled the order and is going with a rival electrolyser. A redesign of the unit should cure the issues. On the current forecasts, the cash could reduce to £3m by the end of 2024 and then rise the following year, but further delays could mean the cash reduces more quickly than expected. The share price declined by 16.1% to 34p.

Artemis Resources Ltd (LON: ARV) is searching for an Australia-based chief executive. Alastair Clayton will step down as an executive director next March and non-exec Edward Mead has stepped down immediately. Dr Simon Dominy has become technical director. Exploration drilling at the Greater Carlow gold copper cobalt project in Western Australia should restart early in 2023. The share price slipped 5.13% to 1.85p.

AO World sales suffer but guidance maintained ahead of key trading period

UK Investor Magazine
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AO World sales suffer but guidance maintained ahead of key trading period

AO World saw its sales drop 17% in the six months to 30 September but the board was optimistic about the remainder of the year and eyed strong trading over the end of year festive period.

AO World sales fell to £546m in the first half, but were confident stringent management of costs would achieve full year adjusted EBITDA at the top end of their £20m-£30m guidance.

The optimism of their forecasts caught the attention of investors on Tuesday and AO World shares were over 15% higher at the time of writing. AO World shares are still 42% weaker year-to-date.

Analysts at AJ Bell highlighted the challenging nature of the retail environment and suggested the company were pinning their hopes on a strong festive period, which will be instrumental in achieving their guidance.

“First-half results from online electronics retailer AO World are being released in the calm before the storm which is Black Friday and Cyber Monday when the company will hope to be extremely busy,” said Russ Mould, investment director at AJ Bell.

“AO World was a pandemic winner whose fortunes have taken an alarming turn since, but these results hint that the company may have bottomed out and is ready to recover.

“The backdrop is undoubtedly difficult. Given the pressures on household budgets, people are putting off purchases of new appliances where they can, though to some extent if your washing machine or fridge freezer breaks down, a replacement is a non-discretionary item. 

“This set of numbers from AO World is as messy as the bottom of a student’s fridge, but management guidance is notably robust, with full-year earnings expected at the top end of expectations. Though it’s important to note this is largely being driven by cost cutting, rather than any inherent strength in the business.”

Severn Trent contends with inflation as revenue increases, hikes dividend

UK Investor Magazine
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Severn Trent contends with inflation as revenue increases, hikes dividend

Severn Trent has provided insight into how they are operating in an environment punctuated by soaring inflation in their first half results in which revenue increased.

Soaring inflation meant the company’s revenue increased, but the impact of inflation-linked debt saw their overall earnings suffered.

Severn Trent’s revenue grew £103.6 million to £1,061.8 million but Adjusted basic EPS nearly halved to 29.9p from 54p.

The culprit was a sharp increase in net financing costs which hit £186.9m, compared to £120.8m in the year prior. This more than offset the increase in revenue and profit before interest and tax.

Nonetheless, Severn Trent increased their dividend. With a yield of 3.7%, the willingness to improve investor distributions, despite a challenging backdrop, will be an attraction to investors seeking a reliable income play.

“Severn Trent are showing the benefits of being a utility provider when inflation’s running wild, as inflation linked tariff rises gave revenue a £39m boost over the half,” said Matt Britzman, Equity Analyst at Hargreaves Lansdown.

“That’s not to say Severn Trent’s been immune to pressures, higher costs meant a big chunk of the 11% rise in revenue never made its way down to the profit line and inflations impact on index-linked debt meant financing costs shot up. Though it’s worth remembering, most of the rise in finance cost is a non-cash charge due to how changes in the value of index linked debt is accounted for, rather than a cost that had to be paid in cash.”

5 Things Moving Markets 22nd November

UK Investor Magazine
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5 Things Moving Markets 22nd November

BP and Shell lift the FTSE 100

Oil majors BP and Shell were lifting the FTSE 100 on Tuesday as the companies gained 5.4% and 3.5% respectively.

Shell and BP are major constituents of the FTSE 100 and accounted for a large proportion of the FTSE’s 50+ point gain at the time of writing.

Saudi Arabia production hike reports whipsaws oil

Although Saudi Arabia denied the claims, the Wall Street Journal have reported Saudi Arabia was considering a 500,000 barrel per day production increase ahead of the next OPEC+ meeting.

Chinese stocks bounce back

The choppiness in Chinese stocks persists with rising COVID cases causing sharp swings in equities as investors attempt to gauge the end of their Zero COVID policy which would spark a huge risk-on rally.

Severn Trent shares dip

Severn Trent announced falling earnings per share in the first half as inflation linked debt eroded their profitability. Revenue rose to £1,061.8 million, up £103.6 million in the period and the dividend rose to 42.73p.

Tesla shares hit by China concerns

Tesla shares closed down 6.8% overnight as investor fretted about the state of demand in China that may lead to further price cuts. Elon Musk’s antics at Twitter are also weighing on sentiment around Tesla shares. Tesla shares are down 58% year-to-date.

HMRC tax receipts soar as Inheritance Tax rises to £4.1bn

UK Investor Magazine
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HMRC tax receipts soar as Inheritance Tax rises to £4.1bn

HMRC’s tax receipts between April and October rose sharply with income tax, national insurance, inheritance tax and capital gains tax intake all rising.

Income tax, national insurance and capital gains tax receipts for the period jumped £28.1bn to £235.6b.

Inheritance tax receipts soared to £0.5bn to £4.1bn.

“HMRC’s tax take continues to soar with the amounts of income tax, capital gains, inheritance taxand stamp duty heading skywards as a combination of threshold freezes and strong demand for property continue to play out,” said Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown.

Morrissey continued to explain the implications of tax changes at the Autumn Budget and how it could impact tax payer behaviours.

“The squeeze looks set to continue with these taxes taking centre stage in the Chancellor’s Autumn Statement with income tax and inheritance tax frozen for a further two years and the threshold for additional tax rate payers slashed. Capital gains tax changes will penalise those holding investments outside ISAs and pensions and stamp duty changes may force one last stampede to purchase that dream home before the threshold goes back down in 2025.”

Inheritance Tax

While income tax and national insurance are unavoidable, there are many schemes available to mitigate inheritance tax. These include using your pension allowance effectively and utilising schemes such as the Enterprise Investment Scheme (EIS) to invest in British business.

Jigsaw Insurance Services recommends bid

Andrew Hore
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Jigsaw Insurance Services recommends bid

Former Aquis-quoted company Jigsaw Insurance Services is recommending a 204p a share cash offer from insurance business consolidator PIB Group Ltd. There could also be additional consideration of 14p a share depending on completion accounts. That values the bid at up to £24.1m.

Breakdown, motor and pet markets are the focus of the specialist insurance business. Adding it to the Buyer’s Group, which is owned by PIB, should enhance the development of the enlarged group. Buyer’s Group is involved in motor insurance, but Jigsaw will take it into new areas. It already has revenues of £200m.

Harrogate-based Jigsaw was formerly known as NCI Vehicle Rescue and it left what was then known as ISDX in February 2015, so it still comes under the Takeover Panel rules. Turnover and profit have grown since the departure, but there has been no market to trade the shares. This offer is at a higher price than at any time when the shares were traded.

In the year to March 2022, turnover increased from £12.1m to £14.2m, although that includes a £1.64m exceptional item relating to the decision by HMRC to treat the breakdown product as exempt from VAT. The breakdown business grew its income, but insurance commissions were lower.

Higher costs, partly related to the exceptional, meant that pre-tax profit fell from £2.37m to £1.7m. There was £7.2m in the bank, including £3.36m held in insurer trust money accounts.

The bid values Jigsaw at less than 15 times 2021-22 post-tax profit. At the time of the annual report, management expected 2022-23 results to be in line with last year.

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