The FTSE 100 was marginally higher on Wednesday as defensive names provided support for the index amid softness in commodity companies.

It would be a little dramatic to label today’s move into defensive companies a broad rotation into safe havens away from cyclicals, but there is definitely a mild risk off tone within the FTSE 100 index.

Utility and pharmaceutical companies were among those heading up the leaderboard while banks and mining companies were having a weaker session.

The defensive nature of the FTSE 100 meant it looked set to outperform peer indices amid a slowdown in the China rally and questions about growth and interest rates creeping back into the narrative.

“The wave of enthusiasm which greeted the kitchen sink stimulus from the People’s Bank of China is ebbing away, given the lack of detail for further fiscal stimulus. Banks in China might be ready to lend, with lower rates and deposit requirements on offer, but if the demand isn’t there, it’s still set to hold back an economic rebound,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“Investors had been hoping for more details on an expected fiscal stimulus, hoping tax breaks would reinvigorate consumers and companies to borrow, but the vague plan put on the table yesterday by authorities disappointed.”

Mondi was the top riser after announcing an acquisition of a Western European-focused Schumacher Packaging which is thought to increase Mondi’s capacity by over 1 billion square meters.

“Mondi has wasted no time in expanding its empire since pulling out of the race to buy rival packaging firm DS Smith earlier this year,” said Russ Mould, investment director at AJ Bell.

“It’s struck a deal to buy European assets from Schumacher Packaging, boosting its capacity to make sustainable packaging which is increasingly in demand from customers taking a more environmental approach to their business. The deal put Mondi near the top of the FTSE 100 leaderboard.”

Investors may be rubbing their eyes today with Rio Tinto also announcing an acquisition in a welcome change to the onslaught of overseas entities swooping in on UK companies.

Rio Tinto is bolstering its exposure to lithium through the acquisition of Arcadium Lithium in a $6.7bn deal.

“This is a classic attempt to buy the dip for Rio, snapping up some high-quality Lithium assets when spot prices are around 80% down on their highs,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown

“It’s a good time to shop for counter-cyclical assets, and this deal helps propel Rio’s lithium portfolio to new heights, with it already having exposure through its Rincon and Jadar projects. This so-called white gold, a key component in the energy transition with uses in areas like electric vehicles, is the material that differentiates Rio from key rivals like BHP.”

The Trading Update issued by the Greencore Group (LON:GNC) yesterday showed continued strong momentum in the convenience foods maker’s final quarter of its year. 

As well as upping its market guidance, it was positive enough in its content to see its shares close up nearly 9% better at 196p. 

And I believe that there is even more upside to go for. 

The Business 

As one of the leading manufacturers of convenience foods in the UK, it supplies all of the major supermarkets in the UK, as well as supplying convenience and travel retail outlets, discounters, coffee shops, foodservice and other retailers.  

The Dublin-based Greencore Group has strong market positions in a range of categories including sandwiches, salads, sushi, chilled snacking, chilled ready meals, chilled soups and sauces, chilled quiche, ambient sauces and pickles, and frozen Yorkshire Puddings. 

CEO Dalton Philips stated that: 

“The Greencore team delivered an outstanding performance with our FY24 results now expected to exceed current market expectations.  

Providing high-quality, fresh and healthy food to our customers every day is at the heart of what we do.  

As we enter the new financial year, our focus remains on making really great food, rebuilding our profitability, and positioning Greencore to be the UK’s leading convenience foods manufacturer.  

We’ll share more detail at our FY24 results in early December and will use our Capital Markets Day in early 2025 (5^th February) to outline our medium-term growth strategy.” 

The Trading Update 

Ahead of publishing its Final Results on Tuesday 3^rd December, the group stated that its like-for-like revenue growth for Q4 was up 3.7% year-on-year driving the year’s revenue growth up 3.4%.  

The group guided the market that it expects to report FY24 revenue of around £1.8bn.  

“Q4 LFL volume performance was encouraging given some of the seasonal factors encountered, with almost all categories experiencing some LFL volume growth. 

Profit conversion during Q4 was ahead of our expectation and the Group now anticipates FY24 Adjusted Operating Profit will be ahead of current market expectations and in a range of £95m-£97m. 

This was as a result of continued strong focus on improving returns across our portfolio, other commercial initiatives and enhancing operational efficiency for key areas, such as labour and waste, across our network.” 

Analyst Views 

Sector analysts Clive Black and Darren Shirley, at Shore Capital Markets, raised their estimates on the group, by 5% for the 2024 year and by 6% for the current year. 

They state that they are:  

“most excited by what management may speak to the medium-term direction of the Group; with the change programme costs in tow.  

Ongoing, such delivery implies further earnings progress, a new dividend policy to come and maybe some ideas to build the business too.  

There could be a lot to like, which should also support and maybe further expand its rating.  

Pleasing stuff.” 

Their estimates for the end-September 2024 year are now for revenues of £1,799m (£1,914m), with adjusted pre-tax profits of £74.0m (£55.5m), lifting earnings to 11.6p (8.9p) and paying a 3.9p (nil) dividend for the year. 

For the current 2025 year they see £1,835m sales, £78.5m profits, 12.6p earnings and a 4.2p per share dividend. 

The duo has figures for 2026 showing £1,873m revenues, £85.0m profits, 13.7p earnings and a 4.6p dividend. 

In My View 

In late March this year, I considered that this group was a real generator of value, and at 112.90p, that its shares were under-rated and offered a bargain to new investors. 

In late July, I commented that this group’s shares rated as being a very attractive medium-term growth investment, they were then 180p. 

Now at 196p the group is valued at £886m, that is up over 73% in just over six months. 

The dimensions of this group really are very impressive. 

On the basis of the analyst estimates, I am predicting that they will soon be trading in the 200p/225p price range – possibly within the next six months, before breaking even higher in price. 

Rio Tinto is seeking to bolster its lithium portfolio with the acquisition of Arcadium Lithium in an all cash deal after a period of weakness Arcadium shares.

The $5.85 per share deal presents a 93% premium to Arcadium Lithium’s share price 4th October.

Arcadium has built an attractive vertically integrated lithium business with assets ranging from the Salar del Hombre Muerto lithium salt brine facility in Argentina to the Naraha facility in Japan that converts lithium carbonate feedstock into purified battery-grade lithium hydroxide.

Although some may see the deal as opportunistic, it is fascinating in as far as Rio Tinto is one of very few diversified miners to make big in roads into lithium.

“This is a classic attempt to buy the dip for Rio, snapping up some high-quality Lithium assets when spot prices are around 80% down on their highs. It’s a good time to shop for counter-cyclical assets, and this deal helps propel Rio’s lithium portfolio to new heights, with it already having exposure through its Rincon and Jadar projects,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.

“This so-called white gold, a key component in the energy transition with uses in areas like electric vehicles, is the material that differentiates Rio from key rivals like BHP. 

“The price will be scrutinised, at a touch under 20% of where Arcadium was trading when the company was formed in January, it’s not quite a bargain, and investors in the commodity world tend to take a dim view of M&A at the best of times. Arcadium is currently free cash flow negative, due to low prices and high investment in new projects, so Rio will have some work to do if it wants to turn this into an accretive buy – and that won’t happen immediately.”

The FTSE 100 dropped on Tuesday as investors trimmed their positions in mining companies as a China-induced rally in commodity companies paused for breath.

London’s leading index was down over 1% at the time of writing, with the lower end of the leaderboard dominated by mining companies and other China-focused companies.

“Beijing’s ‘whatever it takes’ economic stimulus programme continued to drive a strong rally in Chinese shares. Shanghai’s CSI 300 index jumped another 5.6% as trading resumed after a week-long holiday, with healthcare, technology and industrials leading the charge,” said Russ Mould, investment director at AJ Bell.

However, Mould continued to explain that while mainland Chinese stocks were in full-blow euphoria, there were doubts evident in Hong Kong indices, which were too much for UK investors to handle, and China-focused miners were dumped on Tuesday.

“The market wants firm details on fiscal stimulus which hasn’t been forthcoming. It explains why some cracks were starting to appear in the China euphoria, with Hong Kong’s Hang Seng index slipping back 7% as investors trimmed positions in consumer-facing companies, real estate and financials,” Mould said.

“You can tell some scepticism is already creeping in, given how the mining sector was firmly in the red on Tuesday. Metal producers have been keeping their fingers crossed for stronger demand from China following a miserable time for industrial commodity prices of late. However, the negative share price performance of Antofagasta, Rio Tinto and Anglo American would imply that China’s latest economic stimulus measures might not live up to the initial hype. Or it might simply be canny investors locking in some of the recent gains on the stocks just in case we see a broader pullback.”

Anglo American was down 5% while Antofagasta dropped 4.9%.

Vistry

Vistry was the FTSE 100’s top faller after the group issued a disappointing update on costs, which has rocked shares on Tuesday. Vistry shares were down 22% on the news it was lowering its profit forecasts due to the miscalculation of build costs at several of its development sites.

“Vistry announced its first major misstep this morning since changing its strategy away from traditional housebuilding. Its new Partnerships model focuses on teaming up with local authorities to provide affordable housing, which has seen the group buck the trend of a housing market slowdown in recent times,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.

“But it’s come to light that total costs at 9 of its roughly 300 developments have been understated by around 10%. That may not sound like much, but as a result, Vistry’s underlying pre-tax profit expectations have been wound back by £80mn, £30mn and £5mn for the current and following two years respectively. That marks a nearly 20% hit to what market forecasts had pencilled in for this year, and Vistry now expects underlying pre-tax profits of around £350mn for the full year.”

Imperial Brands share were higher on Tuesday after the tobacco and tobacco alternative group demonstrated it is still a reliable source of income for investors. 

Despite a broad decline in the number of smokers in the western world, Imperial Brands is managing to pivot and realign its business to maintain very attractive shareholder distributions.

Investors will also be pleased to see Imperial Brands can offset the impact of lower combustibles volumes with higher prices.

The company has prepared for a rapid reduction in the number of people who smoke traditional cigarettes by building a presence in alternatives such as vapes. 

Traditional cigarettes still make up a large proportion of the group’s revenues, but a 20-30%% forecast increase in the sales of new-generation products shows where the business is going. 

“Imperial Brands is managing to drive growth not only in its fledgling next generation brands, but also in ‘legacy’ tobacco products which still make up the lion’s share of the business,” said Derren Nathan, head of equity research, Hargreaves Lansdown.

“In aggregate, tobacco volume pressures have eased across the company’s focus markets, and despite slowing price hikes for the pleasure of lighting up, pricing has been strong. However, market share declines in Germany and the UK remain a source of concern. 

“In Next Generation Products, net revenue growth is expected to land between 20-30%, suggesting a significant acceleration over the second half, boosted by a swathe of new product launches in vapes, non-tobacco options and oral pouches.

“Imperial’s execution and narrowed focus on core markets are helping it keep organic growth moving when larger rivals have been going in reverse. It’s confident of meeting expectations for the year just ended, with underlying operating profit growth firmly in the mid-single digit range.”

The high price-to-earnings ratio of the shares of Netcall (LON:NET), standing at some 26 times pe does not put me off having a very positive view of its prospects. 

In fact, I am looking forward to seeing just what the leading provider of intelligent automation and customer engagement software reports tomorrow morning when it is due to be announcing its 2024 Final Results. 

The Business  

The UK-based enterprise software company helps organisations achieve digital transformation.  

The group’s Liberty software platform, with its Intelligent Automation and Customer Engagement solutions, helps organisations to digitally transform their businesses faster and more efficiently, while empowering them to create a leaner, more customer-centric business.  

Its AI-driven tools enable users to transform at speed, it can automate processes and streamline workflows while making the managing of tasks and customer engagement easier, quicker and more productive.  

Netcall’s customers span enterprise, healthcare and government sectors.  

These include two-thirds of the NHS Acute Health Trusts and leading corporates including Legal and General, NCP, Lloyds Banking Group, the BBC, Aon, Nationwide and Santander. 

Recent Trading Update 

On Thursday 18^th July, the company issued a Trading Update for the year to end-June, it confirmed strong trading, with results expected to be in-line with market expectations.  

The consensus market expectation for the 2024 year is for revenue of £39.1m, with adjusted EBITDA of £8.1m and net cash of £28.9m. 

Latest Acquisitions 

On Wednesday 7^th August the company announced the £13m earnings enhancing acquisition of a digital process automation company called Govtech Holdings, which has a complementary offering to Netcall’s existing suite of Liberty solutions, expanding the portfolio and increasing the group’s customer base within Local Government. 

This technology company specialises in digital process automation, with a strong focus on local government revenues and benefits processes.  

Its platform handles approximately 30m transactions annually, achieving up to 80% automation for its customers.  

This high level of automation results in significant productivity savings, with up to a 50% increase in efficiency for revenues and benefits teams, leading to an improved citizen experience and faster service delivery. 

It serves around 50 local authorities including Leeds City Council, The City of Edinburgh Council and Bristol City Council.  

On Monday 16^th September, Netcall acquired Smart & Easy NV, trading as Parble, a provider of intelligent document processing software for €8.7m. 

This deal will extend the group’s footprint outside the UK and increase its exposure to the financial services sector. 

Analyst Estimates 

At Canaccord Genuity Capital Markets, its analysts Hayley Palmer and Kai Korschelt have a Buy note out on Netcall, looking for 130p as their Price Objective. 

They look for the year to end- June to show revenues of £39.1m (£36.0m), with adjusted pre-tax profits of £7.2m (£6.5m), generating earnings of 3.3p (3.1p) and a dividend of 0.9p (0.8p) per share. 

For the year now underway they go for £47.5m sales, £8.0m profits, earnings of 3.7p and a 1.0p dividend. 

Harold Evans, analyst at Singer Capital Markets, also has a Buy for the shares, with 140p as his Price Aim. 

His estimates for 2024 are very similar, while he looks for £47.4m revenues this year, £7.7m profits, 3.7p earnings and a 0.97p dividend per share. 

In My View 

As I stated at the top of this article, this group’s high pe ratio does not disturb me. 

Estimates by the brokers suggest that the group at the end of this year, to end-June 2025, will have some £27m of cash in the bank, which gives it a far buffer as it continues upon its strategic acquisition programme.  

Having been up to 100p in March this year, its shares now at 85.5p, value the group at £141m.  

I agree with the analysts that the shares are a Buy. 

GenIP shares rose in early trading on Tuesday after the Generative AI analytics company announced a sharp increase in sales.

According to a market update released on Tuesday, GenIP has already sold 40% of a year’s revenue for its legacy product in just one month since the launch of its Generative AI services.

GenIP shares were up 8% at the time of writing.

The company said they were ‘encouraged’ by early orders which included a Fortune 500 technology company doubling its order rate.

“We are highly encouraged by the strong demand for GenIP’s Generative AI analytic services over the past five weeks, with total orders amounting to approximately $121,000,” said Melissa Cruz, CEO of GenIP.

“We remain laser-focused on building on this momentum, expanding our client base, and delivering our services to research organisations globally.”

The current rate of orders suggests annualised revenues of around £1m, which implies a forward price-to-sales ratio of just 5x at the current share price for GenIP. Technology companies tend to trade at 10x, suggesting an element of value in the current share price.

When you take into consideration the new Gen AI services were launched just one month ago and the company is in ongoing discussions with new and existing customers, it’s not inconceivable GenIP’s sales will be a lot higher over the following one year period.

Indeed, the company said its ‘anticipates the level of new orders from current and new customers to grow’.

While the UK equity market is still getting comfortable with this company, recent orders suggest that GenIP’s clients are more than comfortable with its service.