Picture supply: Getty Photos
Prior to now couple of months, the FTSE 250 has began to climb whereas the FTSE 100 has stayed just about flat.
Is the mid-cap index prepared for one more spell of beating the top-drawer shares? Forecasts present some large earnings rises throughout the index.
Baked-in success
Greggs (LSE: GRG) shares are up by 40% prior to now 5 years, climbing properly forward of the FTSE 250. And so they simply obtained an additional 5% enhance (no less than on the time of writing) from H1 outcomes launched on Tuesday (30 July).
The newest figures present a 14% rise in gross sales, with revenue earlier than tax up 16%, however that’s not what I’m at this time.
No, I’ve been poking round dealer forecasts. They present a slight fall in earnings per share (EPS) for Greggs for the 2024 full yr. However the firm has simply posted a 15% rise within the first half.
That’s an underlying diluted determine and it excludes exceptionals. Nevertheless it means that forecasts may simply be underplaying issues just a little.
Earnings soar
The Metropolis pundits already assume Greggs’ EPS will soar one other 20% between 2024 and 2026. And I ponder if they could elevate that after they digest these H1 numbers.
My important concern for this inventory is that the anticipated earnings development may already be factored into the share worth.
Previous to Tuesday’s replace, the shares have been buying and selling at 22 instances ahead earnings. And that price-to-earnings (P/E) a number of would nonetheless be over 18 based mostly on 2026 expectations.
Is {that a} bit too excessive proper now? I’m cautious. Nevertheless it is perhaps advantageous if these sturdy earnings forecasts can proceed.
Banking development
My subsequent decide has no issues with a excessive P/E in any respect. It’s Financial institution of Georgia Group (LSE: BGEO), and we’re a ratio right here of solely 3.8. And that’s even after the share worth has greater than trebled over 5 years.
There’s a 5.2% dividend yield forecast too, which is about consistent with our personal excessive avenue banks. However that low P/E is lower than half what we’d should pay for a UK home financial institution.
So does that make Financial institution of Georgia shares screaming low-cost now? Nicely, possibly not if there’s greater than twice the chance.
Dangerous location?
The financial institution relies in Tbilisi, Georgia, and has enterprise in Armenia and Belarus. So I believe not fairly the identical tight oversight was we now have from UK financial institution rules. And possibly that further threat actually is there.
However then I have a look at the forecasts. They recommend EPS may develop by almost 50% between 2023 and 2026. That might drop the already low P/E even decrease.
Oh, and it appears to be like just like the dividend may develop by 28% in the identical timescale, so it may beat the UK banks.
Whether or not this seems to be a great purchase will certainly rely largely on the way forward for the Georgian financial system. And I haven’t a clue how that appears. However with these forecasts, I wish to dig deeper.
