Interactive Investor

Insider: directors buy this resilient best stock idea for 2023

20th March 2023 09:20

by Graeme Evans from interactive investor

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Tipped by some in the City to excel this year, this FTSE 100 company is outperforming the blue-chip index and has proved resilient during the current market turmoil.

daisy flower resilient 600

A long-serving director of Spirax-Sarco Engineering (LSE:SPX) spent £100,000 on the company’s shares last week as she joined investors on their flight to quality during the stock market turmoil.

Former Compass HR boss Jane Kingston, who has been on the board of the FTSE 100-listed steam solutions specialist since 2016, made her move on Wednesday at a price of 11,110p.

The shares were among the top flight’s more resilient performers in last week’s turbulence as investors increasingly sought shelter among London-listed industrial stocks.

In the case of Spirax-Sarco, its defensive qualities include a focus on revenues in pharmaceuticals and food and beverages and an exposure to favourable investment themes such as energy efficiency and industrial heat generation.

This protection comes at a premium valuation for investors, but broker Peel Hunt said last Monday that Spirax-Sarco shares looked to have slipped back into buying territory as it upgraded the stock from “hold” to “add” with a 12,000p price target.

The company is also one of Bank of America’s best European stock ideas for 2023, while JP Morgan Cazenove recently highlighted a price target of 12,400p after 2022 results revealed a robust performance against various economic and operational headwinds.

The US bank said: “Expectations are always high but the equity story remains one of the best-in-class and we would buy on any weakness.”

The 130-year-old company, whose steam and thermal solutions help to heat hospitals, produce food on an industrial scale or sterilise pharmaceutical equipment, reported 14% organic sales growth and an operating margin near to 24%.

 boiler room equipment heating spirax sarco 600

The 12% growth in the total dividend to 152p a share maintained a 55-year compound annual growth track record at 11%. Special dividends were paid in 2010, 2012 and 2014 but in the near term the company is looking to reduce leverage following recent acquisitions.

Shares were as high as 13,000p last year after Covid-19 vaccines work provided a major boost to the company’s Watson-Marlow fluid technologies business.

For this year, the company is looking for mid-single-digit sales growth driven by steam specialties and electric thermal solutions but with Watson-Marlow sales slightly below 2022.

UBS, which has a price target of 13,700p, believes the guidance on Watson-Marlow shouldn’t come as a surprise, adding: “Crucially, management see Watson-Marlow returning to growth in the second half of the year with the medium-term end market drivers undiminished.”

The shares closed on Friday at 11,100p after a steady performance over the week, but are down from 12,000p seen in February. As well as the purchase by Kingston, chief financial officer Nimesh Patel spent £11,500 on Spirax-Sarco shares in a transaction on Wednesday.

Buying after broker downgrade

A purchase of Bridgepoint Group When Issue (LSE:BPT) shares made by one of its non-executive directors on Thursday is already down by £10,000 after the private equity firm’s valuation took a hammering.

FTSE 250-listed Bridgepoint, whose portfolio of middle-market investments includes Burger King UK and Hobbycraft, fell 10% as the worst main market performer in Friday’s sell-off.

Bridgepoint’s slide wasn’t helped by broker Peel Hunt ditching its “buy” recommendation and lowering its price target from 340p to 220p in the wake of annual results on Thursday.

The shares closed the week at 193.7p, which compares with near to 211p when non-executive director Cyrus Taraporevala made his post-results purchase worth £126,500.

New York-based Taraporevala is the former chief executive of asset manager State Street Global Advisors and recently joined the board of oil giant Shell.

Bridgepoint shares had been steady after the annual results showed strong returns for fund investors during 2022 despite heightened market uncertainty. Revenues and underlying earnings rose by 13.6% and 23.2% to £307.4 million and £140.3 million respectively, with the company also declaring a 10% higher final dividend of 4p a share for payment on 23 May.

Bridgepoint typically invests in companies valued up to one billion euros (£890 million) and is focused on delivering value through growth rather than leverage.

Chairman William Jackson said: “As entry prices for less mature businesses recalibrate and “tourist” investors disappear, attractive new opportunities are already presenting themselves.”

The 2022 figures met Peel Hunt’s forecasts, but the broker cut estimates for 2023 and 2024 due to cost growth and expectations for lower income from one of the funds. However, the City firm added: “We like Bridgepoint’s business, and the long-term outlook is strong.”

The shares were priced at 350p in the £2.9 billion IPO of July 2021 and topped 500p later that year, but have fallen by more than a third over the past year. Bridgepoint has grown assets under management by 43% to 38 billion euros (£33.6 billion) since the IPO.

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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