Insider: backing this reliable mid-cap winner 

1st March 2021 09:00

Graeme Evans from interactive investor

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Shares in this high-tech company have a habit of rising every winter. Now, management is betting on it.

The £260,000 purchase of Spectris (LSE:SXS) shares by three of the precision measurement company's most senior directors follows a typically robust winter for the FTSE 250 index stock.

The trio, led by chief executive Andrew Heath, topped up their holdings hours after Thursday's annual results confirmed a strong end to 2020, alongside plans for a share buyback programme worth £200 million, equivalent to about 5% of its market capitalisation.

The executive share buying took place at prices of 3,000p and above, which is where the company has been trading for the first time ever in recent weeks. A number of analysts think there's further to go, however, with Stifel having a price target of 3,500p and Jefferies at 3,450p.

Spectris shares are up by a quarter since early October, representing another strong winter performance for the provider of high-tech instruments, test equipment and software.

It delivered positive returns in nine of the previous 10 winters, achieving an average return of more than 20% over that decade. Based on that record, Spectris secured a place in Wild’s 2020/21 Aggressive Winter Portfolio, run by interactive investor’s Head of Equity Strategy Lee Wild. Safestore Holdings (LSE:SAFE), London Stock Exchange (LSE:LSEG), Synthomer (LSE:SYNT) and Diploma (LSE:DPLM) make up the basket of five shares.

The foundations for its latest strong winter showing were built prior to the Covid-19 pandemic, with a profit improvement programme undertaken in 2019 including the closure of several facilities and a retreat from lower margin products and activities.

Adjusted profits were down 33% to £166.4 million in 2020 but the Egham, Surrey-based company was successful in protecting jobs and core capabilities before ending the year with a welcome pick-up in order intake.

Heath said on Thursday: “The actions taken last year position the group well for the expected market recovery in 2021. The cost base has been reduced and capability retained, creating a strong operating leverage opportunity and balance sheet optionality.”

His optimism is reflected in 2020's improved cashflow generation of £244.5 million and the increased final dividend of 46.5p a share for payment on 30 June. An additional dividend of 43.2p was paid in October to make up for the one from 2019 deferred due to the pandemic, with 2020's interim dividend of 21p paid a month later.

The share buyback will start “as soon as possible”, having just raised £133 million from the sale of vehicle testing and engineering services arm Millbrook. It is also set to secure £163 million from this month's sale of industrial machine business B&K Vibro to a Japanese firm.

Heath said the buyback still allowed “adequate bandwidth” for M&A opportunities.

His purchase of £150,000 worth of Spectris shares at a price of 3,018p is the biggest he has made since becoming chief executive in September 2018. He previously served as CEO of Imagination Technologies and before that had a 30-year career with Rolls-Royce.

Friday's regulatory disclosure by Spectris also showed that the spouse of chief financial officer Derek Harding bought £95,000 worth of shares and that chairman Mark Williamson picked up £16,000 worth of stock.

The company's shares, which listed on the London Stock Exchange in 1988, are trading on 23.5 times 2021's forecast earnings and 20.9 times for 2022. 

With a price target of 3,400p, Investec Securities said Spectris was now a more focused business with movable levers to drive its own progression agenda: “We believe the company has more to offer on self-help and this, along with potential further portfolio enhancement provides a positive investment case.”

Amigo Holdings

The determination of Amigo Holdings (LSE:AMGO) CEO Gary Jennison to get the troubled company “back to life again” has been backed up through his purchase of shares worth £27,500.

Jennison bought the stock at 11.2p, shortly after Thursday's third-quarter results showed the steps being taken to deal to with a flood of compensation claims from customers who say they should never have been granted a loan in the first place.

The company's survival hinges on court and creditor approval for a scheme of arrangement, which Amigo believes will provide certainty on the liability arising from the complaints.

If the scheme becomes effective in May, it is likely to mean compensation payments are capped for those present and former customers who have yet to submit a refund request, or not had a letter setting out a final decision by 21 December of last year.

These shares are back in favour as tech stocks dive 

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Jennison, who became CEO in September, said: "The scheme was a difficult decision for us to make. We're doing it to treat all our customers and other stakeholders fairly and we believe it is absolutely the right thing to do.”

The company's cash position remains strong and talks are under way with the Financial Conduct Authority about a return to lending. Revenues fell 37% to £137.5 million in the third quarter after its customer base shrunk by 30%.

Shares rallied 9% to just above 12p on Friday after Amigo disclosed the share dealings by Jennison and his chief financial officer Michael Corcoran, who bought £10,500 worth of stock. Amigo shares had been trading as low as 5.8p in late January.

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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