Chart 1: Brexit latest: all in it together?

Source: Bloomberg/FT

‘All in it together’ has been trotted out too often in recent years whether naively, cynically  or in (conscious and unconscious) parody. One of the many ironies of Brexit’s unhappy progress is that the strap line really is appropriate when plotting GBP/USD and EUR/USD exchanges in the same chart. It is certainly one in the eye for people like me when arguing against the UK’s joining the Euro Area (I still am, by the way)  except that it appears to be the pound ‘tail’ that is wagging the euro ‘dog’, which is a double irony. Mrs May was always going to try to stay as close to the EU as the Brexiteers would let her and the EU held all the cards from the start and so a deal was always going to be reached between No 10 and the EU Commission. Even if, as already seems clear, a majority of MPs will vote against the deal there is no doubt that a much larger majority will not accept ‘no deal’. There will, therefore, be no disorderly departure in March 2019. This should provide support for UK equities, which are already oversold and for gilts despite dire warnings from the rating agencies. It also helps to explain why the pound is so volatile (responding to every political twist and turn) but actually staying within a relatively narrow range. However, Mrs May’s Cabinet is certainly not ‘all in it together’. No resignations-yet-but the most likely resignations will be from ‘junior’ Brexiteers keen to promote their image of firmness. Remainers probably reckon they can further limit the damage by …er…remaining, which is what the leadership contenders will also need to do in order to show ‘responsibility’. Mrs May is in any case likely to win a confidence vote amongst Tory MPs by threatening Remainers with ‘no deal’ and Brexiteers with no Brexit. The main economic damage in the proposed deal is that the UK would be outside the Single Market and we are going to hear a lot more about that in the coming weeks now that staying in the Customs Union has become ‘acceptable’. Mr Corbyn will surely now have to choose between economics and nostalgic ideological purity. Business groups on both sides of the Channel will surely now feel able to step up their lobbying to stay ‘all in it together’. The uneasy but also (hitherto) remarkable solidarity amongst the other 27 EU members will surely be tested. The euro looks like being wagged by the pound for a good while yet.

Alastair Winter Chief Economist

Figure 2: Novo Nordisk: still helping to suppress the diabetes demon

Source: The NHS

It was World Diabetes Day yesterday and both Types 1 and 2 of the clinical problem are, unfortunately, still global growth themes, with an estimated 422m people afflicted (or one in eleven of the global population). Part of this rise is due to better diagnosis but dietary trends and rising obesity rates globally are also having an impact.  The world’s foremost company (with a 46% volume share globally) offering a range of treatments for diabetes related conditions is the Danish company Novo Nordisk which is listed both in Copenhagen and the United States.  Recent results  saw the Company slightly improve its financial outlook, benefiting from continued product innovation and new treatment launches.  Whilst there are continued pressures on public healthcare budgets, the growth of the diabetes challenge with improved diagnosis will keep treatment demand high for the foreseeable future.  The company also has not been shy of returning capital to shareholders via both dividends and share buybacks. The Dynamic Global Opportunities UCITS Fund has a holding in Novo Nordisk.

Chris Bailey Chief Investment Officer

Figure 3: Supermarket Income REIT: strength and shield

Source: Google Stock Images

We featured Supermarket Income REIT (SUPR) in the October 25th edition of Signals, suggesting that in targeting out-of-town supermarkets the Company appears to have hit on something of a hidden gem in terms of commercially de-risked assets which are in high demand via a combination of long leases, and upward only RPI-linked rent reviews. We are pleased to share news of increases in the annual rent on two locations.  The rent on Sainsbury’s supermarket in Ashford, Kent, will rise to £3.9 million from £3.8 million as a result of an RPI increase capped at 3%. The rent on Tesco’s superstore in Thetford, Norfolk, will rise to £2.6m as a result of an RPI increase of 3.3%. These reviews mean that the Company’s annualised rental income now stands at £16.5m. The Company is clearly keeping to their robust, ‘inflation shield’ philosophy. It is always prudent to look for evidence to supplement an impressive set of promises. So when delivery comes, one cannot help but feel encouraged. With a tough few months on the macro front in prospect, some proven security and protection may be doubly welcome. Since the £100m IPO in July of 2017 the Company has paid out an average dividend of 5.5% with an 8% total shareholder return for the period and the market cap now stands at £189m.

Dhivyan Kandiah Investment Hub

Figure 4: Danakali Limited: Probably the best potash in the world

Source: Company Presentation

Last month we published a short note on Dual-listed Danakali Limited (LSE/ASX: DNK) including the above table to demonstrate why the Company is set to become the world’s largest player in the potash field with the development of its 50% owned Colluli asset, which scores highly in respect of each of quantum, quality, extraction costs and transportability. The Company has both a strategic joint venture partner in the Eritrean National Mining Corporation (ENAMCO) and a strategic customer in  EuroChem, which will take, pay, market and distribute Danakali’s SOP for 10 years, thereby de-risking the first part of the project. Yesterday brought good news from New York where the UN Security Council unanimously (including the hitherto resistant US) voted  to lift all sanctions on Eritrea after nine years. The Security Council follows a rapprochement in June with Ethiopia after 20 years of hostility and a subsequent thaw in relations with Somalia and Djibouti.  The sanctions had been imposed after accusations of human rights abuses and the harbouring of terrorists operating in or near the Horn of Africa and with the specific aim of discouraging investment in Eritrea. The change in the political climate has come at an exciting time for the company who are in advanced negotiations to secure debt financing which will provide 60% of project funding for Module I. This week the Company has been visiting existing and prospective investors across the UK. The share price has increased by over 10% in the last month to take the market cap to £118m.

Tim Sohal Corporate Broking.

Chart 5: Wizz Air Holdings PLC: taking off again

Source: IG / Steve Shelley

Wizz Airline Holdings (WIZZ.L), listed in London and headquartered in Budapest is the largest low-cost carrier in Central and Eastern Europe, where it has few major competitors. Last Wednesday the interim results for the six months to September 30th  required some careful digestion, especially as the share price had taken a beating in October. At the operational level the latest numbers included higher passenger numbers on more routes, higher load factors and revenue up 20% on last year to €1.4bn and the Company reports that these trends are continuing into H2. However, Pre-tax Profits were down 1.7% at €298m because of  higher fuel costs and flight disruptions due to Air Traffic Controllers’ striking and airport congestion. The Company expects margins to improve as it adds new more efficient ‘game-changing’ Airbus A321 NEO aircraft to its already relatively young fleet. Nevertheless, Profit guidance for the full year 2018-19 was lowered from €310-340m to €270-300m (NB WIZZ like many other carriers generates most if not all its profits in H1). Helped by some bullish broker comments investors appear to be looking forward and the share price has turned around sharply. The next test should be whether the share price can break resistance at 3255p.

Steve Shelley Investment Hub

 

Figure 6: Providence Resources: luck of the Irish?

Source: Company Website

Providence Resources PLC is quoted on both on AIM (PVR) and the Irish Stock Exchange with a  market cap of £93m.  It is focused on oil exploration and development of production from ten offshore Irish Licenses.  The flagship asset is the Barryroe oil field where Providence has a meaningful 40% stake in a 350 mboe barrel appraisal and development project.  In September it announced a farmout deal with a Chinese consortium that provides funding to drill 4 vertical wells and a Horizontal well plus a further two optional wells.  The agreement includes the repayment of $19.5m dollars of sunk operational costs out of future production. This deal substantially de-risks the future and underwrites the capitalisation.  Providence recently updated investors on the Dunquin South License where they hold a 27% equity interest and on the Newgrange License where they hold an 80% equity interest. Both have huge potential and it is likely they will be drill and evaluated in 2019. The share price is sensitive to any news of successful drill results and also of fresh farm ins. As the Irish say “There are fish in the sea better than have ever been caught”.

Robert Emmet Corporate Broking

 

Figure 7: Redx Pharma: nearly over the OUCH!

Source: Company Presentation

REDX Pharma’s (LSE; REDX) ambition is to become a leading biotech business focused on the development of novel medicines to transform the treatment of oncology and fibrotic diseases.  This has attracted several worthy investors such as Axa, Avia and Jon Moulton.  A critical clinical trial was put on hold in May due to side effects and the shares have fallen painfully from around 60p to the current 7p. In September 2018, regulators allowed the clinical development plan to be resumed with trials on patients but small molecule therapeutics in oncology and fibrotic diseases takes time. In October, the new management team led by CEO Lisa Anson held an operational review. It was decided to continue to focus on its lead candidates in oncology and fibrotic diseases. This reinforces the vision of a streamlined pipeline to achieve clinical proof-of-concept, which is a key value inflection point. There can be substantial value in drug development as Big Pharma prefer to buy at these later stages.  There should be a more positive update when finals to Y/E September are reported on Thursday 15th November. Next year is expected to be busy for REDX, with several major milestones and there may be enough cash for up to six months. Lisa Anson is on the board of the UK Bio Industry Association is widely respected.

Jon Levinson Corporate Broking

Chart 8: Rotation, rotation, rotation

Source: Y Charts/Wolf Street h/t Chris Bailey

After FAANGs + BATs comes, even better, FANGMAN. This handle in the above chart is simply too hard to resist in order to demonstrate what is happening in US equity markets. The seemingly  irresistible favourite stocks over at least the last 5 years (give or take a wobble or two along the way) and until October the stand-out winners in a dismal 2018 are…..er…. falling from grace amongst institutional investors. Even determined fight-backs by momentum-hooked retail investors has not been enough to stop the rotation. The next logical development is divergence in their fortunes. So make the most of HANGMAN while it lasts. Chris Bailey and I are asked regularly why the Dynamic Opportunities Fund does not own any of these stocks and the simple answer has been because they are very expensive. That will surely change: some will stay cheap for good reason and others will represent….er….. opportunities. Dynamic ones, even!

Alastair Winter Chief Economist

 

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By Alastair Winter

Cheif Economist at Daniel Stewart

alastair.winter@danielstewart.co.uk