Second-tier shares continue to underperform their larger cousins in the FTSE 100 after today’s inflation figure, but it’s not all bad news for UK mid-caps.
Pockets of cheer for mid-cap investors in a session scarred by inflation and rate rise worries today came from the performances of Redde Northgate (LSE:REDD), National Express (LSE:NEX) and Hunting (LSE:HTG).
Updates from the FTSE 250-listed trio sent their shares up by as much as 6%, whereas rate-sensitive stocks in the property sector took a hammering and Liontrust Asset Management (LSE:LIO) and IT business Kainos Group (LSE:KNOS) also fell sharply after failing to excite investors.
The UK-focused FTSE 250 index, which had been above 20,000 at the start of March, underperformed with a decline of 150 points to 19,145, reflecting the uncertainty caused by projections for an eventual peak for the Bank of England base rate now closer to 5%. It’s currently 4.25%.
Great Portland Estates (LSE:GPE) and Urban Logistics REIT (LSE:SHED) were among several property stocks down 3% or more as elevated interest rates continue to reduce the appeal of the sector to investors who can find greater and safer returns elsewhere.
Liontrust Asset Management led the fallers board after it reported a 3.6% decline in assets under management to £31.4 billion in the quarter to the end of March. Chief executive John Ions said: “It has been a challenging year for Liontrust in terms of net outflows and mixed performance for our funds.”
Despite fee income meaning annual profits will be ahead of expectations at more than £86 million, shares tumbled 74.5p to 860p. The stock had been above 1,250p in early February.
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Former high-flyer Kainos has also seen a reversal of fortunes, reflecting the rates-led rotation away from high growth stocks and the surge in employment costs since the Belfast-based IT firm topped 2,000p at the end of 2021.
The shares today fell 99p to 1,286p, even though the specialist in digital services and the Workday platform said trading continued to be “very strong” across all three divisions as new and existing clients maintain high levels of investment. It now employs almost 3,000 staff, having increased headcount by 11% over the past year.
At the other end of the FTSE 250 index, the van rental and automotive services business Redde Northgate set the pace after it said adjusted profit for the year to 30 April is likely to be ahead of the current market consensus of £155.2 million.
Chief executive Martin Ward said: “As we look forward, the group is performing at record levels, there is more interest in our platform than ever before and we have a strong base from which to make strategic progress in the coming year."
Analysts at Peel Hunt praised the “impressive” performance, particularly given the challenges of vehicle supply and inflation, and said the outlook statement was more positive than they had expected.
The company, which was created from a merger in February 2020, rose 19p to 383.5p, but Peel Hunt has a price target of 450p after noting the shares offer “excellent value” on seven times forecast 2024 earnings with a 6% yield.
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Elsewhere, the promise of at least £25 million in cost and productivity improvements helped National Express shares hit the accelerator after an in line trading update.
First-quarter revenues of £774.4 million were up 22% on a year earlier, with the most significant trading periods for the company’s US school bus and UK and Spanish coach operations still to come later in the financial year.
Shares rose 5.3p to 120.6p but are still in negative territory for this year, despite a recent landmark in its Covid recovery with the resumption of dividend payments.
Liberum analyst Gerald Khoo lifted his price target to 125p today but continues to have a “hold” recommendation. He added: “Management is rightly taking action, such as with the new cost saving and productivity programme, but this leaves us with the impression of the group having to work harder to meet expectations.”
Energy services firm Hunting was one of the other companies to impress in the FTSE 250 index after it said 2023 had started strongly with an underlying earnings figure of $22.6 million (£18.2 million) ahead of its expectations.
The company, whose Titan perforating guns, energetics and instrumentation tools are used in the shale oil Permian Basin region of West Texas, said March was a particularly strong month.
Chief executive Jim Johnson added: “Activity across the global energy industry is robust with opportunities in oil and gas, carbon capture and geothermal developments accelerating as post-Covid growth, energy security requirements and energy transition legislation is announced.” The shares rose 6.6p to 248.6p but had been near 350p in early February.
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