Interactive Investor

FTSE 250 round-up: dividends take centre stage

2nd March 2023 13:41

by Graeme Evans from interactive investor

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Three mid-cap companies are flying high today after well-received results. Our City writer has ll the details.

Business numbers 600

Dividend-paying National Express (LSE:NEX), top UK industrials pick Coats (LSE:COA) and the foundry business Vesuvius (LSE:VSVS) were centre stage today in a packed session for mid-cap results.

The biggest contribution to the robust performance of the FTSE 250 index came from coach operator National Express, which announced its recovery from three years of Covid disruption by resuming shareholder payments with the award of 5p a share.

Operating profits of £197 million were double 2021’s level and £6 million ahead of the City’s consensus, driven by a strong UK performance as demand recovered quickly following the first-quarter’s near complete network shutdown due to Omicron.

May’s planned dividend payment is three times covered by earnings and reflects confidence in the future growth of passenger numbers and the mobilisation of new contracts.

The company found room for the dividend alongside its key priority of reducing leverage. It has lowered the ratio of net debt to earnings to 2.8 times from 3.6 at the end of 2021 and said it expects to be close to its target range in the next two years.

However, Liberum analyst Gerald Khoo said today: “The restoration of the dividend suggests management is less concerned about leverage than we are. There is headroom on a covenant basis, but true leverage is much higher once the hybrid and other items are included.”

He added that the mix in today’s results was substantially different to his assumptions, with a significant shortfall in North America balanced by outperformance in other divisions.

Khoo has a price target of 155p, whereas UBS is more optimistic at 200p. The shares rose 15.3p to 139.3p today but are still below the 171p seen in December and more than 400p prior to the pandemic.

Coats was the next best-performing stock in the FTSE 250 index as the industrial threads business increased its dividend by 15% to $1.73 cents. Operating profits rose by 22% to $235 million (E196.6 million), despite high inflation and supply chain disruption during the year.

The earnings figure was in line with forecasts as Coats' ability to deliver cost savings offset revenues some 4% short of the City consensus at $1.58 billion (£1.32 billion).

It also announced a 40% improvement in its 2024 cost savings target and said it had reached agreement with trustees on a mechanism to switch off the regular cash contributions to its pension scheme.

Shares rose 5.9p to a one-year high of 79p, but analysts at Jefferies have a target of 102p as they reiterated Coats as one of their key picks in the UK industrials sector.

Peel Hunt is at 103p, noting that the shares are compelling value on 11 times earnings.

The broker said: “Coats has had a strong year despite the downturn in economic conditions  and forex headwinds. This has been delivered through impressive market share gains and proactive measures to improve margins.”

Peel Hunt is also a supporter of Vesuvius, which today boosted confidence with a stronger-than-expected 60% rise in underlying earnings to £227 million. The leader in molten metal flow engineering and technology reported an 18% rise in revenues to just over £2 billion as its pricing strategy more than recovered the year’s input cost rises.

The shares fell last month after the disclosure of a cybersecurity incident, but Vesuvius said today that all sites and systems were now fully operational and that the impact is limited to one-off costs of between £3 million and £5 million.

This, together with unchanged earnings guidance for 2023 and the reiteration of medium-term margin targets, meant shares rallied 9.4p to 432.4p. Analysts at Jefferies have a price target of 565p, while Peel Hunt is at 510p.

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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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