Card Factory still surviving high street blues and Hurricane Energy flies the flag for UK oil and gas

“Disappointing Chinese services data failed to knock the FTSE off track, with the blue chip index rising 0.2% to 7,225 in early trading on Wednesday," says Russ Mould, Investment Director at AJ Bell.

“Natural resources companies were understandably weak as commodities demand is highly leveraged to economic data releases from China. For example, Rio Tinto was down 0.5% following the news.

“However, housebuilders, tech companies and travel stocks were in strong demand, including a 3.8% jump in Micro Focus,”

Card Factory

“A lot of people would assume the greetings card industry has no future. The advent of email, text and messaging via the likes of WhatsApp theoretically could be the nail in the coffin for hand-written letters and cards.

“However, Card Factory’s latest trading update shows there is still life in the act of sending a piece of card in the post, be it for birthdays, condolences or more.

“A 2.3% rise in like-for-like sales is reassuring for a business operating on the troubled high street, hence why the share price has risen today. However, it must be noted that Card Factory had an easy set of comparative figures to beat as last year’s period was weak with a 0.4% like-for-like sales decline.

“Card Factory has historically had a pile ‘em high, sell ‘em cheap approach, relying on high levels of sales volumes to help pay the bills and make a profit on the side. However stores do offer a range of pricing points and so the challenge for management is to get customers to trade up to the higher priced products.

“It also needs to encourage customers to buy more than just cards, hence why you increasingly see space given to add-on items like drawing pins, sticky tape and balloons. Here the company estimates it has less than 10% of the UK market share for complementary non-card items, showing an opportunity for further growth.

“The decision to continue opening new stores underpins management confidence about consumer demand for cards and associated products.

“A net 14 new stores opened in its first quarter period and it is targeting 50 net new stores in the current financial year. It admits that targeted new stores have lower sales potential than the average of the existing stores, primarily because they will be located in lower footfall sites. However, it still believes trading will be good enough to enhance group earnings.

“Fundamentally the business knows its audience, it is offering products at the right price and it remains energetic with constant innovation. However, it is battling a negative retail backdrop and so earnings growth may remain a slog for the time being.”

Hurricane Energy

“Today’s news from Hurricane Energy is a significant milestone for the company and it could be a massive breakthrough for UK oil and gas in general.

“The company has achieved first oil from its Lancaster field and this is also the first time crude has been produced from so-called fractured basement reservoirs in the UK.

“A fractured basement reservoir is a body of rock beneath the earth formed more than two billion years ago. In certain places these massive structures – located deeper than the sandstones which have traditionally been the focus of oil exploration in the UK – have been pushed up and violently fractured by earthquakes and other tectonic forces.

“The hydrocarbons discovered by Hurricane are contained within the cracks in these formations. Historically Yemen, Libya and Vietnam have successfully exploited fractured basement reservoir potential.

“The Lancaster field was discovered as far back as 2014 so it has taken some time to reach this point, testament to the challenges in producing oil from such a remote location to the west of the Shetland Islands. The company has employed a floating production vessel to get the job done.

“Hurricane deserves credit for doing so on time and on budget and the market will be eager to hear more about its future plans at a capital markets day in July.”

These articles are for information purposes only and are not a personal recommendation or advice.