Interactive Investor

FTSE 250 welcomes six new faces but loses ASOS and Tullow Oil

1st June 2023 13:29

by Graeme Evans from interactive investor

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There have been some interesting moves in the latest quarterly stock market reshuffle. Our City writer reveals who’s in and out of the mid-cap index.

Arrows going in different directions 600

Confirmation of its promotion to the FTSE 250 index and higher profits guidance today gave ME Group International (LSE:MEGP) one of its more memorable days in six decades on the stock market.

With veteran chief executive Serge Crasnianski at the helm, the former Photo-Me business has more than doubled in value over the past year, as it benefits from the reopening of the travel industry and surge in demand for ID photo booth services.

Its three other divisions span unattended laundry services and launderettes, digital printing kiosks and vending equipment for the food service market.

Seasoned investors will recall the ups and downs of Photo-Me International, which joined the stock market in 1962 and saw its valuation peak in 1999. It left the FTSE 250 in March 2006.

The shares, which were near to 40p in the early days of the pandemic, rose 11p to 148.4p today after it forecast revenues for the year of between £300 million and £320 million and lifted its profits estimate to between £64 million and £67 million.

It said photo booth activity, driven by demand for secure ID for passports and official documents, continued to increase across all territories as revenues in its Photo.ME division rose 25% in the six months to 30 April.

Analysts at Canaccord Genuity increased their target price to 185p, while counterparts at finnCap went from 184p to 198p in a move reflecting both the forecast net cash position of £42 million and the company’s growth potential.

ME currently trades on a forward earnings multiple of 10.5 times, with a 4.8% dividend yield. In September it paid a 6.5p a share special dividend worth almost £25 million and last month distributed a final dividend of 3p a share.

Other stocks entering the FTSE 250 index in June’s quarterly reshuffle include Empiric Student Property (LSE:ESP), North Atlantic Smaller Cos Ord (LSE:NAS) investment trust, and the windows and door hardware supplier Tyman (LSE:TYMN).

Outsourcing firm Capita (LSE:CPI) is also back among the London market’s top 350 companies after losing its place in March 2022, while British Land Co (LSE:BLND) joins from the FTSE 100 index when the reshuffle takes effect from the start of trading on Monday 19 June.

Some notable names are set for small-cap status, including the fast-fashion chain ASOS (LSE:ASC) and the former merger partners Capricorn Energy (LSE:CNE) and Tullow Oil (LSE:TLW).

The impact of lower energy prices also means oil well services firm Hunting (LSE:HTG) is set to leave the FTSE 250, with this week’s upgraded earnings guidance coming too late to save its place.

Compared with Hunting’s market value near to £360 million, Dr. Martens (LSE:DOCS) is safe in FTSE 250 mid-table based on today’s opening market capitalisation of £1.5 billion.

That figure shrank by a further £150 million today after the bootmaker weakened margins guidance alongside results showing a 26% drop in annual profits to £159.4 million.

The fall came as the Northamptonshire-based firm counted the £15 million cost of supply bottlenecks at its new Los Angeles distribution centre.

Revenues hit £1 billion for the first time, with 16% growth in its direct-to-consumer channel offset by a 4% decline in the wholesale operation, caused by weaker shipments in the US and a decision to stop sales to its China distributor.

Chief executive Kenny Wilson said the company is fixing the issues in the US as he maintained revenue guidance of "mid to high single digit growth" for the current year.

However, shares tumbled 14.4p to 141.9p after he said investment in the infrastructure needed to support greater scale and longer-term growth would reduce this year’s margin by up to two percentage points.

Wilson said his conviction in the company’s strategy and cash generation was shown in an unchanged final dividend of 4.28p a share, lifting the total for the year by 6% to 5.84p.

The company was valued at £3.7 billion in its stock market flotation in January 2021, when shares moved from their opening price of 370p to 521.6p a few days later.

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.

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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