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- 📝 Your budget cheat sheet
📝 Your budget cheat sheet
Today’s the big day.
This afternoon we see how painful the budget will really be.
My guess is that it won’t be as bad as expected, and received positively.
Although I could be wrong!
I wrote about the importance of a plan a few days ago.
Here’s a quick reference sheet.
Business Property Relief and Inheritance Tax
There was an FT article last night with a quote from the head of small cap strategy at Quilter Cheviot saying that they don’t believe Business Property Relief (BPR) will be removed from AIM shares in the budget.
Therefore, if it is, my guess is that this would be a surprise to the market.
My goal here would be to hit some of the most popular stocks in IHT funds.
Even better would be to target ones that haven’t fallen so much, because that means it’s less likely this worry is priced in for certain stocks.
Here’s Gamma Communications (GAMA), which is in a clear stage 2 uptrend and sitting on support.
It’s also rated at 21x earnings, so not cheap either.
Gamma is a top holding in 16 funds focused on holding AIM shares that will be exempt Inheritance Tax.
Renew Holdings (RNWH) is another one, held by 16 also.
We know Octopus has been selling here putting an artificial lid on the price.
So if we already have a seller, and now there’s a potential reason to sell, my guess is this would be a great risk/reward trade if BPR is removed.
Jet2 (JET2) is another popular one held by 10 funds - but at £3 billion market cap the moves may be less exagerrated.
Remember, trading is not necessarily what will happen, but what people think might happen. And in a less liquid stock, if people start selling thinking something might happen, that alone can trigger a move.
Gambling companies
Nobody will be shedding a tear if gambling companies get raided.
Rank Group (RNK) is an obvious target here given that 83% of its revenues are from the UK.
It’s clear that 65p is significant long-term support. So if the stock does get smacked and overshoots - then that 65p level could be a support buy trade?
Evoke plc (EVOK) is the old 888 and owns several brands including William Hill.
Given that 70% of its revenue comes from its UK operations this is also another obvious target.
However, I’d be wary of hitting this as the price is relatively near the lows.
This suggests to me that an additional gambling tax is already priced in - indeed we can see the fall from when this idea was leaked to the press two weeks ago.
So maybe if there are no changes to gambling duties then the trade is to be long!
And before we continue, a quick thank you to our sponsor who helps towards the upkeep of this newsletter.
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Employer National Insurance
If wages go up then this means companies where staffing is a big factor of revenues as a percentage will be hit.
Card Factory (CARD) has already told us profits were down £7.6 million to £14.5 million as a result of substantial increases in National Living Wage.
However, this has already taken a big hit and is now on a low earnings multiple of 6x.
This wouldn’t be my play here but retailers and hospitality are in the firing line.
Another clear candidate is JD Wetherspoon plc (JDW).
Staffing costs make up 33% of JDW’s costs and so a big increase in wages will not be insignificant to its overall cost base.
It also looks like this has been reflected in the share price!
Supermarkets are also a good idea.
Tesco plc’s (TSCO) staffing costs are around 11% of its overall costs.
So a big jump won’t hurt do too much damage here, which is also probably reflected in the chart.
Energy Profits Levy
The Energy Profits Levy is silly.
Already it is driving away investment in the North Sea, which in turn affects jobs, and future taxation.
And we’ll still need oil & gas, so instead we’ll need to buy it elsewhere instead of collecting tax revenue from the UK’s own assets.
These are facts, and not political point scoring (but for the record: both parties are ran by muppets).
So far a revisit on the EPL hasn’t been mentioned.
But if is and there is a positive amendment (less tax) then Serica Energy (SQZ) is the go-to candidate for me.
The stock is 72% down off its lows, and generates high free cash flow with $98 million in the first six months of 2024 compared to its market cap of £507 million.
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