Company bosses took the opportunity to snap up shares at much cheaper prices following publication of annual results, while another bet big on a continued recovery.
Stock markets remain volatile, and speculation about even higher interest rates and possible recession is making investors jumpy. Concerns about corporate earnings also mean that any shift from the consensus view is punished. And that’s what we saw with a couple of well-known companies in recent days.
We found out early last week that Inchcape (LSE:INCH) non-executive director had spent a six-figure sum on stock in the £3 billion car dealer. We then heard that the chairman had dug deep and increased his stake.
The moves came after management announced full-year results that sent the shares sharply lower over just a few trading sessions, down from 867p to below 700p at one point. That’s a decline of 19% and prices not seen in five months.
In its annual results, published on 23 March, the company reported 15% growth in organic revenue in 2022 and a 50% surge in adjusted pre-tax profit to £373 million. Adjusted profit margin rose 100 basis points to 5.1%. Management also said that trading so far in 2023 had been in line with expectations.
But the market was spooked by a reminder of the “changeable economic environment”. A shift in consumer demand could easily put a dent in Inchcape’s numbers, and while the UK has avoided a recession so far, many believe the US will experience a downturn at some point in 2023. If that happens, it’ll be hard for other countries to avoid being sucked in.
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There’s also execution risk regarding the “transformational” acquisition of Derco, which expands Inchcape’s exposure to the Americas.
Management, however, are backing themselves to make it work. A day after the results, non-executive director and former BP finance director Byron Grote spent over £108,000 on 15,000 Inchcape share at 724p. Waiting until last week to make his purchase saved chairman Nigel Stein some money. He coughed up £78,000 for 11,000 shares, but at just 709.5p. A the current price of 771p, Stein is up 9% and bagging a profit of over £6,800.
On results day, Synthomer (LSE:SYNT) shares fell 16%, from 125.4p to 105.7p. There’s been a modest recovery since, but the shares still languish way below the 148p they started 2023 at, and the 336p they changed hands for just 10 months ago.
The first half of 2022 went well, but things became “progressively more challenging” through the second half, as the “macroeconomic cycle turned and reduced end-user demand”.
Earnings before interest, tax, depreciation and amortisation (EBITDA) at the Performance Elastomers business, boosted in 2021 by pandemic-related medical glove demand, slumped 85% to £49.1 million from £320.7 million the year before. That helps explain the halving of group EDITDA profit from £498 million to £249 million.
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Demand for products made by Synthomer’s Adhesive Technologies division had a particularly bad fourth quarter, made worse by reliability and supply chain issues and lower-than-expected capacity. That forced the company to take a £133.7 million write-off.
Everything added together, including the write-off, left Synthomer with a £20.5 million operating loss and deficit of £47.6 million at the pre-tax level.
Analysts at Morgan Stanley expect a drop in consensus EBITDA estimates for 2023 to £180-£200 million, “which would imply little to no recovery in operational profitability beyond self help in the second half.”
But a trio of execs believe the slump in share price is an opportunity to buy cheap. Chief executive Michael Willome spent almost £27,000 on 24,500 shares at 110p each, finance boss Lily Liu snapped up 10,333 shares at 110.53p, and non-executive director Holly Van Deursen bought 20,000 at 110p, taking total spend for the group of £60,000.
While Inchcape and Synthomer battle the bears, IT equipment and solutions provider Computacenter (LSE:CCC) has been through that already and is trying to build on a nascent recovery.
Within hours of last Friday’s annual results, finance director Francis Conophy bought 1,449 Computacenter shares at £20.94 at a cost of £30,342, and his wife Bernadette spent just under £30,000 on 1,425 shares at £20.94.
Profit in 2022 beat City forecasts and chief executive Mike Norris explained that supply constraints have “eased materially” and that the business is now “operating at close to normal market conditions”.
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