Interactive Investor

Three FTSE 250 winners on tough day for stock market

4th May 2023 15:41

by Graeme Evans from interactive investor

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Investors dumped blue-chip and mid-cap shares Thursday, but this trio attracted buying attention, including Trainline. Our City writer rounds up the action.

A fast-track recovery for Trainline (LSE:TRN) shares and progress by FTSE 250 stalwarts Morgan Sindall Group (LSE:MGNS) and IMI (LSE:IMI) today provided the cheer in an otherwise downbeat mid-cap session.

Lower second-tier stocks included those with exposure to the US economy, such as ASOS (LSE:ASC) and publisher Future (LSE:FUTR), after the Federal Reserve darkened the outlook by signalling that interest rates will stay elevated this year in the fight against inflation.

The FTSE 250 index weakened more than 70 points to 19,294, but with pockets of excitement including Trainline, after it justified the ‘buy’ recommendation of some City analysts by accompanying annual results with bullish forward guidance.

Shaking off uncertainty caused by UK rail strikes and plans for a Great British Railway ticketing app, Trainline focused attention on prospects in Europe as rail markets are opened to competition and the company seeks to become the “aggregator of choice”.

The prospect of stronger performances in Spain and Italy led the company to forecast net ticket sales and revenues growth for next year in the range of 13% to 22%, with adjusted earnings as a percentage of net ticket sales between 2.15% and 2.25%.

With the guidance significantly above consensus, shares reached mid-afternoon 30.6p higher at 269.6p. That compares with more than 300p earlier this year and the 500p seen in 2021 before the government set out plans for its own rival ticketing app.

With that project showing few signs of progress, Trainline has signed contract extensions with ScotRail and Cross Country and added third-party retailer Trainhugger as a new client.

Ongoing rail strikes in the UK are costing an average of £5-£6 million in sales a day, but UK consumer net ticket sales of £2.8 billion still rose 55% in today’s results.

Overall revenues of £327 million rose 74% and an operating profit of £28 million compared with a £10 million loss the year before.

Peel Hunt reiterated its ‘buy’ recommendation and raised its target price from 358p to 440p. It said: “Trainline is resolutely executing its strategy, providing innovative tech for clients to power the railway revolution of the 21st century.”

The next best performing FTSE 250 stock was construction and regeneration group Morgan Sindall after it gave a reassuring update on trading so far in 2023 and said inflation pressures are starting to ease in certain areas.

One of the highlights of the update concerned the Fit Out division that accounts for about a third of earnings, with trading described as “very strong” alongside an order book and levels of enquiry that provide confidence for the rest of the year.

Shares rose 74p to 1,768p in a rebound following weakness seen over the past fortnight. Broker Liberum sits at 1,900p after highlighting that the company “has successfully managed the inflation stress to date”.

IMI shares rose 47p to 1,647p after the valves and flow control equipment firm reported  a ninth consecutive quarter of organic growth and improved margins in all three divisions.

It raised its full-year adjusted earnings target to the range of 112p to 117p a share, from around 111p previously, and said it remains confident in delivering growth targets and a 20% operating margin over the cycle.

Peel Hunt noted that 117p a share would leave IMI valued at 13.7 times forward earnings, whereas fellow industrial stocks Rotork (LSE:ROR) and Spectris (LSE:SXS) are on 22x and 20x respectively.

The broker added: “We are fans of both companies, but believe the gap is too wide given the similar growth profiles - seize the opportunity.” It has a price target of 2,160p, while Bank of America sees an upside to 2,200p.

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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