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Best FTSE 250 shares to buy in October 2022


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Britvic, Greencoat UK Wind, Greggs, and Watches of Switzerland are four FTSE 250 shares to watch next month as UK markets recalibrate.

ftseSource: Bloomberg
 
 Charles Archer | Financial Writer, London | Publication date: Friday 30 September 2022 

The UK economic situation is looking precarious. And the uncosted ‘mini-budget,’ tanking pound, pension panic, and widespread economic criticism could yet have further repercussions.

Given this, more rapid and unpredictable market movements appear likely to be in the offing.

Accordingly, many of the best FTSE 250 stocks to watch could soon be struggling through turbulent waters, despite the cancelled corporation tax cut.

However, the new governing administration could soon be providing some advantages to a select few companies, which might translate into higher share prices. And domestically focussed FTSE 250 companies are more likely to be the beneficiaries than those that constitute its older brother, the FTSE 100.

Best FTSE 250 shares

1) Britvic (LON: BVIC)

Down 24% to 720p year-to-date, Britvic shares could be a FTSE 250 buying opportunity on the dip.

Unlike premium stocks such as Coca-Cola or FeverTree, which trade at substantially higher price-to-earnings ratios, Britvic offers the likes of Tango, Robinsons, and J2Os, which are potentially more affordable options in this recessionary environment.

With a £1.9 billion market cap, it’s a comparative minnow. But in Q3 2022 results, it saw revenue increase by 11.2% year-over-year to £431.1 million, with ‘volume growth and positive price/mix.’ Accordingly, it’s running a £75 million share buyback programme that should conclude by May 2023.

The most exciting shake-up for Britvic could come from the potential scrapping of the ‘sugar tax’ — officially the ‘Soft Drinks Industry Levy — which imposes an 18p per litre tax on sugary drinks containing between five to eight grams of sugar per 100ml, or 24p per litre for those exceeding eight grams.

Two-thirds of Britvic’s revenue is UK-based and this could seriously boost profit margins at a time of flagging consumer spending.

Key risk: Carbon dioxide, which is manufactured in only two plants in the UK, has rocketed nearly tenfold to £2,800 per metric tonne. Further increases could more than offset the lifting of the sugar tax.

2) Greencoat UK Wind (LON: UKW)

Greencoat UK Wind is a FTSE 250 green energy infrastructure fund, which invests in both onshore and offshore UK wind farms to generate revenue for investors. It aims to offer a sustainable and above-average dividend yield, which increases in line with inflation while preserving capital in real terms.

This is an attractive quality in a high inflation, recessionary environment. So too is its 149p share price, up 15% over the past year. It trades on an exceptionally attractive price-to-earnings ratio of just 4, and now boasts a solid 5% dividend yield.

The fund currently invests in over 40 wind farms with a net generating capacity of 1,442 MW. Chancellor Kwarteng has in the past made clear that he holds favourable views of investment in renewable sources like wind, an important factor as the UK seeks energy independence. Already new renewables funding is in place, as are plans to relax onshore wind planning rules.

Key risk: Any change in the political winds could see Greencoat UK Wind either directly or indirectly in line for a windfall tax.

ftse 250Source: Bloomberg

3) Greggs (LON: GRG)

Down 50% year-to-date to 1,688p, Greggs shares are part of a hallowed group of the key UK stocks used as an unofficial barometer to help assess the state of the economy, with others on the list including Tesco and JD Wetherspoon.

Of course, it’s no secret that the economy has suffered in 2022. But the company could actually benefit from the recession. As the loss of remote workers becomes factored in, it could benefit from cash-strapped consumers looking for reliably affordable food.

CEO Roisin Currie argues that ‘in a market where consumer incomes are under pressure Greggs offers exceptional value for customers looking for food and drink on-the-go. We are well positioned to navigate the widely publicised challenges affecting the economy.’

In recent half-year results, total sales rose by 27.1% year-over-year to £694.5 million, with the FTSE 250 company boasting a ‘strong cash position and good liquidity, with net cash at period end of £145.7m, having paid a special dividend of 40p per share (£40.6m total) in April 2022.’

While it only saw pre-tax profit at a flat £55.8 million due to the re-introduction of business rates, increase in VAT, and higher levels of cost inflation, it opened 58 net shops, and anticipates opening a total of 150 more in 2022. It now operates 2,239 shops across the UK.

Key risk: Further stock price pressure as investors and consumers alike fret over the length and depth of the UK recession.

4) Watches of Switzerland (LON: WOSG)

Watches of Switzerland shares are down 57% year-to-date to just 654p. The luxury company, which still derives around 87% of sales from the luxury watches sold in its 170 stores worldwide, is arguably a casualty of the wider recessionary environment.

In Q1 results, the FTSE 250 company saw currency-adjusted revenue rise by 25% year-over-year to £391 million. As CEO Brian Duffy argues ‘despite the well-publicised concerns about the macro-environment, demand for our products remains robust with client registration of interest lists continuing to extend...we remain confident in our long-range plan.’

The company could benefit from the strengthening US dollar, as it derives around 40% of revenue in the US, and US-derived revenue rose by 76% in the quarter. It’s also expanding significantly into Europe, as part of a long-term growth strategy.

Key risk: A recession strong, deep, and painful enough to hit the FTSE 250 company’s wealthy clientele so hard that they stay away.

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