The UK Investor Magazine is joined by Marc Kimsey, Head of Equities of Frederick & Oliver. Frederick & Oliver assist UK investors with tactical positioning in global equities.
Download Frederick & Oliver’s Top Stock Picks for 2023
We discuss this tactical approach throughout the podcast and take a dive deep into three sectors Marc see’s value in.
Marc also highlights the biggest mistake he sees investors and traders making, before outlining his ‘Mars Bar’ stocks.
Floorcoverings distributor Likewise Group (LON: LIKE) finished 2022 strongly with more than doubled revenues. Market share has reached 6%, which is high enough to make the AIM-quoted company number two in its market.
Acquisitions were behind most of the growth in revenues to £124.4m, but like-for-like sales were still 26% higher. That is impressive considering that the market probably contracted last year. The sales team has been expanded and this is starting to pay off. Margins have declined and pre-tax profit should improve from £1.6m to £2.5m.
The focus is on organic growth and taking advantage of the investment in additional capacity. The new Glasgow distribution site opens in a few weeks.
The 2023 pre-tax profit is expected to be flat even though revenues are forecast to be 10% higher at £136.6m. Higher depreciation charges due to capital investment are the main reason for the flat profit and cash generation will increase significantly in 2023. These forecasts have not been changed, so there could be potential for them to be upgraded later in the year if momentum continues and margins improve.
The share price rose 5.1% to 20.5p, which means that the shares are trading on 23 times prospective earnings. Utilising more of the distribution capacity should accelerate earnings and cash flow growth in the next few years.
Ceramics and giftware company Portmeirion (LON: PMP) beat sales expectations by £4m in 2022. Currency movements helped, but there were additional volumes with the UK doing better than anticipated. Pre-tax profit should be £8m. Energy costs are hedged until the first quarter of 2024. The share price jumped 17.1% to 377.5p, which means that Portmeirion is valued at eight times estimated earnings.
Digital marketing services provider The Mission Group (LON: TMG) says 2022 revenues grew by 10% and pre-tax profit was at least £7.6m. Net debt was higher than expected at £11.4m. There will be restructuring and other one-off charges of £6m. Revenues and margins are expected to improve this year. The share price rose 11.1% to 50p.
Parkmead Group (LON: PMG) says a gas discovery has been made at the LDS-01 well on the Drenthe VI concession – Parkmead has a 7.5% interest. A second well is being drilled and after that the discovery will go into production. First gas production should be before the end of the first quarter. The discovery has added 2p a share to finnCap’s Parkmead valuation, although UK energy taxes reduces the valuation, so it is 184p a share. The share price increased 7.4% to 56.5p.
Credit provider Morses Club (LON: MCL) is cancelling its AIM quotation and the share price dived 69.8% to 0.35p. Morses Club needs to save cash to contribute to the compensation fund that is part of the scheme to keep the company going.
Spirits company Distil (LON: DIS) says third quarter revenues almost halved to £411,000. The UK removal of the UK distributor and stock reductions hit the period. Full year revenues will be worse than expected. The share price slumped by 44.4% to 0.5p.
Customer engagement software provider Pelatro (LON: PTRO) shares are continuing their downward trajectory following Tuesday afternoon’s profit warning. There was a further decline of 31.9% to 6.25p.
Virgin Wines (LON: VINO) was hampered by problems with its new warehouse management system, which led to lost revenues and higher costs. There was also lower spending by clients. There were 60,000 additional customers in the first half. Forecast full year revenues have been cut from £69.1m to £63m, while pre-tax profit estimates have been slashed from £4.3m to £1.8m. The share price slipped 29% to 51.5p.
Digital media company Digitalbox (LON: DBOX) says 2022 profit is broadly in line with forecasts even though revenues were lower than expected. It appears that the tough advertising market is not going to change in the short-term. The share price fell 11.4% to 7.75p, which is ten times estimated 2022 earnings.
Ex-dividends
Character Group (LON: CCT) is paying a final dividend of 10p a share and the share price fell 2.5p to 425p.
Caledonia Mining Corp (LON: CMCL) is paying a dividend of 14 cents a share and the share price is unchanged at 1145p.
Dotdigital (LON: DOTD) is paying a final dividend of 0.98p a share and the share price declined by 0.9p to 83.3p.
Focusrite (LON: TUNE) is paying a final dividend of 4.15p a share and the share price increased by 5p to 765p.
Origin Enterprises (LON: OGN) is paying a final dividend of 12.85 cents a share and the share price is unchanged at 435 cents.
Premier Miton (LON: PMI) is paying a final dividend of 6.3p a share and the share price fell 6.5p to 114.5p.
Tesco was the latest in a long line of retail companies to dispel fears about the UK consumer with a strong set of results for the Christmas trading period.
Total UK sales excluding fuel during the festive period rose 7.2% as group retail sales jumped 7.9%. The Booker business unit sales increased 11.7%.
“Tesco has followed in Sainsbury’s footsteps to record an exceptional set of results over the Christmas and third quarter period. The group’s dominant market share has also helped keep tills ringing, despite the growing pressure on household incomes, and the unstoppable rise of the discount supermarkets,” said Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown.
“The other string to Tesco’s bow is wholesaler Booker, which offers a diverse source of income. Especially as catering trends normalise, the group’s benefitting from the wheels of hospitality turning once more.”
Tesco maintained a strong market share of 27.5% as they take on discounters with value lines, a similar strategy to Sainsbury’s. Tesco have laid down plans to lock prices on 1,000 products through to Easter to help those struggling with rising prices.
The shift to online shopping during the pandemic has proved to be sticky business for Tesco with online sales 59% higher than pre-pandemic levels during the most recent period.
Like all supermarkets, the focus will be Tesco’s margins in upcoming results as they fight to maintain market share while input costs increase.
Tesco shares were marginally higher at 245p at the time of writing.
Housebuilder Persimmon completed the sale 14,868 new homes in 2022 shaking off the cost-of-living crisis, but see their sales rate deteriorating significantly in 2023.
Home sales were at the top end of expectations in 2022 and the builder pushed on with a higher build rate of 276 units per week than 2021’s 255 per week.
However, the company are now seeing falling sales rates as the impact of higher interest rates and soaring mortgage rates curtail demand for new homes.
Persimmon said forward sales were down 36% to £1bn and private forward sales were down 56% to £0.5bn.
“Persimmon have followed in the footsteps of rival housebuilder Barratt, warning of a material slowdown in demand over the fourth quarter as consumers battle higher mortgage costs. This fed through to lower sales rates, higher cancellations, and a hefty drop in forward orders. Though, it must be said, a lot of that was largely expected,” said Matt Britzman, Equity Analyst at Hargreaves Lansdown.
The visibility of falling sales meant the declines have been largely priced into Persimmon shares throughout 2022 when the stock lost more than half of its value. On Thursday, Persimmon shares jumped 6% on confirmation declining sales were better than the worst case scenarios.
Rising housing prices helped offset building cost inflation but inflationary pressures are expected to cap margins through 2023. Analysts at Third Bridge highlighted the difficulties in the labour market that are likely to persist for the foreseeable future.
“Getting enough trained staff on site is getting harder thanks to an exodus of foreign workers and a lack of interest in the construction industry from the younger generation,” said Zainab Atiyyah, Analyst at Third Bridge.
Online fashion retailer ASOS experienced falling revenue at the end of 2022 due to a challenging macro backdrop. The retailer also see losses in the first half of 2023.
It is very difficult to take away out-and-out positives from the ASOS update; revenue is falling, losses are expected in H1 2023, and free cash flow for full year 2023 is expected to be negative.
Nonetheless, ASOS shares surged in early trade on Thursday following their update for the four months to 31st December.
The results were not as bad as they could have been, and the company was very positive about a bounce back in H2 2023 when they foresee cash generation increasing, as well as profitability.
The ASOS cash position would be a relief for investors. The retailer said they had the availability of £430m in cash and undrawn facilities that is likely to see them through to the second half without any undertaking any drastic capital raising.
Although shares were higher on Thursday, there are concerns among analysts about the health of ASOS’ margins in the current economic environment.
“Our experts think the outlook for Asos’s sales and margin growth is going to remain pretty challenging in 2023. Especially as many of their existing customers are set to trade down to lower-cost Asos products from more expensive and higher-margin items,” said Zainab Atiyyah, Analyst at Third Bridge.
ASOS share were 14% higher at 586p at the time of writing.
At the time of writing, The FTSE 100 was trading at 7,742, the highest level since July 2018 as economic sentiment showed signs of improving and strong corporate results helped lift the index.
After a gloomy end to 2022, investors were becoming more optimistic on the outlook for the year ahead. A Chinese reopening is being seen as a tailwind for the global economy and the US is enjoying lower inflation rates.
“Ahead of US inflation numbers on Thursday, markets were relatively upbeat with a good showing on Wall Street last night which spilled over into a positive sentiment among investors in European stocks,” said AJ Bell investment director Russ Mould.
“It helped that a speech by Federal Reserve chair Jerome Powell yesterday didn’t contain any shocks which would cause investors to worry about markets even more.”
A day after Goldman Sachs said they no longer saw a recession in the Europe in 2023, European indices surged with the DAX gaining 1.11% and French CAC 1%.
The FTSE 100 was also helped higher by strong results from UK retailers. JD Sports said of their stores had a record Christmas trading period and revenue in the 22 weeks to the end of December increased by 10%.
JD Sports update followed similarly strong results from Next last week and helped Fraser Group shares higher. JD Sports were the FTSE 100’s top riser gaining 6% while Fraser Group jumped 3%.
Although Sainsbury’s shares were negative on the day, the supermarket said they had a record festive trading period as like-for-like sales rose 5.9%.
Barratt Developments shares slipped after the housebuilder said forward sales were down around 29%, despite a strong finish to 2022.
Admiral was the FTSE 100’s top faller, down 8%, after FTSE 250 peer Direct Line shares were smashed 27% lower on higher than expected claims for bad weather.
Deltic Energy (LON: DELT) says gas has been encountered at the Pensacola well in the North Sea, where it has a 30% stake. Well testing by joint venture partner Shell will take 30 days. A potential discovery at the Pensacola prospect could be worth a multiple of the current share price, especially if it is the start of a new gas province. That is why it jumped 41.8% to 2.8p.
Trading is ahead of expectations at Cornerstone FS (LON: CSFS) and 2022 revenues were £4.8m – more than double the 2021 figure. Direct sales increased from 56% to 78%, helping gross margins increase from 52% to 61%. The share price improved by 18.4% to 7.25p, which is the highest it has been for two months.
Cornish Metals Inc (LON: CUSN) has made a new discovery of high-grade tin mineralisation in the Wide Formation target on the southern edge of the South Crofty licence area. There were eight holes drilled and one intersected 2.77 metres at an average grade of 0.99% tin. This will help to expand the resource on the licence. The share price is 6.25% higher at 6.25p.
Kibo Mining (LON: KIBO) has appointed Beaumont Cornish as nominated adviser and trading has recommenced in the shares. The repayment date of the bridging loan facility of £1.1m has been extended to 28 April. The provider of the loan has been allowed to trade Mast Energy Development (LON: MAST) shares held by Kibo Mining up to the value of £250,000 to offset against the loan. The Kibo Mining share price initially rose to 0.14p, but it is currently unchanged at 0.125p.
Customer engagement software provider Pelatro (LON: PTRO) shares fell sharply yesterday afternoon after it revealed that delayed contracts will reduce 2022 revenues. Dowgate has reduced its 2022 revenues forecast by $2.4m to $5.8m, which means that there will be a loss of $2.6m. One licence contract is being changed to a managed services contract and revenues from another contract will be taken in 2023. Pelatro may withdraw from another contract and that would mean a $300,000 provision. Yesterday, the share price fell from 12.25p to 9p and it has fallen another 13.9% to 7.75p.
Steppe Cement Ltd (LON: STCM) increased 2022 revenues by 11%, even though cement volumes were slightly lower. Kazakhstan cement demand was flat at 11.6 million tonnes and Steppe Cement market share improved to 14.5% as exports reduced. Extreme weather and logistics problems have hampered trading in recent weeks. The share price slumped by 12.4% to 42.5p.
Physiomics (LON: PYC) is losing some of its gains from earlier in the week. It has signed a further contract with Cancer Research UK to provide mathematical modelling for a clinical trial of a candidate for the treatment of blood cancers developed by Aleta Biotherapeutics. The project will be completed in the first quarter of 2023. The share price declined by 7.53% to 4.3p.
The Frontier Developments (LON: FDEV) share price continues to fall by 5.34% to 479p following the profit warning on Monday.
JD Sports showed no signs of the cost of living crisis in their Christmas trading update with revenue increasing 10% in the 22 weeks to the end of December last year.
Shrugging off any concerns around the health of the consumer, JD Sports said they expected group profit before tax for the year to be at the upper end of current forecasts of £933 million to £985 million.
JD Sports shares were 6% higher at 149p at the time of writing.
The company said many of their websites and stores had achieved record sales figures in the run up to Christmas, as a result of their focus on improving the experience for their customers.
“This is a story of the survival of the fittest. Weaker retailers have fallen by the wayside as the likes of Next and JD have come to the fore – the latter even enjoying highest ever weekly sales in the run-up to Christmas,” said AJ Bell investment director Russ Mould.
“This is testament to the continuing appeal of the brands which fill JD’s stores and to a youthful consumer who are often living at home and therefore don’t have utility bills, rent or a mortgage to pay.”
“JD is also benefiting from improved availability of products and easing shipping costs – two headwinds which had an impact on profitability in 2022.”
Alan Green joins the Podcast as we run through the numbers of FTSE 100 companies updating investors after the Christmas trading period.
Sainsbury’s has a record Christmas with like-for-like sales excluding fuel rising 5.9%. However, the pressure from discounter such as Lidl and Aldi continue to be a thorn in the side of their market.
Barratt Developments shares suffered dearly in 2022 as markets priced in lower UK housing prices. We run through their update and question whether a 6-9% reduction in average UK house prices is priced into the FTSE 100’s housebuilders.
We conclude with a look at Blencowe Resources and Deltic Energy.
