Shares round-up: Spirent Communications, Marshalls

Examining two FTSE 250 stocks with a spring in their step today.

A special dividend at Spirent Communications (LSE:SPT) and surge in domestic demand at landscaping firm Marshalls (LSE:MSLH) helped put the fizz back into their FTSE 250 share prices today.

The pair were up more than 7% in a session when the second-tier’s exposure to the UK economic recovery enabled the FTSE 250 to outperform London’s top-flight index.

The rally by Marshalls came after it reported a record start to 2021 as homeowners continued to use the money saved during the pandemic to improve their outside spaces.

In January and February, sales were up 7% and orders ahead by 12% compared to a year earlier as chief executive Martyn Coffey upgraded forecasts for results this year.

The company, which has paved landmarks including London’s Trafalgar Square and is currently working on Crossrail and Oxford Street’s part-pedestrianisation, has signalled further positive trends as more than half the installers on its books have record order backlogs.

Having repaid all the government support received during the pandemic last year, Marshalls reinstated its dividend with the award of 4.3p a share for payment on 1 July. The figure is in line with its policy of two-times cover after earnings per share came in at 8.6p for last year.

Profits were still 68% lower, at £22.5 million, after a year of pandemic disruption, but Peel Hunt said the performance tallies with expectations due to a strong second half recovery. The broker raised its price target to 765p, which is close to today’s level after jumping 55p to 753p.

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The shares had been at 519.5p in April, recovering to 803p in the wake of vaccine breakthroughs before a more uncertain performance over recent weeks.

Despite the economic clouds, Coffey is encouraged by the indicators in growth markets that include new build housing and road and rail. He added: “Our strategy continues to be underpinned by strong market positions, focused investment plans and an established brand.”

Spirent’s shares have followed a similar pattern after a strong autumn performance was offset by an indifferent start to 2021. This is despite order book optimism as Spirent helps more telecoms firms to develop, deploy and secure 5G infrastructure and network equipment.

It has increased its research and development spending to take advantage, but is also boosting returns to shareholders after a year in which it achieved a material increase in earnings and cash.

The special dividend of $0.075 (£0.053) a share is worth $45 million and is due to be paid on 30 April, alongside a final dividend 12.2% higher than a year ago at $0.0387.

Analysts at Jefferies said its forecasts were underpinned by the special dividend and scope for further mergers and acquisitions after this month’s acquisition of US-based wi-fi testing firm octoScope.

Spirent trades on 20 times 2022 forecast earnings, but Jefferies thinks there’s the potential for its shares to reach 330p. In August, the FTSE 250 firm briefly touched 300p for the first time since the dotcom crash, having doubled in just over a year.

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The company was 17.5p higher at 255p after today’s results as CEO Eric Updyke forecast “sustainable, profitable growth in 2021 and beyond”.

As well as helping to prepare customers for standalone 5G and the “future data tsunami”, wi-fi’s increasing importance during the pandemic and roll-out of global wi‐fi 6 standards have further boosted demand for the company’s testing solutions and services.

This prompted the recent $55 million deal to buy optoScope, which establishes Spirent as the market leader in wi-fi testing.

Spirent dates back to 1936 and is best known for its rapid ascent into the FTSE 100 index during the dotcom era, when shares peaked at more than 1,000p in February 2000.

The subsequent crash sent shares as low as 15.5p, prompting the company to embark on a painful restructuring involving the divestment of non-core operations. Its three remaining divisions now serve more than 1,100 customers in more than 50 countries.