Trio of shares provide confidence booster for stock markets

After a grim month, a bunch of profit upgrades from a diverse group of companies has encouraged investors to pull on their buying boots again.

Profit upgrades from stocks spanning car sales, building materials and personal finance today helped boost confidence amid the recent volatility for mid-cap investors.

The FTSE 250 index, which has fallen more than 25% this year, rose 100 points to above 17,600 by lunchtime after better-than-expected updates from brick maker Ibstock (LSE:IBST) and the price comparison site Moneysupermarket.com(LSE:MONY).

Their gains accompanied the City’s wider relief that some of the upward pressure on government bond yields has eased since the dumping of tax cuts in the mini-budget. The FTSE 250 index surged 2.8% yesterday, with UK-focused stocks beneficiaries of a stronger pound.

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The third company upgrading profit forecasts today was FTSE All-Share stock Lookers (LSE:LOOK), as the car retailer continued a run of better-than-expected updates by reporting strong trading in the new registration plate month of September.

Lookers said new vehicle sales rose 11.5% against growth of 4.6% in the wider car market, leaving its underlying profit for the month in line with last year.

The overall surplus for 2022 will now exceed £75 million, some 14% ahead of City consensus. But Lookers warned the restricted availability of new vehicles is continuing to limit its growth, while it remains cautious over the outlook for consumer spending.

This and the return of margins to normal levels as the industry’s supply/demand imbalance starts to ease prompted some City analysts to leave their 2023 forecasts untouched today.

However, Zeus Capital noted that Lookers was “materially undervalued” on 4.6 times its revised 2022 earnings estimate. The broker said multiples across much of the motor retail sector remain low by historical standards, pointing to a mid-cycle range of 8-14 times.

It highlighted the recent 29p share bid for Pendragon from majority owner Hedin Group, which represented 9.3 times 2022 earnings and indicated Lookers should be more than double last night’s share price level at 144.8p. Zeus said: “We believe bid activity highlights the value of motor retailers across the sector.”

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Among other brokers, Numis regards Lookers as its top small-cap retail pick, with a target price of 120p, while Liberum calls the retailer “deep value“ based on a 122p estimate.

Building products firm Ibstock also bucked the uncertain trading conditions by reporting a decent set of third-quarter figures, sending its shares up 8.1p to 159.8p.

It highlighted solid levels of demand and strong cost control, prompting broker Peel Hunt to upgrade its 2022 earnings expectations by 5% to £131 million.

The shares have fallen 26% year-to-date and trade on 8.4 times forecast 2023 earnings and with an estimated 6% dividend yield. Peel Hunt added: “The macro backdrop for 2023 remains uncertain, but we believe the business is well placed from an energy hedging standpoint, and has scope to flex operational capacity.”

UBS’s price target of 245p is under review, with the bank’s analysts warning that Ibstock has no real visibility beyond the early parts of 2023 when existing housebuilder order books will have traded through.

It added: “Much will now depend on how reservations trend which will then determine demand for bricks. Given the deterioration in order intake for housebuilders we would expect volumes will start coming under pressure.

“For the UK brick industry, the key question will be the degree to which import reduction will buffer some of this pressure. Imports currently account for about 20% of domestic consumption.”

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Today’s improvement of 13.6p to 212.2 for Moneysupermarket shares came after it said it is on track for full-year earnings at the top end of expectations.

Its optimism has been driven by strong trading in the Money segment, where strong consumer interest in new banking offers helped revenues jump 42% to £28.1 million in the third quarter.

This was considerably ahead of City forecasts, helping the group’s overall revenues to beat consensus by almost 5% over the three months. Conditions in the wholesale energy market and the introduction of government support measures, including the Energy Price Guarantee, mean it is unlikely that energy switching will return in 2023.

Analysts at Jefferies have a price target of 320p, adding that today’s update provided “welcome evidence” of solid execution in a complex trading backdrop.