Proactiveinvestors United Kingdom Proactive Insights https://www.proactiveinvestors.co.uk Proactiveinvestors United Kingdom Proactive Insights RSS feed en Fri, 24 May 2019 21:04:03 +0100 http://blogs.law.harvard.edu/tech/rss Genera CMS action@proactiveinvestors.com (Proactiveinvestors) action@proactiveinvestors.com (Proactiveinvestors) <![CDATA[News - Immuno-oncology: All you wanted to know but were too afraid to ask ]]> https://www.proactiveinvestors.co.uk/companies/news/220936/immuno-oncology-all-you-wanted-to-know-but-were-too-afraid-to-ask-220936.html The world’s biggest pharma companies are pouring hundreds of millions of dollars into developing new immuno-oncology drugs – but what exactly are they?

Immuno-oncology is an exciting – and relatively new – type of immunotherapy that is specifically designed to fight cancer.

Multi-billion-dollar business 

Unlike traditional cancer treatments such as chemotherapy, which essentially poison the body in a bid to kill off the tumour, immunotherapies work by stimulating the body’s own natural responses.

For a host of reasons, cancerous cells can sometimes go undetected by our immune systems, but immuno-oncology drugs help to lift this ‘cloak of invisibility’ and encourage the body to attack the cells.

This has obvious advantages given there is no need for invasive surgery or courses of toxic chemotherapy or radiation.

The first immuno-oncology drug was approved back in 2010 - sipuleucel-T for prostate cancer - and since then dozens have come to market, proving effective in treating melanoma (skin) and lymphoma (blood), as well as lung, breast and several other types of cancer.

There is more than just one type of immunotherapy as well.

CAR-T therapies

CAR-T therapies made headlines here in the UK towards the end of 2018 when UK regulators reached a deal over pricing with pharma giant Novartis for its cutting-edge Kymriah treatment.

Kymriah is what’s called a CART-T therapy, which stands for chimeric antigen receptor T-cell.

As the name suggests the technology involves T-cells, white blood cells that help the immune system fight disease and infection.

CAR-T therapies re-engineer the blood to recognise cancer cells that have been hiding in the body that haven’t been destroyed.

This area of immuno-oncology has become a popular field of research with UK companies at the forefront of some of the latest innovations.

Several UK firms in CAR-T space

Leading the pack is Autolus Therapeutics, a spin-out from University College London, which is now listed in the US with a market capitalisation in excess of US$1bn.

Backed in its formative stages by Arix Bioscience PLC (LON:ARIX) and Neil Woodford’s Patient Capital, it is running five CAR-T programmes covering six blood-borne cancers and solid tumour indications.

Smaller, with a market cap of US$110mln, but a potential pocket rocket is AIM-listed MaxCyte Inc (LON:MXCT).

It recently started dosing the second cohort of patients in the phase I clinical trial of MCY-M11, a chimeric antigen receptor that targets solid tumours.

Monoclonal antibodies

There are also monoclonal antibodies, which help the immune system to spot and kill cancer cells. If a company’s drug ends in -mab (tremelimumab, for example), it’s probably a monoclonal antibody.

One of the best things about our immune system is its ability to tell the difference between normal and harmful cells. It uses checkpoints to do just that, which either turn up or turn down a signal.

But cancer cells are clever things, and they can often interfere with the responses to avoid detection.

Monoclonal antibodies trigger the immune system by attaching themselves to proteins on cancer cells, making it easier for the body to find and attack the cancer cells.

Checkpoint inhibitors are the big money-makers

Checkpoint inhibitors are a particular type of monoclonal antibodies that help to flag up cancer cells to the immune system.

Cancer Research has a particularly good analogy: cancer can sometimes push a stop button on the immune cells, so the immune system won’t attack them. Checkpoint inhibitors block cancers from pushing this stop button.

Merck’s Keytruda is probably the most well-known monoclonal antibody. It is what’s known as a PD-1 inhibitor, and sales of the drug doubled last year to over US$7bn.

Peak sales could be as high as US$16bn, according to some analysts, as it takes a stranglehold on the massive lung cancer market.

Bristol-Myers Squibb’s rival PD-1 inhibitor, called Opdivo, used to be the biggest, but it was overtaken by Keytruda last summer. Still, at just shy of US$7bn, it wasn’t too far behind.

Cytokines

Cytokines are a bit more complex to explain. In simple terms, they are a group of proteins that play an important part in boosting the immune system.

They have a lot of control over the body’s response to an antigen – a toxin or foreign substance which causes the immune system to start making antibodies.

If there is an imbalance or their production is altered, this can lead to tumours developing.

Scientists have developed man-made versions of interferon and interleukin, which are types of cytokines found in the body.

On the flip side, if the body is producing too many cytokines, Janus Kinase (JAK) inhibitors can stop the proteins from being excessively activated. These have proved useful in treating cancers like renal cell carcinoma and melanoma.

Sareum Holdings PLC (LON:SAR) is among those developing TYK2/JAK1 inhibitors. In fact, it has two of them, SDC-1801 and SDC-1802.

Preclinical programmes have been mapped out for each discovery with the aim of getting them into the clinic in 2020.

Vaccines

There are also some cancer vaccines, although it is important to note that these don’t work like regular vaccines.

Rather than working to prevent an infectious disease, they are used to stimulate an immune response to attack existing cancer cells.

Once injected into the bloodstream, cancer vaccines should activate an immune response to help fight the cancer.

GlaxoSmithKline PLC (LON:GSK) makes one of the most well-known cancer vaccines called Cervarix.

It is designed to prevent infection from certain types of human papillomavirus (HPV), which is responsible for around two-thirds of cervical cancer cases. Last year, it brought in sales of US$175mln for GSK.

It’s not just the big boys…

While the likes of GSK, AstraZeneca PLC (LON:AZN) and Merck might have more high-profile - and expensive - programmes in the works, there are plenty of smaller companies out there looking to rise up the ranks.

TIziana Life Sciences PLC (LON:TILS) is one of those. One of the drugs it is taking through the clinic is Milciclib, a cyclin-dependent kinase (CDK) inhibitor.

It works to reduce levels of microRNAs in the body, which are thought to help supply blood to tumours. Interestingly, it also a potential tyrosine kinase (TYK) inhibitor.

There’s also Scancell Holdings PLC (LON:SCLP), which is working on two immuno-oncology technologies called ImmunoBody and Moditope.

The drug furthest down the clinical pathway is SCIB1, an antibody that stimulates the immune system to attack tumour cells expressing certain antigens.

A phase II trial of SCIB2 in skin cancer is due to get underway within a matter of weeks.

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Fri, 24 May 2019 12:55:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/220936/immuno-oncology-all-you-wanted-to-know-but-were-too-afraid-to-ask-220936.html
<![CDATA[News - Why so many forex brokers choose Cyprus as their home ]]> https://www.proactiveinvestors.co.uk/companies/news/220863/why-so-many-forex-brokers-choose-cyprus-as-their-home-220863.html Looking at the domiciles of foreign exchange (forex) brokers, you might be struck by how many of them have decided to set up shop in Cyprus, an island nation perhaps better known for holidaymakers sunning themselves on the beaches of the Mediterranean.

Since the Cyprus Securities and Exchange Commission (CySEC) issued its very first forex brokerage licence to Windsor Brokers in 1988, the country has seen an explosion in forex firms taking up residence, with over 40 now domiciled on the island.

These include famous names such as Markets.com and FXTM, who have decided to establish themselves in Cyprus as opposed to what some may think was a more natural home in the City of London.

But why is this seemingly quiet island the mainstay of all things forex?

One of the answers lies in the ever-present issue of taxes, or in this case the lack thereof, with Cyprus having one of the lowest corporate tax rates in the world at just 12.5%, well below the UK’s own rate of 19%.

The country is also a member of the European Union (EU), the European Economic Area (EEA) and subject to the Markets In Financial Instruments Directive (MiFID), an EU law designed to ensure a minimum regulatory framework for finance products across all EEA countries.

However, the more important element of MiFID is the “passporting principle”, which allows a firm in any EEA country to offer its services to customers in another.

Countries that have currently implemented MiFID in full include Ireland, the UK, France, Germany and Cyprus.

In short, this means a brokerage can pay Cypriot corporation tax while still being able to sell its services to customers in the UK market, a practice that many have been keen to take advantage of.

Cyprus has also grown into one of Europe’s more prominent finance hubs; it is one of the 100 biggest financial centres globally, and as such has attracted a specialised workforce of advisors, compliance experts and risk managers, all vital employees for a forex trading outfit.

Crypto the next forex?

Forex isn’t the only industry seeking to take advantage of the passporting principle and low taxes and Cyprus is not the only country to offer those benefits.

Cryptocurrency and Blockchain firms, while still at a fairly embryonic stage of development, have already found a home in jurisdictions which, like Cyprus, offer access to Europe’s finance markets.

The most famous is perhaps the British Overseas Territory of Gibraltar, which has not only legalised and regulated the operation of crypto exchanges but also subjects them to a very business-friendly corporate tax rate of just 10%.

As an added sweetener, cryptocurrencies are also not subject to any form of capital gains or dividend tax.

The favourable regime hasn’t taken long to draw in companies involved in the sector, with NEX-listed blockchain investment and advisory group Coinsilium Group Limited (LON:COIN) having already made preparations to move its business to the territory.

Aside from Gibraltar, Malta is another jurisdiction attempting to make itself the ‘go-to’ locale for the industry, having also legalised crypto exchanges and introduced legislation regulate initial coin offerings (ICOs), brokers, advisers and asset managers in the sector.

Much like Cyprus, Malta is an EU member state and has the advantages of MiFID; it also does not have any specific cryptocurrency tax laws and VAT does not apply to transactions that exchange fiat currency for crypto.

If the sector becomes as big as its proponents are suggesting, it might not be long before Cyprus isn’t the only spot in the Med serving as a haven for companies seeking an easy and cheaper route into Europe’s financial markets.

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Thu, 23 May 2019 13:54:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/220863/why-so-many-forex-brokers-choose-cyprus-as-their-home-220863.html
<![CDATA[News - London set for another IPO as Watches of Switzerland mulls premium listing ]]> https://www.proactiveinvestors.co.uk/companies/news/219567/london-set-for-another-ipo-as-watches-of-switzerland-mulls-premium-listing-219567.html The UK’s largest retailer of luxury watches, Watches of Switzerland, is thinking about listing in London as it looks to accelerate its expansion across the pond.

The company, which sells expensive watches made by the likes of Rolex and Cartier, is seeking a premium listing on the London Stock Exchange.

Owner to cash in

A float would give its US-based private equity owner, Apollo Global Management, the chance to sell off some of its holding, although it would still remain a controlling shareholder.

The company would also look to raise some extra money from its initial public offering, which it would use to support its expansion plans in the “underdeveloped” US market.

“Today's announcement signals the next stage in that journey, leveraging our scale, retail and e-commerce expertise, and strong stakeholder relationships to continue our profitable growth strategy,” said chief executive Brian Duffy.

“There are significant growth opportunities ahead of us, both in the UK and the US, many of which are already being realised.”

Watches of Switzerland operates from 125 stores in the UK, as well as 21 stores in the US.

UK IPO market picking up

Last year, revenue rose to £746mln, while adjusted underlying earnings (EBITDA) clocked in at £67.7mln.

After a slow start to the year, the UK IPO market has picked up in recent weeks.

Café-bar operator Loungers PLC (LON:LGRS) and payments firm Network International Holdings PLC (LON:NETW) are among those to have listed in London recently.

Fintech firm Finablr and roofing group Alumasc are also set to float in the coming weeks, as was Russia's rail freight business, Rustranscom, although that has since postponed its IPO.

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Thu, 02 May 2019 11:10:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/219567/london-set-for-another-ipo-as-watches-of-switzerland-mulls-premium-listing-219567.html
<![CDATA[News - Company doctors: the men and women in charge of getting businesses back on their feet ]]> https://www.proactiveinvestors.co.uk/companies/news/219130/company-doctors-the-men-and-women-in-charge-of-getting-businesses-back-on-their-feet-219130.html Cobham PLC (LON:COB) is waving goodbye to its chairman, Michael Wareing, the man brought in to oversee the defence giant’s turnaround a little more than two years ago.

When he joined along with new chief executive David Lockwood in January 2017, Cobham was in big trouble.

READ: Cobham appoints new chairman as Michael Wareing departs

Following a string of profit warnings and with debts of more than £1bn, it had been forced to ask investors for £500mln to shore up its finances.

Wareing’s job was to help oversee Cobham’s turnaround, and it was always the plan that he would step down in early 2019 after picking out a new chairman who would take the group forward.

Turnaround specialists

Although he wasn’t the chief executive and already had a seat on the board, Wareing effectively performed the role otherwise known as the company doctor.

These are people that are drafted in to the top roles at struggling companies who lack the self-awareness to diagnose their own issues.

The doctors’ sole aim is to identify the problems and put in place the fixes needed to get the business back on the straight and narrow.

Like Wareing, who used to work for KPMG, they tend to be financially minded, so most are often accountants by trade.

Kitchen-sinking

They have free reign to reset the business without the fear of looking stupid as all they’re doing is tidying up after the old management team. Their actions are often very predictable: cut jobs, slash costs and re-set guidance.

This often comes all at once, something known as ‘kitchen-sinking’, when all of the bad news is put out to the market at the same time rather than drip-feeding it over several months.

Wareing and the rest of the board stuck to that well-versed plan, sounding the profit alarm once again within days of their arrival and instantly kicking off a review of operations. A second jumbo rights issue followed a month later as well.

It sounds cynical, but such early profit warnings and fundraises are freebies for new bosses as the blame will be pinned on the old management team.

Tesco PLC (LON:TSCO) chief executive ‘drastic’ Dave Lewis did a similar thing when he was brought in in the wake of an accounting scandal. Even the ex-Chancellor, George Osborne, has been described as a “master kitchen-sinker”.

It’s not just individuals, either, some businesses are based entirely on providing turnaround services. AlixPartners, for example, has been hired by Thomas Cook Group PLC (LON:TCG) which is going through a rough time and is exploring a possible sale.

Doctors have their critics

Some in the City are sceptical of company doctors, who they reckon set expectations so low at the beginning that they can’t fail to outperform.

The real cynics will also point to their share options, which are often based on building the company from its new, lower base.

There’s no doubt company doctors can work, though.

Coming back to Cobham and Wareing, the company now has a net cash position £10.3mln versus net debt of more than £1bn when he, Lockwood.

Its share price, which tanked in those first few weeks following the profit warning and rights issue, has perked up nicely, too – up more than a third since those dreary days in February 2017.

But critics will be quick to point out that the share price is actually just back to where it was before the kitchen sink was chucked.

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Thu, 25 Apr 2019 16:15:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/219130/company-doctors-the-men-and-women-in-charge-of-getting-businesses-back-on-their-feet-219130.html
<![CDATA[News - The grey market: Why Silicon Valley’s unicorns no longer need to rush their IPOs ]]> https://www.proactiveinvestors.co.uk/companies/news/218790/the-grey-market-why-silicon-valleys-unicorns-no-longer-need-to-rush-their-ipos-218790.html There’s much fanfare surrounding Uber’s upcoming initial public offering which, if reports are to be believed, could value the taxi app at more than US$100bn.

The float is due to happen within the next couple of weeks and will mark the first time that Uber’s shares can be publicly traded.

READ: Uber files for IPO

Such IPOs used to be met with rapturous applause among employees and early-stage backers who were desperate to cash in their shares.

These days though, there is less of a clamour for so-called unicorns – billion-dollar start-ups – to go public. In fact, it now takes, on average, eight years from a firm’s first fundraising round to joining a stock exchange.

“The venture capitalists don’t necessarily want management to be preoccupied with the regulations of an IPO and quarterly reporting,” says journalist-turned-investor Malcolm Burne.

“[They] just want to let them loose on their growth phase.”

Paper wealth to cash wealth

Eight years is a long time, and while staying private for longer is often preferable for the company, not least because it allows bosses to make mistakes behind closed doors, it does throw up the issue of value realisation.

Without a stock market float or trade sale, the early hires and backers have traditionally had no way of turning their paper wealth into hard cash.

But things have changed in recent years on the back of success stories such as Facebook and Amazon, and a thriving ‘grey’ market has sprung up in Silicon Valley for shares in tech giants where intermediaries are helping founders and seed funders offload stock.

“There are an awful lot of people (long-term employees) who are going through a divorce or want to pay a tax bill or buy a new house,” explains Burne.

“Of course, there’s everyone else on the buy side who are scrambling to get into these things, and this is why the secondary market has developed.”

It’s seen as a win-win all around: those who want to realise some of their paper gains now have somebody on the other side who wants to buy, and vice versa.

Early investors make the big bucks

Serial entrepreneur Burne saw this opportunity a few years back, thanks to his Valley investor stepson and his daughter, who covers the venture capital space for the Wall Street Journal.

Along with fellow Brit Ian Wallis, the serial entrepreneur has set up Star Tech NG – a fund that reads like a ‘Who’s Who?’ of the American digital revolution, with investments in Uber, Airbnb, Pinterest and several others.

As is typical for these kind of funds, Star Tech buys shares from employees or seed funders, generally at a 10% discount to the most recent valuation, and holds them until its lock-in clause ends, which is usually six months after IPO.

“This is a very robust asset class, so when you do get into it, you can make a lot of money.

“We got into Lyft at US$29 a share and they went public at US$72 a share. Ok, they’ve come back a bit, but we’ve still doubled our money. We also doubled our money on Spotify and Zuora.”

Regular punters can still make money

With a minimum US$100,000 buy-in and various other restrictions, the fund is out of reach to most retail investors.

But while he acknowledges that most of a company’s value is realised by those who get into a stock early on, he’s convinced there is almost always a lot of money still to be made post-IPO.

“Had you bought on the market setbacks for Facebook, Google and Amazon, you’d have made a fortune because they all had those post-IPO sell-offs,” says Burne.

“If you believe in the long-term potential of these companies, it doesn’t matter what their share prices do in the short-term because you know it’s going to be around in 20 years’ time and be much bigger than it is today.”

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Fri, 19 Apr 2019 10:00:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/218790/the-grey-market-why-silicon-valleys-unicorns-no-longer-need-to-rush-their-ipos-218790.html
<![CDATA[News - Which oil and gas stocks are best placed to capitalise on the crude price rally? ]]> https://www.proactiveinvestors.co.uk/companies/news/218505/which-oil-and-gas-stocks-are-best-placed-to-capitalise-on-the-crude-price-rally-218505.html As a barrel of crude this week fetched its highest price for several months, there has been growing evidence of new interest in London’s junior oil and gas sector.

Suddenly, the micro-economics in the oil sector have turned bullish and, increasingly, the sector is looking attractive to speculators.

A (Molotov) cocktail of supply-side issues are behind the commodity price action. Political instability and outright conflict across multiple oil-producing states such as Venezuela, Iran and Libya are all impacting output – but, that is not all.

Driven by Saudi Arabia, OPEC has cut volumes and held back exports, and, in recent year’s North America’s shale boom has downgraded to, somewhat, of a thud.

Since Christmas, both Brent crude and West Texas Intermediate have rallied by close to 50%, and, analysts reckon prices will hold at these levels - around US$75 and US$67 per barrel respectively - possibly through until the end of 2019.

If anything, they see prices potentially rising further, in the near term at least.

”While several countries remain short on compliance, the Saudis have risen beyond their call of duty by pumping 300 kb/d below quota,” said Michael Tran, oil analyst at RBC Capital.

“We expect OPEC to announce at its June meeting the intention to extend the output cuts through 2H’19 to clean up balances and shore up pricing to levels closer to fiscal break-evens, which reside in the $75–80/bbl range or higher for many.”

Jeff Currie, Goldman Sachs head of commodities research cautioned rampant speculators, however, suggesting that the upside would be modest from current levels and said he didn’t expect US$80 per barrel levels again.

No matter how long it lasts and/or how high it goes up, the easy analysis is that firmer crude prices mean better business for oil and gas companies of all shapes and sizes.

A boon to London’s oil stocks

Outside of AIM’s hardcore speculators – who, frankly, could be talked into betting over the contents of a hole in the ground in any part of the world - there’s been nothing like the enthusiasm for oil stocks seen in the earlier part of the last decade.

London’s oilers have experienced a tough few years amid austere funding and, in some cases, the heavy debts accumulated under a quite different oil price environment.

It is perhaps understandable, therefore, in the wake of 2014’s sharp crude market sell-off, that many investors became either disenfranchised or at least disinterested in the sector.

The question is whether the current crude price resurgence translates directly into renewed positivity and an appetite to invest. That will, perhaps, depend on the slightly longer term outlook in the oil market.

Despite the relatively quick price turnaround, this is still someway away from ‘US$100 oil’ – but everything is relative and so far, the rally would represent less of a peak and more of a hillock.

Indeed, many commodity market watchers may expect the market to normalise quite quickly if one or two country specific situations are resolved, or if another major producer opened up the valves to production growth.

Identifying investment opportunities

It doesn’t take much more than a cursory analysis to decipher that ‘Big Oil’ firms such as BP PLC (LON:BP.) and Shell (LON:RDSB) will make much more money as their primary product fetches higher market prices.

In turn, there are benefits for the intermediate or ‘independent’ exploration and production companies.

The likes of Tullow Oil, Premier Oil and EnQuest would, for example, benefit mightily as enhanced cash-flows could allow faster debt repayments.

It would breathe fresh life into balance sheets that – whilst on paths to recovery – have endured the slow-squeeze pressures created through past project financing.

Following the trickle down, there’s likely to be a boost to small-cap companies partnered with these larger E&Ps as well as those seeking new partners and industry funding.

Better margins, better cash flow, and lower debt burdens likely all add up to investment in new growth projects for the future.

One might expect to see greater commitment to exploration and potentially new greenlights for project otherwise stuck in the recesses of asset portfolios.

This may be especially true for the frontier explorers and ‘wildcatters’.

A general appetite to invest in growth within the industry is typically a precursor to greater risk appetite in the more speculative, hit-or-miss, end of the exploration market - and, in the City, there’s always a couple of those to be found.

From top to bottom, better oil prices will always be taken as good news by investors in the sector.

The window of opportunity may only be ajar

It is a highly complex marketplace and few trends remain intact for long. Volatility is perhaps one of the few things that can be guaranteed in the oil market.

Whilst all the trends outlined above make for improved investor sentiment, it is probably wise to caution that the supply shortages could close almost as quickly as it takes to say ‘ceasefire’, ‘new OPEC commitments’ or ‘re-energised shale boom’.

So, going back to the question that nobody actually asked: which junior oil and gas companies are best placed to benefit from the current rally in crude prices?

It may be the case that this uptick in prices is a brief but opportune window in time, giving some of London’s capital-starved small caps the chance to latch onto funds to keep their plans moving through the next cycle.

We may not know how long these new ‘good times’ will last, but, it will probably be long enough for the City to get some oil market placings away.

Indeed, not particularly long ago, it may have seemed unlikely that Independent Oil & Gas PLC (LON:IOG) would’ve raised £16mln practically at the drop of a hat. Nevertheless the North Sea junior managed to fund a multi-well drill programme that had previously been on the cards for a number of years.

If a stockbroker has your number, expect to hear more about oil juniors with unappreciated assets and ambitious plans – especially ones with the possibility of well drilling in the near-term.

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Fri, 12 Apr 2019 12:56:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/218505/which-oil-and-gas-stocks-are-best-placed-to-capitalise-on-the-crude-price-rally-218505.html
<![CDATA[News - Sir Philip Green buys back 25% Topshop stake ahead of possible restructuring ]]> https://www.proactiveinvestors.co.uk/companies/news/218340/sir-philip-green-buys-back-25-topshop-stake-ahead-of-possible-restructuring-218340.html Sir Philip Green’s troubled Arcadia retail group has bought back a 25% stake in clothes stores Topshop and Topman (TSTM) from US private equity house Leonard Green & Partners.

The US investor, which owns Pure Gym, bought the stake in 2012 for a reported £350mln. It was hoped at the time that the deal would help Topshop and Topman expand across the pond.

News of the purchase comes at a time when Arcadia is reportedly mulling a company voluntary arrangement – a type of insolvency that would allow it to cut rents and close stores.

READ: Philip Green’s Arcadia retail empire considering CVA – media reports

Last month, the group, which also includes Burton and Miss Selfridge, said any job cuts and store closures would not be “significant”.

Like much of the high street, Arcadia’s stores have seen sales and profits fall in recent years as shoppers switch to online shopping.

Stagnant wage growth and political and economic uncertainty have also dented consumer confidence, while bricks-and-mortar retailers have been stung by higher business rates and taxes.

The group is also in discussions with pension regulators about reducing its cash contributions into its pension pot, which currently has a £500mln hole in it.

Chance to buy it back (again)

Green himself has been embroiled in claims of bullying and inappropriate behaviour, which he has strongly denied.

Arcadia couldn’t be immediately reached for comment, but Leonard Green said the transaction allowed Arcadia to “focus on the restructuring options being considered”.

“Leonard Green remains supportive of the business and has the opportunity to repurchase its stake in the future,” it said in a statement.

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Wed, 10 Apr 2019 15:30:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/218340/sir-philip-green-buys-back-25-topshop-stake-ahead-of-possible-restructuring-218340.html
<![CDATA[News - Video game firms set to level up as Apple and Google change the rules with streaming services ]]> https://www.proactiveinvestors.co.uk/companies/news/218252/video-game-firms-set-to-level-up-as-apple-and-google-change-the-rules-with-streaming-services-218252.html Several London-listed firms in the video game sector are looking to ride an industry upswing after tech giants Apple Inc (NASDAQ: AAPL) and Google (NASDAQ:GOOG) unveiled plans to break into the market.

Last month, the two heavyweights unveiled video game streaming systems, a development that could potentially change the market forever.

READ: Keywords Studios profits jump 65% as acquisitions boost earnings in 2018

Apple Arcade, alongside its competitor Google Stadia, will both be subscription-based gaming services that allow players to play games from the online cloud on any screen without the need for console hardware like Sony’s PlayStation or Microsoft Corp’s (NASDAQ:MSFT) Xbox.

This approach, essentially the Netflix model but for video games, has the capacity to offer instant access and portability for gamers and explode the market beyond its already huge customer base of around two billion.

Given the global video game market is expected to be worth over US$174bn by 2021 and has a compound annual growth rate (CAGR) of around 9%, it’s no wonder they are looking for a slice of the pie.

Boon for developers and service providers

With the potential for an even bigger market and the accompanying demand for content, developers and companies that provide back-end services for video games are bullish on the future.

Andrew Day, chief executive of AIM 100 firm Keywords Studios PLC (LON:KWS) which provides creative and translation services for video game developers, is already predicting a “likely increase in demand” when the Apple Arcade and the Stadia are released.

Meanwhile, fellow back-end services firm Sumo Group PLC (LON:SUMO) is getting an early foot in the door, announcing in its full year results on Tuesday that it had secured a deal to develop two titles for Apple Arcade.

READ: Sumo levels up on “unusually” high earnings visibility for 2019

Sumo’s chief executive, Carl Cavers, also offered a bright outlook, saying the future for the firm was “as good as ever” with demand from the new cloud-based subscription platforms expected to drive growth in the sector.

The sentiment has been echoed by analysts at Liberum, who said in a note on Monday that video game streaming could become “a major delivery channel sooner than expected”.

“Increased reach of the cloud among gamers and higher game complexity (allowed by nearly unlimited processing power) should be a catalyst for higher demand for games services in the coming months”, the broker added.

Things have also been looking good on the developer side, with racing game maker Codemasters Group Holdings PLC (LON:CDM) saying in a trading update on 1 April that its adjusted earnings (EBITDA) for its latest full year were ahead of market expectations, citing a boost from digital sales.

‘Fortnite effect’ fading?

The bullish sentiment will likely come as a relief to investors following a particularly difficult year for London’s game stocks, who like many in the sector have been suffering from the so-called ‘Fortnite effect’.

Fortnite, an online, free-to-play video game launched in July 2017, has exploded in popularity over the last year and a half, drawing in more than 250mln players and raking in cash for its publisher Epic Games.

However, while Fortnite’s success has brought online video gaming squarely into the mainstream, many in the sector have suffered as a result of its dominance.

This ‘Fortnite effect’ is essentially a trend where other gaming companies have been pressured as Fortnite’s massive popularity has driven down their product sales, forcing them to cut back on spending for new projects.

This ‘mothballing’ then becomes a knock-on effect for the companies that provide support services, with shares on both sides of the development coin seeing declines over the last year.

However, with the coming dawn of Netflix-esque game streaming the shares seem to be mounting a recovery, with Keywords and Sumo having risen around 19% and 6.3% respectively in the last month.

For Fortnite, the new era may mean it becomes a victim of its own success as massive libraries of video games with cheap monthly subscriptions that require no console or PC hardware could effectively serve as a leech on its own player base, who seem to have been attracted mainly by its free-to-play offering.

It seems that by bringing the sector to prominence through its success, it may have inadvertently sounded its own death knell.

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Tue, 09 Apr 2019 15:13:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/218252/video-game-firms-set-to-level-up-as-apple-and-google-change-the-rules-with-streaming-services-218252.html
<![CDATA[News - Are tobacco and supermarket stocks not the “safe harbour” investments they once were? ]]> https://www.proactiveinvestors.co.uk/companies/news/217653/are-tobacco-and-supermarket-stocks-not-the-safe-harbour-investments-they-once-were-217653.html A safe harbour (or defensive) stock is usually interpreted as an investment that will retain or even increase its value during periods of turbulence in the market.

Traditionally, most safe harbour stocks have been confined to a select group of market sectors that includes tobacco and food retailers.

However, in recent times, enthusiasm seems to be waning for these once dependable stocks.

Last gasp for tobacco?

The last few years have been a bumpy ride for major tobacco stocks, which are often touted as dependable defensive investments due to a consistent demand for their products, thanks to their highly addictive nature.

Recent developments, including the rising uptake of e-cigarettes (or ‘vaping’) among the general population, particularly younger generations, a growing social aversion to traditional smoking and global regulatory crackdowns have forced big tobacco onto the back foot.

For example, shares in FTSE 100 British American Tobacco PLC (LON:BATS) have fallen 24% in the last three years as the industry has struggled to adapt to the changing product landscape.

It has been a similar story for fellow blue-chip tobacco firm Imperial Brands PLC (LON:IMB), which has seen its share price drop 32% in the same period.

By contrast, the number of adults vaping has risen to more than 40mln from about 35mln over the same period, while the World Health Organization estimates the number of smokers globally has fallen to 1.1bn from 1.14bn in 2000.

BATs has seen some success in this new market, reporting a 95% jump in revenue for its vapour and tobacco heating products (THP) in 2018 to £905mln; however, potential regulatory restrictions on menthol cigarettes and a trend toward greater scrutiny of youngsters vaping in the US market could cause more pain for the sector.

Imperial has also seen good uptake of its myblu vape pens, into which it has poured £100mln over the last few months, although these gains could be snuffed out by a hard-line approach from US regulators.

BATs is also facing an additional headache from its Canadian business, which was left on the edge of bankruptcy in March as the result of a court ruling that demanded the tobacco industry pay almost £8bn (C$13.6bn) in damages to thousands of Quebec smokers who successfully argued that cigarette makers failed to warn them of the health risks.

READ: British American Tobacco’s Canadian subsidiary granted creditor protection

The one saving grace tobacco stocks seem to have left for investors is their dividends, which in the case of both BATs and IMPs, has risen every year since 2014, making them a more-than-attractive target for investors that are willing to sit on the shares and receive dividend payments.

According to Ian Forrest, investment research analyst at The Share Centre, these dividend payments are “the main appeal” of tobacco stocks, particularly for BATs.

He adds that given the uncertain regulatory picture in the US, the shares would no longer be more than a ‘hold’ for medium risk investors, which is a highly equivocal recommendation.

Supermarkets uber alles

Food retailing is another sector considered a safe bet; after all, everyone needs groceries.

However, the reality paints a gloomier picture for the so-called ‘big four’ UK supermarkets: J Sainsbury PLC (LON:SBRY), Wm Morrison Supermarkets PLC (LON:MRW), Tesco PLC (LON:TSCO), and Walmart Inc (NYSE:WMT)-owned Asda; their industry has come under pressure in recent years due to challengers from the continent.

Since setting up shop in the UK in 1990 and 1994 respectively, German discounters Aldi and Lidl have been eroding the market share of the dominant supermarkets through their cheaper offerings.

Over the last three years, Aldi’s share of the UK’s grocery stores has risen to over 7.5% from 6% while Lidl has upped its share to over 5.5% from 4.4% in April 2016.

By contrast, the market share of each of the ‘big four’ has declined over the same period.

Inflation is also playing a factor, as in the world of wafer-thin margins, getting price rises through under customers’ noses during a period of low inflation is a “tough ask”, forcing cutbacks in other areas.

The battle to retain market share and ward off the discounters was highlighted in recent months by Sainsbury’s and Asda attempting a multi-billion pound merger to leapfrog Tesco and become the UK’s largest supermarket.

READ: Sainsbury's and Asda suggest selling up to 150 supermarkets to get CMA approval

However, the deal has run into regulatory hurdles with the Competition and Markets Authority (CMA) querying the effect of the merger on competitiveness in the sector, with the two firms promising price cuts of around £1bn each year to try to address the issue.

The income stream from owning supermarket shares has also not been as reliable as one might have thought it would be.

The payouts from Sainsbury’s and Morrisons are both below their 2015 levels and while Tesco meanwhile, is paying more than it did in 2015, it didn’t pay out anything in 2016 or 2017.

Having said that, according to Laith Khalaf, senior analyst at Hargreaves Lansdown, supermarkets shouldn’t be considered “defensive” stocks at all, mostly due to their exposure to consumer spending.

“Traditionally they’re at the defensive end of retail space, but they are still retail so their fortunes are still tied to the consumer and that will wax and wane with the economy.”

He adds that the sector has “made progress” from where it was three years ago through self-help measures like merger activity and launching their own discount chains, such as Tesco’s Jack’s brand, but the risks from inflation, currency movements, and continual expansion of discounters will continue to be threats to the established supermarkets.

“I still see them as economically sensitive stocks,” Khalaf says, highlighting that e-commerce giant Amazon Inc (NASDAQ:AMZN) could also be poised to break into the sector after its purchase of US supermarket chain Whole Foods in 2017.

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Mon, 01 Apr 2019 13:44:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/217653/are-tobacco-and-supermarket-stocks-not-the-safe-harbour-investments-they-once-were-217653.html
<![CDATA[News - Could psychedelic medicine be the new cannabis? ]]> https://www.proactiveinvestors.co.uk/companies/news/217441/could-psychedelic-medicine-be-the-new-cannabis-217441.html Say the word “psychedelic” and most people will immediately conjure up images of tie-dyed hippy types taking magic mushrooms.

However, recent developments have indicated that new treatments derived from these mind-altering substances are garnering new attention from the investment community.

On Thursday, Berlin-based biotech called ATAI Life Sciences secured around US$43mln (£36.8mln) in a funding round, valuing the firm at around US$240mln, making it the largest company in the space.

Founded in 2018, ATAI finances clinical trials for drugs that incorporate psychedelic compounds that could potentially be used to treat mental health disorders.

These include ketamine, often used for pain relief and sedation, and psilocybin, the active ingredient in magic mushrooms.

ATAI currently owns Perception Neuroscience, a company developing therapies for neuropsychiatric diseases (e.g. eating disorders), and is the largest stakeholder in Compass Pathways, a firm looking at psilocybin-based therapy for depression.

Echoes of cannabis

Much like cannabis before it, psychedelic compounds have often been maligned by mainstream society for their connection with recreational drug use.

However, again like cannabis, there is a growing body of evidence that the chemicals could be used to treat various mental health problems.

There have also been some encouraging signs from regulators around the use of the substances.

Last October, Compass Pathways received a ‘Breakthrough Therapy’ designation from the US Food and Drug Administration (FDA) for its psilocybin depression therapy.

A ‘Breakthrough Therapy’ is defined as a drug having preliminary clinical evidence that shows it may demonstrate a substantial improvement over options that are currently available to patients.

While this may not be an immediate sign for investors to turn on the money tap, it does help smaller biotech companies get their foot in the door when it comes to raising money as potential investors might take the view that the regulatory approval process would likely be simpler or expedited.

Reflecting on cannabis, the global medical marijuana market is expected to grow at a compound annual growth rate (CAGR) of 15.9% between 2018 and 2026, taking its value from around US$12bn to US$39bn.

This has been helped by a wave of legalisation in recent years in populous US states such as California, as well as the whole of Canada, on the back of increasingly relaxed attitudes around the drug as well as greater awareness of the plant’s medicinal potential, particularly cannabidiol (CBD) which can help treat neurological disorders like epilepsy.

If psychedelics follow suit, laying down a marker early with regulators could give companies a critical first-mover advantage.

Big hitters involved

It isn’t just small biotech firms researching the potential of psychedelics either.

In early March, pharmaceutical and consumer goods firm Johnson & Johnson (NYSE:JNJ) received FDA approval for a new nasal spray using esketamine, a derivative of ketamine, to help treat patients suffering from depression.

The new drug, called Spravato, is designed to help alleviate treatment-resistant depression, which is when a patient still requires medication despite taking two or more types of anti-depressant previously.

The approval followed years of research by J&J’s pharmaceuticals arm, Janssen, into the potential uses of esketamine in anti-depression treatments.

Mental illness is one of the biggest causes of the world’s disease burden, with the World Health Organisation (WHO) estimating that one in four people are affected by a mental or neurological disorder at some point in their lives.

In the UK alone, around 19.7% of people have been reported as showing symptoms of anxiety or depression.

With numbers like that, the market for psychedelic medicines already seems wide open.

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Thu, 28 Mar 2019 13:57:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/217441/could-psychedelic-medicine-be-the-new-cannabis-217441.html
<![CDATA[News - When is a special dividend not that special? ]]> https://www.proactiveinvestors.co.uk/companies/news/217438/when-is-a-special-dividend-not-that-special-217438.html Motor insurer Sabre Insurance PLC (LON:SBRE) wheeled out a special dividend alongside its full-year results earlier today.

The FTSE 250 company, which owns brands such as Go Girl and Insure 2 Drive, said it would pay investors an extra 6p per share on top of what it had already set aside.

READ: Sabre declares special dividend despite profit fall

Sabre is only required by regulators to keep £61mln in case of emergency, but it ended 2018 with £130mln, so it wanted to return some of this excess cash to shareholders.

Making these one-off payments to investors is a growing trend among London’s biggest companies.

Last year, for example, 12 firms on the FTSE 100 paid out special dividends worth some £6bn – the highest amount ever.

“That tidy sum topped up the £87.2bn paid out in regular dividends and added 0.3 percentage points to the UK’s dividend yield, a welcome addition to portfolio returns for income-seekers and one that will have put more of a gloss on the FTSE 100’s disappointing capital return in 2018,” says AJ Bell investment director Russ Mould.

In addition to Sabre, mining giant BHP and UK bank RBS have also unveiled special dividends of their own, and Mould speculates that others may well follow suit in the coming weeks and months.

Used to win over unhappy investors

While the extra money is no doubt a boon for shareholders, some are critical of special dividends and the companies who pay them.

Take Marks & Spencer Group PLC (LON:MKS), for example. The high street stalwart paid out a 4.2p-per-share special in the summer of 2016 in what was seen by many as an attempt to curry favour with disgruntled investors rather than a desire to return excess profits.

“[That] now looks like a waste of money,” says Mould, “especially in light of the cut to the regular dividend for the year to March 2019 now promised by chairman Archie Norman and chief executive Steve Rowe.”

Some companies have even built up little streaks of special distributions, notably a handful of insurers and housebuilders.

Cancel special > cutting original

That creates a sense of security, but because of their inherently uncertain nature, they can catch investors out when they are pulled.

Direct Line Insurance Group PLC (LON:DLG) halved its special divi last year, while Next PLC (LON:NXT) didn’t pay anything at all despite handing over almost 600p-a-share between 2014 and 2017. ITV  PLC (LON:ITV) hasn’t made a special distribution for the past two years, even though it made four in a row between 2013 and 2016.

Mould reckons housebuilders could be among the next to pull their specials if the Help to Buy scheme, dubbed Help to Profit by some critics, is refined

That fits in with one of the key reasons why a company might opt to bring in a special dividend rather than increase its original pay-out.

“It is easier to decline to pay a special dividend than it is to cut a regular one,” explains Mould.

If the companies were that confident of their future performance, surely they would just hike their regular dividend?

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Thu, 28 Mar 2019 13:45:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/217438/when-is-a-special-dividend-not-that-special-217438.html
<![CDATA[News - Bottling giant Coca-Cola European Partners joins the London Stock Exchange ]]> https://www.proactiveinvestors.co.uk/companies/news/217415/bottling-giant-coca-cola-european-partners-joins-the-london-stock-exchange-217415.html The world’s largest Coca-Cola bottling company, Coca-Cola European Partners PLC (LON:CCEP), has made its debut on the London Stock Exchange this morning.

CCEP’s previous listing in the capital was on the Euronext London, but it has now moved to the LSE and will formally cancel its Euronext shares tomorrow (29 March).

READ: Announcement in full

The company, which also has listings in New York, Madrid and Amsterdam, said it was joining “Europe’s leading stock exchange” in order to improve its liquidity and investor access.

“We feel this is the perfect time to move our UK listing to London Stock Exchange,” said chief executive Damian Gammell.

“We have a solid track record and we operate in the large and growing Western European non-alcoholic ready to drink market, where we have a leading position with the world's best brands.”

Formed by merger of three bottlers

CCEP was formed back in 2016 when the three main Coca-Cola bottling companies in Europe merged.

Last year, the company, which is headquartered in Uxbridge, turned an operating profit of €1.6bn on sales of €11.5bn.

Like all of Coke’s bottlers, CCEP buys the syrups from The Coca-Cola Company, adds the water and fizz and bottles the drinks. It then markets and sells the products to shops and restaurants.

The firm claims to sell more than 50bn bottles of Coke, Fanta, Sprite and other Coca-Cola products every year, serving some 300mln customers.

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Thu, 28 Mar 2019 10:28:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/217415/bottling-giant-coca-cola-european-partners-joins-the-london-stock-exchange-217415.html
<![CDATA[News - Why blockchain will be the future of payments despite what recent sector M&A suggests ]]> https://www.proactiveinvestors.co.uk/companies/news/217262/why-blockchain-will-be-the-future-of-payments-despite-what-recent-sector-ma-suggests-217262.html Credit card giant Mastercard is to plough US$300mln into Network International ahead of the African payments firm’s planned US$3bn float on the London Stock Exchange.

It is the latest example of the furious deal-making going on in the sector, with payments-processing firms becoming highly sought after as the switch to cards and phones from cash reaches a tipping point.

READ: Mastercard pumps US$300mln into Network International ahead of IPO

Mastercard was recently outbid by arch-rival Visa for AIM-listed Earthport, which finally agreed on a £247mln cash offer – 5x what the price was before the two giants started bidding.

WorldPay, meanwhile, is changing hands again with FIS buying the payments group for an enterprise value of US$43bn. That comes just a year after the former RBS division merged with Vantiv.

So with big money being spent on ‘traditional’ payments companies, what does this mean for blockchain – the technology that was supposed to revolutionise the finance industry?

Not much, according to finnCap analyst Lorne Daniel, who still expects blockchain to dominate the financial landscape in the future.

“Blockchain will come, but like all of these things it takes five or ten years longer than you’d think for them to become established,” he told Proactive Investors.

The likes of Mastercard and Visa all have an eye on the future and are looking at blockchain, he says, but they need to be able to service their customers’ needs now as well.

“They are thinking much shorter-term. They’re not going to be investing heavily in cutting edge tech because they don’t know it works and they’re not there to experiment.”

More M&A on the way...

Daniel thinks more M&A could be on the way in the sector over the coming months as the sector land-grab continues.

“The big guys have got the money to buy the more successful platforms that have shown they work.

“We’re now past that experimental stage and we’re moving into a stage where you have winners and losers and the winners are being snapped up.”

But he is sure that blockchain will live up to its initial hype, despite the cooling of interest in cryptocurrencies – most of which use Blockchain to function – over the past year.

“Blockchain will definitely have its day, it’s too good a technology not to. I’m sure across the financial industry it will be revolutionary, but it will likely be 10 or 15 years before you see it making major inroads.”

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Tue, 26 Mar 2019 15:20:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/217262/why-blockchain-will-be-the-future-of-payments-despite-what-recent-sector-ma-suggests-217262.html
<![CDATA[News - IFG agrees to be taken out by UK private equity firm Epiris in £206mln deal ]]> https://www.proactiveinvestors.co.uk/companies/news/217092/ifg-agrees-to-be-taken-out-by-uk-private-equity-firm-epiris-in-206mln-deal-217092.html Financial services firm IFG Group PLC (LON:IFG) has agreed to be taken out by London-based private equity firm Epiris in a deal worth £206mln.

Epiris, whose investments also include TGI Fridays, Hollywood Bowl and auction house Bonhams, is to pay 193p for each IFG share.

READ: Announcement in full

That offer represents a premium of 46% compared to the closing price of the stock on Friday afternoon and values IFG at 21.4 times earnings.

“We are pleased to be announcing this transaction today and believe it is an excellent outcome for shareholders, for the company, and for our clients,” said IFG chief executive Kathryn Purves.

“The offer by Epiris represents a compelling opportunity for shareholders to realise an immediate and attractive cash value for their shareholding in IFG today.”

Epiris’ Owen Wilson added: “We are delighted that the Board of IFG has recommended our offer and we are excited to work with management to realise the growth potential of James Hay and of Saunderson House and to further enhance their position in their respective markets.”

IFG had put its Sanderson House business on the chopping block early in 2018 after a strategy review concluded that its disposal might create greater value for shareholders.

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Mon, 25 Mar 2019 08:05:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/217092/ifg-agrees-to-be-taken-out-by-uk-private-equity-firm-epiris-in-206mln-deal-217092.html
<![CDATA[News - Philip Green’s Arcadia retail empire considering CVA – media reports ]]> https://www.proactiveinvestors.co.uk/companies/news/216563/philip-greens-arcadia-retail-empire-considering-cva--media-reports-216563.html Controversial billionaire Philip Green is reportedly considering a company voluntary arrangement (CVA) for his Arcadia retail empire.

The CVA, which is a type of insolvency mechanism, could see the retail tycoon close a “significant numbers” of his stores, which include Top Shop and Dorothy Perkins, if creditors back the plans.

That in turn, would likely lead to “substantial job losses”, said Sky News’ City editor, Mark Kleinman, who added that the restructuring plans could be unveiled “within a matter of weeks”.

READ: CVAs explained

Like many UK retailers, Arcadia has been hit by rising costs and falling sales amid a weak consumer backdrop.

Most of Green’s brands have a big high street presence, which has exacerbated problems as those who are still spending money are increasingly doing so online.

Formal discussions with landlords to close stores and slash rents are expected to begin shortly.

EXCLUSIVE: Sir Philip Green's retail empire, which includes Top Shop and Dorothy Perkins, is drawing up plans to launch a Company Voluntary Arrangement within weeks that would - if approved by creditors - trigger store closures, rent cuts and job losses. https://t.co/ZJIxeCMIXA

— Mark Kleinman (@MarkKleinmanSky) March 15, 2019

Those landlords, such as British Land Company PLC (LON:BLND), will have to give their backing for Arcadia to carry out its restructuring, as would the Pension Protection Fund (PFF).

The company pays an estimated £50mln into the pension scheme every year.

Green and his team are understood to be in discussions with the UK’s pensions regulator, given his protracted dispute over BHS’s retirement scheme deficit following its collapse in 2016.

Sky sources said the regulator would only endorse a CVA if it was satisfied that the ability of the revamped Arcadia to meet its pension contribution obligations was enhanced.

Should Green not be able to get creditors to agree to his plans, analysts reckon there are few alternative options.

How does a CVA work?

CVA stands for company voluntary arrangement and, in a nutshell, it is an offer by a struggling company to its creditors – usually landlords, banks, the tax man etc.

In a lengthy document, the company has to explain how it got itself into a mess, outline what assets it has, as well as all of its liabilities – i.e. everything it owes – before offering a reduced payment plan.

Things that the firm will usually request include asking landlords to agree to reduce its rents or cancel the lease altogether, while banks might be asked to restructure repayments.

The company sends its CVA pack round to all of the people and organisations to whom it owes money, after which they vote on whether to accept the proposals or not.

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Fri, 15 Mar 2019 12:50:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/216563/philip-greens-arcadia-retail-empire-considering-cva--media-reports-216563.html
<![CDATA[News - Network International gears up for London’s biggest float of 2019 ]]> https://www.proactiveinvestors.co.uk/companies/news/216498/network-international-gears-up-for-londons-biggest-float-of-2019-216498.html London is gearing up for its biggest IPO of 2019 so far, with payments giant Network International confirming it is looking to list in the capital later this year.

News of the potential IPO, which could come as early as April, will be welcomed by City financiers, who have been starved of big floats in recent months amid increasing uncertainty over Brexit.

Some reports have suggested the listing could value the Middle East and Africa-focused group at upwards of £2bn.

READ: Network’s announcement in full

That would easily outstrip the £366mln valuation that legal firm DWF Group Ltd (LON:DWF) came to market with earlier this week.

“We have picked London because of the strong investor base, good corporate governance and the number of emerging funds that are based here,” chief executive Simon Haslam told the Evening Standard.

“Of course we’ll be watching how Brexit develops but most of our business is done outside the EU, in the Middle East and Africa, and so it doesn’t really affect us.”

To help it prepare for its eventual flotation, Network International has appointed industry veteran and former Worldpay boss Ron Kalifa as its chairman.

Last year, the company, which was founded 25 years ago, posted earnings of US$152mln on revenue of US$298mln.

Demand for its services in the Middle East and Africa has soared in recent years as more and more people switch to digital from cash.

In what could be another boost for the Square Mile, Fitzrovia-based mortgage lender LendInvest also confirmed on Thursday that it is mulling a stock exchange listing, although it didn’t clarify where or when.

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Thu, 14 Mar 2019 15:25:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/216498/network-international-gears-up-for-londons-biggest-float-of-2019-216498.html
<![CDATA[News - Oil & Gas firms on tenterhooks as world’s largest sovereign wealth fund to decide whether to dump sector ]]> https://www.proactiveinvestors.co.uk/companies/news/216032/oil--gas-firms-on-tenterhooks-as-worlds-largest-sovereign-wealth-fund-to-decide-whether-to-dump-sector-216032.html Investors in oil & gas companies will be on the edge of their seats on Friday as the world’s largest sovereign wealth fund, the Government Pension Fund of Norway (GPFN), decides whether to divest from the sector.

The US$1tn fund has around US$37bn tied up in oil & gas investments, with UK companies ranging from blue-chips to small-caps in the firing line if it decides to dump its holdings.

Some of the big UK-listed oilers that could be headed for the bin are BP PLC (LON:BP.) and Royal Dutch Shell PLC (LON:RDSA) as the investment fund holds stakes in each of around 2.3% and 2.5% respectively.

GPFN’s stake in Shell is also the largest investment it has across its oil & gas portfolio, worth around US$6bn alone.

A little lower down, FTSE 250 constituent Premier Oil PLC (LON:PMO), in which the fund holds a 1.8% stake, and FTSE Small Cap firms like Nostrum Oil & Gas PLC (LON:NOG), in which it has a 1.9% holding, could also be hit by a decision to offload shares.

Even some AIM-listed minnows, such as IGas Energy Plc (LON:IGAS) and President Energy PLC (LON:PPC), won’t escape the sell-off.

It isn’t just explorers and producers facing the fallout either as the fund has also taken stakes in groups like oil rig builder Lamprell PLC (LON:LAM) and oilfield maintenance firm John Wood Group PLC (LON:WG.).

How could the markets react?

Given that the three FTSE 100 companies in the fund - Shell, BP, and Wood Group - collectively make up nearly 16% of the blue-chip index’s weighting (i.e. the proportion their shares take up in the index), a divestment decision could have implications for its direction.

However, Russ Mould, investment director at AJ Bell, said that while some market makers would mark down the stocks in a “knee-jerk reaction”, it’s unlikely the Norwegians would start dumping their holdings straight away.

He added: “It would a brave thing to put a deadline on [the sale of the holdings], because it would mean every trader would have a big target to move the price against them”.

Instead, Mould says that while the divestment would sharpen the debate around the future of oil and hydrocarbons, the companies themselves would not be in major trouble.

“I can see some pressure on oil stocks but [the major oil companies] have substantial residual value and the dividend is still sufficiently appealing that somebody might see this as an opportunity”.

The potential sale of the holdings doesn’t mean Norway is totally exiting the sector either, with analytics firm GlobalData expecting the country to spend around US$21.2bn on new builds in the North Sea between 2019 and 2025, more than any other country.

Soorya Tejomoortula, an oil & gas analyst at GlobalData, added that the investments would help Norway “lead crude production in the North Sea” as it would be contributing “more than 70% of crude and condensate production from major planned and announced projects in 2025”.

Not exactly the behaviour of a country giving up on oil.

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Thu, 07 Mar 2019 15:38:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/216032/oil--gas-firms-on-tenterhooks-as-worlds-largest-sovereign-wealth-fund-to-decide-whether-to-dump-sector-216032.html
<![CDATA[News - Why FTSE 100 bosses need longer than five years to show their worth ]]> https://www.proactiveinvestors.co.uk/companies/news/215740/why-ftse-100-bosses-need-longer-than-five-years-to-show-their-worth-215740.html Bosses of FTSE 100 companies are afforded more than twice the amount of time a Premier League football manager gets in the hot seat, but that’s still not enough, according to Russ Mould, investment director at Hargreaves Lansdown.

The average blue-chip chief executive remains in charge for 5.1 years, much longer than the 2.1 years managers get, on average, in the revolving door that is England’s top football league.

“While company chairmen and investors can sometimes be seen as obsessed with short-term results, they are models of patience compared to football club chairmen and supporters,” says Mould.

READ: Aviva appoints new CEO ahead of results

Despite this relative patience, Mould argues that five years is still not long enough to truly determine the success of a CEO’s time in charge.

“The secret sauce of investing is dividend reinvestment. But the real benefit of the compounding effect only starts to become really apparent after eight or ten years, so even a five-year average tenure for a FTSE 100 boss may not be adequate from the perspective of shareholders.

“There remains the danger that the average five-year CEO tenure can lead executives to focus on the value of their own shareholdings and stock options to maximise near-term return for themselves, potentially to the detriment of long-term holders.”

As for the latest addition to the list of blue-chip bosses, Aviva PLC’s (LON:AV.) Maurice Tulloch, investors have given him “a warm welcome” with the stock up 1.2% today to 437.1p.

But Mould warns shareholders to pay attention to his pay packet and bonus schemes when the insurer’s annual report is published later this month.

“Shareholders must always read the annual report and accounts to assess how a chief executive is to be paid and what metrics will trigger any bonus payments or awards of stock or options.

“In the case of Aviva, its full-year results are due out on Thursday 7 March and the annual report should come out toward the end of the month, so the package awarded to Mr Tulloch will be of particular interest.”

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Mon, 04 Mar 2019 15:35:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/215740/why-ftse-100-bosses-need-longer-than-five-years-to-show-their-worth-215740.html
<![CDATA[News - As M&S and ITV unveil tie-in deals, is the plug-and-play/consolidation model becoming the default catch-up method for digital? ]]> https://www.proactiveinvestors.co.uk/companies/news/215442/as-ms-and-itv-unveil-tie-in-deals-is-the-plug-and-playconsolidation-model-becoming-the-default-catch-up-method-for-digital-215442.html A double-whammy of joint venture news on Wednesday has brought to the fore the ongoing rush by large companies to catch-up with the digital revolution as they try to regain lost ground from online competitors.

Retailer Marks and Spencer Group PLC (LON:MKS) announced a £750mln funding injection into a joint venture (JV) with online grocer Ocado Group PLC (LON:OCDO), giving its customers an online food delivery option for the first time.

Meanwhile, broadcaster ITV plc (LON:ITV) unveiled a tie-in with the BBC to create BritBox, an online streaming service designed to challenge Netflix Inc (NASDAQ:NFLX).

Given that M&S has chosen to anchor itself to an established digital presence like Ocado while ITV and the BBC have elected to pool their efforts in online streaming, could the consolidation strategies be the key to making up for their delayed entry into the digital market?

Staying convenient for M&S

For M&S, the investment in its JV with Ocado not only reduced the looming (and possibly even higher) cost of developing its own capabilities but has also provided access to a whole host of benefits from digital retail.

Tom Musson, an analyst at broker Liberum, said that with M&S’s current infrastructure, an online offering on such a large scale would not have been profitable for the company to build alone.

READ: M&S set for big rights issue, divi cut to fund online grocery joint venture with Ocado

A large sum upfront for an easy access, ‘plug-and-play’ system with Ocado was likely to have sounded better than the riskier own-brand operation as M&S is currently seeking ways to maximise profits from the food offering to offset a decline in its clothing business.

Musson adds that an additional sweetener for the deal could be the vast amount of online data that Ocado generates from its customers.

“[With the data] M&S can see what products are selling online, and it can test innovations online and shove that into its stores”.

Staying relevant for ITV

Meanwhile, the media sector is facing its own tug-of-war between established outlets and digital challengers, with ITV’s decision to link up with the ‘beeb’ for BritBox seeming like a shrewd move given the platform's success in the US, where it has half a million customers.

With the BBC’s iPlayer service ranking second behind Netflix as the most widely used streaming service in the UK at 61% compared to 70% for Netflix, ITV’s own 29% share of the market would be more than enough to leapfrog both Netflix and Amazon Inc’s (NASDAQ:AMZN) Prime video service at 44%, provided the fused content libraries keep similar audience numbers as their separate predecessors.

READ: No World Cup boost and Brexit uncertainty to dent ITV’s first-half profits

While analysts are confident that taking the content fight online is a good strategy, it will also tap into the changing nature of advertising.

With ITV’s advertising revenue forecast to fall by about 3%-4% this year, pushing more content and adverts into a space with a rapidly growing viewer base seems like a critical strategic move.

Could the banks be next?

Aside from retail and media, another segment seeing a lot of disruption from digital and online technology is banking.

The sector has in recent years become littered with several “challenger” banks, start-up operations that have frequently eschewed the use of branches in order to operate purely online and via phone apps to allow easy access for their customers. Examples include bright-orange debit card issuer Monzo as well as Starling Bank and Atom Bank.

Given that these start-ups have developed their infrastructure around the use of online technology, one of the ‘big four’ like Lloyds Banking Group PLC (LON:LLOY) or Royal Bank of Scotland Group PLC (LON:RBS) taking out one of the challengers and integrating their systems to push their own digitisation strategy doesn’t seem that far-fetched.

Nicholas Hyatt, equity analyst at Hargreaves Lansdown, however, says that currently, the larger banks have no real need to improve their current digital offering, or at least not for the potential US$1bn+ price tag it would require to buy a challenger.

For one of the larger institutions to consider the acquisition it would have to fall “significantly” behind its competitors, Hyatt said, adding that a lack of extensive lending capabilities among most challenger banks, which mostly just hold deposits, makes them look much less attractive.

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Wed, 27 Feb 2019 16:00:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/215442/as-ms-and-itv-unveil-tie-in-deals-is-the-plug-and-playconsolidation-model-becoming-the-default-catch-up-method-for-digital-215442.html
<![CDATA[News - When business goes bad: What are a company’s options when it becomes insolvent? ]]> https://www.proactiveinvestors.co.uk/companies/news/214896/when-business-goes-bad-what-are-a-companys-options-when-it-becomes-insolvent-214896.html There can be many twists and turns over the life of a business, but one of the more serious (and usually final) turns is when it declares insolvency.

A recent spate of high profile collapses, most notably music retailer HMV, cake chain Patisserie Valerie, and department store House of Fraser, have all brought various insolvency methods to the fore.

While the word “insolvent” usually conjures up images of a business going bust and closing down, the reality is less clear.

Insolvency essentially means a company either cannot pay its bills when they are due, or its liabilities outnumber assets on its balance sheet.

A firm can still keep trading while in insolvency, although it often requires either agreement with, or legal protection from, creditors who will come knocking when their payments fall behind.

Insolvency options in the UK

Informal agreements

According to the UK’s Insolvency Service, one option for a company to stay in business is simply an informal arrangement between the firm and its creditors to pay debts on different terms than previously agreed.

This is usually used when a business is experiencing temporary financial difficulties and there is no threat of immediate legal action by creditors, although as it is informal, it can be withdrawn at any time.

Company voluntary arrangement (CVA)

A CVA is a binding agreement between the insolvent company and its creditors that involves the payment of all or part of its debts over an agreed period.

The firm will usually need to explain how it got itself into distress and offer a reduced payment plan, which can include actions such as rent reductions from landlords or a restructuring of payments to banks.

The proposal, which can only be issued by a company’s directors, will then be circulated to all its creditors who then vote on the plan.

Creditors normally approve CVAs as generally they will at least recoup some of their money as opposed to potentially losing everything if the company goes bust.

High-profile CVAs in the last year have included retailers Carpetright PLC (LON:CPR), Mothercare PLC (LON:MTC) and New Look as well as restaurant chains such as Byron Burger and Prezzo.

Administration

The option most recently splashed across the newspaper front pages, administration is when the company hands itself over to an insolvency practitioner known (unsurprisingly) as an administrator.

While an administrator is in control of a company, creditors cannot take legal action against the firm to recover their debts, or begin liquidating the company, without court approval.

An administrator will draw up a plan to help make the company profitable again or to work out an agreement with creditors. These can include CVAs, selling assets to pay secured or preferential creditors, or even selling the business for more money than it would have received from liquidation.

Creditors must choose whether to agree to the proposals, and it does not protect the company from liquidation if a court agrees to the administrator's plan.

However, administration can also mean a firm may not have to pay its debts in full.

Administrative receivership

Administrative receivership is initiated by the holder – usually a bank - of what is known as a “floating charge”, a liability that has its value attached to assets that may change in value or quantity.

The holder of the charge appoints an administrative receiver, usually a private insolvency practitioner, to recover the money owed to it.

Administrative receiverships are less common now as the Enterprise Act 2002 defines only a specific set of conditions in which a receiver can be appointed, and even then only if the floating charge was created after 15 September 2003.

Liquidation

If all else fails, the company will enter liquidation (also known as ‘winding up’), a process where it stops doing business and ceases to function.

Liquidation involves making sure all company contracts are completed or otherwise ended, settling any legal disputes, selling its assets, collecting any money owed to it, distributing funds to creditors, and repaying any share capital to investors (provided there is money left).

Creditors can also force an insolvent company to wind up through compulsory liquidation.

Insolvency options in the US

In the United States, businesses have two major methods of proceeding when they become insolvent, Chapter 11 bankruptcy and Chapter 7 bankruptcy.

Chapter 11 Bankruptcy

In the US jurisdiction, the most common tool to reorganise a business is in Chapter 11 of the Bankruptcy Code.

If a company files for Chapter 11 bankruptcy, the purpose is twofold: first to provide an automatic stay that prevents creditors taking action against the company and allow it to propose a reorganisation plan, and second, to maximise recovery for creditors.

Most companies prefer to file for Chapter 11 as it allows them to keep running the business and control the bankruptcy process, rather than just putting its assets in the hands of a trustee, providing time to potentially rework its finances and become profitable again.

However, the firm cannot simply do what it likes under Chapter 11 because a committee is assigned to represent the interests of creditors and shareholders who help the company develop its reorganisation plan.

While shareholders may vote on the plan itself, their priority is second to all other creditors and if the plan fails, they may not be able to stop assets being liquidated to pay the company’s debts.

Chapter 7 Bankruptcy

Chapter 7 is a little more straightforward; the company simply stops operations and goes out of business, with a trustee appointed to liquidate the company’s assets and use the proceeds to pay off its debts.

However, not all debt is equal in the eyes of the law, with low-risk lenders such as corporate bond-holders (who have lent the company money) paid first as they are deemed to have taken the lowest exposure risk to the company’s performance in favour of set interest payments.

By contrast, equity investors, as part owners of the company, stand at the back of the queue and may not get full payback for the value of their shares after the lenders and creditors are paid off.

What about investors?

While nobody invests money in a company expecting it to go bankrupt, there is always an element of risk involved.

Generally, if you’re a shareholder and the company appears to be going insolvent, the share price will go down, probably to an extremely low price.

When the company does finally go bankrupt, there is no guarantee that shareholders will get all or even part of their money back, as they rank fairly low on the creditor hierarchy.

The ‘official’ UK hierarchy, as laid down by the Insolvency Act 1986, ranks creditors as follows;

1. Secured creditors with a fixed charge - Generally a bank or other asset-based lender that holds a fixed charge over a specific business asset, such as a building. When insolvent, these creditors will be paid from the sale of the specific asset over which the security is held.

2. Preferential creditors – A creditor the receives a preferential right to payment, either for their whole amount or up to a specific value. This often includes employees who are owed wages.

3. Secured creditors with a floating charge – Similar to a fixed charge except for liabilities carrying a floating charge, which when defaulted on, becomes a fixed charge at the current level.

4. Unsecured creditors – A lender that does not have their money tied to any specific assets. These are higher risk as they have nothing to fall back on if the borrower defaults. Examples include contractors and suppliers.

5. Shareholders – The lowest rung. As shareholders have taken a business risk to provide money to the company, they are not entitled to anything until all the above groups have been paid.

Unsecured creditors like shareholders will also receive no more say on a company’s reorganisation plan than they would on other actions requiring shareholder votes.

In short, it is a similar situation to an unexpected dive in the price of shares; you either accept your investment is worthless or sell up – assuming you can sell up.

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Tue, 19 Feb 2019 14:41:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/214896/when-business-goes-bad-what-are-a-companys-options-when-it-becomes-insolvent-214896.html
<![CDATA[News - As Honda prepares to axe its Swindon plant, is Brexit the only thing weighing on the UK car industry? ]]> https://www.proactiveinvestors.co.uk/companies/news/214893/as-honda-prepares-to-axe-its-swindon-plant-is-brexit-the-only-thing-weighing-on-the-uk-car-industry-214893.html On Tuesday morning, Japanese car giant Honda confirmed plans to shutter its flagship Swindon plant by 2021 in another blow to the car industry in the UK.

The move follows a decision earlier in February by fellow Japanese automaker Nissan to abandon plans to build its new X-Trial vehicle at its plant in Sunderland.

Add to that news from the UK’s biggest vehicle manufacturer, Jaguar Land Rover, that it intends to cut over 1,000 jobs, the sector seems to be being knocked from crisis to crisis.

Is it all down to Brexit?

As with most negative business headlines these days, the immediate conclusion is often Brexit-related.

The, as yet, unconfirmed status of a post-exit trade deal with the EU so close to the exit day on 29 March is understandably putting the jitters on many manufacturers that either rely on the single market for their supply chains or export most of their products to the EU.

Nissan itself highlighted Brexit uncertainty in its decision to reverse plans for the X-Trial, while closer to home, Jaguar also cited the UK’s exit as a factor in its decision to axe jobs.

However, Honda went to great lengths to say the opposite, raising questions as to whether Brexit could merely be a sideshow compared to the real motive behind its relocation.

Japan-EU trade deal could be the kicker

While Brexit itself might not be enough to have driven the Japanese firms out of the UK, it could’ve have provided that little extra push in light of a recent, but little covered at the time, trade agreement.

The EU-Japan Economic Partnership Agreement (EPA), which came into force on 1 February, substantially lowers trade barriers between the EU and Japanese economies and, more critically, essentially eliminates tariffs on car exports from Japan to the EU.

As such, most of the benefits for a Japanese firm to locate its plant in the UK have now been effectively removed, leaving little reason to stay in the country on the eve of Brexit.

In fact, Professor Han Dorussen from the Department of Government at the University of Essex, wrote in a 16 February blog post about the EPA that it was “rather ironic” that the UK through Brexit would be excluding itself from agreements that “in many ways reflect the ambitions of key Brexiteers”.

Dorussen added that Japanese firms were now starting to “vote with their feet” as the “real importance” of the UK, its access to the single market, was slipping away.

Choking on emissions

Another millstone around the sector’s neck, aside from Brexit and trade deal-related woes is a move to reduce the production of high emission cars, particularly diesel vehicles.

Worries over climate change, in addition to tougher and longer emissions tests introduced last year for new cars, have all pushed companies to reassess the profitability of large, ‘dirty fuel’ vehicles.

These include Nissan’s X-Trial and many Land Rovers, in addition to many of the engines produced at Honda’s Swindon plant.

Given that countries such as France are planning to phase out diesel vehicles entirely by 2040, the cost of refitting a plant currently making diesel vehicles in a country that is about to close most of its existing trade channels doesn’t seem like a worthy investment.

UK response to global challenges hamstrung by Brexit, says trade body

Following Honda’s announcement, the Society of Motor Manufacturers and Traders (SMMT), the UK motor industry trade body, said the global automotive industry was facing “fundamental changes” across technological, commercial, and environmental lines, in addition to the added geopolitical pressures from Brexit and other trade-related tensions.

In fact, the SMMT was slightly biting in its judgement on the current outlook, saying the UK should be “at the forefront of these changes … rather than having to focus resources on the need to avoid a catastrophic ‘no-deal’ Brexit”.

In short, while Brexit is not the only challenge facing car manufacturers in Britain, it is providing an unwelcome distraction from more fundamental issues.

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Tue, 19 Feb 2019 14:39:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/214893/as-honda-prepares-to-axe-its-swindon-plant-is-brexit-the-only-thing-weighing-on-the-uk-car-industry-214893.html
<![CDATA[News - AIM IPOs have ground to a halt, but there’s still money out there for London’s small-caps ]]> https://www.proactiveinvestors.co.uk/companies/news/214738/aim-ipos-have-ground-to-a-halt-but-theres-still-money-out-there-for-londons-small-caps-214738.html Initial public offerings (IPOs) on London’s junior market have all but dried up in recent months as the UK heads towards the cliff edge that is Brexit.

While most businesses are understandably reluctant to nail their Union Jacks or European flags to the mast, many have grown frustrated at the lack of clarity offered by Prime Minister Theresa May and co, despite the deadline being only weeks away.

That uncertainty has filtered down to AIM – the home of almost 1,000 small-cap UK stocks.

New IPOs have been few and far between over the past six months, with only ten companies joining the AIM ranks since July. That compares with 30 in the six months before.

READ: Brexit uncertainty hitting deal flow, warns Numis

Typically, when a company comes to market, it will look to raise money as part of the process. That could be a cash injection for the firm itself or a way for existing shareholders to sell down their stakes.

It is the job of brokers to find out what the demand is like for a new issue and who is willing to put their hand in their pocket.

The brokers are the ones who are paid, often handsomely so, to tap institutions and wealthy individuals and raise money on behalf of businesses.

As such, the slowdown has taken its toll, particularly on many of the City’s small cap brokers for whom fees from piloting new issues are a handy source of income.

“The fundraising environment was really awful in November and December,” explains Stuart Andrews, head of corporate at broker, finnCap.

“All of the brokers were saying that life had been tough and that there was not a lot going around in terms of corporate transactions. We certainly saw risk appetite disappear completely.”

Even Numis Securities, which helped struggling construction firm Kier Group bring in £250mln back in December, said earlier this month that the market backdrop has been “particularly challenging”.

Few IPOs in the pipeline

There doesn’t appear to be much work on the horizon either. No IPOs are planned on the junior market for the foreseeable future, although Digitalbox is looking to raise £1mln as part of its reverse takeover of cash shell Polemos. Leander Capital is the lucky one to have bagged that.

AJ Bell investment director Russ Mould thinks the chances of the gloom lifting over the next six weeks or so are “pretty slim”, something echoed by Peel Hunt’s head of UK IPO origination, Indy Bhattacharyya.

“I don’t think anyone is going to sit here and say the first quarter of 2019 into Brexit is going to be the most fertile period of their career,” said Bhattacharyya.

“I think most people’s IPO timelines are shifting out into the second quarter and possibly into the second half for obvious reasons.”

Even secondary issues – where listed companies raise fresh capital through a placing or rights issue, for example – have slowed.

Last month, AIM companies squeezed £101.3mln out of investors, well below the long-term monthly average of around £300mln.

Global issues weighing on sentiment

Brexit is undoubtedly playing a part in this slowdown, but those in the City point to economic and political issues around the globe.

US and China, two of the world’s economic superpowers, are arguing with one another about trade tariffs, while the latter, China, is starting to show signs of a slowdown after years of strong growth.

On top of that, Germany, the biggest economy in Europe, has just, by the skin of its teeth, managed to avoid a recession.

All of this is weighing on sentiment, even in January, a time of year when many companies start to flirt with investors in anticipation of listing shortly after.

“UK IPOs have been scarce this year,” admits Bhattacharyya. “But, actually, how many US IPOs have there been? How many German IPOs have there been? How many French IPOs have there been?”

“It’s very scarce everywhere.”

finnCap’s Andrews agrees: “The UK stock market is not being dominated by Brexit … which, on a global scale, is just a weird regional issue.”

For the right investment, money is still available

But while investors might be exercising more caution given the current geopolitical and economic climate, brokers are adamant that money is still there for the right investment.

Andrews says he and his team sat down after the Christmas break and were unsure what was going to happen this year given the sharp sell-off in equities in the final quarter of 2018.

“But we put out Altitude Group in the first week of January and they were looking for £7mln to start with and we suddenly saw financing available from good quality, blue-chip institutions. To us, that became a real bellwether.”

finnCap managed to get in £9mln for Altitude Group PLC (LON:ALT), and it has gone on to tap the market for Anglo African Oil & Gas PLC (LON:AAOG), SRT Marine Systems PLC (LON:SRT) and Hardide Plc (LON:HDD) in recent weeks.

“None of those were massive fundraisings, but what they do show is that the market is not shut and that for the right companies with the right story, the institutions have money.”

The past few weeks has seen a rise in the number of big-ticket placings, too: Blue Prism Group plc (LON:PRSM) knocked out a £100mln placing at the end of January, as did tech investor Draper Esprit PLC (LON:GROW), while GB Group PLC (LON:GBG) raised £160mln only last week.

The Blue Prism and Draper deals will count towards February’s total as the new shares weren’t formally issued until a couple of weeks after.

Don’t believe the naysayers

“The assumption that the UK is shut is wrong,” says Bhattacharyya. “There are deals going on and money being raised.”

Mould and Andrews are of the same opinion that, while things aren’t easy, companies in need of investment can still find it.

“Is it true to say that raising money is like falling off a log and everything is fine and dandy?” asks Andrews. “No. Is it all doom and gloom and no one can raise money for anything? Also no.”

“It’s not easy, but it’s perfectly possible. What we’re not hearing is that the institutions are lacking cash or that there’s not enough money in the market.”

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Fri, 15 Feb 2019 14:46:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/214738/aim-ipos-have-ground-to-a-halt-but-theres-still-money-out-there-for-londons-small-caps-214738.html
<![CDATA[News - Lloyds and RBS drive FTSE 350 dividends to another record year, but is this trend sustainable? ]]> https://www.proactiveinvestors.co.uk/companies/news/213073/lloyds-and-rbs-drive-ftse-350-dividends-to-another-record-year-but-is-this-trend-sustainable-213073.html Pay-outs from London-listed companies hit an all-time high in 2018, according to a new study, despite the UK stock market enduring its worst year in a decade.

Brexit, the US-China trade war and signs of a slowing global economy all served to knock 12.5% off the FTSE 100 last year – its biggest annual decline since 2008. The headwinds also led to the FTSE 250 falling by more than 15%.

Banks start chipping in again

But dividends from the UK’s 350 biggest companies, coupled with those from other firms listed on the main market of the London Stock Exchange, hit a record £99.8bn.

A 9% hike from British American Tobacco PLC (LON:BATS) fuelled the growth, as did the banks, some of which returned to divi payments for the first time in years.

“In the fourth quarter, the Royal Bank of Scotland Group PLC (LON:RBS) paid its first dividend in ten years; in the second quarter, Standard Chartered PLC (LON:STAN) paid its first dividend since 2015; and Lloyds Banking Group PLC (LON:LLOY) is now distributing more than it did before the financial crisis,” read the report from Link Asset Services.

With share prices falling and dividends going up, yields hit their highest level since March 2009 and there is little sign of that trend reversing.

The average dividend-paying, listed company will yield 4.8% this year, while the figure for FTSE 100 firms will reach 5.0%.

To put that into perspective, the average yield over the past 30 years has been around 3.5%.

Share prices the issue, not the divis

A high yield is often a sign of trouble ahead, with investors speculating that the dividend will either be cut or scrapped altogether, but the report concluded that that is unlikely to be the case this time around.

“Even allowing for a deteriorating global economy, and company- or sector-specific problems in the UK market, a 4.8% yield in our opinion implies an overly pessimistic view on the prospects for dividends.”

More likely, the analysts say, is that high yields represent an “undervaluation” of UK stocks, which have been unloved by the markets since the Brexit vote.

“The current disconnect between the level of dividends being paid and share prices doesn’t mean share prices must rebound any time soon. Even if dividends do meet our forecast, the yield may stay elevated for as long as uncertainty persists.”

Set for record 2019

The analysts behind the report expect UK dividends to break “comfortably” through the £100bn mark in 2019, rising 4.2% to just over £104bn.

“Our forecast marks a slowdown compared to 2018. This reflects the higher risks to growth now, and the fact that the easy wins provided by the mining sector’s recovery are now behind us.”

The overall message of the report is bullish: UK dividends, despite the high yield, are not going anywhere anytime soon and equities “look attractive” compared to other asset classes such as bonds and property.

Beware of Centrica

But there was one word of caution for those who have invested in British Gas owner Centrica PLC (LON:CNA) or any of the housebuilders.

“Centrica’s dividend is much smaller, but it is barely covered by earnings and looks vulnerable, while the housebuilding sector is faced with a slowing housing market.

“The exceptionally high yields in this sector reflect investor scepticism about the sustainability of housebuilder pay-outs. Brexit concerns and those around world growth have pushed bank share prices down too, and therefore increased yields.”

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Tue, 22 Jan 2019 12:55:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/213073/lloyds-and-rbs-drive-ftse-350-dividends-to-another-record-year-but-is-this-trend-sustainable-213073.html
<![CDATA[News - Fat Cat Friday: FTSE 100 bosses earn average UK salary in three days ]]> https://www.proactiveinvestors.co.uk/companies/news/211960/fat-cat-friday-ftse-100-bosses-earn-average-uk-salary-in-three-days-211960.html By 1 pm this afternoon, fewer than three working days into 2019, the bosses of Britain’s biggest companies will have made more money than the average UK worker will earn this year, according to a report.

Research from the High Pay Centre and HR industry body the CIPD found that chief executives of FTSE 100 firms are paid an average of £3.9mln a year, which works out at 133 times the £29,574 taken home by the typical employee.

READ: Persimmon boss asked to leave after backlash over pay

Assuming blue-chip bosses work 12 hours a day for 320 days a year, their hourly pay rate comes in at £1,020.

So, to match the average salary, which is taken from Office for National Statistics data, they would have to work for 31 hours, or until 1 pm on Friday, January 4.

The report adds that the typical salary for a FTSE 100 CEO had risen 11% from last year, meaning they had to work two hours less this year to match the average worker’s annual pay.

READ: Royal Mail shareholders vote against new boss’ pay package

“Excessive executive pay represents a massive corporate governance failure and is a barrier to a fairer economy,” said Luke Hildyard, director of the High Pay Centre.

“Corporate boards are too willing to spend millions on top executives without any real justification, while the wider workforce is treated as a cost to be minimised.”

TUC general secretary Frances O’Grady called for change, claiming “too much wealth is being hoarded at the top”.

Critics of the report warned that limits on executive pay could drive talent and companies away from the UK, which in turn could lead to fewer jobs and lower pay for workers.

Shareholders unhappy

Shareholders have become increasingly vocal in their anger at rising boardroom pay.

Last year, Jeff Fairburn, the now ex-CEO of housebuilder Persimmon PLC (LON:PSMN), was forced out after a row over his £75mln bonus package.

Royal Mail PLC (LON:RMG) investors rebelled against the postal giant’s pay plans for top bosses after it was revealed that new boss Rico Black would be paid £640,000 - £100,000 more than the outgoing Moya Greene. About 70% of shareholders rejected the directors’ remuneration report in a vote. 

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Fri, 04 Jan 2019 09:25:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/211960/fat-cat-friday-ftse-100-bosses-earn-average-uk-salary-in-three-days-211960.html
<![CDATA[News - What next after the FTSE 100’s October sell-off? ]]> https://www.proactiveinvestors.co.uk/companies/news/208411/what-next-after-the-ftse-100s-october-sell-off-208411.html After suffering sizeable losses in October, history would suggest the FTSE 100 will bounce back this month, although the longer-term outlook is a little more gloomy.

The blue-chip index fell 5.1% last month, but it has advanced slightly so far in November, in keeping with historical trends.

Initial bounce

When the Footsie sustained similar losses before, it has, on average, risen 1.9% in the month immediately after, according to data compiled by AJ Bell investment director Russ Mould.

The performance tails off further down the line though, with the index generally edging 0.5% higher over the next three months, and 0.4% in the six months after the dip.

A year on from the initial drop, and the FTSE 100 tends to have given up the initial gains and fallen even back by 2.6% on average.

“This now begs the question of whether this latest sharp decline is a chance to ‘buy on the dip’ and follow a strategy that has worked so well since this bull market began in March 2009,” says Mould.

Investors who are inclined to ‘buy on the dip’ will take heart from the 5.2% monthly fall seen in July 2010, when the FTSE 100’s value rose by almost 21% over the following 12 months.

Stick or twist?

There have also been some shockers though: had you have ploughed in after September 2000’s 5.7% drop, your investment would have been worth 22% less a year later, while the Footsie fell by a third in the year after November 2007’s 4.3% dip.

“Anyone who thinks this is not a major downturn will be inclined to pile in and take their chances, albeit in the knowledge that bear markets (just like recessions) only tend to become obvious with the benefit of hindsight and that history is not guaranteed to repeat itself,” added Mould.

“Those of a more nervous disposition may prefer to sit on the sidelines, gather more evidence and assess exactly how much risk they wish to take at this stage of the economic and stock market cycle, nearly ten years into an upturn on both counts.”

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Fri, 02 Nov 2018 11:40:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/208411/what-next-after-the-ftse-100s-october-sell-off-208411.html
<![CDATA[News - A £420mln pothole fund and a tax for tech giants: What we already know about the budget ]]> https://www.proactiveinvestors.co.uk/companies/news/208036/a-420mln-pothole-fund-and-a-tax-for-tech-giants-what-we-already-know-about-the-budget-208036.html The Chancellor isn’t due to give his Budget speech until 3.30pm this afternoon (Monday) but, as is common, we already know some of the key announcements.

Much has been made of the High Street’s demise of late, with rising costs and a shift to online leading to many boarded-up shops and empty local shopping centres.

High streets

The Chancellor will announce a £1.5bn boost for UK high streets, including £900mln as part of cutting business rates by a third for almost half a million small retailers.

According to the Treasury, the changes will mean a pub in Sheffield will save more than £6,000 a year.

On top of that, Hammond will also set aside £650mln to improve local infrastructure and transport links and relax town planning laws, making it easier to restore and re-use old properties.

Small businesses, particularly those in the hospitality sector, could also benefit from a review of marriage laws, which would allow more hotels, pubs and restaurants to hold weddings.

Under current rules, venues must identify a specific room to host ceremonies, but Hammond wants to scrap those and allow more places to host weddings, possibly saving couples thousands and breathing life into the sector’s smaller businesses.

Pot holes

Local councils are to get an extra £420mln to tackle the growing number of potholes, which is part of a wider £28.8bn fund to upgrade England’s roads.

The pothole cash is in addition to an existing fund of almost £300mln, although campaigners have said the injection still falls well short of the estimated £8bn needed to bring local roads up to scratch.

Speaking to Sky News, Hammond recently teased an “important announcement” about road tax, so keep your eyes peeled for that.

Mental health

UK mental health services are to get an extra £2bn cash injection as the government looks to double-down on its efforts to improve this area of care.

The money will fund special ambulances to treat people with conditions like depression, anxiety and PTSD.

They will look like normal cars to reduce the stigma and are part of new measures to make sure people with mental illnesses are treated just as seriously as those with physical ones.

Rural broadband

The Chancellor is expected to pour at least £250mln into installing superfast broadband in some of the country’s most remote areas, according to The Telegraph.

Rural schools and libraries will be targeted to upgrade them to “full fibre” internet, connections which, in theory, can then be easily extended to surrounding residents and businesses.

More money for defence

Defence secretary Gavin Williamson’s public lobbying appears to have paid off, with Hammond pledging more cash for the defence budget.

In an interview with the Sunday Telegraph, he noted the “immediate challenge” in defence, adding that he would address it in the speech.

As former defence secretary, the topic is something of a personal one for Hammond, who added that he “absolutely get[s] the problems and challenges in defence”.

Tech tax

Amazon and Google have come under fire in recent years from MPs claiming they aren’t paying their fair share of tax.

No specific details have been released yet as the Chancellor still wants to get international agreement on the issue. He has previously suggested the UK would be prepared to act alone though.

“British people have a really very strong sense of fairness, and there is a real sense that it is just simply unfair that these very large internet companies are not paying their fair share of tax in the UK.”

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Mon, 29 Oct 2018 13:15:00 +0000 https://www.proactiveinvestors.co.uk/companies/news/208036/a-420mln-pothole-fund-and-a-tax-for-tech-giants-what-we-already-know-about-the-budget-208036.html
<![CDATA[News - West of Shetland discoveries point to new growth for offshore UK ]]> https://www.proactiveinvestors.co.uk/companies/news/205562/West-of-Shetland-discoveries-point-to-new-growth-for-offshore-UK-205562.html Someone taking an arbitrary view of the UK offshore oil and gas industry could be forgiven for coming to a confusing conclusion.

On the one hand, this is a maturing petroleum territory with the lowest level of exploration for decades, but, on the other, British waters are host to major new projects supported by large-scale investments from private equity and power utilities.

On Monday, French oil giant Total SA along with UK utility SSE PLC (LON:SSE) and Grangemouth refinery owner INEOS, announced a major new gas discovery that they said would be ‘monetised quickly and at low cost’, thanks to existing nearby infrastructure.

READ: Centrica’s Hurricane deal sets up doubly busy West of Shetland

It comes just weeks after British Gas owner Centrica PLC (LON:CNA) agreed to invest nearly US$400mln in an exploration venture.

Total’s gas finds in the Glendronach exploration well, has been estimated at 1 trillion cubic feet which are seen by many as a key threshold for a ‘major’ or ‘world class’ discovery.

“Glendronach is a significant discovery for Total which gives us access to additional gas resources in one of our core areas and validates our exploration strategy,” said Arnaud Breuillac, Total president for exploration and production.

Elsewhere, Deirdre Michie, chief executive of the offshore industry group Oil & Gas UK, similarly said: “This is a major discovery by Total which demonstrates the exciting potential the West of Shetland frontier region holds.”

He added: “As our Economic Report recently highlighted, an increase in drilling activity is key to unlocking the remaining potential of the UKCS. This significant discovery demonstrates that the improved competitiveness of the basin is having positive results.

“It also highlights what can be achieved when companies maximise the potential yield from their existing blocks. This increased activity is critical as we look to maximise economic recovery from the UK Continental Shelf.”

Politics, pessimism, and perspective

It is fair to say that, over recent years, perceptions around the North Sea’s potency and longevity has been weaponised politically - first by both sides of the Scottish independence debate, and, later in the matter of post-Brexit energy security.

Other than to point out that the UK is heavily reliant on oil and gas imports, much of which is piped from the European mainland, this article isn’t bothered with the political rhetoric.

Whether or not investments by SSE and Centrica reflect a greater prioritisation of domestic resources ahead of Brexit, is something of a side-story - at least it is as far as investors in exploration and production stocks are concerned.

To take a somewhat simplistic view of offshore UK, it is helpful to compartmentalise two quite separate areas, the North Sea and the West of Shetland area, and, it is worth noting, that those investing (substantial amounts) of capital in the latter are fairly keen to distance themselves from the former.

West of Shetland

It doesn’t take a geographic genius to understand where this particular section of the UK Continental Shelf is located, nonetheless, it is important to grasp that it is not the ‘North Sea’.

This area, partially because of more challenging operating environments, is much less explored than the North Sea. It is still viewed by most in the industry as a ‘frontier’ area – which means most of its potential has yet to be proved, or indeed, disproved.

Unlike most of the North Sea, most of the ‘blue sky’ remains in play.

It is not, however, virgin exploration territory. There are already a number of significant discoveries in the West of Shetland.

BP PLC’s (LON:BP.) Clair field is probably the most significant. It is, actually, a collection of discoveries together believed to contain over 7bn barrels of crude.

The original discovery was made in the late 1970s and was sanctioned for development in the late 1990s before the first production came online in 2005 - a broader and larger scale development to take production up to 120,000 bopd was subsequently given the green light in 2011.

BP this summer announced a deal to increase its stake in Clair to 45.1%, though in the context of the ‘supermajor’s’ worldwide portfolio, it is one of many assets.

Oil investors in London may, therefore, be more familiar with Hurricane Energy PLC (LON:HUR), which is something of a new kid on the block in the West of Shetland (in comparison to BP at least).

Hurricane has in recent years proven successive new West of Shetland discoveries and in doing so, has unearthed a ‘multi-billion barrel opportunity’.

It is now on course to start production next year, from a small portion of what is ultimately expected to be a much larger project – the early production system is set to flow 17,000 bopd as it addresses an area with about 40mln barrels of reserves, out of a possible 500mln barrel project.

This summer, Hurricane put in place a phase of exploration and appraisal activity as it agreed on a new partnership with Spirit Energy, majority owned by Centrica, which is to fund nearly US$400mln of drilling and development activity across the Greater Warwick Area field, which neighbours its Lancaster field.

The North Sea

In the North Sea, where the giant finds have likely all been made, the average size of new discoveries is now around the 20mln barrel mark – albeit, a number of significant projects are still being delivered.

There are exceptions, but, exploration in the North Sea now tends to focus on resources that have the potential to be plugged into existing infrastructure. Otherwise isolated finds must be large enough and profitable enough to justify the installation of new facilities.

Activity in the North Sea, for the independent oilers, is increasingly about getting the most out of what’s there, and, in some cases, picking up assets from the larger majors which are now less interested in holding onto ex-growth fields in maturing basins.

A report earlier this month highlighted that the UK North Sea had seen the slowest period of drilling activity since 1965, with only four wells sunk in the first eight months of the year.

Analysts claimed the statistic showed that only the most appealing targets would now be drilled by explorers.

It added to an apparently growing pessimism around the sector.

Nonetheless, such a snapshot also likely reflects the environment in which explorers were making investment decisions 12-to-24 months previously, when capital was being held on the sidelines as a result of low oil prices.

Counter to the doom-and-gloom narrative companies such as Cairn Energy PLC (LON:CNE), EnQuest PLC (LON:ENQ) and Premier Oil PLC (LON:PMO) have invested significantly between them, in delivering new North Sea fields such as Catcher and Kraken – both of which have been in the ‘ramp-up’ phase.

Indeed, Premier Oil is presently advancing its next North Sea development after it greenlighted the Tolmount gas project back in August.

Due online from late 2020, Tolmount is expected to yield around 500bn cubic feet of gas over its lifespan with peak production rates anticipated at up to 300mln cubic feet per day. Premier’s share of the development costs is estimated at just US$120mln as a separate infrastructure venture is set to pay for export facilities.

Meanwhile, smaller explorers have also advance projects albeit at a generally smaller scale.

Jersey Oil & Gas PLC (LON:JOG), for example, had a successful discovery with the Verbier well in partnership with Norwegian giant Statoil in late 2017 and in the coming months, it is working to deliver an appraisal well as a further test of the field.

Distinctly different opportunities

The North Sea and West of Shetland are, plainly, distinctly different.

Whilst the narrative around the North Sea’s demise is both exaggerated and premature, it is still fair to say that it is not the same oil and gas territory that it once was.

In the West of Shetland, however, very substantial opportunities clearly remain.

Either way, investors would do well not to write off the UK offshore just yet.

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Mon, 24 Sep 2018 16:20:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/205562/West-of-Shetland-discoveries-point-to-new-growth-for-offshore-UK-205562.html
<![CDATA[News - Dividend and conquer! Why income investing can be a lucrative strategy ]]> https://www.proactiveinvestors.co.uk/companies/news/201070/dividend-and-conquer-why-income-investing-can-be-a-lucrative-strategy-201070.html While it can sometimes be nice to take a chance on a growth stock in the hope that its value rises as the company develops, firms which pay a regular, decent dividend have a place in any portfolio.

It can also prove to be an extremely lucrative investment strategy, especially if you had invested one of the 26 current FTSE 100 companies to have increased their dividend in each of the last ten years.

By way of example, if you’d have bought some shares in construction equipment rental giant Ashtead Group PLC (LON:AHT) a decade ago, your total returns – capital growth plus dividends – would stand at 4,258%.

Put simply, if you’d have invested £1,000 in Ashtead in 2008 and kept it there, your investment would be worth over £42,000 today.

Even more exciting is that because you paid a relatively small price for the stock when compared to today’s market price, the dividend yield on those shares is 48% based on this year’s expected pay-out.

That means you get almost all of your initial investment back every two years.

Other companies offering a hefty dividend yield had you bought into them ten years ago include tech giant Micro Focus International PLC (LON:MCRO) (28.4%), Hargreaves Lansdown PLC (LON:HL.) (22.0%) and wealth manager St James’s Place (LON:STJ) (19.3%).

“We often take dividend yields as a snapshot, looking at investors buying the stock at today’s price. However, investing is a long-term game, and many investors have had their money in these companies for a number of years,” explains AJ Bell investment director Russ Mould.

“Comparing the 2008 share price with the forecast 2018 dividend across the 26 companies gives an average yield of almost 12% - which any investor would probably bite your hand off for.”

He adds: “These 26 firms are ‘dividend heroes’, so called because they have increased their dividend in each and every of the past 10 years. Taking a look at the total return of this group – so growth and income reinvested – shows the importance of dividends in boosting the share price.”

Only half of the ‘heroes’ were listed on the FTSE 100 back in 2008, so Mould recommends digging through the FTSE 250 to find the next generation of blue-chip dividend growth champions.

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Wed, 18 Jul 2018 15:15:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/201070/dividend-and-conquer-why-income-investing-can-be-a-lucrative-strategy-201070.html
<![CDATA[News - Buying Bitcoin: A beginner’s guide to dealing in cryptocurrency ]]> https://www.proactiveinvestors.co.uk/companies/news/200391/buying-bitcoin-a-beginners-guide-to-dealing-in-cryptocurrency-200391.html While Bitcoin is the original (and most famous) cryptocurrency in the world, figuring out how exactly to get your hands on it can be quite difficult for the uninitiated.

As cryptocurrency markets have gained a reputation for massive returns, by now most traditional investors will at least be curious about how to go about trading digital currencies.

Knowing the basics of how to buy, sell and exchange Bitcoin is a good start.

A word of warning - whilst the price of Bitcoin has at times rocketed, it has also effectively collapsed to massive losses with extreme volatility.

Like any investment, it is important to acknowledge the potential pitfalls and determine whether you’re comfortable with the risks associated with these instruments.

Setting up a digital wallet

To store Bitcoin, or other cryptocurrency, one will need a digital wallet.

This are essentially like a Bitcoin bank accounts. These online wallets (hosted either by a bitcoin exchange platform or independent provider) live on your PC desktop, or mobile phone (or indeed, on some other digital device).

A wallet can generate private keys for its user. These are essentially secret pieces of data, used to authenticate transactions and prove ownership.

Private keys should, unsurprisingly, be kept secret as they can be used to access your Bitcoin address and sign off on transactions from your wallet.

In other words, your entire wallet could be emptied if someone got access. Similarly, if you lose or forget the key you won’t be able to access the wallet either.

As is the case with many elements of blockchain and cryptocurrency matters, there’s in reality a wide variety of wallet types and there’s significant variance between platforms and service providers – arguably this is one the fastest moving segments in all of ‘fintech’.

Opening an exchange account

Now you have the means to own and keep digital assets, to actually buy Bitcoin, you’ll also need to access a cryptocurrency exchange.

Hundreds of exchanges are currently operating globally, although, like wallet providers, there’s a lot of variance between them – there’s varying levels of liquidity and regulation, and, geography may also be a decisive factor.

Depending on your location, there may only be a few available - even though the crypocurrency market is supposedly decentralised, the means by which you’ll transfer real world monies in exchange for digital assets is governed by real world jurisdiction.

Frankly, it is better to do some research to be clear which exchanges are more easily accessible in your specific region.

That being said, here are a few of the better known exchanges.

The largest Bitcoin exchange in terms of volume (by US dollar value) is Bitfinex, although there are other high-volume exchanges such as Coinbase, Bitstamp, and Poloniex.

For trading small amounts of Bitcoin, most reputable exchanges should be appropriate.

Albeit, the recent surge in interest has revealed some amount of strain on buy and sell operations so an element of caution and patience may be understandable, from a traditional investor’s point of view.

Regulatory position environment continues to evolve

Know-your-client (often abbreviated to KYC) and anti-money laundering regulations increasingly clamp down on cryptocurrency trading.

Investors can expect to provide verification of identity themselves, at least for the reputable exchanges and service providers.

Once you have an account, most exchanges will accept payments vie bank transfers and credit cards, as well as PayPal in some cases.

Transactions take place on the customer’s behalf, and deposit it in an automatically generated wallet on the exchange.

The process can vary between a few minutes to a few hours, depending on the size of the exchange and any network bottlenecks.

Once purchased, the Bitcoins can be moved to an off-exchange wallet.

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Mon, 09 Jul 2018 17:00:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/200391/buying-bitcoin-a-beginners-guide-to-dealing-in-cryptocurrency-200391.html
<![CDATA[News - How ASOS became the ‘King of AIM’ ]]> https://www.proactiveinvestors.co.uk/companies/news/200307/how-asos-became-the-king-of-aim-200307.html Thanks to its £5bn-plus market cap, ASOS PLC (LON:ASC) has earned itself the unofficial title of ‘King of AIM’.

But what sets the online fashion retailer so far apart from its small cap peers that it wouldn’t look out of place among the blue-chips on the FTSE 100?

To oversimplify any success story, you need two things: to be good and to be lucky.

First mover advantage

If we start with the latter, Asos got into the booming world of online fashion before it was really a thing.

Sure, that was definitely an astute move by management, but even they would have a hard time believing 20 years ago that online shopping would be as big as it today.

Back in 2000 when it was founded by Nick Robertson and Quentin Griffiths, it probably made more sense to open a bricks-and-mortar shop, given that the internet was still in its relative infancy and the high street was going strong.

Thankfully they didn’t do that, as evidenced by the changing fortunes of the high street and online retailers over the past couple of years.

There are a couple of reasons why the online lot, ASOS included, have been growing rapidly and at the expense of their more traditional rivals.

Shift to online shopping

First and foremost is cost: it’s a heck of a lot more expensive to manage a national portfolio of hundreds of stores – paying rent, taxes, energy bills – than it is running a main headquarters and a handful of out-of-town factories.

Then there’s the changing attitudes of British shoppers. According to recent research by the UK Cards Association, we each spend around £4,600 online every year – more than any other nation in the world.

That’s a far cry from the turn of the millennium when the high street, and its stalwarts like Next PLC (LON:NXT) and Marks and Spencer Group PLC (LON:MKS), was king.

Even the traditional bricks-and-mortar bunch are trying to get in on the rush to online by taking money out of their stores and ploughing it into their websites and apps.

Six years head start on Boohoo

Customers are key to the success of any retail business and the fact ASOS was one of the first players in this industry means it has had longer than most to build its customer base.

For example, there was no competition from what many would consider its nearest rival, Boohoo.com PLC (LON:BOO), until 2006.

Implying that ASOS only attracted shoppers because of its first-mover advantage would be doing the company a disservice, though. One thing most commentators and analysts will point out is that the company is able to bring in and retain customers because of its top-class offering.

Investment in its service

The website is well-designed and easy to navigate, as is the app, using which you can order and pay for something in as few as three taps of your finger (assuming you’ve got Apple pay set up).

The delivery options also set it apart. Users can pay an annual fee of £9.95 and get unlimited next-day deliveries when you place your order before 11pm.

One of the major concerns with online shopping is the hassle of returning products, an issue which ASOS has sought to address.

The bags the clothes come in can easily be taped back up, while a pre-printed sticker comes with every order. All customers have to do is tick which item they’re sending back and why (even if that reason is ‘I didn’t like it’), slap the sticker on the package and drop it off at the Post Office - free of charge, of course.

40,000 products stocked

What really sets ASOS apart though is the clothes, shoes and accessories that it has on its site, each of them meticulously photographed.

ASOS carries around 40,000 different products on its site at any one time – an inventory that is nigh-on impossible for a high street shop to have.

Some of those products will be ‘own-brand’, but one of the major attractions to ASOS is that you have most of the big designers in one place. Tommy Hilfiger, FCUK, Diesel, Levi’s – they’re all there.

Students can always get discounts on all of those products as well, sometimes as much as 20% on top of sale prices.

Young spenders

That links to the next point: ASOS has nailed its audience – tweenies (that’s teenagers and those in their twenties) – who happen to be some of the most loose with their cash.

ASOS’ presence on social media, its regular tie-ups with student discount cards (NUS, UNiDAYS etc) and its trendy clothes make it a favourite for millennials.

From a more business point of view, some of you might be surprised that ASOS wasn’t snapped up in its younger days.

Under the radar

One of the reasons for that is because it has stayed on AIM, where it has gone somewhat under the radar.

Had it moved on to the main market or even up to the FTSE 350, there’s a good chance that it would’ve been spotted and taken out. How Next and co must regret not at least trying a few years ago.

Being on the junior market also keeps it out of the hands of some funds which might have looked to meddle with the company’s strategy.

Privately-held Danish clothing company Bestseller is the top shareholder, while Nick Robertson, the founder, is still the company’s fourth-largest shareholder with a 6% stake.

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Sat, 07 Jul 2018 11:00:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/200307/how-asos-became-the-king-of-aim-200307.html
<![CDATA[News - What are the big trends in computing that investors need to be aware of ]]> https://www.proactiveinvestors.co.uk/companies/news/200306/what-are-the-big-trends-in-computing-that-investors-need-to-be-aware-of-200306.html When a British technology company’s ship comes in, it is usually to be found waiting at the airport ...

The British technology sector has missed many boats bound for world domination but things change fast – relatively speaking – in the technology sector, especially in the software world, so there is still a chance for a UK player to make serious waves.

READ: Don't sleep on London’s technology shares

Those waves are arguably most likely to be made in the following areas: big data; the cloud/software-as-a-service; mobile; cyber-security.

Big data: seeing the wood, not the trees

To a certain extent, all of the big areas mentioned above are interlocked.

The increased use of mobile devices, the existence of the cloud, the evolution of the Internet of Things, the development of business models where the user gives away personal data in return for a “free” service (e.g. Google, Facebook); all of these are contributing to the growth of an overwhelming amount of data, all of which can be mined and exploited in one form or another.

IBM, in its description of big data, said it is “a term applied to data sets whose size or type is beyond the ability of traditional relational databases to capture, manage, and process the data with low-latency”.

Latency, as you probably know, is the interval between stimulation and response – the gap between asking for the data analysis and actually getting it.

Big data analytics, meanwhile, “is the use of advanced analytic techniques against very large, diverse data sets that include structured, semi-structured and unstructured data, from different sources, and in different sizes from terabytes to zettabytes,” according to “Big Blue”.

Not surprisingly, IBM is a big player in data analytics but Britain is not without its participants in the field.

WANdisco PLC (LON:WAND) may sound like a company that organises dance nights for goths but it is a company with a patented technology that enables the replication of continuously changing data to the cloud or customer’s own data centre.

The company primarily serves the big data and source code management markets. Its shares have more than doubled in the last year to around 1,200p; two years ago you could’ve grabbed the shares at around 150p.

It is the most eye-catching of the London-listed “big data” players, partly because it has a foot in the cloud sector as well as big data, but the UK software sector does feature other participants, including database specialists such as D4t4 Solutions and Rosslyn Data Technologies.

Head for the cloud

Strictly speaking, software-as-a-service (SaaS) is not the same as the cloud; the latter facilitates the latter, along with infrastructure-as-a-service (IaaS) and platform-as-a-service.

Analogies are not always useful but if you are trying to get your head around the cloud, think of the difference between receiving your gas via a gas main from a utility company and getting your gas from a giant Calor gas bottle stored in the kitchen.

The former – the gas main – is analogous to the cloud. Essentially, the wherewithal to provide a particular service is “out there (somewhere)” in the cloud – a remote location that is connected to its users, often via “that there internet”.

A software’s application’s data and core processing functions are hosted off the customer’s premises and are accessed in real-time from any PC, laptop or mobile device that has a network connection.

The great benefit of this arrangement, as opposed to the “buy a licence and install it on your PC” system, is that it makes it easier to add new services or, indeed, dispense with existing services. It is a pay-as-you-go model, typically with the bills coming in steadily every quarter as opposed to, say, in a big lump every two years when a serious software upgrade comes out.

In fact, on the subject of upgrades, because the core software is held centrally (albeit, perhaps, in several locations), upgrades become a lot easier to do; just upgrade the central server and no-one has to worry about users clogging up their own office network with downloads of security patches and program updates.

You’ll have to excuse me for 40 minutes, but Windows 10 is telling me it needs to download and install some vital upgrades …

… and we’re back.

Computing, at your service

Most software companies are making the transition to the “as-a-service” model and if they are not, they probably will bite the bullet and do so in the near future.

From an investor’s perspective, it is important to note that switching to the “as-a-service” model from the “upgrade the licence every n years” model almost invariably results in the company’s revenue taking an initial hit.

Imagine switching from getting paid a month in advance to getting paid weekly in advance; it will take a while for the income received to level out and that’s exactly what tends to happen when a software provider switches to a SaaS model.

From the point of view of the software company’s finance director, the customer’s finance director (FD) and the market, however, everyone seems to be happy with the pay-as-you-go model as it gives some clarity on revenue/payments.

It’s true that a customer can more easily back out of a service agreement or cut back on services under the “as-a-service” model but there is none of that angst of the supplier wondering whether a big customer will get budget authorisation for the next generation of software; there is no “next generation” of software, just the current one, constantly evolving.

The difference between SaaS, PaaS and Iaas

The SaaS is usually accessed via a web browser. Examples of SaaS products include Google Docs and the customer relationship management software, Salesforce.

Some of these services are ostensibly provided free, although as we are quickly coming to realise, “if you are not sure what the product is that the company is selling, the product is probably you – and your personal data”; some use the “freemium” model, where the basic service is provided free of charge while support and extra features cost money; and some just plain flat-out charge for the service.

PaaS is where a computing platform, such as Microsoft Azure, is “rented or delivered as an integrated solution, solution stack or service through an Internet connection,” according to Techopedia.

“The PaaS service delivery model allows a customer to rent virtualised servers and associated services used to run existing applications, or to design, develop, test, deploy and host applications.”

So, the software developer uploads some code and leaves it to the PaaS provider to worry about bandwidth, server space and so on.

IaaS is the provision of virtual servers and storage that organisations use on a pay-as-you-go basis. The provider will give the user access to hardware, storage, servers, data centre capability and various other bits and pieces that get techies salivating.

Clients usually pay on a per-use or utility computing basis.

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Sat, 07 Jul 2018 10:30:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/200306/what-are-the-big-trends-in-computing-that-investors-need-to-be-aware-of-200306.html
<![CDATA[News - Licensing deals are the life blood for UK drug developers ]]> https://www.proactiveinvestors.co.uk/companies/news/198962/licensing-deals-are-the-life-blood-for-uk-drug-developers-198962.html It is extremely rare for a small-cap company to take a drug candidate from first principles through the arduous process of pre-clinical testing and clinical development right through to regulatory sign-off and market launch.

In the US, doing this is called hitting a home run.

READ: How to make the most of pharma inflection points and event driven trading

Such success stories in the States are more frequent than they are here in the UK.

Indeed, it is the origin story for early biotech pioneers such as Amgen Inc. (NASDAQ:AMGN) and Gilead Sciences Inc. (NASDAQ:GILD) which were ultimately able to grow into multi-billion dollar giants of the drugs arena.

It is fair to say US backers of emerging businesses in the life sciences arena tend to be more knowledgeable and patient than their UK counterparts - mainly because they know what success looks like. America is also host to deeper pools of capital.

Some spectacular failures in the 1990s and early noughties left their scars here in the UK.

Partnering is key to success

This side of the Atlantic, success in the sector is typically measured by whether a drug developer can find a partner willing to do the heavy financial lifting associated with late-stage clinical trials.

Deals of this ilk are by far the biggest value catalyst for the ambitious drug developer.

We have seen transactions that are worth hundreds of millions of dollars.

Of course, not all that money is paid upfront.

DMD Pharma: A hypothetical case study

So, let’s take the hypothetical example of DMD Pharma, which is developing a drug for a rare cardio-vascular ailment for which there is no current treatment.

The end-user group may be small, but analysts and the company believe that if the drug gets regulatory sign-off, the once-a-month injection will be widely adopted.

Not just that, insurers in the US have indicated they will pay a premium for the new treatment.

Knowing this, analysts reckon peak sales of the drug will be US$2bn a year. Add to this an abbreviated filing protocol if its phase III results are as strong as the early indications suggest and there’s little wonder discovery is hot property.

This is reflected in the licensing deal it inked with a larger rival in the same field based on some compelling from DMD Pharma’s phase II clinical trial.

The headline figure was pretty significant and saw the share price double in the space of an hour after terms of the agreement were released to the market.

Nasdaq-listed Arrowhead Bio, with a market cap of say US$15bn, will make US$1bn of staged payments and fund a phase III clinical trial of the new potential wonder potion in return for exclusive access.

The figure is huge as DMD is worth less than US$100mln. But, the devil of this deal is very much in the detail.

The big kicker is the US$20mln Arrowhead is handing over as an ‘upfront’ payment covering some of the costs of getting the drug this far, and, this is the only portion of the headline US$1bn that is guaranteed.

DMD will get a further US$20mln once recruitment for the phase III trial begins in a years' time.

That sum is fairly much nailed on. The remainder of the cash will be wired when significant landmarks during the phase III trial are completed, including the successful conclusion of the study. 

Staging of the payments this way helps share the risk, which is why the biggest windfall, around US$500mln, is received in one final blast following sign-off by regulators in the US.

DMD will also receive a percentage royalty on sales of its new wonder drug, which the press release tells us is high single digits. Let’s guess at 8%, which at peak revenues is a kick-back of US$120mln a year.

Now, at the point of approval, with Arrowhead having to fork over half a billion dollars, the American giant might as well acquire DMD. And in fact, this is what often happens.

Smaller firms are often swallowed up.

When does it make sense to partner up?

Some lucky companies in hot areas of research will feel the tap on the shoulder at the pre-clinical stage. But these sort of agreements are rare.

They tend to be the Hail Mary throw of a large pharma playing catch-up in an area where its research pipeline is empty.

The rule of thumb goes something like this: the earlier a company partners up, the less it receives in licensing payments.

This makes sense and relates back to the paltry value ascribed to drugs in early stages of development.

The optimum point in the process to find a financially well-endowed sugar daddy at the end of phase II.

Remember, phase III is where the big bucks are spent. And companies want definitive, clinically persuasive results and they can’t afford to scrimp.

So, end of phase II balances risk, reward and cost.

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Sat, 16 Jun 2018 11:30:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/198962/licensing-deals-are-the-life-blood-for-uk-drug-developers-198962.html
<![CDATA[News - How to invest in pharma stocks: Make the most of inflection points and event driven trading ]]> https://www.proactiveinvestors.co.uk/companies/news/198959/how-to-invest-in-pharma-stocks-make-the-most-of-inflection-points-and-event-driven-trading-198959.html Investment in the pharmaceutical and drug development sector is, as we’ve already discussed, largely driven by the advancement and de-risking through the phases of clinical trials.

It sounds so simple, though along the way there a variety of value triggers and inflection points that can provide opportunities for investors.

Clinical trial progress

Plainly, the successful conclusion of clinical trials presents an obvious catalyst.

READ: This is how you should be valuing drug companies

Both the chance of success and the value of a new drug entity improves once each of the clinical developmental milestones is successfully negotiated.

Similarly, failure in this regard can be terminal for a company.

Charity or government funding

Not only does this stave off the need to tap the market for additional cash, it provides third-party validation of the asset.

In other words, a bunch of independent scientists will have taken a look at the drug candidate and deemed it to be worthwhile recipient of funds.

Regulatory intervention

The FDA in the US and the EMA Agency here in Europe can, in certain circumstances, circumvent the normal approval process in order to get a drug to market earlier than it might under normal protocols.

This is an immediate kicker to the valuation of the compound or molecule, although the market is often slow to react to this sort of news.

It is because the processes are often nuanced and conditional on certain R&D hurdles being negotiated along the way.

Licensing Deals

It is a rare occurrence for a small-cap company to take a drug candidate from first principles to and through the arduous process of pre-clinical testing, then clinical development and right through to regulatory sign-off.

In the US doing this is called hitting a home run.

Success stories in the States are more frequent than they are here in the UK – and notably the likes of Amgen and Gilead chartered the pathway to grow into multi-billion-dollar giants of the drugs arena.

Here, success is measured by whether a drug developer can find a partner willing to do the heavy financial lifting associated with late-stage clinical trials.

Deals of this ilk are by far the biggest value catalyst for the ambitious drug developer.

We have seen transactions that have been that are worth hundreds of millions of dollars.

Dilution 

Small-cap healthcare stocks are by their nature prodigious cash burners.  Clinical trials don’t come cheap. Some companies are hybrids with a cash generative arm that funds the R&D effort, but, those are the exception rather than the rule.

In the main, fledgling drug developers will come to the equity market for funds at multiple intervals to replenish their coffer. Investors in the sector must be aware of this. Raising even small tranches of funding is problematic, requiring a significant discount to the prevailing share price to tempt investors to take part in a funding round.  

Arguably, there are two types of dilution – which we’ll imaginatively label good dilution and bad dilution. Bad dilution is quite easy to spot, you’ll quite likely know it when you see it.

It is when a company starts down the slippery slope of issuing shares at ever lower prices, or are forced to keep coming back for capital because they end up raising sub-optimal sums without sufficient value creation between placings.

An example of good dilution is where the company is issuing stock at a small discount to the prevailing market price, and ideally at a much higher-level price than was achieved in the last funding round.

In this case, the coffers are full enough to fund the clinical work in the pipeline plus enough left over to survive for 12-18 months afterwards. The latter point is an important one.

Having enough money to survive often protracted discussions with would-partners strengthens the hand of the smaller company through what are often uneven negotiations.

 

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Sat, 16 Jun 2018 11:00:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/198959/how-to-invest-in-pharma-stocks-make-the-most-of-inflection-points-and-event-driven-trading-198959.html
<![CDATA[News - Blockchain basics: Beyond Bitcoin what can the decentralised ledger technology do? ]]> https://www.proactiveinvestors.co.uk/companies/news/198966/blockchain-basics-beyond-bitcoin-what-can-the-decentralised-ledger-technology-do-198966.html You will have no doubt heard the word ‘blockchain’ mentioned dozens of times over the past 18 months or so.

Put succinctly, it is a decentralised, digital ledger that verifies and records transactions between two parties and can be accessed by everyone. 

This is the technology that powers digital currencies such as Bitcoin and Ethereum.

It all sounds great in theory, but what are its real-life applications?

At the moment, the biggest envisaged use for blockchain is within the finance industry, and, naturally, most of the ‘bulge bracket’ investment banks are at least exploring ways to use the technology.

Although banks have embraced the digital revolution with online banking and developing their own mobile apps, cross-border transactions, which should be relatively simple, are still processed in a slow and complex way.

That’s because the finance industry uses highly-secured private databases.

The use of blockchain would allow institutions to create direct links between each other and to use a shared ledger for transactions, contracts and important documents.

Put simply, banks will be able to formalise and secure digital relationships between themselves in ways they could not before.

Auditing and accounting

By its very definition as a distributed database, the implications for auditing and accounting are also profound.

Regulators might also welcome the introduction of blockchain into the industry. Rather than having to trawl through companies’ databases, they would have open access to a clear and transparent set of records.

Banks might also find it easier to comply with regulations as well.

At the moment, every time they authorise a transaction of more than a certain value (typically US$10,000), they must report it to anti-money laundering authorities.

Rather than having to employ a team of people to sift through the transactions, blockchains can be coded to automatically refer any flagged deals.

It’s important to remember that because blockchain is essentially a virtual, public ledger, it can instantly record any type of transaction – be that traditional currency, bitcoin or barter transaction.

Tracking goods

Blockchain’s uses aren’t limited to finance: its open, unchangeable records mean it can, in theory, be applied to many industries.

The food sector is one of those dipping its toes in the blockchain waters.

The technology is being developed as a track-and-trace solution, allowing customers and retailers to keep a verified ‘eye’ on what is in their food and where it came from.

It could also help to identify a specific batch of faulty goods should they be recalled.

A study by US retail giant Wal-Mart and IBM found that it took several days to track a package of mangos from farm to store, whereas with a blockchain solution it was traced in seconds.

Those same ideas can be applied to most of the retail industry, including clothes and cannabis, with the latter aligning itself closely with blockchain, particularly in the US and Canada.

Making elections secure

Another interesting potential use is in elections, where blockchain could possibly be used to prevent voter fraud.

The technology has the ability to provide an ‘unhackable’ electronic vote-counting system, which can secure polling registration, confirm the user’s identity and make sure votes can’t be tampered with once submitted.

In the same way that it acts as public ledger for financial transactions and cryptocurrencies, it can also create a permanent and public ledger for elections, which can only be good news for democracy.

There are already a couple of start-ups operating in this field, including Follow My Vote.

Betting and gambling online

The gambling industry could also benefit from getting on the blockchain bandwagon.

Several reports have shown that the technology can help casino operators and bookmakers verify a punter’s identity, flag problematic transaction and track pay-outs.

Money laundering and tax evasion would also be more easily identifiable with a trustworthy, open ledger.

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Sat, 16 Jun 2018 10:45:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/198966/blockchain-basics-beyond-bitcoin-what-can-the-decentralised-ledger-technology-do-198966.html
<![CDATA[News - Here’s how you should be valuing drug companies ]]> https://www.proactiveinvestors.co.uk/companies/news/198555/heres-how-you-should-be-valuing-drug-companies-198555.html To properly understand any investment thesis in the drug discovery business, investors need to get to grips with discounted cash flow (or DCF) analysis.

As we’ve explained, much of the sector’s investor attention is focused on the process of taking drug candidates through the clinical trial process and, for those that are a success, through into the marketplace.

READ: Clinical trials are a high risk, high reward route to value creation

We know that as potential drug treatments ascend through the various trial phases they become more likely to reach the commercial stage – in other words, the potential value of the product is ‘de-risked’.

This is an important point to grasp because drug company valuations are largely made using a discounted cash flow model.

In the modelling approach, the stage of development is as a discounting factor.

The DCF data required for the spreadsheet are as follows:

An estimate of the numbers of patients annually likely to use the new, wonder drug

The price insurance companies and regulators will allow the company to charge for the product

The discount factors would be: the company’s expenses, likelihood of regulatory approval, the cost of capital and the time value of money

Case Study: Lungbuster

Here’s how Wizzo Capital’s analyst Dr Darren Dancer put together his DCF valuation of LungBuster (LB) for smokers’ cough (also known as COPD).

Finger in the air, he reckons LB could achieve peak sales of US$1.4bn if gets to the market.

The addressable market is big with 2% of the world’s population suffering COPD. In the US alone, there are 15mln people with the condition.

Using the US figure only, Dancer reckons the addressable market is US$6bn.

In year-one on the market, he expects LB to grab 1% market share, rising to 13% by year 10, giving sales of US$1.4bn.

He then ascribes a 9.6% probability of success and assumes any future royalty from sales will be 10%. On that basis, he reckons the future royalty from LB is worth US$20mln, or 17 cents a share.

The figure rises to US$55mln, or 45 cents a share following the completion of a pilot safety study in people with COPD.

It is worth pointing out LB has already successfully completed a safety study in patients with asthma.

Successful completion of a phase IIa study (which is slated to complete by early following) would catapult the drug’s net present value to US$140mln, or 90 cents a share.

The net present value (NPV) rises to US$376mln once a IIb study is successfully concluded.

Why DCF is an Inexact Science, or Possibly Even BS!

A familiar refrain of Proactive’s finance director when talking about our all-singing, all-dancing new accounting software is that the package is only as good as the data you plug in.

The same could be said of discounted flow analysis.

DCF is the default method of benchmarking research-stage life sciences companies because it provides a seductively simple method of valuing potential future revenues from drugs that have yet to find their way to market.

But to be truly effective it requires a fully functioning crystal ball.

Still, this doesn’t prevent City analysts inputting their estimates for the market size, market share and the potential price of the new pill or potion.

Even after discounting according to the stage of the research & development (R&D) cycle some truly eye-popping valuations emerge. But the DCF should be seen in the context of the information it omits as much as the data it includes.

What is meant by that?  For one, the forecast doesn’t always capture value triggers such as licensing deals.

Neither can it convey just how innovative the drug actually is, or whether after tens (or even hundreds) of millions of pounds invested whether insurance companies and health services around the world will pay for the new medication.

How can it account for deal-makers?

Expanding on the first point: very few small biotechs hit the home run of taking a drug from first principles all the way to the market.

Instead they rely on the deep pockets of big pharma that step in (usually once phase II trials are complete) to fund the remainder of the development.

A licensing deal with a larger firm is a value inflexion point for the smaller company (and its investors) as it will likely receive an upfront sum, further payments once certain milestones have been reached and a royalty on sales if the compound makes it to the commercial phase.

Often the staged cash instalments involved dwarf the market capitalisation of the minnow that first spawned the innovative drug picked up by the industry’s 600-pound gorilla.

Your DCF model, however elegant, won’t take into account whether a company’s management has a track record of tying up licensing deals with big pharma but it’s a filter worth applying.

Neither will it identify those businesses incapable of finding an industry partner that is happy to burn through shareholders’ cash.

Quality is also overlooked

Another factor overlooked is the quality of the product being developed.

Of course, the holy grail is the newly-discovered blockbuster with the capacity of generating peak sales in excess of US$1bn a year. But they are hard to find.

A fall-back might be to develop ‘me-too’ copies of the blockbusters, or ‘me-better’ products that have bells-and-whistle enhancements.

While arguably easier to create, they are entering crowded markets where there may a reluctance to switch from the brand leader.

The path to regulatory sign-off can be a little more fraught. ‘Me-toos’ and ‘me-betters’ tend to have to show better efficacy and safety than their forerunners to receive the regulatory seal of approval.

By contrast, if you have a genuinely innovative drug that tackles an area of unmet medical need then the regulatory pathway is shortened.

But even where there isn’t explicit guidance from the drugs watchdog, common sense and precedent suggest good innovative medicines are likely to find sign-off less taxing than a fifth or sixth me-too cholesterol drug.

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Fri, 08 Jun 2018 16:00:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/198555/heres-how-you-should-be-valuing-drug-companies-198555.html
<![CDATA[News - Britain’s software sector may lack a champion, but our welterweights pack a punch ]]> https://www.proactiveinvestors.co.uk/companies/news/198551/britains-software-sector-may-lack-a-champion-but-our-welterweights-pack-a-punch-198551.html In the UK technology sector, the software sector is the largest by far, featuring companies great and small … well, mostly small.

By global standards, Britain does not have very many software titans.

Accountancy software giant Sage Group is the big dog in the sector, valued at around £7.2bn.

Legacy software specialist Micro Focus (£5.8bn), engineering software company Aveva Group (£4bn), cyber-security play Sophos Group (£2.7bn) and Fidessa Group (£1.5bn), the financial services software outfit, are all big enough to warrant inclusion in the FTSE 350 plus there are a number of companies that are large and listed in London but which are not really British companies - such as payments king, Worldpay Inc (now American-owned), and the Czech Republic's cyber-security firm, Avast.

READ: Don’t sleep on these London listed technology shares

For some reason, however, the UK does not do tech goliaths on the same scale as the US, raising the question: where is Britain's Facebook?

Well, the answer is, it was called Friends Reunited and it could have been a contender but it ended up with a one-way ticket to Palookaville.

Do UK technology firms lack ambition?

According to James Anderson, joint manager of the Scottish Mortgage Investment Trust, the reason Britain does not have its own Facebook, Amazon or Tesla is because management and investors lack patience and ambition.

Boards have been “short-term greedy and long-term stupid” in Anderson’s view, shunning but “spectacular possibilities”, he wrote in a blog posting.

“My prevailing belief is that new British companies fail to compete at scale because they deserve to fail, not because they are doomed to do so.

‘To put it more bluntly: they are unsuccessful because they (and we) are unambitious – indeed, unfit for purpose,” he wrote.

Anderson cited the example of the sale of ARM Holdings, a genuine global tech leader that was sold off to Japan’s Softbank for £24bn in 2016.

£24bn is a lot of money but on the other hand, so is US$263bn, which is the market capitalisation of another computer chip firm, Intel Corporation; graphics chip designer Nvidia Corporation, meanwhile, is valued at US$160bn.

It is hard to argue with the view that the preference in the UK is to cash in the chips, if you’ll forgive the pun, rather than “doubling down” and hanging on in there.

“We fail at every level. I see nothing on the horizon to change this terrible record. It’s very sad,” the well-respected stock-picker said.

Anderson’s chairman at Scottish Mortgage, Fiona McBain, clearly agrees with his view.

“Great results are only attainable if patience is the mantra for investors as well as for founders,” she said, in the investment trust’s most recent annual report.

McBain went on to say, “What is so remarkable about this era for growth investors is that we have been offered the chance to own a set of compelling companies that have the characteristics that denote the potential for greatness at extreme scale.”

Unfortunately, hardly any of those companies seem to be British - and it seems it is because of that word “ambition”, again.

“The combination of digitalisation and globalisation has led to hitherto unimaginable opportunities for a cadre of founder-led companies of the utmost ambition. It's therefore natural enough that the corporate trees can continue to grow at previously incomprehensible scale,” McBain said.

“It's appropriate yet again to cite Amazon in all of these regards. It's not normal for a company of its size to achieve 43% sales growth, it's abnormal to have a cloud computing business with accelerating growth as it hits a US$20 billion run rate or to see the Prime subscription service exceed 100mln customers,” she said.

It would be nice to think that somewhere among the UK software companies there is a charismatic visionary who has the “huevos de acero” needed to build a trillion dollar company but history suggests there most probably isn’t.

British welters punch above their weight

The UK does not have many heavyweight tech companies but the welterweights punch above their weight

Despite the undoubted talent in Britain's technology sector, there is nothing in the software sector that looks like it will be so dominant in everyday life that even now the European Union is working on some way to cut it down to size with some well-meaning red tape.

Nevertheless, the tech sector has been described by no less an authority than Theresa May (and there is no less an authority etc.) as a “great British success story”.

According to the annual Tech Nation report, which maps the evolution of the UK tech sector, British firms attracted more capital than any other European country in 2017.

“Clusters built around AI [artificial Intelligence], machine learning, cyber security and big data industries are supporting growth, jobs and productivity in communities large and small,” the prime minister said in her introduction to the 2018 Tech Nation report.

Digital tech companies in London are the most connected in Europe, second only to Silicon Valley for international connections, according to Tech Nation.

The scores on the door indicate 25% of entrepreneurs across the world report having a significant relationship with two or more entrepreneurs in London, compared to 33% for Silicon Valley.

The UK was in the top three countries for total capital invested in digital tech companies between September 2016 and August 2017, surpassed only by the US and China.

Indeed, the UK had a higher number of deals than China, beaten only by the US, suggesting that the UK does more small deals than the People's Republic.

In 2012, the total investment in digital technology companies totalled £984mln in more than 870 deals; by 2016 this had risen to £3.3bn in more than 2,645 deals.

“With the digital sector growing twice as fast as the economy as a whole, it is clear that technology is a critical component of UK growth, both now and for the future,” Tech Nation reported.

Stock market performance is not too shabby

As the success of Facebook, Apple, Netflix and Google – collectively known as FANG (sometimes with Amazon included) – has demonstrated, the technology sector is regarded as irresistibly sexy by investors.

The UK technology sector may not have produced any companies worthy of rubbing shoulders with the FANG club but the sector, as measured by the FTSE Techmark All-Share index has done well; over the last five years, the FTSE Techmark has risen 47%, compared to the FTSE 100's 22% gain.

The big winners among software and computer services providers over that period have been:

Zoo Digital Group PLC (LON:ZOO): up 1,470%

Triad Group PLC (LON:TRD): up 908%

Sopheon PLC (LON:SPE): up 803%

First Derivatives PLC (LON:FDP): up 700%

Ideagen plc (LON:IDEA): up 551%

Other software and computer services stocks that are at least “four-baggers” include PROACTIS Holdings, GB Group, Arcontech Group PLC, Spectra Systems, dotDigital Group and Craneware.

It would be nice were there some unifying theme among them, other than that they are all software houses or computer services providers, to enable us to spot the next stock market star, but there isn't, really.

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Fri, 08 Jun 2018 15:50:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/198551/britains-software-sector-may-lack-a-champion-but-our-welterweights-pack-a-punch-198551.html
<![CDATA[News - Clinical trials present a high risk, high reward route to value creation - here’s everything pharma investors need to know ]]> https://www.proactiveinvestors.co.uk/companies/news/198114/clinical-trials-present-a-high-risk-high-reward-route-to-value-creation-heres-everything-pharma-investors-need-to-know-198114.html The multiple phases of human clinical trials present a well-established path to take potential drugs from candidate in the lab to market-ready product - along the way, there are opportunities for investors, so long as they’re comfortable with the risks.

They are frequently preceded by animal studies, which provide researchers with a guide to safety and potential efficacy.

The trials are divided into four phases, though a drug only has to successfully negotiate three of these four stages to receive sign-off by the regulatory bodies. Here in Europe, the green light is given by the European Medicines Agency (EMA), while the US Food & Drug Administration (FDA) grants new drug approvals in the United States.

Studies are typically undertaken by specialist hospitals overseen by doctors independent of the company and the team that developed the treatment. There is a rigorous sign off procedure and close oversight of trials. This means the number of drug candidates making it out of the clinic and into first-in-man studies tends to be a trickle.

Full disclosure, what follows was nabbed from Cancer UK’s site, which is a tremendous resource, though some of the content has been re-purposed to fit our needs here.

Phase I

They are usually small studies, recruiting only a few patients (sometimes less than 20).

When laboratory testing shows that a new treatment might help treat a particular disease or ailment, phase I trials are done to find out:

How much of the drug is safe to give What the side effects are How the body copes with the drug

Patients are recruited very slowly onto phase I trials. So, although they don't recruit many patients, they can take a long time to complete.

The first few patients to take part (called a cohort or group) are given a very small dose of the drug.

If all goes well, the next group have a slightly higher dose. The dose is gradually increased with each group. The researchers monitor the effect of the drug until they find the best dose to give. This is called a dose escalation study.

In a phase I trial, patients have lots of blood tests because the researchers look at how the drug affects people. They also look at how the body copes with, and gets rid of the drug.

Recorded are all side effects. The Latin phrase primum non nocere (first, do no harm) is very much the guiding principle of phase I trials; therefore, anything other than minor side-effects will likely scupper the process.

At this point, efficacy isn’t the main concern, it’s called in the jargon a “secondary endpoint”; safety and tolerability are the prime focus.

*People taking part in phase I trials who have cancer often have an advanced form of the disease. They have usually had all the treatment available to them. They may benefit from the new treatment in the trial but many won’t.

Phase II

Not all treatments tested in a phase I trial make it to a phase II trial. The aim at this next juncture is to find out:

If the new treatment works well enough to test in a larger phase III trial Which strains of illness the treatment works for (particularly pertinent in cancer) More about side effects and how to manage them More about the best dose to use

Although these treatments have been tested in phase I trials, they may still have side effects that the doctors don't know about. Drugs can affect people in different ways.

Phase II trials are often larger than phase II. There may be up to 100 or so people taking part. Sometimes in a phase II trial, a new treatment is compared with another treatment already in use, or with a dummy drug (placebo).

If the results of phase II trials show that a new treatment may be as good as existing treatment, or better, it then moves into phase III.

Some phase II trials are randomised. This means some of the people taking part take the dummy drug while others receive the medication.

It isn’t known until the end of the trial, which group is which. Randomised tests prevent any sort of bias by the physicians administering the treatment.

Phase III

These trials compare new treatments with the best currently available treatment (the standard of care).

These trials may compare:

A completely new treatment with the standard treatment Different doses or ways of giving a standard treatment

Phase III trials usually involve many more patients than phase I or II.

This is because differences in success rates may be small. So, the trial needs many patients to be able to show the difference.

Sometimes phase III trials involve thousands of patients in many different hospitals and even different countries. Most phase III trials are randomised.

Phase IV

Done after a drug has been shown to work and has been granted a licence. The main reasons for running phase IV trials are to find out:

More about the side effects and safety of the drug What the long-term risks and benefits are How well the drug works when it’s used more widely Trials covering more than one phase

Most trials are just one phase. But some trials cover more than one phase. For example, the same trial can include both phase I and phase II.

The aim of phase I might be to work out the highest safe dose of a new drug. And the aim of phase II might be to see how well that dose works. So, you may see trials written as phase I/II or phase II/III.

What does this mean for the investor?

When mentally benchmarking emerging firms, it is worth knowing that a pre-clinical drug has less than a 1% chance of success.

The figure moves to 10-15% for a phase I compound; 25-35% for phase II; around 60% for a drug entering phase III and 80% when exiting the final stage.

De-risking equals value creation. Each of the above steps are potential game changers for the growth companies behind the drugs. Industry interest rises sharply as drug candidates move closer to market.

Obviously, this is all good news for those that make well-timed investment in successful drug development companies.

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Sat, 02 Jun 2018 10:30:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/198114/clinical-trials-present-a-high-risk-high-reward-route-to-value-creation-heres-everything-pharma-investors-need-to-know-198114.html
<![CDATA[News - So you want to invest in oil and gas, there’s a stock for every risk appetite but which will suit you best? ]]> https://www.proactiveinvestors.co.uk/companies/news/198118/so-you-want-to-invest-in-oil-and-gas-theres-a-stock-for-every-risk-appetite-but-which-will-suit-you-best-198118.html Crude oil and natural gas are fundamental and ubiquitous commodities throughout the capitalist system, so, putting any environmental proclivities aside, it should be obvious that the petroleum sector is a core part of all investment portfolios.

But, who are the sector’s main players, and which stocks should you be investing in?

First and foremost, you could also have a go at trading the commodities themselves.

That’s not so easy, however, not unless you have substantial facilities and you’re comfortable getting your hands dirty, literally as well as figuratively.

It is unlikely that very many private investors will have the gumption for physical crude trading.

Most suit and tie oil traders will be prepared to deal in oil futures and an array of other derivative contracts. This is an often volatile market and it is essentially a 24/7 market. So, this arena is not for those with faint hearts or shallow pockets.

Many ways to navigate oil and gas equities

Equity investing can offer a more accessible and diverse way to play the petroleum market.

In London, particularly, there are many quite different opportunities to invest. 

From taking long-term portfolio holdings of BP or Shell shares, to leveraged CFD trading positions ‘seat of the pants’ exploration stocks on AIM, and, everything else in between, there are avenues for most tastes and risk appetites.

Investing in ‘Big Oil’ integrated majors

London is home to a pair of the sector’s more prestigious oil majors, BP PLC (LON:BP) and Royal Dutch Shell PLC (LON:RDSB).  Both are stalwarts of any blue-chip portfolio.

These are the sector juggernauts. Investing here is all about income and that’s why both have fought tooth and nail to maintain dividends in recent years against the backdrop of sharply lower oil prices.

Scrip-payments, asset sales and cost cutbacks were all deployed to save shareholder’s yield.

Whilst the sector has experienced a sharp downturn in investment following the crude downturn in 2014, the tide now appears to be turning as the oil price is rallying.

After the period of rebalancing, the improving oil price is having a big impact on cash flow generation. Indeed, some analysts see the price of oil returning to US$100 per barrel over the next two years - and, that is expected to see dividend cover improve to around 200%.

It bodes well for the Big Oil stocks and their ‘slow-and-steady’ income investors.

Exploration and wildcat wells

We’re now talking about the complete opposite of BP or Shell. London is arguably the premier market for pre-revenue oil and gas stocks.

This is where you’ll find petroleum executives with bright ideas and a need for capital.

London’s investment community is rather robust and knowledgeable when it comes to oil and gas prospecting - and that’s one of the reasons the world’s explorers list here.

The shareholder registers of the market’s preferred players most likely comprising a good mix of prestige institutional investors, deep-pocketed hedge funds, private equity, and frequently, a depth of highly engaged private investors.

The latter group, are often the most susceptible to the ambitious and seemingly compelling forward-looking statements that flow out of small-cap boardrooms.

Here, companies are an awful lot smaller - in terms of capital, headcount and operational capacity.

Ambition and salesmanship are, however, definitely not in short supply.

Put most simply, this is the business of finding new hydrocarbon resources, and, its most often done by small companies that are set-up to risk their very existence in the pursuit of new discoveries.

In rudimentary terms, the idea is to make an educated guess where the oil or gas may exist and then drill a hole to prove it.

Naturally, that’s much easier said than done. Successful explorers reward their investors handsomely. This is a binary business. And, it is not particularly uncommon for a small cap oil speculator to double or even triple their initial capital investments.

At the same time, a well failure can decimate a trading position and, moreover, a bad enough well result can take down a company in its entirety.

Although there’s a great deal of hard science and engineering involved for the companies, the outcomes for outside speculators are analogous to those seen in roulette.

At any given time, the average small-cap explorer may have just enough capital to deliver the programme they’re working on at that moment.  They don’t yet generate their own cash and future fund-raising is almost always a strong probability.

In case you were in any doubt before, it is fair to now conclude that small-cap exploration isn’t the investment arena for the widows and orphans fund.

E&P independents

E&P ought to stand for expertise and pragmatism (but, it actually means Exploration and Production).

Companies like Tullow Oil PLC (LON:TLW) and Premier Oil PLC (LON:PMO) are good examples of the companies found in the middle-ground between the multinational, vertically integrated majors and the AIM-market exploration minnows.

Here, there are many well established and well-supported oil and gas companies.

They have production, some have quite substantial volumes of it too, but, unlike the Shells and BPs of the world, they are still not income investment plays.

These businesses are far from ex-growth. Typically, they are independent, i.e. they are not integrated (in other words they sell crude oil, unlike the majors they have no involvement in any of the ‘downstream’ activities). Most have a spread of assets including producing fields, field development projects, proven but undeveloped discoveries and greenfield exploration ventures.

Such companies are valued-based on the cash flow they generate and the (risk discounted) barrels that are proven in the ground. Whilst exploration potential very much remains a relevant and attractive factor for investors, it is not what underpins the share price.

Exploration risk is often shared through multi-partnered ventures, and, the negative impact of bad results dissipates more easily because the portfolios already hold material proven assets.

Equity-based funding is rare in this segment, largely because upwards pointing production growth allows for debt funding.

So far so good, right? The downside risk comes from the fact that the more aggressive players became highly leveraged earlier in the decade when the price of crude peaked well above US$100 per barrel.

Most of those firms have since rearranged their financing, nonetheless, there has been something of a lag on growth because cash is being prioritised towards debt repayment - albeit, the crude rally to US$80 in the first half of 2018 eases the pressure.

With leverage now less of a concern, the mid-sized independents may offer investors the best of both worlds.

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Sat, 02 Jun 2018 10:02:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/198118/so-you-want-to-invest-in-oil-and-gas-theres-a-stock-for-every-risk-appetite-but-which-will-suit-you-best-198118.html
<![CDATA[News - Takeover talk – What happens when CEOs snub a bid? Ask FirstGroup’s Tim O’Toole ]]> https://www.proactiveinvestors.co.uk/companies/news/198110/takeover-talk-what-happens-when-ceos-snub-a-bid-ask-firstgroups-tim-otoole-198110.html What do FirstGroup PLC (LON:FGP), Shire PLC (LON:SHP), Hammerson PLC (LON:HMSO), Flybe Group PLC (LON:FLYB), Norwegian Air Shuttle, Santos Ltd (ASX:STO), and Broadcom Inc (NASDAQ:AVGO) all have in common?

The answer is they have all rejected takeover approaches at one point or another in the first half of 2018.

For some, it was a good call - Shire and Hammerson for example, subsequently secured improved offers - but, for others, like FirstGroup’s now departing chief executive, there’ll be regret.

So why do takeover offers get rejected?

Naturally, it more often or not boils down to valuation - this is capitalism after all. The problem for the executives at opposite ends of negotiations is that valuations are unsurprisingly subjective.

For the boss whose company is in the takeover crosshairs, their point of view is underpinned by potential - confidence and ego put a premium on unrealised assets, as well as the projects in development and the sales of the future.

There’s also the not-so-insignificant matter of career trajectory. What if the cheques for shareholders arrive with a P45?

Plainly, there are personal reasons for management to snub a deal, though it won’t necessarily secure their boardroom seat either.

FirstGroup boss sees exit door

FirstGroup shares slumped 12% on the news that chief executive Tim O’Toole would be replaced with immediate effect.

It came after the UK transport group rejected two takeover approaches from a private equity buyer and coincided with the news of a £326mln loss for 2017.

As one analyst eluded, the sale of the company would have given shareholders an exit whilst offering the company a fresh start.

“Just weeks after rejecting two bids from Apollo Global Management, chief executive Tim O'Toole has paid the price for failing to revive the business in his eight years at the top,” said Lee Wild, Head of Equity Strategy at Interactive Investor.

He added: “The share price is less than half what it was when he joined, and management wants a ‘new approach’. Grim annual results were the final nail in the coffin.”

“With no chance of a resumption of dividend payments anytime soon, FirstGroup shares offer little of interest to long-suffering shareholders. The new CEO will have their work cut out convincing them otherwise.”

High risk bluff and barter

M&A is a high stakes game of bluff and barter. Sometimes rejection invites an improved offer, solicited or otherwise.

Shire was the subject of multiple takeover tilts even before knocking back Takeda’s £42bn offer in April, but, weeks later management were suitably happy to recommend a better £45bn bid.

Holding out for an improved deal is, frankly, negotiation 101.

There’s always the chance that it will also flush out any other interested parties and spark a competitive bidding war, and, that’s arguably the holy grail for the speculative traders that jump into these special situations.

It sounds like such a simple strategy but it doesn’t always work, of course.

Airline industry is full of M&A

Norwegian Air earlier this month looked down its nose at a second offer from British Airways owner IAG, whilst claiming the proposal undervalued the company and its prospects. 

At that time, the Scandinavian budget airline said it had received "several inquiries" though about three weeks later, the market has yet to see a competing bid.

IAG, which had built a 4.61% stake in Norwegian, had said it would now consider its options and at the time of writing, it has not yet ‘gone hostile’ – which happens as its stake rises to the point where it is legally compelled to make an offer directly to shareholders, independent of the takeover target’s view of the proposals.

Ultimately, the company is owned by its shareholders and when those shareholders are sufficiently united and organised, the position of management is quickly reduced to that of any regular employee. It simply becomes irrelevant.

In the airline industry, takeovers and consolidation are rather commonplace, particularly in recent years as tough underlying trading conditions have left operators seeking strength in scale and numbers.

Indeed, IAG itself is the result of the 2011 marriage of BA and Iberia, and the group has continued to pick up brands such as Aer Lingus and Vueling.

Elsewhere in the sector, on a somewhat smaller scale, a possible combination of Flybe and Stobart Group (which runs Southend Airport operations as well as regional Flybe branded routes out of the ‘London’ hub) failed to get across the line back this spring.

An agreement could not be reached on satisfactory terms, the aviation businesses revealed in March.

That deal was proposed as a ‘reverse takeover’, a mechanism whereby a smaller company with a typically cleaner corporate structure and access to funding, agrees to acquire the larger company in exchange for new equity. In a practical sense, such cases are often closer to a merger or even a full reboot for both companies.

Timing is everything

By the nature, all negotiations are contingent. They’re fixed at a certain moment in time, and, the dynamics of any piece of M&A are always liable to change with the prevailing trading condition. It can be a case of landing a shot on a moving target.

Prior to the failed deal in March, the most recent investor communication from Flybe was the October 2017 profit warning.

Just a few weeks after the talks, however, Flybe shareholders shrugged off final results which included the anticipated negative impacts, but, also a positive outlook for this summer’s trading.

All other things being equal (i.e. ignoring the temporary takeover drive spike through late February into March), the Flybe share price is now some 12% higher than it was before Stobart made its move.

Devilish details can derail deals

Questions also arise over the who’s and how’s of a takeover approach, not least if the deal involves any form of private equity investor.

The leveraged buy-outs popularised through the nineties may be rarer in the post financial crisis decade, nonetheless, the practive isn’t entirely extinct.

Capital may be harder to come by and it may be at a higher cost, but, it is still possible to weaponise a company’s own asset base. Well-connected private equity backed investment groups are still able to build the framework of a deal based on the assets that it has yet to acquire.

Sydney-listed liquefied natural gas group Santos in mid-May rejected a US$14bn takeover proposal from America’s Harbour Energy. The offer was pitched as being at a US$4bn premium.

Santos, which is developing a huge project in Queensland, said in its rebuttal that the deal on offer was based on a "highly leveraged private equity-backed structure" requiring Santos support in debt raising and the pre-sale of production.

Santos chief executive Kevin Gallagher was quoted in the Australian media claiming the offer “wasn’t clean” and there was said to be friction with Chinese shareholders, owning 15% of Santos, which opposed the deal.

Outside forces can conspire to squash deal

Problems and obstacles are especially common for mature, highly consolidated sectors like telecoms, technology, broadcasting and retail – all of which have seen tremendous levels of activity over the past two decades.

Here, regulation is the likely stumbling block. It can make negotiation and execution protracted and complex especially if the issue of competition (‘anti-trust’ or consumer protection) is a factor.

Deal structures become increasingly complex and fragmented, sometimes it sees different brands and subsidiaries spun out or sold in separate transactions so that the larger business can get past industry watchdogs.

Even the most avid market watchers would, for example, have to stop and think for a moment if asked who is currently in the process of buying Fox or Qualcomm.

Plainly the landscape for M&A is extremely fast moving and dynamic, with vast sums of money changing hands at the top end of the market.

For senior executives, the pressure to make the right call is high, fortunately for investors they get to speculate, scrutinise and ultimately judge from a position of hindsight.

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Fri, 01 Jun 2018 13:43:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/198110/takeover-talk-what-happens-when-ceos-snub-a-bid-ask-firstgroups-tim-otoole-198110.html
<![CDATA[News - Oil and gas shares are event-driven trading. Here are the key triggers for putting pounds into petroleum ]]> https://www.proactiveinvestors.co.uk/companies/news/197736/oil-and-gas-shares-are-event-driven-trading-here-are-the-key-triggers-for-putting-pounds-into-petroleum-197736.html Unless you’re simply queued in behind the pension funds and unit trust managers picking up quarterly dividends from BP and Shell, the preferred way to play the oil and gas is event-driven trading.

The sector offers a fairly well-defined chain of tradable events as successful projects transform from their unexplored beginnings into producing and profitable fields.

For brave investors, there are several major value-adding opportunities to take risks in return for rewards along the way.

Inherently, every risky value catalyst has the opposite potential - to leave speculators out of pocket.

In the oil and gas sector, success is far from guaranteed, but, well-timed investments in the right companies nonetheless open up significant opportunities for capital growth.

Small but often ambitious beginnings

Most exploration projects essentially start with a big idea and some form of unchartered territory.

All the ‘easy’ discoveries have supposedly all been made. The task of finding tomorrow’s oil reserves most often than not falls to small exploration firms run directly by teams of geologists. They are set-up to risk their very existence in the pursuit of new discoveries. 

These hardy explorers often look where the larger companies don't, or won't. They take land positions in areas either discarded by ‘big oil’ or entirely untested or operationally riskier frontier areas.

New projects are typically picked up at a low cost or are awarded by government agencies in return for investment commitments designed to advance the localised oil and gas industry.

This approach essentially outsources the nascent phases of the oil industry for unproven jurisdictions. It creates activity and interest where the blue-chips would have none.

In more mature provinces, it provides stimulus to reinvigorate activity. For example, in the North Sea, the UK’s 30th Offshore Licensing round saw 123 exploration areas handed to a total of 61 oil companies which promised to carry out specific work programmes.

Seismic, desktop evaluation and modelling

With exploration land now in the bag, explorers move on to preliminary exploration.

Frequently, the first step in exploring for oil and gas is through seismic exploration programmes.

Simplifying what is a complex technique, the process allows scientists to get a picture of sub-surface geology. Explosives are fired in specified positions, resulting movements across the ground are captured in the form of seismic data. And, because the pulse of energy moves differently through the different strata below ground, analysis of the data can be used to indicate potential geological features.

The data is pored over by experts, and, is used to model exploration prospects.

Seismic programmes come in two forms: 2D (meaning two-dimensional), which captures data along straight lines, and the more advanced and more expensive 3D seismic. Typically, unless other information is known about the area, the latter is needed if a well is to follow.

Other ‘geotechnical’ studies can also be undertaken for projects at this pre-drill phase.

Prospect inventories & resource estimation

With seismic data evidently providing a degree of de-risking, (hopefully) backing up the initial exploration concept, the project is now at a point where the company can start giving the market an idea of what the company thinks it might have.

This is, often, the stage where a broader investor audience starts to pay more attention.

Companies will often begin giving investors information about specific potential targets; they may even give indicative ‘in-house’ estimate of scale.

Be warned, these are highly speculative estimates at best. Nothing has been ‘discovered’ yet, and, the millions or billions of barrels of crude estimated to exist below the surface have a habit of disappearing quickly if future exploration programmes don’t work out.

Third-party estimates carry more credibility, albeit they are still (and unavoidably) conceptual.

Explorers will hire industry consultants to analyse project data, inspect or create their own models and come to their own estimates of the project.

This is a crucial step for what comes next. It rubber stamps the prospective resources and gives outsiders more confidence in the project’s potential.

Funding

Nobody gets this far without spending money, and, frankly, a capital raise is always a possibility for exploration stocks.

Nonetheless, at this point, we’re reaching the thicker end of the wedge.

Budgets of just a couple of million dollars can be stretched through the preliminary exploration phases, especially if the project comes with pre-existing data or insight.

Drilling a well will usually cost a multiple of that. The rule of thumb is offshore drilling is more expensive than offshore exploration. The shallow wells of Texas might come in at a couple of million dollars a pop, while at the height of the last boom, deep water rates were around US$1mln a day.  Today? Well, it might cost anywhere between US$20mln and US$60mln probe beneath the waves. That's cheaper than it used to be, but it's still a big boy's play.

Sometimes a junior can get creative to cut out some costs. For example, old wells can be re-opened to test new exploration targets or, alternatively, novel partnership deals can be done with drill rig operators.

But, most successful early-stage explorers will reach a point where they’ll have to find the budget to drill new wells.

Securing funding can be a positive or a negative for the share price. On one hand, it creates the wherewithal to drill a possible discovery well, the biggest single value catalyst of them all. But, it can also introduce substantial equity dilution.

The threat of dilution is among the reasons smaller explorers will look to strike partnerships with more established operators, trading off project equity in return for funding commitments.

Whilst ‘farm-out’ deal-making can be valuable, protracted negotiations can sometimes see projects become frozen in time.

Exploration drilling

Arguably, this is the most straightforward part of the whole project - from an investor’s point of view at least. Obviously, there’s a great deal of engineering, project management and operations work involved.

But, for investors, the process can be boiled down to a simple process. A hole is drilled down into the ground until it reaches the targeted depth.

The hope is that everything has gone to plan and the reservoir is present as the geologists predicted.

If the hydrocarbons are found in sufficient volume, if the reservoir is viable and if the oil or gas flows to surface … in all likelihood, the shares will be off to the races. If one or all fail to materialise, expect to see an equally sharp fall in the share price.

Proving up with appraisal drilling

A discovery well proves the hydrocarbons are there and are viable; further appraisal wells are usually needed to confirm the extent of the discovery.

Ongoing programmes are about fact-finding for the planning of field development.

Exploration and appraisal data also firms up the pre-drill models and resources estimates.

All in all, it can be a phase of significant value creation.

Project financing

Assuming the project has continued to achieve success over success, it will reach a point where the oil resources have been suitably proven / de-risked, that operationally attentions will turn toward the major engineering undertaking that is field development.

Here, the capital requirements are now much more substantial.

Onshore, proximity to existing infrastructure and end markets can make things easier and cheaper.

But, offshore; well this is where projects become very expensive.

Capital requirements for North Sea field developments (with only a few wells) will cost developers hundreds of millions of dollars.

Deep-water projects can cost substantially more than that, and, major ‘world class’ frontier projects can easily run into the billions.

By this point, all other things being equal, what was a tiny exploration team has most likely grown substantially. The business itself is now probably worth anywhere between £300mln to £1bn, depending on the size of its undeveloped resource.

Even so, the company will need to secure some form of project finance.

Traditionally, it would come mostly via the issue of debt financing, supplemented with some more shareholder equity for good measure.

Alternatively, it could come in the form of another farm-out, selling more project equity for development capital.

Once the funds and the project planning are together, the discovery reaches project sanction.

Field development: the slow-burn to real value creation

Getting the green light to take a project into development is undoubtedly an exciting catalyst that will give most stocks a good lift, but, it also puts into motion what usually ends up being a quieter phase for investors.

Although the company and its operational teams have never been busier, the stock market speculators that have backed management’s every move to this point are now running out of opportunities for immediate upside.

Development work, spanning at least a 12-18 month offshore, brings the project to ‘first oil’ and will establish revenue generating production.

It is a watershed moment for the company, it marks an undeniable and value-creating milestone.

But, it also represents something significant for a certain kind of investor.

Valuations of the company become progressively less about potential and what could be.

The premise for investment and the purpose of holding shares is changing. It is now about the material facts of a production business: it is about output volumes, sales prices, margins and cash flow.

And, importantly, investors are now eyeing the pace at which that project financing debt can be repaid so that they can start milking dividends.

Congratulations, the dynamic exploration minnow is now an income paying buy-to-hold portfolio share!

Exit or evolution

The evolution of stock market-listed companies is, of course, never so simple. This linear narrative suits this author’s purpose. In reality, there are a great number of divergent moments and there the potential pitfalls along the way are plentiful.

Even if a company was so successful that they could achieve each of the above milestones so effortlessly, in the competitive and fast-moving oil and gas sector, good projects are always sought after.

That may come in the form of a big money premium cash takeover, although recent history suggests it may be more complicated than that.

Perhaps, a farm-out partner takes up a large working majority of the project and the small-cap explorer becomes the minority passenger, towed along for the remainder of the project's lifespan.

Quality assets have, meanwhile, been lost to creditors because farm-out transactions never emerged (go ask any Xcite Energy investor about such pitfalls).

At some point or another, the company or the project is likely to become the subject of some form of merger and acquisition activity or consolidation.

So there it is, in a nutshell, the A-Z, of oil exploration and development. In the next instalment, we'll get into the real nitty gritty of oil investment.

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Mon, 28 May 2018 10:00:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/197736/oil-and-gas-shares-are-event-driven-trading-here-are-the-key-triggers-for-putting-pounds-into-petroleum-197736.html
<![CDATA[News - Mining is a high risk, big reward business: Investors can learn a lot from the sector’s famous winners ]]> https://www.proactiveinvestors.co.uk/companies/news/197734/mining-is-a-high-risk-big-reward-business-investors-can-learn-a-lot-from-the-sectors-famous-winners-197734.html The mining sector is littered with successes, and littered with failures too.

The most famous faces in mining investment are people like Eric Sprott and Rick Rule, have made careers and fortunes in the sector and seem to do it with consummate ease.

Serially successful operators can stand beside these successful investors too: men like Lukas Lundin, the founder and backer of several successful resources companies including Lundin Mining Corp (TSE:LUN), Adonis Pouroulis, the progenitor of Petra Diamonds Limited (LON:PDL), Rainbow Rare Earths Limited (LON:RBW) and the privately-held Toro Gold.

Another is Robert Friedland, famously the most successful promoter in the business, and the man behind Ivanhoe Mines Ltd (TSE:IVN).

These men have all built up considerable wealth and expertise over a time scale that spans several mining cycles.

An investment from Sprott, Friedland and Lundin is a marketable event in itself, and the networks of these men, and men like them, reach right around the world, and run right up to the biggest companies and down into the smallest, as yet unlisted exploration play.

Start-ups and early stage miners

Sprott in particular, has made a speciality of incubating start-ups and early-stage companies.

He was into UK-based Altus Strategies (LON:ALS) years before it listed, for example, and Altus itself is a specialist project generator.

It may be years before any of its projects actually start producing.

Get used to seeing failures along the way

It’s a complex industry and investors like Sprott have to be prepared to have their investment tied up for years and often to sit on large paper losses along the way.

And they also have to be prepared to take their share of losses.

For every discovery like the recent A$1.8bn Nova nickel find in Australia, there are hundreds of failures.

At the smaller end of the market, it’s not unusual for mining companies to go through several iterations as the attractiveness of various of their projects waxes and wanes as exploration work proceeds.

Chasing industry fashions and rare romances

Some chase the fashionable metals of the moment, which allows cynics to speak of company directors “mining the market” rather than the ground.

But others, like Landore Resources Ltd (LON:LND), which is also run by old market stagers keep persisting until hopefully something, in the end, pays off.

In Landore’s case, its Canadian discovery was made with the last drill hole, what was probably set to be the company’s last drilling campaign for a good long while, if not for good.

But such romantic outcomes are rare, and belie the hard science that actually goes into a discovery.

Dealing with dilution

Even when a discovery is made, it’s not always a sure thing that investors will benefit, as dilution inevitably plays a part in raising the funds required to undertake follow-up work.

For the likes of Sprott, this isn’t a problem.

He can control how much dilution he takes in any given junior, and indeed the juniors themselves are highly likely to ask his permission before considering such a move.

But for the less influential investor, this is a rocky road beset with landmines.

Not only will companies spring unexpected dilution upon hapless investors, but new shares issued are likely to be placed directly into the market, meaning that not all investors get to participate.

There’s also the question of liquidity at the junior end: should investors wish to buy or sell mining shares they might not actually find it that easy.

And when investors do finally manage to get into the company of their choice, they may well find that market sentiment has a greater effect on share prices than more fundamental valuation methods. 

It is a harder game for retail investors, but they’re returning (slowly)

Professionals like Sprott and Rule find it fairly easy to navigate these waters, but then they are big fish in a relatively small pond. Retail investors, on the other hand, find it much harder.

They were heavily wiped out in the crash of 2007-8 in all the major mining markets, and it took them the better part of a decade to regain any sort of real appetite for the sector.

Even now, retail interest isn’t what it once was, at the height of the last mining boom. It’s returning only very slowly.

But it is returning. New listings like Group Eleven Resources (CVE:ZNG), Cora Gold (LON:CORA) and Erris Resources (LON:ERIS) have shown that there is appetite.

Whether it will ever return in quite the same way, is open to question.

In the middle part of the last decade, the boom was fuelled by the newly emerging Chinese economy.

There’s no such comparable story now. The nearest thing is electric vehicles, but that is very company and commodity specific.

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Mon, 28 May 2018 09:30:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/197734/mining-is-a-high-risk-big-reward-business-investors-can-learn-a-lot-from-the-sectors-famous-winners-197734.html
<![CDATA[News - Britain is no longer the workshop of the world, but don't sleep on London’s technology shares ]]> https://www.proactiveinvestors.co.uk/companies/news/197730/britain-is-no-longer-the-workshop-of-the-world-but-don-t-sleep-on-londons-technology-shares-197730.html The days of Britain being the industrial workshop of the world may be long gone but when it comes to knowledge-based sectors such as technology, it still carries some clout.

London’s junior market has three sectors that could qualify as falling under the banner of technology: technology hardware & equipment; mobile communications; and software & computer services.

By far the biggest, with 99 representatives, is the software & computer services list, which includes some big names such as financial services-focused First Derivatives PLC (LON:FDP) and automation and robotics specialist Blue Prism Group PLC (LON:PRSM), both of which are billion pound companies.

Technology hardware & equipment

The technology hardware & equipment cadre comprises 20 companies, of which IQE PLC (LON:IQE), a supplier of advanced wafer products to the semiconductor industry, is by far the biggest, with a market capitalisation of around £920mln.

The mobile telecommunications division, meanwhile, contains just seven companies, with telephone and broadband specialist Gamma Communications PLC (LON:GAMA), valued at around £700mln, fulfilling the role of the 800 lb gorilla.

Not that big is necessarily beautiful in this sector; part of the appeal of investing in technology stocks is picking a winner with a brilliant idea that it can either scale-up very quickly – a case in point might be WANdisco PLC (LON:WAND), which has ridden the “big data” wave with its LIVE DATA platform – or can sell to a bigger, more established rival that might, perhaps, feel threatened by the new technology.

Intellectual property in incubation

Although Britain has yet to produce its own global technology blockbuster to rival Google, Facebook or Amazon – the nearest it has come is probably ARM Holdings, the chip designer that was taken over by Japan’s SoftBank for £24bn – it fares well in what might be termed, the niche areas.

In this regard, it is helped by the plethora of bright ideas coming out of Britain’s universities, many of which are being “incubated” by intellectual property (IP) companies such as Frontier IP Group PLC (LON:FIPP).

From an investor’s perspective, these IP companies are a bit of a “slow burn” in that it takes time to develop the incubator companies.

In this regard, investing in an IP developer is more like investing in an investment trust in that the net asset value, rather than profitability, is probably the key metric to watch.

The main problem here is that until what is usually termed a valuation event – such as an outside investor buying a stake in one of the portfolio companies – it is difficult to place a fair valuation on the assets.

Patience is the watchword and it is wise to go with an IP development company that has a track record in bringing home the bacon.

Investment skewed towards capital appreciation

Outside of the IP developers, it is often the case, seen across the whole of the technology sector, of a company engaging in a land grab, almost always at the expense of profitability, in an attempt to establish itself as the dominant player in a sector.

Simply put, the number of technology companies on AIM that pay dividends is small - there are half a dozen among the technology hardware & equipment players, 30 or so among the software companies and just one among the mobile telecommunications crew.

As such, it is a sector for investors that prefer to go for capital appreciation.

We can all think of companies that have earned a high valuation without having yet made a bean – has Twitter made a profit, yet? - and as mentioned in the opening paragraph, this is a field where Britain has a decent track record.

According to data from London & Partners, the Mayor of London’s promotional company, the UK’s technology sector drew more investment than that of any other European country in 2016.

AIM's relatively bureaucracy-free set-up, almost makes it appealing to technology companies from overseas, particularly those from the US and Israel.

Things move quickly in the technology sector and for investors, the motto might be the phrase they used to cry out at funfairs (and possibly still do, for all I know): hold on tight for a fast ride.

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Mon, 28 May 2018 09:00:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/197730/britain-is-no-longer-the-workshop-of-the-world-but-don-t-sleep-on-londons-technology-shares-197730.html
<![CDATA[News - Some fledgling drugs stocks are on fire, others just burn money, welcome to the small cap pharma sector ]]> https://www.proactiveinvestors.co.uk/companies/news/197739/some-fledgling-drugs-stocks-are-on-fire-others-just-burn-money-welcome-to-the-small-cap-pharma-sector-197739.html The definition of optimism? A person who invests in fledgling drugs companies, hoping to do anything other than lose money.

I say this cognizant of a couple of stats. First, the chance of taking a promising compound from developed in the lab all the way to the market is less than 10%. In other words, 90% of all drug candidates fail.

Second, there’s the cost of that successful journey, which is put at US$2.6bn by researchers at Tufts University in the US.

Okay, ‘only’ US$1.3bn of that figure is out of pocket expenditure with rest a guestimate of other ancillary costs. But you get the gist.

Developing drugs is an expensive, risky business, which would explain why it tends to be the preserve of the big boys.

With a market capitalisation of US$100bn, GlaxoSmithKline can withstand drugs failures.

The Fat Lady has usually sung and gone home when this happens to a small-cap.

Why would anyone invest in a drugs tiddler?

Given the rather unforgiving nature of the capital markets, why are these science-led, difficult-to-understand businesses queuing up to list on AIM here in the UK and NASDAQ in the US?

Cynics would say the public markets are the last refuge for the desperate.

That’s harsh. But it is easier to list a one-asset drug developer than it is to find funds privately or entice an industry partner that will help foot the R&D costs.

For the punter, the allure is the mega-payouts success brings. The return on investment can be huge.

Do private investors buy drugs stocks thinking they will hit the pharmaceutical motherlode?

Based on the chatter on some of the bulletin boards, some are wide-eyed and stupid enough to put their money on the investing equivalent of a long shot in the Grand National.

However, most engaged private investors recognise that investing at this level is a numbers game, so a portfolio of drugs stocks is required to achieve above average returns.

If they hold shares in 10 firms, they know five will go bust, three will stand still and one or two might really take-off. They also know that the small-cap drugs sector isn’t as described in the intro. Companies come in all shapes and sizes.   

There are some points sceptical investors must consider

Fledgling drugs that come to market are often ready to go into clinical development or are already there.

So, the odds of success, while still slim, are better than if you were taking a molecule or compound from first principles.

Very few companies bring a drug to market hoping to hit a home run.

Instead, they want to get the asset to a certain stage of its development before then finding an industry partner to do the heavy financial lifting.

This requires tens of millions of dollars of investment rather than hundreds of millions.

In other words, there is a chance of financing a drug via the equity markets with the prospect of a financially profitable exit.

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Sun, 27 May 2018 12:00:00 +0100 https://www.proactiveinvestors.co.uk/companies/news/197739/some-fledgling-drugs-stocks-are-on-fire-others-just-burn-money-welcome-to-the-small-cap-pharma-sector-197739.html