Three mid-cap shares for value investors

This trio have just published results and, while the numbers are mixed, the City thinks there’s now an opportunity to buy them cheaply.

Mid-cap buying today focused on Wickes Group (LSE:WIX) and MJ Gleeson (LSE:GLE) while cash-generative DFS Furniture (LSE:DFS) was hailed for its performance in the face of “almost unplayable conditions”.

Peel Hunt’s praise for DFS came as figures showed £60 million of underlying profits in the year to 26 June, a decline of 45% in the face of rising costs and labour shortages.

DFS added that order volumes softened markedly relative to pre-pandemic levels at the start of the new financial year, reflecting a trend seen across the furniture industry.

That prompted today’s decline for shares of 5.75p to 130p and for Peel Hunt to cut its price target from 260p to 200p as it halved its profits forecast for this year to £32 million.

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However, it added that value investors should be on alert to buy a fundamentally good company: “History tells us that DFS comes out of crises much stronger and we see no reason for this not to happen again. Share price weakness will be an opportunity to buy a cash-generative market leader cheaply.”

DFS today recommended a 3.7p final dividend for payment on 29 December, which will result in a trailing dividend yield at around 5.6%

Together with the 3.7p interim dividend, the 10p special paid in May and £35 million of share buybacks, the award means the group will have returned over £75 million of capital to shareholders during the 2022 calendar year.

Jefferies cut its earnings forecast on the Sofology owner by 50% for 2023, but thinks the year should be the trough. The bank lowered its price target to 210p but, based on forecast 2024 free cash flow of 9% it sees value remaining in the stock.

Today’s surge for Wickes shares came on relief that the DIY chain’s interim results included unchanged guidance for full-year profits in the range of £72 million and £82 million.

It reported some softening in conditions from the very high levels of demand experienced during the pandemic, but that it had the right model to continue outperforming the market.

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Half-year revenues at the former Travis Perkins-owned business rose 1.3% against strong prior year comparatives to a record £822.3 million and adjusted profits were only slightly lower at £45.6 million.

Shares started the year at 235p, weakening to yesterday’s low of around 114p after being priced for downgrades on around five times forecast earnings.

Liberum, which has a target price of 360p, said: “This is just the wrong valuation by some measure and we see huge upside as the group continues its tried and tested strategy.”

Shares jumped 10.65p to 126.5p after today’s results, which included a 3.6p interim dividend for payment on 4 November and an intention to keep the full-year payment in line with the one the previous year.

One of the other stand-out performers in the FTSE All-Share was low-cost affordable housebuilder MJ Gleeson, which reported record annual results after achieving its medium-term target of doubling the number of house completions to 2,000 units.

Adjusted profits of £55.5 million were up 33.1% and some 5% ahead of the recently upgraded forecasts of analysts at Singer Capital Markets. A final dividend of 12p has been proposed for payment on 25 November, lifting the full-year dividend 20% higher than a year ago to 18p.

The group, which ended the year with cash balances of £33.8 million and no debt, expects further profitable growth in the new financial year as demand is underpinned by the undersupply of quality affordable housing.

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Shares rallied 25p to 489p today, having fallen by more than a third this year amid weakness across the housebuilding sector. Trading on a multiple of six times forward earnings, Singer believes the stock offers “compelling” value based on a price target of 825p.

Liberum, which has an 830p target, added: “The market is wrong not to differentiate MJ Gleeson, as demand will hold up better at low price points, especially in the North where affordability is much less stretched.”