The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
If you annualise the Q1 net outflow, the business would be losing about 12% annually of its AUM, before taking into account any market movement. That is truly shocking, despite the management’s attempts to categorise much of this as “one-off” exceptionals. That said, it does baffle me we’re not seeing mergers in what has always been a consolidating industry given 1+1=1 on amalgamating costs, whilst 1+1=2 on amalgamating revenues, however much revenues are in decline.
Investors’ Chronicle is pushing this as a recovery play with recovery in PGM prices just around the corner. A bit like Rishi Sunak telling us higher economic growth, lower inflation and improving public finances are just around the corner. I’m sceptical.
Still relying heavily on trousering interest income on clients’ inactive cash rather than passing it on in full to clients, although clients have only themselves to blame because HL do give clients the option to turn inactive cash to active cash, the difference being clients retain all the interest income on the latter. The Damocles sword of the FCA still hangs over these shares.
When the first paragraph of the CEO’s statement is about the Health and Safety record, you know they don’t want to talk about the financials. We already knew the Q1 and Q2 results so there’s little new here but the tone of the commentary is one of being in denial about the low PGM prices, over which they have zero control. I agree the ICE will still be alive and well long after 2035 but that’s a long way distant.
If guidance on dividends is downgraded by the new CEO, then things are definitely starting to go wrong. The opaqueness of much of LGEN’s business model has always meant it’s been viewed by investors as a poorly understood black box from which chunky dividends spew forth. For investors, there are no visible “canaries in the coalmine” to warn of trouble ahead, so poor earnings visibility and hence the low rating. The new CEO must also separately assess whether or not the group is a conglomerate of unrelated or questionably connected businesses, as Amanda Blanc is doing at Aviva, and dispose of accordingly.
Always a risk a new CEO tries to “kitchen-sink” the numbers but the job of the Board is to prevent that.
The first big test of 2024 is whether the big institutions decide to increase their asset allocation to equities going into Q1. Do they chase the Santa rally or sell it ? Second question, if they choose to chase it, which equities will they go for ? My fear is UK equities, particularly domestic earners, will struggle: the UK economy is zero growth, there’s a Labour government in the next 12 months - so taxes, regulation, wokery and net zero zealotry will be on the up - and sterling’s had a suspiciously good run in 2023, ergo vulnerable to profit taking. There’s also the problem of little independent research on UK equities outside the FTSE100, the legacy of MIFID2, which deters buyers: investors won’t buy blind. The UK is already perceived by international investors post-Brexit as a bit of a backwater plus they’ll be nervous on sterling. International investors also think the UK has succumbed to the ESG zealots with UK listed companies no longer run for the primary benefit of shareholders. UK equities are undoubtedly cheap and the dozen or so companies that will be bid for in 2024 crazily cheap, if you are lucky enough to be invested in them. Good luck.
New CEO starts today. He may say little ahead of the forthcoming final results but I’d be surprised if he changes nothing on strategy, dividend, solvency ratios etc…..I’ve long thought LGEN is a conglomerate of several substantial businesses superficially related to one another but a “fresh eyes” strategic review might conclude they are less related than the outside world thinks and identify scope for some “unbundling”. Currently, there is nothing in the share price for potential spin-offs.
Obvious to me rights issue did not raise enough and yet another equity raise will be needed within 18 months. The Board, IMHO, is innumerate.
2 hedge funds are currently shorting this, Citadel (0.6%) and GLG (0.76%). GLG are also separately shorting L&G. Nobody is shorting M&G or Aviva. They're quite big bets for each and they'll each have their specific reasons on the back of extensive due diligence although it's not obvious to me why and certainly not at this bombed out price.
L&G is what investors call a black box stock: it has a pretty unique business model, difficult to fully understand from the outside what's going on within, but we do know the barriers to replication are high. Its annual report is difficult to understand if you're not an actuary. This opaqueness leads to its low valuation (low P/E, high yield) and that is unlikely to change. There is no obvious read-across from other stocks reporting to reliably forewarn you of any problems. That said it has two things in its favour. First, the PRA stress test its solvency to cope with most "black swan" events including inter alia rapid changes in interest rates, inflation, currencies, life expectancy and collapses in the price of shares, bonds or property. Its solvency ratio is published and suggests huge resilience. Second, it yields 9% on a growing dividend, seemingly well covered. The negative is it's a sterling earner and will underperform other stocks during periods of sterling weakness. Phoenix is not dissimilar to all of the above. L&G is too big to be a credible takeover candidate but could probably break itself up into 3 different companies each big enough to be in the FTSE100 and each of which could then be bid for. I own quite a few for the yield but constantly remind myself I don't fully understand what I'm invested in.
If there are no meaningful director share purchases in the next 48 hours on the back of today’s price fall, nobody else should buy them either.
LIO will be picking up a huge bill for advisers' fees, if they win or lose. That will be payable in cash and probably trigger a dividend cut.
The optimists on this remind me of those telling us how successful Brexit has been: deluded and in denial. There is no buying of a single share by the directors at this supposedly bombed out bargain share price. That’s telling me something, if not others.
A bidder would be killed in the rush offering 50p tomorrow if the bid was shown to shareholders. Big institutional names with good track records do occasionally lose money on investments - Baillie Gifford here, Sequoia Capital, Temasek and Ontario Teachers in that recent high profile crypto blow up.
I worked with the new NED many years ago: smart cookie. But one swallow …the rest of the BoD needs a clear out: either they buy meaningful amounts of stock at this level or they are removed as non-believers.
This stock confuses me. In normal times, undoubtedly a quality business. Significant recent buying by directors whilst three funds (WorldQuant, GLG and Citadel) open short positions: sadly the directors have already shown themselves to be worryingly over-optimistic, declaring a dividend in August which they then had to cancel in October, clearly not previously understanding the balance sheet fragility. I suspect the shorters have a better feel for the exogenous economic sensitivities outside the Board's control, which are probably horrendous headwinds, and they are gambling - maybe recklessly - on the company not being bid for at this bombed out price (currently down 75% in the last 12 months), recent share price bounce off the bottom notwithstanding. Joint broker Numis recently published a note - presumably blessed by the Board - mentioning the possibility of an equity raise so no hurry to buy as I suspect new shares will be coming to us anytime soon.
Interest rates, debt, UK recession and high energy prices are obvious headwinds for Marshalls but arguably largely priced in. Marshalls is an endangered species. The rest of the listed UK building materials sector got taken over ages ago: remember BPB, Blue Circle, Redland, RMC, Tarmac, Rugby, Steetley, Ibstock and Pilkingtons. Somehow Marshalls has survived. But with the share price having halved and then almost halved again this year plus sterling weakness, you wonder for how much longer. And its bombed out market cap includes Marley. The current Chair was Chair of Fenner, another bombed out established British company with niche expertise, when it was taken over for a fancy price by Michelin which astonished everybody.
They use a lot of gas and have factories in Europe. Ergo very difficult to forecast profitability over the next 6 months. Have a lot of debt so any downgrade to profit forecast would cause disproportionate neurosis on the balance sheet. In normal times a very good company with high barriers to entry but we are not in normal times. Markets hate uncertainty.
A goodwill write-down of that magnitude is now priced in given £570m reduction in market cap since the 650p placing. If the extent of directors’ buying is yesterday’s purchase of 2,512 shares by an NED, that is a unconvincing vote of confidence.