I’m always on the hunt for stocks backed by good-quality businesses and with the potential to go places. Here are three I’m keen on right now from the FTSE 250 index.
Food ingredients and additives
Tate & Lyle (LSE: TATE), the food ingredients and additives manufacturer and supplier, delivered decent adjusted half-year results at the beginning of November. Sales, earnings and the interim dividend all rose by small, single-digit percentages.
Chief executive Nick Hampton said in the report that in the firm’s Food & Beverage Solutions division, an increased focus on pricing and mix management delivered “strong” growth. Meanwhile, the profit from the Primary Products division came in lower because of “challenging” market conditions. But both divisions achieved productivity gains and good discipline on costs led to higher cash generation.
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The company is on a drive to simplify its business, which is “driving momentum across the organisation and supporting performance.” However, the directors expect a flat outcome with earnings for the full year.
Meanwhile, with the share price close to 734p, the forward-looking earnings multiple for the trading year to March 2021 is just under 13 and the anticipated dividend yield is 4.25%. I think that looks like decent value.
Precision engineering
IMI (LSE: IMI) designs, manufactures and services “highly engineered” products that control the precise movement of fluids, such as actuators and valves.
In the third-quarter update released in November, the company said it is making “good” progress with its business-improvement and cost-reduction initiatives, and in the face of weak markets, has been working hard to reduce costs and improve margins. Sales came in a little lower in the quarter, but margins were up.
Looking ahead, the directors think that revenue in the entire second half of the year will show another small decline when compared to the 2018 equivalent period. But profits should come in flat. Meanwhile, the firm has finished its structural review and has a plan to drive the business forward in the coming years.
With the share price close to 1,135p, the forward-looking earnings multiple for 2020 is just over 15 and the anticipated dividend yield is around 3.8%. I think the stock is attractive.
Healthcare
Mediclinic International (LSE: MDC) delivers private healthcare in Southern Africa, Switzerland and the Middle East. The half-year results report released in mid-November showed revenue up 9% compared to the equivalent period the year before and flat earnings.
Chief executive Dr Ronnie van der Merwe said in the report that all three divisions grew revenue, EBITDA and patient volumes in the period. And the firm is making progress adapting the business to current healthcare trends and changing regulatory environments, “especially at Hirslanden in Switzerland.”
The company has a growth agenda and aims to expand by offering more services in the healthcare field such as day clinics, primary care facilities, sub-acute hospitals, radiology, precision medicine, IVF and digital healthcare solutions.
Meanwhile, with the share price near 399p, the forward-looking earnings multiple for the trading year to March 2021 is just under 14 and the anticipated dividend yield is 2.1%, with the payment set to be covered a generous 3.5 times by predicted earnings. I’m tempted to buy some of the shares.
Overall, I reckon all three of these businesses are improving and the valuations remain modest.
