Interactive Investor

Shares round-up: mid-cap superstars go higher again

9th September 2020 13:15

Graeme Evans from interactive investor

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Shares in this pair have doubled since their March nadir, but confidence in the City remains high.

Deal-making kept Avon Rubber (LSE:AVON) and Computacenter (LSE:CCC) on the front foot today after a summer in which the highly regarded FTSE 250 stocks have gone from strength to strength.

Shares in both companies have more than doubled since their March lows after proving to investors that they can more than hold their own in the face of Covid-19 uncertainty.

This was evidenced by Computacenter's half-year results, with the IT solutions company reinstating dividend payments through a 22% rise in the interim payment. The award follows a period of exceptional demand in the UK and Germany, leading to an impressive 39% rise in half-year profits to £74.6 million.

As well as home-working trends in the lockdown, corporate and public sector customers have increasingly turned to the company for help at a tricky time for their IT functions. The company, which upgraded its earnings forecasts in July and the start of this month, said full-year profits are unlikely to be less than £180 million, compared with £146.3 million last time.

Computacenter has sought to hammer home its advantage with the proposed £61 million acquisition of Pivot Technology Solutions (TSE:PTG), a Canadian listed company whose customers are large enterprise organisations with particular strength on the US West Coast.

The move will double the group’s presence in the United States and should be high-single digit accretive to next year's earnings per share.

Credit Suisse raised its earnings per share forecasts by 10%, prompting the bank to also lift its target price from 2,350p to 2,561p. The stock was trading at 2,180p today, with disruption to IT spending decisions from a second wave of Covid-19 the main threat to progress.

Investec Securities upped its price target to 2,500p from 1,900p, with the broker's 2020 pre-tax profits forecast now running 20% ahead of pre-pandemic estimates.

Analyst Julian Yates said: “Critical mass in the UK and Germany enabled the group to scale its facilities to meet exceptional client demand and, with lower costs and a more efficient workforce due to early Covid-19 actions, this drives upgrades.”

Investec's new price target is based on a 20 times price/earnings multiple, plus 5% to build in some benefit from the Pivot acquisition.

The deal involving Avon Rubber, whose respiratory and ballistic protection systems are used by the world's militaries and emergency responders, sent its shares up by 5% to 3,900p.

It is buying Ohio-based Team Wendy, which is a leading supplier of helmets and helmet liner and retention systems, for approximately £100 million. The combination will strengthen Avon's existing ties with the US Department of Defense, while also giving its helmet business more scope to lead the development of next generation products.

Management added that the acquisition made “immediate and compelling” use of proceeds from the recent sale of Avon's Rubber's milkrite | InterPuls dairy business, particularly as Team Wendy offers higher growth and margins than seen for the dairy business. The deal still requires the approval of Avon shareholders and US regulators.

A trading update from Avon Rubber added that demand for its products remained robust, particularly among First Responders across the respiratory protection range.

Avon Rubber is now worth more than £1 billion, having seen shares hit a record high of 3,920p at the end of last month. They trade on 37.8 times the forecast September 2020 earnings.

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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