I will start by wishing everyone Happy New Year and all the best for 2024.
2023 ended on a high after the December Santa Rally continued from my last blog. January so far has been rather mixed, that said, no recovery goes in a straight line. The economic data released since November has allayed fears that interest rates will need to be kept higher for longer. Consensus is that rate cuts will begin this year, in our opinion this is more likely to take place in the second half of 2024. With high street lenders already lowering some mortgage products below 4% this should be beneficial to Equity Markets.
2023 was certainly eventful. The 14 consecutive interest rate rises led to three small-to-mid size US banks failing, triggering a sharp decline in global banking shares. Allowing one-time giant Credit Suisse to be swallowed up by their arch-rival UBS. This, along with geopolitical tensions mean we will need to remain vigilant. The Israeli / Palestinian conflict and the war in Ukraine continue, we are relieved to see that oil prices and associated costs are reducing despite these tragic events. The current situation in the Red Sea may alter this. Currently most commodity prices have returned to pre-Russian invasion levels.
With 2023 now in the rear-view mirror, please find below how our 2023 ideas have performed, followed by our 2024 investment ideas.
Russell
URA Holdings
Last January’s choice at 1.4p stormed ahead midyear, hit a high of 2.75p in August. However, further equity fund raises, as the company works towards re-opening the Gravalotte emerald mine, have brought the shares almost back to the starting point – 1.5p offered as I write. The last raise paid for an optical sorter, which is due to arrive this month and, along with the primary crusher, sizing screen, conveyors, and dewatering pumps, will allow trial mining and processing activities to start within the next few months.
I believe the future of Gravalotte, with its considerable potential reserves, could be exciting. I regard them as a strong hold and even a buy for the adventurous.
Stuart
Hargreaves Services
As widely reported, London markets have had a torrid time in 2023 and the AIM market is no exception. Hargreaves Services Plc’s current share price is 411p down from 427p at the start of the year – virtually a ‘win’ given the conditions.
However, the German JV reported subdued results and the company reported that it will record a net loss and contributions to the group will be materially lower than that of the comparative period last year. Given the economic backdrop in Germany, it is hard to see this division bouncing back in the near term and I would expect better news in H2. This has been the most influential drag on the share price as other divisions have been inline or exceeded management’s expectations.
The dividend payment has been increased to 36p per share an increase of 70% (2023 – 21p).
HSP has weathered the market well and may out-perform in H2 2024.
Neil
DiscoverIE
After a strong start, hitting 958p in June the shares suffered with the wider UK market and hit a low of 582p in October. The fall was overdone with the business performing well. The shares fortunately ended the year at 790p so not a disaster but hardly a huge success from recommendation at 759p. The business is doing well with underlying profit and operating margin improving. Business looks well placed for bolt on acquisitions and still feel business will be a good performer, possibly over a longer time frame.
Jeremy
Jet2
Ended the year circa 30% up. Jet2 managed to navigate the difficulties posed by flooding, wildfires, and air traffic control successfully, maintaining load factors despite significantly increasing their flying capacity. Preparation was key and the decision to retain staff in anticipation of increased consumer demand was vindicated.
One of the tailwinds for the industry has been the increasing popularity of package holidays, which offer the protection against operational/environmental mishaps alongside their obvious convenience. Despite high interest rates putting constraints on household’s disposable incomes, outgoings on holidays have become somewhat of a non-negotiable against the backdrop the pandemic and travel restrictions.
Despite long-standing Executive Chair Phillip Meeson handing over the reigns to management, the company looks well placed for the future with a significant order of up to 146 Airbus aircraft representative of JET2’s growth strategy for the future.
Now, New Year brings New Tips…
Stuart
Audioboom
In my search to find an undervalued stock, I was overwhelmed with potential candidates given the parlous state of UK markets. I have selected a UK smallcap that has had a torrid time in 2023 despite being the world’s 4th largest podcast hosting business and trades at a significant discount to its peers.
Audioboom relies on advertising revenue as the main source of revenue and this has been slow in 2023 – commentators are already suggesting an uplift in advertising spend which although H2 weighted, should start to percolate through in Q2. The Company’s share price was 520p early in 2023 and I believe that a return to this level is possible in 2024.
Audioboom has just released its trading update where the company reported a return to revenue growth and are targeting a record year ahead. This bodes well for a re-rating and if that fails to materialise, the company may well be bid for. Shares are currently c. 260p. Stuart owns 15,000 shares personally.
Neil
Vesuvius
A world leader in their chosen field in metal flow engineering, principally serving the steel and foundry industries. The business struggled in 2022 when the costs associated with their business skyrocketed due to the Russian invasion of Ukraine. With energy costs back to somewhat normalised levels, this should enable Vesuvius to perform nicely this year. They see India as their key growth area of which I agree. A niche business with high barriers to entry. FTSE 250 constituent, share price currently stands at c.480p.
Jeremy
J D Wetherspoon
Despite being up around 70% over the course of 2023, I believe Wetherspoons has further to go and is well placed for the year ahead.
The company is renowned for its USP of low-cost food and beverages, which leaves it well placed in comparison to its competitors within the Food & Drinks industry should the UK enter a recession. Households are looking to cut their outgoings as they re-negotiate their mortgages on far higher rates than previously. Whilst this is potentially damaging for the sector as a whole, this may present an opportunity to Wetherspoons given their model.
On the other side of the coin, the UK may avoid a recession, and with inflation continuing to fall, this should support growth within the hospitality sector and subsequently Wetherspoons.
The company have significantly reduced their debt levels since the pandemic, whilst also selling off or ending leases for underperforming assets. This has been done alongside significant investment into the estate by converting leaseholds into freeholds to lower the interest burden on the company – 70% of Wetherspoon’s estate is now freehold.
Despite this, Wetherspoons still have a significant amount of debt, and therefore the growing expectation that rate cuts may come sooner rather than later this year could be a significant boost to the sector. Wetherspoons have strong cashflow and servicing their interest is unlikely to be an issue, however this highlights the potential room for growth within the current environment. Shares currently stand at c.820p.
