This company has had a rough ride, but the shares have bounced off their lowest since the end of 2020. The boss is confident this is bargain territory. Elsewhere, a £1m sale sunk this FTSE 250 firm.
A FTSE 100 boss has spent £125,000 on another big insider purchase of shares after his company revealed softer trading in the face of economic headwinds.
RS Group (LSE:RS1) chief executive Simon Pryce, who took the top job in April after six years as a non-executive director of the former Electrocomponents business, made his latest investment with shares not far from their lowest level in three years.
The more challenging environment and destocking in the electronics segment following last year’s supply chain crisis left like-for-like (LFL) revenues 7% lower in the first quarter.
Pryce said the figure was marginally short of expectations but reiterated his confidence in the company’s strategy and scale of opportunity as he positions RS to achieve “long-term and through-cycle value creation for our stakeholders”.
The former Ultra Electronics and BBA Aviation chief executive backed up those comments later on Thursday by dipping into the market to buy a further 16,400 RS shares at 759.9p, adding to the £250,000 spent in May and £235,000 in March.
The shares closed last week at 779.4p, which compares with 1,255p seen in November 2021. Pryce’s confidence in the potential upside for shares is backed up in the City, where analysts note that a forward price/earnings multiple of 13 times compares with the five-year historic average closer to 18 times.
Numis Securities, for example, has a target price of 1,300p having left its forecasts unchanged in the wake of the trading update. Looking beyond the tough short-term conditions, it expects RS to harness the benefits of scale, customer service and omni-channel presence to grow its share of a structurally growing market.
RS is one of only a few global distributors of maintenance, repair and operations (MRO) products and solutions. Despite the sector’s vast size, much of the market is still local and many of the company’s competitors are independent businesses and regional firms specialising in a narrow product offering with less developed digital capabilities.
FTSE 100-listed RS has operations in 31 countries with 8,700 employees connecting 1.1 million customers and over 2,500 suppliers. Industrial product lines account for 78% of its business, with group-wide revenues for the last year up 17% to £2.98 billion and adjusted earnings 16% higher at 63.6p per share. The total dividend of 20.9p was 16% higher.
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So far in the new financial year the divisions of Europe, Middle East and Africa and the Americas have been marginally weaker than expected, falling 3% and 13% respectively.
Numis added: “We would expect the equity market to continue to wait for greater confidence in a LFL revenue inflection before re-rating the shares but see significant upside when that materialises.”
Analysts at HSBC and Jefferies both sit at 975p, with the latter reassured that destocking and deflation trends remain confined to electronics and had not impacted industrials.
Peel Hunt, which has a price target of 1,000p, said it had been a satisfactory start to the year and that “the business is robust”.
The broker also welcomed the end of leadership uncertainty after Pryce’s switch to the £750,000-a-year CEO’s post was followed by last week’s appointment of former Centrica executive Kate Ringrose as new chief financial officer.
Mid-cap share unsettled by director selling
The £1 million sale of QinetiQ Group (LSE:QQ.) shares by boss Steve Wadey drew a strong response from investors in the FTSE 250 index on Friday.
In a stock market disclosure made after Thursday’s closing bell, Qinetiq said that Wadey sold his shares in two tranches at prices of around 345p.
The stock closed the week at 321.6p having fallen by 7% or 22.6p as Friday’s second worst performing company in the FTSE 250.
Wadey, who has run the defence and security technology business since 2015, continues to have a shareholding well in excess of the company’s requirement for a stake equivalent to at least 300% of his £664,000 base salary.
Friday’s selling returns Qinetiq shares to where they were in late March, having rallied as far as 379p in May.
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Earlier this month, Wadey reported a positive start to the new financial year as visibility on revenues under contract increased to £1.3 billion from £1.1 billion in April.
He recently upped the strategic ambition of the company by targeting high single digit organic revenue growth. With the support of further strategic acquisitions, this should result in sales and profits approximately doubling over the next four years.
The opportunities for Qinetiq in the current heightened threat environment were highlighted recently by the UK's Defence Command Paper, which identified the need for significant investment in technologies to deliver mission critical advantage.
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