Two FTSE 100 stocks rocket, but do you know what they do?

Few investors would be able to identify these high-flying blue-chip companies, but shareholders will be singing their names after these big gains.

12th November 2024 13:45

by Graeme Evans from interactive investor

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Two lesser-known stocks enjoyed the FTSE 100 spotlight today after conglomerate DCC (LSE:DCC) unveiled break-up plans and ConvaTec Group (LSE:CTEC) impressed with beat-and-raise results.

In a session when London’s top flight fell by about 75 points to a three-month low, their shares jumped by double-digit percentages to put back most of this year’s losses.

DCC surged after it revealed plans to maximise value by focusing on its energy division, which generates 74% of operating profit and achieves the highest capital return out of the group's three businesses. Surplus capital from disposals will be returned to shareholders.

The Dublin-based company has begun preparations for the sale of DCC Healthcare and will review its strategic options for DCC Technology within the next 24 months. Analysts at Jefferies recently estimated the value of the two divisions at £1.3 billion and £800 million respectively.

They added today: “We have previously highlighted group complexity is weighing on the shares and view this as the hard catalyst the equity story needed.”

The update, which accompanied in-line half-year results, is DCC’s biggest in the 30 years since it joined the stock market. In those three decades it has delivered compound annual growth of 14% in adjusted operating profit and unbroken dividend growth of 13%.

The shares were above 6000p for much of the period between 2016 and 2022 before standing at a 2024-low of 4956p prior to today’s results and strategic update.

Valuing the standalone DCC Energy is made harder by the absence of exact peers, reflecting the company’s dominant position in downstream liquid fuels along with its expansion into energy management services through a series of acquisitions in recent years.

Analysts at Davy said their benchmarking exercise pointed to a fair value estimate of £7.6 billion, or 40% share price upside. This is before any re-rating caused by the simplified group structure or the company’s ambition to double energy earnings to £830 million by 2030.

This target is based on the strategy unveiled in May 2022, under which DCC aimed to reduce carbon intensity of essential liquid fuels and to build leading electron-based energy management capability.

The business supports the energy needs of ten million customers annually, spanning  commercial, industrial, domestic and transport uses. Relationships typically last for more than a decade, giving DCC a strong advantage when it comes to solving their energy transition needs.

Chief executive Donal Murphy said today: “Our strategy will deliver strong profit growth, high returns and a significant reduction in our customers’ carbon emissions.”

He described the Healthcare and Technology divisions as high-quality businesses, led by strong, entrepreneurial management teams. Their operations span technology solutions for big screens and touchscreens and medical products for hospitals and primary care settings.

ConvaTec, whose four divisions are focused on products in wound, ostomy, continence and infusion care, today helped its shares return to the 262p level last seen in May after its trading update included a big lift to full-year guidance.

Its original estimate of 6-7% growth has been increased to 7.25%– 8%, while the operating margin of 21% at constant exchange rates is now seen as being at least 21.5%.

Chief executive Karim Bitar highlighted the impact of the strongest-ever new product pipeline and an ongoing pivot toward a  higher level of organic sales growth and profitability.

His new guidance for 2025 includes a further expansion of margin alongside double-digit growth in free cash flow and earnings per share, while the company continues to target an operating margin in the mid 20 percentage levels by 2026 or 2027.

The 2025 outlook is irrespective of InnovaMatrix, the treatment of chronic, surgical and trauma wounds which accounts for about 4% of sales. It may not be included in US Medicare coverage lists, with a final determination due to be issued in 2024 or next year.

Panmure Liberum said: “Today’s statement should reassure, with guidance increasing and the company making it clear that it expects any InnovaMatrix headwinds to be transitory.”

Investec Securities, which had a price target of 304p prior to the update, added that the de-rating for shares since the first quarter of this year looked “significantly overdone”.

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.

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