Interactive Investor

FTSE 250 round-up: M&S rally joined by Vistry and Bytes

22nd March 2023 16:22

by Graeme Evans from interactive investor

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Despite a day spent in the red, the mid-cap index included some notable performances, among them one of the high street’s most famous names.

Upside for this share 600

The recovery for Marks & Spencer (LSE:MKS) shares got back on track today as mid-cap investors also swung behind housebuilder Vistry Group (LSE:VTY) and a technology stock with Microsoft (NASDAQ:MSFT) exposure.

M&S rose 5.65p to 153.7p near the top of the FTSE 250 index after Citi analysts upped their rating on the retailer to a “buy” with 175p price target, while two other City firms took a more positive view as the company’s turnaround continues to show progress.

The shares languished near 90p in October before rebounding to over 160p earlier this month, although recent turmoil pushed the widely held stock back to 137p on Monday.

In the retailer’s most recent update in January, chief executive Stuart Machin said M&S had sustained its trading momentum over the festive period.

This included the company’s food division outperforming the market on volume and value in the four-week Christmas period for the second year running. Clothing and Home also maintained a leadership position with its highest market share in seven years.

The progress follows the acceleration of efforts to reshape M&S as an omnichannel retailer supported by a store renewal programme. The strategy is increasingly winning fans in the City, with Deutsche Bank last month highlighting a target of 210p based on the continued benefits of investment in technology, store environment and pricing discipline.

Its analysts also flagged that higher interest rates should be less of an issue for M&S as its older customer base is more likely to benefit from savings rates than rising mortgage bills.

The retailer was joined at the top of the FTSE 250 risers board by Bytes Technology Group (LSE:BYIT), which rallied 5.8p to 381.4p after a trading update showed better-than-expected cash and operating profit growth in the second half of its financial year.

Surrey-based Bytes is one of the UK's leading providers of IT software offerings and solutions, with a focus on cloud and security products. Its involvement with Microsoft dates back to 1996 as one of the tech giant’s first resellers in the UK and has evolved to become one of Microsoft's largest partnerships in the country.

Chief executive Neil Murphy, who has run the business since 2000, said the successful strategy of acquiring new customers and then growing share of wallet meant the company was “well-placed to capture the significant growth opportunities ahead of us".

Broker Liberum lifted its profit forecasts by 3%-4% and reiterated a “buy” recommendation with a price target of 550p following the update.

The City firm said: “Bytes is a leading UK value-added reseller which offers investors a way to gain exposure to Microsoft, cybersecurity and other software vendors, which have good structural growth and pricing power.”

Today’s price compares with December 2020’s flotation level of 270p when South Africa’s Altron listed the business in London and Johannesburg with a valuation of £646 million.

Shares peaked at 572p towards the end of 2021 but spent almost all of 2022 below 500p as sentiment towards tech stocks weakened. It paid an interim dividend of 2.4p share in December as part of a policy to distribute 40% of post-tax pre-exceptional earnings.

Shares in housebuilding firm Vistry climbed 9.5p to 741.5p, despite today’s annual results including a 20% cut in the final dividend due for payment on 1 June to 32p a share.

The annual dividend cost of £162.3 million is covered twice by adjusted net earnings, with the company currently reviewing its allocation policy in the wake of last November’s £1.3 billion merger deal with Countryside Partnerships.

Chief executive Greg Fitzgerald said the integration of Countryside had made excellent progress with annualised synergies from the combination now expected to be about £60 million rather than the £50 million previously forecast.

Adding Countryside’s operations should give Vistry greater resilience to housing market cyclicality, with greater earnings visibility and a strong forward order book. The Partnerships business works with housing associations and local authorities and continues to report progress underpinned by high demand for affordable housing.

Today’s results for 2022 were in line with expectations as adjusted pre-tax profits rose 21% to £418.4 million and revenues lifted 14% to just over £3 billion. Exceptional items, which included a £97 million fire safety provision and £56.9 million of integration related costs, left statutory profits 22.5% lower at £247.5 million.

Peel Hunt, which has a price target of 1,075p, said: “2023 could be a seminal year for Vistry as a softer housing market provides an opportunity for the Partnerships business to stand out, which in turn leads to a bifurcation in the valuation of the business.”

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