Interactive Investor

Three strong mid-cap stocks get mixed response on results day

They’re solid businesses, but investors have treated them each very differently following latest news.

10th February 2021 13:28

Graeme Evans from interactive investor

They’re solid businesses, but investors have treated them each very differently following latest news.

Almost all its stores are currently closed, but Dunelm (LSE:DNLM) still reignited its share price today by restoring dividends and telling investors it has never felt more confident.

Fuelled by the benefits of recent investment in its digital platform, the homeware retailer's upbeat message helped shares to surge 5% to 1,330p at the top of the FTSE 250 index.

Emerging markets asset manager Ashmore (LSE:ASHM) and Lloyd's of London insurer Lancashire Holdings (LSE:LRE) were also higher, but London's second-tier benchmark is in danger of falling for the first time in eight sessions today.

Dunelm's half-year results were largely covered in its post-Christmas update in January, but the extent to which the company has been outperforming the homeware market came as an additional bonus for investors today.

Peel Hunt analyst John Stevenson described the first half result as outstanding, and said the fact that Dunelm's digital operation was managing to cover 70% of last year's sales during the current lockdown was particularly impressive.

He added: “There's a clear sense of momentum in the business that far outstrips the Covid-boost to home sales.”

Stevenson has a price target of 1,600p, which if achieved would take Dunelm back to the record level seen in October prior to the current wave of store closures. All but one of Dunelm's 174 shops are currently closed, with uncertainty about when they will reopen, making it impossible for chief executive Nick Wilkinson to give guidance on 2021 results.

Despite this, he remains upbeat and is resuming dividends with the £24.3 million payment of 12p a share on 9 April. He also repeated a pledge to return surplus cash to shareholders.

Wilkinson said: “Beyond the near-term uncertainty, we have never been more confident about the future. Dunelm is a market leader with a challenger brand mentality, in a large and growing segment.”

Analysts at Barclays increased their price target by 50p to 1,650p after Dunelm's robust guidance on current sales. Counterparts at Numis are at the same level: “We remain excited about the long-term market share opportunity for Dunelm which we currently don't see reflected in forecasts or valuation.”

Forecasting-beating results from Ashmore

Interim results from Ashmore were well ahead of expectations after pre-tax profit came in at £150.6 million against a consensus estimate of £114 million. 

Chief executive Mark Coombs said Ashmore was in the “early stages of a typical recovery cycle”, with a strong investment performance driving assets under management up 11% to $93 billion alongside positive movements on the firm's seed capital investments.

The dividend stalwart is keeping the half-year award at 4.8p for payment on 30 March.

Coombs highlighted a positive outlook for Ashmore, with the impact of forthcoming stimulus measures on the US dollar likely to prompt investors to seek higher growth and returns than should be available in developed markets.

Shares were 3.4p higher at 483p, with Goldman Sachs holding a price target of 490p based on its valuation of Ashmore at 15.5 times 2022/23 earnings per share.

Peel Hunt, which had a target of 450p prior to today's results, said there was significant potential for Ashmore to outperform in the coming years. They added: “Investors remain materially underweight emerging market assets, and Ashmore remains well placed to benefit.”

Great opportunity for this Lloyd's insurer

Lancashire Holdings also reported better-than-expected results, with today's sharply lower full-year profit of $5.9 million following an unprecedented year of Covid losses and natural catastrophes in the Lloyd's market. Analysts had expected a much bigger loss of $31.4 million.

Lancashire is not significantly exposed to the retail and SME classes most heavily impacted by Covid-19, and does not write business in travel insurance or trade credit.

Chief executive Alex Maloney said the past year highlighted the value of strategic planning in preparing for challenges and opportunities, adding that the pandemic has accelerated a pronounced re-rating and improvement in the pricing of many reinsurance products.

He added: “In these times of heightened uncertainty, insurance has retained its value as an important risk management tool which remains central in the strategic planning of many of our clients.”

Shares peaked at 763p after the results before settling 12.5p lower at 732.5p. Shore Capital said Lancashire was the Lloyd's insurer best placed to take advantage of current opportunities.

Analyst Alan Devlin said: “Lancashire has been flat over the past 12 months, even though it has navigated a difficult market with a modest profit and book value growth and now has the opportunity to deploy is capital raise at very attractive rates.”

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.