Spectris shares slump

Although I’m familiar with many members of the FTSE 250 index, Spectris has somehow never caught my eye. And that’s a shame, because Spectris shares have rebounded strongly since their 2022 low of early March. Here’s how the Spectris share price has performed in the past 12 months. Current share price: 2,954p; 52-week high: 4,167p on 27 September 2021; 52-week low: 2,371p on 7 March 2022.

As you can see, after peaking in late September, Spectris shares plunged, losing 43.1% from high to low. But since early March, this stock has rebounded, adding 583p — almost a quarter (24.6%). Alas, I only wish I’d known to buy this stock at March’s bargain price.

Spectris still looks cheap to me

With origins dating back to 1915, this FTSE 250 firm has been in business for 107 years. But what does Spectris do? It produces precision measurement instruments, test equipment, and simulation software for various industries (including pharmaceuticals, automobiles, and electronics). Alas, its shares dived when the company made a takeover approach in February to rival Oxford Instruments. But the Russia/Ukraine war that began on 24 February soon killed his bid.

At their current price, Spectris shares are down 29.1% from their September high. As a result, the company’s fundamentals look attractive to me as a veteran value investor. Here they are:

At today’s price, Spectris shares look like a classic value investment to me. An earnings yield of 10.3% means the dividend yield of 2.4% a year is covered more than four times. I like the sound of that. Also, in its latest quarterly results, the company’s strong balance sheet included £133.1m of net cash. And the group recently began a £300m share buyback.

To sum up, Spectris sells specialist products at high profit margins in niche markets. Even so, it is not immune from worries such as rising inflation and interest rates, supply-chain constraints, slowing growth, and the risk of a global recession. That said, though I don’t own this stock yet, I’d gladly buy Spectris shares at their current levels!

I’ve been hunting through the wider market and have found three FTSE 250 dividend stocks that look too cheap to me. They’re all stocks I’d be happy to add to my portfolio today with a spare £1,000.

A bargain 6% yield?

Television group ITV (LSE: ITV) is seriously unloved at the moment. This former FTSE 100 company saw its share price slump 25% at the start of March, after CEO Carolyn McCall revealed plans to “supercharge streaming“.

This strategy seems logical to me. ITV has a 33% share of UK commercial television viewing. To protect this market share, the company needs to expand its share of UK on-demand viewing.

The extra spending required will hit ITV’s profits for a couple of years. That’s a risk. However, my sums suggest the dividend should be safe throughout this period, giving a forecast yield of 6.2% at current levels.

ITV’s share price slump has left the stock trading on just six times earnings, despite its strong financial position. I reckon this is too cheap. I continue to hold and would be happy to buy more.

Cheap industrial stocks

Another FTSE 250 stock that’s come onto my radar recently is precision measurement specialist Spectris (LSE: SXS).

This £2.8bn group has a range of businesses that produce measurement instruments, test equipment and simulation software for industry. It operates in a range of attractive sectors, including pharmaceuticals and electronics.

The Spectris share price has fallen by nearly 20% since the company revealed plans to buy fellow high-tech specialist Oxford Instruments for £1.8bn. However, the company has now withdrawn from this deal, blaming market disruption caused by the Ukraine conflict.

I think Spectris’ growth might slow if western countries suffer a recession. But the company has cleared its debts and the shares look affordable to me.

Spectris’ forecast price to earnings ratio of 15 may not seem obviously cheap, but this company has high profits margins and specialist products. I think it deserves a small premium. I’d be happy to buy at this level.

Unfairly cheap?

My final pick is emerging markets asset management specialist Ashmore Group (LSE: ASHM). This £1.7bn FTSE 250 company is run by founder Mark Coombs, who still owns more than 30% of the stock.

I think this should mean Coombs’ interests are aligned with those of other shareholders.

However, one problem with this business is that its profitability is linked to market cycles. After a strong run of growth from 2018 to 2021, analysts expect Ashmore’s profits to fall this year as market conditions weaken. One concern is the company’s exposure to China’s troubled property market.

There are always risks when investing in shares. But Ashmore has a diversified portfolio, experienced management and is highly profitable.

The shares now trade on just 11 times earnings, with a covered 7% dividend yield. This is one cheap stock I’d buy today.

Consequently, many investors may only buy mid-cap stocks when they’re bullish about equities. In times of uncertainty, cash often switches to bigger FTSE 100 companies. However, the impact of the coronavirus has seen the FTSE 100 drop to its lowest level since 2012.

Many large blue-chip firms have high percentages of international earnings. Some analysts believe that this may make them more vulnerable to a pandemic because trading globally becomes more difficult.  

For me, an investor with a penchant for passive income, this raises questions about how many UK large caps will struggle to fund their dividends this coming year. So, I think it’s a good time to consider the FTSE 250 for dividend stocks.

The mid-cap index contains some cash-rich companies with yields of at least 2% and a pattern of growing dividend pay-out ratios. I’ve singled out what I think are two such companies below.

A 7% yield hiding in the FTSE 250…

Payment services firm Paypoint (LSE: PAY) provides customers with specialist consumer payment products, and operates a UK-wide network of nearly 28,000 terminals in convenience stores. These provide payment services and support the Collect+ parcel drop-off network.

Paypoint has struggled with growth recently as people move from card to cash payments. This is likely reflected in its relatively low price-to-earnings ratio of 10.48. However, the firm has improved its operational efficiency and is diversifying to position itself for the future.

Even better, with an operating margin of over 40%, the firm is extremely profitable, and management are not shy to return cash to shareholders. An attractive dividend yield of 6.91% is on offer, and the dividend cover ratio at 1.38 shows it to be sustainable.

Of note, FTSE 250 constituent Paypoint has increased its dividend eight times over the last 10 years. It is also a cash-generative business, providing much needed liquidity to weather a bear market.

Analysts are divided, but I’m bullish

Spectris (LSE: SXS) produces instruments and controls to improve industrial productivity. It prides itself of operating in niche markets with high barriers to entry, and possesses strong intellectual property. This is a great position for a business in my view.

That said, recent market conditions have been challenging for the company and, admittedly, analysts have mixed views on its short-term prospects.

2018/2019 revenues were flat, but the company has now restructured and divested a less profitable division. It has also used management-directed self-help to produce target-beating recurring cost benefits of £25.5m. More value added is expected for 2020.

The present culture at FTSE 250 member Spectris appears to be one of driving efficiency and pursuing high-margin growth. This will be essential to survive the bear market.

The company offers a dividend yield of 2.3% and has an excellent history of growing its dividend. Moving forward, the strong balance sheet enables sustainable dividend cover for investors.

Currently a difficult climate for all businesses, I believe FTSE 250 constituents Paypoint and Spectris are well positioned to engage with the bear market. I’m also impressed by their dividend offerings to grow my passive income.

But while this may be a particularly nervous week for investors, there will still be companies that continue to thrive regardless of who’s in power by Friday.

Bolt-on growth

Spectris (LSE: SXS) is a supplier of industrial instruments and controls. Any government is likely to be supporting UK innovation and high-end manufacturing. Therefore, I see political threats as negligible for this business. Brexit may be another matter, but investors will have to wait and see about that.

The business operates in four segments with materials analysis being the largest, both in terms of sales and operating profit. This division helps determine structure, composition, quantity and quality of particles and materials, during their research and product development processes and has applications in drug discovery and for other industries.

The focus on bolt-on acquisitions is a key one for management to help win new customers and open up new countries. The engineer has a history of making multiple small acquisitions each year and integrating them into the group, a model not dissimilar to that of the very successful Halma. Done well and carefully, acquisitions can be a good way to grow.

A profit improvement programme is likely to benefit shareholders. Spectris is expecting the programme to deliver at the upper end of the £15m-£20m range.

The shares, on a P/E of just under 17, don’t look too expensive given the opportunities for growth and the success of management in building up the business to date. 

Stellar performance

IT reseller Softcat (LSE: SCT) is a business that is going from strength to strength. While US technology companies may come under increasing pressure in the future, it’s less likely this will extend to UK technology companies.

The share price momentum shows why this is a share that should continue to keep going up. Over the last 12 months, the share price has risen by over 80%.

Management will have to keep delivering the growth investors expect in order for the share price to maintain its momentum, but I think the right factors are in place for this to happen. There’s increasing IT spending, the challenges for businesses of moving their IT onto the cloud, and the need for ever more cybersecurity. 

Customer numbers are on the rise, which is good news and shows that demand for what Softcat does is not going away. The gross profit made from each customer is also increasing year-on-year, demonstrating the value customers find in Softcat and showing it’s successfully able to cross-sell services.

Even on a P/E of 32, I think it will continue to thrive after the election, throughout 2020 and then beyond. 

My top stock for June is defence specialist BAE Systems (LSE: BA). Its share price has taken a knock over the last year on the back of concerns over the group’s ties with Saudi Arabia, yet I think investors’ fears in relation to this particular issue may be overblown.

A recent update from BAE in early May was quite positive, with CEO Charles Woodburn stating that the group has a record defence order backlog and that the business is well positioned for growth going forward. As such, with the shares currently trading on a P/E ratio of around 10 and sporting a dividend yield of nearly 5%, I see considerable value on the table here.

Edward Sheldon owns shares in BAE Systems

Rupert Hargreaves: FirstGroup

Since May 2017, shares in FirstGroup (LSE: FGP) have fallen by around a third excluding dividends. 

However, the company is now being targeted by activist hedge fund Coast Capital, which is calling for a breakup of the business. The market seems to like this plan. FirstGroup’s shares have jumped 19% over the past five weeks. 

As of yet, it’s not clear if FirstGroup will follow Coast’s advice, but the ideas certainly seem to make sense, and if management does decide to shake up the business, I can see significant returns for investors from here. 

The stock is currently dealing at a depressed eight times forward earnings, leaving plenty of room for upside if sentiment improves. I think it might be worth following Coast Capital on this one.

Rupert Hargreaves does not own shares in FirstGroup.

Kevin Godbold: Hikma Pharmaceuticals

I think the immediate and ongoing prospects for the FTSE 100’s Hikma Pharmaceuticals (LSE: HIK) are interesting. The company produces generic medicines, which puts it on the other side of the equation from the likes of GlaxoSmithKline and AstraZeneca who have been trouble by their branded drugs timing-out of patent protection.

Hikma has a decent record of raising its dividend annually for several years. Meanwhile, a trading update in May reported a good start to the year fuelled by recent product launches. Operations appear to have momentum, and I think the share price could move higher, perhaps as early as during June.

Kevin Godbold does not hold shares in Hikma Pharmaceuticals, GlaxoSmithKline or AstraZeneca.

G A Chester: Centamin

I continue to rate FTSE 250 gold miner Centamin (LSE: CEY) as my top stock to buy right now. I like the company’s large resource and reserve base, robust balance sheet and strong cash flow generation. This underpins a forecast dividend yield of 4% this year, rising to 5.8% next year.

Furthermore, Brexit, deepening political divisions in wider Europe, the US’s trade war with China (and ‘Thucydides Trap’ risk) are just some of the uncertainties supportive of a stronger gold price. And potentially a much higher price, in the event of a more wholesale flight to safety by investors.

 G A Chester has no position in Centamin.

Royston Wild: Unilever

Unilever (LSE: ULVR) is a share that I myself own and one which I’d be very happy to buy some more of in the days ahead.

Why? Well on the back of its reputation as a safe-haven stock in tricky times, one which has grown earnings each and every year whatever the weather, that’s why. Whilst the broader FTSE 100 has shaken lower during the past five or so weeks, reflecting growing concerns over Brexit and US-Chinese trade wars, Unilever’s share price has advanced almost 10%.

With both of these crises escalating there’s no reason to expect the household goods leviathan’s buzzing price ascent to run out of steam, clearly, and particularly as sterling continues to crumble (the pound fell for an unprecedented 13 days on the spin against the euro in May, giving an extra boost to Unilever’s earnings).

So disregard the company’s high forward P/E ratio of 22.3 times, I say; in my eyes it remains a very-attractive blue chip buy as of today.

Royston Wild owns shares in Unilever.

Peter Stephens: AstraZeneca 

The prospects for AstraZeneca (LSE: AZN) have improved significantly in the last couple of years. Investment in its pipeline has prompted improving financial performance that is expected to lead to a 12% rise in earnings in the current year.

While investor sentiment has improved in response to its growth potential, AstraZeneca has a PEG ratio of 1.7. This suggests that it could offer increasing growth at a reasonable price, while a dividend yield of 3.7% could boost its total return.

As a result of the uncertainty presently facing the world economy, pharma stocks with defensive business models could increase in appeal. This could further catalyse AstraZeneca’s share price.

Peter Stephens owns shares in AstraZeneca

Fiona Leake: Boohoo Group

After a couple of uncertain years, Boohoo Group (LSE: BOO) has bounced back with profits climbing a huge 48% in the past year. Boohoo’s other brands, PrettyLittleThing and Nasty Gal, have both increased by 107% and 96% this year respectively. This is thanks to the power of social media, with many celebrities and influencers promoting the brand.

Boohoo has also seen great success in the US this year with all three brands up 79%, giving the company a brilliant growth opportunity. I am confident that Boohoo can outperform many fast-fashion retail stores thanks to the online-only business model. The company has diverse income streams from multiple brands and, after cracking the US market, I can see this stock continuing to rise in June and throughout the year.

Fiona Leake does not own shares in Boohoo Group.

Manika Premsingh: Spectris

For June, I like the FTSE 250 company Spectris (LSE: SXS), which supplies measures for industrial applications. It recently posted a healthy trading update, with a sales increase of 3%. This, along with largely rising revenues and operating profits over the years, ticks my boxes for a share to consider for long-term investing. Its outlook — which focuses on margin improvement — is a positive as well, considering that it expects macro-economic and geo-political challenges going forward. The share price ran up 2.6% from the previous day when the update was announced, and I reckon that it will rise more in the next month, since its price to earnings ratio of 16.5x makes it affordable compared to peers.

Manika Premsingh has no position in Spectris.

Roland Head: Telecom Plus

Utility reseller Telecom Plus (LSE: TEP) is better known to customers as Utility Warehouse. This firm buys utilities, including phone, broadband and mobile, and then resells them to its members.

Recent years have seen tough trading conditions, mainly due to a surge in the number of cut-priced energy providers. But the market is coming back to Telecom Plus and a recent trading update showed that customer numbers rose by 4% last year.

Cash generation is good and the group’s 3.6% dividend yield is backed by a strong record of growth. I think this could be a good alternative to conventional utility stocks.

Roland Head does not own shares in Telecom Plus.

Paul Summers: Begbies Traynor

With a market capitalisation of a little under £80m, my pick might not be familiar to many retail investors. Nevertheless, I continue to believe that insolvency specialist Begbies Traynor (LSE: BEG) is a great option for those searching for counter-cyclical stocks.

Last month’s trading update was encouraging with the company enjoying a strong finish to its financial year. Indeed, revenue and profit for the 12 months to the end of April will now be “comfortably ahead” of what the market previously expected. These numbers will be confirmed on 9 July.

With falling debt, decent dividends and a bumper order book, I suspect the stock — on a little less than 15 times earnings — still offers quite a bit of value.

Paul Summers owns shares in Begbies Traynor

UK like-for-like sales were down 8.9% and the company recorded an adjusted pre-tax loss of £11.6m (though with a statutory loss of £87.3m). But that’s not what really counts this time round as it’s the non-financial progress people are watching out for (though a big reduction in net debt from £44.1m to £6.9m certainly helped).

Closures done

The retailer, which focuses on parents and young children, told us it has completed its UK store closures ahead of schedule, reducing the count from 134 to 79. The firm has exceeded its target of £19m in annual cost savings, and the sale of the Early Learning Centre for £11.5m made a big difference to the balance sheet.

And though the UK market is still tough, international sales were down only 0.3% at constant currency (down 3.9% at actual rates), and Mothercare reported growth “in core markets of Russia, China and Indonesia.”

Share price

Investors reacted by pushing the Mothercare share price up 22% in early trading, continuing the upward trend of the past couple of weeks. Despite that enthusiastic reaction, I’m still cautious. I’m impressed the company has made a good start on the plans it set out a year ago, and forecasts suggest a return to (a very small) profit this year.

But, though the firm’s “primary focus in the UK will be the development of our online proposition,” I’m still concerned about the UK retail market. Overall, I’m seeing significant progress, but I’m also seeing a need for caution.

Focus

Spectris (LSE: SXS), the developer of precision instrumentation and control equipment, is another business that’s been refocusing, though nowhere near to the extent of Mothercare. 

When full-year results were released in February, chief executive Andrew Heath (who has been with the company since September 2018) spoke of his desire to focus the company more on scalable products “in attractive high growth markets.”

With Heath suggesting economic conditions could put a bit of a squeeze on its business and lead to a slowing of sales growth, he set a 2019 target of “increasing productivity and operational efficiency,” saying he expects to see efficiency benefits of £15m-£20m during the year.

Despite the firm’s caution, a trading update released Friday reported a 3% rise in like-for-like sales, with growth from acquisitions adding an extra 1%.

Lots of cash

What I like most is the company’s strong cash generation, with a conversion rate of more than 100% helping cut net debt by £32m since the last year-end. That’s despite capital expenditure of £28m, and brings the figure down to £265m. That’s less than last year’s adjusted EBITDA and well within my comfort zone.

Spectris’ cash generation funds a progressive dividend policy, with the 2018 dividend hiked by 8% — well ahead of inflation. While yields are modest at around 2.5%, we’ve seen the dividend climb from 46.5p in 2014 to 61p in 2018, and that’s a 31% rise in just four years. And if forecasts come good, we should see a further 12% over the next two years too.

The share price is up 10% over five years, and we’re seeing an average-looking P/E of around 14. I see Spectris as an attractive long-term buy.

The website tells us that Spectris aspires to be a leader in niche markets with high barriers to entry. I like the language. It reminds me of Warren Buffet’s approach to investing in quality companies and some of the things he looks for. The firm reckons it aims to maintain its edge in the market with customer focus, continuous improvements and “strong” intellectual property.

Scores well on quality indicators

I think the financial indicators relating to business quality back up the company’s claims. The return-on-capital figure runs close to 23% and the operating margin at about 22%. Meanwhile, there’s a long record of robust and generally rising cash inflow, which provides heavyweight support for profits and for that all-important dividend. The dividend has increased by some 55% over six years, which is a decent amount of progress and one of the key attractions of the share, in my view.

I find today’s full-year report encouraging. On an adjusted basis, sales increased 5% compared to 2017 and earnings per share lifted 7%. The directors described the performance as “slightly ahead of expectations,” and they signalled their confidence in the outlook by pushing up the total dividend for the year by 8%. However, chief executive Andrew Heath did sound a note of caution in the report, saying that sales growth is likely to moderate in 2019 because of a more cautious macroeconomic outlook.

But the company will not be coasting along because it plans to squeeze more profit from the enterprise by focusing on productivity and operational efficiency. Heath expects to see a £15m-£20m benefit from the “profit improvement programme” during 2019 and, to put that in perspective, the pre-tax profit reported today is just above £241m.

Change at the top and a strategic review

Heath is new to the business, having only put his feet under his desk in the autumn, and I see that as a positive. A new broom often sweeps clean, and new leadership can usher in renewed vigour and determination at the top in any company. Indeed, a recent strategic review has identified that the firm could benefit from becoming a “more focused and simplified business.” 

I think simplification in business operations is almost always a good thing. The review has also focused in on what parts of the enterprise are scalable –which is another word I like to hear. The idea is to pin down areas of the business “with strong capabilities and the greatest performance potential,” which can expand into high-growth markets.

The good news is that three of the company’s businesses have been identified as fitting the bill in Malvern Panalytical, HBK, and Omega, which together account for more than 60% of sales and adjusted operating profit already.

When you buy the shares of any company your investing outcome depends on the forward prospects of the enterprise. On that score, I think Spectris looks well placed and is building up a lot of potential. I’d be more than happy to make a long-term investment to see what happens next.

Today I’m going to explain why I continue to hold easyJet shares in my own portfolio. But first I want to look at the latest numbers from another stock I own myself, FTSE 250 instrumentation and control manufacturer Spectris (LSE: SXS).

Next six months are vital

Its selling point is that the equipment it makes is designed to help make its customers operations more efficient and productive. The group’s performance during the first half of the year seems to have been reasonably good. Sales rose by 3% to £728m, while operating profit climbed 6% to £70.5m.

Three out of the group’s four divisions reported sales growth during the half year, with sales up by 5% in North America, and by 6% in Europe and Asia.

However, this positive performance wasn’t enough to distract investors from the cautious outlook statement in today’s results. Although profit guidance for the full year is unchanged, chief executive John O’Higgins does expect to see sales growth “ease a little in the second half” when compared to last year’s strong performance.

Should I be worried?

Spectris earnings are always heavily weighted to the second half of the financial year. Last year, for example, H2 earnings were more than double the H1 figure. On this basis, 2018 forecasts for earnings of 158p per share seem reasonable, based on the group’s half-year adjusted earnings of 46.1p per share.

However, the combination of Mr O’Higgins planning to leave the business and the cautious tone of today’s announcement makes me slightly hesitant about the future. With the shares trading on 15.4 times forecast earnings and offering a forward yield of 2.5%, I’d rate this stock as a hold at current levels.

Flying higher

It would be easy to say that easyJet has reached maturity and cannot grow much bigger. But the facts suggest otherwise. The airline has been picking up demand left behind by the failure of smaller airlines such as Monarch. Total revenue climbed 14% to £1.6bn during the third quarter, as passenger numbers rose by 9.3% to 24.4m.

During the same period, the airline’s capacity rose by 8.9% to 26.2m seats. As passenger numbers grew faster than capacity, we can see that easyJet’s load factor — the percentage of seats sold — rose again, to 93.4%.

A high load factor helps to improve profit margins. But to maximise the profitability of each passenger, easyJet is also focusing on increasing non-fare revenue. This so-called ancillary revenue rose by 11.5% per seat during the third quarter, as more passengers chose optional extras such as reserved seats and upgraded baggage allowances.

I’m still a buyer

My analysis of easyJet’s latest accounts suggests that its debt and leasing obligations are lower than some rivals, relative to its profits. This low gearing should provide useful downside protection if the market does slow.

In the meantime, I believe the shares offer one of the most attractive dividend growth opportunities in the FTSE 100. Despite forecast earnings and dividend growth of more than 30% this year, the stock trades on a forecast P/E of 14 and offers a prospective yield of 3.5%. I rate the shares as a buy.

But the Hertfordshire-based group’s turnaround status means that it’s still in the process of rebuilding its dividend payout, after profits crashed in 2015. By accepting a lower yield today, we may be able to lock-in higher yields in the future.

In contrast, the second stock I’m covering today is very much in growth mode. Results out today show a 14% increase in earnings per share last year. However, shares in this successful group don’t come cheap. Is it worth paying a premium for this quality business?

1-0 to Tesco

Tesco’s recent deal to acquire wholesaler Booker Group means that the supermarket will expand its grip on the fast-growing convenience store market. It will also become one of the UK’s largest food suppliers to the restaurant trade, opening up a new route to growth.

Booker chief Charles Wilson will take control of Tesco’s UK business when the deal completes. He’s widely expected to succeed turnaround boss ‘Drastic’ Dave Lewis at some point in the future.

If this view is correct, I believe it will be good news. Mr Wilson is widely credited with rescuing Booker when it was close to failure. He went on to turn it into a stellar growth story whose shares have risen tenfold over the last 10 years.

The Booker sale is expected to leave Mr Wilson with a £240m shareholding in Tesco. This would align his interests with those of shareholders in a way that few other FTSE 100 executives can manage.

A strong outlook

Tesco’s earnings per share are expected to rise by 28% during the 2018/19 financial year, which starts on 1 March. The shares trade on a forecast P/E of 15 and offer a prospective dividend yield of 2.4% for this period.

I expect profit margins to rise for a little longer yet, lifting earnings faster than sales. In my view, now could be a good time to add Tesco stock to a long-term income growth portfolio.

Precision engineering

Shares of FTSE 250 engineering group Spectris (LSE: SXS) rose by more than 3% this morning, after the firm issued a better-than-expected set of 2017 results.

Group sales rose by 13% to £1,525.6m, while adjusted earnings climbed 14% to 145.1p per share, beating consensus forecasts of 132.3p per share.

The dividend rose by 9% to 56.5p per share, coming in ahead of an expected figure of 54.6p.

Why I’d buy

This company’s instrumentation and control products are used in industries as diverse as gold mining, automotive engineering and food production. These products are sold through a range of specialist brands and are often unrelated, but their underlying purpose is always to improve customers’ productivity.

In today’s increasingly automated industrial world, my guess is that demand for Spectris’s products is likely to continue growing. The company itself should also be able to continue expanding through small, specialist acquisitions.

Broker forecasts put the stock on a forecast P/E of 18 for 2018, with a prospective yield of 2.2%. Spectris could be more vulnerable in a recession than Tesco, but my hunch is that this quality business will continue to thrive over the long term.

Spectris is a highly specialised business, suppling productivity-enhancing instruments and controls and providing systems to industries such as healthcare, automotive, the oil industry and utility industry. These products and services are used in critical processes that require a high level of experience as well as a high level of trust between customer and supplier. 

As long as Spectris does not begin to cut corners, or misuse the trust of key clients, it should be able to maintain its reputation in the business – great news for long term investors. 

Steady earnings growth 

Over the past 10 years, as Spectris has grown, the value of the company’s shares has risen by 10.6% per annum, excluding dividends. Including dividends, returns are closer to 13% per annum. While there are small caps out there that may provide a better performance, Spectris is much more of a safe bet. 

A return of 13% per annum is not to be sniffed at, especially when the average market return over the past 15 years is around 7-8%. 

To help drive earnings growth, today the company announced the acquisition of US firm Omnicon Group Inc for $29m. This business provides a range of services to help its customers analyse and improve product reliability and safety in the aerospace and defence industries. According to management, the acquisition “represents a further step in our strategy to provide solutions using a combination of software and services to enhance productivity and create greater value for our customers.“

The combination of the group’s organic growth, coupled with bolt-on acquisitions, has lead City analysts to predict that the company will earn 134p per share this year, up from just 9p last year. 

Further earnings growth of 12% is projected for the following year. Based on 2018 earnings estimates, the company is trading at a forward P/E of 16.7. Based on the specialised nature of its business, as well as past performance, I believe that this multiple undervalues the stock. 

Market-beating outperformance 

Halma (LSE: HLMA) is another highly specialised company that looks to be a great buy-and-forget investment. 

Halma manufactures a range of products that protect and improve the quality of life for people. These include construction and medical safety products and devices. Environment monitoring and protection is also a growing part of the business. 

Through both organic growth and bolt-on acquisitions, shares in Halma have returned 180% over the past five years, excluding dividends. Including dividends, the company has produced a total annual return in the region of 24%, eclipsing the broader market. 

Unfortunately, these returns haven’t gone unnoticed. Investors have rushed to get in on the firm’s growth story and now the shares trade at a dear 27 times forward earnings. Still, I believe that this valuation is appropriate considering the specialised nature of the company’s business. City analysts are predicting steady earnings per share growth of 7% per annum for the next few years.