Stock market

Are FTSE 250 shares still a bargain?

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In spite of recent strength FTSE 250 The index, many of its constituent companies, do not appear to be overvalued. There are some bargains, in my view.

To me, the UK midcap index looks like a good hunting ground for stock pickers.

A smart operator is backing off.

For example, I like the shape of Buckover (LSE: BAKK). The company is engaged in markets to provide fresh prepared food in UK, USA and China.

We’re talking about things like freshly baked foods, artisanal breads, soups, sauces, hummus, dips, burritos, pizzas, salads and desserts.

Reading the company’s reports, my sense is that it is a smart organization focused on driving growth in its operations.

The company believes it leverages consumer insight and scale to deliver. “modern” Food that serves. “Quality, Choice, Convenience, and Freshness”.

Operations are spread over approximately 44 sites. The business uses this network to supply over 3,000 products to leading grocery retailers in the UK and US and international food brands in China.

All the general economic challenges have made it difficult for the firm to maintain its net profit levels over the past few years.

However, in 2023, revenues, profits and earnings returned and Citi analysts expect further growth this year and next.

Increasing shareholder dividends

Along with regenerated earnings, the shareholder dividend will increase by approximately 8% and 6% in 2024 and 2025, respectively.

One of the attractive features of this company is its seemingly modest valuation. With a share price of around 122p (8 May), the forward dividend yield to 2025 is 6.6% or higher.

Perhaps the share price has some room to catch the renewed vitality in the business:

In its March full-year report for 2023, the company said it was laying the foundations for future profitable growth.

However, there was a note of caution. The consumer environment is improving but challenges remain. Therefore, directors expect revenue to grow by only 1-2% in 2024.

After all, City analysts expect revenue to grow by just over 5% this year and over 11% in 2025.

Suffering from general economic chaos

However, the multi-year record volatility of profits and earnings shows that the business is vulnerable to the effects of general economic shocks.

So if we get more wars, pandemics, supply chain difficulties, or energy price challenges in Europe, the company’s growth projections could go out the window. It is also possible for investors to lose money on shares despite the attractive looking price.

There is also a significant amount of debt on the balance sheet to keep an eye on, although the firm is doing a good job of gradually reducing its debt levels.

Overall, I like the development story here and the prognosis is not outrageous. In fact, that large dividend yield could come in handy as shareholders wait for further growth in the business.

I consider Buckover to be worth further and deeper research in order to acquire some shares to hold in a diversified portfolio.


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