Gatemore appointee leaves DX board

Andrew Hore
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Gatemore appointee leaves DX board

Liad Meidar has stepped down from the board of parcel and freight delivery company DX (LON: DX.) He is founder and managing partner of DX’s largest shareholder Gatemore Capital Management and joined the board in December 2021.  

Gatemore Capital Management was behind the appointment of the new management that turned around the business, although chief executive Lloyd Dunn left the board last month after corporate governance issues. These problems appear to have been sorted out. Gatemore has reduced its stake to 24.3%, having been 35.6% at one point.

DX recently published interim figures and it intends to recommence dividend payments. A total dividend of 1.5p a share is expected for 2022-23. Share buybacks are also planned.

This is because the business is highly cash generative and will be adding to its cash pile even after ongoing capex requirements of £8m-£10m a year.

Freight sales continue to grow strongly, and more depots are opening. DX Express is even back to a growth path following lockdowns.

The corporate governance dispute meant that the auditor would not sing off the accounts. DX has finally got around to publishing full year accounts for 2020-21 and the recent interim figures were for the six months to 1 January 2022, but the shares remain suspended at 30p.

Pre-tax profit was £12m and net cash £16.8m in 2020-21. finnCap estimates 2021-22 pre-tax profit of £20m -likely to be published in November – rising to £25m this year. This forecast is upgraded, and the shares are suspended at nine times forecast 2022-23 earnings and provide a 5% yield.

That should provide a floor for the share price. It is unclear whether Liad Meidar has left the board because he feels that the governance issues have been sorted  out or there is another reason. It is possible that Gatemore wants to further reduce its stake while not being hampered by dealing rules relating to directors.

FTSE 100 drops as domestic stocks suffer, defensives gain

UK Investor Magazine
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FTSE 100 drops as domestic stocks suffer, defensives gain

The FTSE 100 was dragged by selling in UK domestic facing stocks including housebuilders and banks after the Bank of England said support for the bond market would end on Friday and the Prime Minister said there would be no spending cuts alongside their radical tax changes.

The FTSE 100 closed down 0.86% at 6,826.

Although the Bank of England’s comments suggested Friday could mark severe volatility in markets, UK bonds and the pound were surprisingly calm on Wednesday. GBP/USD was 0.9% higher at 1.1070 at the time of writing.

The pound had quickly priced in the uncertainty after the BoE’s initial announcement on Tuesday falling sharply, and this weakness in the pound provided support for the FTSE 100 early in Tuesdays session. However this support had quickly evaporated by the end of trade on Wednesday.

The FTSE 100 was also hit by weaker than expected UK GDP data that showed the economy contracted 0.3% in August. With July’s GDP reading being revised down to 0.1% alongside the Augusts contraction, many economist are predicting we are already in a recession.

“A plethora of unhelpful external headwinds are blowing, holding back the UK’s ability to grow its economy. At the same time, the UK consumer base is utterly bone-tired with political uncertainty, concerns about higher-for-longer inflation and the government’s ability to get things under control, following a public berating of government policies by the IMF,” said Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown.

The broader FTSE 100 index is a poor reflection of the UK economy, however a look at domestic facing constituents highlighted concerns about the immediate outlook.

UK banks, housebuilders and consumer facing companies were major casualties on Wednesday. The bottom end of the FTSE 100 was dominated by those companies reliant on UK consumers.

Barratt Developments provided a gloomy outlook and saw their shares fall 7% while Persimmon shed nearly 8% of their value. JD Sports was down 9% and the FTSE’s biggest faller after news their Chief Financial Officer would relinquish his position next year.

Lloyds dived 6% and Natwest dropped 4% as investors fretted about the market impact of the BoE’s bond purchases coming to an end on Friday. Increased volatility could see additional mortgage market disruption and put further pressure on their customers.

AstraZeneca, British American Tobacco and Diageo among the FTSE 100 top risers on Wednesday as their defensive attributes attracted buyers.

Hostelworld trading continues to recover

Andrew Hore
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Hostelworld trading continues to recover

Online hostel bookings agent Hostelworld (LON: HSW) had a strong September trading and cash generation is better than expected.

Hostelworld could report a modestly positive EBITDA for 2022, compared with previous expectations of around £1.5m. There is still likely to be a significant underlying pre-tax loss, but it does provide further comfort to investors that there will be a sharp bounce back into profit in 2023.

The value of bookings processed in September was higher than the same month in 2019. All regions are growing. Cancelation rates are in line with expectations.

The focus on social media marketing via its app is paying off and helping to improve margins. Nearly 50% of customers are using the app. Net debt at the end of 2022 should be lower than previously expected.

There will be a further update on strategy at a capital markets day presentation on 10 November.

Trading will undoubtedly be tough over the coming year, but Hostelworld appears to be successfully rebuilding its trading levels and increasing the effectiveness of its marketing.

The share price is up 0.85p to 76.75p, which is equivalent to 12 times the previous earnings expectations of 6.6p a share for 2023. The high operational gearing of the business means that if trading continues to improve then the 2023 forecast could be upgraded.

AIM movers: Physiomics contract and DeepVerge cash requirement

Andrew Hore
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AIM movers: Physiomics contract and DeepVerge cash requirement

Drug modelling consultancy Physiomics (LON: PYC) has announced a collaboration with Cancer Research UK, which will use the company’s modelling technology for early phase clinical development of ALETA-001. This is a CAR-T cell engager blood cancer treatment candidate. This modelling should be completed by the end of 2022. This follows the recent dose selection contract with Numab Therapeutics. The two contracts will provide a strong end to the year. The share price rose 23.8% to 2.6p.

More good news from Evgen (LON: EVG), which is undertaking an additional early-stage study for the treatment of glioblastoma using SFX-01. This could de-risk a phase II study and help to secure a partner. It will help to better target brain tumours. R&D costs will be lower and cash resources should last well into 2025 – assuming initial milestones are paid in the recent deal with Stalicla. The shares are 12.4% higher at 6.35p. The share price has more than doubled this week.

NetScientific (LON: NSCI) investee company PDS Biotechnology Corporation (NASDAQ: PDSB) announced further data from a National Cancer Institute-led phase II clinical study evaluating its candidate PDS0101 in combination with two Merck owned immune modulating drugs. This is a treatment for advanced HPV+ cancers. The data is consistent with previous findings on safety and efficacy. NetScientific has a 4.72% stake in PDS. The NetScientific share price rose 5.4% to 59p.

Sunrise Resources (LON: SRES) has secured a deal with a processor of natural pozzolan for the mining and test grinding of a bulk sample from the Hazen natural pozzolan deposit in Nevada.  Around 250 tons of natural pozzolan will be extracted and processed at no cost to Sunrise Resources. This could lead to a collaboration. The shares are 9.1% ahead at 0.12p.

Invinity Energy Systems (LON: IES) has sold a 0.8MWh Invinity VS3 flow battery system to Equans Belux. This consists of four VS3 batteries and it will be integrated with solar PV. The system will be delivered in early 2023. The share price is 11.2% higher at 27.25p.

The family of David Crichton-Watt have bought 2.82 million shares in Steppe Cement Ltd (LON: STCM) at prices between 31p a share and 31.75p a share, taking the total shareholding to nearly 17%. The family of chief executive Javier del Ser Perez bought 300,000 shares at 31.7p each, taking their shareholding in the Kazakhstan-focused cement supplier to 8.47%. This follows last week’s third quarter trading statement showing a 2% increase in sales volumes in the third quarter, while revenues were 9% ahead. The shares have risen 6.35% to 33.5p.

DeepVerge (LON: DVRG) continued its share price decline after the company admitted that it was seeking to raise cash via a share issue to repay a loan facility agreed in March with Riverfort Global Opportunities PCC and YA II. A £500,000 repayment was due on 16 October, but this can be delayed if the whole loan and interest is repaid immediately after a fundraising. DeepVerge also needs more cash for working capital. The share price slumped 40% on the day to 3.375p, having started the week at 5.5p.

Bion Holdings (LON: BION) has returned from suspension following the publication of results for the 16 months to April 2022. The operating business was sold at the end of the period. There is £1m of cash raised in a placing that was received after the balance sheet date. There was a two-fifths drop in the share price to 0.15p.

Sierra Oncology Inc is returning the rights to SRA737, which was jointly developed by Sareum Holdings (LON: SAR) and the Institute of Cancer Research, to the CRT Pioneer Fund. It is a treatment that targets cancer cell replication. Sierra Onclology was acquired by GSK in July. The share price fell by one-fifth to 157.5p.

Interims from Angling Direct (LON: ANG) show a 1% increase in revenues, but online sales were down 8% – although they are well above pre-Covid levels. Own brand sales were one-third higher. There was a two-thirds drop in pre-tax profit to £1.1m as competitive trading hit margins and there was no government support, which contributed £900,000 in the corresponding period. The fishing products retailer had net cash of £17.1m at the end of July 2022. The share price declined by 12.5% to 28p.

Barratt Developments, the UK Economy, and Brazilian Iron Ore with Alan Green

UK Investor Magazine
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Barratt Developments, the UK Economy, and Brazilian Iron Ore with Alan Green

Alan Green joins the UK Investor Magazine Podcast to discuss the latest instalment of UK economy news and three UK equities.

Companies covered:

  • Barratt Developments (LON:BDEV)
  • Cadence Minerals (LON:KDNC)
  • Dekel Agri-Vision (LON:DKL)

Barratt Developments shares fell over 7% on Wednesday morning after the housebuilder released a gloomy outlook for the rest of the year. We discuss their results and the overall housing market.

Cadence Minerals’ flagship Amapa iron ore project in Brazilian is making progress and moving towards production. Alan updates on their latest developments and key fundamentals.

We finish with a look at African palm oil producer Dekel Agri-Vision.

UK could already be in recession as GDP contracts in August

UK Investor Magazine
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UK could already be in recession as GDP contracts in August

UK GDP data released this morning suggests after economic activity fluctuating for a number of months, the UK has likely entered a recession.

UK GDP fell 0.3% in August and the previous expansion in July was revised down to a 0.1% contraction.

“The latest UK GDP numbers were disappointing. Activity unexpectedly shrank 0.3% in August, as a result of weakness in the manufacturing and energy sectors, and the gain in July was revised lower to 0.1%,” Rupert Thompson, Investment Strategist at Kingswood.

He continued to point out that while economic activity was contracting, the Bank of England is in no position to ease monetary conditions to support the economy. Indeed, their next move may damage the economy further.

“This decline looks very unlikely to dissuade the Bank of England from raising rates by an outsized 0.75%, or possibly even a full 1%, at its next meeting on 3 November,” Thompson said.

Hargreaves Lansdown analysts painted the picture of a perfect storm of unfavourable economic conditions causing further slowdowns in 2023.

“This latest data set unfortunately gels with the IMF’s recent warning that 2023 will feel like a recession for many people, and that the worst of the global growth slowdown is yet to come,” said Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown.

“A plethora of unhelpful external headwinds are blowing, holding back the UK’s ability to grow its economy.”

“At the same time, the UK consumer base is utterly bone-tired with political uncertainty, concerns about higher-for-longer inflation and the government’s ability to get things under control, following a public berating of government policies by the IMF. These all feed into a reduced willingness, and ability, for people to spend their money within the economy.”

Economic conditions will likely remain tied to central bank policy, and until the Bank of England signals an easing of rates, the UK economy will continue to suffer.

Barratt Developments shares fall on gloomy outlook

UK Investor Magazine
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Barratt Developments shares fall on gloomy outlook

Barratt Developments has warned investors the outlook for the rest of the year is less than certain as homebuyers contend with mortgage disruption and an economic slowdown.

Barratt revealed the first signs of slowing housing activity as forward sales numbers dropped compared to last year, and completions for the  period 1st July 2022 to 9th October 2022 fell to 3608 from 3699 in the same period last year.

Despite experiencing a slow down in volumes, Barratt’s average selling a price rose for the 4th consecutive year to £377.2k.

However, the higher average prices were not enough to cement investors’ confidence on Wednesday with Barratt Developments shares falling after the market opened.

The culmination of an uncertain outlook, slowing reservations and today’s contraction in UK GDP saw Barratt Developments shares give up over 5 % in early trade.

Although the Barratts Chief Executive, David Thomas, highlighted conditions would be challenging for the rest of the year, he said adjusted profit would be in line with consensus. 

“Whilst the outlook for the year is less certain, we remain on track to deliver adjusted profit before tax for the year in line with current consensus, and we are focused on maintaining our commitment to lead the industry in the quality, energy-efficiency and sustainability of our homes and in our customer service, all of which are fundamental to our ongoing success amid a more challenging market backdrop,” David Thomas said.

Analysts affirmed the challenging outlook, underlining that while there is a favourable long term outlook for UK housing, the near term presented many problems for Barratts.

“Barratt Developments has warned that the outlook for the rest of the year is now less certain, owing to the availability and pricing of mortgages. A deterioration in the affordability of mortgages, especially for first time buyers, is just about the biggest spanner that could be thrown at the builders. While the UK still has a fundamental shortage of houses, the medium term for the likes of Barratt looks hazy at best, bleak at worst,” said Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown.

Marston’s profit recovery commences

Andrew Hore
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Marston’s profit recovery commences

Like-for-like revenues are still improving at pubs operator and brewer Marston’s (LON: MARS) and they are higher than in 2019. The 2021-22 figures should mark the first step in the profit recovery of the business.
Marston’s owns 1,468 pubs and a 40% stake in Carlsberg Marston’s Brewing Company. In the ten weeks to 1 October 2022, like-for-like sales were 4% ahead of the same quarter last year and 3% ahead of the corresponding period in 2019. Prices were increased in March, but this did not stop people coming into the pubs.
Revenues are set to double to £800m in the year to September 2022. That...

Sanderson Design Group – quality brand portfolio, growing US push and strong cash will help to strengthen second half year

Mark Watson-Mitchell
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Sanderson Design Group – quality brand portfolio, growing US push and strong cash will help to strengthen second half year

A quality brand portfolio, growing US push and strong cash, alongside cost reductions and increased efficiency will help to strengthen second half year for Sanderson Design Group.

It seems that this group has always been at the centre of English interior decoration.

Dating back to 1860, it was originally an importer of French wallpapers, since then it has significantly expanded its portfolio of businesses to include a range of iconic design brands of note.

Today the Sanderson Design Group (LON:SDG) defines itself as an international luxury interior furnishings company that designs, manufactures and markets wallpapers and fabrics together with a wide range of ancillary interior products.

The group’s single purpose is very bold – ‘To bring the Beautiful into People’s Homes and Lives’ and it certainly does that.

Its list of leading brands includes Archive, Clarke & Clarke, Harlequin, Morris & Co, Sanderson, Scion and Zoffany.

The latest interim results showing strength in its diversity

In the first half year to end July the group showed some resilience with a 0.7% lift in sales to £57.9m (£57.5m) while its adjusted pre-tax profits were a very healthy 12.5% better at £6.3m (£5.6m), raising its earnings12.9% to 6.90p (6.11p) but cautiously paying a maintained dividend of 0.75p per share.

A big advance was made by the revenue from licensing, up 90.0% at £3.8m, while the recent push into the North American market has performed well, helping to balance out slight falls in sales in the UK, Europe and the Rest of The World.

At the period end the group had net cash of £15.0m, which was £4.1m lower than at the end of January this year, due mainly to a strategic investment in its core lines.

Chairman Dianne Thompson commented that:

“Thanks to the Group’s strong and rich portfolio of valuable brands, and the creative design talent and agility of our teams, we have managed to navigate the trading challenges of the first half, taking opportunities where possible to support the strategic progress of the Group.”

Comparison with its full year results

In its year to the end of January 2022, the business had benefited from consumers’ growing interest in pattern, colour and design, which helped to drive its three key revenue streams of manufacturing, brands and licence income.

For that year the group reported revenue up 19.6% to £112.2m and its adjusted underlying profit before tax was a very impressive 78.6% better at £12.5m.

Recent Deals – expanding its design spread

This year has seen the group declare a number of new agreements with Harrods, Ben Pentreath, Bedeck, Williams Sonoma, Emery Walker, Sophie Robinson, NEXT, Designs in Mind, Japanese partnerships and the latest last week with Giles Deacon, the British fashion designer.

The Group’s Larger Holders

With some 70.99m shares in issue, the company’s largest investor is Octopus Investments (13.74%), while other names include Close Asset (9.57%), Ennismore (7.67%), BGF Investments (5.99%), Hargreaves Lansdown (5.10%), Schroder Investments (4.99%), Interactive Investor (4.97%) and Charles Stanley (4.78%).

Analyst Opinion – well positioned to weather the challenges

David Jeary at Progressive Equity Research estimates that the current year to end January 2023 will see the group generate sales of £115.0m and profits of £12.7m, taking earnings up to 14.3p (13.6p) and paying a maintained 3.5p per share dividend.

Looking into the next year he has estimated £120.4m of revenues, £10.4m profits, 14.1p earnings and a 3.5p dividend per share.

Conclusion – shares are destined to rise

The current price of this group’s shares is too low, especially considering its global spread, its strong balance sheet and the diversity of its market leading design brands.

At the current price of 99p the shares are trading at 6.9 times price current year earnings and that is very attractive.

After the interims and ahead of the next Trading Update in January next year, it would be reasonable to hope for an upward lift in price to around 125p, 

AIM movers: Eneraqua energy growth and coal production recommences at Edenville Energy

Andrew Hore
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AIM movers: Eneraqua energy growth and coal production recommences at Edenville Energy

Energy and water efficiency equipment provider Eneraqua Technologies (LON: ETP) grew its interims from a combination of organic growth and a contribution from recent acquisition Welltherm, which provides drilling services for heat pump installation. Revenues were 92% higher at £24.2m, while underlying pre-tax profit was £3m. Full year expectations are covered by contracted orders as are nearly three-quarters of next year’s forecast revenues. There are plans to move into the consumer market, but that will not make a meaningful contribution until next year – although there will be £500,000 of marketing costs. A full year pre-tax profit of £10.6m is forecast, while the 2023-24 figure has been upgraded by 4% to £12.2m. The share price is 13.9% ahead at 262p, which is just below the November flotation price of 277p.

Edenville Energy (LON: EDL) says production has restarted at the Rukwa coal project at an initial rate of 4,000 tonnes per month of washed coal. This rate of production should increase. Pricing discussions are exceeding the previously published range of $35-$50/tonne. The share price has jumped 36.4% to 15p.

Falcon Oil & Gas (LON: FOG) has a binding letter of intent with new joint venture partner Tamboran (B1), which amends the previous terms of the joint operating agreement for the Betaloo sub-basin exploration permits in Australia. Tamboran (B1) is a joint venture between Sheffield Holdings and Tamboran Resources. Falcon will earn an additional carry of future well costs of up to A$6.75m – its share of A$30m. Drilling of the first two stage 3 wells will start soon and Falcon will benefit from the carry under the existing agreement with Origin Energy. The share price is 3.62% ahead at 7.15p.

Oil and gas producer Echo Energy (LON: ECHO) says that production reached 392,253 barrels of oil equivalent in the first nine months of 2022 with third quarter production higher than in the previous quarter. Three power generation units are operational at the Santa Cruz Sur assets in Argentina, while work on maintenance of compressors and upgrading the Eagle workover rig continue. The share price is 6% higher at 0.265p.

Ukraine-based oil and gas producer Enwell Energy (LON: ENW) shares fell 14.3% to 23.3p following quarterly operating figures. Production slumped compared with one year earlier with gas production more than halved. Aggregate production was 2,588 barrels of oil equivalent per day, down from 5,126 in the third quarter of 2021. Production at the VAS field was suspended, but it has resumed in October.

There is profit taking at drug developer Evgen (LON: EVG) which yesterday announced that it is partnering with Swiss biotech Stalicia for the potential use of SFX-01 for the treatment of autism spectrum disorder and other CNS disorders. The share price fell 10.6% to 6.35p, having started the week at 2.85p. The deal could generate up to $160.5m in milestone payments and double-digit royalties. The upfront payment is $500,000 with a further $500,000 once a volunteer study is completed in the first half of 2023.

Property lending platform operator Lendinvest (LON: LINV) continues to decline even though chief executive Rod Lockhart bought 27,111 shares at 67.5p each. The share price fell 8.82% to 62p, having started the week at 97.5p. Platform assets under management are one-third higher at £2.4bn, but finnCap has downgraded its full year forecast. Interest rate volatility is hampering margins. The July 2021 placing price was 186p.

Scirocco Energy (LON: SCIR) is using cash generated from the deal to sell Rumuva to repay part of the balance on the Prolific facility. An initial payment of $200,000 is being made. The remaining balance will be repaid in five instalments of $49,000 a month up to March 2023. If these payments are made there will be no additional share issue. The share price is 7.89% lower at 0.175p.

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