Those keeping a close eye on developments may have noticed a shift in the market recently. The year’s frenetic first half is tapering off and a fresh swathe of new stocks are taking centre stage. So it may be time to dust off that old Stocks and Shares ISA and consider reorganising the contents.
Grabbing low-priced stocks primed for recovery is a great way to lock in some potential profits down the line. These two undervalued gems have just released impressive results — and could be on the up!
Metro Bank
Metro Bank (LSE: MTRO) shares soared 37% last Wednesday after it posted positive first-half results. The bank says it expects to return to profitability later this year due to cost savings initiatives. These include the recent sale of its residential mortgage portfolio.
“We expect these actions to positively impact on our balance sheet in the fourth quarter of the current financial year, delivering a return to profitability“, said CEO Dan Frumkin.
Despite the good news, the bank reported a pre-tax loss of £33.5m, compared with a £15.4m profit in H1 2023. Before the announcement, the share price had fallen 66% over the previous 12 months. Volatile trading forced it to seek a £925m rescue plan last October. Subsequently, 500m new shares were issued, diluting shareholders substantially.
So it may need to work hard to attract new investors.
However, it has since gone on a saving spree aimed at cutting costs, which seems to be working. Operating expenses are down 6% compared to the full year and the bank is reportedly on track to achieve its goal of £80m in savings.
IG Group Holdings
IG Group (LSE: IGG) released its FY 2024 results last month, prompting an 11% price jump. Soon after, both Shore Capital and Barclays put in positive ratings for the stock. Deutsche Bank had already put in a buy rating for the stock before the release.
The London-based company operates one of the UK’s largest derivatives trading platforms. It’s a top 10 FTSE 250 constituent with a market cap of £3.5bn. Stiff competition comes from similar trading platforms like Plus500, CMC Markets, and AvaTrade.
Key points in the results were a 32% rise in year-on-year profit and a 9% increase in revenue in the second half. The last half of 2023 was slow for the business but this year has proven more successful. The shares are up 36% over 12 months, with most gains made this year.
Along with the results, IG announced a £150 share buyback programme and proposed a dividend per share increase to 46.2p (previously 45.2p). The yield is currently an attractive 4.9%, with a sufficient payout ratio of 58%.
But IG’s recent success is riding on a strong economy — and one that looks increasingly shaky. Mobile apps have made trading and investing more accessible of late. But an economic slump could result in mass withdrawals, hurting IG’s share price.
Despite the price growth, the shares remain undervalued by 54% based on future cash flow estimates. And a low price-to-earnings (P/E) ratio of 11.2 gives them much room to grow.
