Interactive Investor

Buyers chase these two FTSE 100 stocks higher

26th April 2023 15:36

by Graeme Evans from interactive investor

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One’s at its highest in a couple of months, the other has surged close to a one-year best. Our City writer talks through market-moving numbers from this blue-chip pair.

Gulls flying high

Green shoots at Persimmon (LSE:PSN) and the rebuilding of Smith & Nephew (LSE:SN.) under a 12-point turnaround plan today provided buying interest in the FTSE 100 index.

Persimmon shares have lagged the recovery of industry peers by a considerable margin this year, but they made up some lost ground today when the housebuilder reported a steady improvement in first-quarter sales rates alongside healthy customer interest.

Shares jumped 82p to 1318p, their highest level since annual results on 1 March when management signalled the intention to build 40% fewer homes in 2023. They also scaled back  he 235p a share annual dividend with plans to distribute 60p a share on 5 May.

Today’s update shows that volumes are in line with the upper end of the company’s new forecast 8,000-9,000 range if sales rates continue as they were in the first quarter.

Persimmon’s forward sales position of £1.7 billion is down 30% on a year earlier but higher than the £1 billion at the start of the year. The private average selling price of £276,200 has fallen from December’s £282,100 but the use of incentives continues to be 3% on average.

Chief executive Dean Finch said: “Trading over recent weeks has offered some signs of encouragement with visitor numbers up, cancellation levels normalising and sales rates continuing the steady improvement evident since the start of the year.”

Build cost inflation, meanwhile, continues to track at around 8-9% with limited signs of this easing in the short term.

The shares were 2% higher across 2023 prior to today’s update, whereas the sector is up 20% on recent signs of house price and economic resilience. The stock trades at 1.18 times 2023’s net asset value, which Peel Hunt points out is well below the 2.5 times of the past five years.

The broker, which has a “reduce” recommendation and 1,070p target price, said this reflects a fall in the group’s return on equity from a peak of 28.5% in 2017 to a forecast 7.9% that lags the wider sector on about 10%.

At Smith & Nephew, the share price momentum for the medical devices firm has continued following better-than-expected first quarter revenues of $1.36 billion (£1.1 billion).

The stock rose 16p to 1290p for its highest level in almost a year, having surged by 17% since the start of the month as investors warm to the turnaround strategy launched last summer by chief executive Deepak Nath.

The plan to make Smith & Nephew a “consistently higher growth company” is still in the transformation phase, with a focus on orthopaedics after the recent performance of the knee and hip implant division was held back by poor operational systems.

Today’s update showed a stronger result from orthopaedics after underlying revenues growth of 3.9%. This compared with 10% in sports medicine, 7.9% in advanced wound management and 6.9% overall.

The outturn was higher than City expectations and enabled Smith & Nephew to stick by full-year guidance for growth between 5% and 6%. It also expects a trading profit margin of at least 17.5%, which compares with plans for expansion to at least 20% by 2025.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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