Equity markets have pulled back in 2014 and mid caps in particular have sold off sharply. The FTSE 100 blue-chip index is down almost a percentage point, while the FTSE 250 has fallen over 3%.
Does this mean you should dump your shares in favour of holding alternate investments, like gold, or other cyclical commodities?
No!
There are definite merits of diversifying into multiple asset classes, don’t get me wrong. But it isn’t a good reason to sell anything based on what other people are doing. Remember, the behaviour of benchmark indices over the prior six month period tells you nothing about what to expect from the next six months.
Today’s biggest mid-cap risers, chemical maker Alent (LSE: ALNT) and engineering contractor Keller Group (LSE: KLR), are trading at discounts of 4% and 21% respectively year-to-date.
Let’s take a look at why the shares jumped:
Alent
Shares of Alent added 15p to 346p in early trade after reporting a massive 14% profit increase at constant currency. Reported pretax profit increased to £43m from £41m a year earlier, assisted by improvements in the firm’s principal electronics, automotive and industrial markets.
The big news that cheered shareholders was the announcement of a special £42m dividend:
“This is in line with our commitment to maintain a capital structure that is both efficient and balanced between investment for growth and returns to shareholders. We will continue to look for and evaluate acquisitions in line with our strategy,” Alent commented.
Alent’s main expenses in 2013 were incurred on new manufacturing plants in China and India — to increase the firm’s global footprint — as well as upgrades to R&D equipment and facilities.
After this morning’s price movement Alent shares trade at 14 times next year’s forecast earnings. Trading in the first half of the year has been “in line” with expectations.
Keller Group
Interim results from Keller Group were similarly well received by the market. Excluding acquisitions, constant currency revenues increased 22%, driven by strong performance from Australia and the US.
“Looking into the second half, we believe that the US construction markets will continue their gradual improvement … and there are signs that other construction markets in Australia are slowly picking up.”
The group’s operating cash flow improved from £30m to £32m, the operating margin increased slightly to 4.5%, and earnings per share grew by 5% to 29.5p, as did the dividend (yield 2.9%).
Keller shares rose by 4% following today’s results statement.
