The world of industrial kit capital spend has been a tough space to be in for a couple of years now and future signposts are far from encouraging. So it comes as little surprise that Spectris (SXS) is having to moderate full year to December guidance, again. A third quarter trading update today spells out that weak trading has leaked from the first half into the second, with mining and academic research investment enduring the biggest squeeze.
'The board now expects that earnings before interest, tax and amortisation (EBITA) performance for the full year will be modestly below the current consensus.' That consensus was for £200 million based on a £188 million to £211 million range.
So why the shares rallying today would is a reasonable question. The answer, by and large, is that things could have been so much worse. In the April to June second quarter the company under-performed expectations by 16%, according to Investec's calculations, the broker calling today's downgrade 'a trim of, say 5%.'
At midday the shares are charging more than 5.5% higher to £17.38. Putting this into context, Spectris shares have have been a one-way ticket down this year, falling from £25.61 on 1 January. The stock had plunged from £19.99 to £16.45, as of yesterday's close, a 17.7% slump that reflects more than their fair share of the recent market sell-off.
'Although 2014 is not yet done and dusted and the outlook for 2015 is patchy, we consider that our estimates already reflect much of the risk,' claims Investec.
'The shares are trading on 13.5-times 2014 earnings, falling to 12.8-times in 2015,' point out analysts at Numis. 'We believe this multiple level represents difficult trading conditions this year but may offer
value as conditions start to improve moving into 2015.'
Still, let's not get carried away, N+1 Singer fears the downgrade cycle may not yet have peaked for Spectris, saying 'we continue to view 2014 as not its year.' Too many of its end markets remain weak, which has been compounded by currency headwinds, the broker adds. 'Given the group’s weighting of sales and profits to the fourth quarter, the risk of a further forecast miss remains,' N+1 Singer says. 'We see better prospects elsewhere in the sector.'
Investors will have to decide for themselves.