2021 has been a strong year for the BP share price (LON:BP) so far. Since the turn of the year, the BP share price has gained 26.29%. Having dived at the beginning of the pandemic as demand dried up, and again towards the end of 2020 as oil prices dropped, the FTSE 100 oil giant has showed a great deal of resilience. As the world economy has further to go on its path to recovery, and BP continues to plan for the future, now could be an opportune time for investors to buy.
Green Transition
BP, as with a number of its fossil fuel competitors, announced its plans to move towards renewable sources of energy last year. The UK oil company plans to increase its low-carbon investments by 1,000% by 2030. BP also invested in a number of solar projects across the US to the tune of $220m, in addition to renewable assets in Europe.
Additionally, BP is continuing to divest away from oil assets, honouring its commitment to sell up to $15m worth by 2020. By 2025 the oil major could sell $25bn worth of assets.
While BP’s move away from fossil fuels and into renewables appears coherent and is on track. It remains a highly competitive industry, while timing is of the upmost importance.
Barclays
Barclays have high hopes for the BP share price over the coming months. Analysts within the investment banking arm of the UK bank feel that 475p is a realistic price target for BP during 2021. This would bring the oil company back around its levels before the pandemic struck.
Analysts at Barclays feel the oil company’s cash flow is a key strength over its competitors, despite BP easing away from some of its ‘upstream’ activities.
‘Our analysis shows the cash flow generation of the business as having the ability to support a 10% cash return to shareholders in the form of dividends and buybacks in a US$60 per barrel environment, which would be the highest in the sector,” Barclays analysts said in a note.
Of course, this is dependent on the ongoing recovery of the world economy. However, this is something BP can do little to influence. The company appears to be handling its transition well, while its finances are in check and the vaccine roll-out is continuing apace. This, as Barclays argues, bodes well for the outlook of the BP share price.
Private Investors would do well to have a look at the opportunities thrown up within the investment trust sector. Not that many years ago, the sector was the preserve of the traditional stockbroker investing on behalf of their clients. In recent years, those firms have largely been acquired by the vast wealth management chains.
These merged organisations now have assets under management that are so substantial that it is difficult for them to use smaller and medium sized trusts. They simply would not be able to buy enough shares to move the needle within their portfolios.
This has led to a whole raft of these listed funds falling below the radar. Investment trusts are structured in the same way as industrial companies in that their shares are bought and sold on the open stockmarket. Therefore, the price you pay or receive is purely decided by the balance of supply and demand at that moment. Many trusts have become overlooked and unloved, so the market in their shares has often become extraordinarily inefficient.
Therefore, the market price can dramatically vary from the true value of the underlying portfolio. A current example within Miton Global Opportunities plc’s portfolio is private equity specialist EPE Special Opportunities, where the official valuation at the end of March was 448p, yet its shares traded that day at 295p. We have spent the last few years building Miton Global Opportunities plc’s portfolio of exciting opportunities that have been ignored by mainstream investors. For a couple of years, their focus was on a narrow range of very large growth stocks.
This meant that the unloved and overlooked stayed that way. Effective vaccines against Covid are now a reality and this development triggered a broadening of markets. We are now witnessing an influx of investors seeking hidden value amongst trusts. This suggests that it will not be long before the potential of Miton Global Opportunities plc’s portfolio is unlocked.
We look for investment trusts where we are not only confident about the outlook for the portfolio but also where we believe there is a special situation that offers further upside. When we capture a rising asset value and a narrowing discount, this represents a powerful combination. Recent successes include Polar Capital Financial Trust and City Natural Resources.
Polar Capital Financials does what it says on the tin. It specialises in a narrow range of sectors, principally banking, insurance and payment systems. In the aftermath of the Covid crisis there was very little demand for those sectors. Given the poor sentiment, it came as little surprise that the trust’s shares traded at a much wider discount than they have historically.
The market perceived that there were two significant headwinds facing the banking industry. Firstly, it had started to believe that the yield curve would remain flat indefinitely. A flat yield – where there is little difference in yields from the shortest-term bonds to the longest-term – is bad news as borrowing short term and lending long is core to a bank’s profitability – normally the curve steepens the further out in time.
Furthermore, banks made substantial provisions in the expectation that Covid shutdowns would mean that a significant number of customers would not be able to service their debts. Monetary and fiscal stimulus have been thrown at the financial system on a heroic scale, on a par with WW2. This has been a factor behind longer term interest rates increasing and also the buoyant economy has meant that far fewer bank customers have found themselves in difficulty and therefore a significant proportion of the provisions would no longer be needed. The market’s fears were never realised and financials have proved to be a post vaccine rally winner. Despite the positive newsflow, Polar Capital Financial’s discount traded at its widest in late August. Today the shares are trading at a premium having risen nearly 60% since the August low to 14 May 2021, benefitting from the powerful combination of a rising nav and narrowing discount.
Another specialist fund which has come back into favour is CQS Natural Resources, which has bounced 277% from Covid lows on 23 March 2020 to 18 May 2021 on a total return basis. The shares trade close to par to their value at the moment but it has frequently been possible to pick up stock at discounts comfortably wider than 20% in recent years. The trust specialises in small mining companies which were hard hit during the Covid sell off. The sector has bounced sharply with the global economy. Given how long it takes to develop a mine and the lack of capital expenditure in recent years, a number of stocks will benefit from commodity shortages. The “electrification” of our world means that this will be particularly true for metals such as copper, tin and silver.
Being a closed-ended fund itself, we believe that Miton Global Opportunities plc is well positioned to exploit pricing anomalies in this sector. It is protected from daily inflows and outflows, which allows greater conviction. We know that we will not be forced to sell holdings cheaply on a bad day in order to finance a redemption. Therefore, larger positions can be taken with the knowledge that the shares will be held until it is the right time to sell.
The largest holdings in Miton Global Opportunities plc’s portfolio trade at an average discount of a little over 20%. In other words, we are buying these assets at 80% of their latest open market valuation. Our strategy is to focus on situations where we believe the catalyst exists to trigger a narrowing of the discount. There is no point in owning trusts simply because they trade on a wide discount.
We have the luxury of spending our days researching the whole spectrum of investment trusts. Our underlying trusts include everything from shipping leases to residential property in Berlin. Searching for these investment trusts can also be somewhat of a time bandit for the self-directed investor, however Miton Global Opportunities plc provides a one-stop shop access to an area of the market where assets are trading at far below their intrinsic worth.
Source: Morningstar, as at 31.03.2021.
The performance information presented in this document relates to the past. Past performance is not a reliable indicator of future returns.
Diversification chart
Nick Greenwood
Fund Manager
Charlotte Cuthbertson
Assistant Fund Manager
Miton Global Opportunities plc
ENDS
Notes to Editors:
This article has been prepared in response to a request from UK Investor Magazine to be used by the journalist.
Whilst every effort has been made to ensure the accuracy of the information contained within this document, we regret that we cannot accept responsibility for any omissions or errors. The information given and opinions expressed are subject to change and should not be interpreted as investment advice. Reference to any particular stock or investment does not constitute a recommendation to buy or sell the stock / investment.
All data is sourced to Premier Miton unless otherwise stated. Persons who do not have professional experience in matters relating to investments should not rely on the content of this document.
A free, English language copy of the trust’s full Prospectus, the Key Information Document and Pre-investment Disclosure Document are available on the Premier Miton website, or you can request copies by calling us on 01483 306090.
Financial Promotion issued by Premier Miton Investors. Premier Portfolio Managers Limited is registered in England no. 01235867. Premier Fund Managers Limited is registered in England no. 02274227. Both companies are authorised and regulated by the Financial Conduct Authority and are members of the ‘Premier Miton Investors’ marketing group and subsidiaries of Premier Miton Group plc (registered in England no. 06306664). Registered office: Eastgate Court, High Street, Guildford, Surrey GU1 3DE.
This ruling does not mean a change, but rather an acceleration of our strategy, says Shell CEO
Shell (LON:RDSB), the FTSE 100 oil giant, announced on Wednesday its intention to speed up its reduction in carbon emissions following a ruling in a Dutch court.
Last month, a court in the Hague ordered Shell to reduce its worldwide carbon emissions by 45% by the end of 2030.
Chief executive of Shell Ben Van Beurden said in a LinkedIn post:
“For Shell, this ruling does not mean a change, but rather an acceleration of our strategy,” van Beurden said.
“That is likely to mean taking some bold but measured steps over the coming years,” he added.
Previously this year, Shell put forward one of the more ambitious climate plans. This includes a goal of reducing the carbon intensity of its products by at least 6% by 2023, by 20% by 2030 and by 100% by 2050 from 2016 levels.
“Now we will seek ways to reduce emissions even further in a way that remains purposeful and profitable. That is likely to mean taking some bold but measured steps over the coming years.”
Judge Larisa Alwin said last month that oil giant’s current plan was not firm enough and slo that the company was obligated to take further action to avoid violating human rights.
The landmark ruling aimed at bringing the FTSE 100 company in line with the Paris Agreement, was the first of its kind in history.
“The court orders Royal Dutch Shell … to reduce its CO2 output and those of its suppliers and buyers by the end of 2030 by a net of 45% based on 2019 levels,” the court said. “Royal Dutch Shell has to implement this decision at once.”
Shell, the ninth biggest polluter in the world from 1988-2015, was given the right to appeal the judgement.
Half an hour before lunchtime the Shell share price is down by 0.25% to 1,380.40p.
On an otherwise uneventful opening on Wednesday, the FTSE 100 retreated from yesterday’s levels as trading got underway.
The UK’s foray above 7,100 didn’t last long. After the bell it dropped by 0.5%, returning the index to the 7,070 mark it has become so familiar with this June.
Rising inflation in China – up from 0.9% in April to 1.3% in May – can shoulder some of the blame, causing a flurry of losses in the FTSE 100’s mining sector. Most notably, Rio Tinto, Anglo American and Antofagasta were all down more than 1.2%.
“That increase in the Chinese CPI readings could be a precursor to a sharp jump in the US figure tomorrow afternoon, even though forecasts have both the standard and core figures pulling back to 0.4% apiece,” said Connor Campbell, financial analyst at Spreadex.
“Investors were more optimistic about the travel and leisure sector on increased hopes that many travel restrictions will be lifted soon. The US Centers for Disease Control and Prevention has relaxed travel advice for more than 110 countries and territories, thereby increasing the earnings prospects for companies that provide transport or accommodation,” said Russ Mould, investment director at AJ Bell.
Hotel stocks Whitbread and InterContinental Hotels were both among the biggest risers on the FTSE 100 and airline stocks across Europe were in demand, including Air France, Lufthansa and International Consolidated Airlines.
“These companies need all the good news they can get, given how so many other businesses have put Covid in the rear-view mirror and are making plans for the future. Travel and leisure companies have been stuck in survival mode and desperately want to move forward,” Mould added.
FTSE 100 Top Movers
Just Eat Takeaway (3.47%), Smith and Nephew (2.89%) and IAG (2.86%) are the biggest three risers on the FTSE 100 during the morning session on Wednesday.
At the other end, miners Thungela Resources (-2.91%) and Evraz (-2.91%), and homebuilder Persimmon (-2.76%) have seen the biggest falls.
The price of goods leaving China’s factories, or ‘China’s factory gate prices’, has risen at the quickest rate in over 12 years, as a result of surging global commodity prices.
It is drawing attention to inflationary pressures while policymakers are trying to stimulate their economies in the aftermath of a coronavirus-induced downturn.
China’s producer index added 9% last month, data from the National Bureau of Statistics revealed on Wednesday. The figure surpassed economists’ forecasts and is the biggest year-on-year jump since the 2008 financial crisis.
The measure’s sharp rise in recent months has been driven by a worldwide rally in commodities, in addition to a low base having seen falls through much of 2020.
China’s rising costs of production could ring the alarm bells for US and others around the world amid ongoing concerns over the levels of inflation.
“The worry is PPI may hover at an elevated level for an extended period of time, which would create economic headaches if mid- or downstream firms fail to absorb higher costs,” Nie Wen, chief economist at Hwabao Trust, told Reuters.
The news comes as eyes will turn to the US inflation reading on Thursday, as investors are growing concerned that the Fed may be forced to start reigning in its stimulus.
US Senate Bill
The US Senate voted, by 68-32, to approve new legislation aimed at boosting the country’s ability to compete with China on thee technological front.
The measured passed on Tuesday and allows for around $190bn of provisions to bolster US tech and research.
Senate Majority Leader Chuck Schumer, a co-sponsor of the measure, warned against the dire consequences of not funding research to keep apace with China.
“If we do nothing, our days as the dominant superpower may be ending. We don’t mean to let those days end on our watch. We don’t mean to see America become a middling nation in this century,” Schumer said.
‘People should not be left unfairly out of pocket’ says the CMA
The UK’s competition authority confirmed on Wednesday that it has launched an investigation into whether or not Ryanair and British Airways had broken the law by not providing refunds for flights for passengers who could not legally board during the pandemic.
British Airways offered vouchers and rebooking, while Ryanair offered rebooking, but both refused refunds, according to the Competition and Markets Authority (CMA).
Andrea Coscelli, chief executive of the CMA, commented: “While we understand that airlines have had a tough time during the pandemic, people should not be left unfairly out of pocket for following the law.
“Customers booked these flights in good faith and were legally unable to take them due to circumstances entirely outside of their control. We believe these people should have been offered their money back.”
The CMA confirmed it has communicated with both airlines and aiming to find a solution, which could involve refunds or another form of reimbursement for those affected.
Ryanair responded to the CMA over its claims about the potential of malpractices by the airline.
“Ryanair has approached such refund requests on a case by case basis and has paid refunds in justified cases,” it said.
“Since June 2020, all our customers have also had the ability to rebook their flights without paying a change fee and millions of our UK customers have availed of this option.”
Shares in major travel companies plummeted last week as the UK government removed Portugal from its green list of safe destinations.
The decision caused chaos among holidaymakers, many of whom rushed to cancel their trips abroad.
Britain is one of a number of countries asking for ‘an exemption on financial services’
Chancellor Rishi Sunak is pushing for exemption for the City of London in the G7’s move for a new global tax system targeted at the world’s largest multinational enterprises.
Sunak previously stated that the recent agreement was “historic” however it would force the biggest tech companies to “pay their fair share of tax in the UK”.
However, the Financial Times reported that Britain is one of a number of countries seeking “an exemption on financial services”, as the chancellor is fearful that multinational banks headquartered in London could be impacted.
HSBC makes over 50% of its revenue from China, while Standard chartered, also based in the UK, focuses mostly on Africa and Asia, and conducts little activity in the UK.
Sunak’s move comes as a think tank warned that major US tech firms would pay less UK tax under the G7 arrangement than they do with the status quo.
Tax Watch suggested that the final payment could come in at 50% of what is normally paid and that, based on 2019 numbers, Amazon, eBay, Google and Facebook could save £232.5m per year.
The research added that Google pays around £219m to the digital services tax, although it would pay only £60m to the UK’s exchequer under the current plan.
Similarly for Facebook, its tax take would fall by £30m to £28m. While Amazon would see a £40m fall and eBay a decline of £15.2m taxes paid.
While the companies would end up paying more tax in total, the US Treasury would benefit the most.
The deal will see a global minimum tax of 15% on the biggest companies in the world.
Its aim, as US treasury secretary Janet Yellen puts it, is to end “30-year race to the bottom on corporate tax rates”.
A recent research report from broker Peel Hunt suggests that dividend payments are set to bounce back this year and there will be plenty of attractive dividend payers in the FTSE 250 index in particular.
Dividend payments will not go back to the peak achieved in 2018, though. There was £14.4bn paid in dividends by FTSE 250 companies in that year, falling to £12.3bn in 2019 and then £7.8bn in 2020.
A relatively modest recovery to £8.1bn is expected this year, before a further rise to £9.6bn in 2022.
The individual company yields are based on share prices at the end of May, so they may have chan...
Other major cryptos took a dive as well, with Ethereum and Dogecoin down by over 16% and 17% respectively.
Donald Trump
Former US President Donald Trump also weighed in, calling bitcoin a “scam” that would negatively impact the value of the US dollar.
“Bitcoin, it just seems like a scam,” Trump said. “I don’t like it because it’s another currency competing against the dollar.”
Trump also opined that the dollar should be the “currency of the world”.
MicroStrategy
While the crypto market is in a frenzy, MicroStrategy (NASDAQ:MSTR), the business intelligence company headed up by Michael Taylor, appears to be buying more bitcoin.
The company confirmed on Monday that it would be raising $400m by issuing loan notes in order to buy more of the cryptocurrency.
The company currently holds 92,079 bitcoin in its treasury.
Steady Interims
But Driving faster into the Second Half
The dividend paying Driver Group (AIM:DRV) reported interims to March 2021 today and the price is unchanged at 49.5p. Driver Group is a global professional multi-disciplinary consultancy service including claims, expert witness, and dispute resolution services. A new forensic accounting service is being established, which compliments the construction-related quantum, delay and technical expert services which could become busier coming out of Covid while also fitting into the strategy of focusing on higher margin b...
