Too many investors overlook the FTSE 250, but they shouldn’t. The index of medium-sized UK companies is packed full of gems which, by dint of being smaller can grow faster, with many set to become the blue-chips of the future.
The following two saw their share prices climb more than two thirds last year, and they could have further to go this year.
Polypipe Group
Polypipe Group (LSE: PLP), which delivers sustainable water and climate management solutions for the built environment, returned almost 70% to shareholders in 2019, despite what it called tough trading conditions.
Its most recent update, from October, talked up a “resilient performance” in tough markets, but group revenue, nonetheless, rose 4.3% to £381.7m, with operating margins up 30 basis points, boosted by “margin accretive acquisitions and strong cost controls.”
This was before the general election, during a time when Brexit uncertainty squeezed domestic firms like this one, so it will be interesting to see if it benefits from any Boris bounce. The £1.1bn group has several factors in its favour, which it identifies as the “structural housing shortage, historically low interest rates, real wage growth, and near full employment.”
If you’re bullish on the UK economy, this could be a good way to play its recovery. Despite its strong share price growth, the Polypipe share price isn’t too expensive, trading at 17.4 times future earnings.
Growth forecasts also look positive, with 8% expected this year, and 7% in 2021. You get a forecast yield of 2.5%, although this is primarily a growth stock, and one that may repay further digging.
Avast
Cyber-security specialist Avast (LSE: AVST) also flew in 2019, as it continues to benefit from operating in a rapidly growing area, with the market forecast to be worth $170bn a year by 2022.
Unfortunately, the £4.6bn group hit a stumbling block in January, when it was forced to close down 2013 acquisition Jumpshot, which had been caught scraping browsing data from the company’s customers without full permission, and selling it to advertisers including Google, Yelp and Microsoft.
The hugely embarrassing revelation, exposed by Motherboard and PCMag, knocked the Avast share price down 25%, although it has picked up 16% in the last week. Given that Jumpshot harvested millions of dollars from clients, future revenues could take a hit, although management said Jumpshot produced just $36m of full-year adjusted 2019 revenue, against $862.8m for the group.
The closure should therefore have little impact on its full-year 2019 results, which are line with expectations. Customer trust may prove harder to rebuild, although given the minimal long-term impact that the big data scandal had on Facebook and others, investors may not be too worried.
Avast is a top-five antivirus provider with more than 400m customers worldwide, and expects full-year organic billings to be up 10.2% to $900.7m.
Analyst Peel Hunt recently said its stock may be overvalued, given that it now faces threats from Windows Defender, and the move towards cloud-based services. Avast still has massive potential, but it can’t afford further slip-ups.
