Centamin, NextEnergy Solar Fund, and National Express could constitute the three best FTSE 250 stocks to buy next month.
Last month, it was the FTSE 100's moment in the spotlight, as the UK’s premier index finally hit the symbolic 8,000-point high watermark before retreating significantly.
This month, the main concern has been for the international banking sector — the collapse of Silicon Valley Bank and rushed merger of UBS and Credit Suisse being the natural consequences of rising interest rates after a long period of ultraloose monetary policy.
The Federal Reserve now has the unenviable choice of ‘breaking’ something else, or allowing inflation to become entrenched in the US economy. And this high-stakes crisis is taking the spotlight off the best FTSE 250 shares, which by remit of the index’s domestically focused constituents, remain less affected than many others.
FTSE 250: UK economic update
CPI inflation is now at 10.1% — and expected to fall when new figures are released tomorrow — and energy bills are likely to start dropping drastically as Q3 approaches. Indeed, the Office for Budget Responsibility is forecasting that inflation will fall to 2.9% by the end of the year, with the caveat that this prediction excludes the impact of any further unforeseen economic shocks.
Like another — unlikely but possible — global financial crisis forcing central banks to pivot on their inflation-fighting measures.
If the Bank of England’s Monetary Policy Committee was divided before, the gap between members has now opened up into a chasm. Arguably, this division contributes to healthy debate on monetary policy but could also serve to further highlight the difficult catch-22 it faces.
In addition, the OBR now expects that while the UK will experience two quarters of contraction in 2023, they will not be consecutive, and the country will therefore avoid entering a technical recession despite GDP being expected to fall by 0.2% overall.
With corporation tax set to rise from 19% to 25% for larger companies in the new tax year, OECD research shows that UK investment is sticking stubbornly below its mid-2016 level. Moreover, the body estimates that the UK’s GDP performance in 2023 will be the second worst in the G20, and that the country will be the only G7 member not to see growth in the year. This echoes similar warnings made by the IMF.
The cost-of-living crisis isn’t going anywhere either. There seems to be little common ground to resolve key public sector strikes launched by some teacher and doctor unions. Intensive talks may be ongoing, but it may yet be some time before an amnesty is announced.
The government’s hands are somewhat tied — energy support schemes for households pushed borrowing to £16.7 billion in February, the highest ever for the month since records began in 1993. And the tax burden is already at its highest since World War II.
All this makes picking some of the best UK growth stocks on the FTSE 250 somewhat of a challenge.
Best FTSE 250 stocks
1. Centamin (LON: CEY)
Centamin has long been a FTSE 250 favourite. The 100% owner of the Sukari gold mine in Egypt released encouraging full-year results last week at a fortuitous time, as gold looks set to hit new record highs, especially if the Federal Reserve pauses or pivots on its tightening.
Encouragingly, the miner generated revenues worth $788 million from selling 436,638oz of gold at an average price of $1,794/oz. For context, gold is now at $1,955/oz.
Centamin mined 440,974oz of gold in 2022, 6% more than in 2021. And it generated an adjusted EBITDA of $319 million on an operating margin of 40%, yielding pre-tax profits of $171 million. Importantly, it holds $157 million in liquidity, leaving it well capitalised for further operations.
It’s also commissioned a 36MW hybrid solar farm to help power operations at Sukari, the largest solar farm in the world to be used to help power a gold mine. And operationally, it’s now hit 8 million hours worked without a Lost Time Injury.
2023 production guidance is for between 450,000oz and 480,000oz — more gold than in 2022, and if all goes well, to be sold at higher prices too.
2. NextEnergy Solar Fund (LON: NESF)
The NextEnergy Solar Fund has dropped sharply since its August 2022 high of 122.6p to just 104.8p today. The fund has £1.25 billion invested in an 865MW capacity portfolio of solar farms across the world — including in Europe, the US, India, and South America.
The company’s objective is to ‘provide ordinary shareholders with attractive risk adjusted returns, principally in the form of regular dividends, through a diversified portfolio of solar energy infrastructure assets and complementary technologies, such as energy storage.’
Clean energy demand is soaring, especially as western states bear the brunt of relying on Russia for cheap oil and gas prices. Indeed, 50% of NextEnergy’s revenues are backed by inflation-linked government subsidies, leaving it with an eight-year history of fully covered dividends, which have risen in every year. NESF is now targeting a 7.52p dividend for FY22/23.
The fund has delivered a 9.1% annualised NAV total return since its IPO in 2014, and now boasting a 7.1% dividend yield, the current dip could be a solid FTSE 250 buying opportunity for long-term investors.
3. National Express (LON: NEX)
National Express shares were worth as much as 476p per-pandemic before national lockdowns sent it sharply south — and it remains depressed at just 117p today.
The group is still contending with industrial action, with more than 3,000 West Midlands bus drivers walking out after voting for ‘all out continuous strike action.’ National Express claims that drivers have rejected a very reasonable 14.3% pay increase but Unite countered that it had ‘more strings attached than a grand piano.’ However, given the headline figure offered, a resolution may be closer than in other sectors.
And in recent full-year results, annual group revenues increased by 24% to £2.81 billon. The UK business swung back from a loss in 2021 to achieve an underlying profit of £48 million —partially due to workers being disrupted by rail strikes as customer numbers at its UK coach arm doubled. In December, the company even added 50,000 more seats to cope with the new influx of demand.
But it’s also not controversial to suspect that many cash-strapped leisure passengers are choosing the cheaper option where possible as well. And where the switch has been made, many may never go back.
Having finally surpassed its pre-pandemic revenues, the FTSE 250 company’s dividend is back at 5p per share.
And CEO Ignacio Garat enthuses that ‘whilst the operating backdrop remains challenging, with inflationary pressures continuing in key markets, we expect to see that (upwards) momentum continue.’
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