Market Prognosis

A concise summary of the major macro events of the past 24 hours, and selected UK company-specific news.

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September 27, 2023

Cue the outrage

Macro & Overnight

Dollar (DXY) continues to strengthen as investors come to terms with the reality of higher rates for longer.

One consequence is the weakening Japanese Yen, which moves onto the intervention watch list as it approaches the critical 150 level.

Another consequence of higher rates is a weakening economy. Despite the marginalisation of the R-word, there is increasing evidence of US economic weakness yesterday from measures of consumer confidence and new housing starts. Later today, we will have US durable goods, and tomorrow, we get US GDP numbers. Watch out for signs of something breaking.

Despite further evidence of China’s faltering residential property sector (Evergrande’s founder Chairman being placed under “police control”, for example), a Bloomberg survey indicates that the economy remains on track to achieve its targeted 5% growth.

UK government has given the go-ahead to Norwegian company Equinor to develop the North Sea Rosebank oil and gas project, which is estimated to have 300m of recoverable reserves. Cue the outrage.

UK Company Thoughts

Specialist lender BioPharm Credit reported investing $195 million, comprising three investments in H1. Investee LumiraDX is considering strategic alternatives and will update investors on progress. It expects its investment pipeline to grow during the second half, enabling further portfolio diversification. It remains focused on its mission of creating the premier dedicated provider of debt capital to the life sciences industry while generating attractive returns and sustainable income for investors. It remains confident of its ability to deliver its annual dividend target of 7 cents per share. 

BioPharma is a highly differentiated specialist balance sheet lender. It has an attractive lending model offering a decent degree of uncorrelated returns from difficult-to-access credits. However, it also has a concentrated portfolio, which bit them hard when one of its positions went sour last year. However, the model also offers the opportunity to recover distressed positions. On its targeted dividend, BioParma offers a 7% running yield.   

English winemaker Chapeldown reported H1 net sales revenue up 21% and EBITDA up 36%. Current trading aligns with management expectations, and our outlook for FY 2023 remains positive. An AIM listing is under active consideration.

Say it quietly, but there are upsides to global warming. English sparkling wine is slowly becoming the new Champagne. Chapeldown is the way to play this trend. Despite the recent share price recovery, it remains well below pre-COVID highs. Moving from the AQSE to AIM would help widen its investor appeal. 

NCC, the cyber security supplier, reported FY revenue ahead by 6.4% but lower margins and sharply lower operating profit, down 40%. However, cash conversion remained resilient, and it held its dividend. Current trading aligns with management expectations. NCC is undergoing a period of change and restructuring, and it remains confident that continued execution of the strategy will deliver double-digit revenue growth and mid-teens operating profit margins from FY26 onwards. 

NCC is under reconstruction with a capable management team and a lucrative end prize. However, the update here indicates how complicated and time-consuming its recovery path will be. It remains one for the recovery specialists for now.  


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