The following two FTSE 250 companies have struggled lately but they could be worth a spin attodays low valuations.
The AA (LSE: AA) has expanded beyond motor breakdown cover intocar insurance, home insurance, route planning, travel and home boiler cover. But diversification hasnt helped its recent share price performance, with the stock down 17% over 12 months, and a hefty 43% over two years. It may style itself as the nations favourite breakdown service, but the investment case has run off the road.
Itsrecent full-year results were more of a reliableFord Mondeo than a racyBMW. Trading revenue chugged along, rising 1.6% at 940m, withtrading EBITDA up0.2% to403m. Operating profit wentinto reverse, falling4.4% to 284m, but at least the AA made a profit of 74m, turning roundlast years 1m loss.
However, after three torrid years of negative EPS the outlook seemsset to brighten, with a forecast rise of 12% in the year to 31 January 2018, followed by another 12% the year after. City forecasters reckon the AAspre-tax profits are set to spiral asmeasured over a three-year period, rising from just 9m in the year to 31 January 2016, to 198mby 2019.
The AA currently trades at a forecast valuation of 9.9 times earnings, which looks undemanding given its growth prospects, while yielding a smooth 4%. It has increased membership, refinanced its cash debtand committed to aprogressive dividend. You have to give it AA for effort.
Greene King (LSE: GNK) now boastsmore than 3,000 pubs, restaurants and hotels across the UK, including Chef& Brewer, Farmhouse Inns and Hungry Horse, as well as operating managed, tenanted, leased and franchised pubs from itsheadquarters in Bury St Edmunds. However, the 2.31bn companyhas been serving small beer to investors lately, with the share price down nearly 15% in the past 12 months.
Sales and market share are holding up well enough, but management has been nervous in recent months. It says that consumers are now more demanding and harder to please, yet stagnating wages mean they arent muchricher and consumer spending remainsshaky.
A hard Brexit could increase staffing pressures while the living wage will also push up the companys costs, as will the apprenticeship levy and business rate hikes. It isnt easy being Greene. Yet the share price has been rising in recent months, as consumer spending on eating out remains surprisingly resilient. For many, dining away fromhomeis no longer an occasional treat, but part of everyday life.A strong Christmas trading period also helped wipe out many of managementsworries.
With all these headwinds, EPS growth looks set to be slow, at between 1% and 4% over the next three years. However, trading at just 10.2 times earnings, it seems to me that a lot of worry has been priced-into the stock. Todays juicy 4.2% yield is covered 2.2 times, and forecast to hit 4.5% shortly. Greene Kingshould retainitscrown.
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