Yahoo Finance Are FTSE 250 shares still a bargain?
Despite recent strength in the FTSE 250 index, many of its constituent companies don’t look over-valued. Some are bargains, in my view.
To me, the UK’s mid-cap index looks like a good hunting ground for stock-pickers.
A slick operator storming back
For example, I like the look of Bakkavor (LSE: BAKK). The company’s engaged in the markets for providing freshly-prepared food in the UK, US, and China.
We’re talking about stuff such as fresh-made meals, artisanal breads, soups, sauces, hummus, dips, burritos, pizzas, salads and desserts.
Reading the reports from the company, my feeling is that this is a slick organisation focused on building growth in its operations.
The company reckons it leverages consumer insights and scale to provide “innovative” food that offers “quality, choice, convenience, and freshness”.
Operations span some 44 sites. The business uses that network to supply more than 3,000 products to leading grocery retailers in the UK and US, and international food brands in China.
It’s been difficult for the firm to maintain its level of net profit through the past few years because of all the general economic challenges.
However, in 2023, revenue, profits and earnings came storming back and City analysts expect further advances this year and next.
Growing shareholder dividends
Alongside resurgent earnings, the shareholder dividend looks set to rise by around 8% and 6% in 2024 and 2025 respectively.
One of the attractive features of this company is it’s modest-looking valuation. With the share price near 122p (8 May), the forward-looking dividend yield is a juicy 6.6% or so for 2025.
Perhaps the share price has some room to catch up with resurgent vitality in the business:
In March’s full-year report for 2023, the company said it’s building foundations for future profitable growth.
However, there was a note of caution. The consumer environment’s improving but still remains challenging. Therefore, the directors expect subdued volumes leading to revenue growth of just 1-2% in 2024.
Nonetheless, City analysts expect earnings to increase by just over 5% this year and by more than 11% in 2025.
Vulnerable to general economic turbulence
However, the volatility in the multi-year record for profits and earnings shows the business is vulnerable to the effects of general economic shocks.
So if we get any more wars in Europe, pandemics, supply-chain difficulties, or energy price challenges, the company’s growth estimates may go out the window. It’s even possible for investors to lose money on the shares, despite the attractive-looking valuation.
There’s also a fair chunk of debt on the balance sheet to keep an eye on, although the firm’s been doing a good job of gradually reducing its level of borrowings.
Overall, I like the growth story here and the valuation isn’t outrageous. Indeed, that chunky dividend yield could come in handy while shareholders wait for further growth to materialise in the business.
I see Bakkavor as well worth further and deeper research now with a view to picking up a few of the shares to hold in a diversified portfolio.
The post Are FTSE 250 shares still a bargain? appeared first on The Motley Fool UK.
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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2024
