After a poor 2020, the Lloyds Banking Group (LSE: LLOY) share price has had an extraordinary performance year to date. This has left me, and many investors, wondering if it the rally might run out of steam. However, I believe there are three solid reasons that could cause the share price to keep rising.

1) Interest rates

As the economy improves after the Covid-19 pandemic, it is looking increasingly likely that the Bank of England will raise interest rates in the not too distant future. The official Bank of England base rate has remained at 0.1% since March 2020, stimulating borrowing and spending, in an attempt to boost the economy. This has led to significant inflation, running much higher than the central bank’s 2% annual target. The governor of the Bank of England, Andrew Bailey, has even warned that action may be taken to curb inflation. By all accounts a rate rise will come in early 2022, but some believe it could come as early as the bank’s November meeting. Greater interest rates will essentially mean that Lloyds might be able to charge more for lending. This could lead to a greater ‘bank spread’ for Lloyds, increasing its profitability.

2) The Embark acquisition

Lloyds will soon complete its acquisition of Embark Group, a financial services company. According to Embark’s website, it is one of the largest retirement solutions providers in the UK. The acquisition will add roughly £35 billion of assets to Lloyds’ balance sheet, and will bolster its Scottish Widows brand. The acquisition is expected to be completed by the end of the year, and while it is likely already priced into the Lloyds share price, the completion of the acquisition may provide a nice catalyst to send the price higher. If Embark manages to synergise with any of Lloyds’ brands, then we may see a positive long-term effect in profitability.

3) Earnings

On October 28^th, Lloyds announced its Q3 earnings, and it was good news for investors. Profits more than doubled, outperforming analyst estimates by a good margin. It was also revealed that Lloyds is holding roughly £4 billion in excess capital. In my opinion, Lloyds is likely to put this capital to good use. Whether that could mean more acquisitions, buybacks, or a nice dividend payout, I don’t know. Regardless, I think the company’s end of year earnings announcement could provide a huge catalyst for the share price. While I wait, however, investors may begin to price in a more optimistic future for Lloyds, and the share price may even benefit from a ‘lagged earnings’ effect.

Take all of this with a pinch of salt. The future of the economy is anything but certain at the minute, and the same can be said for interest rates and earnings announcements. Although I believe that these three reasons could lead to a rise in the Lloyds share price, it doesn’t necessarily mean that they will. Despite this, I will continue to pay close attention to Lloyds in the coming months. 

The post 3 reasons why the Lloyds share price could continue to rise appeared first on The Motley Fool UK.

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Kevin Diamond has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Darktrace (LSE: DARK) share price has had a wild couple of months. Gaining over 50%, then losing almost 20% in the month of September alone indicates to me that Darktrace is experiencing a lot of volatility. These large price movements have left me wondering: where will Darktrace shares go next?

What has been driving the volatility?

The Darktrace share price gained steadily for the first couple of months after its IPO in late April. Then, when the company reported a 41% increase in its revenues for the year, the share price exploded, more than doubling over the summer. More recently, however, the share price has suffered from the news that three large private equity firms have been selling their Darktrace holdings. KKR, Summit Partners and Balderton Capital were all investors before the IPO. Now that their lock-up period has ended, they’ve all decided to take profits. Clearly this news has scared markets, denting the Darktrace share price.

Is the price slump an overreaction?

It seems possible to me that the market could have oversold on this news. After all, these three private equity firms have watched their investment in Darktrace almost triple. It would not be unreasonable for them and other investors to take some profits, regardless of any upside potential that they may see for Darktrace.

As well as this, Darktrace investors may be able to find comfort in the fact that the cybersecurity industry, in which Darktrace operates, is growing rapidly. Hackers and other cyber criminals are becoming more and more sophisticated. Companies and governments are under increasing pressure to protect themselves from cyber-attacks. Losses due to cybercrime around the world have been estimated to reach well into the US$ trillion range in 2021 alone, a figure set to increase at a brisk rate over the next decade. Darktrace has found itself in the middle of this increasingly important industry, and with its pioneering AI technology, the company has lots of growth potential. It refers to this technology as a “digital immune system,” capable of halting in-progress cyber-attacks without disrupting regular business operations.

As Darktrace has reported a 45% increase in its customer base for the 12 months ending June 2021, it is probably safe to say that the company’s unique approach to cybersecurity is gaining market share. This is good news for the Darktrace share price.  

Challenges

Despite its recent growth, Darktrace faces several important challenges. It may operate in a high growth industry, but there are many key competitors, eager to take customers from Darktrace. Competitors of note include Cisco Systems, Honeywell and Broadcom, all companies with a market cap of over £100 billion. These companies, among others, are likely to try using economies of scale, and other advantages to improve their cybersecurity systems as business models, thus threatening Darktrace’s market position. As well as this, if Darktrace’s technology has a significant or high-profile failure, it could destroy the company’s reputation. This could severely undermine consumer confidence, and send the share price spiralling down.

Although it is impossible to tell for certain where the Darktrace share price could go next, I remain optimistic for the future, and the shares are on my watch list.

The post Where will the Darktrace share price go next? appeared first on The Motley Fool UK.

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Kevin Diamond has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Bond is back

Cineworld is a company that has been hit hard by the pandemic, but as things started opening up again, audiences began to return to the cinema. Recently the Cineworld share price has benefitted from the imminent release of the new James Bond film, No Time to Die. The film only hit cinemas today, but tickets have been on sale since September 13^th. There are reports that the film has generated the most interest in cinema tickets since before the pandemic. Ticket sales already seem to be strong, which is a good sign that the film may generate significant revenues for Cineworld. There is no doubt in my mind that many investors have begun to price this into the Cineworld share price, making it at least part of the reason behind Cineworld’s recent rally.

That’s not all…

As well as a strong push from Bond, Cineworld may also take home strong revenues from, what seems to be, a slew of blockbusters making their way to cinemas in late 2021, and early 2022. Huge franchises such as Marvel, The Matrix, Ghostbusters, and Kingsman will have films hitting Cineworld screens within the next few months. Many of these film releases have been delayed due to the pandemic, and are likely to bring some audiences back for the first time since lockdowns have began to lift. This seems especially important for Cineworld as the company only managed to open all of its venues for the first time in June. It seems clear to me that many of these releases will provide significant cash for the business, providing a better outlook for Cineworld. Apparently investors seem to think so, as these releases are likely to be another factor in the movements of the Cineworld share price.       

What could be next for the share price?

In my opinion, where the Cineworld share price goes next, depends on a few factors. One straightforward factor will be the success of upcoming film releases. If these releases bring good or bad surprises, investors will react accordingly. Another factor will be the long-term impact of the pandemic on audiences. During lockdown, many people turned to streaming services for entertainment. After using these services, some found the cheaper ‘at home’ experience better than going to the cinema. Many now fear that consumer demand for a cinema experience will be altered forever. However, if there is a clear interest in cinema tickets for upcoming films, I think most investors can rest easy knowing that a solid portion of demand still remains. Regardless, I think this will be an interesting quarter for the Cineworld share price.      

The post What’s happening with the Cineworld share price? appeared first on The Motley Fool UK.

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Kevin Diamond has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

What is ThinkSmart?

According to its website, ThinkSmart is a “specialist digital platform business.” In reality, much of the value of the company comes from its 10% stake in Clearpay. As Clearpay is so important for the ThinkSmart share price, it is important to understand what it does.

Clearpay is a payment company that allows customers to break up the cost of their purchases into smaller interest-free payments. The ‘buy now pay later’ payments sector has experienced rapid growth over the last few years, especially in the UK, and Clearpay is at the forefront of this new industry. In fact, the payment platform is being adopted by large retailers including ASOS, M&S and JD Sports. The growth in this sector is so substantial that Clearpay found its revenue up 346% in 2020!

The Clearpay stake  

In 2018, ThinkSmart sold 90% of its Clearpay holding to Afterpay Touch, an Australian tech company. ThinkSmart has a further arrangement with Afterpay to sell its remaining 10% stake in the business. The management team at ThinkSmart seem committed to getting the most out of the company’s remaining stake. As well as this, over 40% of the small-cap stock’s shares are held by the management team and the board, something that I find very reassuring.

At the start of August, US technology giant Square announced its plans to acquire Afterpay. This acquisition is expected to be completed in early 2022, and the news sent ThinkSmart shares soaring. As Afterpay will be changing ownership, it can now exercise the aforementioned deal with ThinkSmart to acquire its remaining stake in Clearpay.

How could this affect the share price?

The share price has risen over 17% in the last week (at the time of writing), due to the company announcing its financial results. The company found net income up 35% for the year ending June 2021. This increase can be explained by a change in the valuation of its Clearpay holding. The valuation, which is carried out by a third party, brings the shareholders’ equity of ThinkSmart to just over £134 million. In theory, shareholders equity represents the assets owned by shareholders after all debt has been paid. Therefore, as ThinkSmart’s market cap is only £122 million, I believe we could see the share price move another 10% higher. There is also the chance that the deal is revalued higher before the acquisition.  

In reality, however, things rarely work out so smoothly. I worry that because the company’s market cap is so small, the share price will experience a greater amount of volatility. Quite frankly, I would like to see more than a 10% upside to stomach such large moves in the share price. As well as this, after the Afterpay acquisition, ThinkSmart has a very limited future in my eyes. Although I’m strongly considering buying, I won’t be pulling the trigger on this small-cap stock just yet.

The post One small-cap stock that could jump before 2022 appeared first on The Motley Fool UK.

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Kevin Diamond has no position in any of the shares mentioned. The Motley Fool UK has recommended Square. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Workspace Group is a real estate investment trust that owns and manages a large portfolio of properties in London. Like many large real estate companies, Workspace was hit hard by fears of the Covid-19 pandemic. It didn’t help that most Workspace properties are commercial real estate such as office buildings. During lockdown, people couldn’t come into their offices and started working from home. Many businesses began to wonder that if their employees could work just as effectively at home, why should they fork out thousands of pounds a month on pointless office space? This seemed like a huge long-term problem for Workspace Group, and investors began to panic.

So why has the price rallied?

Once lockdown measures began to lift, many people wanted to go back to work. It turns out that working from home can be challenging for employers and distracting for employees. Suddenly businesses need office space again and Workspace Group could provide it; in fact, Workspace has said that customer demand is now running at pre-Covid levels. This resurgence in property demand can be seen in commercial real estate prices, with most estimates on this inflation running between 10 and 20% for the year. Of course Workspace took substantial losses in 2020, but as things started turning in its favour, so did the share price. It would make sense, therefore, that much of the recent price rally can be explained by investors pricing in a better future for the company and perhaps attempting to gain exposure to a booming real estate market.      

Will the Workspace Group share price continue to rise?

It should always be acknowledged, when it comes to investing, that past performance does not indicate future results. All this means is that, just because the share price has performed well so far this year, it doesn’t mean it will continue to do so. That being said, however, there’s a lot of momentum behind the share price right now, and an accommodating economic climate for Workspace Group means the rally could very well continue. However, it appears that the increased demand for real estate may already be starting to dwindle. Not to mention that, after such a strong couple of months, I wouldn’t be surprised if the stock has a few pullbacks as investors start to take profits. Regardless, I think this is a company for me to keep an eye on, especially if earnings begin to improve and demand for commercial real estate continues to grow. 

The post Will the Workspace Group (WKP) share price continue to soar? appeared first on The Motley Fool UK.

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Kevin Diamond has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.