Chart 1: Cable rewired?
As Mrs May licks her wounds after last night’s humiliating defeat what matters now is how hard she tries to build a consensus on the basis that a large majority in the Commons including half her ministers (and possibly herself but she is not saying) are determined to avoid ‘no deal’. She has her work cut out as nobody really trusts her competence or veracity any more (ironically, rather like Mr Trump, whom she no doubt fastidiously disdains as her mirror image). She may genuinely be taken aback by the intensity of division both in Parliament and amongst voters but as Prime Minister she has to deal with it responsibly in order to limit the economic and social damage.The scale of the defeat means there is little point in her persisting with the current deal as Europhile MPs who loyally supported her yesterday will now feel able to go their own way. This, in turn, means that Brexit will not take place on 29 March, if at all. The big question is whether she can offer Mr Corbyn, who is surely as desperate as she to avoid either A General Election or Referendum on Brexit, enough to win his backing for an even ‘softer’ deal. Mrs May also has to decide whether to withdraw Article 50 Notice (which can be done unilaterally and would provide more flexibility at the cost of apoplexy amongst Tory Brexiters) or merely extending it (which requires the unanimous consent of the other 27 EU members, which could opening Pandora’s Box). Some argue that nothing has been settled and others that No Deal is more likely but traders think otherwise. Even this first limited reduction in uncertainty is helping the pound move out of the range in which it has been languishing since October. UK equities should start to attract new interest, even if some FTSE 100 stocks may at first be held back if the pound rises quickly through the $1.30s.
Alastair Winter Chief Economist
Figure 2: Ashmore Group plc: still emerging!
Source: Company Website
The political scientist Ian Bremmer once described an emerging market as ‘a country where politics matters at least as much as economics’. This is certainly true…in which case most developed markets would currently qualify as well! Of course, thematically emerging markets, still retain all the structural forces they are famous for, including population growth, urbanisation, the rise of the middle class, and consumption catch-up capabilities. As long as global trade talks stay on track, the outlook for emerging markets for 2019 looks a lot better than it currently feels, even if we have to rely on leading global politicians to help deliver it. With this backdrop, a specialist emerging market fund manager such as Ashmore (ASHM.L Market Cap £2.7bn) may offer something different. This week’s trading update showed that, despite an impact of negative investment performance due to October and December’s market volatility, assets under management increased by $0.3 billion during the period. Continued net inflows from their investors show confidence in Ashmore’s experience and historic performance.
Chris Bailey Chief Investment Officer
Dynamic Opportunities UCITS Fund
Figure 3: Altitude Group PLC: AIMing high
Source: Advertising Industry Mastermind website
Altitude Group plc (AIM: ALT) is a leading provider of technology and information services to the promotional products, print and clothing industries with a market cap of £40M. It has developed a patented technology platform for distributors, which has a supply chain already built in and combines an e-commerce trading with a cloud-based CRM and order management system that enables both offline and online promotional product transactions to be executed.On Monday it announced a £7M placing through an accelerated book-building process to finance the acquisition in the US of the Advertising Industry Mastermind Group LLC a membership-based trade group of independent promotional products distributors. Altitude has been operating the Group’s platform AIMPro (nothing to do with the UK AIM market) on a white label basis since its launch in January 2018. The $23 billion US promotional products market is highly fragmented and AI Mastermind is the largest (7.4% market share) and fastest-growing promotional products distributor member group as mid-sized operators seek to counter the threat of large online retailers. The acquisition will enable Altitude to monetise the entire US$1.7 billion revenue pipeline of the AI Mastermind distributor member group. More details are available on request.
Edward MacLaren Investment Hub
Chart 4: SigmaRoc plc: Highway to Growth
Source: Google Stock Images
The former cash shell Messaging International has become SigmaRoc Plc (SRC.AIM). It started a buy and build strategy in building materials a year ago with two good-sized acquisitions. The first was the £45m purchase of Rone, a fully-integrated producer of construction materials and operates quarries in Jersey and Guernsey providing aggregates, concrete products, asphalt and cement. The £9m acquisition of Topcrete brought a precast concrete supplier (posts, barriers, paving and balustrades) operating predominantly in London and the Midlands.These were the first in a pipeline of value accretive deals by the experienced big company management team, who were backed in a £50m placing at 40p by institutions such as Legal & General, Slater, M&G and Nigel Wray. The most recent acquisition is Foelfach Quarry in South Wales, a producer of high polished stone, which is in short supply in the UK. Only 8% of UK quarries can produce this stone, which is used on roads because of its skid resistance. Foelfach had an estimated 1.8m tonnes of stone when acquired and work is underway to increase the resource to 4m tonnes and quadruple production to 80,000 tonnes a year. The finals for the 12 months to December 2018 are due to be reported in April and should show acquisitions making meaningful contributions, with more to come. We expect the net debt to be £12m, including a £10m 6% CLN. The Mkt Cap is £54m with the shares trading on just over ten times prospective 2018 earnings.
Jon Levinson Corporate Broking
Chart 5: JPMorgan Chase & Co: À la recherche du temps perdu
The US Q4 results reporting season is underway especially from the big banks and once again JP Morgan Chase are looking like coming out as best (and biggest) but that may not mean so very much these days. It is certainly true that Bank of America, Wells Fargo, Citigroup, Goldman and Morgan Stanley have all lived dangerously, especially in2007-9, and their equivalents of Figure 5 look much more like the Rocky Mountains than JPM’s relatively stately ascent but it too has had its crises. I must confess to a certain amount of nostalgia as I met my wife when we were both attending the unrivalled year-long Chase Manhattan Credit Training Programme. Even then we were aware that Chase did not practice what it preached and had its own 10-year cycles of Minsky Moments thanks to its Real Estate lending. Skeletons in the cupboard is one of the main hazards of investing in any bank and whichever of the US banks is currently over-exposed to student loans or car loans will not be revealed until it is too late. Of course, they may have laid off much of the risk to naïve European banks, as happened with sub-prime. Another hazard is banks’ exposure to macroeconomic developments and these are not looking so very good over the next 2-3 years with even the US facing a significant slowdown. The reality is that there has to be a reason specific to each individual bank to justify investing in it. More likely than not, this means M & A activity. Since I was at Chase it was taken over by Chemical (itself merged with Manufacturer’s Hanover) but kept its name before going on to buy Hambrecht & Quist and Robert Fleming. The Group then merged with JP Morgan and went on to acquire Bank One, Bear Stearns and much of Washington Mutual. It is not so much a question of ‘who’s next’ but rather ‘who’s left’. This relentless corporate activity probably explains more than anything else why Figure 5 looks a text-book case of ‘buy and hold’ and on that note I must end by disclosing that my wife still holds the JPM shares that she was awarded when she returned to work where she began her career. Maybe nostalgia sometimes can be what it used to be!
Alastair Winter Chief Economist
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By Alastair Winter
Cheif Economist at Daniel Stewart