Interactive Investor

FTSE 250 round-up: two winners and more bad news for Travis Perkins

Despite the gloom, some companies are upgrading profit guidance and, when they do, share prices are chased higher. But conditions aren’t easy for everyone, and firms that disappoint are being punished.

11th October 2023 15:39

by Graeme Evans from interactive investor

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The journey for FTSE 250 pacesetters MITIE Group (LSE:MTO) and FirstGroup (LSE:FGP) continues to head in one direction after both companies delivered big upgrades to profits guidance today.

Facilities manager Mitie rose 5.4p to 104.4p, leaving shares a third higher so far in 2023 after it revealed better-than-expected revenue growth of about 11% to £2.1 billion for the first six months of the financial year to 30 September.

The momentum follows contract wins for new Amazon sites, the Home Office and insurer Phoenix Group, as well as renewals with Lloyds Banking Group, Network Rail and Sky.

In its third upgrade to City guidance of the past year, Mitie said it now expects 2024 earnings of at least £190 million compared with a previous estimate of £175 million.

The optimism comes as management led by chief executive Phil Bentley prepares to outline the firm’s three-year strategy at a presentation at The Shard tomorrow afternoon.

With shares on a multiple of 10 times forecast 2025 earnings, Numis Securities thinks the Mitie story retains both value and momentum. The broker today increased its “buy” recommendation by 10p to 125p, while Peel Hunt nudged up to 122p from 116p.

Analysts at Stifel added: “We are buyers and view the current valuation as attractive for a business which we believe can consistently turn profit into free cash flow over the medium term, enabling it to fund further bolt-on deals and share buybacks.”

Mitie spent £46 million in the period on five higher growth and margin bolt-on acquisitions, while the second part of a £50 million share buyback programme is also underway.

At FirstGroup, shares jumped 6.2p to 152.7p after it revealed it is on track for a full-year operating profit £14 million to £20 million higher than originally thought. City estimates before today were £175.6 million, up from £161 million last year.

The progress has been driven by First Rail, where the performance of the division’s open access operations of Hull Trains and Lumo on the East Coast Mainline has benefited from increased leisure travel over the summer period.

In addition, variable fee payments on contracts that include South Western Rail have been agreed with the Department for Transport at a rate ahead of the amounts in 2023 results.

A smaller factor in today’s upgrade came from First Bus, with strong passenger volumes and productivity gains helping to offset ongoing inflationary pressures.

Following today’s update, the group said it expects to end the financial year in an adjusted net cash position of £20 million and £30 million. Shares are up by almost 50% this year to a level three times the position towards the end of 2020.

At the other end of the FTSE 250 index, shares in Travis Perkins (LSE:TPK) fell 60.2p to 748.4p after the builders’ merchant downgraded its profits guidance for the second time since June.

A  pronounced slowdown in new build housing and domestic repair and maintenance activity contributed to a 3.4% decline in third-quarter merchanting revenues, offset by growth of 7.3% for its Toolstation division.

Deflationary pressures on commodity products have squeezed margins, including on the sale of existing stocks at lower market prices.

The group now expects an adjusted operating profit for 2023 between £175 million and £195 million, compared with £240 million after the previous warning in June.

Chief executive Nick Roberts said the company’s priority continued to be on retaining and growing its customer base for the medium to long term.

He said: “This is the right approach, demonstrated by our ability to maintain volumes in this difficult market. However, this has impacted on our trading margins and is reflected in today’s revised guidance.”

Roberts pointed to a strong balance sheet and said work continues to position the group to benefit from the long-term structural drivers across end markets, such as the need to decarbonise the built environment and to build more homes in the UK.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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