Interactive Investor

Insider: two small-caps attract buyers after poor year

30th January 2023 08:04

Graeme Evans from interactive investor

It’s not been a great 12 months for either of these companies, but our City writer reports good reasons why directors have been picking up stock.

Another £100,000 of Boot (Henry) (LSE:BOOT) shares have been bought as the chief executive and his family continue a run of six figure investments in the property and construction firm.

Thursday’s dealings were the sixth to be disclosed by Tim Roberts since he took the helm of the Sheffield-based FTSE All-Share firm in January 2020.

This latest purchase by Roberts’ wife Sarah was among the lowest priced of the six at 237.9p, having fallen in the wake of Tuesday’s modest downgrade to 2022 profits guidance.

The setback to City forecasts was blamed on the year-end valuation movement in the company’s investment portfolio, which offset the best year ever at an underlying profit level.

Former British Land director Roberts expects this year will be more challenging but remains upbeat on medium-term prospects and on delivering strategic objectives set in early 2021.

With six divisions focused on industrial and logistics, residential and urban development, the company is looking to grow its return on capital to 10-15% compared with 9.6% in 2021.

The group, which has been operating for over 135 years, has been boosted by a strong performance for its strategic land and planning promotion division Hallam Land Management.  It exceeded its 2022 goal of selling 3,500 plots thanks to disposals made to Taylor Wimpey and Persimmon Homes at a major scheme in Didcot.

The division also sourced new opportunities to grow its land bank by securing 21 sites with the potential to deliver about 6,900 plots. The total land portfolio has increased to 95,407 plots, of which 9,325 plots have planning persimmon.

The Henry Boot Developments division completed schemes with a value of £117 million, of which 92% have been pre-let or pre-sold. Yorkshire-based Stonebridge Homes achieved 175 completions in the year, with better selling prices offsetting a small volume miss.

Its 30-year contract with Highways England to operate and maintain the A69 trunk road between Carlisle and Newcastle also benefited from higher shadow toll payments that reflect increased usage and inflation.

More details on the group’s performance will be given with full-year results on 21 March, but in the meantime analysts at Peel Hunt said it was prudent to reduce its profits estimates for the current financial year and for 2024 by 24% and 19% respectively.

It also lowered its share price target from 390p to 295p.

The broker said: “The uncertain macro conditions have clearly created a much tougher trading backdrop for Henry Boot, but the group’s longer-term fundamentals are unchanged. The business has a strong record of value creation, diversified revenue stream and structural tailwinds.”

In April’s annual report, the company said it had a “great track record” of creating shareholder value after reporting a total return of 12% a year across 20 years that was significantly ahead of the FTSE All-Share index at 5.7%. It trades with a forecast dividend yield of 2.7%, having grown last year’s pay out by 10% to 6.05p.

With gearing at the bottom end of its targeted range, the company said last week it expected to continue to invest this year in growing the business in line with its strategic objectives.

The shares, which were 345p in June, closed last week at 239p for a market capitalisation of around £300 million. The previous purchases by Roberts and his family took place at prices between 235p and 278p.

Betting on this cyclical business

The top two directors at Staffline Group (LSE:STAF) have spent £33,000 on shares after the blue-collar recruitment firm they joined in 2020 exceeded profit and cash flow expectations.

Chief executive Albert Ellis and finance boss Daniel Quint made their latest purchases at near to 33p, a level that compares with the 50p seen at the time of May 2021’s £44 million City fundraising and March’s level of 64p.

The AIM-listed shares have slid on the back of economic uncertainty, but the company continues to show operational momentum following a major restructuring. It currently supplies about 37,000 staff per day on average to around 450 client sites, with the business in Ireland providing some 5,000 workers a day.

Recent client wins included BMW as revenues in 2022 rose by 0.4% to £946.8 million and underlying operating profit improved 12.6% to £11.6 million. The balance sheet strengthened despite the repayment of £12 million of Covid-related government support.

However, the trading update also revealed the Nottingham-based company is taking a cautious approach on its guidance for 2023.

It said: “While we expect to grow market share in the competitive temporary labour market, the Recruitment divisions will not be immune to the broader short term market challenges, where data is showing that demand for permanent recruitment is weakening.”

Broker Liberum cut its target price from 100p to 60p but regards a multiple of 10.6 times 2023 earnings as attractive given the company’s growth potential.

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