Interactive Investor

FTSE 250 round-up: Royal Mail, Moneysupermarket, Dr Martens, Mitie, Elementis

A dour session for the FTSE 250 index today masked an upturn in fortunes for some widely held stocks, not least the owner of Royal Mail and for Dr Martens.

25th January 2024 13:25

Graeme Evans from interactive investor

A big City upgrade today lifted the owner of Royal Mail as mid-cap investors also tapped into a relief rally by Dr. Martens Ordinary Shares (LSE:DOCS) and a competition boost at Moneysupermarket.com Group (LSE:MONY).

Other risers in an otherwise lacklustre session for the FTSE 250 index included support services firm MITIE Group (LSE:MTO) after its latest robust trading fuelled hopes for increased shareholder returns.

The biggest jump was by specialty chemicals firm Elementis (LSE:ELM), which has now rebounded 15% since last week’s disclosure of a stronger-than-expected recovery in revenues.

Dr Martens was not far behind in today’s session after it said US trading remained difficult but no worse than expected at the time of its most recent profit warning in November.

A stronger pound means it faces a £5 million currency headwind but investors took this in their stride as shares recovered 6.2p to 81.5p. They were above 150p in August and 370p when the bootmaker was valued at £3.7 billion in its January 2021 flotation.

Broker Peel Hunt likes the “attractive, high margin, globally relevant heritage brand” but with a trading recovery unlikely before the autumn it has placed the“unloved” shares on eight times projected earnings for a price target of 110p.

Today’s update revealed a 21% drop in third quarter revenues to £267.1 million, with the Americas division continuing to feel the weaker backdrop through a double-digit decline in direct-to-consumer sales and wholesale revenues about half the level of a year ago.

Chief executive Kenny Wilson said: “Trading in the quarter was volatile and we saw a softer December in line with trends across the industry. 

“While the consumer environment remains challenging, we are taking action to continue to grow our iconic brand and invest in our business.”

This week’s recovery for International Distributions Services (LSE:IDS) continued, up another 8.7p to 283.9p, as analysts at JP Morgan increased their price target from 300p to 450p.

The upgrade to “overweight” came after Ofcom outlined options for the Royal Mail universal service obligation, including a three-day service potentially saving up to £650 million a year.

Cutting delivery days will require parliamentary approval, but the regulator’s recognition that the universal service is not financially sustainable is still seen as significant.

Shares have risen 13% in the past five days, further aided by last week’s trading update showing a 21% jump in parcel volumes for the December quarter as Royal Mail also achieved its best seasonal operational performance in four years.

The jump for comparison site Moneysupermarket.com, which lifted 7.4p to 253.8p, came a day after Amazon disclosed it is to shut its UK insurance store after just 15 months.

When Amazon announced the initiative, Moneysupermarket shares fell 16% in one session amid fears over much greater competition in one of its key verticals. However, only five insurers were on the site by the time Amazon pulled the plug.

Jefferies said the exit will be viewed positively for Moneysupermarket although it pointed out many investors had already started to see Amazon as less of a threat due to lack of traction.

In today’s Mitie update, the facilities manager impressed the City with better-than-expected revenue momentum, cost control and inflation pass-through. Its third quarter performance keeps it on track to deliver annual operating profit of at least £190 million.

Shares rose 2.7p to 102.6p as the company’s strong cash generation and balance sheet position have fuelled hopes of increased shareholder distributions.

Peel Hunt has a price target of 137p while Liberum and US bank Jefferies are at 125p. Jefferies said: “Robust trading increases our conviction that Mitie is an undervalued asset in a sector with rekindled private equity interest post-Covid.”

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