Aviva shares were marginally down on Wednesday despite the insurer and retirement firm beating expectations in the first half of 2024.

The group’s efforts to offer the full suite of insurance, wealth and retirement needs are paying off. Sales increased 12% in the first half of the year, and investors will be delighted to see operating profit increase by 14% in the period.

Aviva’s already generous dividend continues to climb, further solidifying the company’s attributes as an income pillar of many portfolios.

“Sales are up. Operating profit is up. The dividend is up. Our plan to deliver more for customers and shareholders is working really well,” said Amanda Blanc, Aviva’s Group Chief Executive Officer.

“We have achieved another six months of excellent trading. We have generated growth right across Aviva, thanks to our leading positions in attractive markets such as workplace pensions and general insurance in the UK and Canada.”

Aviva is the number one provider of workplace pensions, and the affinity this has built with its brand has helped the group excel in other areas of its business.

“Aviva has beaten analysts’ profit estimates, helped by insurance premiums rising 18% in the UK and Ireland,” said Adam Vettese, Market Analyst at investment platform eToro.

“This won’t be too much of a surprise given the inflationary environment we have been in. The insurer’s cash position is strong and has also nudged up the dividend after completing a £300m share buyback. Given topical concerns over volatility and macro factors perhaps injecting some uncertainty back into the market, Aviva seems like a pretty solid place for investors to shelter from such conditions with shares up 13% so far this year.

“Aviva is looking to achieve £2bn operating profit by 2026 which could be a punchy target if premium growth starts to level off. Investors may then look to the retirement sales numbers which came in lower than last year to rebound in order to pick up the slack.”

Ahead of its final results being announced on Tuesday 29^th October, this morning Ultimate Products (LON:ULTP) has issued its Pre-Close Trading Update for the year to end July. 

The group, which sells to over 300 retailers across 38 countries, specialises in five product categories: Small Domestic Appliances; Housewares; Laundry; Audio; and Heating and Cooling.  

Its brands include Salter (housewares), Beldray (laundry and floor care),  Progress (cookware and bakeware), Kleeneze (laundry and floorcare), Petra (small domestic appliances) and Intempo (audio). 

Under licence it also has the Russel Hobbs brand name for its cookware and laundry products. 

The Update  

Unaudited group revenues decreased 6.5% to £155.5m (FY23: £166.3m) with supermarket ordering held back by overstocking, weakened consumer demand for general merchandise, and strong prior year comparatives having been bolstered by the exceptionally strong demand for energy efficient air fryers in H1 2023. 

In line with market expectations, unaudited adjusted EBITDA decreased by 11% to £18.0m (FY23: £20.2m) and unaudited adjusted PBT* decreased by 14% to £14.4m (FY23: £16.8m). 

At the year end, the group had a net bank debt of £10.4m (FY23: £14.8m), which represents a net bank debt / adjusted EBITDA ratio of 0.6x (FY23: 0.7x), well within the group’s capital allocation policy of 1.0x. 

Trading at the start of the current financial year is in line with market expectations. The significant increase in shipping rates, arising from disruption in the Red Sea, has seen some recent stabilisation and is leading supply chains to adapt to a new normal.  

While this process takes place, the group’s commercial teams are working hard, as they did in the previous shipping crisis, to mitigate the short-term impact on gross margin. 

Management Comment 

CEO Andrew Gossage stated that: 

“Our FY24 performance was not without its challenges but I am pleased to report that many of the temporary headwinds are now easing, as reflected in a healthy FY25 order book.  

As we look ahead to FY25 with cautious optimism, we are confident in the proven resilience of our business model and the ongoing demand for our fantastic range of leading homeware brands.” 

Analyst Views 

Chris Wickham and Hannah Crowe at Equity Development consider that the group’s share rating looks too low, sticking with their 200p estimated ‘Fair Value’ for the shares. 

They estimate that the year to end July 2025 will see revenues rise to £172.0m (est £155.5m), with adjusted EBITDA of £20.6m (est £18.0m), lifting earnings to 14.5p (est 12.3p) and paying a dividend of 7.2p (est 6.1p) per share. 

Sector analysts Clive Black and Darren Shirley at Shore Capital are pleased to note the management’s warm words for the current year prospects. 

They are looking for 2025 to show £17.5m pre-tax profits, worth 15.3p in earnings and a 7.4p current year dividend per share. 

At Canaccord Genuity Capital Markets analyst Mark Photiades has an unchanged Buy rating on the shares looking for 182p in due course. 

His estimates are for £171.1m sales, £17.8m adjusted pre-tax profits generating 14.9p in earnings and paying a 7.5p dividend per share. 

In My View 

The shares are down nearly 3% on the news, trading at 136p and valuing the group at only £117m. 

On the analyst estimates they trade on a very low valuation of just 9.1 times current year earnings and way below valuation levels. 

In late April this year they were up to 185.50p, a level at which to aim for repetition.  

HSBC has maintained their buy rating on Spectris despite lowering its sales and EPS forecasts for 2024.

Spectris, the supplier of high-tech instruments and software for use in technical industrial applications, has recently announced a 16% drop in first half sales accompanied by a 66% drop in operating profit as slower trade in China dragged on performance. Lower demand from the EV market also weighed. 

Shares dipped after the release of half-year results, and HSBC said there was a risk of further earnings downgrades in 2024.

However, HSBC remains confident of the company’s medium-term outlook and has a 3,700p price target for the stock, which currently trades at 2,896p. 

“We think Spectris still faces earnings risk in 2024 from any potential meaningful internal or external disruptions,” HSBC analysts wrote in a note.

“These, however, do not deter the medium-term attractiveness of the investment case, in our view. The recent meaningful acquisitions of SciAps and Micromeritics widen the scope within its material analysis portfolio.

“We view 2024 as truly a foundational year with a low base for delivering in 2025 and beyond. Our estimate cuts and the effect on our blended 50/50 valuation (DCF and multiples-based sum-of-the-parts approach) lowers the TP to 3,700p (old: 3,750p) though we reiterate the Buy rating as our target price implies 28.7% upside. Spectris trades at 2025e EV/EBITDA of 10.8x and PE of 15.5x.”

The FTSE 100 was down marginally on Tuesday in quiet trade as investors enjoyed the UK heatwave awaiting a series of economic data points later in the week, including US and UK inflation, Chinese retail sales, and UK GDP growth.

Although the FTSE 100 was down around 0.15% at the time of writing, there was an ‘onwards and upwards’ feel to trading on Tuesday with the recognition there are still risks to equities – but not to the extent suggested by wild market swings last week.

“Last week was dominated by news of Tokyo’s stock markets plummeting, with a 12% collapse on the Monday coming hot on the heels of a 6% decline in the previous session,” said Steve Clayton, head of equity funds, Hargreaves Lansdown.

“The bounce-back began the next day and, after last night’s 3.5% recovery in the Nikkei 225 index, the Japanese market has now recovered all of its losses. The wobble was initially attributed to signs of weakness in the US economy, which could have posed challenges for Japanese exporters.”

Traders could have been forgiven for thinking the entire financial system would collapse for very brief moments last week. However, the cause of the panic, the unwinding of the Japanese Yen carry trade, looks to have largely run its course.

“The calmer waters partly reflect the steadier showing of the yen after interventions from the Bank of Japan. This means less pressure on the yen carry trade where traders borrowed cheaply in Japanese currency to invest in areas like the US stock market,” said AJ Bell investment director Russ Mould.

“However, this does suggest that the trade may not have fully unwound and it therefore remains a shadow hanging over the market should volatility return.”

The dispersion of daily performances for FTSE 100 stocks was very tight on Tuesday, with Sainsbury’s leading the index with a 2% gain and Burberry bringing up the rear with a 1.8% loss. Most other stocks were up or down less than 1%.

Tekcapital portfolio company Innovative Eyewear has released encouraging Q2 results as the company builds out its distribution channels for ChatGPT smart eyewear.

The smart eyewear company’s Q2 revenues increased by a very respectable 82% compared to the same period last year, and gross profits swung from a loss to a profit.

During the period, Innovative Eyewear started to see the early impact of sales of Nautica and Eddie Bauer-branded smart eyewear before the launch of Reebok eyewear, which is set to hit the shops later in 2023.

Innovative Eyewear has previously said its future success will be driven by a distribution strategy focused on eyewear outlets and retailers. Given that a large proportion of sales in the first half still came from its own e-commerce channels, the implementation of this strategy has yet to be reflected in sales figures and infers a boost in revenue in the company quarters.

Investors will look forward to more news from a partnership with distributor Windsor Eyes that promises further commercial progress in the eyewear retail market.

Some investors may have hoped revenues would be higher during the period, but you can’t take anything away from the traction the company is steadily building. 

“We have continued the trend of outperforming each quarter on a year-over-year basis, which we have done every quarter for the last 12 months,” said Harrison Gross, CEO of Innovative Eyewear.

“I am pleased by our continued growth and excited by the potential of further expansion later this year with the upcoming launches of new product lines and upgraded app releases.

“While our ecommerce direct-to-consumer sales remain the most material portion of our sales to date, we believe that the wholesale optical channel represents a significant growth opportunity. We anticipate that as smart eyewear becomes more normalized for prescription wear, national eye care providers will begin to onboard more smart eyewear. As an innovator and value and variety leader in the category, we believe we are well positioned to earn a portion of this rapidly growing market.”

Arguably, the blockbuster brand licensing partnership with Reebok, which will not launch until later this year, has the potential to significantly increase revenues further. Reebok is a top ten global sportswear brand with worldwide recognition and an army of loyal consumers.

In addition to Reebok-branded smart eyewear, Innovative Eyewear is about to launch its safety range, which is aimed at the industrial and construction industries.

Up until now, the Lucyd smart eyewear ranges appear to have been designed with the latest fashion trends front and centre of the design process. The launch of its safety lines demonstrates an alternative school of thinking that is opening up new markets for the company.

According to Grand View Research, the global safety eyewear market is worth around $4 billion per year. Lucyd’s safety range will target this market ripe for innovation, which is comprised of firms required by law to provide products such as the Lucyd Armor smart safety glasses to protect its workers.

There are no firm launch dates for the safety range or Reebok-branded smart eyewear, and investors will undoubtedly eagerly await further news from Tekcapital on launch dates later this year.

Innovative Eyewear has implemented a slick global marketing campaign featuring football pundit Micah Richards as a brand ambassador. The campaign will support both its own e-commerce channels and placements in leading outlets.

There is much to suggest that the Eddie Bauer and Nautica product launches may prove to be the pre-match warm-up for the much-anticipated unveiling of Lucyd Armor smart safety glasses and Reebok-branded smart eyewear due to kick-off later this year.

Dowlais shares moved down a gear on Tuesday after the automotive engineering firm released disappointing first-half results.

The company was listed in London in April last year, and shares have been on a one-way journey so far, with the stock losing more than half of its value. Today’s 4% decline takes Dowlais to fresh all-time record lows.

According to results released this morning, Dowlais’s 5% revenue drop last year was due to slow demand for its electric vehicle components amid a wider softening in the market.

Although Dowlais said they outperformed the wider market, the challenging conditions will be hard for investors to swallow, especially because profit before tax fell 32% over the period.

“It’s gone from bad to worse during the first half of the year for Dowlais, the automotive engineering specialist. It’s been a mixed bag in the electric vehicle market. China’s having a very strong year but demand in Europe is dropping. Overall light vehicle production is now expected to fall globally by 3.6% in the second half of the year,” said Derren Nathan, head of equity research, Hargreaves Lansdown.

“This volatility has hit sales of Dowlais’ ePowertrains and the 1.9% decline in sales over the first quarter has accelerated to a drop of 5% for the first six months. The indefinite postponement of a contract to supply a 3-in-1 eDrive system for high performance SUVs comes as another disappointment. The group is diversifying its focus across various classes of electric vehicle in a drive for more sustainable medium-term growth but the immediate future looks challenging.

“There were some brighter spots with the much smaller powder metallurgy unit trading in line with the same period last year. But the difficulties are causing management to take a hard look at the business.”

Dowlais was listed just as questions started to be asked about the adoption of EVs, and this is reflected in their numbers. This stock is heavily reliant on global EV sales, and Dowlais’s fortunes are intertwined with those of the major EV manufacturers. 

For those investors convinced of a pick up in EV sales, today’s drop may provide an interesting buying opportunity.