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.

The markets continue to recover from the major concern recently over the Japanese carry crade breaking down.

What is interesting is that after the index broke under the 5,400 area it quickly moved the same distance again to the downside, as shown by the blue region in the enclosed chart. Somewhat reminiscent of how a head and shoulders pattern can break lower the same size as the previous head.

So the rally from the 5,100 has not come as a major surprise. What it does do is leave the burning question: Is this the start of a more meaningful recovery back to recent all time highs, or merely a near term blip before the selling returns?

As mentioned last week we do now have concerns that the July all-time highs could be the highs of the year, and that we have now entered into a “sell into rallies” phase. The first real test of this hypothesis will arrive if/when the index moves back towards the 5,400 area.

This is not only just the previous break level, but is also coinciding with the new negative trend line calculated from the July highs. If the market is able to break back above 5,400 then, alright, we would return to being more outright bullish again, and can see the market shaking off the recent concerns.

For the moment though we feel the balance of probabilities has shifted to a more negative stance and our expectation is that any move up towards the 5,400 could run into serious selling pressure.

So in the very near term this buying momentum may continue, a little, but the 5,400 needs to be conclusively broken for us to shift to a more positive medium term.