Interactive Investor

Insider: bargain hunting at these household names

28th February 2022 09:07

Graeme Evans from interactive investor

There’s been buying at a well-known airline, a grocer and a recruiter. The chairman at this military kit firm is also backing his company to fight back.

Optimism at Avon Protection (LSE:AVON) as it attempts to rebuild after a miserable 2021 has seen its chairman spend £50,000 on shares in the military headgear supplier.

Bruce Thompson made his purchase at 1,008p but shares finished the week at 1,143p after the Ukraine conflict fuelled investor interest in stocks across the defence sector.

Peel Hunt, which has a price target of 1,500p on Avon, predicted a surge in demand from Nato and US forces as they look to ensure sufficient supplies of critical protection products such as helmets and masks. The broker said on Friday: “This is likely to manifest itself in greater offtake from existing contracts rather than new business.”

Avon provides respiratory and head protection products for first responders as well as the world's militaries, but recently saw its shares slump after a product testing failure at its body armour division.

Any fears that the affair might have dented the company's relationship with the US Department of Defense were allayed this month when Avon won a contract worth $204 million (£152 million) over five years to deliver a new advanced combat helmet.

Analyst at Jefferies recently reiterated their 1,625p price target and said Avon had drawn a line under an “unfortunate episode” by announcing plans to wind down the body armour business over the next two years.

The shares have materially de-rated, but Jefferies said management now has “a high-quality business” offering good potential for growth and margin upside.

The bank said: “There are near-term challenges to overcome and management needs to deliver on expectations and rebuild confidence in the equity story, but we see good growth and a re-rating opportunity over time.”

Avon Rubber, as the company was previously known, soared into the FTSE 250 after its shares more doubled at one point during 2020. They peaked at 4,500p in November of that year but hit reverse after reporting the first problems with contract approvals in US ballistics protection.

Thompson wrote in December's annual report that Avon had since taken decisive action to re-focus the group and to “protect our growth trajectory”.

He added: “The year ahead will be one of transition, but with a strong opening order book and a good pipeline of new opportunities, we expect our core respiratory and head protection business to deliver growth in 2022.”

Chief executive Paul McDonald underlined this confidence by declaring a 30% increase in the final dividend, which will be paid on 11 March and is worth the equivalent of 22.5p a share.

Last Wednesday's purchase was the fourth time that Thompson, who is the former boss of FTSE 250-listed technical products business Diploma, has bought Avon Protection shares since joining the board in March 2020.

He also bought £104,000 worth of shares at 2,090p in September, as well as £91,800 at 3,060p in December 2020. His maiden purchase in September 2020 was worth £124,924, when shares were near their peak at 4,164p

Thompson also bought shares last week in electronics business discoverIE, having been on the company's board since February 2018. He spent £87,000 on the shares at a price of 794p, which compares with 1,262p back in September.

Thompson was not the only director backing more than one company last week.

Non-executive director Julie Southern spent a total of £20,000 on shares in easyJet (LSE:EZJ) and Ocado (LSE:OCDO), two companies she has served since 2018.

The dealings by the former Virgin Atlantic chief commercial officer were made on Tuesday prior to the Ukraine-led market sell-off, with the value of her £10,000 easyJet investment down by £440. Southern bought at 655.8p, but easyJet shares closed on Friday at 626.2p.

The Ocado acquisition, which was struck at 1,317p, cost Southern about the same amount and has fared better after shares finished on Friday slightly higher at 1,334p.

She also serves as a non-executive director at pest control firm Rentokil Initial.

Another non-executive director braving this week's turbulent market conditions was Hays (LSE:HAS) board member Joe Hurd. His £10,000 purchase of shares at a price of 137.8p was made on Thursday after the recruitment company's interim results.

Hays reported a big jump in half-year profits to £97.7 million and said the New Year return to work had been encouraging. Chief executive Alistair Cox added that conditions were strong in all markets, reflecting high levels of business confidence, significant job churn and clear evidence of wage inflation. 

Shares finished the week at 139.8p after rising 3.8p or 3% on Friday.

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