In politics, Shadow Chancellor George Osborne says tough measures will be needed to put the country back on track whoever wins the next General Election. In business, Sainsbury’s chief executive Justin King, reporting quarterly figures today, describes the consumer environment as ‘challenging.’
He says shoppers are not necessarily trading down to cheaper goods but they are becoming more canny – focusing on value as well as price. King also pointed out that, when VAT reverts to 17.5%, prices will rise and this may affect consumer spending.
Even though most retailers believe the coming months will be far from easy, there are some optimistic voices, such as Sir Terry Leahy, who said yesterday that the worst of the recession was behind us.
For markets, the simplest response to these various messages appears to be ambivalence. Stock prices are no longer falling through the floor but they are not soaring through the roof either. The fourth quarter may well turn out to be rather more restrained than the third.
Ceramic Fuel Cells
Some companies should prove resilient however, including Ceramic Fuel Cells, which has pioneered a way to introduce cheap electricity into the home. Most fuel cell companies are still at the experimental stage.
Ceramic Fuel Cells (CFC) has already begun to manufacture products and has agreements in place with leading utility groups, such as EWE inGermany, Gaz de France and Paloma of Japan. The company has also signed a contract with UK energy provider, E.On to create a special product for the British market.
CFC has two basic products, one of which provides heat, hot water and electricity for the home – a combined heat and power unity – and the other of which provides heat and electricity. The combined units are being developed in partnership with various utility companies but the heat and electricity units have been launched independently by CFC. Known as BlueGen boxes, the units are about the same size as a dishwasher.
They generate electricity using natural gas so they are not entirely ‘green’ but they are much more efficient than mainstream commercial generators, converting each kilowatt of gas into 0.6 kilowatts of electricity, compared to conventional conversion rates of 0.4. This means they use less gas so energy bills are lower.
BlueGen boxes are not cheap to buy. Coming on the market in Britain next year, they will probably set early users back by £7000 but they do pay their way. Each year, they make around two and a half times more electricity than the average home needs and this can be sold back to the National Grid.
CFC is based in Australia and run by chief executive Brendan Dow, whose career has spanned manufacturing and investment banking both domestically and overseas. Chairman Julian Dinsdale has spent 30 years working with high-tech companies and helping them to turn their ideas into commercial ventures.
The company is enthusiastically supported in the City, particularly since it adopted a two-pronged approach to market, developing the BlueGen product independently and the combined heat and power unit in partnership with utilities. Many of these big energy companies have been dragging their heels over the introduction of the new units into the home but the recent launch of BlueGen should engender some competitive tension and encourage them to move more quickly.
Gow hopes to sell up to 500 BlueGen boxes next year and begin to roll out the combined units too. The company is talking to smaller utility groups, white goods manufacturers and retailers and sales should pick up substantially over the next two to three years.
Midas verdict: Ceramic Fuel Cells has had an eventful year. The company joined Aim in 2006 and asked an external fund manager to look after the money it raised. This manager put CFC’s money into assets such as allegedly top-rate mortgage bonds, the value of which collapsed in the wake of the credit crunch. CFC was forced to seek emergency funding and its shares fell to below 3p. But shareholders supported the group, it now has plenty of money in the bank and the stock has risen to 15p. Even at this level, there is plenty of potential. Virtually every country in the world is looking for ways to be more environmentally friendly. CFC has not only pioneered a unique technology but it is already turning that technology into viable, commercial products, on sale today. The company is expected to move into profit by 2012 and the shares should rise steadily between now and then. Buy.
MBL
Midas Extra recommended MBL in June, when the shares were 122p. The company distributes CDs, DVDs, computer games and other home entertainment products, so it stands between the manufacturers of these items and High Street retailers.
Last Friday, the company announced sales in the first six months of its financial year were significantly ahead of last year and it was optimistic about the next few months.
For a company like MBL, the lead-up to Christmas is the most important part of the entire year. Last year, the group had an exceptional festive season. Woolworths was the market leader in the distribution of home entertainment products but it collapsed just before Christmas. MBL picked up a lot of the slack so its business changed materially over the course of a few weeks.
Chief executive Jeff Harding, former MD at Australia’s largest renewable development project, Pacific Hydro, has managed to maintain momentum and believes the company will outperform brokers’ expectations in the six months from September to March.
The group does not tend to supply music and computer games specialists, concentrating instead on supermarket chains such as Morrison, Somerfield and the Co-op. Analysts estimate sales will rise from £143.6 million this year to £190 million in 2010 and £195 million the year after. Profits were £8.1 million in the year to March 2009 and may remain around that level next year as Allan invests in the business so it has the right infrastructure to grow in the future. The dividend is expected to be maintained at 6p as well.
Midas verdict: MBL shares are now 166p so they have increased 36 per cent over the past few months. Provided Allan keeps his promises, the stock should continue to rise. Investors keen to build up a Christmas nest-egg may want to take profits. Others should hold their stock.
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