Interactive Investor

Shares round-up: three FTSE 100 stocks with optimism

2nd March 2021 14:10

Graeme Evans from interactive investor

Intertek, Croda and Ashtead are set for a rosy 2021 as the pandemic abates.

A trio of FTSE 100 index stocks are looking to 2021 with increased optimism after their latest results highlighted some favourable trends arising out of the Covid-19 pandemic.

They include testing and quality assurance firm Intertek (LSE:ITRK) as it helps more companies to achieve safer and more diversified supply chains with greater traceability. It also looks well placed to benefit from the surge in remote working, distance learning and online shopping, all of which require the adoption of quality assurance standards.

Intertek said: “Society has changed. We are in the new normal and observing trends and behaviours and demand for products and services that didn't exist prior to the pandemic.”

Shares rose 2% to 5,566p after todays full-year results, but analysts at Jefferies have a price target of 7,000p, representing an upside of more than 25% and a significant jump on the all-time high of 6,334p seen in September.

Factory closures caused by Covid-19 brought some disruption to the company in 2020, but recent trading has partially offset this after second-half earnings beat City expectations by 10% thanks to a record operating margin of 18.4%.

Interteks strong balance sheet and sharp reduction in net debt to £419.9 million has allowed the company to maintain its full-year dividend at 105.8p a share for payment on 18 June. Intertek previously ranked as the FTSE’s leading company in terms of dividend progression between 2003 and 2019, with a compound annual growth rate of 17%.

The outlook at speciality chemicals manufacturer Croda International (LSE:CRDA) has been boosted by its role in the Pfizer-BioNTech vaccine, a development described by chief executive Steve Foots as his proudest moment in 30 years with the East Yorkshire-based company.

While Croda is best known for providing the ingredients used in personal care products, it also has a fast-growing life sciences business with a 20-year track record in developing technologies for drug delivery systems in the pharmaceutical industry.

This led to it working with US-based Avanti — a company subsequently acquired by Croda in August — to supply novel excipients used in the manufacture of the Covid-19 vaccine. Its five-year contract to supply lipid components is now expected to lead to $125 million (£89.6 million) of sales for Croda in 2021 rather than the $100 million originally forecast.

Croda said the vaccine signalled the potential for further growth well beyond Covid-19 in terms of the prevention of other infectious diseases or for treatments including cancer.

The record year in life sciences today enabled Croda to report a 2% rise in 2020 sales, although adjusted profits were 6.7% lower at £300.6 million as Covid-19 lockdowns meant reduced consumer demand for beauty products.

The ongoing restrictions make predicting the outlook in consumer care sector difficult, but Croda said the Pfizer vaccine, Avanti acquisition and the recent purchase of Spanish fragrances business Iberchem should support profitable growth.

Its confidence is underlined by the decision to increase the full-year dividend payment on 4 June by a penny to 91p a share. The blue-chip stock today rose 64p to 6,368p.

Elsewhere in the FTSE 100 index, Sunbelt plant hire business Ashtead (LSE:AHT) is looking to 2021 with increasing confidence after seeing a pick-up in activity as the economic rebound takes shape.

Its profits are ahead of City expectations for the year to the end of April, with revenues now set to be 4% lower compared with previous guidance for up to 7% lower.

Hiring rates for its fleet have returned to the same level as the year before in the United States and are higher in the UK, where trading has been boosted by work for the NHS.

Profits across the group were 10% lower, at £225 million in the quarter to 31 January, based on rental revenues only slightly lower at £1.1 billion. Chief executive Brendan Horgan also signalled capital expenditure of between £1.3 billion and £1.5 billion for the next financial year, which should enable mid-single digit revenues growth in the US.

Shares fell back 34p to 3,985p after a recent strong run, but analysts at Jefferies have a price target of 4,400p.

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