Trading update highlights

I’m talking about Senior (LSE:SNR). The engineered components and systems supplier saw the share price jump yesterday, meaning the stock is up 50% in the past year.

It tied in with the release of a trading update for the 2025 calendar year, in which it said it expects full-year “performance to be comfortably above previous expectations”.The annual results are due out in March.

The upbeat message was primarily driven by strong performance in its aerospace division, which benefits from higher commercial aircraft production. Interestingly, another factor was robust defence demand.

Management also highlighted positive trading momentum into this month, giving investors confidence that things can keep going. Alongside the uplift in outlook, the company has reduced its cost base and received some early proceeds from the sale of its aerostructures business. This means it expects the annual report to show net debt below £80m (versus £153m from this time last year).

The direction from here

For those who weren’t already invested, the issue is now whether or not the ship has sailed. The immediate answer is that we’ll have to wait until March for the full story to come through. If results turn out even better than current sentiment indicates, there could be further room for the stock to run.

If we set aside the expectation of results, the fundamentals driving the company suggest this could be sustainable. With firms like Boeing and Airbus still ramping up production after pandemic supply-chain disruptions, Senior’s aerospace revenue has legs to keep growing.

Getting rid of the lower-margin Aerostructures division lets the company focus on steadier and more profitable areas. Over time, this should make the company more efficient and hopefully more profitable.

Despite all this good news, there are still risks involved. For example, aerospace and defence is becoming an increasingly competitive area, given the heightened geopolitical tensions. Large players like Rolls-Royce are looking for more business, potentially causing a loss of market share or shrinking profit margins for Senior.

Overall, I think the trading update acts to put Senior on the investment radar of a lot more people. Even though I like the company, I’d prefer to wait until March to get the full details before making a decision. This is mainly due to a lot of optimism now factored in to the stock price. As a result, the bar to impress (and lift the stock) has suddenly got higher!

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The company’s agreed to sell its aerostructures unit to private equity. And the remaining fluid conveyance and thermal management (FCTM) division has some attractive properties.

Divestiture

Senior’s aerostructures operation makes parts for aircraft. And the regulated nature of this industry means there’s a lot to like about this business. Despite this, the unit’s achieved relatively weak margins and returns on invested capital. Its flexonics division however, has fared much better in making ducts, hoses, and tubes. 

Senior’s agreed a deal with Sullivan Street Partners to sell its aerostructures operation for £200m. Of this, £150m is up front with £50m to follow, depending on future performance. The agreed price represents a slightly higher EBITDA multiple than the FTSE 250 firm currently trades at. And the company has big plans for the money.

Outlook

Senior plans to use the proceeds to strengthen its financial position and reduce its outstanding share count. And the impact of this could be quite significant. The proposed £40m share buyback amounts to 5% of the firm’s current market value. And the remaining cash could make a big dent in the company’s £162m net debt (excluding leases). 

The real highlight though, is the remaining FCTM business. On the revenue line, Senior’s looking to increase growth rates from 1% in 2024 to 5% going forward. On top of this, it’s looking for operating margins to triple and returns on invested capital to more than double. Given this, I think investors have to be interested in taking a look. 

Valuation

There’s clearly a lot to like about Senior’s proposed restructuring. The remaining business should be in a stronger financial position with much more attractive economic properties.

Senior currently has a market value of £810m, with £162m in debt. Subtracting £150m for the sale of the aerostructures division brings the enterprise value to around £820m. The flexonics unit currently makes around £35m in annual operating income. And with the firm targeting 85% cash conversion, this should amount to just under £30m a year in free cash. 

That makes me wary, especially given the cyclical nature of the company’s end markets. A free cash flow multiple of 27 seems high to me, especially with the sectordoing well recently.

Foolish conclusion

I think Senior’s restructuring move makes a lot of sense. If it can achieve the kind of operating metrics it’s anticipating, the remaining business should be a high-quality operation.

Strong demand, supply chain constraints, and significant backlogs suggest to me that the end markets the firm sells into are near cyclical highs. So considering a buy right now looks risky to me.

One thing about the industry is that a crisis – and therefore an opportunity – always seems to show up sooner or later. So I’m going to keep watching this one for a bit.

The post This FTSE 250 stock is up 300% in 5 years — and it might just be getting started appeared first on The Motley Fool UK.

Senior (LSE:SNR) designs and manufactures fluid conveyance and thermal management (FCTM) components. And I think its latest results look very encouraging.

A stock in transition

At the moment, Senior is a firm in transition. It’s in the process of selling off its aerostructures unit (which makes structural parts for aircraft) and has agreed a price of up to £200m.

That leaves behind the FCTM business, which makes things like tubes and hoses for liquids to flow through. These are used in aircraft, but also in land vehicles and industrial settings.

It sounds basic, but it really isn’t. Senior’s products are highly technical, bespoke, and often protected by regulation that specifies their use. 

Management is targeting 5% organic revenue growth, 10% operating margins, and returns on capital employed of between 15% and 20%. But the latest results are some way short of this.

Early signs

Excluding the divested aerostructures unit, Senior’s revenues grew at 3% during the first half of 2025. Operating margins were 8.4% and returns on capital employed were 11.9%.

All of those are some way short of the firm’s target metrics. But there were some positive signs, most notably as a result of the company’s sales to the defence industry. 

Senior’s components are used on a number of US military aircraft. And revenues in the defence part of the business grew 14% during the first half of the year. 

With European countries increasing their defence spending, management is anticipating good growth from this part of the business. That could be very positive for the FTSE 250 firm.

Analysis

I think Senior looks like a really interesting stock. Leaving aside any cash coming from the sale of its aerostructures unit, if it can hit its medium-term targets, the shares could be a bargain.

The firm made 5.07p per share during the first half of 2025. But management thinks operating margins could increase 20% from their current levels. 

That would take earnings per share to 6.03p. And if it achieves something similar in the second half the year, the current share price implies a P/E ratio of around 15. 

For a company planning on growing revenues at 5% a year on average, I think that’s quite attractive. And a boost from increased defence spending is a welcome addition. 

A stock to buy?

Of course, there are a lot of ‘ifs’ in there. One of the risks with Senior from an investment perspective is that its customers are relatively limited. This is especially true in its aviation divisions.

Barriers to entry in this industry are high, but there aren’t huge numbers of firms making aircraft engines. And that’s not ideal from the perspective of a company making components for them.

Nonetheless, Senior is at an interesting crossroads. If management can achieve its goals with the restructured business, I think the stock could well be a bargain.

My own view is that the cash from the divestiture and the boost from higher defence spending make it worth the risk at today’s prices. That’s why it’s on my list of shares to consider buying.

The post 1 FTSE 250 stock benefitting from higher defence spending appeared first on The Motley Fool UK.

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Projecting earnings

Theoretically, there is no limit on how much money an investor can make in the stock market. A successful investment in a tiny penny stock could yield transformative gains that might even push someone into millionaire territory.

Sadly, penny stocks are exceptionally risky bets that nine times out of ten end up failing miserably. In fact, there’s a good chance wealth will be destroyed rather than created. So, expecting such an explosive return will likely leave investors disappointed.

However, there are plenty of other non-penny stock opportunities to explore. And for those wanting to take the index fund investing approach, the FTSE 100 has historically offered an annualised return of around 8% per year. Assuming this pattern continues between now and 2030, a £20,000 ISA investment could grow to £29,800 with no additional capital.

Yet for the investors willing to get their hands dirty with stock picking, the gains could be far more impressive while still staying in the land of large- and mid-cap stocks.

Unlocking impressive returns

Let’s look at the engineering group, Senior (LSE:SNR), as an example to consider. As a quick crash course, the business designs and produces critical components for original equipment manufacturers operating primarily within the aerospace & defence sector. And in the last five years, it’s proven to be a tremendous performer, climbing by almost 270% before counting dividends.

That’s the equivalent of a 29.9% annualised return, transforming an initial £20,000 investment into a whopping £87,570!

These market-beating returns were driven by a variety of factors largely revolving around operational improvement. Since 2020, the company has secured a series of new contract wins that boosted its order book, pushing both revenues and profits higher while simultaneously streamlining operations and bolstering margins.

Today, there’s still a strong bull case for investors:

• The streamlining continues with management aiming to dispose of its loss-making aerostructures segment.
• Its core civil aerospace income continues to rise as build rates by Boeing and Airbus climb higher.
• And the fleet modernisation cycle, where airliners are replacing their planes with more fuel-efficient aircraft, is accelerating, driving more demand.

Taking a step back

There’s a lot to like about this business. But it still has its weak spots. Even with restructuring progress, profit margins are still pretty thin relative to its competitors. And even with good execution, there’s no guarantee it can catch up to its more nimble rivals. This is particularly problematic given the large amount of outstanding debt on the balance sheet and currently thin coverage of interest payments.

With that in mind, should its cyclical cash flows suffer an unexpected slowdown, its recent share price gains could struggle to keep up with its recent track record. And in the worst-case scenario, they could actually reverse.

I still see growth potential here for a Stocks and Shares ISA. So, investors may want to consider taking a closer look, but it’s essential to weigh both the risk and potential rewards.

The post In 5 years, £20,000 invested in a Stocks and Shares ISA could be worth… appeared first on The Motley Fool UK.

Source: TradingView

I’m sceptical of the idea the stock is set for a big recovery in the near future. But I do think there’s a lot to like about the underlying business – and investors should take note.

What does Senior do?

Senior is a specialist in fluid conveyance and thermal management (FCTM). In other words, it makes pipes and tubes that liquids flow through and systems that keep machines cool.

At the moment, around two-thirds of the firm’s revenues come from its aerospace division. This is a heavily regulated industry, which creates a high barrier to entry for competitors.

The trouble with this, however, is that the industry is a duopoly. And when Boeing and Airbus get into difficulties – as they have done recently – there isn’t really anyone else to sell to.

As a result, 2024 was a difficult year for the company. Revenue growth was only 1% and earnings per share were down 30%, which highlights the risks with the business. 

Transition

There isn’t much Senior can do to sort out Boeing’s ongoing problems. But it is making moves to put itself in a better position going forward.

The firm is selling off its aerostructures business (which makes structural parts for planes) to focus on its core FTCM strengths. This will change the company in a number of ways.

First, it should lead to higher profits – the aerostructures unit makes up around 28% of total revenues but made a loss in 2024. Divesting this should significantly boost margins.

Second, it will mean Senior’s aerospace division only makes up around 50% of its revenues. This should reduce the overall risk that comes from depending on a couple of key customers.

Outlook

Given the ongoing difficulties at Boeing, I’m not convinced Senior’s share price is set to climb 50% in the next year. But management have set some very ambitious targets for themselves.

The firm is targeting 5% annual organic revenue growth, operating margins of 15%, and a return on capital employed of between 15% and 20%. That’s almost unrecognisable from 2024.

Whether or not the company can hit these targets remains to be seen. But if it can, I think the current share price is a clear bargain.

Officially, the stock trades at a price-to-earnings (P/E) multiple of 20, but that’s based on 2024’s profits, which were unusually weak. As things normalise, I expect this ratio to contract sharply.

Cyclical investing

Warren Buffett says that the key to investing well is being greedy when others are fearful. It can be hard to know when there’s fear around, but I think Senior is one of the easier cases.

The firm has been going through an unusually difficult time, but investors with a long-term focus should be able to look beyond this. And there could be a lot to be optimistic about.

I’m considering adding the stock to my portfolio because divesting its aerostructures business could be transformational. As a result, I’m rather hoping it doesn’t climb 50% any time soon.

The post 1 FTSE 250 stock analysts think could climb 50% appeared first on The Motley Fool UK.

The two businesses are very different. But both are quality operations that I’d like to own shares in for the long term, so which is the better opportunity right now?

Diageo

Right now, Diageo has a market cap of just under £53bn. From an investment perspective, the next question is how much cash the company is going to generate over the next 20 years or so.

In 2024, the FTSE 100 firm managed to pull in just over £2.bn in free cash (or 92p per share). And that’s in a year when it’s been battling weak consumer spending in its largest markets. 

Diageo’s largest market is the US and the threat of tariffs means there’s a risk that any recovery in that area might be slow. That’s an important factor to consider. 

Over the long term, though, I think the firm is likely to be fairly steady. Earnings have grown at 3.5% per year for the last decade and I think investors should expect at least this going forward. 

Improving end markets might take this up to 4%, which should mean around £28 per share in free cash over the next 20 years. A £23 share price means that’s an average annual return of 6%. 

Given Diageo’s scale and brand portfolio, I think this is pretty good. But the big question is whether investors can expect to do better from a different stock.

Senior

With a market cap of just £614m, Senior is tiny compared to Diageo. The FTSE 250 firm is an engineering business that generates most of its revenues from aerospace and land vehicles. 

One of the risks with this is that aircraft manufacturing is a duopoly. That means issues with one or two companies can have a huge effect on demand and this has been happening in 2024.

Both Boeing and Airbus have had production problems. And slower growth in this part of the business has caused Senior’s overall revenues to fall this year, taking the stock down with it.

The risk is that these issues could go on for a while – especially in Boeing’s case. But Senior has a strong competitive position that I think gives it a decent chance to grow over time.

Over the last 12 months, the company has generated £21m in free cash, which is a 3.4% return on the current market cap. But this is unusually low compared to the last 10 years. 

The average over the last decade has been around £41m per year, which is a 6.6% annual return. So if the current issues are temporary, the stock could be a very good long-term investment.

Which is a better bargain?

Investing is often about comparing stocks that don’t have much in common and that’s the case with Diageo and Senior. While I’ll be following both businesses closely, I have a clear favourite at today’s prices.

If Senior just performs in line with its 10-year average, Diageo will have to grow quite a bit to catch up. That’s why the FTSE 250 stock is the one I’m more interested in for my own portfolio.

The post Which of these UK stocks is the better bargain in December? appeared first on The Motley Fool UK.

While the company is facing some issues, management believes these are short-term in nature. And with the stock at a 52-week low, its shares might be available at an unusually good price.

What’s going on?

Senior consists of 26 businesses that design and manufacture components. It has two main divisions – Aerospace (both commercial and defence) and Flexonics (land vehicles and energy).

Source: Senior Interim Results Presentation 2024

The company’s products are technical, complex and often built to meet specific customer requirements. And this makes it attractive to investors for two reasons.

First, the business is hard to disrupt. Aircraft components are often subject to regulatory approval, meaning Senior’s customers can’t easily change to another supplier. 

Second – and related – this gives the company a degree of pricing power. This should help protect it against the effects of inflation.

Why is the stock down?

Senior’s latest trading update was disappointing for investors. Overall sales increased by 5%, but there were issues in both of the company’s major trading divisions.

While Aerospace revenues grew 13% compared to the third quarter of 2023, this was below the 14% growth achieved earlier this year. 

Management highlighted issues in the commercial side of the Aerospace division, which makes up around 46% of group sales. Both Boeing and Airbus have been dealing with output issues. 

Flexonics revenues had been down 6% during the first half of 2024. But this increased to a 9% decline, due to reduced truck production in the US and Europe. 

Outlook

Senior is clearly in something of a cyclical downturn, but the big question for investors is how long this will last. And management offered a positive outlook on this:

The short-term issues described in this trading update are clearly temporary in nature… Increasing aircraft build rates, operational efficiency benefits and improved price agreements are expected to drive good growth in Aerospace Division performance beyond 2024, and we remain confident of continuing to out-perform the key end markets in which our Flexonics Division operates.

If this is correct, Senior is a good business having a bad year. And that’s the sort of thing that I think long-term investors should pay attention to. 

At a price-to-earnings (P/E) ratio of 18, the stock is roughly in line with its 10-year average. But that can sometimes be misleading when it comes to cyclical stocks.

The price-to-book (P/B) multiple can be a better metric for valuing this type of company. And at 1.15, it’s at some of its lowest levels in the last decade outside of the pandemic years.

Senior P/B ratio 2014-24

Created at TradingView

A buying opportunity for me?

Senior is vulnerable to cyclicality in the end markets it sells into. That means there will be good years and bad years and there’s not much the company or its shareholders can do about that. 

Despite this, the FTSE 250 manufacturer looks like a genuinely differentiated business dealing with some short-term issues. On that basis, I’m adding it to my list of stocks to consider buying.

The post After falling 13% in a day, should this FTSE 250 stock be on investor radars? appeared first on The Motley Fool UK.

Easily beating the FTSE 250 index

Senior produces and sells technology components and systems in the aerospace, defence, land vehicle, and energy markets. Split into two divisions, aerospace and flexonics, the business has an international presence with operations primarily in North America and Europe.

As I write, Senior shares are trading for 178p. At this time last year, they were trading for 130p, which is a 36% increase over a 12-month period. For context, the FTSE 250 index as a whole is down 2% during the same time period.

The future looks bright

Senior’s two divisions are primed for huge growth, in my opinion. To start with, aerospace is a burgeoning sector as the impact of the pandemic has lessened. Airlines are building their fleets up and defence spending is also rising. Next, flexonics is also set for growth due to the move away from traditional vehicles towards electric vehicles and energy-related spending. Both of these aspects should help boost growth for Senior. In turn, the shares could soar, boosting earnings and investor returns.

Senior has seen its performance rebound after the pandemic. It has grown revenue and profit for the past two years. In addition to this, analysts reckon annual earnings could rise by more than 50% this year. Furthermore, earnings growth forecasts for the two years after are currently estimated at 37% and 40%, respectively. However, I do understand that past performance is not a guarantee of the future and forecasts don’t always come to fruition.

Finally, Senior shares are currently trading on a price-to-earnings growth (PEG) ratio of just 0.5. A ratio of below one can indicate that shares are undervalued. In addition to this, the shares would boost my passive income with a dividend yield of 1%. This is below the FTSE 250 average of 2% but I believe this could grow in line with earnings over time. I do understand that dividends are never guaranteed.

Risks and my verdict

From a bearish perspective, Senior could encounter issues. There have been many supply chain issues for many businesses in recent times and this could mean Senior cannot produce or deliver on orders if these issues were to impact it. This could hinder performance and returns.

Another risk to note for Senior is its appetite for acquisitions. These don’t always work out and sometimes can be costly to resolve, either by selling a newly acquired business or pumping lots of money into the new firm to amalgamate it into the existing business. This could impact sentiment and investor returns.

Overall I like the look of Senior shares. I would be willing to buy some shares for my holdings if I had the spare cash to invest. It is one of a few FTSE 250 stocks to have experienced share price growth during the current market volatility. The fact it is operating in a burgeoning market primed for huge growth, alongside its cheap valuation, helped me make my decision.

The post Up 36% in a year, here’s a FTSE 250 stock set to soar further! appeared first on The Motley Fool UK.

This provides fans of value stocks with a chance to build a five-star portfolio at little cost. Here are two top shares I’m hoping to buy next month.

Assura

Rising interest rates have been a huge drag on real estate investment trusts (REITs) like Assura (LSE:AGR). They’ve pushed up the cost of servicing their large debt piles and pulled property portfolio valuations lower.

This could remain an issue as the Bank of England tackles stubbornly high inflation. But I’d still buy the company today. I believe it’s too cheap to miss following recent price weakness (it’s down 35% over the past 12 months).

Right now Assura shares trade on a forward-looking price-to-earnings (P/E) ratio of just 13.5 times. This is well below historical levels that sit around the high teens to early twenties.

The company also carries a large 7.1% dividend yield for this financial year (ending March 2024). This is miles above the 3.5% average for FTSE 250 shares.

Assura has a terrific opportunity for impressive long-term earnings growth. Its target market — building and operating primary healthcare facilities in the UK — looks set for rapid expansion as the size of the country’s elderly population balloons.

And the company has built a strong development pipeline (of £483m as of March) to exploit this fast-growing property sector.

Senior

Unlike Assura, Senior (LSE:SNR) has actually gained value in 2023. Yet at current prices I believe it’s one of the FTSE 250’s best value stocks to buy.

City analysts expect annual earnings here to rise 54% this year. That leaves the aerospace business trading on a price-to-earnings growth (PEG) ratio of 0.5.

A reading below one indicates that a share is undervalued. What’s more, the reading remains below this benchmark through to 2025. Brokers predict further earnings growth of 37% and 40% in 2024 and 2025, respectively.

A bright outlook across its markets underpins these impressive forecasts. Senior’s core Aerospace division is thriving as the airline industry rebounds and defence budgets steadily climb. Meanwhile, orders at its Flexonics unit are benefitting from rising electric vehicle and renewable energy-related trading.

Supply chain issues pose an ongoing problem. But, encouragingly, trading here continues to impress, with revenues rising 20% in the first half and operating profit 35%.

I’m expecting company turnover to take off in the coming decades as global airlines rapidly build their fleets. In an encouraging update, Airbus recently hiked its 20-year forecast for new aeroplane deliveries (to 40,850 from 39,490).

And thanks to its strong balance sheet, Senior can give earnings a boost through further acquisition action. The company — which acquired fluid technology specialist Spencer Aerospace in November — has a net-debt-to-EBITDA ratio of just 1.6 times.

The post 2 FTSE 250 stocks (including a 7.1% yield!) I’d love to buy in September! appeared first on The Motley Fool UK.

However, not all UK shares are flattish today. Here’s why these British stocks are either powering ahead or plummeting in start-of-week business.

Senior soars on new offer

The Senior (LSE: SNR) share price has soared 11% in Monday business, taking total gains over the past year to 123%. The small-cap has soared to 169p after suitor LSF XI Investments returned with an increased offer price.

Senior — which has rebuffed LSF’s acquisition attempts four times prior to today — said the cash offer terms had been improved to 200p per share. This is up from LSF’s last bid of 185p, which was rejected last week.

UK defence share Senior is perhaps best known for building parts for the aerospace industry. It’s been hit hard by the impact of Covid-19 on the civil aviation sector and latest financials showed sales at its Aerospace division fell 25% year-on-year in the first quarter.

Ilika continues to lose power

Ilika’s (LSE: IKA) share price has, by contrast, sunk in start-of-week trade. Down 5% on the day at 147.5p, gains for the past 12 months have been trimmed to a still-mighty 173%. Investors have sent the UK electronics share to six-month lows following the release of fresh trading numbers.

The solid-state battery maker said revenues dropped 18% year-on-year to £2.3m during the financial year to April. This, in turn, prompted its adjusted EBITDA loss to widen to £2.3m, from £2.1m a year earlier.

Ilika also said cash and cash equivalents had fallen £5m year-on-year to £9.8m. The business will release full-year results on Tuesday 6 July, it said.

UK share Capita rises on trading and disposal news

The Capita (LSE: CPI) share price meanwhile has leapt 6% following the release of fresh financials. Though at 39.85p, the FTSE 250 share still trades 18% lower than it did a year ago.

The UK support services share said it has enjoyed “an improving trend in our trading performance in the first half of the year.”

As a consequence it expects to record its first annual sales rise for six years in 2021. Capita also said it’s won a number of significant contracts including The Royal Navy and Tesco Mobile. The outsourcing giant added that it continues to make “good progress” with its cost-reduction programme.

In other news, Capita said it has agreed to sell its 51% stake in AXELOS Limited to PeopleCert International. The best practice business — a joint venture established with the Cabinet Office in 2013 — will provide Capita with a total cash windfall of £183.6m.

The post Here’s why these UK share prices are shaking wildly today! appeared first on The Motley Fool UK.