Blackrock Latin American
Market cap £181m Discount 12.4%
The B in Bric had proved a bit of a disappointment even before the Germans walloped them 7-1 this summer. Foreign investors, as well as football fans, have rather fallen out of love with Brazil.
The country is in recession. Inflation is stubbornly high. The real has been drooping. Bankruptcies are soaring. The economy is in danger of being downgraded by the international credit ratings agencies. The Ibovespa, São Paulo’s answer to the Footsie, is no higher than it was five years ago.
A surprise in the first round of the presidential elections on Monday, though, jolted Brazilian shares into life. The results suggested that PSDB, the pro-business opposition party, could have a chance of dislodging the centre-left President Rousseff from her perch in three weeks.
The Ibovespa soared by 5 per cent and continued to rise yesterday. A disappointing showing from Marina Silva, the enviromentalist candidate, has boosted business hopes that ABD support (“Anyone But Dilma”) could now cluster around PSDB’s candidate Aécio Neves.
A less interventionist administration at the very least would help to improve depressed business sentiment. Ms Rousseff has upset laissez-fairers by interfering in everything from banking to energy, as well as overseeing a deterioration in the public finances. There hasn’t been much choice for British investors wanting to place a bet on Brazil. The largest Brazilian companies, such as Vale and Petrobras, are much more of a punt on world commodity prices than the domestic economy.
Two British investment trusts give more immediate exposure — JP Morgan Brazil Investment Trust and the larger BlackRock Latin American Investment Trust — where 64 per cent of the portfolio is invested in Brazilian companies.
Will Landers, Blackrock’s manager, reckons the election is finely balanced. The immediate decision for investors is uncomfortably binary: a Neves victory could push the Ibovespa 15,000 points higher, Mr Landers says; another four years of President Rousseff could send it 15,000 points in the other direction.
Only the most well informed political pollsters are likely to be winners this side of the election.
My advice Brace for three volatile weeks
Why The election, which has profound implications for business sentiment, is finely balanced
Spirent Communications
Revenue $221m Dividend 1.68c
There were crumbs of encouragement in Spirent’s first-half results two months ago that its recovery was gaining traction, but the notoriously volatile telecoms tester swept them off the table yesterday. Its shares lost a fifth of their value and closed at a five-year low after it warned that trading conditions had “softened” in the United States and China in the third quarter, meaning that not only would it miss forecasts for the period but also for the fourth quarter.
The warning comes on the one-year anniversary of the exit of Bill Burns, the chief executive who left after five years having failed to deliver on expectations. His successor, Eric Hutchinson, already has an eye on the exit.
The key objective for Spirent was to return to growth this year and Mr Hutchinson boasted of “momentum” in August. After yesterday’s downgrade of profit expectations by 20 per cent, the credibility of the strategy and investment plan is looking wobbly. With organic growth seen to be in decline and M&A speculation once again one of the few catalysts for a recovery in the shares, these are testing times for Spirent investors once again.
My advice Avoid
Why Doubts over strategy and management commitment
ITM Power
Revenue £1.13m Dividend None
If, when you hear the word hydrogen, you think of the demise of the Hindenburg rather than the automobile of the future, then you need to get with the programme. By 2050, it is claimed, the dominant power for vehicles on the road will be hydrogen-powered electric motors. These fuel cell vehicles are not something for Tomorrow’s World: hydrogen-fuelled Hyundais are already in the country and last week Toyota said that it would bring its fuel cell cars to Britain next year.
Their commercial take-up in the coming years will be determined by how quickly oil becomes too expensive, when our legislators regulate into oblivion the CO2-emitting internal combustion engine and how quickly the infrastructure for the storage and delivery of hydrogen becomes a reality.
That is where ITM Power comes in. It is planning a hydrogen fuel station for Hyundai trials off the M1 near Rotherham and is on track to build similar stations for a London-based Toyota project. The shares have had their ups and, more recently, their downs, sliding this month to a five-year low. An upbeat trading statement yesterday, showcasing the breadth and development of its projects, appears to have halted that, sending the shares 10 per cent higher to 22p.
ITM may yet get overtaken by rival technologies. Its management team, though, has been together for some time and its board is stuffed with credible types — not least Peter Hargreaves, who has a 9 per cent stake and didn’t make his Hargeaves Lansdown fortune backing duds.
My advice Out-and-out punt
Why Huge upside for those prepared to risk their shirts
And finally ...
Shares in Plethora Solutions were marked 6 per cent higher to 8½p after European regulators approved the Fortacin brand name for its premature ejaculation treatment. Plethora still needs approval for its six-dose cannister spray before it can be prescribed. It claims that the spray typically increases sufferers’ intravaginal staying power from thirty seconds to more than three minutes. Hopes for the AIM-listed shares, which reached 18p last year, have in the past proved — premature.
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