As investors digest overnight news on US interest rate expectations, a bunch of UK mid-cap shares are heading in the wrong direction. But is it an overreaction?
A blue-chip company with a 55 year record of dividend growth was one of several results-day casualties as the London market came under heavy selling pressure today.
As well as Spirax-Sarco Engineering (LSE:SPX), there was a big fall for fellow top flight company Endeavour Mining (LSE:EDV) and for Hammerson (LSE:HMSO) and Domino's Pizza (LSE:DOM) in the FTSE 250 index.
Expectations that the Federal Reserve will increase interest rates by another 0.5% at its meeting on 22 March added to the downbeat mood for European markets as the FTSE 100 index dipped below 7,900 and the FTSE 250 index lost more than 200 points.
Recession fears caused by the prospect of further monetary policy tightening meant mining stocks dominated the weaker blue-chip session as Glencore (LSE:GLEN) and Anglo American (LSE:AAL) fell 2% and Rio Tinto (LSE:RIO) dropped 229p to 5731p after shares also went ex-dividend.
The biggest drop of all was by Endeavour Mining after the West Africa-focused company posted fourth-quarter earnings short of the $301 million forecast in the City.
Shares fell by 74p to 1617p at the top of the FTSE 100 fallers board, even though free cash flow came in ahead of expectations and the full-year dividend worth $200 million was a third higher than the minimum commitment for the year.
Alongside the planned payment of 81 cents a shares on 28 March, shareholder returns have been supplemented by the buy back of $99 million of shares during 2022.
The company, which posted a 10th consecutive year of achieving or beating production guidance, said a key focus this year will be the development of its recent Tanda-Iguela deposit in Cote d’Ivoire as another potential cornerstone asset.
Spirax-Sarco, whose steam and thermal solutions help to heat hospitals, produce food on an industrial scale or sterilise pharmaceutical equipment, today declared a final dividend of 109.5p for payment on 19 May.
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The resulting 12% growth in the total dividend to 152p a share maintained a 55-year compound annual growth track record at 11%.
It followed a typically solid performance from the 130-year-old business, including 14% organic sales growth and an operating margin near to 24% despite weaker economic conditions.
It paid special dividends in 2010, 2012 and 2014, but in the near term is looking to reduce financial leverage, which increased during the year as a result of recent acquisitions.
Shares topped 13,000p last March amid strong demand, particularly for the Covid-19 vaccines work boosting its Watson-Marlow fluid technologies business. Today, the company said it anticipates mid-single-digit sales growth, driven by steam specialties and electric thermal solutions but with Watson-Marlow sales slightly below 2022.
Shares fell 385p to 11,485p, but analysts at Morgan Stanley said expectations of another good year in 2023 meant it left its price target unchanged at 13,000p.
In the FTSE 250 index, shares in shopping centre owner Hammerson gave up some of their recent gains by falling 3.3p to 26p on the back of annual results.
Adjusted earnings rose 60% to £105 million, with the company now a “better, more agile and resilient” business after focusing its portfolio on city centre locations and raising £628 million in a bid to strengthen its balance sheet.
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However, an end-of-year property valuation of 53p a share was weaker than City expectations and the company declined to reinstate cash dividends until this year’s financial results.
Peel Hunt retained its “hold” recommendation, adding: “The balance sheet still needs some TLC and the lack of a final dividend will disappoint some.”
The recent pressure on shares in Domino’s Pizza continued today even though the UK chain reported a strong end to 2022 with like-for-like system sales up 13.9%. The new year has also started well with growth of 10.8% and guidance for 50 to 75 store openings.
The company proposed a 6.8p dividend for payment on 11 May, part of a capital allocation framework launched in March 2021 that has now returned £266 million to shareholders through £100 million in dividends and £166 million in buybacks.
However, the company disappointed the City with its guidance for unchanged earnings this year. Liberum, which continues to have a “sell” recommendation with a 230p target price, added: “We struggle to see the like-for-like performance continuing for the rest of the year given consumers’ budgets will be stretched further from April.”
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