Telecoms and aviation sectors are starting to pick up from Covid-19 lows, while Robert Walters reinstates its dividend.
The approach for TalkTalk (LSE:TALK) by Toscafund adds weight to the view we reported yesterday that Vodafone and others are undervalued after a dreadful year for the sector.
The positive spin for investors didn't stop there, however, as Robert Walters reinstated its dividend on the back of some early signs of improvement in recruitment activity.
Several other trading updates were encouraging, with shares in Electrocomponents (LSE:ECM) up 3% to near multi-year highs after the FTSE 250 stalwart reported improved revenue trends. FTSE All-Share stock Motorpoint (LSE:MOTR) also disclosed stronger-than-expected demand for nearly-new cars.
The recovery for Rolls shares still has a long way to go, having fallen to a 17-year low of just above 100p after its £5 billion fundraising plan included a discounted £2 billion rights issue.
But airline industry hopes that testing for Covid-19 can soon begin at Heathrow has encouraged bargain hunters into the aviation sector, meaning Rolls is trading at almost 200p after today's 40p rise.
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British Airways owner International Consolidated Airlines Group (LSE:IAG) was among other beneficiaries of the shift towards value after rising by more than 10% to 107.8p.
The approach by Tosca, which is already a major shareholder in TalkTalk, values the company at 97p a share. That is a sufficient price for the FTSE 250 index company to take the interest further, although a current price of about 100p suggests the City thinks there's more to go for.
The stock had been as low as 70p in July, despite a turnaround under CEO Tristia Harrison that has made the value-focused provider better equipped to cope with Covid-19 disruption.
She is three years into that strategy, which has focused TalkTalk on higher bandwidth part-fibre and full fibre broadband as legacy copper infrastructure becomes unfit for purpose and consumers demand higher speed and more resilient internet.
Charles Dunstone still owns 29% of TalkTalk, having created the business in 2002 before returning in 2018 as its executive chairman in a bid to revive its struggling fortunes. Tosca has told TalkTalk that one of its pre-deal conditions is the support of Dunstone.
As we noted yesterday, working from home trends have so far failed to benefit telecom valuations in the way that they have done in the tech sector. This is despite a resilient business model, in the case of Vodafone, and the industry benefit of increased data traffic.
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Deutsche Bank thinks that Vodafone's valuation is sharply out of kilter with fundamentals and that shares should be trading at 230p rather than just 12% above their March low.
The recruitment sector is often the first to reveal changing economic trends, which is why today's update from Robert Walters is significant. While the company reported a 30% fall in quarterly net fee income, with the UK division off 35% at £16 million, it said some of its forward-looking indicators were starting to look more encouraging.
This is particularly the case in the Asia Pacific region, which was the first region to be hit by the pandemic at the start of the year. Pockets of demand also exist across a number of specialist disciplines, including technology, digital, e-commerce, fintech, cyber-security and healthcare.
This has prompted CEO Robert Walters to end a reduced working hours scheme for all employees and to reinstate the interim dividend with an unchanged payment to shareholders of 4.5p per share on 6 November. He added:
“I remain confident that the group will emerge from this Covid-impacted period stronger than ever with increased market share.”
Shares jumped 31p to 384p after the dividend reinstatement and the company's guidance that it has been trading in line with City expectations for the full year. Fellow recruitment firms PageGroup and Hays were up 3% to 403p and 1% to 116.4p respectively.
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