We record this Podcast in the midst of earnings season with updates from blue chips companies flooding in from Europe as well as across the pond.
The earnings picture has been mixed, but notably better than investor sentiment would suggest. We discuss upcoming rate hikes from the Fed and market positioning ahead of their decision tonight.
In the current earnings season, US companies have consistently beaten on revenue but there have been misses on profitability.
We focus on Lloyds and Rio Tinto who both provide attractive dividends, but are being impacted in different ways but the current macro environment.
We finish by providing updates on two junior resource companies in Power Metal Resources and GreenX.
Rio Tinto shares fell 2% to 96.9p in late morning trading on Wednesday on the back of largely flat production in HY1 2022, with the first iron ore delivered from its Gudai-Darri project and the commencement of operations at the underground Oyu Tolgoi mine.
Rio Tinto confirmed a consolidated sales revenue drop of 10% to £29.7 billion against $33 billion year-on-year.
The mining company reported an underlying EBITDA of $15.6 billion, alongside free cash flow of $7.1 billion and underlying earnings of $8.6 billion after taxes and government royalties of $4.8 billion.
The group also noted a post-tax profit slide of 28% to $8.9 billion from $12.3 billion across HY1 2022, linked to movement in commodity prices, higher energy prices and rising rates of inflation on operating costs and closure liabilities.
“We remain focused on delivering on our long-term strategy, with a steady improvement in operating performance and some notable advances in our growth agenda,” said Rio Tinto CEO Jakob Stausholm.
“We continue to strengthen our partnership with the Mongolian government following commencement of underground mining at Oyu Tolgoi, delivered first iron ore from the Gudai-Darri mine and approved early works funding at the Rincon lithium project.”
“Market conditions were good, albeit below last year’s record levels. The market environment has become more challenging at the end of the period.”
GSK shares gained 0.4% to 1,762.1p in late morning trading on Wednesday after the pharmaceutical company announced a 19% AER sales climb to £6.9 billion in Q2 2022.
The group reported a 44% growth in Speciality Medicines revenue to £2.7 billion, alongside a 9% rise in Vaccines revenue to £1.7 billion and a 5% General Medicines revenue increase to £2.5 billion.
GSK highlighted a total continuing operating margin of 16% and an adjusted operating margin of 29%.
The company noted a total EPS fall of 40% to 20.8p and an adjusted EPS rise of 23% to 34.7p.
GSK mentioned an adjusted operating profit rise of 22% to £2 billion, along with a total operating profit of £1 billion against £1.2 billion year-on-year, following higher re-measurement charges for contingent consideration liabilities, partly offset by increased profits on turnover growth of 13% at CER and a rise in milestone income.
The company added its balance sheet was strengthened after its demerger and listing of Haleon on 18 July, through a dividend of over £7 billion from the group.
GSK reported an expected sales growth between 6% to 8%, revised from 5% to 7% for FY 2022, with an adjusted operating profit climb between 13% to 15% from its previous estimation of 12% to 14% at CER.
The pharmaceutical giant said it projected an adjusted EPS rise of 1% lower than its operating profit.
GSK confirmed a dividend per share of 16.2p for Q2 2022, with no change anticipated in the expected dividend of 61.2p per share for FY 2022.
“This is GSK’s first set of results as a newly focused biopharma company, and we have delivered an excellent second quarter performance, with strong growth in Specialty Medicines, including HIV, and a record quarter for our shingles vaccine Shingrix,” said GSK CEO Emma Walmsley.
“With this momentum in sales and operating profit growth, we have raised our full-year guidance and are confident in delivering the long-term growth outlooks we set out for shareholders last year.”
More bad news from Parsley Box (LON: MEAL), which floated at 200p at the end of March 2021 and has fallen to 12.25p, down 30% on the day. Trading is tough and gaining new customers become more costly due to lower response rates. First half revenues slumped from £14m to £9.6m. Marketing spend is being reduced and that will help to offset lower revenues. Even so, finnCap has reduced its full year revenues forecast to £19m and the expected loss increased to £4.6m. The loss is set to continue next year. Cash could be running out by the end of 2024.
musicMagpie (LON: MMAG) fell into loss in the six months to May 2022. The refurbished technology seller increased its consumer technology revenues, while disc media and books revenues fell 24% to £25.3m. That change in product mix meant that gross margins declined. Rental revenues remain a small part of the business, but they are growing strongly. Net debt was £3.3m at the end of May 2022. A full year pre-tax profit of £2.8m is forecast. The shares fell 10% to 45p. The April 2021 placing price was 193p.
Lower carbon fuel alternatives developer Quadrise Fuels International (LON: QFI) has signed a framework agreement with MSC Shipmanagement Ltd of Cyprus. QFI will carry out proof-of-concept tests for its fuels on MSC’s commercial container vessels. The ultimate plan is to supply all the company’s vessels. The Quadrise share price rose 13% to 1.5675p.
Subsea cable protection services provider Tekmar Group (LON: TGP) has won a £1.6m contract for windfarms in China. The share price improved 11.1% to 12p. There is no news concerning the strategy review and offer process.
Secure payments technology provider PCI Pal (LON: PCIP) beat expectations in the year to June 2022. Revenues were £11.9m, compared with the previous expectation of £11.5m. finnCap has reduced its loss forecast to £2.9m. Annualised recurring revenues are 43% higher at £11m. Monthly cash breakeven is possible this year. There is no news concerning the patent dispute with Sycurio (previously Semafone). The share price rose 8.4% to 64.5p.
FireAngel Safety Technology (LON: FA.) says interim trading was ahead of budget with revenues 15% higher at £25.6m and the loss will be lower than expected. The home safety products supplier expects to generate cash in the second half. Supply chain problems have eased. Lower margin products are being sourced in China, while progress is being made with the development of a new generation smoke alarm with Techem Gmbh. The share price improved by 6.1% to 12.1p.
We were thrilled to be joined by LandEx CEO Kamel Belkadhi to explore the investing in Farmland and their Landex investment platform providing investors with access to a range of Farmland options.
Farmland provides a sustainable investment opportunity with a high yield and diversifies a portfolio away from traditional stocks and bond.
LandEx CEO Kamel Belkadhi outlines how their platform works and the benefits for investors. We also discuss their upcoming round on Seedrs which can be found here.
British American Tobacco shares dipped 0.1% to 3,465.5p in early morning trading on Wednesday following a 3.7% revenue climb to £12.8 billion in HY1 2022, led by New Category growth.
British American Tobacco highlighted a 45% expansion in its New Category sector to £1.2 billion in revenue, with a 2.1 million increase in non-combustible product consumers to 20.4 million.
“I am very proud that our continued New Categories growth momentum is driving Faster Transformation, with revenue growth of 45% in the first half of 2022, on top of 51% growth in FY2021,” said British American Tobacco CEO Jack Bowles.
“We are delivering both strong operational performance and transforming the business.”
Its vapour revenue climbed 48%, with an extension in Vuse global category share leadership to the number one US product in the sector.
Glo revenue rose 44%, with Glo hyper volume expanding its share gains across Europe, while Modern Oral revenue grew 37% on the back of Velo sales with continued volume share leadership across the continent.
British American Tobacco reported its New Category losses reduced by over 50% to £222 million.
The tobacco group announced a 0.6% rise in combustible revenue and a price/mix increase of 4.8%, along with a 0.1% value share uptick in Cigarettes.
British American Tobacco mentioned £1.5 billion in Quantum savings delivered six months ahead of scheduled, with an expected delivery in excess of £1.5 billion by the end of FY 2022.
However, the group mentioned a £957 million impairment charge linked to its exit from the Russian market following the invasion of Ukraine in late February this year.
The company highlighted an adjusted operating profit increase of 4.9% to £5.6 billion, including an adverse transactional FX impact of 1.5%.
Meanwhile, the firm noted a 0.9% rise in adjusted operating margin and an adjusted diluted EPS growth of 5.7% to 163p.
British American Tobacco confirmed an operating cashflow conversion of 77% on the back of strong continued cash generation.
The company said it was confident in its FY 2022 outlook, despite macro-economic headwinds.
“From an innovation perspective, the second half promises to be exciting. We are launching our new glo system proposition, hyper X2, and a new consumables range in the THP category, where we are enjoying strong growth,” said Bowles.
“In addition, we continue to build on our international leadership position in Vapour, expanding our portfolio with the launch of Vuse Go, our new disposable Vapour platform. This will be scaled-up and rolled out into a number of new markets following our successful UK pilot launch in the first half of 2022.”
“We are not immune, of course, to the increasing macro-economic pressures, exacerbated by the conflict in Ukraine. However, we are well positioned to navigate the current turbulent environment due to our powerful brands, operational agility and continued strong cash generation.”
British American Tobacco highlighted a dividend of 217.8p per ordinary share of 25p for the end of calendar year 2021.
The dividends were scheduled to be paid out in equal quarterly instalments in May 2022, August 2022, November 2022 and February 2023.
The first payment was issued on 4 May 2022, with the additional three payments scheduled for 17 August, 10 November and 2 February for shareholders on the London Stock Exchange.
Lloyds added to the list of recent positive updates by FTSE 100 companies as the bank said it was thriving in the higher interest rate environment while their mortgage book jumped.
Despite putting aside £377m provisions for bad debts, the surge in net interest income to £6.1bn in the six month to June 2022 helped drive underlying profit of £3.7bn.
“Lloyds has stepped onto the half-year court fighting. Half year results show a serious improvement in net interest income, as rate rises and accelerated UK consumer activity boosted performance, with the difference between what Lloyds earns in interest on loans and the amount it pays in interest on deposits, moving in its favour,” said Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown.
“Impairment charges look large on paper but were in fact rather benign in nature. This, combined with the improved efficiency profile bodes well for future returns. The framework is set for much improved profitability too, which increases the chasm between expectations and the group’s valuation, potentially setting the scene for further buybacks.”
Lloyds highlighted a plethora of positive moves in key metrics including an enviable increase in net interest margin to 2.77% from 2.5% in the same period a year ago.
Lloyds mortgage book rose £3.3bn to £296.6bn as overall loans rose to £456.1bn. Total deposits also grew as the bank enjoyed inflows from customers.
The banking group’s outlook was particularly encouraging as the group said they expect net interest margin to rise further and capital regeneration to in excess of 200 basis points.
“In February we announced an ambitious strategy to transform our business, generate a stronger growth trajectory and enable the Group to deliver higher, more sustainable returns,” said Charlie Nunn, Lloyds Group Chief Executive.
“While the world has changed significantly since February, our strategic focus remains clear and disciplined. Our strong financial performance demonstrates the resilience of our business model and customer relationships, and has enabled us to enhance guidance for 2022.”
Everyman Media Cinema Group shares gained 1.8% to 111p in early morning trading on Wednesday after the company announced a revenue of £40.7 million in HY1 2022 from £11.8 million in HY1 2019.
The group reported an EBITDA growth to £7.5 million compared to £900,000 in 2019.
Everyman Media commented its results were especially noteworthy, due to its comparative 2019 bringing a record set of figures to the firm.
The company attributed its strong results to an increased number of venues, high admissions and a rise in average spends, alongside a reduced VAT in Q1 2022.
The group ended the period with 37 cinemas in operation against 28 cinemas three years previously, after its opening of a five-screen venue in Edinburgh.
Everyman Media confirmed a well-progressed pipeline for HY2 2022 and 2023, with a minimum of six additional venues contracted to open.
Everyman Media said it expected to meet market expectations for FY 2022 following its positive results for the HY1 financial term.
“It has been a busy six months for the Group, as our exceptional venue teams entertained guests across the country,” said Everyman Media CEO Alex Scrimgeour.
“Despite well publicised headwinds we have managed to deliver record half year sales and EBITDA.”
“We remain confident that people’s enjoyment of cinema and specifically Everyman remains undiminished”.
Reckitt Benckiser shares rose on Wednesday after the consumer group said it enjoyed higher like-for-like sales with health and nutrition products seeing a sharp increase.
Reckitt’s largely shook off the impact of a rising prices and pointed towards a portfolio of products that were less impacted by COVID and cost of living concerns.
“Reckitt’s resilient performance so far this year continues to impress. Price hikes were all but guaranteed given the double-digit inflation in certain costs the group’s seeing, but impressively volumes are still growing,” said Matt Britzman, Equity Analyst at Hargreaves Lansdown.
“That’s testament to the defensive nature of Reckitt’s portfolio, cleaning and hygiene products are hardly going to be the first things left off shopping lists when wallets are stretched.”
Reckitt Benckiser overall like-for-like group Q2 sales rose 11.9% as Health product sales rose 24.2% while Nutrition revenue increased by 26.8%.
An upbeat Q2 helped H1 actual revenues rise 4.4%, and 2.2% on a constant currency basis.
The stronger sales helped boost adjusted operating profit by 23.9% to £1,765m while margins rose by 290bps to 25.6%.
“We have delivered an excellent first half performance in 2022. Innovation and improved in-market execution are driving sustained, broad-based revenue growth and market share momentum across our portfolio,” said Laxman Narasimhan, Reckitt Benckiser at Chief Executive Officer.
“Our brands less sensitive to the impact of Covid are growing ahead of our mid-single digit target, whilst our disinfection brands are performing as expected, well above pre-pandemic levels. The actions we have taken to broaden the shoulders of our Lysol and Dettol franchises, combined with our innovation and penetration building initiatives have built a significantly larger, sustainable base from which we will grow.”
Reckitts also said they expected to see LFL net revenue growth of +5 – 8% for 2022. Reckitt Benckiser shares were 4% higher at 6,636p at the time of writing.
musicMagpie shares fell 9% to 45.5p in early morning trading on Wednesday following a reported revenue dip to £71.3 million in HY1 2022 compared to £72.8 million in HY1 2021.
The technology upcycler confirmed its growth in Consumer Technology mostly offset the expected post-Covid drop in Disc Media and Books demand.
musicMagpie announced Consumer Technology revenue made up 65% of total revenue, with a 15.9% growth year-on-year to £46 million against £39.7 million.
“I am pleased that the business has delivered a strong performance in our strategically important Consumer Technology division, which now represents two-thirds of our total revenue,” said musicMagpie CEO Steve Oliver.
Meanwhile, the company’s Disc Media and Books revenue fell 23.6% to £25.3 million from £33.1 million in HY1 as a result of Covid-19 lockdowns.
The circular tech economy group highlighted a gross profit slide to £19 million from £23.7 million, along with a gross margin decrease to 26.6% compared to 32.6% on the back of a change in overall product mix towards Consumer Technology, with a rising proportion sourced from intermediary wholesale partners.
The firm also reported a pre-tax loss of £1.0 million from a HY1 2021 loss of £17.7 million, with a post-tax loss of £3.2 million against £17.7 million in HY1 2021.
musicMagpie noted a net debt climb to £3.3 million against £1.8 million, in line with management expectations.
The company announced an investment into Consumer Technology with rental assets of £3.6 million from £1.4 million year-on-year, and investment in IT platforms of £2.2 million against £900,000 the year before.
The firm also confirmed its new committed three-year £30 million revolving credit facility with HSBC UK and Natwest, signed post-period, in a move to drive future rental growth.
FY 2022 guidance
musicMagpie commented its outlook included an expansion of Consumer Technology, with an expected rise in rental subscribers.
“I am also delighted with the progress being made in our device rental subscription service,” said Oliver.
“In light of the continuing squeeze on consumer spending, we believe that this will become an increasingly attractive option to a wider range of consumers seeking to replace their non-discretionary technology products in a cost-effective way.”
“Whilst the successful growth of this offering has a short-term compression on the financial performance of the business relative to a one-off sale, it will deliver higher revenue and EBITDA over the life of the device.”
The company added it anticipated growth from its partnership with sales channel Back Market, alongside additional listings with partners such as Amazon.
musicMagpie said it was confident in revenue and EBITDA for HY2 2022, with expected resilience in Disc Media and Books gross margins and sales from Back Market projected to carry the group into a strong HY2 financial period.
“Notwithstanding the challenges presented by the current macroeconomic uncertainty, we expect consumers will continue to seek ways to raise cash and save money and as a result, we are confident that the business is well positioned for future growth in H2 2022 and beyond,” said Oliver.
