It’s not uncommon for it to outperform its bigger brother. The smaller-cap stocks it lists often have more room to grow. So digging for undervalued stocks on the 250 is a great way to take advantage of the extra growth potential.

What’s more, the index’s average price-to-earnings (P/E) ratio is 19.8, near the lowest it’s been in two years.

With that in mind, here’s one FTSE 250 stock that exhibits growth potential as we head into H2 of 2024.

Tipped to win

IntegraFin Holding (LSE: IHP) is a British investment company and operator of the Transact trading platform. It caught my attention when Berenberg put in a ‘buy’ rating for the stock yesterday. I also see that Barclays has an ‘overweight’ rating on the stock.

It seems brokers are positive about the company’s future. But what has prompted this recent interest?

The stock has been doing well this year. So well, in fact, that I’m kicking myself for not noticing it sooner. It’s up 34% since hitting a year-to-date (YTD) low of £2.67 in late February. Have I missed out?

Not exactly.

On a five-year chart, there remains much room to grow. Despite the recent growth, it’s still down 40% since its all-time high of £5.99 in November 2021.

A value play

A balance sheet is always a good place to start when evaluating a company. If it has a potentially unmanageable debt level, it’s already a non-starter for me. IntegraFin is looking good to me with no debt, high cash holdings, and assets that outweigh liabilities.

Looking at its latest quarterly earnings results released this week, things look good. Funds under direction (FUD) hit a record high of £62.42bn, a 14% increase since last year.

Net flows increased 6.8% and clients on the platform grew by 1.9%.

With the share price underperforming earnings over a three-year period, there is an argument that the shares are undervalued. If the company continues to attract positive attention from brokers, this could help drive the price up further.

Price pressure

Not all metrics play in its favour, though.

Using a discounted cash flow model, analysts estimate the shares to be slightly overvalued. This is based on future cash flow estimates, which are unusually high for the company. Most likely, this is due to the large amount of capital inflows typically seen on investment platforms of this nature. 

As such, the metric may be skewed.

But it’s not the only metric suggesting it’s overvalued. It also has a slightly higher-than-average P/E ratio of 23. Some analysts feel that a ratio of 15 would be fairer but that would require a significant earnings increase — or a big fall in price. 

Furthermore, lingering inflation and an uncertain economic outlook could reduce trading activity, as consumers reduce unnecessary spending. That adds another level of risk to the stock.

On balance, I’d say the strong financials work in its favour, making it a stock worth considering for long-term growth potential.

The post The FTSE 250 is brimming with potential, especially in stocks like this one appeared first on The Twelfth Magpie.

With the shares soaring by nearly 50% in the past year, I can’t help but wonder, have I missed the boat on this FTSE company?

A great year

IntegraFin, which provides an investment platform for UK financial advisers and their clients, has certainly had a good year. Not only has its 46.9% return comfortably outperformed the wider UK market over the last year, but it’s also left its Capital Markets industry peers in the dust, with the sector averaging a 16.3% return.

This stellar performance may have gone under the radar for many. The company’s been consistently growing its earnings at an average annual rate of 3.5% and boasts an impressive return on equity of 27.4%. With net margins of 37.7%, the firm’s clearly doing something right in a competitive industry.

The fundamentals

Digging deeper into the financials, there’s a lot to like here. The company sports a rock-solid balance sheet with zero debt, giving it significant financial flexibility in a period of high interest rates and general uncertainty. Its latest reported earnings showed EPS of £0.074 for the first half of 2024, up from £0.067 in the same period last year.

Moreover, IntegraFin’s revenue has been growing at an average rate of 8% a year, outpacing its earnings growth. This could suggest that the company’s investing heavily in growth, which I like the sound of.

Am I too late?

With such a strong performance, it’s natural to wonder if the best gains are already behind us. However, there are several factors that suggest IntegraFin might still have room to run.

Despite the recent price surge, the shares are trading at a price-to-earnings ratio (P/E ratio) of 21.9 times, which isn’t excessively high for a company with its growth profile and market position.

Analysts forecast earnings to grow by 8.78% a year, indicating continued optimism about the company’s prospects. IntegraFin offers a respectable 2.9% dividend yield, which is well covered by earnings with a 65% payout ratio. This suggests room for dividend growth.

As an investment platform provider, IntegraFin is well positioned to benefit from the growing trend of digitisation in financial services.

Risks

Of course, no investment is without risks. The business operates in a very competitive industry, and its success has likely attracted the attention of larger players.

Recent regulatory changes in the financial services industry could also severely impact the business model, and any economic downturn could affect the demand for investment services.

To me though, the big concern is that the shares are already overvalued. A Discounted Cash Flow (DCF) suggests the current price is about 6% above fair value. Obviously, this isn’t a guarantee, but it doesn’t inspire me that there’s huge potential, despite what some analysts are forecasting.

I’m staying away

So have I missed the boat on IntegraFin? Perhaps not entirely. This FTSE company seems to have the wind in its sails and, for investors willing to weather potential storms, it might still offer an interesting voyage.

However, I think there are probably more lucrative investments out there, with less risk. I’ll be steering clear for now.

The post Did I miss the boat with this FTSE company? appeared first on The Twelfth Magpie.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

FRP Advisory Group 

What it does: FRP provides restructuring services and other financial help for distressed companies across the UK. 

By Royston Wild. The British economy looks set for a prolonged period of turmoil. In recent days Handelsbank downgraded its already-gloomy forecasts for zero growth in 2023. It now expects “a full-blown recession” with a 1.3% contraction in national GDP. 

Against this backcloth, I think buying counter-cyclical shares could be a good way for me to protect my wealth. I’d do this by building a position in FRP Advisory Group (LSE:FRP). In fact, City analysts expect earnings to grow here each year through to 2024.

FRP provides a range of financial services for businesses in distress. And its latest trading update showed “a continued growth in revenues and profits” between May and October. 

The AIM-listed company has plenty of financial headroom to boost earnings through acquisitions, too. It carried out a £39m share placing over the summer designed for it to target further bolt-on buys. This could deliver significant long-term benefits.

Royston Wild does not own shares in FRP Advisory Group. 

Volex

What it does: Volex is a manufacturer of power cords and cables with a focus on high-growth industries.

By Edward Sheldon, CFA. There are several reasons I’m bullish on Volex (LSE: VLX) right now. One is that the company is growing at a healthy rate. For the 26 weeks to 2 October, the group posted year-on-year revenue growth of 22.1% along with 14.1% growth in underlying profit before tax. Results were boosted by 53% organic revenue growth in its electric vehicle division.

Another reason is that management has ‘skin in the game’. Both executive xhairman Nat Rothschild and COO John Molloy own a ton of Volex stock. So, it’s in their interests to get revenues, profits, and the share price up.  

Finally, the stock is dirt cheap. With analysts forecasting earnings per share of $0.27 for the year ending 5 April 2023, the forward-looking P/E ratio is only about 13.

Risks here include debt levels, which have risen on the back of acquisitions, and excess inventory issues. I like the risk/reward proposition at current levels, however. 

Edward Sheldon owns shares in Volex.

Hargreaves Lansdown

What it does: Hargreaves Lansdown operates an investor services in the UK, such as managed funds and support services.

By Gabriel McKeown. Despite Hargreaves Lansdown‘s (LSE: HL) poor share-price performance over the last year, the strong underlying fundamentals are certainly appealing. This is a company with very high-profit margins, an impressive return on invested capital (ROCE), and almost zero debt.

Additionally, after falling nearly 40% in 2022 alone, it now has a P/E ratio of just 16, which is fairly low for a growth company. This appears to be a prime example of where the market begins to overreact in the short term, and the price disconnects from the fundamentals.

Furthermore, Hargreaves offers a dividend yield of nearly 5% and has been paying out for the last 15 years. When the income-generating benefits are combined with double-digit earnings forecasts for 2023, it certainly appears to be an appealing investment opportunity. Therefore I think this is a great high-quality stock to buy in December.

Gabriel McKeown does own shares in Hargreaves Lansdown.

Keywords Studios

What it does: Keywords is a leader in video game development services providing critical talent to AAA game studios worldwide.

By Zaven Boyrazian. Keywords Studios (LSE:KWS) is a video game development services business. It helps some of the largest studios in the world create their blockbuster titles by providing the unique skilled talent required.

The firm’s ecosystem of services covers every aspect of the development cycle from conceptualisation to commercialisation. The list includes 3D modelling, 2D art, audio design, programming, quality assurance, player testing, and translation services, among others.

With the video game industry expanding rapidly, Keywords has had little trouble securing growth opportunities. By the end of 2022, management expects revenue and pre-tax profits to be 32% and 28% higher than a year ago, respectively.

Needless to say, that’s some fairly impressive growth rates. The group is a highly acquisitive enterprise which does introduce risks. After all, a poorly executed buyout could compromise the firm’s financial health and growth rates. But given its track record of success to date, that’s a risk worth taking for my portfolio.

Zaven Boyrazian owns shares in Keywords Studios.

Scottish Mortgage Investment Trust

What it does: Managed by Baille Gifford, Scottish Mortgage Investment Trust is one of the UK’s most popular funds with total assets of almost £14bn.

By Paul Summers: As I type, the share price of FTSE 100 member Scottish Mortgage Investment Trust (LSE: SMT) is down over 40% in 2022. To a point, this makes perfect sense. SMT looks for ‘disruptive’ growth companies – just the sort of stocks that are likely to be firmly out of favour as interest rates rise.

As a long-term Fool, however, this short-term ‘pain’ suits me fine. We can be sure that investors’ risk appetite will return eventually. And when it does, I want to be owning game-changing firms like Moderna, ASML and Tesla. So,what better time to buy this low-fee (0.32%) active fund than when it trades at a discount to net asset value? The cherry on top is that SMT also gives me exposure to highly-promising private companies that might become the titans of tomorrow.

I will continue adding to my stake in December and beyond.

Paul Summers owns shares in Scottish Mortgage Investment Trust.

ITV

What it does: ITV is a UK broadcaster that also produces content and offers production facilities for third parties

By Christopher Ruane. Some investors think of ITV (LSE: ITV) as an income stock. With a dividend yield of 6.5%, that is understandable.

But there is also a growth story here. The company continues to do well selling advertising on terrestrial television while scaling up its digital offering. Over the long term, I think that could help it continue to grow advertising revenues. In the coming couple of years, though, they may suffer as part of a wider marketing downturn.

ITV’s facilities and expertise in making content strike me as a growth driver at a time when demand for drama shows continues to outstrip demand. In years to come I think that could help power both revenues and profits.

Yet the ITV share price remains beaten down. With the shares 30% lower than a year ago, the price-to-earnings ratio is now below 7. If I had spare cash to invest, I would buy more ITV stock for my portfolio in December.

Christopher Ruane owns shares in ITV.

Integrafin Holdings 

What it does: Integrafin owns a leading digital investment platform, called Transact, serving UK financial advisers and their clients. 

By G A Chester. The revenue Integrafin Holdings (LSE: IHP) generates from Transact is linked to the market value of funds on the platform. This value is driven by fund inflows/outflows and market movements. 

For the year to 30 September, Integrafin continued its long record of attracting net inflows. A new £4.4bn came in. However, negative market movements of £6.3bn saw the value of funds on the platform fall 4% to £50.1bn. 

Despite this, Integrafin expects to report an 8% increase in revenue when it announces its full results on 14 December. And continuing strong numbers of new advisors and clients joining the platform provide a solid basis for ongoing growth. Substantial investment is also being made to efficiently scale the business for enhanced future profitability. 

There’s a risk volatility in financial markets could further impact investor sentiment (Integrafin’s shares are down 50% over the last year), but I see exciting long-term growth prospects here. 

G A Chester does not own shares in Integrafin. 

Keywords Studios 

What it does: Keywords is an art, audio, development, marketing, translation, testing and player support service outsourcer for video game studios and publishers. 

By James J. McCombie: Keywords Studios (LSE: KWS) offers a unique way to get exposure to the growing video games industry. It is not exposed to the risk of a game flopping as it takes payment for its services before release. Its business model has delivered handsomely on the top line. Full-year revenue for 2022 is expected to be at least €675m, which would be 32% year-on-year growth and a stonking 346% over five years.

The company is profitable, and its net income has increased over the years, although it is more volatile than revenues. To keep growing, the company needs a steady pipeline of new games. There is some concern that after a recent splurge to capture the attention of eyeballs during the pandemic years, a lot of players are now focusing on cash flow and return on investment, which might see Keywords revenue rise start to slow.  

James J. McCombie does not own shares in Keywords Studios.

John Choong: Wise

What it does: Wise is one of London’s biggest fintech companies. It mainly facilitates the transfer of money across international borders.

By John Choong. When buying growth stocks, I look for solid double-digit growth in a company’s top and bottom lines. Wise (LSE: WISE) fits the bill perfectly as its past couple of quarters have seen strong revenue and income growth. I’m also a huge fan of the firm’s ability to acquire customers generously despite having to increase prices in the ongoing economic backdrop.

Additionally, the firm’s plans to venture into new markets is something that excites me tremendously as it continues to take market share from giants such as PayPal. Moreover, the company’s balance sheet indicates that it’s well equipped to continue expanding without too much hinderance given its healthy debt-to-equity ratio of 19.2%. Most importantly, its free cash flow continues to grow at a rapid pace.

Nonetheless, it’s worth noting that Barclays has an average price target of £5.50 on the stock, which is lower than the Wise’s current share price. This may indicate that the stock is overvalued and is something I’m closely monitoring.

John Choong has no position in Wise.

The post Best British growth stocks to buy for December appeared first on The Twelfth Magpie.

Financial services technology

As an introduction, Integrafin is the holding company behind Transact. Transact is a financial services technology platform. It offers financial services professionals, such as financial advisers, what is known as a wrap-around platform to help them and their clients manage investments and other financial aspects including taxation, and record keeping.

So what’s happening with Integrafin shares currently? Well, as I write, they’re trading for 229p. At this time last year, the stock was trading for 492p. This equates to a 53% decline over a 12-month period.

To buy or not to buy?

Let’s take a look at some of the pros and cons of me buying Integrafin shares.

FOR: Reviewing Integrafin’s fundamentals, I can see it has a great track record of performance growth. I do understand that past performance is not a guarantee of the future. However, looking back, it has grown revenue and profit for the past four years consecutively. In fact, revenue has increased at a compound rate of 12% annually in this period. In addition to this, the shares would boost my passive income stream through dividends with a dividend yield of 4.5% currently. This is higher than the FTSE 250 average of 1.9%. I do understand that dividends are never guaranteed, however.

AGAINST: One of the biggest risks Integrafin faces in my opinion is that of competition. There are a few well-known platforms out there that do the same thing as its Transact platform. The main one that springs to mind is Hargreaves Lansdown, which has brand power and offers a direct-to-consumer offering as well as to the professionals in the finance industry.

FOR: Looking at the wealth management market in the UK, it seems to be growing at a nice rate. This could benefit Integrafin and the take up of its platform. In turn, this could boost performance and shareholder returns. Finally, the shares look decent value for money on a price-to-earnings ratio of 13 currently.

AGAINST: Economic volatility due to soaring inflation, coupled with the tragic events in Ukraine, have pegged back many financial services shares, including Integrafin. This continued volatility, including rising interest rates, as well as negative market movements for certain assets and their prices, could affect Integrafin for some time to come. This is an issue I will keep a close eye on.

A FTSE 250 stock I would buy

Taking everything into account, I believe Integrafin is the type of stock I have been looking for. It is a quality business, operating in a sector primed for longer-term growth. Furthermore, after its recent share price drop, it is trading at a decent discount compared to some months ago. The passive income opportunity also helps me build my investment case. I am adding Integrafin to my buy list.

The post Should I buy this FTSE 250 financial tech stock? appeared first on The Twelfth Magpie.

Royston Wild: BAE Systems 

The BAE Systems (LSE: BA) share price lifted off in February as tragic events in Ukraine unfolded, and it’s stayed strong since then. The war in Eastern Europe illustrates the tense geopolitical backdrop that I think will support sustained and strong demand for BAE Systems’ defence products. 

In fact, BAE Systems has grown earnings in four of the past five years as global arms spending has risen. The only reversal came in 2020 when Covid-19 disruptions hit the bottom line. City analysts expect profits to keep heading northwards this year, and next too, as the West bumps up arms spending in light of recent events.

I think BAE Systems could be a particularly strong performer in May too as rising fears over rampant inflation boost demand for safe-haven shares like defence companies. 

Royston Wild does not own shares in BAE Systems.

Zaven Boyrazian: Alpha FX Group

Alpha FX (LSE:AFX) is a financial services group specialising in currency risk management and alternative banking solutions. The firm helps businesses mitigate foreign exchange risk while simultaneously enabling almost instant enterprise-scale international transactions – something not possible with archaic methods like wire transfers.

Corporate banks offer similar solutions and are a significant source of competition. However, these are often prohibitively expensive. By charging on a per-transaction basis, Alpha FX enables its clients to overcome this barrier to entry.

With an impressive track record of double-digit growth and its 2022 performance continuing to impress, I think it’s time to add more shares to my portfolio today.

Zaven Boyrazian owns shares in Alpha FX

Edward Sheldon: Smith & Nephew

My top British stock for May is Smith & Nephew (LSE: SN). It’s a healthcare company that specialises in joint replacement systems.

There are a couple of reasons I like the look of Smith & Nephew right now. One is that there’s a huge joint replacement backlog globally at the moment due to Covid-19. So, the company appears to be well positioned for growth in the years ahead.

Another is that the healthcare sector tends to be quite defensive in nature. So, the stock could hold up relatively well if we see a recession.

It’s worth pointing out that Smith & Nephew shares are not cheap. So, this adds a bit of risk. All things considered though, I see a lot of potential here.

Edward Sheldon owns shares in Smith & Nephew.

Stephen Wright: London Stock Exchange Group

I think that my top stock for May is one of the best companies in the UK. It combines a core business that has virtually no competition with other operations that have high margins, low costs, and generate huge returns.

The stock is London Stock Exchange Group (LSE:LSEG). The company operates the exchanges on which financial market transactions take place. These have high barriers to entry. But the company also has various other operations, including data, fixed income trading, and clearing services.

Stephen Wright does not own London Stock Exchange Group.

Michelle Freeman: Wizz Air

It’s no surprise to anyone that airline shares have had a rough time over the last two years. But with Wizz Air (LSE: WIZZ) down over 30% since the start of the year, I think its shares look potentially oversold compared to others. 

Yes, Wizz has more exposure to those Eastern European travel destinations that are impacted from the on-going war. But it has been diversifying its network and increasing capacity recently, including picking up more Gatwick slots from Norwegian.  

With the WTTC reporting triple-digit growth compared to last year, I wouldn’t be at all surprised to see the share price benefit accordingly. 

Michelle Freeman does not own shares in Wizz Air.

Andrew Mackie: Anglo American

My top stock for May is Anglo American (LSE: AAL). This may seem like a strange choice, given the 20% share price fall in the three days following a disappointing Q1 production report.

However, I would look beyond the headlines. At the moment, a lot of miners are suffering with high input costs, particularly diesel, Covid-related absences and production issues. However, all this is likely to do is push up prices even further.

The business remains a cash-generating machine, with a dividend policy of returning 40% of underlying earnings to shareholders.

For me, the commodities cycle is still very much in its early innings. With such a diversified portfolio, the sell-off has presented a good entry point for long-term investors.

Andrew Mackie does not own shares in Anglo American.

Andrew Woods: Tullow Oil

Tullow Oil (LSE: TLW) is an oil and gas exploration and production firm. It operates globally, but it has larger operations in Ghana and Kenya in Africa, and Guyana in South America.

The pandemic hit the business hard, resulting in a $1.2bn pre-tax loss in 2020. It recovered, however, to post a $200m pre-tax profit the following year.

In March, it increased its stake in two oil fields in Ghana, potentially increasing production by 4,000 barrels of oil per day. With oil prices at high levels, I think this firm could be a top stock for me in May.  

Andrew Woods has no position in Tullow Oil.

Paul Summers: XP Power

Having once made a big profit on the stock, I’m starting to think about buying XP Power (LSE: XPP) again. The share price of the critical power solutions provider has tumbled in the last few months due to a resurgence of Covid-19 in Asia, higher costs, and limited component supply.

Despite these headwinds, business is ticking along nicely. XP had a record order book of roughly £260m moving into Q2.

The valuation of 17 times forecast earnings looks pretty reasonable to me. There’s also a well-covered dividend to keep investors happy while the dark clouds pass. 

Paul Summers has no position in XP Power

John Choong: Dunelm

Dunelm (LSE: DNLM) was predicted to falter after Covid restrictions were lifted. But its most recent earnings report showed a 25% increase in its profits, with total sales up 10.6% year over year. Additionally, Dunelm has managed to maintain healthy margins of 10.8% whilst boasting a stellar balance sheet with zero debt.

Although its stock has taken a plummet due to disappointing retail sales figures, the fine print proves that the British retailer remains immune for the time-being, as household goods stores saw a 2.6% increase in sales. This is backed up by Dunelm’s own numbers, with an 8.5% increase in active customer growth.

John Choong has no position in Dunelm.

Roland Head: Redrow

I am picking FTSE 250 housebuilder Redrow (LSE: RDW) as my top stock for May. I think that shares in this founder-backed group could offer impressive value.

The risk of a UK economic slowdown is the main concern here. That could hit sales. But recent trading updates have not suggested any slowdown in demand for new housing.

In Redrow’s latest results, the company increased its sales and profit guidance for 2022 and said that profit margins were rising despite higher costs.

With the stock trading on six times earnings and offering a 6% dividend yield, I think Redrow offers excellent value.

Roland Head does not own shares in Redrow.

G A Chester: Integrafin Holdings 

Integrafin Holdings (LSE: IHP) owns Transact, one of the largest independent platforms serving UK financial advisors and their clients. It may not be as well-known as direct-to-consumer operator Hargreaves Lansdown, but it has a strong record of growth. 

Revenue has increased at a compound annual rate of 12% over the last four years and earnings have advanced at a rate of 14%. Negative market movements in asset prices are a risk, and wage inflation is also currently a friction. 

Nevertheless, after recent share-price weakness, and with a tailwind of structural growth in the UK wealth-management market, Integrafin looks a quality business on sale cheap. 

G A Chester has no position in Integrafin Holdings. 

Alan Oscroft: Kingfisher

At around the 250p mark, DIY specialist Kingfisher (LSE: KGF) looks cheap to me. The owner of B&Q and Screwfix staged a strong pandemic comeback. But that’s reversed in 2022, for a 30% fall over the past 12 months. The shares are now on a trailing P/E of only around seven, with dividend yields above 3.5%.

My main concern is that free cash flow for 2021-22 fell sharply. With net debt of £1.6bn, that could bite. But the company is buying up its own shares right now. I’d do the same.

Alan Oscroft has no position in Kingfisher.

The post Top British stocks for May appeared first on The Twelfth Magpie.