Last year, the FTSE 250 put in one of its best performances since the financial crisis. However, despite the index’s buoyancy, plenty of FTSE 250 stocks still appear to offer value, especially for income seekers.
Here are two FTSE 250 companies that still look undervalued.
IG Group Holdings
Regulations introduced to try and help retail investors have hit financial services group IG Group’s (LSE: IGG) revenues during the past two years. Nevertheless, recent trading updates from the firm show management’s plan to return to growth is taking hold.
IG reported a 10% fall in pre-tax profit to £101m in the first half of its current fiscal year as revenues held steady at £250m. The company’s top line benefited from growth in international markets, with Japan delivering a revenue increase of over 80%. Meanwhile, active client numbers in emerging markets increased by 40%.
Following this positive performance, management now expects earnings growth to return in 2020.
This should be good news for the dividend payout. The distribution has been held steady for the past few years as IG has grappled with regulatory headlines. Rising earnings should give management more flexibility to increase the distribution.
At the time of writing, the stock supports a dividend yield of 6.3%. The distribution isn’t covered by earnings per share, but the company has around £300m of cash on the balance sheet to support it through these lean times.
Regulatory headwinds have also hurt Plus500’s (LSE: PLUS) growth. City analysts are expecting the company to report a 62% decline in earnings per share this year.
However, the company has a much larger international footprint. As a result, it’s been able to cope better with the regulatory environment. This global footprint also gives the group more scope for earnings expansion the years ahead.
Recent comments from management suggest it believes 2019 will be a low point for Plus500. In the first half of the year, the organisation’s revenues and profits declined significantly. But, according to recent trading updates from the company, growth returned in the second half.
This reflects the company’s investments in technology and marketing, according to Plus500’s commentary. The business should be able to build off these foundations in 2020.
Even though earnings took a hit in 2019, management has continued to return cash to investors. The stock currently supports a dividend yield of 6.5%. It has also been buying back shares. A net cash balance of $320m on the balance sheet gives the company plenty of financial firepower to continue these cash return policies.
Further, the stock is currently dealing at a price-to-earnings (P/E) ratio of 9.5. This suggests it offers a wide margin of safety at current levels. Including the market-beating dividend yield on offer, these figures imply that now could be the time to snap up shares in this cheap income star.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK 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.