Yu Group shares extend rally to 700% after fresh upgrade
An incredible recovery over the past 18 months means the £200 million AIM company is now worth about eight times more than it was in August 2022. City writer Graeme Evans talks through the latest surge.
23rd January 2024 15:32
by Graeme Evans from interactive investor
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Another profit upgrade kept Yu Group (LSE:YU.) shares on the boil today as the business energy supplier stood out in a session when Staffline Group (LSE:STAF) and Boot (Henry) (LSE:BOOT) came under selling pressure.
AIM-listed Yu jumped 163p, or nearly 15% to 1,277p and has doubled in value since July after it said all key financial metrics were ahead of forecasts disclosed in the last of 2023’s three upgrades.
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The supplier of gas, electricity and installer of smart meters in the UK corporate sector now sees full-year revenues of at least £450 million, up from £279 million the year before.
It said its hedging strategy had been effective in navigating energy market volatility while underpinning profitable growth and cash flow generation. The company said it would consider a “significant increase” to the 3p a share dividend paid last June.
This year’s surge for Nottingham-based Yu returns the stock to where it was prior to 2018’s discovery of accounting issues, when it admitted that data, financial and systems processes had not kept up with the requirements of a larger business.
Shares listed on AIM at 185p in 2016 and topped 1,300p in early 2018 but ended that year back closer to 50p. Up from just 162.5p in August 2022, the jump to 1,277p today extends the 18-month rally to 700%.
Source: TradingView. Past performance is not a guide to future performance.
Analysts at Liberum point to the impact of Yu’s digital platform on efficient pricing and a less competitive environment since the energy crisis as factors in the valuation rebound.
They added: “As markets have started to fall, Yu has been locking in good gross margins on renewals as customers want cost certainty after the recent increases.”
Liberum has reiterated its “buy” recommendation and increased Yu’s target price from 1,415p to 1,676p in light of today’s upgraded estimates.
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In the FTSE All-Share, property and construction firm Henry Boot posted a fall of 19.5p to 190.5p after warning that 2024 profitability will be significantly below City forecasts.
The Sheffield-based group, which has six divisions spanning industrial and logistics, residential and urban developments, said it performed well during 2023 against the backdrop of a slowing economy and higher interest rates.
Despite signs the UK economy has turned the corner it warned there will be a lag in its performance due to the time it takes for projects and sales to complete.
For example, the anticipated recovery at Stonebridge Homes is now weighted towards 2025 and Hallam Land is likely to be impacted by extended payment profiles.
House broker Peel Hunt cut its 2024 profit forecast by 16% but its target price of 265p is unchanged. It added: “The business remains exposed to structural growth areas and has an excellent track record of value creation, even if short-term profits will be deferred.”
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It was a similar story at blue-collar recruitment firm Staffline, which fell 2.5p to 22p on AIM after it offset a robust 2023 trading update with caution on the near-term outlook.
In particular, it warned the adult skills and training provider PeoplePlus faces a big hit to 2024 profitability due to political uncertainty, low levels of unemployment and new contract revenue streams only flowing from 2025/6.
Despite the outlook, Staffline continues to be excited by the division’s potential as a new management team focuses on the Justice and Employability sectors.
In its core recruitment operation, Staffline reported a strong finish to 2023 after helping customers including GXO Logistics, Tesco and M&S deal with seasonal peak demand. It also continues to expect progress in 2024 despite “widely reported headwinds in the sector”.
Liberum retained its “buy” recommendation following the update but cut its price from 60p to 52p, adding that a revised valuation of eight times forecast 2024 earnings seemed attractive given the growth potential.
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