Markets brace for ECB interest rates decision, Associated British Foods issues profit warning

Natasha Doris
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Markets brace for ECB interest rates decision, Associated British Foods issues profit warning

Markets responded positively to Prime Minister Liz Truss’ energy relief plan, which promised the average household would pay no more than £2,500 per year in energy costs for the next two years.

The FTSE 100 rose 0.2% to 7,254 as a long-awaited burst of optimism swept through the blue-chip index.

Meanwhile, analysts braced for aggressive interest rate hikes from the ECB today, as experts eyed the raging energy crisis across the continent and fears of recession.

“The current theme is not whether central banks will raise rates, but by how much. Investors are also hungry for forward guidance on future policy moves as central bankers try to regain the initiative in the fight against inflation, now that their narrative about the resurgence being transitory has proven – so far – to be wildly inaccurate,” said AJ Bell investment director Russ Mould.

“The European Central Bank is under the spotlight today and there is a feeling we could get a chunky rate hike, potentially as much as a percentage point increase.”

“The ECB was late to the party when it announced a first interest rate increase for the year, and now it has some catching up to do.”

European markets were relatively calm ahead of the decision, with the German DAX down 0.3% to 12,877, the French CAC gaining 0.3% to 6,125.8 and the Italian FTSE MIB falling 0.4% to 21,401.2.

Associated British Foods

Associated British Foods shares plummeted 9% to 1,324p after the company issued a profit warning in its pre-close trading update of a lower adjusted operating profit and EPS for FY 2023.

The Primark owner highlighted a strengthening dollar and spiking energy costs driving higher expenses, along with the cost of living crisis signalling lower sales over the coming year.

The firm said it would not be raising Primark prices due to the cost of living crunch on consumer budgets.

Associated British Foods reported strong adjusted operating profit and EPS for FY 2022, with operating profits for grocery, sugar and agriculture sectors in line with expectations.

“Against this current volatile backdrop and a context of likely much reduced disposable consumer income, we have decided not to implement further price increases next year beyond those already actioned and planned,” said Associated British Foods in a statement.

“We believe this decision is in the best interests of Primark and supports our core proposition of everyday affordability and price leadership.”

Melrose Industries

Melrose Industries shares slid 2.6% to 134p after the group announced a widened statutory operating loss to £317 million in HY1 2022 against £156 million the last year, along with an adjusted operating profit of £171 million compared to £196 million.

The engineering firm also announced the demerger of its GKN automotive division, with the company set to seek listing on the premium segment of the Official List and trading on the London Stock Exchange Main Market as an independent group located in London.

Melrose Industries confirmed retention of GKN Aerospace in its report.

“Since acquiring GKN in 2018 we have reinvigorated each business to achieve its potential,” said Melrose Industries chair Justin Dowley.

“The proposed demerger now gives each an exciting opportunity to individually grow shareholder value through organic growth and acquisition in both platforms.”

“The demerger is expected to unlock value for shareholders and will allow both Melrose Industries and DemergerCo to fulfil their potential independently in their respective markets with clear organic growth and strategic acquisition rationale.”

Chengdu extends lockdown indefinitely

Natasha Doris
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Chengdu extends lockdown indefinitely

Chinese city Chengdu has extended its lockdown indefinitely, after the city reported 116 new local cases on Thursday, falling from 121 the previous day.

The lockdown was supposed to end on Wednesday, however the Sichuan Province capital entered a long-term shutdown across most of its districts as it moved to eradicate all cases in line with its zero-Covid policy.

The country’s radical zero-tolerance approach to the virus has seen China shut down major production hubs from Shanghai to Shenzhen, sparking market volatility in commodities prices from oil to copper on demand fears.

The 21 million population were informed of the extended lockdown as local government officials said “there are still risks of social spread in some areas.”

Currently, 16 out of Chengdu’s 23 districts remain under lockdown. Residents will be tested daily until the city has been cleared as Covid-free, with no estimated date for a return to regular routines.

Production fears extended to the tech sector, as Chengdu hosts a large factory for Apple suppliers Foxconn, which produces MacBooks and Ipads, alongside supplier Jabil, which produces MacBook components.

Chengdu locked down last week after an outbreak of Covid cases hit the region. The shutdown marks the most significant wave of restrictions since Shanghai entered lockdown earlier this year.

Cineworld commences chapter 11 US bankruptcy cases

Natasha Doris
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Cineworld commences chapter 11 US bankruptcy cases

Cineworld filed for chapter 11 bankruptcy cases in the US on Wednesday with approximately $1.94 billion in debtor-in-possession financing commitments to “facilitate a significant de-leveraging transaction and position [the] company for long-term growth.”

The announcement follows a difficult couple of years for the company, after two years of Covid lockdowns along with a failure to draw audiences back to cinemas atrophied its financial assets to breaking point.

“As a household name, Cineworld filing for bankruptcy in the US will put the whole UK entertainment industry on edge,” said Shakespeare Martineau partner and restructuring specialist Sean Moran.

“While not entirely surprising, given the challenges the business faces in the US, it certainly reflects the ongoing global aftermath of the Covid-19 pandemic across the globe.”

“The company’s operations are likely to be exacerbated by the magnitude of the cost of living crisis in the UK.”

The cinema franchise commenced chapter 11 proceedings in the United States Bankruptcy Court for the Southern District of Texas, and said it expected the restructuring process to “significantly” reduce its debt, as well as strengthen its balance sheet and liquidity position.

Cineworld confirmed the restructuring process would involve its UK, US and Jersey sectors, with other territories remaining unaffected.

The business said it expected to pursue a real estate optimisation strategy in the US, and plans to engage in discussions with US landlords to improve cinema lease terms in a move to further position Cineworld for long-term expansion.

“With the US business in Chapter 11, there is a risk that the UK business could enter a formal process in this country,” said Moran.

“Cineworld has a significant property portfolio across the UK and landlords will no doubt be concerned that they are about to lose a key tenant.”

 “As a global business it is vital that any restructuring process is carefully synchronised to minimise losses to creditors and key stakeholders. Importantly, consideration must be given to the future of the UK staff, whose job roles could be at risk.”

The company added all cinemas would remain open to audiences, with operations to carry on uninterrupted.

“We have an incredible team across Cineworld laser focused on evolving our business to thrive during the comeback of the cinema industry,” said Cineworld CEO Mooky Greidinger.

“The pandemic was an incredibly difficult time for our business, with the enforced closure of cinemas and huge disruption to film schedules that has led us to this point.”

“This latest process is part of our ongoing efforts to strengthen our financial position and is in pursuit of a de-leveraging that will create a more resilient capital structure and effective business.”

Moran concluded: “As sad as it is to see any business struggle in this way, there are lessons to be learned, including the importance of debt restructuring and efficiently managing liabilities from previous transactions, especially in volatile economic times.”

Cineworld shares were up 4.4% to 4.4p in late morning trading on Thursday.

Pound remains below $1.15 ahead of Truss’ energy plan announcement

Natasha Doris
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Pound remains below $1.15 ahead of Truss’ energy plan announcement

The Pound remained below the $1.15 mark on Thursday morning, hovering at $1.1494 ahead of new Prime Minister Liz Truss’ energy relief plan.

Truss is scheduled to reveal a £130 billion proposition to freeze or reduce the energy price cap ahead of its 80% rise to £3,548 in October this year.

The Pound hit a 37-year low of $1.1407 earlier this week on a combination of a strengthening dollar and the UK’s pessimistic economic outlook.

Bank of England governor Andrew Bailey pointed out the impact of the strengthened dollar on the Sterling’s fall to Members of Parliament at a Treasury Select Committee on Wednesday.

However, the Pound has taken a beating following projections of five consecutive quarters of recession, which Bailey labelled essentially inevitable, and said the crippling cost of living crisis would “overwhelmingly be caused by the actions of Russia and the impact on energy prices.”

Melrose widens operating loss to £317m, announces GKN demerger

Natasha Doris
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0
Melrose widens operating loss to £317m, announces GKN demerger

Melrose Industries shares fell 2.1% to 134.6p in early morning trading on Thursday, after the company widened its statutory operating loss to £317 million in HY1 2022 compared to £156 million in HY1 2021.

Melrose Industries noted an adjusted operating profit of £171 million against £196 million the last year.

The firm widened its statutory pre-tax loss to £358 million from £275 million, along with an adjusted operating profit of £128 million compared to £114 million.

Melrose Industries confirmed a revenue uptick to £3.5 billion from £3.4 billion the last year.

The company reported a statutory diluted loss per share of 6.3p against 3.4p the year before and an adjusted EPS of 2.2p from 1.8p.

The firm announced a group net debt of £1.2 billion at 30 June 2022 compared to £1 billion at 31 December 2021 at like-for-like exchange rates.

Melrose Industries also noted the completed disposal of Ergotron on 6 July 2022 for proceeds of £519 million.

The company added it was on track to meet its FY 2022 expectations, with HY1 results ahead of expectations, helping to de-risk HY2.

GKN Demerger

Melrose Industries announced its intention to separate the GKN Automotive and GKN Powder Metallurgy businesses from the Melrose Group via a demerger of shares in a new holding company to Melrose shareholders.

The move is set to result in two independent and separately-listed companies, DemergerCo and Melrose Industries.

DemergerCo will reportedly seek admission to listing on the premium segment of the Official List and trading on the London Stock Exchange Main Market as an independent, London-headquartered group.

Melrose Industries said it would retain ownership of GKN Aerospace.

The company is scheduled to seek shareholder approval for the demerger in HY1 2023.

“Since acquiring GKN in 2018 we have reinvigorated each business to achieve its potential,” said Melrose Industries chairman Justin Dowley.

“The proposed Demerger now gives each an exciting opportunity to individually grow shareholder value through organic growth and acquisition in both platforms.”

“Meanwhile, we remain on track to meet our full year 2022 expectations with full inflation recovery and providing good momentum for the intended Demerger in the new year.”

Dividend and share buybacks

Melrose Industries reported £119 million of its £500 million share buyback programme had completed by HY1 2022 close.

The firm declared an interim dividend of 0.82p per share from 0.75p the last year.

Energean shares surge on 65% revenue increase, maiden quarterly dividend declared

Natasha Doris
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0
Energean shares surge on 65% revenue increase, maiden quarterly dividend declared

Energean shares surged 10.9% to 1,381p in early morning trading on Thursday following a 65% increase in revenues to $339 million in HY2 2022 against $205.5 million the year before.

The energy company reported a 165% spike in adjusted EBITAX to $198.2 million compared to $74.7 million.

Energean said its sparkling financial returns were underpinned by strong commodity prices.

The group confirmed $812.1 million in group cash at 30 June 2022, including restricted amounts of $138.4 million.

The firm also noted a one-off windfall tax in Italy of $29.3 million, with 40% paid in HY1 2022 and the remainder scheduled for payment by November 2022.

Energean revised its medium-term targets following improved gas prices in Israel and Egypt, with expected annual revenues of $2.5 billion from $2 billion, and an annual adjusted EBITAX anticipated at $1.75 billion from $1.4 billion.

“During H1 2022, Energean delivered strong operational and financial results. The ex-Edison assets have outperformed our expectations and our flagship Karish project is on track to start production within weeks and will enhance energy security in Israel and the region,” said Energean CEO Mathios Rigas.

“In addition, our growth drilling and development operations offshore Israel have enhanced our portfolio by de-risking 58 bcm of natural gas, and we are evaluating multiple geographical routes to monetisation through either increased Israeli domestic sales or key regional export markets.”

Dividend

Energean declared a maiden quarterly dividend of 30c per share, in line with its commitment to return an initial $50 million per quarter by the end of 2022 and at least $1 billion by the end of 2025.

The oil and gas firm also noted its aim to provide a minimum $100 million per quarter dividend stream to shareholders once its medium-term targets are reached.

“The strong financial performance of our existing assets, the current readiness status of our Karish project, and our strong liquidity position have allowed us to, today, declare our maiden quarterly dividend, in line with our previously announced dividend policy,” said Rigas.

“We are concurrently raising our medium-term targets to annual revenues of $2.5 billion and Adjusted EBITDAX of $1.75 billion, underpinned by production of more than 200 kboed.”

Associated British Foods shares sink on lowered FY 2023 guidance

Natasha Doris
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0
Associated British Foods shares sink on lowered FY 2023 guidance

Associated British Foods shares sank 8.3% to 1,337.5p in early morning trading on Thursday following a lower adjusted operating profit and adjusted EPS guidance for FY 2023, linked to the cost of living crisis.

The firm also highlighted the effects of macroeconomic uncertainty on its Primark business in FY 2023, with the strengthened US dollar and higher energy costs driving a stiff rise in expenses.

Associated British Foods noted the fall in consumer income would likely dent its Primark sales next year, alongside a lower operating profit margin expected for HY2 2022.

The company mentioned its adjusted operating profit and adjusted EPS for FY 2022 saw a “significant increase”, with price actions driving Q4 sales growth.

Meanwhile, adjusted operating profit outlook for grocery, sugar and agriculture sectors were reportedly in line with expectations.

Associated British Foods said improved trading in its ingredients business was projected to deliver higher operating profits.

Its Primark sales were anticipated to climb 40% to £7.7 billion, ahead of reported sales the year before at constant currency, along with an expected FY 2022 operating profit margin of 9.6% and a HY2 8% operating margin.

Associated British Foods noted approximately £1.5 billion in net cash before lease liabilities and net debt including lease liabilities of £1.7 billion.

The company added its board would consider in November whether the group had sufficient surplus cash and capital available for shareholder returns.

North America propels Somero Enterprises

Andrew Hore
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North America propels Somero Enterprises

North American demand remained strong for Somero Enterprises Inc (LON: SOM) but trading in the rest of the world was mixed. Cash generation remains impressive.

Somero Enterprises Inc designs, assembles and supplies concrete levelling equipment. There have been some supply problems that have hampered progress and inventory levels have been raised.

In the six months to June 2022, revenues increased from $64.4m to $68.5m – new products generated $3.2m. US revenues were 9% ahead, while European sales fell due to delays in shipping machines. Pre-tax profit dipped from $23.5m to $22.4m. There have been additional costs as part of expansion as well as some inflationary pressures.

The interim dividend is 11% higher at 10 cents a share, which is partly a rebasing of the interim dividend so that it is a larger percentage of the underlying total.

Additional capacity will come on stream before the end of the year and capital expenditure is likely to be lower next year.

Full year revenues are expected to improve from $133.3m to $138.8m, while pre-tax profit may edge up from £45.9m to £46.2m. Net cash of $40m is forecast for the year end. A total dividend of 43.3 cents a share is forecast, which includes an element of special dividend funded by excess cash.

At 415p, the shares are trading on eight times prospective 2022 earnings. Currently, next year’s revenues are expected to be flat and pre-tax profit slightly lower. This reflects the economic uncertainty and is a cautious estimate. Demand is still strong.

The yield is around 9%. Although it will depend on the exchange rate at the time of the dividend payment.

Alien Metals cash call

Andrew Hore
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Alien Metals cash call

Alien Metals Ltd (LON: UFO) is raising £1.5m via a placing and subscription at 0.5p a share. The cash will help to fund the development of the minerals explorer’s drilling and geological programmes. There are also plans to progress a resource review at Munni Munni platinum group element project in Australia. Prior to the announcement of the fundraising the share price ended the day at 0.65p.

Earlier this week, Alien Metals subsidiary Iron Ore Company of Australia has entered into binding heads of agreement to acquire a tenement near the company’s Hancock project. Alien Metals is negotiating a deal with Anglo American, which will provide up to $15m in funding and take 100% of iron ore production from Hancock.

There is also a revised option agreement with Windfield Metals that would give Alien Metals an indirect 90% interest in the Hancock project, as well as the Brockman DSO iron ore project. Alien Metals hopes to get Hancock in production in the first half of next year.

New executive chairman Roderick McIllree will acquire 50 million shares. He has also had 230 million shares issued to him under the terms of the EMI share option plan. They can be exercised at prices between 0.8p a share to 1.4p a share. Chief executive Bill Brodie Good will buy two million shares.

Over 70% of UK targeted by scammers in summer 2022

Natasha Doris
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0
Over 70% of UK targeted by scammers in summer 2022

The number of scams has soared year-to-date, with over 70% of UK consumers targeted by fraudsters over the last three months, according to the Financial Conduct Authority (FCA).

The cost of living crisis was identified as the main driver behind the rise in scammer activity, as desperation made easy prey out of vulnerable people.

FCA director Sarah Pritchard labelled financial con artists as a “complex and ever-evolving enemy” at the Financial Crime Summit, and called on all sectors of society to fight together.

The FCA noted a slate of scams linked to cost of living relief, with prevalent frauds including false access to rebates from utilities firms.

The Financial Ombudsman Service (FOS) reported a spike in scam complaints between April and July this year, with a significant chunk linked to cryptocurrency schemes.

“It is a depressing fact that the more vulnerable people become, the more active financial fraudsters are. We saw this during the worst of the Covid pandemic, and with inflation surging we are seeing it again during the cost-of-living crisis,” said AJ Bell head of retirement policy Tom Selby.

“Scammers often use sophisticated techniques to swindle people out of their savings, with cryptocurrency ‘investments’ offering huge potential returns increasingly used to tempt people to part with their cash.”

“These investments often end up being a Ponzi Scheme, or entirely fictitious, with those who hand over their money risking losing everything.”

Scammers are becoming more sophisticated, and are using the cost of living crisis to steal from the most vulnerable and at risk members of society across the country.

“While people of all ages can fall victim to scammers, those who are able to access their retirement pot – potentially the biggest asset they own – will inevitably be a prime target,” said Selby.

“Huge efforts continue to be made to protect people from thieves, but ultimately the surest way to avoid becoming a scam victim is to know the tricks they use and not hand over your money in the first place.”

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