Interactive Investor

Insider: this firm’s leadership bets big on recovery

22nd March 2021 08:29

Graeme Evans from interactive investor


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This former high-flying mid-cap share was hit hard by Covid. Those in the know see better times ahead.

The recovery path for aerospace engineer Senior (LSE:SNR), after a year disrupted by Covid-19 and the grounding of the Boeing 737 Max, has been given £233,000 of backing by management.

Former BAE Systems (LSE:BA.) chief executive Ian King, who has been chairman of Senior since 2018, led the way by purchasing 100,000 shares in the FTSE All-Share company at 117.8p on Wednesday.

He also bought shares last June and again in August, when the price was as low as 48p after Senior's half-year results highlighted the “profound effect” of the pandemic on its markets.

About 40% of the group's business comes from civil aerospace, with Senior's components used in everything from air duct systems to precision sheet metal fabrications.

Sales in the civil sector fell 50% last year. That was only partly offset by 6.5% growth in defence following robust demand in key programmes such as for the F-35 fighter jet and the USAF T-7A Red Hawk.

Senior has also felt the impact of the entire 737 Max fleet being grounded in the wake of two accidents. It is now back in service, with Boeing delivering 27 new aircraft in December.

While there's inventory in the supply chain still to be utilised, as well as an order backlog of 3,200 aircraft, Senior expects the 737 Max programme to be successful in the medium term.

How things will change for Senior in 2021

For now, chief executive David Squires is predicting that this year will be just as challenging for Senior's aerospace arm, based on the current customer-announced production rates and the likelihood that it may take several years for air traffic to return to 2019 levels.

Squires believes that the lower operating cost and better sustainability of newer aircraft, on which Senior has significant input, will be a necessity for the airline industry.

He also anticipates a shift towards single-aisle airframes, with Senior well positioned to take advantage as it already has its components on both Boeing and Airbus programmes.

Squires, who has been chief executive since 2015, bought £65,000 worth of shares last week at 117.8p. He was joined by finance director Bindi Foyle who bought £45,770.

Analysts at Jefferies think the shares have the potential to be trading at 130p after they increased their price target from 115p in the wake of this month's better-than-expected annual results. Year-end net debt of £205.9 million was slightly better than hoped and was accompanied by a strong working capital performance.

Jefferies said: “The group's longer-term outlook remains positive, given the recovery potential across its end markets and scope for further market share gains. Management is positioning the business well in order to respond to evolution in its key end markets.”

Prior to the pandemic, the shares were trading in the FTSE 250 index at a price of 180p but had been as high as 317p in 2018. They are now trading on 15.5 times 2023 earnings, a multiple Jefferies said did not fully capture the “considerable recovery potential”.

Intertek: buying exposure to pandemic-related opportunities

The boss of FTSE 100-listed Intertek (LSE:ITRK) has spent more than £500,000 topping up his stake in the testing and quality assurance firm.

Intertek shares hit a record high of 6,440p in early October but have lost momentum since then, enabling chief executive Andre Lacroix to buy shares at 5,367p.

The purchase backed up his positivity in this month's annual results, when 130-year-old Intertek produced a better-than-expected second half performance, and also highlighted some favourable trends arising out of Covid-19.

These pandemic-related opportunities include remote working, distance learning and online shopping, all of which require the adoption of quality assurance standards.

Intertek said: “Society has changed. We are in the new normal and observing trends and behaviours and demand for products and services that didn't exist prior to the pandemic.”

The company has maintained its full-year dividend at 105.9p a share, having previously ranked as the FTSE’s leading company in terms of dividend progression between its IPO in 2002 and 2019, with a compound annual growth rate of 17%.

Analysts at Jefferies value the business on 28 times 2022 earnings, resulting in their 7,000p price target. Goldman Sachs also raised Intertek to 6,670p earlier this month, from 6,530p.

Lacroix, who became chief executive in May 2015 after previously running car dealership Inchcape for 10 years, now has 442,535 Intertek shares, a 0.3% 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.

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