Top UK Stocks: Wood Group shares fall as pandemic weighs on results

Wood Group says momentum is building, JPMorgan American Investment Trust outperforms its benchmark as markets find higher ground, Spectris shares climb to fresh highs after latest asset sale, and CPP Group confident it can meet expectations this year.

UK

Top News: Wood Group expecting to return to growth in second half

John Wood Group narrowly missed expectations during the first half as the coronavirus crisis continues to cause problems for the business, but said momentum is improving as its order book grew and margins improved.

Revenue was down 22.9% year-on-year in the first half at $3.15 billion as the pandemic continued to weigh on its business and it lost income from some units that it has sold-off. That was slightly below market expectations. However, the company said it saw momentum improve in the second quarter compared to the first, especially for its Consulting and Operations divisions.

A slightly better margin of 8.3% versus 7.5% last year was not enough to offset the fall at the topline, resulting in a 14.1% decline in adjusted Ebitda to $262 million. Wood Group remained in the red at the bottom-line with a loss of $11 million, which was level with what was delivered last year.

Wood Group shares were trading down 4.7% in early trade this morning.

Wood Group ended the period with an order book of $7.7 billion, up some 18% since the end of 2020. That benefited from $3.2 billion worth of orders coming in over the first half. Notably, it is securing work faster than it can deliver it considering it plans to deliver around $3.0 billion worth of work in the second half.

‘The first half of 2021 reflects improving momentum in activity in Q2 and a strong margin improvement, with increased margins in all business units and a greater weighting of high margin Consulting activity. Trading momentum and good growth in our order book, which is up 18% year-to-date, underpin our confidence in delivering a stronger second half which will reflect a return to growth compared to both H1 2021 and H2 2020, and further growth in our full year adjusted Ebitda margin,’ said chief executive Robin Watson.

Wood Group said it expects annual revenue to come in between $6.6 to $6.8 billion and a margin of 8.7% to 8.9% as it expects an improvement in the second half. That would compare to the $7.6 billion in revenue and 8.3% margin delivered in 2020 and $9.9 billion and 8.6% in 2019 before the pandemic hit.

Where next for the Wood Group share price?

Wood Group share price has been trending lower since the start of the year before rebounding off a yearly low of 200 at the end of July.  

It trades below the multi-month descending trendline and below its 100 sma on the daily chart, although had managed to push above the 50 sma which is now offering support. 

The bearish crossover on the MACD is supportive of further downside. Any move lower would need to break below the 50 sma at 220p, opening the door to retest 200p.  

On the flip side, should the 50 sma hold then immediate resistance can be seen at 239p the August high and 100 sma, a move above this level could see buyers gain traction. Beyond here resistance at 250p the descending trendline support could come into play. 

JPMorgan American Investment Trust outperforms benchmark

JPMorgan American Investment Trust said it outperformed the S&P 500 in the first half of 2021 and said there is little evidence that the recovery in the US will be derailed going forward despite the Delta variant, unemployment levels, inflation and the Federal Reserve all having the potential to shake-up investor sentiment.

The trust delivered net asset value total return of 15.4% in the six months to June, beating the 13.9% return delivered by its benchmark, the S&P 500, in the period.

It booked a £177.4 million gain on investment during the half, up from £29.8 million the year before. That delivered a net return per share of 91.77p compared to just 13.78p a year earlier.

The trust said it is still cautiously watching dividends amid the uncertainty posed by the pandemic, but said it is aiming to make a total payout for 2021 of 6.75p. It declared a 2.5p interim payout this morning.

JPMorgan American Investment Trust said its overweight positions in the financial sector allowed it to benefit from the recovery in the likes of Capital One Financial and Bank of America, which both bounced back during the period and benefited from sentiment that interest rates could rise sooner rather than later.

In energy, its ownership of Marathon Petroleum allowed it to benefit from the rise in oil prices in the period as the global economy reopened, although it said it has since replaced the stock with an investment in Raytheon Technologies.

It was disappointed by the underperformance of stocks like Qualcomm and Mastercard, while its exposure to Discovery Communications was one of its largest detractors in the period.

Elsewhere in the portfolio, the trust said it exited its position in Tesla and is using the proceeds to build a position in Facebook, which it said has a ‘better risk/reward profile’. It has also added agricultural and construction equipment maker Deere & Co to its portfolio.

‘After the strong start to 2021 the US stock market appears to be entering a period of consolidation and potentially higher volatility as the 'debate' about the strength of the economic recovery, the persistence of heightened inflation, and the evolution of the Delta virus weigh upon investors' thinking,’ said chairman Kevin Carter.

‘It seems likely that there will be further periods of alternating relative strength between growth and value stocks. Fortunately the company's investment policy has explicit exposure to both of these investing styles and the managers will be able to continue their focus of bottom up stock picking in this environment without undue concern about these style rotations,’ he added.

JPMorgan American Investment Trust shares were down 0.1% in early trade this morning at 688.0p.

Spectris shares climb to new highs after latest asset sale

Spectris said it has agreed to sell NDC Technologies for £130 million to Nordson Corp, marking the final sale of its divestment programme.

Spectris shares were up 0.5% this morning at 3887.5p, having hit a new all-time high in earlier trade.

Spectris identified five units back in 2019 that it wanted to sell in order to streamline the business, optimise its strategy and deliver profitable growth, and NDC is the fifth business to have now been sold. NDC is part of the industrial solutions division and creates a range of process measurement and control instrumentation tools to sectors such as food, tobacco, cable, tubing and energy storage.

‘I am pleased with the value that this programme has delivered for our shareholders. Additionally, with this portfolio optimisation programme completed, Spectris is now a less complex and more focused business and the retained businesses within our portfolio are aligned to key end markets with attractive growth trajectories. This positions us well to continue to deliver long-term value for our stakeholders,’ said chief executive Andrew Heath.

The business delivered £9.7 million in Ebitda and £7.2 million in operating profit during 2020.

Spectris said the deal should be completed sometime in the fourth quarter of this year. The proceeds will be put towards strengthening the balance sheet.

The completion of the asset sales is the main driver behind a shift to an asset-light model, which should help it deliver its goal to report 10% to 11% like-for-like sales growth in 2021 after the company reported mild topline growth and returned to profit in the first half.

CPP Group to hit expectations in 2021 as confidence increases

CPP Group said it was growing increasingly confident about its prospects after reporting strong growth in revenue and customer numbers during the first half, although it revealed it remained in the red and admitted uncertainty remains a consideration in some of its key markets.

The company, which provides a variety of insurance and financial services such as mobile phone protection and travel cover to help other businesses bolster their offerings, said revenue from continuing operations rose 10% in the first half of 2021 to £66.4 million.

Customer numbers grew to 12.3 million by the end of the period from 11.8 million at the end of 2020 and 10.8 million at the end of June 2020.

Ebitda was up 37% to £2.6 million and its underlying pretax profit inched-up to £800,000 from £600,000. However, it turned to a £700,000 pretax loss at the bottom-line from a £500,000 profit the year before.

‘The first half of 2021 was a similar story to that of 2020, with a strong first quarter tempered by the negative effects of COVID-19 in the second, particularly in our main market of India. Nonetheless, we have adapted well across our markets and delivered a solid overall performance on the corresponding period last year while making progress in restructuring elements of the group to further strengthen its position for long-term, sustainable and profitable growth,’ said chief executive Jason Walsh.

CPP Group said it released new products such as its home emergency products range to help meet the changing needs of customers, while also building the number of partners it has through ClearScore in the UK. It has also continued to integrate Blink into its platform in order to bolster its position in the parametric insurance market. Meanwhile, it sold off its German card protection business, closed its operations in Malaysia and restructured its Mexican unit.

India is CPP’s key market and a progressive recovery has gained pace since coronavirus restrictions started to ease, although CPP said it was aware that the situation remains uncertain going forward. Elsewhere, it said its performance in Turkey has been pleasing but said the devaluation of the lira has hurt the segment’s results.

CPP is to pay a dividend of 5p per share for the first half, having reinstated payouts when it released its last set of annual results.

‘We remain focused on growing our offering through innovation and strengthening our routes to market while continuing to drive efficiencies across the group. Whilst uncertainty remains from COVID-19, the board believes the company is trading broadly in line with market expectations for the full year with the outlook being positive for the remainder of the year,’ said Walsh.

CPP Group shares were trading broadly flat this morning at 451.0p.

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