Roller coaster resumes
London equities have given back all of yesterday’s gains rebound gains and then some, as nervousness returns to the markets over the omicron variant with the blue chip FTSE100 falling below the 7,000 level in early trading. As discussed yesterday, the next couple of weeks at least are likely to be characterised by choppy sentiment as we discover more about the potential threat of the new variant and whether government efforts around the world to get ahead of its spread are likely to succeed.
Helping to put the skids under the market this morning are pessimistic comments from Moderna chief executive Stephane Bancel to the effect that existing vaccines may be less effective against the omicron variant due to the number of mutations on the spike protein. There is some confidence that vaccines could be reformulated but it would take some months for this to be done at scale.
Oil mirrored the sell off in stocks this morning, dropping 3 per cent and pulling the likes of Royal Dutch Shell (RDSB) and BP (BP.) down with it. Among the other notable fallers on the FTSE100 were banking stocks as trader bet that the renewed uncertainty and the potential for a dampening effect on the economy may stay the hand of the Bank of England when it meets to discuss interest rate rises next week. Lloyds (LLOY), Barclays (BARC) and Natwest (NWG) were among the fallers.
Meanwhile, budget airline easyJet (EZJ) gave a vivid reminder this morning of the ongoing damage of the pandemic on travel stocks when it published full year results showing a £1.1bn loss after a 52 per cent reduction in revenues. Management reporting a slight softening of demand in recent days and says it will fly around 65 per cent of its potential capacity through the winter months but is expecting to get back up towards full capacity through the summer months of 2022, assuming no new pandemic-related restrictions occur.
Hochschild rebounding with acquisition
Anyone who had gone through what Hochschild Mining (HOC) did last week - the possible closure of its two largest mines, before a government backtrack - would be more than entitled to a few weeks off on the sofa.
But the gold and silver miner has just announced a sizeable acquisition: the C$135m (£79m) purchase of Amarillo Gold (Can:AGC), which has a gold project in Brazil. The deal needs to be signed off by Hochschild shareholders, although the company already has 77 per cent support through the board’s holdings and that of an entity controlled by chairman Eduardo Hochschild. AH
Customers attracted to Wise’s decreasing transfer costs
Payments company Wise (WISE) is continuing to bring down the cost of international transfers and is being rewarded with a steadily growing customer base. In the first six months of the year, Wise reduced the average amount customers pay to transfer money by 7 basis points to 0.62 per cent.
Cheaper transfers coupled with an improved execution time has attracted more customers to the platform. Wise now has 3.9m active customers, this is 7 per cent more than in the first quarter of the year and 23 per cent more than the same time last year. The customers have also been more active, with the total amount transferred up 44 per cent more from last year.
Although Wise has been taking a reduced rate on the transfers, economies of scale from the fixed cost platform have enabled gross profit margin to expand from 62 per cent to 68 per cent. Gross profit was up an impressive 46 per cent.
The management is expecting annual revenue growth to be in the “mid-to-high 20s on a percentage basis”, which isn’t particularly different from what brokers were expecting. The 11 per cent share price rise on the morning of the announcement is most likely to be due to the impressive gross margin figure and “larger than anticipated cost savings”.
Any business that can increase sales by a fifth while widening its margin by nine per cent at the same time is nothing to be scoffed at. AS
What now for Eurozone corporate lending?
The European Central Bank’s latest statistics on lending made for interesting reading as it becomes clear that prior to the latest panic over the omnicron covid variant, banks had been lending to corporate customers at an increased rate. The possibility that delayed capital spending decisions are now being financed looks more plausible after many investment decisions were delayed because of the pandemic, but which cannot be put off any longer.
The proxy for this effect in the Eurozone is the German economy, which tends to weigh or lift everyone else depending on its growth prospects, and corporate lending here has been particularly strong over the course of the third quarter - loan growth in Germany was up by 4.4 per cent in October, by far the biggest increase across the Eurozone. Some of this may be due to a reversal of the working capital surpluses that had built up at companies during the opening phases of the pandemic as production slowed. However, the need for trade credit is now greater than ever, both to meet the pressure of rising costs within the supply chain, and also to finance the accompanying build up of inventory so that output can be maintained. It remains to be seen how the rapidly spreading local lockdowns in Germany will affect the trajectory of business lending there if domestic economic activity suddenly slows before Christmas.
Anti-scam rules come into force
New regulations designed to prevent pension transfer scams come into force today – but specialists worry the measures could bring their own complications.
The new rules require pension providers to raise red or amber “flags” if an individual tries to transfer their savings into a pension scheme outside of an approved list. A provider that suspects a scam can decide red flags are present and block the transfer. If so-called amber flags indicate a potential scam, the person seeking to transfer their pension will need to provide evidence they have taken scam-specific guidance before proceeding.
Scams have been a substantial problem in recent years. More than £30m of losses to pension scammers were reported to Action Fraud between 2017 and August 2020, with specialists arguing that this figure is an underestimate. Scams tend to be underreported for various reasons, including a sense of embarrassment on the part of the victim.
The new rules, which follow previous anti-scam measures such as a ban on cold calling, have been broadly welcomed. But some suspect it could result in pension transfer delays, at least early on.
“There is a risk that the new system could slow down some legitimate transfers, although this should not be a significant problem once the regulations have bedded in,” said Becky O’Conner, head of pensions and saving at interactive investor.
“It is important that freedom to choose the right authorised and regulated provider is maintained for people who want to move their pension for good reasons, like seeking better value or a wider range of investments.”
Tom Selby, head of retirement policy at AJ Bell, pointed to concerns that risk averse pension providers use the amber flag warnings in an “overzealous” manner, creating delays. Some of this relates to potential scam indicators outlined in the rules.
“The amber flag rules say overseas investments could be indicators of a scam. However, the fact virtually all defined contribution schemes allow overseas investments which aren’t linked to scams obviously means this shouldn’t in-and-of itself cause providers to insist transferring members must seek guidance before proceeding,” he said. DB
Potential overhaul looms for Asian small-cap trust
Aberdeen Standard Asia Focus (AAS) could double its dividend target, adopt a more flexible investment policy and introduce a performance-linked tender offer under proposals put forward by the trust’s board today.
The board has conducted a review of the trust’s long-term strategy, assessing both its effectiveness as an Asian small-cap fund and looking at “how to make the company more competitive while giving shareholders, and in particular retail shareholders, a more meaningful participation in the company’s ongoing success”.
Under proposals subject to shareholder approval, the trust would abandon an element of its currency investment policy requiring it to invest in companies with a market capitalisation of up to approximately $1.5bn. The board believes this cap is preventing the management team from investing in certain high growth stocks, especially in bigger markets such as China and India.
Other proposed changes include increasing the target dividend by 100 per cent to 32p per ordinary share for the financial year ending 31 July 2022 and maintain a rising dividend thereafter. The board also wants to move from the current management fee of 0.96 per cent of market cap to a tiered fee of 0.85 per cent on the first £250m of assets, 0.6 per cent on the next £500m and 0.5 per cent for assets of £750m and above.
The board also wants to increase the trust’s appeal among small investors by introducing a five for one ordinary share split, and bring in a performance-linked tender offer, triggered if the trust’s NAV returns lag those of the MSCI AC Asia ex Japan Small Cap index in the five years to August 2026.
Shares in the trust, which has around £500m in assets, recently traded on a discount of around 12.5 per cent to the value of underlying assets. DB
