Interactive Investor

Plenty of fans for this star mid-cap share

9th December 2021 15:09

Graeme Evans from interactive investor

A high-flying mid-cap has had another great day. We explain why, and also the reason for significant moves at two high-profile IPOs.

The red-hot year for building ventilation business Volution (LSE:FAN) continued today after another strong trading update underlined why its shares have doubled in the FTSE 250 index.

Volution is the second tier's third best-performing stock so far in 2021, with a valuation now well in excess of £1 billion after a run of record trading ahead of City expectations.

The company, which provides ventilation solutions for residential and commercial buildings, continues to benefit from the growing awareness of the effect of indoor air quality on health and energy efficiency. Its focus on saving energy and reducing carbon emissions means it is the holder of the London Stock Exchange's Green Economy Mark.

Strong trading has continued into the first quarter of its new financial year, with revenues up 7.1% on an underlying basis and margins holding up well against inflation pressures.

Shares rose another 5% or 24p to 538p but analysts at Berenberg believe structural tailwinds and further earnings momentum driven by M&A activity justified a higher price of 620p. They note that Volution trades on 21.8 times 2022 earnings, which is a 44% discount to its European peers in the heating, ventilation and air conditioning sector.

Counterparts at Liberum left their estimates unchanged, but added that Volution's ability to sustain margins in the current climate reflected well on its market standing. Volution trades through 19 brands in three regions, with Australasia being the strongest in today's trading update ahead of the UK and continental Europe.

Moonpig and Dr Martens on the move

The group was joined at the top of the FTSE 250 index by Moonpig (LSE:MOON) after half-year results helped shares in the online greetings card firm continued their strong week.

Revenues and earnings were lower due to comparisons with periods of Covid-19 lockdowns, but the company noted that sales of £146.2 million were also 115% higher than two years ago.

Chief executive Nickyl Raithatha said the results showed an “enduring transformation” in the scale of the business, which now has 60 million date reminders on its database compared with 50 million in April. He added: “The long-term opportunity remains vast, and we have never been in a better position to capture this growth.”

Shares lifted 3% and are now back above February's 350p IPO price, having risen 13% to 370p this week.

Fellow stock market newcomer Dr. Martens (LSE:DOCS) is also above its starting price, although the gap to the current price is now down to just 13p after shares fell 4% or 17.8p to 383.2p.

The decline came after the bootmaker said its US wholesale business continued to be impacted by shipping delays and uncertainty around the timing of shipments being processed through ports.

These problems are likely to continue into the next financial year, although it remains confident in achieving market expectations for the current period as momentum has strengthened in the retail side of the business during October and November.

Adjusted profits were 37% higher at £61.3 million in the six months to 30 September, leading to a maiden dividend of 1.22p and a 25% earnings pay-out ratio. This will be paid on 4 February.

Elsewhere in the FTSE 250 index, Balfour Beatty (LSE:BBY) made a rare recent appearance on the risers board after it forecast a 2021 performance in line with pre-pandemic levels.

Its year-end order book is slightly lower at £15.5 billion but chief executive Leo Quinn said Balfour is well placed to benefit from demand in regions where the focus is on fiscal expansion, green infrastructure growth and, in the US, public private partnerships.

Balfour said its multi-year share buyback programme returned £150 million in 2021 and should involve at least another £100 million in 2022, starting after full-year results in March.

Shares lost a quarter of their value between August and the end of November, but are enjoying a much better December. They rose 7.8p to 255p after today's in-line update, but analysts at Liberum believe the shares have the potential to reach 360p.

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