Lloyds, Taylor Wimpey, and the UK Economy with Alan Green

UK Investor Magazine
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Lloyds, Taylor Wimpey, and the UK Economy with Alan Green

Alan Green joins the UK Investor Magazine Podcast for a deep dive into the recent market volatility and we focus on a number of UK equities, including Lloyds shares.

We discuss:

  • Taylor Wimpey (LON:TW.)
  • Lloyds (LON:LLOY)
  • Blencowe Resources (LON:BRES)
  • Warpaint London (LON:W7L)

The UK government’s mini-budget has unleashed a wave of volatility in markets and today we address two key questions; are we set on a path of economic self harm, and is it too early to start stepping back into markets?

We focus on two UK-focused FTSE 100 stocks in Taylor Wimpey and Lloyds. The UK housing market is under pressure and our questions target the impact on housebuilders.

With a Lloyds share price of 41.2p we question whether now is a good time to step into Lloyds shares.

We finish by looking at Blencowe Resources graphite assets and provide an overview of Warpaint London.

GBP/USD dips as IMF humiliates Liz Truss with warning on economic plan

UK Investor Magazine
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GBP/USD dips as IMF humiliates Liz Truss with warning on economic plan

GBP/USD fell again on Wednesday as the IMF warned the UK government they should reconsider their economic plans, suggesting it is ill-timed.

GBP/USD traded as low as 1.0630 overnight as sterling resumed declines.

The new UK government has been warned by the IMF their first fiscal package risks creating inequality in the UK and was not recommended in the current climate.

Such comments from the IMF will be deeply embarrassing for Liz Truss after UK assets were pummelled in the wake of Friday’s mini budget.

The immediate market reaction was to dump Sterling and UK bonds, raising the prospect of higher inflation and borrowing costs for households. Some mortgage providers have withdrawn their products as a result. 

Data compiled by Bloomberg showed UK mortgage rates could hit 6% next year. After a decade of near zero rates, such a sharp increase in mortgage rates is set to rock the housing market.

The impact will be felt the most by lower income households and will be the driver of the increased inequality the IMF points to in their highly critical statement.

This will be exacerbated by tax cuts that favoured higher earners.

Truss and Kwarteng should be left feeling humiliated by the IMFs suggestion to use November’s budget to reconsider their plans.

Pendragon accelerates review after bid approach

Andrew Hore
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Pendragon accelerates review after bid approach

Motor dealer Pendragon (LON: PDG) is accelerating a comprehensive review of strategic options following the bid approach from Hedin Mobility Group AB. The bidder is considering a 29p a share offer.

Pendragon’s main brands are Evans Halshaw and Stratstone. It also has used car business CarStore, the Pinewood SaaS-based dealer management division and a leasing business. In the first half of 2022, Pendragon reported a dip in underlying pre-tax profit from £35.1m to £33.5m after the ending of government support.

Zeus forecasts a fall in full year pre-tax profit from £84.4m to £55.3m. Net debt is forecast to fall to £32.7m at the end of 2022. Zeus estimates a sum of the parts valuation of 38.6p a share.

Management says that it is considering the bid along with the other options for individual businesses. Hedin Mobility does not want to retain the Pinewood SaaS business, which had interim revenues of £12.4m.

The potential bid is subject to limited due diligence and recommendation by the Pendragon board. Hedin Mobility says that it would bot consider any other offer – it is the largest shareholder with 27.1%. Other large shareholders include Schroder with 11.8%, Odey Asset Management with 10.3%, Briarwood Chase with 10%, Hosking & Co with 5.58% and Dimensional Fund Advisers with 3.2%.

DCC buys solar business

Andrew Hore
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DCC buys solar business

DCC (LON: DCC) is acquiring solar panels and clean energy technology distributor PVO, which is part of the strategy to acquire renewable energy businesses and reduce dependence on oil and gas distribution.

Ireland-based DCC has already made smaller acquisitions in this area. One-fifth of DCC Energy’s operating profit comes from renewables and services, although it is a smaller proportion of group operating profit. DCC says that its experience in helping customers to transition to cleaner energy products that will help PVO to grow. Annual revenues are €190m (£169m). The deal requires regulatory approval in the Netherlands, Germany, Austria and Poland.

The deal should be completed by the end of the year, so there could be three or four months of contribution for the year to March 2023. Peel Hunt has raised its 2022-23 pre-tax profit forecast by £2.2m (assuming three months) to £603.2m. A full year contribution could add £8.8m to profit.

The amount being paid for Netherlands-based PVO was not disclosed but there was an upfront cash payment with earn out payments based on trading in each of the next three years. DCC is focused on LPG and oil distribution businesses, which have recently been combined into the new DCC Energy division, although it also has healthcare and technology businesses.

Aim movers: Pressure Technologies disappoints and Billington upgrade

Andrew Hore
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Aim movers: Pressure Technologies disappoints and Billington upgrade

Shares in Pressure Technologies (LON: PRES) have slumped by 46.8% to 33.5p after a disappointing second half recovery. This means that there will be a full year loss. The engineering company will also breach covenants on its bank facility and more cash is required. Supply chain and manufacturing problems hampered progress with defence contracts. Oil and gas companies delayed orders. On top of this costs have been rising. Management believes that Pressure Technologies can return to profit in 2022-23 on the back of improving order levels.

Freight and logistics company Xpediator (LON: XPD) shares continue to fall after yesterday’s interim results. There was a further decline of 22.4% to 22.5p, which is nearly a one-third fall so far this week.

Tiger Royalties and Investments (LON: TIR) reported a decline in NAV from 0.17p a share to 0.12p a share in the six months to June 2022. The share price dipped by 16.7% to 0.25p (0.2p/0.3p).

There is demand for FireAngel Safety Technology (LON: FA.) home safety products but it was difficult to secure supply to satisfy that first half demand. This was particularly true in the first quarter, and it was higher margin products that were most difficult to obtain. Even so, interim revenues were 15% ahead at £25.6m. There were additional costs to secure components and that contributed to an underlying loss of £1.7m. Net debt was £3.8m. The underlying full year loss is expected to be similar to the £3.5m reported last year. The longer-term outlook is positive. International sales were 55% higher in the first half and the development partnership with Techem in Germany is making good progress and generated a milestone payment – but this partnership will not generate product revenues in the short-term. The share price fell 15.9% to 9.25p.

Cyber security services provider ECSC (LON: ECSC) shares have fallen 13.8% to 25p on the back of an 8% decline in interim revenues to £2.8m. Managed detection and response revenues fell in the period, but the order book has improved to £2.9m, which underpins a stronger second half and augurs well for 2023. The new chief executive Matthew Briggs appears to be having a positive effect on the business and he is in discussions with potential new partners. ECSC will make a loss this year, but it is expected to move into profit in 2023.

Structural steel supplier Billington (LON: BILN) made significant progress in the first half and the second half should be even better. Interim revenues were 22% ahead at £46.2m with nearly doubled pre-tax profit of £1.47m. finnCap has increased its 2022 earnings forecast by one-third to 26.4p a share due to a strong order book with higher margin work. The share price is 14.7% higher at 215p.

Bank and financial services provider Manx Financial Group (LON: MFX) more than doubled its interim pre-tax profit to £2.3m. The main improvement came in the asset and personal finance division. There was also a reduced loss on investing activities. The Isle of Man-based company says that there is good demand for structured finance products. The share price is 12.1% ahead at 9.25p.

Transense Technologies (LON: TRT) shares jumped 11.8% to 71p on the annual figures. The figures confirm a move into profit with a significant improvement in profit to £1.17m expected this year. Earlier this month, Transense announced that it was evaluating licencing opportunities for its surface acoustic wave sensor technology in the aerospace sector with Meggitt. The shares are trading on nine times prospective earnings.

Xeros Technology (LON: XSG) has signed a joint development agreement with a global domestic washing machine component manufacturer for its XFilter microfibre filtration technology. A full licence dela could be agreed in six months. This follows an earlier deal with Hanning, another domestic washing machine component manufacturer. The shares are 10.5% higher at 21p.

Saga shares crash to lowest level since IPO on profit warning

UK Investor Magazine
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Saga shares crash to lowest level since IPO on profit warning

Saga shares has plunged following a profit warning that revealed a slowing insurance business was not going to be offset by a recovery in cruises and other travel products.

The group said profit before tax would now be in the range of £20m to £30m, down from their previous guidance of £35m to £50m.

Saga shares were down 21% to 105p at the time of writing, the lowest level since their IPO. Saga now has a market cap of just £189m, having been valued at around £2bn when they listed in 2014.

“Following a return to service for cruises and travel, Saga’s experienced impressive growth in the division allowing for reduced losses despite still facing some on-going disruptions from Covid-19 and the conflict in Ukraine. This growth has helped contribute to a positive underlying pre-tax profit of £14m at the half year mark,” said Charlie Williams, Equity Research Assistant at Hargreaves Lansdown.

“The insurance division hasn’t performed as well.  Larger than expected inflationary pressures and rising claims have reduced profitability for the division and resulted in a downwards revision of the groups full year pre-tax profit of £20-30m. Previous guidance was £35-50m.  For the long term however, Saga’s unique offering to the ‘grey pound’ works well and with many of its customers likely to have paid off their mortgages, it’s good to see them as more insulated than most from further interest rate rises.”

FTSE 100 little changed in choppy session

UK Investor Magazine
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FTSE 100 little changed in choppy session

The FTSE 100 was little changed on Tuesday having been in both significantly negative and positive on the day.

The FTSE 100 was trading at 7,017, down just 3 points at the time of writing.

Markets have been assessing the impact of a sinking pound and the prospect of dramatic increases in UK rates causing severe volatility in UK assets.

However, Tuesday saw the pound gain against the dollar and equities stabilise.

“It felt like the calm after the storm on Tuesday morning as sterling stabilised and the FTSE 100 made modest progress,” said AJ Bell investment director Russ Mould.

Miners rally

Mining stocks were among the top performers on the FTSE 100 on Tuesday as the promise of increased demand for natural resources in China helped lift the sector.

“Hopes that tough Covid restrictions could soon be in China’s rear view mirror have helped lift sentiment that one of the key roadblocks to a global recovery could be removed,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdow.

“Strict curbs have lifted in Hong Kong and there is growing expectation that  Beijing will change direction on its zero-Covid strategy and open up the country by Spring next year to boost employment and incomes, which have been suffering due to rolling lockdowns.”

“These glimpses of light at the end of what’s been a gloomy tunnel in China have helped lift commodity giants in early trade in London with Anglo America and Rio Tinto among the top risers on the FTSE100, amid hopes of higher demand for metals.”

Housebuilders drop

Housebuilders were again under pressure as a number of UK Banks and Building Societies pulled mortgages from the market due to uncertainty around rates.

If lenders are unable to forecast base interest rates, it makes issuing mortgage rates so difficult that they decide to pull them from the market.

A housing market without an adequate supply of mortgages will likely slow over time.

Taylor Wimpey traded at the lowest level since 2013 on Tuesday as investors digested the news.

FireAngel Safety Technology Group – broker downgrades after interims announced

Mark Watson-Mitchell
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FireAngel Safety Technology Group – broker downgrades after interims announced

The six months to the end of June for the FireAngel Safety Technology Group (LON:FA.) showed some promise of profits about to show through after years of development expenditure.

The Coventry-based business specialises in home safety products, such as smoke and carbon monoxide detectors and accessories.

The group sells its products through distributors and retailers to the retail, trade DIY, fire and rescue service and utilities markets. 

The group’s first half year to end June reported a 15% increase in sales at £25.6m (£22.2m), while the underlying pre-tax loss was £1.6m (£1.5m).

Chairman’s Statement

Commenting upon the group’s outlook Executive Chairman John Conoley stated that,

“I am delighted by the revenue performance and the continuing success of our margin improvement activities. Our execution so far this year has largely conformed to our plans which delivered the expected underlying margin improvement before the combined impact of adverse currency movement and inflation.

While the circumstances outside our control have been particularly frustrating, the Board expects 2022 to demonstrate the first proof that we have turned the Company around with more still to come.”

Analyst’s Opinion

Greg Poulton at Singer Capital Markets is less confident about the group’s prospects, now rating its shares as a Hold, with a more than halved Target Price of 11.7p.

His estimates are for current year sales to rise from £43.5m to £57.1m, while its losses of £3.5m of last year could be similar this year.

For the next year to end December 2023 his figures are for £65.0m revenues and £1.6m of losses.

For 2024 Poulton estimates £75.0m sales, £2.5m profits and 1.6p of earnings per share.

Over at Shore Capital their analyst Rob Sanders forecasts that this December year-end will see £57.0m sales, with an adjusted pre-tax loss of £3.5m.

For next year he sees £61.4m sales and £0.9m of losses.

Jumping forward Sanders sees the 2024 year with £74.0m revenues and a much more encouraging £2.8m of profits, worth 1.4p in earnings per share.

Conclusion – shares to tread water

The development of this group may well be ongoing, but its various hassles make costs difficult to control.

With a backdrop of strong demand for its products, its brokers still have faith in the group’s prospects but have accepted the delays in the growth figures.

The shares, which are down 2p to 9p on the results statement, may well trade in a narrow price band for quite a while.

Sterling stabilises as Bank of England promises to change rates as much as needed

UK Investor Magazine
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Sterling stabilises as Bank of England promises to change rates as much as needed

Sterling stabilised against the Dollar on Tuesday as the Bank of England stepped in to provide assurance to markets following significant volatility in the pound and other UK assets.

GBP/USD was trading up 0.9% at 1.0786 at the time of writing.

Markets are now pricing in a full 1% move higher in interest rates at the Bank of England’s next meeting. There is also growing speculation the Bank of England will call an emergency meeting to make an interest rate hike.

The pound came under extreme pressure after the UK government released their mini-budget on Friday which would require tax cuts to be funded by government borrowing.

UK 10-year Bond yields rose to 4.2% as investors continued to dump gilts and worries about the UK housing market started to mount as a number of mortgage providers said they were no longer be making mortgage offers due to uncertainty about interest rates.

eEnergy launches eSolar capital-free solutions for organisations

UK Investor Magazine
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eEnergy launches eSolar capital-free solutions for organisations

AIM-Listed eEnergy announced on Tuesday it would be rolling out its eSolar solution to organisations and providing an end-to-end service.

The solution will provide capital-free access for organisations to install onsite solar panels to help reduce the cost of their power supply.

eEnergy will deliver end-to-end solutions covering design, specification, installation and ongoing operations and maintenance.

Following a trial period to gauge the demand for the service, eEnergy believe they can deliver solutions totalling 8.9 MW, equivalent to circa 30,000 standard 300w panels.

eEnergy hopes that by removing the capital requirements they are able to target a broad range of organisations and complete installation in a short time period of 4-6 months from initial agreements.

“The launch of eSolar is another exciting step on our journey to providing organisations and businesses across the UK and Ireland with an end to end net zero solution,” said Harvey Sinclair, CEO of eEnergy Group.

“In addition to eCharge, eSolar provides our customers with the very real ability to generate their own energy, giving them increased energy independence in the knowledge that they’re using green and sustainable sources as well as achieving significant cost savings.”

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