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Laird benefits from restructuring

Last updated: 08:00 11 Apr 2015 BST, First published: 07:00 11 Apr 2015 BST

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Equities staged a modest recovery as a dismal US jobs report delayed fears of when the Federal Reserve might raise interest rates, while merger and acquisition activity enhanced sentiment.

Last week’s US employment report showed that just 126,000 jobs were created last month, halting a 12-month run of readings above 200,000 and considerably below the median forecast for a 245,000 reading. The soft data was well-received by financial markets, easing fears of an imminent interest rate hike, although Fed minutes indicated interest rates remain on track to rise later this year. Upcoming reports on employment, economic growth, industrial activity and other indicators will therefore take on greater importance. 

Investors were also encouraged by FedEx’s €4.4 billion acquisition of Dutch rival TNT Express and Royal Dutch Shell’s £47 billion approach for BG Group, marking the first oil super-merger in a decade. Worldwide M&A activity was up 25% in the first three months of 2015, the strongest increase since 2007.

European shares benefited from positive economic data, as the regions service sector purchasing managers’ index rose for a fourth successive month in March and deflation fears eased after producer prices narrowed to 2.8% in February from 3.5%. 

Eurozone sentiment also improved for the sixth straight month in April as investors took heart from the European Central Bank’s bond-buying programme. Sentix research group’s index tracking morale among investors and analysts in the Eurozone climbed to 20.0, its highest level since August 2007. Greece remains a concern amid nagging uncertainty over whether Athens can secure vital financial aid from its creditors, although the International Monetary Fund assured it is willing to be “flexible”.

On a domestic front, growth in Britain’s service sector rose sharply last month, pointing to firmer economic growth in the first three months of 2015. Markit/CIPS services PMI staged its biggest gain in more than a year to hit an eight month high of 58.9 in March from 56.7 in February and ahead of forecasts for a much more modest rise to 57.0. Official first-quarter GDP figures are due out the week before the general election and an acceleration of growth could boost Prime Minister David Cameron’s campaign. 

Technical analysis of the FTSE 100 illustrates the recent strength, continuing the upward trend of higher highs and higher lows. Last month’s peak at 7065 is likely to provide resistance, although the oscillators have slightly further to run before becoming overbought. Support is seen at 6940, 6770 and 6700.

In conclusion, a pick-up in mergers and acquisitions has kept the FTSE near record highs in spite of uncertainty ahead of the British election next month. US interest rates are likely to remain the main focus, so short-term direction is likely to centre on macro-economic data, although the US earnings season kicks off in earnest next week and markets will be watching closely for commentary on the impact of the strong dollar. 

The technology, hardware and equipment sector had a good week, buoyed by surging data consumption on mobile devices and takeover rumours. A related company I have been following is Laird (LON:LRD), the wireless connectivity specialist that also makes the metallic cradle that shields the sensitive parts of mobile phones from heat and interference. 

On 3rd March the FTSE 250-listed maker of smartphone parts reported a rise in profit on higher revenue driven by strong performances in smartphones and wireless network investment. New product launches, such as Apple’s iPhone 6, boosted results in the performance materials division, which is responsible for about two thirds of the company’s profit. 

Net profit for the year ended 31st December 2014 rose 63% to £50.1 million, while revenue increased 5% year over year to £564.9 million. The company makes around 70% of its revenue in dollars, so on a dollar basis revenue was up 11%.

In 2008 Laird suffered as it was over-reliant on one client. Nokia made up 40% of revenue and as their handsets fell out of favour, so did Laird’s share price, losing more than 80% of their value. Even today the shares are a third cheaper than five years ago, despite two years of reorganisation.

Laird launched 24 new products and applications last year, helping it achieve design wins in wireless charging and contactless medical and automotive technology. The antennae, such as the shark-fin shaped devices on cars, now contribute over a third of group profit. 

The company also ramped up research spending by a tenth to £53.4 million last year and capital spending climbed more than three-quarters as it invested in new factories in China, Vietnam, South Korea and the US. The acquisition of a 51% stake in Korean prototype designer and manufacturer Model Solution Co Ltd in April 2014 should also boost revenue growth.

Chief executive David Lockwood said “We have a clear strategy and operate in attractive growth markets. We have started 2015 with good momentum and believe that we are well placed for further growth over the year.”

Laird trades on 16x earnings, a discount to historic metrics and significantly less than the sector average of 29.2x. The shares also offer a growing 3.6% yield and could be a compelling takeover target for many of the larger names in the sector.

 

 

The chart of Laird displays the improving share price with the moving averages providing support. Historic resistance at 332p has since become support, which combined with the rising oscillators indicates there could be further upside to follow.

Laird offers an improving business in a fast-growing sector and I believe the current multiple is too low. At the time of writing the share price is 345.1p and if traders are able to buy the shares marginally lower at 340p, a 3% stop-loss could be employed below support at 329.8p. Near-term targets are seen at 353.6p, 365.5p and 391.0p.

 

This report was written by Mark Allen – Head of Derivatives at SI Capital Stockbrokers. The writer does not hold a position in Laird, but client accounts may. The material in this report has come from SI Capital internal data sources, Simply Charts and Laird’s corporate website.

 

 

 

 

 

 

 

 

 

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