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What’s been going on?
Weeee ooooh, weeeeeee oooooh.
That’s how you spell the sound of blaring sirens, right? Well, do your best to imagine it. It’s the sound of investors sounding the alarm bells on ESG ETFs.
Record inflows into these supposedly sustainable investments gave green funds a massive boost last year. But when a few too many were revealed to be holding less-than-clean investments, like fossil fuel behemoths and mega-cap miners, investors felt duped and sold out.
Now, there almost seems to be a 180 happening, where investors are putting their hard-earned cash into oil and gas instead.
Don’t get Gary and Ian started on ESG ETFs.
A huge bump in share prices and dividend payouts from companies like Shell and BP has brought the fence-sitters back on board, for now. While they may have been déclassé among many investors in 2021, they’re back in fashion for 2022.
But could a boost for oil and gas actually end up playing in favour of cleaner energy sources that are in desperate need for a moment on centre stage too?
This week, nations are gathering in Egypt for the COP27 climate summit to discuss that.
Sky-high fossil fuel prices are an obvious talking point, with the big question being how to relieve some of that pressure.
Rishi and Macron believe the answer is nuclear. The UK PM and French President met up on the COP27 sidelines and agreed to leverage the power source to cope with each nation’s energy supply constraints.
Nuclear is in a constant battle to disentangle itself from a dark past and, at times, frightening-looking future. But beyond its reputation, it’s one of the cleanest and most powerful energy sources.
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Buzzing 🐝
Shares are like a box of chocolates.
You don’t always know what you’re going to get.
Hotel Chocolat’s stock over the past few months seems to support Mr Gump’s claims.
When the boujee chocolatier’s September earnings report revealed it would withdraw from international expansion plans, its share price plummeted.
But over the past few weeks, without any clear business-related changes, its stock shot back up.
It turns out, one fund is to thank for that. The Odey Special Situations Fund has been licking its chops at the sight of Hotel Chocolat’s heavily discounted stock.
Mmm, tastes like 70% down.
The fund’s aim is to track down long-term growth opportunities in stocks most commonly ‘unloved’ or ‘out of favour’. While those might not be ideal descriptors for the ego, they’ve been good news for Hotel Chocolat investors.
The firm had a terrific month after Odey increased its stake and compared it to See’s Candy, the famed Warren Buffett success story.
Food and luxury goods can be resilient performers during recessions. Though that’s not a surefire guarantee. Diageo’s premium gin stayed popular even as Fevertree’s top-of-the-line tonics struggled.
But sometimes, when you get just the right mix of those two factors, you end up with an especially buoyant business. Premium hot chocolate happens to straddle both.
And with Christmas now around the corner (46 days, but who’s counting?) Hotel Chocolat is gearing up for what should be its first lockdown-free holiday period in years.
Odey increasing its investment in the retailer isn’t a sign to go out and add it to your portfolio or double down on your stake. But it’s a useful reminder that the market is especially sensitive to headlines. And you can’t always be sure if a stock will under-react to the negative or over-react to the positive.
Hotel Chocolat’s decision to refocus on the UK and online sales as opposed to its foreign markets were interpreted as red flags to many investors, as if to signal the end of its growth ambitions. But equally, perhaps it’s a sign the firm’s harnessing sales data and pivoting accordingly.
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Got stung 🐝
Ah ‘increased uncertainty’.
It was a staple statement in any Covid-era earnings report. But Persimmon is determined to keep its legacy alive, pointing the finger at the u-word for cutting its dividend.
It’s not that it’s an unfair claim to make. Frankly, we’re all facing economic uncertainty stemming from that deadly duo of rising inflation and interest rates.
Soaring cancellation rates coupled with tumbling sales for UK home builders prove how tough that backdrop has been for the industry. In the past six weeks, Persimmon’s buyer cancellation rate shot up by 33%, while sales fell by 20%.
This was largely due to buyers having their mortgage offers withdrawn. As rates go up, it’s inevitably becoming harder to secure decent terms with banks.
Persimmon’s bottom line is also being dragged down from the houses it’s already built and sold. That’s less than ideal, because it means they’re still spending money on revenues they believed were long locked in.
The homebuilder failed to properly account for the number of its buildings needing cladding repairs. At the start of the year, it set aside £75m to rectify buildings with similar safety issues to those uncovered at Grenfell Tower.
Now, Persimmon is estimating it’ll cost closer to £350m.
The firm’s negotiations with Michael Gove, the UK’s newly re-appointed housing minister, are what ushered in this stark change. And given Gove has only just regained his title of Secretary of State for Housing, it’ll likely be a while yet until Persimmon is out from under the government’s watchful eye.
And they would have gotten away with it too if it weren’t for that meddling Gove!
In Gove’s words, it “cannot be the case that economic conditions that affect us all are being used by developers to shuffle off their obligations”.
So Persimmon might be uncertain of what’s next, but Gove’s nothing but clear on the matter. No matter how many headwinds the industry’s facing, excuses won’t pay the bills. And he wants those bills paid by developers, not taxpayers.
Until those costs are crystal clear, Persimmon is avoiding issuing specific guidance for 2023.
Past performance is not a reliable indicator of future returns.
Source: FE, as at 7 November 2022. Basis: bid-bid in local currency terms with income reinvested.
As always, get in touch with any feedback or even just to say hi. 👋🏻
Gemma
Honey by Freetrade
Important information
This should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.
When you invest, your capital is at risk. The value of your portfolio and any income you receive can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future results.
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