48 Thursday January 13 2022 | the times
BusinessMarkets
news in brief
Sorrell in US data deal
The advertising group founded by
Sir Martin Sorrell , 76, the
marketing tycoon, has raised its
full-year guidance and acquired
an American data analytics
company. S4 Capital has merged
4 Mile Analytics with its own
Media.Monks business. 4 Mile
Analytics generated revenues of
about $6.5 million last year. In a
trading update, S4 Capital said it
had delivered “very strong like-
for-like revenue and gross profit
growth well ahead of the previous
latest company guidance of 40
per cent”. Shares in S4 Capital
rose 18p, or 3.4 per cent, to 548p.Rough going at Accrol
The fortunes of one of Britain’s
leading toilet roll makers have
unravelled after Accrol admitted
that it had been caught out by
soaring energy prices and supply
chain blockages. Its warning of
industrial inflation has left holes
in the Blackburn-based
company’s business, as
management indicated that it
may be up for sale as a whole or
in part. That prompted a run on
the shares, which fell 6p, or
19.3 per cent, to 24¾p, well under
its 2016 float price of 100p.Post Office sales slip
A less busy Christmas at the
parcel counter, with Britons able
to deliver gifts in person this
year, has led to the state-owned
Post Office reporting a 5 per cent
dip in revenues in December to
£73 million compared with the
same period in December 2020.
The Post Office said that what
had it lost in parcel revenues had
been partially offset by its
banking services for small
business and by holidaying
customers buying foreign
currency and travel insurance.Skills shortage grows
A record number of companies
are struggling to hire staff with
the rights skills, a survey has
found. The proportion of firms
reporting difficulties filling roles
reached 79 per cent in the fourth
quarter, up from 77 per cent in
the previous three months,
according to a poll from the
British Chambers of Commerce.
Hospitality and construction
businesses were the most likely to
report difficulties, but shortfalls
in available workers had affected
all sectors, the BCC said.Commodities
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from the use of this information.been unaffected by the supply chain
disruption wreaking havoc on
companies in many industries.
Constraints in suppliers’
manufacturing capacity and in
logistics curbed sales volumes during
the first quarter. DFS also was forced
to cut off orders for Christmas
delivery in mid-September, which
caused a lull in business between
October and December.
However, since Boxing Day order
volumes have picked up, according to
Tim Stacey, the chief executive. Lead
times for deliveries are at between
eleven and twelve weeks, above a
norm of six to eight but down from a
peak of fifteen to sixteen weeks.
Delays mean the order book isyield of 5 per cent at the present
share price.
The company has had the wind at
its back during lockdown periods
thanks to a strong housing market
and the high level of cash that people
have available for discretionary
spending. Even during the second
half of last year, the split between
purchases financed by interest-free
credit compared with cash was
50/50, rather than the typical 75/25
division. Sales volumes over the 26
weeks to the end of December eased,
by 2 per cent, from the exceptional
boost given by pent-up demand last
year, but they remained 10 per cent
above the pre-pandemic level.
That doesn’t mean the group hasD
FS Furniture has cash
burning a hole in its pockets
and some of it looks set to
head into shareholders’ hands. Plans
to make special capital returns, via a
special dividend or share buybacks,
will be announced at the release of
the sofa seller’s interim results in
March, after a post-lockdown
rebound in sales.
Analysts had already inked-in an
ordinary dividend of 12.87p a share
for the financial year to June, which
alone would equate to a dividendEmma Powell Tempus
Buy, sell or hold: today’s best share tipsConvaTec not looking too healthy
I
nvestors are right to be sceptical
of ConvaTec — the medical
devices specialist is an expert in
false starts. Chronic
underinvestment in research
and development and supply chain
mis-steps have added up to
inconsistent sales growth during the
group’s life as a public company.
That, in turn, has left the shares
almost a fifth below the 2016 float
price of 225p. The question now is
whether a revised strategy focusing
on product range and increasing
operating efficiencies will be enough
to lift the stock out of the doldrums.
That’s no sure thing: the risks to
profit progress aren’t reflected in a
forward earnings multiple of 22, a
touch above the average for the
shares since Karim Bitar was
appointed chief executive almost
three years ago.
The FTSE 250 constituent was
founded in 1978 as part of what later
became Bristol-Myers Squibb, the
American drugs group. It sells
products ranging from advanced
wound dressings to continence care.
Bitar introduced a fresh strategy to
strip back the product focus to four
categories — advanced wound care,
critical care, infusion care and
ostomy — and a dozen global
markets, led by the United States and
China. The company also has tried to
cut costs by streamlining its back-office functions. Annual spending on
R&D is set to double to about
$100 million a year, or around 5 per
cent of revenue. That spending will
continue for at least the next couple
of years. It has been investing, too, in
improving manufacturing and in
marketing. The company aims to
generate annual organic revenue
growth ahead of the market rate of4 per cent and will launch seven new
products in the next two and a half
years.
Guidance for full-year organic
revenue growth has been raised to
the top of the range of 3.5 per cent to
5 per cent, yet sales progress has
varied and has been obfuscated by
the pandemic. A recovery in elective
procedures meant that the advanced
wound care division had the
strongest growth in the first half, at
16 per cent, but increased
vaccination and reduced intensive
care rates meant that the need for
critical care products eased.
Meanwhile, the ostomy business,
which suffered from the worst
historical underinvestment, deliveredUnder pressure
share priceSource: Refinitiv
Q2 *estimated2021
Q3 Q4 Q1180200220240260280
pRevenue growth
20172018201920202021*2022*4.5%3.8%−0.3%3.7%7%4%below-par 3.7 per cent growth. Now
annual comparatives for advanced
wound care are set to get tougher
and critical care demand is easing
further. Admittedly, infusion care has
been a more consistent performer,
helped by demand for diabetes
infusion sets, but even that has eased
as customers are now well stocked.
Group organic growth slowed to
2.2 per cent during the third quarter.
Of bigger concern to investors is
the outlook for the margin. The
company downgraded its guidance
for the adjusted operating margin
this year to between 18 per cent and
19 per cent, from the 18 per cent to
19.5 per cent suggested four months
earlier. The reason? Higher costs for
raw materials and freight than had
been anticipated and an acceleration
in spending on R&D and sales and
marketing.
This year, ConvaTec believes,
should be the trough as far as
operating margins are concerned.
The risk is that inflationary pressures
persist and it is forced to keep upping
expenditure to keep up with the
competition. RBC Capital reckons
“selling expenses are likely to be
higher than consensus for 2022, and
that there is a risk operating margins
decline for one more year”.
The markets that ConvaTec serves
are attractive. Its products treat
chronic conditions, so there is the
potential for recurring revenue, but
given the challenges to margins and
the uncertain outlook for revenue
growth, the case for buying its shares
is unconvincing.ADVICE Avoid
WHY The risk of further
pressure on margins does not
seem reflected in the shares’
current valuationmore than £200 million higher than
the pre-pandemic level, which should
provide a fillip to profits in 2023 as
those orders unwind. Analysts at
Peel Hunt have raised their pre-tax
profit forecasts for that year to
£95 million from £91 million,m and
for 2024 to £100 million from
£96 million. A forward earnings
multiple of just under nine leaves the
shares’ income potential
underappreciated.ADVICE Buy
WHY Good dividend yield
at an appealing valuationconvatec
Market cap
£3.78 billionOrganic revenue
growth 7.4 %dfs
Half-year sales
growth 10%Dividend yield
3.1%