Profit warnings slam these three FTSE 350 stocks
As markets and investors perform their own analysis of yesterday’s Budget and its implications, shares in a trio of UK companies have been hit hard. City writer Graeme Evans explains why.
31st October 2024 13:53
by Graeme Evans from interactive investor
Warnings by Smith & Nephew (LSE:SN.), Kainos and Spectris put their shares back under pressure today as the FTSE 350-listed trio either highlighted China headwinds or Budget uncertainty.
The medical devices firm’s fall of 115.3p to 952.2p wiped out the gains seen since early July, having previously been lifted by solid trading and the stake-building of an activist investor.
- Invest with ii: Top UK Shares | Share Tips & Ideas | Cashback Offers
The company, which has paid a dividend to shareholders every year since 1937, today reported third-quarter revenues growth of 4% after poor trading by its China surgical businesses.
The performance means that underlying revenue growth for 2024 is now expected to be around 4.5% rather than the range of 5%-6% forecast in half-year results in early August.
Reduced operating leverage from the slower revenue growth will weigh on the trading profit margin, which is now expected to grow by up to half a percentage point on last year's 17.5% compared with previous expectations for a figure of at least 18%.
The developments are a setback for chief executive Deepak Nath and chair Rupert Soames as they set about making Smith & Nephew a “consistently higher growth company”.
Under a 12-point performance plan outlined in July 2022, Nath previously aimed to deliver a margin above 20% by next year. That’s now likely to be in the range of 19% and 20%, boosted by progress in areas including robotics adoption and product innovation.
- eyeQ: what a maths-based smart machine says about M&G shares
- Wild’s Winter Portfolios 2024: winning stocks revealed
- Shell remains core investment play after Q3 profits beat
Nath said the third quarter saw “encouraging growth” in most segments and markets.
This included progress in both hip and knee implants in the US, while Advanced Wound Management delivered its best quarter this year. Sports Medicine also produced a strong performance when excluding the China sales pressure.
Precision measurements firm Spectris (LSE:SXS) also highlighted continued softness in the world’s second-largest economy, particularly in the areas of pharmaceuticals and academia.
This means that the recovery anticipated at the time of its half-year results is taking longer to materialise, with China weakness likely to persist into the early part of 2025.
It always expected 2024 to be a slower year, before returning to growth in 2025 and 2026. Acquisitions should be a meaningful growth driver next year, with recent deals including Boston, Massachusetts-based SciAps.
The move for the specialist provider of handheld instruments used in materials analysis will boost positions in markets including mining, batteries and pharmaceuticals.
In the meantime, profits for this year are expected to be in the region of £200 million as cost reduction efforts help to offset the 10% fall in like-for-like sales in the third quarter.
Shares fell 38p to 2536p and are more than 30% lower across this year.
- Sign up to our free newsletter for investment ideas, latest news and award-winning analysis
- Budget 2024: what it means for your money
- Budget 2024: AIM shares no longer IHT exempt, and ISA allowance frozen
Kainos Group (LSE:KNOS) shares are in a similar position in the FTSE 250, with the IT services firm today down 94p to 761p after warning revenues for the year to March are moderately below forecasts.
Its Digital Services division has been impacted by decision-making delays in the public sector while clients awaited clarity on the new government's spending priorities.
Kainos said: “These delays have been more pronounced in the last few weeks in anticipation of the publication of the new budget.
“Although we anticipate heightened levels of activity in the weeks ahead, we are dependent on decisions being made before the main mobilisation phases for these contracts.”
The company’s other division of Workday Products continues to deliver growth, with a very strong performance recorded in the first half of the financial year.
Given the strength of its balance sheet, Kainos said it intends to announce a share buyback programme alongside half-year results on 11 November.
Kainos adds that it is well positioned in core markets, which should offer substantial growth opportunities. It pledged to maintain “the appropriate balance” between investment for future growth, international expansion and profitability.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.