After underperforming it’s big brother this year by around 10% in 2022 so far, the mid-cap index is easily outpacing the FTSE 100. Our City expert explains why.
The pandemic recovery of the FTSE 250 easily outpaced the FTSE 100 during the period up to the end of 2021, but fortunes have reversed so far this year as interest rate expectations have led to jitters around consumer-focused companies and tech-based growth stocks.
The FTSE 250 has fallen by about 7% in 2022, which contrasts with the 3% rise in the top flight as the pricing power of heavyweight energy, commodity and financial stocks makes them more appealing to investors at a time of significant inflationary pressures.
Today's session saw a return to the previous 2021 trends, aided by calmer market conditions globally. Whereas the FTSE 100 rose 0.7%, the domestic-focused FTSE 250 rallied 1.8% as some stocks jumped by as much as 8%.
Enterprise software business Micro Focus International (LSE:MCRO) led the way after recouping almost all but 6p of the 38p lost after its full-year results yesterday. Aston Martin Lagonda (LSE:AML) shares accelerated 7% and there was significant interest in the travel sector after gains of 4% and above for TUI (LSE:TUI), easyJet (LSE:EZJ) and airport retailer WH Smith (LSE:SMWH).
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Low-cost carrier easyJet has now recovered all its Omicron losses to return to its highest level since last summer. WH Smith now stands at 1,700p but Peel Hunt recently described the retailer as a long-term buy with a price target of 2,300p.
Two of the smaller stocks in the FTSE 250 also boosted investor confidence, with discoverIE shares trading 3% or 29p higher at 873p after the specialist in customised electronics for industrial applications lifted full-year earnings expectations.
It said its order book at the end of January was at a record level of £216 million, over 65% higher organically than both a year ago and two years ago.
Peel Hunt speculated whether this may have been caused by longer lead times and component shortages prompting customers to plan slightly further ahead than usual.
However, the broker added: “This is another really strong performance that illustrates the strength of the underlying end markets, the business and the strategy.”
Peel Hunt has a price target of 1,200p, which it today left unchanged in light of the recent market pull back for technology-focused stocks.
Carex and Imperial Leather firm PZ Cussons also appears to be navigating its way through supply chain and ongoing cost pressures. Its shares jumped 4% or 7.6p to 197.2p on relief that it remains on track to meet the City's full-year forecasts.
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Revenues in today's half-year results fell 9.3% to £283.7 million and earnings per share declined 15.4% to 5.64p, but this was partly due to comparisons with the unprecedented demand for hygiene products a year earlier.
The business returned to growth in the second quarter and the strength of its brands has offered some margin protection in the face of cost headwinds.
Chief executive Jonathan Myers sees little respite, however: “Commodity and freight costs show no sign of abating in the near term and we continue to anticipate cost pressures into 2023.
“Our focus is on both protecting our margins but also continuing to invest in the business, to secure future growth and build the capabilities we need to deliver against our strategy."
In a sign of continuing business momentum, Cussons said it intends to pay an unchanged interim dividend of 2.67p a share on 7 April.
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