Interactive Investor

Insider: a FTSE 100 bank and double swoop at troubled mid-cap share

19th December 2022 08:07

Graeme Evans from interactive investor

Shares in this FTSE 250 company are at a record low thanks to damaging strike action, and a pair of execs think they’re too cheap. There are no such problems at this bank though.

Two Moonpig Group Ordinary Shares (LSE:MOON) bosses have swooped for shares worth £171,000 after the FTSE 250-listed stock hit a record low on the back of Royal Mail strike disruption.

The purchases by chief executive Nickyl Raithatha and finance boss Andy MacKinnon were made on Wednesday at 114p and declared to the market the following morning.

Their stake-building came in the wake of the online greetings card retailer’s interim results, which revealed a cut in annual revenue expectations to £320 million following progressively more challenging conditions through October and November.

Industrial action at delivery partner Royal Mail in the run-up to Christmas continues to impact its fortunes, while customers have traded down to lower gift pricing points.

However, Raithatha left Moonpig’s annual earnings expectations unchanged and said there was a significant runway for growth amid a long-term shift to online.

His optimism failed to win over investors, however, as shares have fallen to a record low and are 70% below their 350p IPO price in early 2021. They ended last week at 108.1p, even though Moonpig continues to attract plenty of support from analysts.

This includes last week’s “buy” recommendations from HSBC, Jefferies and Berenberg after the trio of City banks issued lower price targets ranging between 210p and 300p.

Jefferies now sits at 290p, having warned of “hard yards” ahead for Moonpig if it is to deliver growth in the coming financial year. The bank lowered revenues and earnings expectations by 13% but still regards the company as an “attractive asset”.

One of the structural growth drivers boosting City interest has been the opportunity in gifting and experiences following this summer’s acquisitions of Red Letter Days and Buyagift.

The company pointed out that fewer than one-fifth of orders across Moonpig in the UK and Greetz in the Netherlands currently contain a gift. It also has room to boost online penetration for greeting cards, which remains low at approximately 16% in the UK.

Other factors supporting Moonpig outlook include its data and artificial intelligence capabilities, which have helped to drive the number of occasion reminders set by customers to 79 million from 60 million recorded the previous October.

The company believes the greeting cards market “has a long track record” of stability and resilience through recession, with short buying cycles and structurally low inventory also allowing for flexibility in its gifting range.

Moonpig is highly cash generative, meaning its ratio of net debt to earnings is expected to reduce from 2.45 times in October to two or below in April. It does not pay a dividend.

Peel Hunt described the recent results as “perfectly acceptable” and said the reasons for the approximate £30 million revenues downgrade were out of the company’s hands.

It said: “Management is not flustered by the slower pace of sales, but is realistic enough to know that lower consumer confidence and the Royal Mail strikes will have a short-term impact on sales at a crucial time, so is reining in current year guidance.”

The City broker added: “We would see any weakness as a major buying opportunity, potentially getting shares in a fine, fast-growing company on an early teens price/earnings multiple.”

Further gains for this bank?

Standard Chartered (LSE:STAN) chairman José Viñals has spent £90,000 backing the FTSE 100-listed banking group for more success in 2023.

His purchase on Wednesday at 606.6p follows a year in which the Asia and emerging markets-focused lender has outperformed the sector and rest of the stock market.

Shares are up by around a third in 2022, with recent quarterly results showing pre-tax profits well ahead of City estimates at $1.4 billion (£1.15 billion). Shareholder distributions in the year have reached $1.4 billion after the completion of a $500 million buyback.

In October, Standard described the pace of economic recovery in many of its “footprint” markets as strong as it raised its full-year income growth forecast from 10% to 13%.

One factor helping the company’s outperformance has been its lower exposure to M&A and IPO activity, which has been a major headwind for Wall Street deal-centric lenders.

UBS recently said the company looked well positioned to perform in a higher rate, higher volatility environment. It added its price target of 787p implied “significant upside for an attractively valued growth stock” on 5.5 times forecast earnings. Last week, analysts at JP Morgan raised their target price to 800p alongside an “overweight” recommendation.

Dr Viñals has led the Standard Chartered board since December 2016 and was previously the International Monetary Fund’s chief spokesman on financial matters including global financial stability.

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