Interactive Investor

Insider: better times ahead for these two well-known shares?

3rd May 2022 08:07

Graeme Evans from interactive investor

There's director buying at this famous high street name and a once popular small-cap tech firm, both of which have seen better days. 

A senior WH Smith (LSE:SMWH) director has bought shares worth £43,000 as he backs the travel division under his control to bounce back this summer after two years of Covid disruption.

Andrew Harrison, who has been managing director of travel since last May, purchased shares  at a price of 1,430p following the FTSE 250-listed company’s interim results on Wednesday.

The figures showed travel reversed 2021’s loss of £28 million with a profit of £10 million for the six months to 28 February, despite facing disruption from the Omicron variant.

Revenues were at 82% of 2019 levels, but this improved to 114% in the past eight weeks and to 126% over the Easter holidays, boosting confidence for the key summer trading period.

The travel arm enters the peak season a different business to the one when Covid hit, having invested heavily in a drive to offer passengers a one-stop shop for travel essentials.

This strategy has included the opening of 28 new technology-focused stores in the UK under the InMotion brand, a US-based business bought by WH Smith in 2018.

A flagship store has just opened at Heathrow Terminal 5 while other key locations include at Stansted, the airport where Harrison was boss between 2013 and 2016.

Internationally, the WH Smith logo has spread after the chain added 74 new stores to its pipeline since the start of the financial year, including outlets at Spain and at the new Kansas City airport. The company expects more space to become available, particularly in North America, as its markets continue to recover.

The core high street business, meanwhile, has remained a resilient performer after growing profits by £2 million to £26 million in the half-year period. The key trading month of December saw the division return to 90% of pre-Covid trading revenues.

Overall, chief executive Carl Cowling said the company was well positioned to capitalise on the recovery of its markets. He said: “We have improved the scale and footprint of the business and are operationally stronger than prior to the pandemic.”

Shares were trading at 2,400p when the pandemic started, but the best level since then has been near 2,000p just over a year ago.

The stock dipped as low as 1,338p after the start of the Ukraine war and remains 7% lower this year, reflecting consumer spending uncertainty, cost pressures and a possible £4 million hit from a cyber attack on the Funky Pigeon online business.

The shares closed last week at 1,455.5p, but Investec Securities has a price target of 2,140p and says a current valuation of 14.4 times the bank’s 2024 post-Covid earnings estimate of 105p a share was “undemanding”.

Investec analyst Kate Calvert pointed out: “Similarly highly cash generative businesses with double-digit, sustainable long-term growth profiles tend to trade on a low 20s ‘recovery’ price/earnings multiple.”

Among other price targets, JPMorgan last week increased by 23p to 1760p and Deutsche Bank and HSBC both went for 1,840p. The latter noted that the company was on a multiple of over 20 times prior to the pandemic, compared with the bank’s estimate of 15 times for next year.

Betting on recovery at IQE

IQE (LSE:IQE) president Dr Drew Nelson has spent £75,500 on more shares in the semiconductor wafers firm he co-founded in 1988.

Wednesday’s purchase was at a price of 30.2p, close to the low point for the year as industry supply chain challenges continue to impact sentiment. The stock had topped 170p in 2017, when IQE captured the imagination of retail investors due to its exposure to the iPhone boom.

New boss Americo Lemos is due to outline his strategy later this year, but at annual results in March said IQE was “uniquely placed” to capitalise on major technological trends.

Lemos, who was previously at New York-based GlobalFoundries, pledged to build a commercial engine more orientated to IQE’s end markets: “My vision is to grow IQE through multiple strategic and long-term customer relationships.”

Analysts at Peel Hunt are supportive, with a price target of 85p based on the tailwinds of 5G infrastructure spending.

Cardiff-based IQE, which has 685 staff at nine manufacturing sites in the UK, US, Taiwan and Singapore, has supplied epiwafers and substrates to successive generations of the consumer mobile market since the early 1990s.

It has also enabled wireless and optical communications across the various generations of telecoms network infrastructure.

Nelson led IQE from its listing in the dotcom boom in 1999, before taking a non-executive role with the title of president in September. He is a major shareholder with a 4.5% stake.

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.