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Why Huntsworth plc’s Shares Surged Today

Shares in public relations and healthcare communications group, Huntsworth (LSE: HNT) surged as much as 15% in early trade today, after the company unveiled its interim trading statement.

The company also revealed today that its chief executive, Lord Chadlington was planning on stepping down as soon as a replacement could be found.

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Despite the surge in Huntsworth’s share price this morning, the company’s half-year results were nothing to get excited about. The company had already warned that these results would come in below expectations, so investors weren’t expecting much.

Revenue for the first half of the year fell 1.7% on a like-for-like basis and 2.4% on a constant currency basis. Additionally, operating profit fell to £8.9m for the first half of the year, down from £12.4m reported during the same period a year ago. Diluted earnings per share, after highlighted items, for the period fell to 1.4p, down from 2.5p reported during the same period last year.

However, investors were given a reason to celebrate as the company maintained its interim dividend at 1p per share. Some analysts had been speculating that with profits falling, Huntsworth would be forced to cut its dividend payout to conserve cash.

For income investors, this is great news. With the interim payout maintained, Huntsworth’s shares will support a total dividend payout of 3.5p per share this year, which translates into an impressive dividend yield of 8.5%.

Change at the top

But what really caught investors’ attention today was the revelation that Huntsworth’s chief executive, Lord Chadlington was planning on stepping down.

Indeed, as Huntsworth’s share price has fallen over the past year, shareholders have made their dislike of Lord Chadlington well known. Only two months ago a third of Huntsworth’s shareholders abstained from voting on the issue of his re-election as chief executive at Huntsworth’s AGM. In addition, there have been concerns about Lord Chadlington’s pay packet.

So, it seems as if investors are excited about Huntsworth’s future now Lord Chadlington is stepping aside.

Should you buy in?

How should investors react to this news? Well, present City forecasts indicate that Huntsworth is currently trading at a forward P/E of 8.7, which appears cheap.

Nevertheless, with the company reporting a drastic slide in first half results today, full-year results could be revised downwards. Unfortunately, it could be the case that Huntsworth is not as cheap as it first appears. Still, for the time being the company’s hefty dividend yield of 8.5% looks safe.

What’s more, it was recently revealed that respected PR executive, Matthew Freud had built up a 3% stake in Huntsworth. When quizzed about the stake, Mr Freud revealed: “I recognise a decent PR business when I see one”.

It’s interesting to note that the last time Mr Freud made an investment of this kind, in M&C Saatchi, he brought the shares for 20p and sold them seven years later for 200p — an impressive return.

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Rupert Hargreaves owns shares of Huntsworth. The Motley Fool has no position in any of the shares mentioned.

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