As tough as the last couple of years have been for UK-focused investors, I think it’s left plenty of high-quality FTSE 250 stocks trading on temptingly low valuations.
Today, I’m looking at two examples, both of which have recently issued encouraging updates on trading.
Big riser
Tuesday’s statement from price comparison site Moneysupermarket.com (LSE: MONY) was heartily embraced by the market. Indeed, the shares rose by a high single-digit percentage on the day as investors were reassured that trading was in line with market expectations.
Revenue rose 14% in Q3, thanks to “strong growth” in its insurance and travel divisions. The former benefitted from more customers moving to different providers in car and home insurance. The latter saw continued recovery from the pandemic.
Elsewhere, some softness in broadband switching was partially offset by growth in mobile.
More to come?
I remain bullish if admittedly biased as a holder of this share. In fact, I suspect the 36% jump in price year-to-date (at the time of writing) is still nearer the beginning of the recovery rather than the end.
A potentially far more competitive energy market in 2024 will push more households to consider changing who they pay for electricity and/or gas. That should result in higher traffic — and higher revenue — for this business.
Naturally, this may take longer than expected. Another clear risk here is the level of competition Moneysupermarket faces.
Nevertheless, a valuation of just less than 17 times earnings looks reasonable, in my view. The 4.6% dividend yield also makes me want to buy more, even if this payout can never be guaranteed.
Unfairly punished
Notwithstanding the poor performance of its shares in 2023 to date, financial services firm AJ Bell (LSE: AJB) is another mid-cap that I think can recover strongly…in time.
The business has undoubtedly been a victim of a tricky economic environment. But there’s a lot I like here.
Thursday’s trading update contained a fair few nuggets. Despite a “challenging market backdrop“, customer numbers rose 12% in the last financial year. Net inflows at its platform business fell to £4.2bn (from £5.8bn in FY22) but I still regard this as respectable.
Then there’s the valuation to consider. A price-to-earnings (P/E) ratio of 17 for FY24 doesn’t scream value. However, it seems more than fair given the firm’s rude financial health, high margins and stellar returns on capital employed. Importantly, this is far, far below the five-year average of 33 for this stock as well.
With a meaty 4.7% forecast yield, AJ Bell isn’t a slouch when it comes to distributing cash to its owners either.
Long-term growth driver
Obviously, there are still risks. Like its index peer, AJ Bell isn’t exactly devoid of competition in this space. With the latest inflation reading coming in slightly hotter than expected, it could also be a while before many people feel able and/or confident enough to begin saving for their future.
Even so, we know that the UK has an ageing population. In theory, this should mean more of us are pushed into getting our finances in order for those golden years.
I think this stock could fly when sentiment reverses and would be comfortable buying today if I had the spare cash to do so.
