Pound weakens against Dollar and Euro on hawkish US Fed interest rates fears

Natasha Doris
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Pound weakens against Dollar and Euro on hawkish US Fed interest rates fears

The Pound Sterling weakened against the Dollar and the Euro after US Federal Reserve chair Jerome Powell’s comments at the Jackson Hole convention sent markets on both sides of the Atlantic into a spiral last Friday.

Investors fled stocks following Powell’s confirmation of probable further interest rate hikes to tackle sky high inflation. A single month of inflation reduction to 8.5% from 9.1% in July proved insufficient to sway the US Fed from its hawkish stance on rate hikes.

Despite analysts long-expecting Powell to dismay hopes of a dovish sentiment, the markets still appeared significantly upheaved, knocking the Pound down against the Dollar and stirring remarks the currency might be on its way to parity, similar to the Euro earlier this month.

“[Will] forex traders be eyeing the possibility of parity between the pound and its US counterpart? A similar fate to that which befell the euro recently,” said AJ Bell investment director Russ Mould.

“It would take a big move to get there but as the energy crisis continues to grip the UK it doesn’t feel like a scenario where you could rule anything out.”

One pound was equal to 1.1743 US Dollars and 1.1715 Euros in early morning trading.

Dechra Pharmaceuticals acquires Med-Pharmex for £221.5m

Natasha Doris
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0
Dechra Pharmaceuticals acquires Med-Pharmex for £221.5m

Dechra Pharmaceuticals shares rose 1.5% to 3,492p in early morning trading on Tuesday after the group announced its acquisition of veterinary pharmaceutical manufacturer Med-Pharmex for £221.5 million.

The acquisition was finalised on a debt-free and cash-free basis, funded from existing available debt resources.

Dechra Pharmaceuticals commented the transaction provided further product scale to its operations in the US, which currently stands as the largest animal health market.

The company also said Med-Pharmex added a fresh pipeline of products, alongside manufacturing facilities which will provide additional capacity for the firm.

Med-Pharmex currently employs approximately 130 staff and serves the CAP, FAP and equine sectors.

Dechra Pharmaceuticals confirmed 75% of the group’s products are tailored for the CAP and equine market, the majority of which fit into Dechra’s therapeutic segment.

Med-Pharmex specialises in topical, oral and injectable products. The majority of the company’s revenue is linked to white label products sold via distributors. Dechra said it intended to bring some of its products in-house and sell them through its own sales and marketing channels, providing a material synergy benefit.

Med-Pharmex generated audited revenues of $43 million for FY 2021, and an adjusted EBITDA of $15.3 million and audited gross assets of $77 million.

The firm is expected to be immediately accretive to underlying EPS. Dechra said its leverage was expected to be 1.8x net debt to EBITDA on 31 December 2022, following the acquisition’s completion.

“I am delighted that we have completed the acquisition of Med-Pharmex, a company that I have been in dialogue with for a number of years. The US market is highly consolidated, therefore this is a unique opportunity to add several new products to our portfolio, enter the US FAP market and improve the manufacturing footprint for our North American business,” said Dechra Pharmaceuticals CEO Ian Page.

Asia: long-term opportunities amid short-term noise

Aberdeen Investment Trusts
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0
Asia: long-term opportunities amid short-term noise
  • The difficulties in China have deterred investors from Asian markets
  • This has created a widening gap between operational and share price performance
  • The relative weakness in markets is creating opportunities

In a tough first half of the year for financial markets, Asia has struggled more than most. The difficulties in China have deterred investors, with the country’s zero Covid policy and slowing growth affecting sentiment towards the wider region. However, Asia has far fewer of the long-term structural imbalances facing many Western economies and the corporate sector continues to thrive. As such, its recent weakness may represent an opportunity.

China has been weighed down by a series of difficulties: a regulatory clampdown on a number of key industries, a zero-Covid policy that has shut down key cities, geopolitical tensions, plus a broader weakening of its growth momentum. Investors are understandably worried about its long-term prospects. This has seen Chinese stock markets fall, with many other Asian stock markets caught up in its weakness.

However, the situation in China is not as bad as sentiment suggests – and the long-term growth trajectory remains intact. Adrian Lim, co-manager of Asia Dragon Trust, says: “It’s been a tough start to 2022 because of China’s zero Covid policy, which has softened demand in the country. It has been compounded by some restrictions in the technology space, and geopolitical stresses as well. These are short-term headwinds to Chinese prospects, but the long-term hypothesis is sound.” 

Elsewhere in the region, growth is re-emerging. In India, for example, momentum is picking up after two years of weakness, particularly in the corporate sector. Kristy Fong, manager of Aberdeen New India Investment Trust, says: “The country is not immune to what’s happening externally and the global growth slowdown might temper momentum, but the companies we’re talking to are distinctly upbeat.” 

abrdn Asian Income Fund manager Yoojeong Oh, says that while Asian markets are experiencing some of the challenges seen in the US, UK and Europe, with supply bottle-necks and rising input costs, government and corporate balance sheets are in better shape, giving them more firepower. In general, Asian economies are not facing the looming threat of sharply higher interest rates to the same extent. China is loosening monetary policy.  

In spite of this relatively stronger backdrop, share prices have been falling. Adrian points to a widening gap between corporate strength and share prices. He adds: “The gap between operational and share price performance has been acute. When we look at the Asia Dragon portfolio, earnings per share are growing at 5-15%, while share prices dropped by 5-8% in the first quarter alone.”

Navigating complex markets

This is creating opportunities, albeit selectively. Yoojeong says: “We are looking at our portfolio on a stock by stock level, checking to see how individual companies are managing input cost increases, either through hedging or substitution, or a supply chain Plan B. In our view, focusing on balance sheets is particularly important. Inflation can squeeze margins, but it’s reassuring that our companies aren’t adding operational risk onto already over-leveraged balance sheets.” More recently, she has rotated out of TSMC after a strong run, redeploying the capital into Mediatek, which designs semiconductors.

She says Asia remains a rich hunting ground for dividend stocks: “We’re able to find plenty of new ideas across countries and sectors. This includes new positions such as Bank Rakyat, which does micro-lending in Indonesia or Indian utility company PowerGrid which is investing in renewables.”

Kristy says the team working on Aberdeen New India Investment Trust is long-term in the way it thinks, but the macroeconomic environment has changed a lot. She adds: “We have been looking at that shift and what it does to the near-term earnings outlook. We have reduced exposure to areas that are more vulnerable to high inflation.” This has meant exiting holdings such as Gujarat Gas where there was some risk to profitability and introducing companies such as Hindalco, a low-cost provider of aluminium. 

Adrian says they have sought to be nimble on Asia Dragon: “We have been taking advantage where prices have come off a bit. We are also looking for resilience. We’ve moved away from stocks that have run up a little bit, but not proved to be as resilient.” He retains ‘old favourites’ such as Samsung, but has added Techcombank in Vietnam, one of the more progressive banks in a segment that is relatively underdeveloped in the country.

There remain structural challenges but across Asia there is good growth available from individual companies. Yoojeong says: “There is a lot of macroeconomic uncertainty, but when we come back to company fundamentals, we see that corporate balance sheets are much less geared in Asia relative to the rest of the world. We believe strong balance sheets are key to being profitable through the cycle and giving company management teams options. They can invest in future growth or return capital to shareholders.” 

Adrian agrees: “There are enough opportunities to make Asia attractive. In spite of the news flow, Asian companies are under-appreciated.” Investors may already be starting to recognise the gap, with June showing a revival in the Chinese stock market and Asian markets more broadly. It may be the start of an overdue reappraisal of the opportunities in Asia. 

Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.

Important information

Risk factors you should consider prior to investing:

  • The value of investments, and the income from them, can go down as well as up and investors may get back less than the amount invested. 
  • Past performance is not a guide to future results. 
  • Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years. 
  • The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV. 
  • The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares. 
  • The Company may charge expenses to capital which may erode the capital value of the investment. 
  • Movements in exchange rates will impact on both the level of income received and the capital value of your investment. 
  • There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value. 
  • As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen. 
  • The Company invests in emerging markets which tend to be more volatile than mature markets and the value of your investment could move sharply up or down. 
  • Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends. 
  • Derivatives may be used, subject to restrictions set out for the Company, in order to manage risk and generate income. The market in derivatives can be volatile and there is a higher than average risk of loss

Other important information:

Issued by Aberdeen Asset Managers Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Registered Office: 10 Queen’s Terrace, Aberdeen AB10 1XL. Registered in Scotland No. 108419. An investment trust should be considered only as part of a balanced portfolio. Under no circumstances should this information be considered as an offer or solicitation to deal in investments.

Find out more at:

abrdn Asian Income Fund Limited

Aberdeen New India Investment Trust plc

Asia Dragon Trust plc

You can also registering for updates via email, and follow us on Twitter or LinkedIn.

Bunzl revenues grow to £5.6bn on product cost inflation and acquisitions

Natasha Doris
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0
Bunzl revenues grow to £5.6bn on product cost inflation and acquisitions

Bunzl shares fell 2.4% to 3,040p in early morning trading on Tuesday despite a 16.1% revenue growth to £5.6 billion in HY1 2022 against £4.8 billion in HY1 2022.

Bunzl attributed its revenue increase to product cost inflation and continued recovery in its base business, along with growth from acquisitions.

The firm announced six acquisitions in the year-to-date, with a complete committed spend in excess of £225 million.

The global distribution company reported a 12.2% rise in adjusted operating profit to £411 million from £366 million in the previous year, alongside an adjusted pre-tax profit climb of 12.4% to £380.5 million compared to £338.4 million.

Bunzl announced a statutory operating profit increase of 7.7% to £327.5 million against £304.1 million, and a pre-tax profit rise of 7.6% to £296.6 million compared to £275.7 million.

“Over the period, our teams have been agile in navigating substantial inflation and supply chain disruption, while supporting recovery in the base business and continuing to provide our customers with essential products and services that are crucial to their operations. Our good performance has also been enabled by the depth and flexibility of our global supply chains,” said Bunzl CEO Frank van Zanten.

“We remain focused on continuing to execute our long-term compounding growth strategy. So far this year we have announced six acquisitions and have an active pipeline with good balance sheet headroom. We believe the merits of joining Bunzl have been amplified over the last few years, supporting our long-term strategic commitment to investing in businesses that drive growth and returns for the Group.”

“While mindful of the economic outlook, I believe our talented teams, the inherent resilience of our business model and diversification of our portfolio across sectors and regions, as well as our consistent focus on our strategic priorities, will continue to support the Group’s performance and maintain our strong track record of value creation.”

Bunzl confirmed an adjusted EPS of growth of 10.3% to 85.7p from 77.7p, and a basic EPS increase of 4.6% to 66.2p against 63.3p year-on-year.

Bunzl recommended an interim dividend hike of 6.8% to 17.3p compared to 16.2p the year before.

New Aquis admission: Unigel Group fibre optic potential

Andrew Hore
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0
New Aquis admission: Unigel Group fibre optic potential

Unigel Group is a relatively new holding company, but the core business it owns is 25 years old. It supplies thixotropic gels that are used to protect the inside of fibre optic cables. Fibre optics are fragile, but the gels help the cables to last 30 years.
The cash raised through the subscription will finance product development and increasing capacity. Growth will also rely on recruiting skilled people. There may also be acquisition opportunities.
The shares are tightly held with 90% not available to trade. There were no trades on the first day. The share price ended the day at 65p (55p/75p)...

Aquis Stock Exchange proposes rule changes

Andrew Hore
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Aquis Stock Exchange proposes rule changes

Aquis Stock Exchange is proposing changes to its rules relating to the Access segment of the stockmarket and new admissions.  

The consultation period ends on 2 September and comments can be sent to aqsebusinessdevelopment@aquis.eu.

Aquis wants to simplify the admission document for new entrants to Access. This involves standardising the additional information, which will be attached to the document. Companies with complex corporate structures or unusual share structures will not be eligible for the simplified document.  

There is also a proposal to remove the requirement for a growth prospectus that would be approved by the FCA ahead of admission to the Apex segment. This reflects UK regulation changes and means that a prospectus will not have to go through additional scrutiny.  

Eligibility criteria

Access companies will be required to adopt either the QCA or UK Governance Code. If they do not comply with individual parts of a governance code, then they will have to identify and explain why this has happened.

A minimum market capitalisation on admission of £2m is proposed because Aquis believes that companies with a lower valuation may not be suitable for a public market and may not have sufficient liquidity. The figure is currently £700,000. The minimum number of market makers on admission would be increased to two.

Speculative securities will not be eligible for admission. These can be bonds, debentures or preference shares that have a denomination or minimum investment of less than £100,000 and where the cash will be used for certain things. That includes providing loans to outside parties, buying investments or property and funding property development. Currently the minimum market value for debt securities is £200,000.

Sanctions

In the sanctions part of the regulations for Access the level of fine (of up to £100,000) has been deleted so that could mean higher fines.

Last week, Aquis Stock Exchange issued a disciplinary notice to Love Hemp Group (LON: LIFE) after omitting information in a fundraising announcement in February. The £100,000 fine was cut to £70,000 for early settlement.

Love Hemp did not reveal that not all the cash had been received and one investor did not pay the £1.2m it was supposed to for the shares. There was no update about this until May, thereby creating a false impression of the cash position. Trading in the shares remains suspended following the resignation of Peterhouse as corporate adviser.

Alumasc can concentrate on core business after Levolux sale

Andrew Hore
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0
Alumasc can concentrate on core business after Levolux sale

Building products supplier Alumasc (LON: ALU) has shed its loss-making business and although it will weaken the balance sheet it does mean that it can concentrate on core businesses. Yet, the rating remains low, and the yield is one of the higher ones for AIM companies.
Alumasc is selling the poorly performing solar shading manufacturer and installer Levolux to Talrus Ltd, which is owned by Rcapital, for £1. Levolux has around £1.4m in cash and that is part of the disposal. There is deferred consideration of £1m which will be paid out of the proceeds of a disposal of the Levolux business.
The ...

Aquis weekly movers: Hydrogen Utopia International joint venture

Andrew Hore
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0
Aquis weekly movers: Hydrogen Utopia International joint venture

AIM-quoted Powerhouse Energy (LON: PHE) is planning to enter a 50/50 joint venture with Hydrogen Utopia International (LON: HUI) to develop a plant using non-recyclable waste plastic to produce hydrogen in Poland. Hydrogen Utopia International will be allowed to recover its costs of €250,000 with a €250,000 premium. This agreement is similar to the one between the companies for the proposed Tipperary plant, which will be built on a site leased by Trifol Resources. The Hydrogen Utopia International rose 8.33% to 9.75p.

Diesel emission reduction additives supplier SulNOx Group (LON: SNOX) increased revenues from £18,000 to £34,000 in the year to March 2022. There was £1.07m in cash in the balance sheet, although this fell to £604,000 by the end of June 2022. Revenues should develop this year. The share price is 3.03% higher at 17p.

Thixotropic gels manufacturer Unigel Group (LON: UNX) joined the Access segment of the Aquis Stock Exchange. The gels are used in the fibre optic industry. There was £800,000 raised at 64p a share. The share price ended the day at 65p.

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Fallers

A sharp rise in share trading in medicinal cannabis company Apollon Formularies (LON: APOL) has led to the share price slumping 42.4% to 0.95p. There were no trades from 1 August until 24 August when 132,500 shares were traded at 0.5p. There were 125,000 shares traded at 1p a share over seven transactions.

Wishbone Gold (LON: WSBN) has secured an option to acquire the Anketell gold copper project, which is north of the company’s Red Setter project in Western Australia. The option payment is £25,000. The consideration would be £50,000 in cash and 2.17 million shares at 14.75p each. The share price fell 21.9% to 12.5p.

Quetzal Capital (LON: QTZ) says investee company Tap Global Ltd has launched a Crypto-as-a-Service product. This will enable regulated banks and financial service companies to offer cryptocurrency trading services to clients. The share price was 1.3% lower at 3.8p.

AIM weekly movers: Rockhopper Exploration jumps on compensation award

Andrew Hore
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1
AIM weekly movers: Rockhopper Exploration jumps on compensation award

A successful outcome to arbitration proceedings sent shares in Falkland Island oil and gas explorer Rockhopper Exploration (LON: RKH) 61.1% higher to 14.1p. Compensation of €190m has been awarded plus interest compounded annually from 29 January 2016. The Italian government breached its legal obligations when it did not award a production concession for the Ombrina Mare field. The government has 120 days to apply for an annulment of the compensation. Rockhopper Exploration expects to retain 80% of the payment after costs. An agreement with the Falkland Island government means that this cash cannot be distributed to shareholders it has to be retained in the company.

Angus Energy (LON:ANGS) shares jumped60.8% to 2.05p after it announced that it had produced well head gas at its extraction and processing facility at Saltfleetby. Well B2 is producing five million standard cubic feet of gas per day, which is more than expected.

Egdon Resources (LON: EDR) holds 30% of the Wressle oil project and the share price jumped 37.4% to 6.8p after Union Jack Oil (LON: UJO), which owns 40% of Wressle, said that it has generated revenues of $9m for the company since re-commencement of production in August 2021. Union Jack Oil shares did not react as sharply as those of Egdon Resources even though it owns a higher percentage, but there was still a 10.3% rise to 32p. Europa OIL & Gas (LON: EOG) holds the other 30% of Wressle and the share price is 7.14% higher at 3p.

Record quarterly production of 14,467 barrels of oil a day helped PetroTal Corp (LON: PTAL) to generate net operating income of $98.6m in the second quarter of 2022. Free cash flow was $69.4m in the first six months of 2022. Production levels continue to increase. The 26,000 barrels of oil a day capacity of the central processing facility was nearly reached. The PetroTal share price is up 29% to 50p.

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Fallers

OptiBiotix Health (LON: OPTI) was the worst performer of the week with a 36.3% share price decline to 19.125p. Sales of the core prebiotics business fell in the first half due to customer delays in restocking and postponing of product launches. Larger partners are placing fewer, but more significant orders, which can make revenues lumpy. Orders may recover in the second half as delayed product launches happen. The figures will no longer consolidate 40%-owned ProBiotix Health (LON: PBX) following its spin-off on Aquis. That generated a gain in book value of £13.8m. OptiBiotix Health has £1.5m in cash.

Greatland Gold (LON: GGP) raised £29.7m in a placing at 8.2p a share, having originally sought £25m. The share price slumped 21% to 8.3p during the week. Newcrest Mining’s decision not to take up the option to buy a further 5% stake in the Havieron gold project in Western Australia sparked the fundraising. The share price was 10.4p before that decision was made public. Greatland Gold retains a 30% stake in Havieron. The price for the 5% stake had been set at $60m and much of that cash was earmarked to pay off loans from Newcrest Mining. Tribeca Investment Partners is putting up $13.8m of the new cash and it has agreed to provide $27.6m of additional funding to finance the development costs of Havieron. Bank debt is also being sought.

Independent Oil and Gas (LON: IOG) has been hit be development problems and the share price fell 19.2% to 29.4p. Full year gas production guidance has been reduced from 45-60mmcf/day to 30-50mmcf/day. Operating costs will be higher. The Saturn Banks phase 1 development problems have offset the positive of the initial revenues generated in the first half of 2022. The interim revenues were £30.2m and full year revenues of £86.2m are forecast and that could generate pre-tax profit of £50m. Earlier in the week. London Oil & Gas Ltd, which is in administration, reduced its shareholding from 26.99% to 25.83%.

Haydale Graphene Industries (LON: HAYD) has raised £5m at 2p a share and an open offer at the same price could raise up to £510,000. The share price slumped 18.8% to 2.6p due to this news. Haydale is developing inks and other products using its graphene technology that can be used in the aerospace, automotive, medical and electronics markets. The cash will fund the scaling-up of operations. There is a warrant attached to every two shares issued and they are exercisable at 2p a share.

ECR Minerals (LON: ECR) has received A$950,000 from the sale of the Bendigo property – the property was bought A$887,500 one year ago. A subsidiary will continue to use the property until the end of the year. The share price had already fallen 16.2% to 0.775p prior to the announcement. Next month follow-up drilling at the Blue Moon gold prospect will commence and if the results are positive the drilling programme will be expanded.

FTSE 100: Markets spiral after Powell Jackson Hole comments

Natasha Doris
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1
FTSE 100: Markets spiral after Powell Jackson Hole comments

The long-awaited Jackson Hole convention delivered with a bang and more, with US Federal Reserve chair Jerome Powell’s speech sending markets on both sides of the Atlantic into a spiral.

The FTSE 100 closed down 0.7% at 7,426.6, as confirmation of probable higher interest rates put investors in a pessimistic mood to finish the week.

However, the blue chip index appeared to escape the worst of the impact. European markets fell as Powell’s remarks piled on the bad news in the wake of soaring energy prices and Russia’s chokehold on gas supplies amidst the Ukraine war.

The German DAX dropped 2.3% to 12,957.4, the French CAC slid 1.9% to 6,259.9 and the Italian FTSE MIB fell 2.4% to 21,897.7.

US markets were unsurprisingly hit by Powell’s remarks, with the NASDAQ down 2.5%, the Dow Jones falling 1.7% and the S&P 500 declining 2% in the immediate aftermath. On the close in the US, the NASDAQ had given up 3.9% and S&P 500 3.1%.

Energy price cap chills consumer stocks

Meanwhile, the UK woke up to a bucket of cold water in the form of a whopping 80% rise in the Ofgem energy price cap to £3,549.

Consumer facing stocks had a bad day of trading, as investors assumed the extra hundreds of pounds per month soon to be required for energy bills would be going towards energy suppliers and not towards new fashion, furniture or leisure activities.

Retail stocks slid, with B&M down 1.4% to 369.8p, JD Sports Fashion dropping 3.7% to 109.6p, Next falling 2.2% to 5,756p, Ocado declining 4.2% to 731.2p, Sainsbury’s sliding 2.4% to 203.4p and Tesco decreasing 1.4% to 252.7p

Consumer products joined the fallers, with Reckitt Benckiser losing 0.7% to 6,572p and Unilever decreasing 0.9% to 3,931p.

Hotels and flights also saw the writing on the wall, as InterContinental Hotels dropped 4.4% to 4,747.1p and IAG fell 2.5% to 106.1p.

“With households in limbo waiting for a rescue package from whoever prevails in the Conservative leadership contest, the harm to consumer sentiment is only likely to fester,” said AJ Bell investment director Russ Mould.

“The need to find potentially hundreds more a month to light or heat a home is likely to squeeze disposable incomes to such an extent that spending on going out, buying new clothes, furniture or going on holiday will become beyond the means of many people. That spells bad news for already pressured retailers and other consumer-facing firms.”

Miners rise on higher copper prices

Higher copper prices boosted mining stocks, with the commodity rising 17% from its mid-July low. The metal gained 1.9% to $8,279.50 a tonne on the London Metal Exchange in early trading.

Mining companies crowded the top of the blue chip index, with Antofagasta rising 0.8% to 1,176.5p, Anglo American climbing 0.2% to 2,926.5p and Rio Tinto gaining 1.4% to 4,980p.

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