As the half year draws to a close, it’s time to look through the winners and losers. Actually, forget the losers, here are a couple of massive winners on the FTSE 250 that deserve the spotlight.
Ringing a Bell
Investment platform AJ Bell (LSE: AJB) attracted plenty of attention when it announced plans to float 35% of its shares last autumn, and rightly so given subsequent strong performance, which has seen its stock rise 60% so far in 2019, against around 9% for the index as a whole.
Roland Head even suggested AJ Bell could be the next Hargreaves Lansdown, and who wouldn’t want to get in at the ground level if that was the case? Although he also noted that AJ Bell’s operating profit margins of 31.5% trailed Hargreaves at 65%, so it has some way to go.
The AJ Bell share price fell back in June when Invesco dumped its entire 9.3% stake for £144.4m, although this mostly looked like profit-taking as the US fund group retains a 16.1% holding.
Brexit hangs over every UK-focused stock and this one is no different, as economic and political uncertainty cut dealing activity by 14%. However, it still posted 17% revenue growth to £50.1m in the six months to 31 March, with profit before tax of 27% to £17.7m, and margins creeping up 2.9 points to 35.3%.
Customer numbers rose 9% while the retention rate is now 95.3%, up from 95.1% in the previous financial year. As a journalist, I see that AJ Bell is making a big push to raise its profile, with investment director Russ Mould popping up on TV and being very helpful to people like me.
Now to the inevitable. It isn’t cheap, trading at around 50 times earnings. Then again, Hargreaves is never cheap either. AJ Bell stock is risky at this price, especially if we get market volatility in the second half of the year. It is still tempting, though.
Out of the bag
The Softcat (LSE: SCT) share price has also been baring its teeth in 2019, rising 67% to 964p at time of writing as the cybersecurity business continues its strong growth record. The group is in the right sector for growth, as online fraud continues to grow exponentially, leading to a never-ending arms race between cyber cops and robbers.
Rupert Hargreaves says the global cyber security market is expected to double by 2024, and Softcat’s track record suggests it can double with it.
On the up
The group’s latest trading update said the company continues to perform well and full-year results should now be slightly ahead of previous expectations. Half-year results to 31 January showed revenues growing at pace, up 21.1% to £434m while operating profit rose 40.4% to £33.9m.
Customer numbers and profit per customer are both climbing and the group remains debt free with a cash balance of £52.8m.
Strong growth in the Softcat share price means the £1.9bn company isn’t cheap, trading at 29 times forward earnings. It yields just 1.3% but management seems progressive, recently hiking the interim dividend 36%.
My biggest concern is that both AJ Bell and Softcat have created strong investor expectations and could take a knock if they fail to match up. Right now, though, the signs look good.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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.