FTSE 250 round-up: record highs, dividends and takeovers

A gloomy day for the FTSE 100 is offset somewhat by a rush of positives on the mid-cap index.

Mid-cap stocks did their best to lighten the downbeat mood today as Dunelm (LSE:DNLM) and Future (LSE:FUTR) traded at record levels and Premier Foods (LSE:PFD) unveiled its first dividend in 13 years.

The FTSE 250 index was also the target of more private equity takeover interest after infrastructure giant John Laing (LSE:JLG) agreed a £2 billion deal with KKR, sending shares 11% higher.

The quartet offset some of the damage from another wobble in stock market confidence, with the FTSE 100 index now back below 7,000 after falling 1.2%. The domestic-focused FTSE 250 index was more resilient at 0.5% lower, with publisher Future up 8% on the back of interim results and home furnishing chain Dunelm 5% stronger after its latest upgrade to City guidance.

Premier Foods shares rose 4% as the Mr Kipling and Bisto maker signalled the end of its balance sheet blues by offering shareholders a final dividend of 1p a share.

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The payment planned for 30 July has been aided by favourable conditions during the lockdown, as strong cash flows have enabled Premier to retire expensive debt and reduce its leverage ratio to its lowest ever of 1.9 times earnings. This compares with 2.7 times a year earlier.

Debt built up by acquisitions such as the £1.2 billion spent on RHM in 2007 previously left the company in zombie status, but under the leadership of CEO Alex Whitehouse it now has the flexibility to pursue investment opportunities and to reward shareholders.

Analysts at Shore Capital said: “Set against a troubled decade, 2021 has been positively transformational for Premier Foods as management continued to harvest the benefits of focus, simplification and careful brand development.”

Shares were 4p higher at 106.4p, but Shore said current valuations failed to reflect promising market conditions and the company's brand strength. Peel Hunt has a price target of 130p after annual results showed earnings per share increased by 23% to 11p a share.

Dunelm’s digital success

The latest share price surge for Dunelm came on the back of “very strong” trading at most of its stores since their re-opening on 12 April, while it has continued to see good digital growth through home delivery and click and collect.

Aided by pent-up demand, good shopping weather and a robust property market, Dunelm now thinks profits for the year to the end of June will be stronger than the City's forecast of between £128 million and £134 million. While admitting there is still some short-term uncertainty about the outlook, Dunelm is now looking to a profits figure in excess of £148 million.

This compares with last year's £109.1 million, when sales fell 3.9% due to the impact of Covid-19, and the £125.9 million achieved the year before.

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Shares today briefly passed October's record high before settling 88p higher at 1,548p. Broker Peel Hunt thinks there's further to go after upgrading its target price to 1,750p 

Analyst John Stevenson said: “Trading conditions are clearly favourable, but Dunelm continues to outperform materially, growing its active customer base and existing customer spending levels.”

He added that Dunelm's record on shareholder returns pointed to total dividends of at least £450 million by September 2023, for a 15% return over the 28 months.

A bright Future

The momentum behind Future shares showed no signs of slowing after the consumer publisher and new owner of price comparison business GoCo posted half-year results materially ahead of City expectations, buoyed by strong growth in its digital reach.

Revenues were up 89% to £272.6 million in the six months to 31 March, with adjusted earnings per share (EPS) almost doubling to 65.4p in the period. Shares jumped 7% to a new record of 2,572p but Numis Securities lifted its price target for the second time in three months to 3,090p after increasing its EPS forecast for 2022 to 126.9p from 110p previously.