Insider: buying at Rolls-Royce and two FTSE 250 stocks 

Popular engineer Rolls-Royce had a setback after latest results, but some think the selling is overdone. A FTSE 250 stock trading near an eight-year low has also attracted heavy buying. 

Selling pressure at FTSE 250-listed Synthomer (LSE:SYNT) and Hill & Smith Holdings (LSE:HILS) has been countered by directors through a series of post-results purchases worth £350,000 in total.

The bulk of the insider deals amounting to £283,561 were at polymers firm Synthomer, whose shares have fallen to their lowest point since the onset of the pandemic in March 2020.

The biggest buyers were chief executive Michael Willome and non-executive director Alex Catto, who has been on the board since 1981 when the company was known as Yule Catto.

Their purchases and those of non-executives Brendan Connolly and Roberto Gualdoni were made at prices ranging between 188p and 214p. They were disclosed after Tuesday’s interim results showed a 61% slide in earnings per share to 19p, a decline driven by the impact of the previous year’s surge in demand for nitrile rubber gloves during the pandemic.

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On a brighter note, underlying earnings of £173 million were still significantly higher than both 2020 and 2019 levels and also better than the City’s forecast of £158 million.

The company’s other units showed growth, but shares closed Tuesday’s session 12% lower as Synthomer said a return to normal levels of activity in the performance elastomers unit had been delayed because glove industry stock levels were still high.

London-based Synthomer’s products are found in adhesives, coatings and construction. It employs 4,750 people across 38 sites, including regional centres in Harlow, Marl in Germany, Kuala Lumpur and Atlanta in the United States.

It told investors last week that its success in passing through inflation-led cost increases meant it still expected “robust” margins in the second half.

The shares trade on 6.1 times 2023 earnings, but UBS said this discount to the EU Diversified sub-sector on 7.4 times looked justified given the risk to earnings from slowing volumes and margin pressure in the gloves unit. The broker has a price target of 235p.

Last week’s lower earnings reduced the dividend for payment on 4 November to 4p, from 8.7p seen a year earlier. The shares, which trade with a forward dividend yield of 7.6%, closed last week at 188.2p compared with more than 480p in May 2021.

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At infrastructure and galvanising services business Hill & Smith, executive chairman Alan Giddins and chief financial officer Hannah Nichols bought shares worth a total of £69,432 last week. Their purchases were made at 1,166p and 1,221p respectively, which compares with 1,270p prior to Wednesday’s half-year results.

The company, whose roads division makes safety barriers, lighting columns and bridge parapets, lifted underlying earnings per share by 13% to 38.7p after a 9% increase in revenues to £349.9 million and 50 basis points improvement in margin to 12.5%.

Giddins, who is in temporary charge after last month’s departure of chief executive Paul Simmons, said inflationary headwinds had been mitigated and that the group continued to benefit from its exposure to strong structural growth markets.

He said the “stand-out” performance had been in the galvanising division, where a focus on higher margin customers led to a 20% jump in underlying profits to £21.4 million.

Numis Securities maintained its 1,600p target price after the results, noting that the group has good visibility on increased UK roads activity in the second half as well as growing optimism that US infrastructure investment will finally materialise in 2023.

Analyst Dominic Convey added: “The combination of less-cyclical end markets and journey towards a higher growth/margin portfolio ought to ensure a degree of resilience in the face of broader macroeconomic headwinds.”

Hill & Smith declared an 8% increase in the half-year dividend, which is due to be paid on 6 January. Its shares closed last week at 1,240p, down from 1,824p last November.

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Anita Frew bought Rolls-Royce Holdings (LSE:RR.) shares worth £81,900 on Thursday after the FTSE 100 company she chairs endured another bruising session in the wake of half-year results.

Frew, who was appointed to the board in July 2021, made two transactions at prices of 81.5p and 82.3p. The shares had been above 90p prior to the results, but investors were unnerved by a weaker-than-expected earnings performance as shares fell by as much as 10% and ended the week at 83p.

Frew’s purchases came as Rolls predicted a second half improvement in its underlying profit margin, having fallen from 5.9% to 2.4% at the interim stage. Other positives in the results included unchanged guidance for “modestly positive” cash flow at the full-year stage.

The shares were 146p in November but have been stuck between 80p and 90p since April as investors worry about the economic outlook and slow recovery of the travel industry from the pandemic.

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Broker notes after the results suggest the City is not expecting an imminent recovery, with JP Morgan among the most pessimistic after reducing its target price by 10p to 60p.

Deutsche Bank also cut by 5p to 90p as it lowered its earnings forecast for the next three years by between 1% and 3%. Analyst Christophe Menard said: “We confirm our hold rating, as there is no evidence of free cash flow surprising positively, with both engine flying hours growth and FX tailwind appearing capped for now.”