Nick Train will have welcomed Diageo’s share price rise, as it is a favoured holding.
Diageo (LSE:DGE) and Spirax-Sarco Engineering (LSE:SPX) were at the forefront of a recovery for the FTSE 100 index today as investors ventured back into markets after yesterday's inflation-led storms.
The pair's shares were 3% higher as Diageo signalled the restart of share buy-backs or special dividend payments and the highly-regarded thermal energy specialist offered reassurance that it continues to trade well.
They were joined on the FTSE 100 risers board by miners including Rio Tinto as some of the inflation fears that had sent the top flight some 2.5% lower showed signs of abating.
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The mood was helped by reassuring comments from US Federal Reserve officials pointing out that the inflationary pressure fuelling worries of higher interest rates should only be transitory.
The FTSE 100 index was back near the 7,000 threshold, with Amazon and Tesla backer Scottish Mortgage Investment Trust among others putting back a chunk of Tuesday's losses.
Diageo's rise of 112p to 3,302p will be welcomed by fund manager Nick Train as the Guinness drinks giant is one of the stocks in his Finsbury Growth & Income trust, which has just reported an underwhelming performance for the six months to 31 March.
Train's mood will have been lifted by Diageo forecasting operating profit growth of at least 14% in the June financial year, driven by a particularly strong performance in its largest market of North America. It also continues to see strong off-trade sales in Europe at a time when most pubs and restaurants are still subject to Covid-19 restrictions.
The improved trading conditions mean Diageo is ready to resume the return of £4.5 billion to shareholders, a process it started in July 2019 but had to put on hold due to the pandemic with only a third of the programme completed.
Chief executive Ivan Menezes said: “When we have excess cash, we have been clear that we will seek to return it to shareholders. The board’s decision to resume our return of capital programme at this time reflects Diageo’s improved performance.”
He said it also showed confidence that Diageo will be back within the top end of its target debt ratio by next year 2022. The company joins several other FTSE 100 stocks looking to buy back their shares as conditions improve, including oil giant BP.
Spirax-Sarco, meanwhile, continues to provide some shelter for investors after its latest update revealed stronger than expected trading so far in 2021. Its Fluid technology business Watson-Marlow has been at the forefront of the improvement as it continues to play a vital role in supporting Covid-19 vaccine development and production.
The Cheltenham-based company's steam systems are also used to heat hospitals, produce food on an industrial scale or sterilise pharmaceutical equipment.
The company is now worth more than £8.7 billion after rising another 370p to 11,925p today.
While the stock is not cheap based on an enterprise value multiple of 23 times 2022 earnings, JP Morgan Cazenove sees the company as a core holding in European capital goods.
The bank added today: “Spirax looks set to deliver both top-tier resilience in the downcycle and top-tier growth in the upcycle, a remarkable performance that justifies the premium rating.”
Spirax was founded in 1888 and is famed for its role in supporting the World War Two effort. It listed on the London stock market in 1959 and became large enough for a place in the FTSE 100 index in 2018.
The company recently increased its dividend by 7% and said it was well-placed for this year as industrial production recovers.
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