Interactive Investor

A big FTSE 100 winner and a blue-chip loser

17th November 2021 15:03

Graeme Evans from interactive investor

In a down day for London’s major index, these two stocks are at the extremes. Here’s what been moving share prices today.

The supply chain pressures blowing through the FTSE 100 index today checked the progress of high-flying Spirax-Sarco Engineering (LSE:SPX) after its shares fell 6% from their record high.

The 130-year old business, whose steam and thermal solutions help to heat hospitals, produce food on an industrial scale or sterilise pharmaceutical equipment, has soared in value to almost £12 billion as customers look to improve efficiency or meet sustainability targets.

Today's trading update showed no let-up in that “very strong demand”, particularly for the Covid-19 vaccines work still boosting its Watson-Marlow fluid technologies business.

Order books across all three of its businesses expanded ahead of expectations in the four months to the end of October, but the Cheltenham-based company has not been immune to the current supply chain disruptions and shipment delays in particular.

This is being felt at Watson-Marlow as well as in Electric Thermal Solutions, where sales growth is lower than expected due to delays in the delivery of operational improvements.

Despite these challenges and the adverse impact of a stronger pound, Spirax continues to expect a record year of revenues, profits and operating margin for this year.

JP Morgan Cazenove called it a “rock-solid update” that confirmed the qualities of the Spirax business model, but shares still fell 985p to 16,020p. They have more than doubled since April 2020 and this week stood above 17,000p for the first time in the company's history.

Today's decline also reflected caution on the overall economic outlook in light of material shortages and rising costs. Spirax now sees global industrial production growing 7.4% this year, compared with 8.6% at its half-year results, before 4.3% in 2022 against 5% previously.

Spirax still expects growth in both sales and profit next year but the operating margin is expected to be lower due to the impact of investments this year and planned for 2022.

The shares have been trading on 51.4 times 2021 earnings, falling to 49.4x for 2022.

Investec Securities said this premium valuation reflected the company's status as a “top-quality investment” but that current multiples merited a “hold“ rating on the stock.

It added: “Spirax-Sarco has historically generated good organic growth, which is largely driven by its customers’ opex budgets, demographic factors and geographical expansion of the direct sales network. The latter has supported strong growth and should continue to do so.”

Shares in FTSE 100-listed software group Sage (LSE:SGE) moved in the opposite direction today as chief executive Steve Hare told investors he is now firmly focused on growing the business both organically and through acquisitions.

His declaration follows three years of restructuring and investment where the SME accountancy and payroll specialist has been positioning itself for faster customer acquisition.

This has led to a 7.7% rise in annual recurring revenues growth to £1.68 billion in today's full-year results, with a 19% rise in Sage Business Cloud to £997 million also reflecting continued progress in migrating existing customers from desktop to cloud solutions.

Hare said: “The small and mid-sized businesses that power the global economy are adopting digital solutions at a faster rate than ever before, and through our trusted technology and human approach, Sage is well positioned to support them.

“I am confident that, through our refreshed strategic framework, we will deliver further sustainable growth, driving the success of Sage now and in the long term." 

Shares shot up 8% or 61.6p to 790.6p after today's results, despite a 7% fall in earnings per share to 26.33p. This decline reflected strategic investment costs and the revenues impact of Sage's transition away from licence-based sales.

The company is planning to pay a final dividend of 11.63p a share on 10 February, meaning the total for the year is 2.5% higher at 17.68p.

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