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FTSE 250 shares round-up: SSP surges, Direct Line, Wetherspoon

There’s plenty for mid-cap investors to digest today, with some big names issuing important updates. City writer Graeme Evans runs through the key announcements.

10th July 2024 13:21

by Graeme Evans from interactive investor

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The path to rebuilding the Direct Line Insurance Group (LSE:DLG) dividend, two high-profile hires at Travis Perkins (LSE:TPK) and progress at SSP Group (LSE:SSPG) dominated today’s session in the FTSE 250.

Airport and railway station caterer SSP led the mid-cap benchmark by some distance after it reported robust sales momentum heading into the summer travel season.

Its shares jumped 18.7p to 175.1p, which compares with last summer’s 260p after the Upper Crust firm posted the FTSE 250’s fourth-worst performance in the first half of 2024.

House broker Shore Capital said last night’s valuation of 12 times forecast 2025 earnings looked difficult to justify should the company deliver its expected 2024 numbers.

Like-for-like revenue growth contributed six percentage points to today’s third-quarter sales improvement of 16%, with the rest from new contracts and acquisitions.

Shore maintained its full-year earnings expectations, which are now likely to require only modest like-for-like sales growth over the key summer period.

It added: “Against the context of recent share price weakness, we would see today’s update as reassuring, with the current depressed valuation failing to capture the embedded growth built into forecasts and the longer-term potential in this structurally attractive market.”

Travis Perkins was next on the FTSE 250 risers’ board after the building industry supplier announced the recruitment of two well-known names to lead its board.

Former Taylor Wimpey boss Pete Redfern takes over as chief executive on 16 September, a month before Geoff Drabble is due to join the board as its new chair.

Drabble ran equipment hire business Ashtead between 2006 and 2019 and is the current chair of New York and London-listed building supplies firm Ferguson.

Redfern, a former Travis Perkins non-executive director who spent 14 years at the helm of Taylor Wimpey until 2022, said his initial focus will be on efficiency and cash generation, as well as developing the strategy for the years ahead.

The pair’s arrival follows a tough 2023, when a downturn in new build housing and in the domestic repair market left revenues 2.7% lower at £4.8 billion and operating profit off 39% at £180 million. The full-year dividend was slashed 54% to 18p a share.

UBS said: “We think both appointments should be taken as a positive, given their extensive experience across the sector, which will be crucial in the group's turnaround efforts.”

The shares, which started 2022 near to 1,600p, have rallied by more than 20% since touching their 2024 low of 693p in March.

Direct Line shares have also made progress since the spring, a period that has included takeover interest from Ageas, the arrival of Adam Winslow as chief executive and the resumption of dividends through May’s distribution of 4p a share worth £52 million.

The Churchill and Green Flag business was forced to scrap payments in January 2023, a shock decision caused by the impact of a spike in weather claims, motor claims inflation and the lower value of investments in commercial property.

It previously boasted one of the highest dividend yields on the London market at around 10%, having set aside £199 million through May 2022’s full-year award of 15.1p a share.

Today, Winslow outlined his strategy for rebuilding shareholder returns in his “changing gears” strategy presentation to the City. It included a revised capital allocation framework and policy to pay around 60% of operating earnings as a regular dividend, with additional distributions dependent on the rebuilding of the solvency capital ratio.

UBS had expected a 50% regular payout but with the inclusion of a “regular” special dividend taking the total level to 80%. The bank sees dividends of 9p, 15p and 18p over the next three years based on its own earnings forecasts.

The shares added 2p to 195p following the capital market update, which included a pledge to launch Direct Line on price comparison websites. Outside motor insurance, it will focus on Home, Commercial Direct and Rescue and stop investing in other personal lines businesses.

Elsewhere in the FTSE 250, Wetherspoon (J D) (LSE:JDW) shares fell 9p to 759.5p after the pub chain reported like-for-like sales growth of 5.8% in the fourth quarter. Tougher comparatives meant this was weaker than the 8.3% seen in the third quarter.

Sales per pub are still 21% higher than pre-pandemic levels, which chair Tim Martin said had helped to compensate for the very substantial increase in costs.

Compared to the 2019 financial year, he said labour costs had increased by approximately £164 million, energy by £28 million, repairs by £38 million and the interest bill by £16 million.

Peel Hunt held its 2024 forecasts following the update, while the broker reiterated its “Add” recommendation and 900p target price.

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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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