With the UK stock market dipping in the past year, several FTSE 250 shares are now selling for less than they’re worth. But buying up value-priced shares only makes sense if the company looks likely to recover.
With that in mind, I’ve pinpointed two stocks that I think have decent potential and are currently selling at a discount. While both are related to the finance and investment industry, they operate vastly different business models.
TP ICAP
TP ICAP (LSE:TCAP) is one of the largest intermediary brokers in London, providing trade execution and settlement services to companies around the world. The company was formed in 2016 as a merger between Tullett Prebon Group (TP) and the voice broking business ICAP.
At 180p, the TP ICAP share price isn’t particularly cheap compared to recent performance. However, it’s a long way off the early 2020 highs of 400p. Most losses since then were probably the result of Covid, so it’s not unrealistic to imagine the price could regain that level again.
Analysts estimate the shares to be trading at approximately one-third below fair value, suggesting a price of 240p to be more appropriate. This is reinforced by strong earnings growth of 54% over the past year.
Subsequently, analysts predict an average price increase of around 30% in the coming 12 months.
Notably, 74% of shares in the company are owned by institutional investors. What’s more, over 50% of the shares are owned by only seven institutions. While this gives the company strong credibility, it also leaves the share price vulnerable to the decisions of a few investors who might have difefrent priorities to smaller retail investors.
TP ICAP does pay a dividend but figures indicate that it’s not well covered by earnings. With earnings per share at 14p and a dividend paying 12.7p per share, TP ICAP’s payout ratio is 94%. If earnings decline, this can result in less reliable or infrequent payments.
MAN Group
MAN Group (LSE:EMG) is a London-based investment management firm that offers tailored solutions to high-value clients. Performance during 2023 was lacklustre, leading to some forecasters predicting subdued earnings throughout 2024.
Now at 242p, the share price has seen a 15% fall in the past year. However, in the past five years, it’s increased by over 80%. That indicates that the firm has been able to achieve consistent growth in the past, suggesting the current share price is likely lower than its fair value.
While the share price hasn’t suffered any serious volatility in the past year, negative returns of 15% are worryingly lower than the UK market average of -5.4%.
But MAN Group’s future looks brighter.
Independent analysis forecasts earnings and revenue to grow by 21% and 14% respectively, prompting an estimated future return on equity (ROE) of around 25% in three years.
Some estimates put the share price at 65% below fair value. However, MAN Group’s price-to-earnings (P/E) ratio of 15.3 is on par with similar companies in the capital markets industry. It increased from a P/E of only 8 near the beginning of the year, indicating improved earnings in the past two months.
Both TP ICAP and MAN Group are well-established firms that suffered when the economy retracted during Covid. But they seem to both have growth potential, so the current low share prices could be a good entry point for each one.
I’ll be adding both of them to my watchlist to consider buying when my next payday arrives.
