FTSE 250 round-up: Pennon, Hollywood Bowl, Avon Tech

The resurgence of Avon Technologies (LSE:AVON) and growth ambitions of Hollywood Bowl Group (LSE:BOWL) today contrasted with the position of Pennon Group (LSE:PNN) amid its second rights issue in as many years.

Pennon shares sank 87.2p to 364.8p at the bottom of the FTSE 250 index after the South West-based water company said its latest operational reset also included a rebased dividend alongside a heavily discounted rights issue worth £550 million.

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The fundraising is needed as capital investment in Pennon’s water businesses over the AMP8 regulatory period is now expected to be approximately £3.6 billion. That’s around £1 billion more than Pennon’s original plan based on its final Ofwat determination.

The fully underwritten rights issue follows one worth £490 million in early 2025, which was accompanied by a reset of the dividend for 2024-25.

About 50% of Pennon’s shareholders are UK-based, including more than 80,000 customers and about a third of its workforce.

They will have a decision to make in the coming days after being offered the right to buy seven new shares for every existing 15 shares already owned at a price of 250p per new share.

That’s a 35.5% discount to the theoretical ex-rights price, which is the level that factors in the impact of the new shares and is based on last night’s price of 452p. That’s similar to the 35% discount announced by National Grid (LSE:NG.) in its £6.8 billion fundraising in 2024.

The rights have a value and can be sold and bought, like shares. Participation in the offer will help shareholders avoid or minimise dilution of their percentage ownership. The result of the rights issue is due to be announced on 27 October.

Taking into account the fundraising, Pennon said the implied underlying reduction in its dividend per share for 2026-2027 is approximately 30% to about 18p a share. It intends to grow the payout in line with inflation from this rebased level.

New chief executive Keith Haslett said: “I am confident this plan will deliver a better service for customers, improve our environmental performance and generate sustainable, growing value for our shareholders.”

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At the other end of the FTSE 250, upgraded guidance and new medium-term targets helped Avon Technologies shares to jump by another 282p to a five-year high of 2,190p.

The shares were more than 4,000p in 2020 when the company was known as Avon Rubber and a hugely popular stock for retail investors.

A product testing failure that would ultimately lead to the winding down of Avon’s body armour business left the stock as low as 620p in autumn 2023.

The initial phase of a turnaround strategy under chief executive Jos Sclater has since secured a return to the FTSE 250 index as Avon doubled earnings per share from 2023’s  level.

Sclater today laid out the next leg of his strategy, which is to drive further improvement, create capacity to invest in growth and to generate increasing cash and returns.

The business is now split between Avon Protection, which provides respiratory and protective systems, and US-based Team Wendy as a supplier of military helmet systems.

Avon said it continues to see strong momentum, including significant growth in its order book. Annual results due in November will be ahead of previous City expectations, including revenue growth of about 12.5% and an operating profit margin well above its guidance range of 14-16%.

The company’s new medium-term guidance points to compound annual revenue growth of more than 5% and a target margin range of 16-18%.

Broker Peel Hunt raised its price target to 2,500p, which is based on a target multiple in line with peers at 14 times forecast 2028 underlying earnings.

It added: “Given the potential for specific step-change revenue opportunities to develop beyond the 2028 financial year (in an ongoing supportive environment for defence spending), we view this multiple as good value.”

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Hollywood Bowl shares rose 15p to 261.5p after the operator of the UK’s s and Canada’s s largest ten-pin bowling brands delivered a reassuring year-end trading update.

Cost controls and dynamic pricing helped to mitigate the impact of the spring and summer heatwave, which left UK like-for-like revenues down by 5.6% in the second half of the year compared with a rise of 2.6% in the first half.

Overall revenues rose by 4.3% to a record £261.6 million in the year to 30 September, leaving the company on track to meet the City’s profit expectations of between £48 million and £53.2 million.

It also reported continued progress with estate expansion, having opened four new sites in the year and signalled a further eight in the UK and Canada in the current financial year.

The openings will take the portfolio to 103, which the company hopes to extend to 130 by 2033.

City firm Berenberg reiterated its Buy recommendation and 450p target price following today’s update: “Given its market-leading offerings in the UK and Canada, the strength of the balance sheet and the strong pipeline, we remain bullish on the outlook for Hollywood Bowl.”