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Best FTSE 250 shares to buy in August 2022


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Centamin, Greggs, and easyJet shares are three FTSE 250 stocks to buy in August as inflation starts to bite.

indices
Source: Bloomberg
 
 

Some of the best FTSE 250 stocks appear to be trading at a discount relative to their true value right now. These include Centamin, Greggs and easyJet.

Of course, CPI inflation is at 9.4% and rising. The bank rate is at 1.25%, and Bank of England governor Andrew Bailey has cautioned another 50-basis points rise is ‘on the table’ for August.

BFY has warned annual energy bills could hit £3,850 in January, and EON CEO Michael Lewis has warned that 40% of households could be in fuel poverty by winter.

Simultaneously, current PM favourite Liz Truss is promising policies that the Institute for Fiscal Studies warn could send inflation even higher. Further, the International Monetary Fund thinks that the UK will experience the lowest growth of G7 members in 2023.

Investors are no longer in a bull market. After the initial pandemic crash, it was arguably difficult for diversified investors to lose money. But this is no longer true; and the due diligence required to pick out the best FTSE 250 shares has increased dramatically.

However, it’s also true that a down market is often the best time to invest in solid companies that have been hit by the wider market rout.

ftse 250
Source: Bloomberg

Best FTSE 250 shares to buy now

1) Centamin (LON: CEY)

One of the best FTSE 250 shares to buy now, Centamin represents a contrarian choice for the investor with a healthy risk appetite. Investors have used gold, and gold miners by proxy, as an inflation hedge since investing began.

While many gold miners have performed well in 2022, Centamin reported a big decline in profit in 2021, due to lower revenue and impairment of assets in Burkina Faso. But the spot gold price is at a near-record high, and only likely to rise as the recession worsens.

For perspective, Centamin expects full-year production of between 430,000 oz and 460,000 oz, above the 415,370 oz it mined in 2021. And in Q2, production rose by 11% year-over-year to 110,788 oz.

Moreover, it’s taken over as owner-operator of the Sukari underground, the largest gold mine in Egypt, saving $19 million a year in operating costs from 2023 onwards.

The miner spiked to a record 220p in August 2020, as investors fled to the safety of gold in the wake of the pandemic crash. Now down to 83p, Centamin shares could see a similar spike if investor fears further begin to recrystallize.

And currently boasting an 8.6% dividend yield, it’s a FTSE 250 share to buy.

2) Greggs (LON: GRG)

Reporting earnings on 2 August, Greggs shares are down 39% year-to-date to 2,044p. But in anticipation of results, the high street baker’s share price has risen by 13% over the past month. And a further recovery could be imminent.

In its May trading update, Greggs saw 27.4% like-for-like sales growth in the first 19 weeks of the year. While this was due to a strong pandemic era comparable, it expects this figure to ‘continue to normalise’ as time goes on.

With a ‘strong pipeline’ of openings, Greggs also opened 43 net shops, bringing its total to 2,244. And while it’s seeing ‘cost pressures increasing,’ it was trading in line with previous full-year expectations. This indicates the share price crash is not a fair reflection of the company’s true value.

Greggs does generate a significant proportion of its income from office workers, and the long-term trend towards hybrid working means ‘sales levels in larger cities and in office locations continue to lag the rest of the estate.’ According to the ONS, ‘the proportion of workers hybrid working has risen from 13% in early February 2022 to 24% in May 2022.’

But Greggs noted it had already ‘made a good start to 2022, with sales in line with our plan.’ While cost pressures and decreasing customer discretionary income were noted as ‘considerable uncertainties’ for H2, Greggs could stand to benefit from cash-strapped consumers as an excellent value choice.

And it helps to have an on-the-ball PR team, whether with advertising staff bonuses, the vegan sausage roll launch, or Primark tie-up.

3) easyJet (LON: EZJ)

easyJet is August’s final FTSE 250 stock to buy. Demoted from the FTSE 100 during the worst days of the pandemic, the airline almost made a comeback to the premier index earlier this year before Russia’s invasion of Ukraine brought volatility back into the market.

At 399p, easyJet’s share price is now worth less than a third of its pre-pandemic value. Of course, the promised summer boom hasn’t gone exactly to plan. Striking staff in Spain, the loss of COO Peter Bellew in July, and the ongoing airport chaos have all seen the stock driven to its lowest in a decade. However, this could also be an exceptional price point.

In its Q3 update last week, the FTSE 250 airline posted a headline loss before tax of £114 million, down significantly from £318 million a year ago. And as it lost £133 million to staff shortages and disruption, and £36 million from balance sheet FX revaluations, its profitability looks much worse on paper than in reality.

Revenue rose to £1.755 billion, up from just £213 million in Q3 2021. And easyJet flew 22 million passengers, representing 87% of pre-pandemic capacity levels. Further, Q4 is already 71% booked, and 83% hedged for jet fuel.

And despite the disruption, it’s worth noting that the airline operated 95% of its planned schedule last quarter. CEO Johan Lundgren argues ‘we have taken action to build the additional resilience needed this summer and the operation has now normalised. Despite the loss this quarter due to the short-term disruption issues, the return to flying at scale has demonstrated that the strategic initiatives launched during the pandemic are delivering.’

With net debt of only £200 million, ‘one of the lowest net debts in European aviation,’ this FTSE 250 stock may not be this cheap for long.

Charles Archer | Financial Writer, London
01 August 2022

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