These two recovery plays are FTSE 250’s top stocks

17th May 2023 15:48

by Graeme Evans from interactive investor

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After a difficult period, both mid-cap companies have had a decent day at the office. Our City writer explains why the buyers are back.

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Shares in Auction Technology Group (LSE:ATG) and “materially undervalued” Keller Group (LSE:KLR) got the backing of mid-cap investors today after their updates eased jitters over the outlook.

Ground engineer Keller jumped 29p to 665p as it said trading in the first four months of the year had been strong and better than expected both in terms of profit and cash.

The update and confidence of management in meeting full-year targets countered the recent selling of Keller shares due to US economy and cash flow worries.

The FTSE 250-listed stock is still down by a fifth this year, but analysts at Liberum reckon the shares deserve to be double where they are at 1,340p.

The City firm said a 2023 forward earnings multiple of 5.9 times looked cheap given positive momentum and previous strong cash generation. Liberum added: “The diverse revenues by geography and sector also leaves Keller well insulated from any national cyclicality.”

Peel Hunt has a price target of 1,070p, noting that Keller’s shares are materially undervalued and trading at their lowest level since 2012 outside the pandemic.

The house broker pointed out that North American margins are being restored through self-help measures and easing supply chain pressures, while the Suncoast business is delivering a stronger performance despite a softer housing market.

The US business has also just won a new $145 million (£116.3 million) groundworks contract for an assembly plant in South Carolina that will build Scout electric vehicles.

Auction Technology Group shares are also lower in the year to date, although they have rebounded from 571p to 721p over the past fortnight.

This includes today’s rise of 51p after the online auctions business reported “solid revenue growth, margin expansion and strong cash generation” in its half-year results.

Chief executive John-Paul Savant added that auction markets have remained robust despite an uncertain macroeconomic backdrop, particularly in the art and antiques sector following growth in the three months to the end of April.

He is also confident in achieving the company’s medium-term targets of mid-teens and above organic revenue growth and a mid-high 40's adjusted earnings margin.

Today’s figures for the six months to 31 March showed revenues up 17% to £67.3 million, including 5% organic growth. Adjusted earnings were 18% higher at £31.5 million, based on a margin of 47%.

Peel Hunt raised its target price from 1,500p to 1,536p following the results.

It said: “These results should go a very long way to dispel concerns about art and antiques (A&A) being pro-cyclical in this tough macro. Not only did A&A revenue increase, the exit run rate was higher and, alongside new product launches, gives credence to full-year guidance.”

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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