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What FY results mean for Nichols plc and Spirent Communications plc

Nichols. Fair use.

Shares have been moving up lately in Spirent Communications (LSE: SPT) the provider of test methodologies and solutions for data communications and in Nichols (LSE: NICL) the soft drinks manufacturer. So, is there anything in today’s full-year results from these firms to halt the momentum or does progress look set to continue?

All looking good

Headline figures for Nichols include revenue up 7.4% compared to a year ago, an operating profit rise of 9% and adjusted earnings per share ticking 9.7% higher. That all looks good, but the best figure of all is the directors’ hiking of the full-year dividend by 15.3%. I think that move speaks volumes about the how they see the health of the business and its prospects.

After reflecting on “another very good year”, non-executive chairman John Nichols said he expects the firm’s clear strategy for growth to overcome challenging soft drinks markets during 2017. His confidence is underpinned by the company’s strong brands, diversification and successful track record of growth.

Those all-important brands include names such as Vimto, Panda, Sunkist, Levi Roots and Feel Good Drinks. As well as diversity of brands, the firm has sales diversified across markets with Vimto, for example, selling in more than 85 countries. Meanwhile, its track record of growth speaks for itself.

Year to December

2011

2012

2013

2014

2015

2016

Operating cash flow per share (p)

34.8

34.5

44.8

32.3

49.1

55

Dividend per share (p)

15.3

17.3

19.6

22.4

25.6

29.3

I can’t argue with the progress shown in that table and Nichols’ return on capital running around 7% adds to the impression of a quality enterprise on offer. But as with all quality items, you have to pay up for the shares. At today’s 1,700p, Nichols trades on a forward price-to-earnings (P/E) ratio of just under 23 for 2018. Does that matter so much? As long as I can remember, Nichols has looked expensive, but that hasn’t stopped a 486% increase in the share price since the beginning of 2010.

And Spirent also ran…

Although revenue is down 4% at Spirent Communications, adjusted operating profit rose 10% and the adjusted figure for earnings per share elevated by 5.8%. When it came to the dividend though, the directors chose to leave the payout unchanged from the year before, suggesting a note of caution over proceedings, in my view.

Chief executive Eric Hutchinson reckons the company is focusing on the themes of exponential growth in data, the virtualisation of networks and assurance against cyber security threats. Several competitive contract wins in the period and market share gains demonstrate Spirent Communications’ good positioning for future growth, he argues.

Its trading record leading up to today’s results looks like this.

Year to December

2011

2012

2013

2014

2015

2016

Operating cash flow per share (c)

15

16

10

6.8

9.9

6.7

Dividend per share (c)

2.9

3.2

3.5

3.9

3.9

3.9

The table shows cash flow struggling to grow and the dividend clinging to a level first achieved in 2014. Meanwhile, the firm’s return on capital is less impressive than Nichols’ return on capital, running at just 3.4% or so. At 104p, Spirent’s forward P/E rating sits around 19 for 2018, which strikes me as a little elevated.

I’m more worried about Spirent’s forward stock progress after today’s results than I am about that of Nichols.

Growth at a reasonable price

To me, Nichols comes out on top after today's results, but I also want to alert you a promising opportunity featured in a special report called  A Top Growth Share From The Motley Fool.

The Fool's analysts identified this firm's compelling growth prospects after searching the market for opportunities. This company looks like it's on the cusp of an international expansion programme that could drive the share price much higher if things go well.

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Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.