Oil hits $110, BP and Shell lift FTSE 100, Polymetal rebounds after ’going concern’ analysis, and MusicMagpie hit by margin pressures

“The FTSE 100 made its latest attempt at a rebound on Wednesday despite the ongoing conflict in Ukraine,” says AJ Bell Investment Director Russ Mould.

“Index heavyweights BP and Shell were markedly higher as oil prices moved to eight-year highs above $110 per barrel.

“The latest surge in crude came despite the International Energy Agency releasing barrels from its emergency reserves – demonstrating relative impotence in the face of the disruption to supply caused by Russia’s invasion of Ukraine.

“UK house prices show no sign of slowing down despite weakening consumer confidence and cost of living pressures.

“How long the market can continue defying gravity remains to be seen, but the supply and demand dynamics are currently maintaining the upward pressure on prices.

“This is good news for Vistry and Persimmon who both unveiled robust updates. Persimmon’s full-year profit is close to the significant milestone of being back at pre-pandemic levels, while Vistry shows the benefits of its exposure to higher margin regeneration work alongside its housebuilding arm.

“Both firms face rising costs which suggests any downturn in the property market could be painful. All they can do is make hay while the sun shines and position themselves to ride out any future market weakness.”

Polymetal

“Publication of Polymetal’s financial performance for 2021 is a sideshow event as far as the market is concerned.

“Investors are more concerned about how sanctions on Russia might impact the business and what that would mean for dividends, and indeed the future of Polymetal’s London stock market listing. There is also a moral dilemma as Western investors question if they should still be owning a slice of a Russian business.

“Polymetal has analysed three potential scenarios in which earnings might be reduced due to restrictions on metal sales from Russian operations, and how its customers might be affected by sanctions. These would involve scaling back or cancelling dividends, drawing down on existing debt facilities, and scaling back mining operations.

“The company believes it could keep going for at least the next 12 months in even the most severe scenario, which might explain why the share price has rebounded slightly following the financial results.

“What isn’t discussed is whether Polymetal might decide to delist its shares from London. There has been a rapid shift in thinking from institutional investors in the West towards exposure to Russia, and we’re likely to see a lot of them cut ties with the country. Support for the business is vanishing fast.

“That is certainly evident by mass selling of Russia-related stocks on the London market in recent days, with Polymetal’s share price now down 75% since Russia launched its full-scale invasion of Ukraine.

“The biggest shareholder is Alexander Nesis with a 23.9% stake, followed by BlackRock Investment Management at 10.09%. One could speculate that Nesis might want to take the business private, but there might be a problem in transporting funds to enact the transaction, given tightening restrictions on payments in Russia.

“Polymetal is set to lose its position in the FTSE 100 index because of the share price slump. That’s the least of its worries given the headwinds facing the business.”

MusicMagpie

“Probably best remembered for the adverts offering to make money out of your unwanted CDs and DVDs, MusicMagpie has largely moved on to the world of consumer electronics.

“Pitching the green angle, as it gives ‘second life’ to used products like smartphones and tablets, the company listed on the stock market last April.

“It’s fair to say today’s announcement is not what investors had signed up for, as revenue and earnings fell, and margins come under pressure.

“MusicMagpie calls this a normalisation in trading after the pandemic, when presumably people had more time to go through their old gadgets and sell them through the platform.

“The company makes money by taking unwanted products and using its proprietary technology to optimise the sales price for every item, simultaneously listing them across multiple sales sites, including the MusicMagpie and Decluttr websites and apps, as well as Amazon and eBay.

“If the group isn’t getting as many items listed then it can’t grow as fast, and it is slightly worrying that it has had to rely on intermediary wholesale partners to populate the platform.

“MusicMagpie is looking to diversify by renting out devices and has signed up 19,000 subscribers to the service.

“However, this shift will depress headline revenue growth in the short term as the company earns smaller monthly revenue over the life of a device, rather than deriving an upfront fee.

“In theory MusicMagpie should do well from a tougher consumer environment as people look to realise cash from the unwanted tech sitting in drawers and shoppers are more prepared to buy second hand as a belt tightening exercise. However, the company needs to execute properly if it is to win back the market’s faith.”

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