Some FTSE 100 shares don’t get the same coverage as, say, Rolls-Royce, Lloyds Bank or Tesco. Today, I’m looking at two, both of which have seen their share prices hit 52-week highs in recent days.
In the clouds
Self-proclaimed “leader in accounting, financial, HR and payroll technology for small- and mid-sized businesses“, Sage (LSE: SGE) has seen its stock flying. In fact, the share price is now up by over a third in 2023.
By comparison, the UK’s lead index is down 1%. That’s the sort of outperformance that made me start picking my own stocks years ago. Sadly, Sage wasn’t one of them.
The company has clearly hit a sweet spot in terms of trading. Recurring revenue for the first nine months of FY23 rose 12% to £1.56bn with a strong performance in North America.
Steep valuation
That said, the recent rise in the share price is now reflected in the valuation. A forecast price-to-earnings (P/E) ratio of 29 for the next financial year (from October) is steep. That’s a risk.
This isn’t to say the share price won’t keep rising, especially if the company ends up narrowly beating its own guidance for the full year.
Sage boasts many of the things I look for in a company. This includes operating margins way above the average of companies in the FTSE 100.
Although unlikely to appeal to income investors due to the sub-2% yield, it has a brilliant track record of hiking its payouts too.
I like what I see here, but I’m not in a hurry to buy today due to the high price.
Post pandemic recovery
Another FTSE 100 share that’s been going great guns for holders is hospitality firm InterContinental Hotels (LSE: IHG). The shares have climbed 27% in 2023 so far.
This move seems pretty fair considering August’s encouraging half-year report. Back then, the Holiday Inn owner revealed that global revenue per available room — a key indicator of performance — rose 17% in Q2.
It seems clear that InterContinental continues to benefit from a bout of ‘revenge spending’ since the end of the pandemic. That’s despite a cost-of-living crisis forcing many/most of us to count the pennies more diligently than ever before. Demand for travel, it seems, is one of the few exceptions.
All in the price?
Again, a downside is the price. The shares now trade for almost 22 times forecast earnings. That feels quite dear for a cyclical company in a competitive industry, even if InterContinental does generate relatively high margins and returns on the capital it invests relative to peers.
That Q2 growth mentioned earlier was also nearly 10% higher than pre-Covid levels in 2019. To me, that suggests quite a bit of the recovery might already be priced in.
Still, there’s a dividend stream to compensate holders if the shares were to fall back. A yield of 2.1% is lower than that offered by a FTSE 100 tracker but it is expected to be covered over twice by profit. So a cut looks unlikely for now, especially as the interim payout was hiked by 10%.
I reckon Intercontinental shares could go higher, particularly if interest rate rises are paused in the months ahead. Regardless, management believes revenue growth will remain positive in the second half of the year.
