As a provider of sophisticated instrumentation and controls to pretty well every manufacturing industry on the planet, Spectris was always going to be among the first engineers to feel the effects of a downturn
In the end, though, last year turned out to go not quite as badly as some had feared. The slowdown in US manufacturing hit its industrial controls division, where North America accounts for more than 70 per cent of sales. China has been slowing for Spectris, though it says the appetite of Chinese businesses to invest in environmental technology, automation and R&D and to improve their industrial base is still there. Markets such as Russia and Brazil were always going to be tough.
Against this, India was strong, as were parts of southeast Asia — which probably were benefiting from the Abenomics programme to stimulate demand in Japan, so recent evidence of a renewed slowdown there suggests this may not last. In Europe, the weaker euro is encouraging industries in countries such as Italy and Spain to invest again on capital spending.
Like-for-like sales came in flat for the year, a first-half growth rate of 1 per cent flipping into a slight decline in the second, but this largely reflected tougher comparisons against a good second half last time. Spectris shares, which had lost almost £10 since their peak last spring, gained 133p to £16.48.
Spectris has two ways of dealing with any slowdown in key markets. It makes regular acquisitions, with£45 million spent on five last year. Additional revenues from those acquisitions were cancelled out by adverse exchange rate movements. The company has instituted a cost and efficiency drive that will boost earnings by £10 million a year. However, the cost of this came in at £7 million last year and meant that operating profits fell by 6 per cent at constant exchange rates to £181.1 million.
Strong conversion of profits to cash means that borrowings are relatively low and there is scope for a further big deal. The shares are a difficult one to judge. They sell on 14.5 times’ this year’s earnings. Spectris is well positioned, but this does not suggest any immediate reason to buy.
MY ADVICE Avoid for now
WHY Company is doing all the right things, but, given the state of its markets, there seems no obvious catalyst for outperformance
It is one of the oddities of Mondi’s dual listing in Johannesburg and London that the FTSE 100 packaging group has to pre-report earnings-per-share numbers if they are going to come in 20 per cent higher than last time. The investment in acquisitions and new plants means that this is likely to have happened in 2015, so the preliminary numbers were published ahead of full figures next week.
Mondi has already announced nine-month figures that were 29 per cent ahead. Now it says that basic earnings per share for the year will come in between 24 per cent and 29 per cent higher. It is investing despite some concerns that supply may exceed demand in this cyclical industry if parts of the eastern eurozone economy regress.
This is one reason the shares have fallen disproportionately since the start of December, when they were trading at about £15.50. The concerns were over the price of Kraftliner, a basic product, although industry observers think that this will stabilise shortly. The shares rose 12p to £12.67 on the back of the reassuring trading update. This looks like one of those cases where the fall is overdone. On 12.5 times’ earnings, they begin to look cheap.
MY ADVICE Buy
WHY Share price fall looks to have come back too far
Some of the recent falls in the share prices of secondary stocks are a little hard to fathom. Pendragon lost a third of its market value in the four weeks from mid-January, although the shares have recovered a little since then. They eased ½p to 35½p after some perfectly respectable full-year figures.
The car dealers are going through a good patch at the moment. Continental producers are keen to access the British market while financing is easy to get, and new sales are likely to be up again this year. Pendragon has been building the online side of Evans Halshaw, its volume supplier, using its geographical spread to attract customers. Used car sales across the chain were up 20 per cent over the year and the number of visits to this and the more upmarket Stratstone sites were up almost 36 per cent.
Pendragon has merely refinanced its borrowings on better terms, which will mean annual savings of £4 million. The company has enough excess capital to pay for its planned 40 new sites over five years, at a cost of £100 million. The only brake is the availability of property, especially in the southeast.
Pendragon is pushing up the annual dividend by 44 per cent, which provides a decent yield of approaching 4 per cent for this year. It needs to invest in keeping and retaining technicians to meet the demand for service from the growing number of vehicles on the roads.
The shares sell on less than ten times’ earnings, which makes little sense unless you think that something is about to go terribly wrong in UK car sales.
MY ADVICE Buy long term
WHY Share price fall means they now look undervalued
And finally ...
Not a lot of people may realise it, but we have not one but two banks from Georgia quoted on the stock market. Shares in Bank of Georgia, trading as BGEO Group, rose 6.4 per cent after 2015 figures in which profits were up 29 per cent. The shares are worth more than twice their float price in 2012 and late last year the bank spun off 25 per cent of its Georgia Healthcare subsidiary on to the market. This is largely a play on the Georgian currency, the lari having stablilised, and economic growth continuing in the country.
