ASOS, UK inflation, and Battery Metals with Alan Green

UK Investor Magazine
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ASOS, UK inflation, and Battery Metals with Alan Green

Alan Green joins the Podcast for our weekly instalment of markets and UK equities.

Today, we focus on:

  • ASOS (LON:ASC)
  • ECR Minerals (LON:ECR)
  • Technology Minerals (LON:TM1)

We start by looking at the UK’s 10.1% inflation reading and what it could mean for the FTSE 100 in the short term. The FTSE 100 is trading in a tight range and we look at the potential scenarios that could lead to a breakout.

ASOS shares rose after realising final results but the performance may not be as positive as today’s share price movement suggests. The company is struggling as the cost of living crisis takes hold and have had to seek credit lines.

ECR Minerals updated the market on their progress at the Creswick Project having drill a number of holes finding gold grade up to 0.7m @ 47.75 g/t Au.

Technology Minerals is driving forward with their plans to create a circular economy in battery metals with the proposed acquisition of Recyclus.

UK Inflation rises more than expected to hit 10.1% as food prices jump

UK Investor Magazine
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UK Inflation rises more than expected to hit 10.1% as food prices jump

Prices in the UK continued to surge in September as inflation beat expectation to hit 10.1%, matching July’s 40-year record high.

Inflation is now far outstripping wage increases adding to fears of a cost of living crisis with mortgages rates rising and energy bills set to jump again in April.

“Inflation is back in double figures, rising at almost twice the rate of wages, and stretching us all to breaking point. People on the lowest incomes wait in limbo to see whether their benefits will get the boost they need to stop their finances plummeting over a cliff edge,” said Sarah Coles, senior personal finance analyst, Hargreaves Lansdown

“Meanwhile, those on average incomes are facing an increasingly impossible challenge every month to make ends meet, and anyone with savings is watching inflation eat their money alive.”

The impact of of a weaker pound was the big driver of inflation in September as food prices became more expensive after sterling hit record lows against dollar following the announcement of the doomed mini-budget.

“CPI inflation came in at 10.1%: five times the Bank of England target. It is showing few signs of slowing. While food made the biggest contribution, largely because of sterling weakness, there were notable increases across the other categories, including household goods and restaurants and hotels,” said Rob Clarry, Investment Strategist at Evelyn Partners.

As Clarry says, inflation is now 5x the Bank of England’s target meaning they will be forced into a sizeable rate hike at the next meeting, and possibly into 2023.

Cordel on the right track

Andrew Hore
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Cordel on the right track

Cordel (LSE: CRDL) has continued to win new contracts for its SaaS-based rail inspection services using LiDAR (Light Distance and Ranging) technology, but it is taking longer than expected to show through in revenues.
It is taking longer to reach profitability, but Cordel should be near to achieving that this year. There are significant contracts that have been gained from Network Rail and in the US. In July, a ballast profile analysis contract was gained in Australia.
Cordel recently won a five-year contract with Angel Trains to install fully automated monitoring hardware on in-service passen...

Avacta expands European distribution operations

Andrew Hore
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Avacta expands European distribution operations

Affimer technology developer Avacta (LON: AVCT) is acquiring in vitro diagnostics distributor Launch Diagnostics for £24m, plus up to £13m in performance related earn outs. This acquisition is part of the strategy to build up a European distribution business.

A placing at 95p a share will raise £7m and a three-for-365 open offer could raise up to £2m more. The current share price is unchanged at 99p.

A convertible bond issue could raise £55m – issued at 95% so it could raise £52.5m – and it is convertible at a 25% premium to the 95p a share placing price. The conversion price could be adjusted after 18 months to a level no lower than the placing price. The bond lasts until 2027 and has an annual interest charge of 6.5% payable quarterly in cash or shares.

Launch Diagnostics

Kent-based Launch Diagnostics is a profitable business that supplies diagnostic reagents and instrumentation for pathology applications. There are customers in the UK, Belgium, Luxembourg and France.

Non-Covid sales were £14.2m in 2021 and there is significant repeat business. The additional consideration is based on 50% of gross margin above £2m from sales of Covid-related products in each of the next three years.

Avacta’s core business is the development of Affimers, which are engineered alternatives to antibodies, and the company owns the rights to the technology. Affimers are based on natural proteins that are adapted to behave like an antibody. They are much easier to make and easier to modify than antibodies.

Avacta had revenues of £2.94m in 2021 and there was a cash outflow from operating activities of £20.5m. Net cash was £17m at the end of June 2022.

The additional cash raised will help to finance the further development of affimers and related treatments.

Revolution Bars buys food-led Peach Pub

Andrew Hore
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Revolution Bars buys food-led Peach Pub

Revolution Bars (LON: RBG) is acquiring the Peach Pub Company, which will help to make the group less dependent on drinks with a greater exposure to food sales.

Revolution Bars is paying £16.5m for Peach Pub, although £500,000 is contingent on future performance. Revolution Bars operates 69 bars and Peach Pub has 21 food-led pubs in the south of England and the Midlands. Food is 53% of sales and there are also revenues from accommodation.

This year, like-for-like sales are more than 10% higher than in 2019. In 2021, Peach Pub generated pre-tax profit of £2.7m, but that was boosted by government assistance. There should be £1.5m of cost savings from combining the businesses at a minimal cost, but they will not be fully achieved until 2024-25.  

In the year to 2 July 2022, Revolution Bars revenues were £140.8m and it moved from a loss to a pre-tax loss of £2.1m. Like-for-like growth was 1.3%. There was weaker trading in the fourth quarter. Train strikes and heatwaves have hit the start to the new financial year and like-for-like sales are 10% lower in the first eleven weeks.

The consideration will be funded by the Revolution Bars debt facility and leaves headroom of more than £15m. Revolution Bars will not be opening six new sites this year as previously expected.

FTSE 100 gains in broad cyclical rally

UK Investor Magazine
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FTSE 100 gains in broad cyclical rally

The FTSE 100 built on yesterday’s gains and approached the key psychological 7,000 level in a broad rally powered by cyclical stocks.

Smurfit Kappa was the top riser, up 6.5%, followed by WPP adding 3.6% and Prudential 3.4% stronger.

“The FTSE 100 was on track for its fourth consecutive day of gains, flirting with the 7,000 level once again as investors bid up shares in multiple sectors including energy, pharmaceuticals and mining,” said Russ Mould, investment director at AJ Bell.

The broad rally was a reflection of improving sentiment in UK assets following the new Chancellor’s move to scrap almost all measures from September’s mini-budget.

“Investors appear to have regained optimism after the U-turn in UK government policy and hopes that the new earnings season that kicked off last week might not be as bad as feared,” Mould said.

Growth and earnings

With Hunt seemingly steadying the ship after yesterday’s announcements, attention will now start to shift to global economic growth and company earnings.

In the UK, Moneysupermarket.com raised their full year guidance on strong demand while Bellway shares sank after it warned of challenges in the coming year.

However, the major focus will be upcoming earnings from US tech giants next week. Apple and Amazon are both set to report Q3 earnings next Thursday and provide insight into the impact of soaring inflation and rising rates on the global consumer.

With economic growth stuttering, company earnings will likely be the driver of equities in the short-term. If there are signs consumers are holding back on spending, investors will be concerned economic deterioration accelerates through the winter which could play out negatively in equity markets.

However, early signs from Bank of America suggest the consumer is in a better position than some feared after they said they saw spending increase 9% across their debit and credit cards.

Next week’s tech earnings will set the tone for global markets in the run up to key central bank meetings in November.

AIM movers: finnCap bid approach and Sosandar achieves send half profit

Andrew Hore
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AIM movers: finnCap bid approach and Sosandar achieves send half profit

AIM broker finnCap (LON: FCAP) has admitted that it has received indicative non-binding merger proposals from Panmure Gordon. There would be a cash offeror finnCap with an option to receive part of the consideration in shares. The share price rose 25.9% to 17p.

Tanfield Group (LON: TAN) has agreed a £2.9m settlement with solicitor Ward Hadaway over the Snorkel access platform deal. This takes the settlements to £6.9m. There are still US proceedings pending in the US.  The share price jumped 26.8% to 3.5p.

Baron Oil (LON: BOIL) has been granted a six-month extension to its Chuditch production sharing contract in offshore Timor-Leste. A decision whether to undertake drilling can be delayed until 18 June 2023. There should news concerning the interpretation of seismic data by next week. The shares are 15.6% ahead at 0.104p.

Online fashion retailer Sosandar (LON: SOS) says full year revenues increased by 72% to £20.9m and it was profitable in the second half of the year to September 2022. Active customers rose by on-third to 254,601. Net cash was £4.2m at the end of September 2022. Sosandar has starting selling products through JD Williams. The share price improved by 10.5% to 15.75p.

Further share buybacks have helped to boost the share price of Tremor International (LON: TRMR). A further 28,011 shares were acquired at 298.15p each yesterday. There have been daily purchases under the $20m repurchase plan since 5 October. The share price rose 10.9% to 345p.

Electric motors developer Saietta (LON: SED) is focusing on long-term potential rather than short-term revenues. It says joint development work with ConMet has produced concept designs for eDrives for the truck and bus market. Road trials should start next year. The potential for the product is being broadened and could increase potential revenues. Saietta expects to be made sole eDrive partner by an OEM in India and production could start by the end of 2023. Total unit volumes could be up to 500,000 by 2029. There was £23m in the bank at the end of September 2022. The share price increased by 7.9% to 102.5p. Last July’s placing price was 120p.

Bradda Head (LON: BHL) has received the results from its drilling programme the Basin East lithium project in Arizona. There4 should be a resource update in the next couple of months. A 30 hole drilling programme is planned for the rest of this year. However, the authorities have told Bradda Head that its claims over Wikieup South are no longer valid because they are owned by a third party. There was a 10.4% fall in the share price to 7.75p. That is still above the July 2021 float price of 5.5p.

Cancer diagnostic test developer Angle (LON: AGL) says that it is streamlining its operations to make its cash last longer. In 2023, cost savings should be £2.6m and the full annual cost savings of £4m should be achieved from 2024 onwards. There will be a £500,000 exceptional cost. The facility in Canada is being closed and the Pennsylvania laboratory will be the central hub of the North American operations. The Canadian facility came with the acquisition of Axela Inc in 2017. R&D spending will be relocated to the UK. The shares slipped 5.3% to 49.25p.

WH Ireland has published an analyst note on Artemis Resources (LON: ARV) suggesting a fair value of 8p a share. The broker describes Artemis Resources as a low-risk entry point into copper gold exploration with potential upside from a fully funded drilling programme. Even so, the share price has fallen 5.2% to 72.5p.

Moneysupermarket.com shares rise as full year guidance increased

UK Investor Magazine
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Moneysupermarket.com shares rise as full year guidance increased

Moneysupermarket.com was the top riser on the FTSE 350 in early trade on Tuesday after the comparison group raised their full year guidance on higher demand from consumers.

Moneysupermarket.com’s are enjoying increased use of their tools as the cost-of-living crisis and rising energy prices encourage consumers to seek out better deals.

“The cost-of-living crisis makes our purpose of helping households save money as important as ever. This quarter was another good performance,” said Peter Duffy, CEO of Moneysupermarket Group.

“There are early signs of improving trends in the Insurance market, and in Money more consumers are finding attractive products to switch to. Our strong brands are well equipped to support consumers at this critical time.”

Revenue for the 9 months to end September rose 24% to £295m with big percentage increases in their money and travel units.

The strong performance so far this year has meant the Moneysupermarket.com board now see full-year EBITDA towards the upper end of market expectations.

“Newspapers and mainstream news websites are full of stories giving personal finance tips and a large majority will recommend shopping around for better deals. Therefore, one might expect sales momentum to remain strong for Moneysupermarket well into 2023,” said Russ Mould, investment director at AJ Bell.

Moneysupermarket.com shares were over 6% higher at the time of writing.

Lookers increases guidance

Andrew Hore
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Lookers increases guidance

Motor dealer Lookers (LON: LOOK) outperformed the UK car market in the third quarter and pre-tax guidance has been increased to no less than £75m.

Last year’s pre-tax profit was £90.7m, but that benefited from government assistance and a strong used vehicle market. However, a lack of available new cars to sell is holding back the performance of all motor dealers.

The new car market was flat in the third quarter even though it grew by 4.6% in September. Lookers grew volumes by 5.5% in the third quarter. Used vehicle volumes declined by 7.1%. Aftersales revenues are growing.

Net cash was £86m at the end of September 2022. The total dividend is expected to be 3p a share. A £15m share buyback programme has been launched.

The Lookers share price has recovered in recent weeks and it has risen a further 6.1% to 75.3p. That values the shares on five times prospective 2022 earnings. There have been slight upgrades in 2023 figures, but profit is still expected to fall to £57m, increasing the multiple to seven.

The forecast yield is 4% and there is potential for a growing dividend.

Bellway profit surges but sees a tougher 2023

UK Investor Magazine
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Bellway profit surges but sees a tougher 2023

Bellway was the latest housebuilder to announce very respectable profits for 2022 but warn 2023 will be a much tougher environment to operate in.

Bellway profit before tax rose 22.5% to £650.4m in 2022, up from £530.8m in the year prior. Higher profits were a result of surging revenue as completions increased 10.5%.

“The annual profit announced by Bellway looks impressive but there’s a good chance it won’t enjoy such a prosperous 12 months for quite some time to come,” said Russ Mould, investment director at AJ Bell.

“For years housebuilders have enjoyed almost perfect conditions. Low mortgage costs ensured there were plenty of potential purchasers, government support helped to stimulate demand and there was an undersupplied market which helped prop up prices.”

However, 2022’s positive results were unlikely to be replicated in 2023 as rising interest rates and the cost of living crisis dented demand for housing.

The builder said they expected 2023 sales volumes would be largely inline with 2022 and pinned hopes on the autumn and spring selling seasons.

Bellway said they expected average prices to fall to around £300,000 in 2023 from an average of £314,399 in 2022, although they attributed this to the sale of more affordable homes as opposed to a slowing market.

“Bellway’s commentary on recent trading shows clear signs of a drop in demand, similar to that evident in a recent update from Barratt Developments,” Mould said.

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