Insider: backing the chip boom and an ex-FTSE 100 stock

Insider share purchases by directors of Morgan Advanced Materials (LSE:MGAM) have backed the FTSE 250 company as it looks to capitalise on a surge in semiconductor industry demand.

The business makes components that help the chip and electronics industry in its drive towards higher performance and reliability through smaller, more efficient and robust products.

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Morgan revealed last week that it had expanded investment in additional semiconductor capacity to £100 million by 2026, compared with £60 million guidance given in December 2022.

It said: “We expect this investment to drive attractive long-term growth and strong returns, transitioning the group further towards faster growing markets.”

The optimism offset tougher near-term market conditions for the company, whose carbon and ceramic materials support complex and technologically demanding applications across a wide range of industries.

Its recent results showed flat revenues of £1.1 billion and a 20.3% decline in operating profit to £120.3 million, a performance impacted by charges of £14.7 million arising from a cyber security incident early in the year.

However, the second half showed improvement in line with the company’s framework for constant currency growth of 4-7% through the cycle and an operating margin of 12.5-15%.

The shares finished the week higher at 277.5p, which compares with Peel Hunt’s target price of 450p after the broker said the results had more “punch in it than we were expecting”.

It highlighted the Electrical Carbon division, where strong semiconductor-related demand led to 9.7% organic revenues growth compared with 6.5% at the third quarter.

The shares have rallied from a low of 219p in the period since the trading update last autumn, although they had been above 300p prior to the cyber security incident.

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Chief executive Pete Raby and the company’s chair, the former SSE boss Ian Marchant, bought their shares on Wednesday at prices of around 266p. Together with a purchase by long-serving non-executive director Clement Woon, their investments totalled more than £90,000.

Raby, who has been at the helm since 2015, used last week’s results to highlight the potential of a strategy focused on leading, differentiated market positions.

It typically has 20% share in core sectors such as components for the transportation, petrochemicals or defence and security industries. Growth markets account for about a fifth of revenues, including semiconductors, healthcare and clean energy.

Windsor-based Morgan has about 460 scientists and engineers engaged in developing new materials and products as well as sustaining the current portfolio. The company’s largest customer accounts for only 2% of sales and the overall top ten equate to around 11% of revenues, meaning the loss of one client should have limited impact.

Raby added that the company’s strong balance sheet underpinned investment and the ability to deliver “good shareholder returns”. A final dividend of 6.7p a share is due to be paid on 17 May, resulting in an unchanged distribution for 2023 of 12p that’s covered 2.1 times by earnings.

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Struggling Capita (LSE:CPI) shares worth £34,115 were bought by board chair David Lowden on Friday after the outsourcing firm’s valuation slumped to prices not seen since the 1990s.

The former boss of Taylor Nelson Sofres made his move at 13.6p, a few days after chief executive Adolfo Hernandez dealt shares at 16.2p through an investment of £52,000.

Their backing followed the former FTSE 250 company’s 2023 results, which showed a pre-tax loss of £106.6 million on revenues of £2.8 billion. The business employs 43,000 people and includes the collection of the BBC licence fee and London congestion charge among its contracts.

Hernandez, who took over from Jon Lewis in mid-January, is due to update investors on the company's strategy in June. He said this month: "We have strong foundations and the opportunity for significant growth in the medium and longer-term.”

His immediate priority is a “rapid reduction” in costs, having announced the need for material efficiency improvements of £100 million on top of an existing £60 million programme.

The former Amazon Web Services vice-president believes that co-creating solutions with clients and accelerating the use of technology will be key to an improved operating and financial performance.

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Capita was in the FTSE 100 as recently as 2017, when the debt-laden firm tapped shareholders for £700 million in a heavily discounted rights issue offering new shares at 70p.

Under the leadership of Lewis, the company disposed of businesses and slimmed down to focus on the two divisions of Capita Public Service and Capita Experience in the UK, Europe, India and South Africa.

The big loss for 2023, which compared with a profit of £61.4 million the year before, included the £25 million cost of dealing with a cyber incident last March. The shares closed the week at 13.55p, valuing the company at £225 million.