UK Markets close in 5 hrs 46 mins
  • FTSE 100

    6,355.97
    -35.12 (-0.55%)
     
  • FTSE 250

    19,369.11
    -200.28 (-1.02%)
     
  • AIM

    1,032.28
    +0.52 (+0.05%)
     
  • GBP/EUR

    1.1208
    -0.0020 (-0.18%)
     
  • GBP/USD

    1.3355
    -0.0028 (-0.2097%)
     
  • BTC-GBP

    12,893.46
    -541.48 (-4.03%)
     
  • CMC Crypto 200

    335.66
    -34.85 (-9.41%)
     
  • S&P 500

    3,629.65
    -5.76 (-0.16%)
     
  • DOW

    29,872.47
    -173.77 (-0.58%)
     
  • CRUDE OIL

    45.13
    -0.58 (-1.27%)
     
  • GOLD FUTURES

    1,817.80
    +6.60 (+0.36%)
     
  • NIKKEI 225

    26,537.31
    +240.45 (+0.91%)
     
  • HANG SENG

    26,819.45
    +149.70 (+0.56%)
     
  • DAX

    13,295.08
    +5.28 (+0.04%)
     
  • CAC 40

    5,566.78
    -4.51 (-0.08%)
     

Is this FTSE 250 stock a bargain or one to avoid? Here’s what I think

Jabran Khan
·3-min read
FTSE 100 (London Stock Exchange Share Index) on Gold Coin Stacks Isolated on White
FTSE 100 (London Stock Exchange Share Index) on Gold Coin Stacks Isolated on White

One FTSE 250 stock I like and that is very cheap right now is Vivo Energy (LSE:VVO). VVO is a British company that distributes and markets Shell and Engen branded fuels and lubricants to retail and commercial customers in Africa. It maintains subsidiaries and operations in 23 countries across the continent.

Cheap FTSE 250 stock

At the beginning of the year, shares in VVO could be purchased for 125p. When the market crashed, its share price tumbled to a low of 64.5p. As I write this, it has recovered slowly and shares are currently trading at only 75p per share. At its current price point I consider VVO to be quite cheap.

VVO joined the FTSE 250 in April 2018 and was trading at a high of 172.5p per share. An argument could be made that its reduction in price is not a positive sign. My response to that would be that the recent economic downturn has affected nearly all companies and industries in a negative way. I would not base any investment opinion on share price alone, especially not right now due to the pandemic and crash.

Performance

Reviewing Vivo’s longer-term performance across the past three years makes for positive reading. It has seen a year-on-year increase in revenue and gross profit, which is definitely a positive indicator for any investor.

VVO today released its Q3 trading update and I feel there are some positive takeaways from it. As expected, Q2 was difficult for many firms in the FTSE 250.

VVO recorded a gross cash profit of $187m which is impressive despite the recent restrictions it has faced due to the pandemic. This is only a 1% decrease compared to the same period last year when there were no restrictions or pandemic. Q3 volumes of 2,492m litres was a significant improvement from Q2 although it remained 7% lower year-on-year. VVO’s retail segment saw lower volumes but an improvement compared to the previous quarter. In addition to this, a number of countries it serves returned to year-on-year growth during Q3. Its commercial segment volumes were lower and impacted by a lack of international travel and movement.

VVO initially suspended its 2019 dividend of 2.7 cents per share when the economic downturn first occurred. In its update today it has confirmed that it will now pay that dividend in December to shareholders who are on the register by 20 November 2020. This is a positive move as it shows the firm is confident in its financial flexibility and can reinstate its dividend.

My verdict

Overall, I really like Vivo Energy but there is an element of risk. There are positives, in that longer-term performance has been impressive. Its Q3 trading update shows that despite the market uncertainty, it is getting closer to pre-crash levels of performance and volumes.

Due to the ongoing economic uncertainty and potential further restrictions, we could see another repeat of Q2 performance. This is where I believe the risk lies for VVO. At this moment, I would be willing to buy some shares in VVO. I wouldn’t be investing lots of cash but feel it could be worth buying some shares and keeping an eye on developments across the FTSE 250.

The post Is this FTSE 250 stock a bargain or one to avoid? Here’s what I think appeared first on The Motley Fool UK.

More reading

Jabran Khan 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 2020