Spectris (SXS) £29.34

Gain to date: 8.3%

We tipped specialist engineering group Spectris (SXS) at £27.09 at the end of April after the firm announced it was disposing of its low-margin Omega unit and handing some of the proceeds back to investors.

Not only did we applaud the firm’s attitude to capital allocation – selling a business which was sub-scale rather than pouring money into it to make it profitable enough to justify keeping it – but the price it achieved was impressive.

The sale of Omega for £410 million – more than 20 times last year’s adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), compared with a group valuation of just 11 times – takes the firm’s disposals over the last three years to over £1 billion.

The resulting business is leaner, financially much fitter, and with a clear focus on high-precision measurement solutions.

WHAT’S HAPPENED SINCE WE SAID TO BUY?

The firm made a modest US acquisition in May, paying £66 million for Dytran Instruments, a leading designer and manufacturer of specialist tools for measuring acceleration, dynamic force, pressure and vibration.

The firm posted a solid if unspectacular set of interim results for the six months to June, showing an 11% increase in like-for-like sales to £570 million driven by market share gains thanks to the introduction of new and advanced products in recent years.

Equally reassuring, the order book grew by 20% on a like-for-like basis to a new record giving the firm greater visibility and confidence in its second half outlook.

Management guided to high single-digit organic sales growth for the full year along with an increase in the operating margin.

WHAT SHOULD INVESTORS DO NEXT?

Spectris’s earnings split is typically one third for the first half and two thirds for the second half, with higher margins, so after the strong interim numbers we would expect analysts to upgrade their full year forecasts.

Meanwhile, the company is buying shares equivalent to around 5% of its market cap which will further lift earnings per share.

Helpfully, the stock retraced 5% on the day of the results so we would grab the opportunity to add to holdings at a price below £30.

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