Macro & Overnight

US stocks fell, and bonds rallied as investors’ fear of recession eclipsed the joy of disinflation for the first time this year.

Precious metals were stronger while the $ remained weak.

Sterling rose versus the $.

Plans are underway for US Treasury Secretary Janet Yellen and her Chinese counterparts to hold meetings in Beijing and Washington later this year.

China-US relations may be passed their low point.

Microsoft announces 10 000 job losses.

The IEA forecasts global demand will hit a record high in 2023, mainly based on China reopening.

Company Highlight - Gear4Music

Online music equipment supplier Gear4Music saw an +11% growth in European sales, reflecting a successful execution of infrastructure investment during FY22. UK revenues were affected by continued weak consumer sentiment and the consequences of the Royal Mail strikes. The FY23 peak seasonal trading period aligned with the Board’s expectations. Read G4M’s research note here. 

UK Company News

Online trading platform AJ Bell Q4 update reported that customers increased by 8,713 in the quarter to close at 434,365, up 13%. Assets Uner Admin closed down 3% over the last year but up 3% in the quarter, as equity markets recovered some of the losses recorded in previous quarters. 

Boohoo, the online fashion retailer, updated by saying that group revenue declined 11%. Profits are expected to align with market expectations, with revenues falling approximately 12%. The gross margin for the period is broadly in line with expectations and is expected to improve year on year with a reduction in markdown activity. It has more than £300 million of gross cash at the end of December. Boohoo has seen recent positive signs in global supply chains and expects to see some easing of disruption along with some relief to freight rates in 2023. 

Mining services supplier Capital, formerly Capital Drilling, updated for FY 2022 revenue growing 28.0% and record Q4 2022 revenue. Non-drilling revenue contributed 28% of total revenue for FY 2022, compared with 22% in FY 2021. Fleet utilisation decreased to 73% in Q4 2022, compared to 79% in Q4 2021 and 77% in Q3 2022. Lower utilisation results from an active strategy to reposition the contract portfolio, reducing exposure to short-term exploration contracts and focusing on large-scale mine sites and Tier-1 projects with significant growth potential. 

The total value of CAP’s investments (listed and unlisted) was US$38.7 million as of 31 December 2022, versus $47.3 million on 30 June 2022 and US$60.2 million at the end of 2021. The portfolio recorded unrealised investment losses of US$9.55 million in H2 2022. MSALABS continues to see strong demand for its laboratory services and has now locked in a multi-year growth outlook. The drilling business has a strong outlook entering 2023 with its highest rig count, robust utilisation and revenue prospects. 

B2B media company Centaur said that worsening macroeconomic conditions and inflationary pressures seen in FY22 resulted in growth slowing in the second half. The Group saw decent revenue, profit and cash performance year-on-year increase. The net cash balance remains healthy. Centaur expects to deliver at least £41m of revenue. It also announced a special 3p per dividend. 

Troubled insurance services business CPP updated on its ongoing change management programme. It involves a complex set of seven inter-dependent projects not expected to conclude before the end of the 2025 financial year. It reported that there might be hiccups along the way, which may lead to some adjustments to both targets and deadlines—an honest assessment of a large project. 

Craneware, the Scottish-based US healthcare IT provider, said that revenues in H1 FY23 are expected to increase by 6% and profits by 8%. Software revenues remain robust. However, professional services remain sluggish. It is guiding inline profits due to solid cost control and assuming that professional services contribution will not recover in the current year, thus impacting the overall Group revenue growth.

Iconic footwear supplier Dr Martens said demand remained resilient through challenging conditions during Q3. However, due to significant operational issues at its new LA distribution centre and weaker than anticipated US trading, it is guiding lower fro this year. 

Speciality chemicals company Elementis reported a solid performance during the fourth quarter, despite experiencing weaker trading conditions. The sale of the Chromium business remains on track to complete during the first quarter of 2023. It expects net cash proceeds of approximately $107m, reducing gearing. 

Eastern Med gas producer Energean commenced production from its FPSO in the strategically vital Eastern Mediterranean region and started dividend payments in a critical year. Revenues grew 48% and profits 97%. Its mid-term targets of $2.5bn of revenues and $1.75bn of profit remain intact. The Group has cash of $498.0 million. 

Chocolatier Hotel Chocolat reported that its Christmas trading period saw UK retail like-for-like store sales increase by +10%. It saw its strongest-ever sell-through of full-price seasonal products, with residual Christmas inventory into January sale -80% lower. Group total sales, including international, fell -8%. Wholesale revenues were lower than planned due to cautious inventory management by online partners and a focus on ‘quality over quantity.’ Inventory reduced -17% year on year. The overhead cost reduction plan is on track, and the Japan licence deal announced earlier this month shows progress. Hotel Chocolat continues to trade in line with market expectations and sees a trend of customers reverting to stores to shop in the second half. 

Judges Scientific, the instrumentation supplier, provided an FY update in which the Group completed its most significant acquisition of Geotek for a total consideration of up to £80m. As anticipated, Geotek has delivered a strong contribution in the second half of the financial year. The Board expects it to have generated the level of profits required to trigger the maximum earn-out. Additionally, it thinks earnings per share for 2022 will be modestly ahead of current market expectations.

Marshalls, the paving slab and tile manufacturer, saw FY revenue grow by 22 per cent, including the benefit of the acquisition of Marley and by 1% on a L4L basis. It is confident of making continued progress towards its ambition to become the UK’s leading manufacturer of products for the built environment. It did not provide short-term guidance. 

The UK’s largest independent oil and gas producer warned about its continued presence within the UK. Harbour Energy’s total UK capital expenditure was reduced compared to previous expectations following the changes to the EPL announced in November. This includes the Total-operated EIH well at Elgin Franklin and participation in the 33rd Licensing round. It is reviewing its UK organisation to align with lower future activity and investment levels in the country. Harbour stated that it faced a tax rate of 75 per cent in the UK due to the recent tax changes, making investment in the country less competitive.

Prognosticator