The pound suffered its biggest monthly hit against the dollar since 2016 on Thursday after the Resolution Foundation reported the UK was heading towards its lowest living standards level in a century.
The Foundation estimated UK people in poverty would rise by three million, with relative child poverty on track to its highest level of 33% in 2026-2027 since the peaks of the 1990s.
The Sterling’s slide against the Dollar marks the most significant month-on-month fall since the currency was battered by Brexit in 2016, sending the Pound spiralling to shocking levels against the US.
One Pound equated to 1.1536 Dollars in late afternoon trading on Thursday.
Firering Strategic Minerals shares gained 4.4% to 7p in early afternoon trading on Thursday, after the Rare Earth Elements (REE) company announced all 11 holes at its recent flagship Atex project drill programme intersected pegmatite.
The mining group said 10 holes revealed visual lithium mineralisation. Firering Strategic Materials added the strike of lithium bearing pegmatites at Atex was confirmed for 700 metres and still open-ended along strike and down dip, suggesting Atex could potentially host a “very significant” lithium resource.
The company mentioned all initially planned pits for metallurgical test work were completed and sampled, with a further three pits planned for operational work.
Firering Strategic Minerals confirmed work programmes were ongoing and assays were expected in the coming weeks.
“I am delighted to provide an update on our core drilling programme which is continuing successfully with pegmatites intersected in every hole.,” said Firering Strategic Minerals CEO Yuval Cohen.
“Lithium mineralisation was visually observed in ten out of the eleven holes drilled to date and we are eagerly awaiting the assay and XRD results.”
“The discovery of yet another potential pegmatite field in the NNW of our licence area provides further support of the potential of Atex becoming the next lithium development project in West Africa. We look forward to providing the market with our ongoing exploration results”
The FTSE 100 started September in the red, tumbling as much 1.5% in early trading on Thursday as cyclical stocks sank.
A weakened Pound Sterling couldn’t save the blue chip index from sliding, as the currency fell on a report from the Resolution Foundation warning of the worst outlook for UK living standards in a century.
“The start of September has not brought about any change to the current gloomy mood pervading markets,” said AJ Bell investment director Russ Mould.
“Not even further weakness in the pound, as the Resolution Foundation warns of a ‘frankly terrifying’ outlook for living standards, can spare the FTSE 100 from the pain.”
The news added to significant concerns over the country’s productivity following two months of weak PMI reports, as fears over a lack of commodities demand sent the top mining giants spiralling.
Glencore shares fell 7% to 439.8p, with Anglo American dropping 3.3% to 2,689p, Endeavor Mining sliding 4.6% to 1,605.5p, Antofagasta declining 3.4% to 1,063.5p, Fresnillo dropping 3.3% to 665p, Rio Tinto decreasing 3.5% to 4,604p and Croda dipping 2.3% to 6,569p.
Reckitt Benckiser CEO resigns
Reckitt Benckiser shares fell 4.3% to 6,357p after CEO Laxman Narasimhan announced his sudden exit from the consumer goods company.
“Investors in Reckitt Benckiser are clearly disappointed by the unexpected – and very rapid – departure of chief executive officer Laxman Narasimhan, judging by the share price slide in early trading,” said Mould.
“Mr Narasimhan cites the opportunity to take up a post in the USA after just three years in the role.”
“By the time of his departure at the end of month, Mr. Narasimhan will have completed just over three years in office, well below the 5.8-year average across the FTSE 100.”
US and Asian markets sink
Markets looked bleak in the US and Asia, as the US apparently banned the sale of NVIDIA micro-chips to China and Russia, adding fuel to the geopolitical fire.
“Further weakness in the US and Asia, with the rally of early August an increasingly distant memory, set the stage for selling in Europe,” said Mould.
“Reports of the US banning the sale of micro-chips by NVIDIA to China and Russia helps move geo-political risks up another notch on the dial.”
“The US CPI reading for July gave cause for comfort but, at present, it is hard to see where the next piece of positive data which could offer some relief to investors is coming from.”
Markets sank across the Atlantic, with the Dow Jones sliding 0.6% to 31,333, the S&P 500 dropping 0.7% to 3,927 and the NASDAQ falling 1% to 12,154.5 in pre-open trading.
Asian indices seemed similarly glum, with the Hang Seng down 1.7% to 19,597.3 and the Shanghai SSE sliding 0.5% to 3,184.9.
“It’s still a couple of weeks before we get the CPI reading from across the Atlantic for August. Perhaps if that showed the softening of inflationary pressures to be more of a pronounced trend it might boost sentiment and see the Federal Reserve ease up on its hawkish rhetoric,” said Mould.
“For now, the swift reversal in fortunes for stocks will add grist to the mill for those arguing their recovery a few weeks ago represented nothing more than a ‘bear market rally’.”
Reckitt Benckiser CEO Laxman Narasimhan became the latest CEO to join the mass leadership exodus from the FTSE 100 on Thursday.
Narasimhan’s surprising announcement came as an unwelcome shock to shareholders, with the company’s stock price falling 4.2% to 6,366p in early afternoon trading.
His departure marks the 17th CEO to leave a FTSE 100 company in 2022, with analysts citing the difficult macro-economic environment as the driving factor behind the slew of resignations.
“Investors in Reckitt Benckiser are clearly disappointed by the unexpected – and very rapid – departure of chief executive officer Laxman Narasimhan, judging by the share price slide in early trading,” said AJ Bell investment director Russ Mould.
“Mr Narasimhan cites the opportunity to take up a post in the USA after just three years in the role and the news means that FTSE 100 firms have announced 17 changes at the very top so far in 2022.”
“Spikes in the number of CEO changes can come when times are getting tougher, either economically or at least in terms of share price, at least if the jump in departures in 2000, 2007 and 2020 are any guide.”
Investors had welcomed Narasimhan’s time of service at the group, during which the departing CEO worked to kickstart advances in the company following a slate of poor business performances, including the failed $18 billion acquisition of Mead Johnson, the South Korea humidifier disinfectant debacle and a cyber attack which took place during prior CEO Rakesh Kapoor’s tenure.
“[Investors] had warmed to his efforts to re-establish positive momentum at the company after the ultimately failed $18 billion acquisition of Mead Johnson, legal and reputational fall-out over a humidifier disinfectant sold in South Korea and a high-profile cyber-attack, all of which bedevilled the firm during the latter stages of Rakesh Kapoor’s eight-year stint as CEO,” said Mould.
A client in Israel has cancelled a contract with Ethernity Networks (LON: ENET), which relates to the provision of the company’s Universal Edge Platform. This made Ethernity Networks the worst performer of the day with a 22% share price decline to 9.75p. The client claims that its customers have complained about delays in product delivery. Ethernity Networks blames its client for delays due to pricing and amendments to designs. The contract was worth $930,000 and $107,000 has been invoiced. Last year’s group revenues were $2.64m.
There was a negative reaction to the unsecured convertible loan note facility of up to £750,000 obtained by oil company TomCo Energy (LON: TOM). The interest charge is a fixed 5% of the principal drawn down. The conversion price is the lower of 0.75p or the averaged weighted market price discounted by 15%. If the cash is not repaid by the end of November, then the loan notes will be converted. There will also be up to 100 million warrants exercisable at 0.75p each. TomCo Energy will use $250,000 to repay part of the Valkor loan. The remaining $1.25m is repayable in October. The new facility is a short-term fix, but there is still more to do. The share price fell 19.1% to 0.445p.
Conroy Gold & Natural Resources (LON: CGNR) has published initial drill results from Clontibret. The first three drill zones intersected eighteen gold zones were intersected, including four new gold zones. The market was not impressed and the share price fell 13.3% to 19.5p.
Graphene-based technology developer Directa Plus (LON: DCTA) says 2022 revenues will grow by 40%, but that is below the Cenkos forecast of €14.1m. The latest announcement suggests 2022 revenues of just over €12m. The share price slipped 5.5% to 86p.
Telephony services provider LoopUp Group (LON: LOOP) has taken on a book of conference service contracts from a US competitor for no initial payment. There is a revenue share agreement for three years to October 2025. These contracts could generate cash of £5m a year, although it may reduce due to customer churn. This is much-needed cash flow for the business, which is still heavily loss-making. The new bank facility is £17m and that more than covers the expected net debt at the end of 2023. The shares jumped by one-third to 9p.
AI-based biopharma data analytics services provider IXICO (LON: IXI) says that its EBITDA for the year to September 2022 will be comfortably ahead of the £1.2m expected. This is the second upgrade since May. The revised forecast EBITDA is £1.5m. Delayed and ceased trials mean that revenues will decline in 2022-23 and IXICO is expected to fall into loss. The share price is 9.15% higher at 38.75p.
Cake Box (LON: CBOX) chief executive Sukh Chamdal acquired 225,000 shares at 121.85p each following yesterday’s profit warning. He owns 25% of the company. The share price recovered 15.9% to 145.5p.
Second quarter revenues of Nostra Terra Oil & Gas (LON: NTOG) were one-third higher than the previous quarter at $1.14m. In the quarter averaged daily production was 22% ahead at 125 barrels and the rest of the increase in revenues came from higher prices. The share price is 5.08% higher at 0.31p.
Firering Strategic Minerals (LON: FRG) has found lithium mineralisation in ten out of eleven drill holes at the Atex lithium-tantalum project in Cote d’Ivoire. The first assay results are expected in the fourth quarter. The share price moved ahead by 4.4% to 7.05p.
Ex-dividends
Aferian (LON: AFRN) is paying a dividend of 1p a share and it has gone ex-dividend today and not last Thursday. The share price is unchanged at 133.5p.
Inspecs Group (LON: SPEC) is paying a final dividend of 1.25p a share and the share price fell 3p to 188p.
Knights Group Holdings (LON: KGH) is paying a dividend of 2.04p a share and the share price rose by 1.25p to 102.25p.
Ramsdens Holdings (LON: RFX) is paying an interim dividend of 2.7p a share and the share price is 3p lower at 200.5p.
Solid State (LON: SOLI) is paying a final dividend of 13.25p a share and the share price fell 5p to 1125p. Supreme (LON: SUP) is paying a final dividend of 3.8p a share and the share price declined by 6p to 89p.
Chinese city Chegdu entered lockdown on Thursday, trapping 21.2 million people within the area as Covid-19 cases surged.
The region is set to undergo four days of Covid testing across the city. All residents were ordered to remain at their homes from 6pm on Thursday, with one person per day allowed outside to shop for essentials.
The announcement comes as a blow to hopes of improved Chinese productivity, following disappointing productivity figures over the past few months.
Chengdu is the largest city to enter lockdown in China since Shanghai was shut down for two months earlier in 2022.
Southern Chinese cities have implemented a selection of restrictions to clamp down on Covid cases, including work-from-home schedules and large audience venues suspended from operation.
China has maintained a “zero-Covid” policy since the pandemic broke in 2020, which has seen the country close its borders to tourists and outside visitors in many regions.
Chengdu residents working in vital manufacturing and capable of managing on closed campuses were exempted from work-from-home restrictions.
The Chinese government did not specify an estimated end date to the lockdown.
Alan Green joins the Podcast as we discuss the FTSE 100’s top dividend payers by yield and explore the possibility of these yields being maintained.
In times of volatility, investors seek yield to mitigate any potential loss of capital appreciation. However, historical yields of the FTSE 100’s top yielding companies may not be a reliable indication of future yields investors receive.
We look at Persimmon, Rio Tinto and M&G Investments and how their future dividend distributions could be impacted. We explore the earning outlook for each company and how their dividend policies may alter yields.
Our focus leans towards macro influences such as demand of natural resource during ongoing China lockdowns and how the UK housing market will dictate Persimmon dividends.
We finish by looking at Smart Metering Systems (LON:SMS) and the defensive nature of their stock operating in a fast growing market.
Real household disposable incomes are set to fall by 10% over 2022-2023, according to a report by the Resolution Foundation.
The economic crisis marks the deepest squeeze to living standards in a century, with the level of UK people in poverty on track to rise by three million as real term income declines by £3,000 per average household.
Relative child poverty is anticipated to reach its highest level of 33% in 2026-2027 since the peaks of the 1990s.
The report noted the Bank of England’s worrying projection of 13% inflation by October, however it also pointed out Citibank’s blood-chilling 18% estimation, and said the living standards decline will extend beyond winter 2022 into 2024.
Meanwhile, real earnings are expected to continue falling until at least mid-2023, extinguishing all real pay growth since 2003.
Resolution Foundation attributed the dramatic fall to 15 years of economic stagnation driven by historically weak productivity, alongside rising inflation.
The organisation added the lack of projected rapid recovery period would leave average real incomes 7% lower at the close of the current Parliament than they were at the start, representing the first time on record the UK became significantly poorer across a parliamentary term.
Significant support ‘all but inevitable’
The Foundation concluded significant support from the incoming Prime Minister was now “all but inevitable.”
The writers said support in the form of a social tariff, a universal bill reduction or price tag would cost billions of pounds, but was essential to reduce the burden on poorer households over the next six months.
Furthermore, researchers called on the government to keep the previous Chancellor’s commitment to raise benefits in 2023 in line with inflation.
They said a higher productivity-driven 1% increase to annual real pay growth over the next half-decade would boost average household income by 3% by 2026-2027, and poorer households’ income by 1%.
However, getting rid of the National Insurance rise in October would only serve to raise median incomes by 1% over the same time period.
“Britain is already experiencing the biggest fall in real pay since 1977, and a tough winter looms as energy bills hit £500 a month. With high inflation likely to stay with us for much of next year, the outlook for living standards is frankly terrifying,” said Resolution Foundation researcher Lalitha Try.
“No responsible government could accept such an outlook, so radical policy action is required to address it. We are going to need an energy support package worth tens of billions of pounds, coupled with increasing benefits next year by October’s inflation rate.”
“The new Prime Minister also needs to improve Britain’s longer-term outlook, which can only be achieved by a new economic strategy that delivers higher productivity and strong growth.”
Next shares have fallen 28.6% year-to-date to 5,814p, which might prompt investors to ask if now is a good time to buy the dip on the FTSE 100 stock.
Next is a consumer-focused group, placing the blue chip retail company squarely in the line of fire as UK customers trim the fat (and the fashion) off their budgets in anticipation of soaring energy and food prices.
While inflation currently stands at 10.1% and is expected to hit 13% this October according to the Bank of England’s latest estimates, if you are not afraid to hold a stock over the long term, Next shares could be one to consider.
Next shares
Next shares look set for increased earnings, despite the soaring rate of inflation, with a PE ratio of 11 and a forward PE ratio of 10.4.
The company also has a pretty good dividend yield of 2.2%, and a remarkably encouraging dividend cover of 4.2, assuring shareholders of dividend payouts and value return even if Next suffers a couple of blows in the volatile market environment.
Next Financials
Next reported a strong Q2 trading statement in August 2022, increasing its FY profit guidance by £10 million to £860 million, representing a 4.5% growth year-on-year.
The company’s retail segment climbed in sales past pre-Covid levels in 2019, with a Q2 performance 4.7% ahead of its results three years ago.
Next warned it did not expect to outperform expectations again in HY2 2022, due to inflation concerns as the cost of living crisis deepens.
However, the fashion group reiterated strong guidance for FY 2022-2023 despite wider inflationary concerns.
Next reported a central guidance of a 1% rise in HY2 full price sales, alongside an EPS growth of 7.2% to 568.1p compared to FY 2021-2022.
Next Dividends
The retailer reintroduced dividends after suspending payments over the Covid pandemic, and returned value to shareholders via two special dividends in 2022 of 110p and 160p per share in 2022.
Next also distributed an ordinary dividend of 127p per share on 1 August 2022, and confirmed a return to its regular dividend cycle this year.
Next shares further benefited from £224 million spent by the firm on share buybacks over 2022, with 3.5 million shares repurchased at an average price of £63.85 per share.
If profits are in line with management guidance, the Equivalent Rate of Return (ERR) on the buybacks will be 10.6%.
Next seems to be in good hands heading into the autumn and winter seasons, and appears fairly confident it will weather the market storm without too huge a battering in the coming year.
Rio Tinto shares fell 3% to 4,625.7p in early morning trading on Thursday after the mining giant announced its acquisition of the remainder of Turquoise Hill for $3.3 billion.
The commodities group is set to acquire 49% of the issued and outstanding common shares of Turquoise Hill that it does not currently own for C$43 per share in cash.
Rio Tinto said the agreement had the unanimous approval of the independent special committee of Turquoise Hill’s board of directors.
The offer represents a premium of 67% to Turquoise Hill’s closing price of C$25.68 per share on 11 March 2022, being the day before Rio Tinto’s initial public non-binding proposal to acquire the firm.
It also represents a 125% premium on Turquoise Hill’s closing price of C$19.12 per share on 24 January 2022, the day prior to Rio Tinto, Turquoise Hill and the Mongolian Government’s agreement towards the commencement of the Oyu Tolgoi underground mine.
“The transaction simplifies the ownership structure of Oyu Tolgoi and enables Rio Tinto to focus on working in partnership directly with Erdenes Oyu Tolgoi and the Government of Mongolia to create long-term value for all stakeholders,” said Rio Tinto CEO Bold Baatar.
“Turquoise Hill minority shareholders will realise a significant and immediate cash premium for their shares at a time when uncertainties inherent in the development of the underground operations remain.”
The transaction will require the approval of 66.67% of votes cast by Turquoise Hill shareholders and the approval of a simple majority of the votes cast by minority shareholders of Turquoise Hill.
“Rio Tinto is committed to moving Oyu Tolgoi forward in direct partnership with the Government of Mongolia to realise its full potential for all stakeholders,” said Rio Tinto CEO Jakob Stausholm.
“This agreement represents another significant step following the recent commencement of the underground operations, and will simplify governance, improve efficiency and create greater certainty of funding for the long-term success of the Oyu Tolgoi project.”
