FTSE 250 round-up: two recovery stocks are punished

Two of 2024’s top-performing FTSE 250 stocks are today significantly cheaper after dividend-paying Moonpig Group Ordinary Shares (LSE:MOON) and cybersecurity firm NCC Group (LSE:NCC) felt the impact of economic headwinds.

Moonpig fell 35p to 232.5p as it warned that it will take longer to realise the potential of its 2022 acquisition of Experiences, which trades as Red Letter Days and Buyagift.

The online greetings card business wrote down the value of the operation by £56.7 million, a move that blighted an otherwise strong set of half-year results.

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It reported a loss of £33.3 million, although above the bottom line the adjusted profit figure of £27.3 million showed a 9% improvement. Revenue increased by 3.8% year-on-year to £158 million, driven by double-digit growth at the Moonpig brand.

High levels of cash generation mean it will pay a dividend for the first time since its 2021 IPO, with 1p a share due to be with shareholders on 20 March. It is also buying back shares.

The dividend boost was offset by today’s weaker guidance on Experiences, where the uncertain consumer backdrop has impacted gifting demand and slowed the turnaround plan.

Overall group trading remains in line with expectations, while the company has upped medium-term margin guidance from a target of 25%-26% to between 25% and 27%.

This outlook has been boosted by innovation, which this Christmas includes an AI-driven feature that allows customers to add their own handwriting to cards.

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Chief executive Nickyl Raithatha added: “This launch is a key step in our roadmap of innovative features, leveraging emerging AI technologies to enhance the card-giving experience.”

The company listed in February 2021 at 350p, only to fall to 110p by the start of 2023. Its turnaround has accelerated during this year, with shares still 50% higher despite today’s setback.

NCC shares have also been on the recovery trail this year, although they fell back 30.4p to 132p after reporting a lengthening of sales cycles in line with the rest of the industry.

This has particularly impacted the Cyber division, which provides services that help firms to identify and respond to IT security risks. NCC’s other division is Escode, which protects businesses from unforeseen disruptions and ensures their software applications and source code are safe and always available.

Despite the longer sales cycles, NCC said that it expects to deliver profitable growth across both divisions in the current financial year to 30 September. This is based on flat to low single-digit revenue growth, while it remains confident in delivering medium-term financial goals.

Having focused on a plan to reduce complexity, the gross margin in today’s results showed an improvement of 6.5 percentage points to 42.2% for the four months to 30 September.

Chief executive Mike Maddison said NCC had “made great progress” over the past 18 months,  with the now more focused CyberSecurity business back to growth and benefiting from improved sources of recurring revenue.

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He added: “We continue to focus on our client-centric strategy and notwithstanding macroeconomic factors outside our control, we expect to grow in the current financial year and remain confident in delivering our medium-term financial goals.”

Maddison said that an “ever-increasing” threat landscape, rapidly evolving technology such as AI, digital adoption and a rise in regulation across the world created multiple growth drivers for both Escode and the Cyber business.

The group started life in June 1999, when the National Computing Centre sold its commercial divisions to its management team. The shares recovered to 178p by early October, but are now back where they stood in May.

Peel Hunt, which has a price target of 200p, said: “Cybersecurity is not immune to the longer sales cycles we have flagged for months. Management deserves credit for structural improvements that are helping it navigate to better profits by the 2026 financial year.”