Inflation hits 40-year high of 9% as food and energy costs surge

Natasha Doris
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Inflation hits 40-year high of 9% as food and energy costs surge

The Consumer Price Index (CPI) rose to 9% in April compared to 7% in March, according to figures reported by the Office of National Statistics (ONS) today.

The rise represents the highest 12-month growth since records began in 1997, and is also the highest rate on record for the constructed historical series, which kicked off in 1989.

The ONS commented that the last time inflation hit its current high was 40 years ago in 1982, with projections in the range of 6.5% in December to almost 11% in January.

Meanwhile, the CPI including owner occupiers’ housing costs (CPIH) gained by 7.8% year-on-year, marking an increase from 6.2% in March, the highest rate since records began in 2006.

The increase of 1.6% also marked the largest annual rate growth in the National Statistics series, along with the constructed series, which began in 1989.

CPIH rose approximately 2.1% in April 2022 on a monthly basis, against an uptick of 0.7% in April the last year.

Pain at the Pumps

The surge in inflation was attributed to housing and household services, which represented 2.7% of the annual rise, with the bulk of the rise due to climbing electricity, gas, fuel and other housing costs, while transport accounted for 1.4% of the growth.

The ONS confirmed the largest upward contributors to the CPIH increase were related to housing and household services at 1.2%, with restaurants and hotels contributing 0.1% and recreation and culture accounted for a 0.1% rise.

The most significant downward contribution was reportedly due to clothing and footwear, which contributed 0.09% to the figures.

“The surge in energy prices is draining us dry, after gas prices almost doubled in a year. In April, the huge hike in the energy price cap pushed inflation to a 40-year high of 9%,” said Hargreaves Lansdown senior personal finance analyst Sarah Coles.

“Unfortunately, this doesn’t come as a massive surprise to anyone. After-all we have been living through this horrible period, so we know all-too well how expensive life is getting.”

The energy price cap rose 54% in April, sending household energy budgets skyrocketing with an additional £700 per year in energy costs.

The war in Ukraine sent the cost of gas up by almost 100% year-on-year, and petrol surged to 161.8p per litre compared to 125.5p month-on-month, setting the price of filling a 55-litre car at £19.97 higher than in April 2021.

Analysts revealed that 40% of people had cut back on non-essential car travel to save on fuel costs.

The energy price cap is scheduled for a further rise between 30% to 50% in October this year, which is set to pile even more pain onto struggling consumers.

“What makes things even worse, is that we know that this is just the first blow, and we’re set for a follow-up in October that could send us reeling,” said Coles. 

“Energy price hikes would be bad enough on their own, but we’re also having to deal with record fuel costs, eye-watering rises in supermarket prices and the soaring cost of home repairs and improvements.”

Food Prices

The cost of living is also starting to strain household food budgets, with a reported 41% of consumer making the concerning decision to purchase less from grocery stores, demonstrating that the crushing rate of inflation has already gone far beyond impacting frivolous purchases such as high-end fashion and specialty goods.

The price of food and non-alcohol drink rose 6.7% since last year, with pasta increasing 10.4%, milk rising 16.1% and margarine spiking 22.7% across supermarket offerings.

“Unfortunately, these price rises aren’t over yet. The conflict in Ukraine has pushed up the price of food globally, but it has also accelerated the rising cost of animal feed and fertiliser, which are feeding through into farm costs,” said Coles.

“When you add in the cost of fuel for manufacturing and distribution, it will keep pushing prices up at the supermarket in the coming months.”

Interest Rates to Rise

The Bank of England have been urged by the government and by consumers to tackle the issue of surging inflation, which has run far beyond its target rate of 2%. However, Bank governor Andrew Bailey told cabinet ministers this week that he was powerless to stop the crushing tide of inflation, despite the institution’s efforts to stamp out spiking costs by hiking interest rates 0.25% to 1% earlier this month.

The Bank is set to raise interest rates to 1.25% in its next meeting in June, however experts have warned that this will not stop inflation in its tracks, and it will add a fresh burden to households already struggling to cut down on the essentials to survive.

The UK economy has been through an awful month of inflation; unfortunately, with inflation set to hit 10% in October, the worst is yet to come on the horizon.

Burberry maintains outlook for 2022

Anshula Kumar
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Burberry maintains outlook for 2022

Burberry reported a jump of 32% in adjusted operating profits followed by reaffirming its outlook for the year in the luxury fashion company’s preliminary results on Wednesday. Burberry’s results were in line with market and management expectations.

Burberry noted a 21% rise in revenue from £2.34bn to £2.83bn in 2022 with retail comparable store sales contributing through an 18% rise and full-price comparable-store sales seeing a 24% rise.

The group’s revenue jump was driven by the recovery from the pandemic whereas, the 18% rise in retail comparable stores was due to full-price sales which were slightly counteracted by the exit of markdowns in mainline and digital stores.

Burberry’s wholesale revenue generated £512m to the the total group revenue due to strong orders in Americas and recovery in Asia from travel retail, and licensing added £41m in 2022.

Total comparable store sales increased 6% as the pandemic caused disruptions in operations particularly in the fourth quarter of FY22.

However, Asia Pacific noted a 13% rise in comparable store sales with full-price sales noting an increase of 29%.

In Asia, Mainland China’s comparable store sales increased 37% and full-price comparable store sales was up 54%.

EMEIA comparable store sales dropped by 18% with full-price seeing an 11% decline owing to a slowdown in tourist shopping which generally contributes 50% of the total comparable store sales in the region.

Due to larger investments and “cost normalisation”, Burberry reported an 18% increase in operating expenses.

The group reported a 4% increase in operating profit to £543m and adjusted operating profit surged 32% to £523m which matched management expectations said the luxury fashion company. Burberry’s reported operating margin was 18.5%.

Pretax profit for Burberry recorded a 4% rise from £490m to £511m in 2022 out of which £396 was attributable to shareholders.

In 2022, the group generated £340m in free cash flow which was £9m lower than 2021 and noted a cash conversion of 106%.

Burberry declared an 11% rise in the annual dividend to 47p from 42.5p in 2021.

The cash generated from operating activities rose due to higher profits and strict management of working capital.

Burberry has confirmed its guidance of high single-digit revenue growth for 2022.

Gemma Boothroyd, Freetrade analyst, said,”New CEO Jonathan Akeroyd will be hoping that by winding up markdowns, the retailer will re-establish its exclusivity. But the only way that strategy pays off is if countries with high spending power play ball.”

“Akeroyd’s ability to hit the ground running heavily depends on demand from the Chinese market. Today’s results show the demand is there, the problem is, China’s Covid policies are out of his control.”

“China’s a long-term investment. Current Covid restrictions are short-term hurdles, but Burberry’s eyes are on the longer-term horizon. And it’s sensible. Akeroyd’s overarching goal is to reposition the brand, redefining its reputation.”

“That transformation won’t happen overnight. So investors still twiddling their thumbs on Burberry’s pre-pandemic share price recovery will be waiting a while still.”

BSF Enterprise completes artificial meat purchase

Andrew Hore
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BSF Enterprise completes artificial meat purchase

Standard list shell BSF Enterprise (LON:BSFA) has completed the reverse takeover of Newcastle-upon-Tyne-based tissue engineering 3D Bio-Tissues Ltd for £2.5m in shares. The shares immediately went to a premium.
The proposed deal was initially announced last August after the shell had been listed for around three years.
Since incorporation in November 2018, 3D Bio-Tissues has raised £711,000 in equity funding and government grants. 3D Bio-Tissues started out developing substitute corneas, but this is still al long way from commercialisation. Lab grown meat and skincare applications are likely t...

Bumper year for Angling Direct

Andrew Hore
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Bumper year for Angling Direct

Fishing tackle retailer Angling Direct (LON: ANG) managed to beat previously upgraded forecasts for the year to January 2022. There is further growth in the first quarter of the new financial year.

The stores were not open until April, while a cyber attack hit online sales for seven days later in the year. Revenues increased from £67.6m to £72.5m even though online sales fell. UK online sales increased but European online sales because of difficulties with prompt delivery. The new Netherlands distribution centre has opened in time for the peak spring season, and this will help European sales to recover and grow.

Pre-tax profit jumped from £2.7m to £4m, but this is not expected to be maintained. Singer forecasts a pre-tax profit of £2.8m on revenues of £82m in 2022-23.  

This is because gross margin is set to fall, although it will still be higher than in the years prior to 20221-22. Operating profit margin will fall below the 2020-21 level, mainly due to the lack of Covid grants and the return to normal business rates.

There are inflationary cost pressures, but management is confident that the additional demand coming through in the past couple of years can be maintained.

Cash

There are currently 42 stores, including Southampton and Cheltenham, which were opened in January.

There was £16.6m in cash at the end of January 2022, even though inventories have risen from £12.5m to £16.3m. Cash did fall to £13.4m by the end of April. This still leaves scope for further openings

Angling Direct has launched a web trading app in the UK. This will be rolled out with German, French and Dutch languages. First quarter revenues are 5.4% ahead, but the next two quarters are the important ones for the company. The share price rose 3.5p to 51.5p, which means that the shares are trading on 19 times prospective earnings. That seems high enough for the time being, although there is significant long-term potential.

India wheat export ban sends prices surging 5.9%

Natasha Doris
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India wheat export ban sends prices surging 5.9%

India declared a wheat export ban on Friday last week, after a devastating heatwave decimated grain production in the world’s second-largest wheat producing country.

The benchmark wheat index increased 5.9% in Chicago, representing a two-month high for the commodity.

The price of the grain has soared 40% year-to-date, as the combined impact of the war in Ukraine and India’s plummeting wheat harvest sent the price into the stratosphere.

The Indian administration commented that it would allow exports backed by letter of credit that were already issued, as well as to nations that submitted requests on the basis of “food security needs.”

The price rise has had a knock-on effect on the cost of noodles, cakes, bread and other wheat-based foodstuffs across the market.

The ban was issued in a bid to stop domestic prices from soaring, however the move has been condemned by agriculture ministers at the G7 meeting in Germany.

“If everyone starts to impose export restrictions or to close markets, that would worsen the crisis,” said German agriculture minister Cem Ozdemir.

“We call on India to assume its responsibility as a G20 member.”

India previously stated a target export level of 10 million tonnes of wheat between 2022-2023, however the weather damage put its plans on hold, particularly as the country’s well-stocked wheat reserves faced massive rates of depletion as its distribution of free grain to 800 citizens during Covid-19 ate into its stores.

Meanwhile, Putin’s war in Ukraine has seen Russia impose a blockade on Ukraine grain exports in the so-called “breadbasket of Europe”, with the region collectively producing almost 30% of the global wheat supply.

The crippled grain supply from Ukraine, Russia and India is set to see a fresh frontier of food insecurity hit the supply chain, as UK consumers brace for 10% inflation in October and for rising food prices to bite chunks out of their wallets going forward in 2022.

FTSE 100 gains as European stocks soar

Natasha Doris
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0
FTSE 100 gains as European stocks soar

The FTSE 100 was up 0.8% to 7,528.9 following a recent report from the Office of National Statistics (ONS) that job vacancies outnumbered unemployment figures for the first time on record and total pay across the UK rose 7%, sending investors surging on a wave of optimism.

The market was perhaps more grounded than it would have been, if not for Bank of England governor Andrew Bailey’s gloomy statement before cabinet ministers on Monday that the institution had exhausted its resources to tackle skyrocketing inflation, which is currently on track to reach 10% by October this year.

“This is not the message you want to hear from the Bank of England Governor. Andrew Bailey as a latter-day King Canute has told everyone he and the Bank are helpless in the face of runaway inflation,” said AJ Bell investment director Russ Mould.

“But despite this, and employment data showing a record jump in pay to underline his point, the FTSE 100 managed to start on the front foot on Tuesday.”

FTSE 100 Companies

Imperial Brands shares surged 7.4% to 1,840p after the company reiterated it FY 2022 profit guidance, and noted a stabilisation of its core Combustible business.

“Imperial Brands’ sales may have been flat in the first half but, if you put to one side the impact of its exit from Russia, it is notable that profit is up. Imperial has also been able to push through price increases and is generating mountains of cash,” said Mould.

Fresnillo shares gained 5% to 795.2p, Anglo American climbed 4.2% to 3,492p, Antofagasta increased 4% to 1,439p and Glencore rose 3.8% to 495.4p, with a strong Asian market lifting commodities on a sell-off on concerns related to Chinese interests.

“A decent session in Asia helped lift the mood with commodities stocks in demand after the recent sell-off on China-related concerns,” said Mould.

Tesco shares dropped 2.8% to 278.5p and Sainsbury’s shares fell 2% to 239.7p as Andrew Bailey’s comments on rising food inflation hurt sentiment as the market braced for higher wheat prices on the back of India’s wheat export ban, along with the almost 30% of wheat produced in Ukraine and Russia which remained locked in as war raged in the “breadbasket of Europe.”

“Food prices, which Bailey apologised for being apocalyptic about yesterday, remain in focus as the impact of India’s wheat export ban are felt and the conflict in the ‘breadbasket of Europe’ continues to rage,” said Mould.

“This will push up prices on supermarket shelves in developed countries but could have a more destabilising impact in emerging economies where food takes up a much bigger proportion of average incomes.”

A wide selection of consumer goods companies lost ground on the market, as rising inflation continued to bite chunks out of consumer wallets.

Unilever fell 1.8% to 3,663p, fashion group Next declined 1% to 6,465p and alcohol company Diageo slid 1% to 3,828p.

Small & Midcap Roundup: ContourGlobal, TI Fluid System, Corcel, Kinovo

Anshula Kumar
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0
Small & Midcap Roundup: ContourGlobal, TI Fluid System, Corcel, Kinovo

The UK’s Small & Midcap indices joined European indices in a strong rally with the FTSE 250 trading up 1% to 20,121 and the AIM All-Share index up 0.6% to 961.6 on Tuesday.

FTSE 250

ContourGlobal shares skyrocketed 32.5% to 256p after the group agreed to a £1.75bn takeover bid from Kohlberg Kravis Roberts & Co which is a US private equity firm.

“Power generation business ContourGlobal, which has struggled to gain traction on the stock market after a 2017 IPO, looks set to disappear from London as private equity firm KKR swooped for its portfolio of energy projects from across the world,” says Russ Mould, Investment Director, AJ Bell. 

“With Contour set to recommend the takeover offer, which is pitched at a healthy premium, the deal looks like a fait accompli at this stage.”

C&C Group shares rose 6.1% to 217.5p following the group’s final results in which it noted a pretax profit of £45.7m compared to a loss of £121.3m in 2021 due to restrictions easing and increased demand for the group’s drinks. C&C recorded a rise in revenue from £1.02bn to £1.79bn in 2022.

Wizz Air’s shares jumped 4.2% to 3,077p after the company revealed plans to apply to the EU Aviation Safety Agency and the Malta Civil Aviation Directorate for an air operator’s certificate and an operating licence for its Malta subsidiary. Wizz Air Malta, a new airline subsidiary in Malta, is expected to begin operations in October.

TI Fluid System shares fell 16.2% to 157.6p, following TI Fluid System’s trading update, which stated that margins in the first half of 2022 will be “modestly” lower than H2 2021 due to production problems due to conflicts in Ukraine and lockdowns in China, continued inflation, and a time lag on recoveries. However, the company stated that it expects to outpace revenue in 2021, but it did not indicate how much.

Tritax Eurobox shares fell 4.1% to 93.1p despite the group reporting a “strong” financial performance in H1 2022 due to signing leases on two assets worth €1.3m. The group’s pretax profit more than doubled from €41.2m to €109.2m and rental income rose 42% to €27.6m in 2022.

Britvic shares fell 1.1% to 845.5p as the group expects inflationary pressure and changing consumer behaviour to hurt sales in 2022. However, in its half-yearly results, the group noted a “strong” financial performance with a 17% rise in revenue from £617.1m to £719.3m. Britvic’s pretax profit soared 49% to £59.3m from £39.8m in 2021.

AIM All-Share

Abingdon Health shares were trading up 20.5% to 11.75p after the group signed a significant European contract with an unnamed European customer for £2.7m, to supply components for a Covid-19 rapid antigen test. The contract is currently for a period of 12 months with the option to extend later.

Corcel shares gained 14.3% to 1.4p following the announcement of the mining company completing its MRE on its Wowo Gap nickel-cobalt project in Papua New Guinea, a project it recently acquired.

The MRE proves Wowo Gap as a deposit of similar size and grade to Mambare, another company project in Papua New Guinea, where the deposit is predicted to contain 110m tonnes at 0.81% nickel for 891,000 tonnes of contained nickel and 0.06% cobalt for 66,000 tonnes of contained cobalt.

T42 IoT Tracking Solutions saw its shares climb 11.11% to 13p after the security firm for the freight industry announced a commercial order from Olimp Bulgaria, a global leader and exporter of security seals, for its tracking solutions and services.

Kinovo shares tanked 26.1% to 12.8p after the property services company announced its subsidiary DCB Kent has engaged two partners of CFS Restructuring as joint administrators. Kinovo is calculating the impact of DCB’s administration based on the funds it has advanced to the subsidiary to sustain its working capital, which is presently £3.7m.

Synairgen shares reversed 13% to 30.4p after the company stated that an analysis revealed higher treatment effects with SNG001 in high-risk patient sub-groups, with major impacts shown in individuals who had clinical evidence of reduced respiratory function on Monday.

Zytronic shares dropped 6.9% to 170p as the group announced the decision to not pay interim dividend in 2022, which is the same as 2021. However, the group did say they will consider a final dividend. Zytronic recorded a 23% rise in revenue to £5.9m and swung to profits of £399k from losses of £314k in 2022.

Vodafone sees a drop in profits

Anshula Kumar
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0
Vodafone sees a drop in profits

Vodafone Group announced a fall in annual pretax profit but saw revenue rise in its preliminary results on Tuesday.

Vodafone Group recorded a 4% increase in total revenue from €43.8bn to €45.6bn as a result of contributions from equipment revenue and growth in Europe and Africa.

The group said adjusted EBITDA rose by 5% from €14.4bn to €15.2bn owing to revenue growth, cost control and a legal settlement in Italy. The group’s adjusted EBITDA was within the management’s updated range.

Vodafone’s operating profit noted an 11.1% rise to €5.7bn from €5.1bn in 2021 as a result of higher adjusted EBITDA and lower depreciation and amortisation on the group’s assets.

The telecommunications company recorded a pretax profit of €3.95bn which was a 10% fall compared to €4.4bn in 2021 and said inflation may hinder results in 2022.

Vodafone stated basic EPS surged from 0.38 Eurocents in 2021 to 7.2 Eurocents in 2022.

The group noted a 5% rise in cash inflow from €17.2bn to €18.1bn in 2022 and net debt rose to €41.6bn from €40.5bn due to a €2bn share buyback programme to combat dilution linked to mandatory convertible bonds.

Vodafone declared a total dividend of 9 Eurocents which was the same 2021, and a final dividend of 4.5 Eurocents.

On Monday, e& acquired a stake in Vodafone which have had no impact on results and there has been no further updates since.

Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown said, “Vodafone’s shares were down 3% after the market opened this morning, as investors sounded a tepid response to full year results. While the underlying operational performance was sturdy enough, the market was clearly expecting more.

“Subdued sentiment may well be coming from the warning that Vodafone isn’t immune to the wider macroeconomic challenges we’re seeing. Either way, the group has recently acquired a new largest shareholder, in the form of Emirates Telecommunications, which now owns 9.8% of Vodafone.” 

“Emirates Telecommunications has said this isn’t the beginnings of a takeover bid, and is supportive of Vodafone’s position. The premium paid for the stake suggests there is indeed a lot of faith in a turnaround for the battered Vodafone group.”

“While progress is steady, it’s hard to get away from the fundamental truth for telecoms – there is very little to differentiate from competitors in any real way other than price. That keeps a lid on margins. Full year results haven’t been a disaster, but they aren’t exactly shiny either.”

JLEN shares rise on 14.6p NAV increase

Natasha Doris
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0
JLEN shares rise on 14.6p NAV increase

JLEN shares were up 0.6% to 120.3p in late morning trading on Tuesday following a quarterly NAV growth to £762.9 million, amounting to 115.3p per share and representing a 14.6p rise since 31 December 2021.

The company attributed its uplift to a selection of drivers, including power prices, which saw a dramatic rise over the past 12 months and brought summer 2022 prices to almost triple the rates from April 2021 to March 2022.

Gas prices reportedly increased more than 500% in the same period, before dropping down to 300% higher in April 2022.

JLEN added that its green energy assets such as solar and wind grew its NAV by 5p, alongside a further 8.4p uptick generated by changes in electricity price assumptions at two bio-energy projects, which were previously held at acquisition cost in its 31 December 2021 valuation.

The assets were reported as an ETA Energy-from-Waste resource in Italy, and Cramlington biomass in the UK, both of which were baseload generators with limited fixed price contracts at the time of acquisition, resulting in strong positioning to benefit from recent rises.

JLEN confirmed its MWh basis across electricity and gas generating assets was 76% fixed for summer this year, 64% fixed for winter and 47% fixed for summer 2023, representing a high level of firm confidence for revenues.

Inflation played a key role, with the combination of higher actual and near term inflation adding 2.6p to the group’s NAV.

Discount rates reportedly reduced for onshore wind projects, in line with observed market benchmarks, and the discount rate for the company’s investment in low-carbon refuelling infrastructure was also reduced on the satisfactory rollout of new sites.

The investment firm added that a risk premium had been added to the discount rate for its Cramlington asset, due to its sensitivity to near term electricity prices, however the group expected the premium to be removed progressively as uncertainty around actual prices captures decreased.

Cramlington currently has 50% of merchant revenues fixed for summer in 2022.

JLEN commented that the net effect of changes to discount rates was to grow the NAV by 1p.

The investment firm announced a quarterly dividend of 1.7p per share, which amounted to a total dividend of 6.8p per share combined with the 5.1p dividends paid out in the current financial year, in line with the company’s target dividend listed in its 2021 annual report.

JLEN also announced a rise to the target dividend for the next financial year of 5% to 7.14p per share for its 2023 financial year.

40% of UK investors fail to conduct adequate research, says FCA

Natasha Doris
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4
40% of UK investors fail to conduct adequate research, says FCA

A surprising 40% of financial investors report wishing they had spent more time researching their investments, according to research conducted by the Financial Conduct Authority (FCA) and Financial Services Compensation Scheme (FSCS).

The report found that 42% of young UK investors between 18-24 made their latest investment while sitting in bed, watching streaming entertainment, spending time at the pub or returning from a night out.

Lack of Investment Research

The FCA and FSCS commented that the environment investors made their portfolio decisions in made them highly susceptible to scams and false investment opportunities, leaving them vulnerable to having their money funnelled off in illegitimate offers.

Approximately 44% of the 37% of adults actively participating in the investment field said they regretted not spending more time researching their investments, however respondents pointed out that they didn’t conduct adequate research due to finding the exercise too complicated and time-consuming.

“With almost two in five adults holding investments in the UK, it’s clear there’s a growing appetite to start investing as online platforms are making it easy and accessible for everyone,” said FSCS spokesperson Lila Pleban.

“But as our findings show, carving out time to research and look into investment opportunities is not always top of people’s to-do lists and unfortunately, puts them at a higher risk of being scammed or putting their money with an unprotected platform or provider.”

Fraud Risk

The organisations also highlighted that 27% of investors confirmed that they were more likely to invest in an offer with a limited time frame, which is a common scare tactic used by scammers to drive investors to finance a scheme without conducting adequate research into the opportunity.

The FCA directed investors to check out investment schemes on the FCA Warning List to see if the venture is running without government authorisation.

Concerningly, 22% of respondents said they hadn’t confirmed if their investment was FSCS-protected, which would have provided a scammed investor with up to £85,000 in compensation from the FSCS against any FCA authorised firm which has failed.

The FSCS urged investors to use its recently launched Investment Protection Checker tool, which consumers can use to check if their investment is protected.

“While FSCS can’t offer protection for consumers if they are the victim of a scam, our new Investment Protection Checker offers an easy and quick way for consumers to check whether the investment they are looking to make is protected – empowering them to make informed decisions about where to put their money,” said Pleban.

The FCA also highlighted available information to brief investors with typical fraudulent tactics on investment offers on its ScamSmart page online.

“Fraudsters will always find new ways to target consumers, so make sure you do your homework and spend some time doing research,” said FCA director of enforcement Mark Steward.

“Just a few minutes can make a big difference to your investment choices.”

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