12th Dec 2023 11:19
(Alliance News) - The latest Spectris PLC disposal cements the firm's chief executive's successful M&A record and wraps up its portfolio tweaking programme.
The supplier of high-tech instruments, test equipment and software for industrial applications on Monday said it has sold Red Lion Controls for USD345 million.
For the 2022 financial year, Red Lion generated sales of GBP91.3 million, adjusted operating profit of GBP16.0 million. It was classed as 'other' in the company's reporting, however. Servomex, also currently classed as 'other', will now be reported in the firm's Spectris Scientific division.
Spectris said this sale completes its portfolio rationalisation programme, which has generated total proceeds of GBP1.2 billion.
"Spectris CEO Andrew Heath, has an excellent record, in our view, of selling businesses at high multiples," analysts at Shore Capital Markets commented, drawing attention to the April 2022 disposal of Omega Engineering for GBP300 million.
Shore also noted Heath was part of the team at semiconductor designer Imagination Technologies, a former London listing, which was sold to a vehicle of Beijing-based private equity firm Canyon Bridge in a deal worth GBP550 million back in 2017.
Spectris said it has launched a share buyback programme of GBP150 million, with a first GBP50 million portion to begin before the end of its financial year.
Analysts at Peel Hunt commented: "The net proceeds post tax will be GBP228 million so after the buyback, our 2024 net cash balance increases to GBP313 million."
A GBP1 billion acquisition by the company would take its leverage ratio above the 2 multiple. Spectris, in its 2022 annual report, said it targets a ratio between the 1-2 multiple, but would be prepared to send this higher "for specific M&A but only if there was a clear and certain path to de-lever back below this level within a short period of time".
Peel analysts added: "A GBP1 billion cash acquisition would take leverage to [around 2.3] and would represent a substantial catalyst. What is becoming clear is that this would be a great supplementary on top of the now very clear up in the organic growth and margin potential, rather than being the "main event". This makes the immediate buying opportunity all the more compelling in our view, with the 20% upside to our target price, in effect, a free call on the additional optionality from future M&A."
Peel rates Spectris at 'buy' with a 4,070 pence price target. Spectris shares were 2.4% higher at 3,599.00p each in London on Tuesday morning.
By Eric Cunha, Alliance News news editor
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