Bank of England outlines climate stress test for banks and insurance companies

Liam Roche
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Bank of England outlines climate stress test for banks and insurance companies

Test will analyse the ability of the UK’s major banks and insurers to adapt to the shift towards a net-zero emissions economy

The Bank of England outlined its stress test of the ability of the UK’s financial system to deal with the threat of climate change on Tuesday.

It added that the findings will not yet be used to determine capital requirements.

The central bank’s test will analyse the ability of the UK’s major banks and insurance companies, including HSBC, Barclays and Aviva, to adapt to the shift towards a net-zero emissions economy over the coming years, in addition to the impact of extreme weather conditions.

As the test is relatively new it will not compile results on individual firms at this stage and is set to publish its findings in May 2022. Although this date could be sooner.

The test involves three specific scenarios that cover 30 years. Firstly it will look at early action by governments across the world to reduce emissions, then action that is late, and finally the prospect of taking no additional action.

These scenarios will be judged using two criteria. Firstly, physical impacts, including fires and floods, and financial risks, such as a dramatic change in asset values or the price of carbon.

Responding to the publication of the Bank of England’s climate stress test scenarios this morning, Positive Money senior economist David Barmes said:

“The Bank’s climate scenario analysis may be a useful exploratory exercise, but it’s time to move from exploring to acting. Scenario analysis is incapable of accurately measuring highly complex climate-related financial risks, and we already know enough about the dangers of the climate crisis to justify regulatory action now,” Barmes said.

“It is concerning that the Bank of England appears to be ruling out using climate stress tests to help inform changes to capital requirements. Climate capital rules that reflect the high risk of fossil fuel investments are a necessary inevitability to ensure financial stability and alignment with the government’s climate plans, and the Bank needs to be introducing such policies without delay.”

“By delaying the implementation of climate capital rules, the Bank is undermining its duty to protect financial stability and support net-zero.”

FTSE 100 benefits from sterling’s retreat despite summer slowdown

Liam Roche
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FTSE 100 benefits from sterling’s retreat despite summer slowdown

Adding at best 0.27%, the FTSE 100 was sat just below 7,100 after the bell, kept from that level by the 0.6% and 1.2% losses for BP and Shell respectively.

“The summer slowdown felt in effect this Tuesday, with Europe barely able to raise its head from the pillow,” said Connor Campbell, financial analyst at Spreadex.

The index benefited from sterling’s retreat. Cable was down 0.3%, and back below $1.414, while against the euro the pound dipped 0.1% to €1.1619.

The Eurozone was even more lethargic, with the DAX down 0.1% and the CAC up the same amount.

“There’s still a flurry of data from the region that could case a shift. The Eurozone-wide ZEW economic sentiment reading is set to rise from 84.0 to 85.5, while the German-specific equivalent is eyeing a jump from 84.4 to 86.0. The revised Q1 GDP reading, however, is set to remain at -0.6%,” said Campbell.

“At present the Dow Jones doesn’t look interested in upping the ante this afternoon. The futures have the index down 0.1%, and hovering around 34,600. That leaves the Dow within reach of its 35,000 all-time highs, but perhaps reticent to near that level until it gets a gander at Thursday’s inflation data.”

FTSE 100 Top Movers

Intermediate Capital Group (5.64%), Aviva (3.55%) and Flutter Entertainment (3.01%) are the top risers on the FTSE 100 during the morning session.

While Smith and Nephew (-1.33%), Shell (-1.17%) and Evraz (-0.85%) make up the bottom three.

British American Tobacco

British American Tobacco has upgraded its revenue forecasts for the current year on better than expected sales of its non-tobacco products.

The FTSE 100 cigarette company is now anticipating its revenues will grow by 5% on a constant currency basis during 2021, as it saw record growth in the amount of customers for its non-tobacco products. Exchange rates will skim off some of BAT’s gains as it expects an “8% currency headwind” during H1 and the full year.

Aviva

Cevian Capital, an activist investor, confirmed on Tuesday it had acquired a 4.95% stake in Aviva, and that the UK insurer should now be able to return £5bn of excess capital next year.

As an alternative to ousting chief executive Amanda Blanc, Cevian is encouraging the FTSE 100 company’s boss to work on a number of disposals she announced when she took over the company nearly 12 months ago.

British American Tobacco upgrades revenue forecast as non-tobacco products see record growth

Liam Roche
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British American Tobacco upgrades revenue forecast as non-tobacco products see record growth

BAT now anticipating its revenues will grow by 5% on a constant currency basis during 2021

British American Tobacco (LON:BATS) has upgraded its revenue forecasts for the current year on better than expected sales of its non-tobacco products.

The FTSE 100 cigarette company is now anticipating its revenues will grow by 5% on a constant currency basis during 2021, as it saw record growth in the amount of customers for its non-tobacco products.

Exchange rates will skim off some of BAT’s gains as it expects an “8% currency headwind” during H1 and the full year.

Commenting on the statement, Steve Clayton, Hargreaves and Lansdown select fund manager said:

“Currencies threaten to undo BATS’ efforts when the group reports this year, but the underlying progress is encouraging. Traditional tobacco products continue to see volumes shrinking, but BATS’ portfolio is outperforming the trend,” Clayton said.

“Growth in the NGP division is picking up though, with the numbers of consumers choosing to use BATS’ vaping and tobacco heating products growing by over 10% in the last six months. Their Vype and glo brands are both building share in these new, reduced risk categories.”

“Tobacco firms are traditionally very strong cash generators and BATS is very much from that mould. The company is rapidly paying down the debts it took on when it acquired the rest of Reynolds American a few years ago, seeing leverage down to 3x by year end.”

BAT has set its sights on acquiring 50m consumers of non-burning products by 2025, in addition to making its own operations carbon neutral by 2030.

Regarding tobacco, BAT was aided by a strong recovery in the US, as Vuse, its vapour brand, is now close to market leadership with a share of 31%.

Jack Bowles, chief executive, said: “We added +1.4mln non-combustible product consumers in Q1, to reach a total of 14.9mln.”

“We are growing New Categories at pace, encouraging more smokers to switch to scientifically substantiated reduced-risk alternatives.”

Bowles is also confident of his company’s net-zero emissions targets.

The British American Tobacco share price is up by 1.35% early on Tuesday to 2,811.58p.

German industrial output down 1% in April as supply bottlenecks hold back recovery

Liam Roche
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German industrial output down 1% in April as supply bottlenecks hold back recovery

German factories remain 5.6% below pre-pandemic levels

Germany saw its industrial output fall in April due to a lack of semiconductors, timber and other intermediate goods.

It is additional evidence that supply bottlenecks are holding back a recovery in the largest economy in Europe.

The Federal Statistics Office confirmed industrial output fell by 1% on the month following a downwardly revised increase of 2.2% in March.

The dip in the industrial output figure was driven by a 3% fall in consumer goods production and a sharper fall of 4% in construction activity.

The figures mean that the German economy will be more reliant on household spending to support its economy which is still reeling in the aftermath of the coronavirus crisis.

German factories remain 5.6% below pre-pandemic levels, despite the global economy beginning to pick up this year.

Factory bosses have been drawing attention to shortages in plastics, rubber and metals and semiconductors, as suppliers have raised prices in response.

“Such a combination is unparalleled: Order books in industry are well filled and production is falling,” VP Bank economist Thomas Gitzel said, adding that the supply problems with semiconductors were causing a fall in output in the car industry.

Gritzel said that manufacturing would only be able to make a minimal contribution to the overall picture in the coming quarter, despite order books being full.

Bosch board member Harald Krüger told the Financial Times: “The only way to get out of [the recent crisis] is to have a different level of commitment”.

In an effort to ensure production of chips for its power tools in July, Bosch opened a €1bn semiconductor plant in Dresden yesterday.

“Money needs to be put on the table and actually parts have to be bought. The commitment needs to be rock solid that those parts will be bought. It can’t be: ‘Maybe I [will] buy them, prepare for it, and maybe not.’ This doesn’t work.”

Aviva must return capital says activist investor Cevian

Liam Roche
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Aviva must return capital says activist investor Cevian

Cevian Capital has acquired a 4.95% stake in Aviva

Cevian Capital, an activist investor, confirmed on Tuesday it had acquired a 4.95% stake in Aviva (LON:AV), and that the UK insurer should now be able to return £5bn of excess capital next year.

As an alternative to ousting chief executive Amanda Blanc, Cevian is encouraging the FTSE 100 company’s boss to work on a number of disposals she announced when she took over the company nearly 12 months ago.

Over the past year, Aviva has agreed to sell eight non-core businesses, raising nearly £8bn, in an effort to prioritise the UK, Ireland and Canada. The pursuits of previous leadership teams were seen by some analysts as overly ambitious, leaving Aviva with an overly big cost base.

“Aviva has been poorly managed for many years, and its high-quality core businesses have been held back by high costs and a series of bad strategic decisions,” Christer Gardell, managing partner and co-founder of Cevian said in a statement.

The insurer “has the potential to become a focused and well-capitalised market leader that produces profitable growth, generates significant cash, and is highly appreciated in the equity markets,” he added.

At the end of last month, Aviva said it had raised £7.5bn from disposals, while its intention was to return the money to shareholders. However, Aviva did not put a number on the amount.

Analysts, according to Reuters, expect the insurer to have between £3.7bn and £6.6bn in excess capital after the asset sales were completed.

“Aviva has made significant strategic progress over the past eleven months and we remain sharply focused on further improving our performance,” an Aviva spokesperson said in an emailed statement.

“We regularly engage with investors and welcome any thoughts which move us towards our goal of delivering long term shareholder value”.

Cevian manages in excess of $16bn on behalf of 350 pension funds, endowments and other investors. According to the Financial Times, it began building it stake in Aviva early this year. With its holding at 4.95%, Cevian is now Aviva’s second-largest holding behind BlackRock.

The Aviva share price is up by 2.53% during the morning session to 421.10p per share.

New standard listing: Thungela Resources

Andrew Hore
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New standard listing: Thungela Resources

Anglo American (LON: AAL) has successfully spun off South African coal mining business Thungela Resources Ltd (LON:TGA) and the shares have started trading on the standard list in London and the Johannesburg Stock Exchange. Anglo American shareholders received one Thungela share for every ten Anglo American shares they own.
Thungela generates four-fifths of sales from exports. The major destination is India. The realised export price can sometimes be more than treble the domestic price.
There are reserves of 137Mt and resources of 756Mt. Thungela operates four open cast mines and three undergr...

Aquis to Main Market: ImperialX / CloudBreak Discovery

Andrew Hore
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Aquis to Main Market: ImperialX / CloudBreak Discovery

Aquis shell company ImperialX has finally secured some mining assets to provide a base for its business and it says that it has a pipeline of other potential deals. This includes grassroots mineral assets.
The share price has settled down at 4.5p. Management is setting its store by a rising share price and the increasing attraction of the shares to the vendors of assets that it wants to purchase.
This company seems to be a ragbag of assets. It really requires someone with some knowledge to trawl through the different investments and net smelter returns to assess just what valuation the company...

Covid-19 vaccine now available for those aged over 25

Liam Roche
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0
Covid-19 vaccine now available for those aged over 25

Under-30s make up the final group on the priority list

People in England who are older than 25 years of age are now being called to receive the Covid-19 vaccine from tomorrow, confirmed UK health secretary Matt Hancock.

Hancock’s announcement signals the final stage of the vaccination programme which began in December 2020.

Under-30s make up the final group on the priority list.

The NHS has said it is now in the “home straight” of what is the biggest vaccination programme in its history.

The news arrives as cases continue to rise with the Indian variant now the most dominant strain in the UK.

Case rates are increasing in more local areas than at any other point since the beginning of the year, with numbers rising in large parts of north-west England, as well as London and Scotland.

Hancock also said that it was “too early to make decisions” regarding the finals steps of the roadmap out of lockdown.

“The roadmap has always been guided by the data and as before, we need four weeks between steps to see the latest data and a further week to give notice of our decision,” he said.

An announcement on the data review is expected on June 14.

US markets retreat while FTSE 100 maintains morning gains

Liam Roche
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0
US markets retreat while FTSE 100 maintains morning gains

At lunchtime across the Atlantic Ocean, the Dow Jones is down 122.01 points, or 0.35%, having opened in the green foot seven out of the last eight days, while the S&P 500 has so far retraced by 0.23%, or 9.79 points.

Major US stocks have been quiet during recent days as investors weigh up a number of factors, including high valuations, supply-chain concerns and the overall economic outlook.

Losses in major tech companies, including Apple and Amazon, held the US markets back on Monday. While ten-year US Treasury yields increased from the lowest since April following Janet Yellen’s comments that a marginally higher interest rate could be beneficial.

“If we ended up with a slightly higher interest rate environment it would actually be a plus for society’s point of view and the Fed’s point of view,” Yellen said.

The FTSE 100 has managed to maintain the gains of the morning session off the back of strong performances from housebuilder stocks.

“With Persimmon, Barratt Development and Taylor Wimpey all up 2.8%, 2.3% and 2% respectively, the FTSE 100 has managed to hold onto its 20 point gain on the day,” said Hugh Shields, financial trader at Spreadex.

“This comes alongside news that UK house price inflation has reached a 7-year high, giving further hints that the MPC will have to take a deep look into increasing interest rates come its 24th of June announcement.”

It has also been a positive Monday for cryptocurrencies. Both Bitcoin (+1.55%) and Ethereum (+4.45%) find themselves in the green this afternoon, this in light of the Bank of England’s announcement that it will discuss the regulation of ‘stablecoins’.

“We are a long way from cryptocurrencies being used in day-to-day life, but this news is crucial step for the integration of digital currencies into mainstream society, a positive for all long-term crypto investors,” says Shields.

Finally, the president of El Salvador confirmed on Sunday that he will make bitcoin legal tender in the Central American country.

Pending backing by the country’s congress, El Salvador would become the first country in the world to officially adopt the cryptocurrency.

Avacta Group share price jumps as lateral flow test approved by UK regulator

Liam Roche
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Avacta Group share price jumps as lateral flow test approved by UK regulator

Avacta Group Share Price

The Avacta Group share price (LON:AVCT) is up by 6.21% on Monday to 253.84p per share. Going further back, over the last 12 months and more, the biotechnology company has performed well, as have many firms involved in the production of coronavirus tests. Before Covid-19 caught the world by storm, Avacta was focused on cancer therapies and diagnostics. Since then, Avacta found an additional purpose, which boosted its share price.

Over the last six months shares in Avacta Group are up by 105%. While over the last year and three years, shares in Avacta have risen by 60.5% and 641% respectively. The question that remains is how long will demand for Covid testing products support the Avacta Group share price and by how much.

Lateral Flow Test

Today’s move came as the diagnostics and cancer therapy developer revealed that the Medicines and Healthcare products Regulatory Agency (MHRA) has confirmed registration of its ‘AffiDX’ SARS-CoV-2 antigen lateral flow test for Covid-19. This allows the AIM-listed company to put the product on the market in the UK for it to be used professionally. Product registration from a recognised body in the European Union could soon follow.

Avacta said the purpose of its lateral flow test is to provide a cost-efficient and speedy way of identifying people who are most likely to infect others. This is also referred to as having a high viral load.

The company reported that its lateral flow test, when tested in April, found a 100% sensitivity for identifying infectious people with viral loads measured by PCR of Ct<27.

Avacta confirmed ongoing commercial discussions with distributors and end-user customers in nations that accept the CE-mark for in vitro diagnostic products.

“I am delighted to receive confirmation of the registration of the AffiDX SARS-CoV-2 antigen test from the MHRA,” said Avacta Group chief executive Dr Alastair Smith.

“It is a transformative milestone for Avacta’s Diagnostics Division being the first CE marked product powered by the Affimer platform that has been brought to market.”

The AIM-company will now turn its attention to focusing on the commercial roll-out, which could boost the Avacta share price, as well as playing a significant role in allowing economies around the world return to normal.

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