FTSE 100 sinks to lowest levels since July

Liam Roche
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FTSE 100 sinks to lowest levels since July

The FTSE 100 started this week in the same way it ended the last one one as the index drops firmly below 7,000 to its lowest level since July.

The UK index is down by 1.27% on Monday morning, dragged down by the mining sector.

“There’s plenty for the market to fret about and those arguing the markets were looking frothy are seeing some of that froth disappear as a brewing crisis in China, surging gas prices in Europe and concerns about stagflation combine to sink stocks,” said Russ Mould, investment director at AJ Bell.

“The ‘don’t panic’ message from the Government on energy prices is starting to sound worryingly like Corporal Jones from Dad’s Army as the UK faces a whirlwind whipped up by low levels of energy storage, huge global demand for LNG and Vladimir Putin’s machinations as the amount of gas pumped from Russia is constrained.”

There is fear is that in adding to inflationary pressures, it could threaten the UK’s recovery from the pandemic.

“More significant from the perspective of world markets is the concerning situation with huge Chinese property developer Evergrande which appears to be teetering on the precipice with concerns about contagion from the situation infecting the wider economy in China.”

“This is particularly bad news for miners. Any downturn in China would have significant implications for commodities demand given its status as the world’s largest consumer of many minerals and metals. The situation also has uncomfortable echoes of 2015 when fears about Chinese debt prompted a big and broad-based market correction.”

FTSE 100 Top Movers

AstraZeneca (3.03%), Sainsburys (2.11%) and Polymetal International (2.01%) are leading the way on the FTSE 100 at the beginning of the week.

Trailing the pack is Prudential (-7.33%) along with miners Anglo American (-6.83%) and Glencore (-4.63%).

SSE rules out breakup

Liam Roche
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0
SSE rules out breakup

SSE to release results in November

SSE, the utility company, has confirmed it has not reached a decision to break up despite pressure from activist hedge fund Elliott Management.

“Following recent reshaping of the group, SSE’s clear strategic focus is on renewables and regulated electricity networks, supported by carefully chosen businesses,” SSE said.

“The board remains fully focused on strategic choices which will drive shareholder value from the wealth of net zero opportunities the company is creating.”

Until now, there has been speculation that SSE’s three parts – the thermal power stations, the transmission grid and the renewables – as Elliot Management has acquired a stake.

The FTSE 100 energy firm confirmed on Monday that it will give an update on its strategy in the half-year results in November.

SSE will not spilt into three despite its focus being on renewables, particularly wind, as Britain strives to be net-zero.

“We have been making excellent progress with our clear net zero-aligned strategy, centred on electricity networks, renewables and other carefully chosen businesses that help provide the low-carbon electricity infrastructure that government and wider society requires,” said chief executive Alistair Phillips-Davies.

“SSE is the UK’s national low-carbon energy champion, delivering for both our shareholders and society and we look forward to updating investors on our plans to accelerate growth and create value in due course.”

Evergrande share prices drops to 11-year low as risk of default nears

Liam Roche
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0
Evergrande share prices drops to 11-year low as risk of default nears

Regulators warn of the risks to the nation’s wider financial system

The Evergrande share price has dived by nearly 20% on Monday, reaching its lowest point in over 11 years.

Investors are increasingly showing concern over the businesses’ future prospects as the deadline of its debt obligations fast approaches.

At midday, shares in Evergrande were as low as HK$2.06, its lowest since May 2010.

China‘s second-largest property developer has been trying to figure out a way to pay its numerous lenders, investors and suppliers, as regulators have warned of the risks to the nation’s wider financial system if is not able to meet its $305bn liabilities.

Hong Kong’s stock market dipped on Monday and even spread to Europe as the growing liquidity crisis at Evergrande appears to be spreading to other sectors.

Property firms in China and Hong Kong were among those seeing the biggest falls.

Hong Kong’s Hang Seng index was down by 3.5%, meaning the benchmark is down by almost 12% this year.

“Evergrande is just the tip of the iceberg,” said Louis Tse, managing director at Wealthy Securities, a Hong Kong-based brokerage.

“That affects the banks as well — if you have lower property prices what happens to their mortgages?” Tse said. “It has a chain effect.”

Marley on course for premium listing

Andrew Hore
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Marley on course for premium listing

Rooftiles manufacturer Marley is returning to the London market. A registration document has been published ahead of a premium listing.
Marley, which has been trading for nearly a century, was previously listed and acquired by building materials supplier Etex in 1999. It was merged with Eternit. In 2019, Inflexion acquired the business. Marley has diversified into roof-integrated solar panels through the purchase of Viridian.  
Marley is the largest manufacturer of roofing tiles in Britain, and it accounts for more than one-fifth of the market. It has eight production and distribution fac...

Duke Royalty starts to invest cash pile

Andrew Hore
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Duke Royalty starts to invest cash pile

Duke Royalty (LON: DUKE) has produced record results and once it invests the cash raised earlier this year the income should increase significantly. That means that dividends will rise as well.
Duke provides capital to a range of businesses. In return Duke gets a royalty stream that can generate cash flow to pay dividends.
The royalty deal can last for up to 40 years and the initial yield is 12%-14% of capital. Due diligence is done on the business to ensure that this can be paid out of cash flow. The company can buy back the royalty after three years by paying the initial principal plus a 20%...

Will the Lloyds share price reach pre-pandemic levels?

Liam Roche
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0
Will the Lloyds share price reach pre-pandemic levels?

Lloyds Share Price

Heading into June the Lloyds share price (LON:LLOY) was in a good place, approaching its level from before the pandemic. However, having reached a high of 50p per share, it is come down over recent weeks, and now sits at 44.9p, with its future outlook looking uncertain.

It is a far cry away from years gone by, for example, in February 2019, when the Lloyds share price was above 60p and investors received a bumper dividend. While then, shareholders would have been smiling, now it may not be so. This calls into question the long-term credentials of the major UK bank.

Having said that, one analyst sees potential for Lloyds to get back to its level in early 2019.

Analyst’s View

Out of all the UK banks, Lloyds is the most deserving of an upgrade, according to UBS.

UBS has given Lloyds a ‘buy’ recommendation and said it is the standout option in the sector.

“We expect strong deposit growth; rebounding consumer credit; and rising interest rates to lead to substantial growth in UK net interest income in the next two years which is not captured in consensus nor current valuations,” analyst Robert Noble said in a note.

The note comes as authorities in the UK consider updating banking rules, which could involve easing restrictions on the sector.

Glencore share price: Morgan Stanley analyst gives bullish rating

Liam Roche
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0
Glencore share price: Morgan Stanley analyst gives bullish rating

Glencore Share Price

The Glencore share price has performed outstandingly well over the past year, adding 80.43% in that time period. It is even separated itself from other miners in the FTSE 100 with the size of its gains.

The mining giant has pledged to making a generous payouts while its new CEO is putting the company on the path to a low-carbon energy future.

While this is certainly the medium to long-term plan, the Glencore share price could receive a welcomed boost in the short-term, according to an analyst from Morgan Stanley.

Analyst’s View

Coal is somewhat of a taboo in the world of investing. Companies, it seemed, were gradually transitioning away from using the commodity as it becomes unpallatable and unprofitable. However, Morgan Stanley, having analysed Glencore, feels record coal prices could lead the mining company to “outsized returns”.

An analyst at the investment bank is of the view that Glencore will continue to perform well thanks to favourable economic conditions despite issues surrounding coal.

“In spite of thermal coal’s medium-term demand headwinds, current record prices are evidence that ‘commodities of the past’ can have sharp up-cycles and generate record margins, absent meaningful supply growth,” the analyst said.

“Current supply constraints look likely to persist through first half 2022 with demand remaining robust on winter restocking in key markets.”

“Our commodities team sees upside risks to their estimates and expects tightness into 2022. This is enabling coal producers to generate significant profit margins.”

Morgan Stanley gave Glencore an ‘overweight’ rating, along with a price target of 360p. This suggests an 8.4% increase in the current value of 332p.

Elon Musk attracts young people as buyers and investors

Liam Roche
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0
Elon Musk attracts young people as buyers and investors

Young investors drawn to ‘businesses of the future’

Tesla is a unique company, not only from an innovation perspective, but because of its ability to attract non-traditional investors.

On of the key reasons for this phenomenon is the personality of its CEO Elon MusK.

That is the view of Peter Garnry, Head of Equity Strategy at Saxo, who spoke about the powerful appeal of electric vehicle stocks – in particular Tesla – on investors.

“In many ways, Elon Musk is a great showman. He captivates his audience and he’s telling a narrative that many young people can relate to, which are both the new buyers of electrical vehicles and the new class of retail investors,” said Garnry.

In addition, Tesla, and other electric vehicle companies, are seen as the companies of the future, and there is a reason for people’s desire to invest, beyond Musk’s ability to do marketing.

When it comes it electric vehicles, Tesla is the standout operator, while year-to-date, the Tesla share price is up by a mere 3.73%.

However, Tesla is not the only electric vehicle manufacturer that interests young future-oriented investors.

Garnry says Nio, the Chinese EV manufacturer, is another popular choice among investors, “but if you want to expose yourself to the industry and not be focused on which of the manufacturers win the arms race, you could look at battery producers”.

“Traditionally car manufacturers have owned the intellectual property on which a car has been built upon. But this is bound to change with electric vehicles gaining ground, because the battery technology will be owned by the battery producers and not the car makers.”

Big changes expected for UK’s traffic light system

Liam Roche
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0
Big changes expected for UK’s traffic light system

Airline stocks react positively to the news

Updates to international travel rules are expected to be announced by the UK government later on Friday.

It has been reported that ministers are considering getting ride of the necessity for those who have received two jobs take PCR tests when they return home.

There are also rumours that the amber list will be removed as the traffic light system looks set to be simplified.

Dozens of countries could be removed from the red list, meaning international travellers returning from those destinations will no longer have to quarantine for 11 nights.

As of now, there are over 60 countries on the red list.

Travellers who have not been fully vaccinated are currently required to quarantine upon returning from an amber list county to the UK.

However, by removing amber as a category, only passengers returning from countries on the red list would need to quarantine in a hotel approved by the government.

“Navigating the UK’s traffic light system has felt more like Spaghetti Junction than a clear open road for holidaymakers and reports that the amber list could be canned entirely is manna from heaven for travel stocks which are enjoying broad-based gains,” said Russ Mould, investment director at AJ Bell.

The IAG share price is leading the way on the FTSE 100 on Friday, having added 4.29% at the time of writing.

FTSE 100 makes solid start on Friday as travel stocks fly

Liam Roche
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0
FTSE 100 makes solid start on Friday as travel stocks fly

The FTSE 100 added 0.38% on Friday, rising 7,055, as economic news came in from all angles.

“Steadying Asian markets and a potential easing of UK travel restrictions provided the backdrop for some decent gains for the FTSE 100 on Friday,” says AJ Bell investment director Russ Mould.

“Navigating the UK’s traffic light system has felt more like Spaghetti Junction than a clear open road for holidaymakers and reports that the amber list could be canned entirely is manna from heaven for travel stocks which are enjoying broad-based gains.”

The hope for airlines and tour operators will be that a shift in the rules is the precursor to people jetting off for autumn and winter getaways to get the sunshine they were largely deprived off over the summer in the UK.

“People spending more on holidays could add to the pressure on retail sales as spending shifts from goods to experiences,” said Mould.

“August’s retail numbers were hit by shortages, though the big retailers were able to flex their muscles to keep stock on the shelves.”

An exception to the otherwise downbeat shopping trends were clothes and fuel, as people are out and about more they clearly care more about their appearance and are using their cars to get from A to B.

“Elsewhere, the Chinese economy is becoming a persistent migraine for the markets amid concerns over the real estate sector as major property developer Evergrande teeters on the brink of default and with the spread of the Delta variant and state crackdown on the tech sector also undermining sentiment,” Mould said.

FTSE 100 Top Movers

IAG (3.39%), Informa (3.21%) and Entain (2.54%) are leading the way on the FTSE 100 heading into the weekend.

While it was generally a positive day for the UK index, Anglo American (-3.35%), Rio Tinto (-2.32%) and Ashtead (-1.96%), were all in the red.

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