Lloyds shares have suffered tremendously from the political debacle that’s gripped Westminster during Liz Truss’s tenure.
UK banks including Lloyds have been exposed to soaring mortgage rates and the threat of a slowing economy hurting their customer’s finances.

In September, Lloyds share price had been approaching the 50p level for the first time since April as investors positioned for higher interests and the benefits to banking Net Interest Margins.

However, the steady rally in Lloyds shares faced a rude awakening 23rd September when Kwasi Kwarteng dropped the mini-budget bomb shell on the UK economy.

UK Gilt yields soared, the pound crashed and the Lloyds share price sank to 40p. 

Market turmoil and political chaos ensued, culminating in the resignation of Liz Truss yesterday. The market staged a minor relief rally shortly after the PM’s resignation with UK bank shares jumping.

Lloyds shares outlook 

Investors may do well to proceed with caution over the coming days and weeks. 

The problems caused by Liz Truss’s chaotic leadership will not disappear nearly as quickly as Truss did from her resignation speech.

Long term damage has been done to the UK’s reputation and markets have built a risk premium into UK assets that will take time to diminish.

We are yet to see the real impact of higher mortgage rates and there are big concerns around the health of the UK economy.
Lloyds will see the benefit of higher rates, but are also likely to set aside provisions for bad debts in their next update.

This will hurt Lloyds profits. The perception of how hard Lloyds profit may be hit will dictate trade in the short term. Today’s retail sales reading suggests Lloyds consumers are feeling the pinch.

The medium term outlook for Lloyds share price going into 2023 is largely dependant on the immediate actions of the next prime minister.

Support for consumers with energy bills could reduce Lloyds’ provisions for bad debts. However, interest rates are set to rise and we’ll unlikely see any let up mortgage rates before we see deterioration in the housing market.

This will be a double edged sword for UK banks – they will earn more from their mortgage book but defaults will rise.

The uncertainty around Lloyds share price has been reflected by Barclay’s analysts downgrading Lloyds price target to 50p from 55p with an equalweight rating. JP Morgan has 56p target and overweight rating.

With the Lloyds share price at 41p, there is attractive potential upside to these price targets, and much of the negativity discussed above will have largely been priced in.

The FTSE 100 again found support in oil majors on Thursday amid absolute chaos in Westminster that threatens further political uncertainty in the UK.

BP and Shell gained 1.7% and 2.3% respectively at the time of wiring and helped to offset losses in miners, pharmaceuticals and housebuilders.

Dechra Pharmaceuticals was the top faller on Thursday shedding some 3.2% after the veterinary pharmaceuticals said they were set to meet full year market expectations but faced challenging comparisons against last year’s strong performance due to COVID-19.

After a strong run from lows around 90p, IAG saw a bout of profit taking on Thursday and slipped 3% to 114p.

UK banks remained firmly range bound with Lloyds, Natwest and Barclays all finding strength after yesterday’s weakness. Lloyds was trading at 41.7p, up 2.7% at the time of writing.

The FTSE 100 was 10 points higher at 6,934 shortly after midday on Thursday.

UK political uncertainty

The FTSE 100 carved out small gains with backdrop of political uncertainty following unprecedented scenes at Westminster last night. MPs were reportedly manhandled into the voting lobby amid a chaotic vote on fracking.

After a frantic night of confusion over whether the vote was classed as a confidence vote, Truss faced a growing number of her MPs calling on her to quit.

Sky News had began tracking the number of MPs publicly saying she should resign – the number stood at 14 at the time of writing.

It’s happened.

Sky News has launched a ticker of MPs calling for Liz Truss to go. pic.twitter.com/ZA8XYDm6Vg

— Scott Bryan (@scottygb) October 20, 2022

Should Truss quit, the UK will be thrown back into the uncertainty of a leadership contest and lack of leadership in the interim.

The pound had traded negatively earlier in the session but clawed back losses against the dollar to trade in positive territory.

TRX Gold possesses two major attributes gold mining investors should be seeking. Firstly, it is ramping up production at their Tanzanian gold mines. And secondly, it is utilising cash flow from current production to pursue further exploration and upgrades to their assets.

TRX Gold Corporation (TSX:TNX) (NYSE American:TRX) operates the Buckreef Gold Project in Tanzania and is delivering on a strategy to increase their production capacity and overall resources in the pursuit of shareholder value creation.

Ramping up production

The $104m market cap gold miner invested $4m in mill processing facilities 12 months ago with the objective of increasing the original 360 tpd capacity to 1,000 tpd.

In late September, TRX Gold announced this target would soon be hit enabling TRX Gold to produce 15,000-20,000 ounces of gold annually over the life of the oxide mine plan.

Early success at the new plant saw TRX Gold hit a quarterly production record in the third quarter with 2,733 ounce of gold produced. TRX Gold also hit a sales record with 3,033 ounces of gold sold.

Increasing the resource base

Many junior gold explorers will be highly envious of TRX Gold’s position. TRX Gold are able to fund further exploration and the expansion of their resources with cashflows from ongoing production, a scenario many junior explorers can only dream of.

TRX Gold do not have to raise cash through dilutive secondary issues, nor are they being forced into a joint venture to facilitate development of their assets.

Funding further exploration through cashflows from operations means TRX is creating the most favourable scenario short and long term value creation.

This is of course reliant on the success of their expansion operations and upgrades to the resource – and the most recent results are positive.

Exploration activity at Buckreef Gold Project recently yielded an additional strike extension of 250 meters, representing 16% increase in the strike length of the Buckreef Main Zone to 1.8 kilometers.

TRX Gold are undergoing an intensive drill programme looking to expand 2020’s NI43-101 Measured and Indicated Mineral Resource of 35.88 MT at 1.77 g/t gold containing 2,036,280 oz of gold and an Inferred Mineral Resource of 17.8 MT at 1.11g/t gold for 635,540 oz of gold.

TRX Gold’s low cost production

Compounding TRX’s ramp up in production and expanded resource, TRX Gold are achieving a low cash cost of $508 per gold ounce driving gross margins of 73%.

TRX Gold generated $9.06m revenue in the nine months to May 31st 2022. Much of this was generated in the three months to May 31st with TRX Gold recording $5.7m revenue and $3.18m profit for the period.

TRX Gold’s comprehensive income for the nine months to May 31st 2022 was $28,000 due to higher share based expense.

Investors will be looking forward to TRX Gold’s full year results and the additional revenue from increased capacity at the Buckreef Gold Project.

Bunzl investors may be pleased to see strong levels of revenue growth at the international distribution and services group as both organic revenue growth and the impact of acquisitions helped a 18.8% actual exchange rate rise in revenue in the third quarter.

However, the revenue growth wasn’t enough to see Bunzl shares rise as they dipped 1.5% in the very early minutes of trade on Thursday.

A 4.3% expected reduction COVID-19 related products saw underlying revenue grow 6.1% and account for 10.4% of overall growth.

The group detailed the recent acquisition of Enviropack which generated £7m in the year to August 2022. Bunzl noted the acquisition was consistent with their strategy to boost the circular economy through their packaging operations.

“Our strong performance over the quarter continues to demonstrate the strength and resilience of the Bunzl business model, underpinned by our value-added offering for customers,” said Frank van Zanten, Chief Executive Officer of Bunzl.

“Our commitment to reliably provide essential products and innovative solutions to our customers, our diversified portfolio, and our compounding growth strategy are all factors which contribute to our expectation of continued resilience. I am also pleased to welcome Enviropack to the Bunzl family and our acquisition pipeline remains active.”

The FTSE 100 was largely flat on Wednesday as UK inflation hit 10.1% for the second time this year and a weaker pound provided some support for the FTSE 100’s overseas earners.

The pound fell as the Bank of England said they would indeed begin quantitative tightening 1st November, but wouldn’t sell long dated bonds initially.

“The FTSE 100 dipped on Wednesday as UK inflation came in a smidge higher than expected to match the multi-decade highs seen in July,” said AJ Bell investment director Russ Mould.

“Food prices were the major contributor to the inflationary surge, which will only ramp up the pressure on the Bank of England to maintain a hard line on interest rates ahead of its next meeting in November.

Early weakness in the FTSE 100 was bought into and the index traded marginally higher at 6,939 at the time of writing.

Interest rate expectations

Interest rate expectations have fallen back since Jeremy Hunt’s appointment but today’s inflation reading all but confirmed interest rates would continue to rise sharply in the coming months.

“Expectations for the peak in interest rates in 2023 have fallen back from their highs of close to 6% p.a. since Jeremy Hunt, the replacement Chancellor, rolled back much of the proposed fiscal loosening in the “mini” budget,” said Chris Acari, Head of Capital Markets at Hymans Robertson.

“At time of writing, markets expect the bank of England base rate to peak around 5.3% next year, while consensus forecasts suggest the bank may raise rates slightly less than this.”

Housebuilders suffered on Wednesday after bouncing from the mini-budget lows. UK banks were also under pressure as the higher inflation data suggested more households are facing financial difficulties going into the winter.

It was the weaker pound and overseas stocks providing support for the index at lunchtime on Wednesday with HSBC the top riser, gaining 2.2%.

GlaxoSmithKline, BAE Systems, BP, Shell and AstraZeneca were among the FTSE 100 heavyweights gaining on Wednesday and offsetting losses in domestic names.