Interactive Investor

The FTSE 250 winners and losers as mid-caps deliver updates

14th October 2021 12:08

Graeme Evans from interactive investor

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From bingo and pizza to the jobs market and coach travel, today's FTSE 250 updates got under the skin of the UK economy.

Plaudits for Hays (LSE:HAS) and National Express (LSE:NEX) were offset by heavy selling of QinetiQ (LSE:QQ.) shares and pressure on Domino's Pizza (LSE:DOM) as investors digested a big session of FTSE 250 updates.

The UK-focused index emerged from this flurry of activity with a 0.7% rise, although progress owed as much to gains of 7% for former Premier Oil company Harbour Energy (LSE:HBR) and high-flying cybersecurity firm Darktrace (LSE:DARK), alongside a rise of 3% for easyJet (LSE:EZJ).

Overall, however, the trading updates were largely helpful for sentiment after a period in which inflation and supply chain worries had caused the FTSE 250 index to fall 7% since hitting a record high at the start of September.

Recruitment firm Hays appears particularly well placed after revealing it traded ahead of expectations in the first quarter of the financial year, with the permanent hiring market now the strongest since the financial crisis in 2007.

Group net fees for the September quarter jumped 41% year-on-year, which was ahead of the City consensus of 36% amid improvement across all global regions. Shares rose 5p to 167.3p but that's still below June's peak of 176.3p and compares with UBS's 210p target price.

The Swiss bank is also a fan of National Express shares after the bus and coach operator said revenues were back to 83% of pre-pandemic levels in the third quarter. The transport group also allayed fears about rising input costs, given that payroll and fuel account for 70% of overheads.

Shares rose 2% or 4.8p to 234p as National Express said fuel is fully hedged through 2022 and into 2023 and that wage settlements have been agreed across the business. It is experiencing some driver shortages but UBS remains positive and has a price target of 350p after National Express said it is on track for underlying profits of about £38 million.

Other FTSE 250 risers included Rank Group (LSE:RNK) after the Mecca bingo and Grosvenor casinos firm expressed confidence that trading will continue to improve over the remainder of the financial year. Net gaming revenues lifted 69% for the September quarter, prompting analysts at Peel Hunt to lift their earnings forecasts for the year to June.

They have a price target of 240p, which compares with 161p after shares today rose 1.6p.

Mid-cap investors were also buying shares in electronic components supplier discoverIE (LSE:DSCV) after it reported a first- half performance ahead of its expectations. Sales were 23% higher at constant exchange rates and gross margins have remained firm.

Shares have fallen recently due to worries about supply chain disruption and the impact of Covid-19 at facilities in India, Sri Lanka and Mexico, but reassurance from the company on both fronts today triggered a recovery of 3% or 28p to 1,078p. They had been 1,262p a month ago.

Peel Hunt described the half-year update as impressive, prompting the broker to nudge up its profit forecasts and reiterate a “buy” recommendation and price target of 1,200p.

The warning from Domino's Pizza that inflationary pressures and a challenging labour market are expected to last well into 2022 offset another strong trading performance, with system sales of £375.8 million being up 8.8% on a like-for-like basis in the third quarter.

Boss Dominic Paul is confident the company can manage supply chain issues to sustain the recent momentum, but analysts at Liberum see some “serious clouds on the horizon”.

They note that VAT has risen to 12.5% from 5% and is scheduled to return to 20% on 1 April, while the broker warns that franchisees could face wage inflation of low double digits as they compete for drivers. The group has not experienced food shortages but Liberum believes this is a possibility in Q4 if the supply chain issues worsen.

Shares currently trade on a price multiple of 19 times, which Liberum reckons is high enough for a business with no earnings growth despite printing decent like-for-like sales.

Domino's shares fell 6.2p to 379.8p but Peel Hunt is more optimistic, based on a target price of 475p and pledge to consider an upgrade to earnings forecasts in the new year.

Supply chain issues are already being felt at former MoD research arm Qinetiq, whose shares tumbled 12% after it revealing disruption to a large complex programme. It is now working to mitigate the risk.

Qinetiq's short-term performance has also been hindered by the transition to the Biden presidency and the end of counter-insurgency missions in Afghanistan, but chief executive Steve Wadey remains confident in medium-term prospects after a range of significant contract wins.

The shares fell 41p to 288.2p, the lowest level since November.

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.

Related Categories

    UK shares
    Industrials
    Consumer goods and services
    Technology
    Commodities
    Cyber security
    Gaming
    FTSE 250

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