Industrials

Report by Iron Blue Financials

SPX’s Iron Blue score increases by +5 y/y to 21/60. This reflects: 1) A decade high (10% PBT adj) in stripped out one-off costs. 2) Balance sheet contract assets rising to £12m from £3m. 3) PPE capex exceeding depreciation by 19% PBT adj, a decade high. 4) Lengthened expected life for plant and machinery (from 8-10 years to 10-15, above Capital Goods peers). 5) Likely higher net finance charge post €225m debt refinancing (Sep 23). 6) Additional accounting policies disclosure highlighting management discretion when accounting for cost of inventories. 7) Bad debtor provisioning at a decade low but debtors overdue by >90 days and not provisioned up to 9% of receivables (2021: 5%, 2020: 3%).

Report by Willis Welby

One easy response for equity investors faced with such a radical change in the backdrop for equity pricing this year is to assume that growth stocks can get further derated. Willis Welby, who use expectations analysis to help decode share prices, differentiates between duration stocks which require a transformation in business models and growth stocks which do not. They draw particular attention to IHG, Burberry, Compass, Sage, Auto Trader and Experian. Notable absentees from their analysis are the industrial fan club stocks of Croda, Halma and Spirax which did not make their consensus Y3 revenue growth criteria.

Report by Willis Welby

Despite Croda, Halma and Spirax having seen 40%+ share price falls YTD, Willis Welby, who specialise in expectations analysis, still struggle to make sense of the share prices. Their caution is compounded when they consider what is available elsewhere. The UK market is not renowned for its growth names, but that does not mean there are none. They see Rightmove, Auto Trader, Softcat and Experian as looking particularly attractive.