Sunday share tips: Spirent, Inchcape

25th Mar 2012 08:55

After soaring 11% when its full-year numbers were released on March 13, shares of car dealership firm Inchcape are now back to the same level they were at before the numbers were unveiled. However, for investors with a long-term view, this has presented an opportunity. The post-results share price leap was for a good reason. The company has been cutting costs from its business over the last few years leaving it in a lean position to benefit from a market improvement. Profits in 2011 were just shy of record profits achieved in 2007, yet revenues were 15% below that level. The company's 4.5% trading margin in 2011 was a 30 basis point improvement on 2010 and only 40 basis points below the peak margin level achieved in 2006. Also, more than two-thirds of operating profits are now generated in the emerging markets and the Asia-Pacific region. Trading on a December 2012 earnings multiple of 10.1, falling to 9.3 next year, the shares were last tipped at 326.3p on November 11 last year. They remain a buy, Questor says. Half of testing-equipment maker Spirent Communication´s turnover comes from America, with just over 15% from Europe and 35% from the Asia-Pacific region. Growth in Asia is extremely strong. Keen to move into the higher-value end of the market, Chinese companies such as China Telecom and IT specialist Huawei are investing heavily in technology and Spirent is helping them on their way. Results for 2011, delivered at the start of this month, showed a 10% increase in sales to $528m (£334m) and also a 10% rise in profits to $123m (the company reports in dollars as this is the predominant currency of the IT world, but UK shareholders receive dividends in sterling). As a mark of confidence in the future, the dividend rose 17% to 1.85p. Analysts expect profits to rise to nearly $140m in the current year and are looking for further growth in the dividend as well. Spirent shares are 152p and have done well over the past 18 months. But there is plenty of mileage in this stock, especially for investors willing to take a three to five-year view. The technology revolution is gaining speed and every development needs to be rigorously tested. Buy, The Financial Mail on Sunday´s Midas column says. ABPlease note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.