The FTSE 250 has had a strong 2019 so far, despite Brexit dramas. Hopefully, a Santa Rally can push share prices even higher in the coming weeks. Looking further ahead I’ve been thinking about shares I believe could do well next year and here are two of them.
A different business
FDM Group (LSE: FDM) is a supplier of IT consultants, that it calls Mounties. Revenue in the last three years has gone from £189.4m to £244.9m, an increase of 29%. Meanwhile, profit before tax has jumped from £35.3m to £48.3m, a 37% rise.
With a growing client base and increasing geographic diversity, I believe that FDM is tapping into a huge market opportunity, delivering its own trained Mounties to client premises to deliver a high-value service. I expect the market will grow substantially in the coming years, as IT becomes ever more important for businesses.
The group has no debt and at the time of its 2018 annual report and in fact had a closing cash balance of £33.9m. Conservative management of the business leads me to believe that the business will flourish whatever the next 12 months may bring.
With the share price haven fallen during 2019, I’m optimistic of a rebound in 2020, especially now as the group has a yield of just under 4% and trades on a price-to-earnings ratio of around 21.
With a progressive dividend policy in place, I expect FDM will keep rewarding shareholders with larger dividend payouts alongside an improvement in the share price over the next 12 months.
Going for growth
Ascential (LSE: ASCL) is another FTSE 250 listed company that also hasn’t had the best 2019, with its share price down 10%. The exhibitions and information services provider now has a P/E of 22, which is down from 26 based on the previous year’s earnings per share, so the shares have been more expensive in the past.
The P/E, however, is not what I like about the company. What I like is its half-year results which showed that pre-tax profits rose to £30.5m from £23.1m as revenue increased 25% to £236m. The company also is intent on continuing to deliver double-digit growth.
The company is also investing in growth. It has bought an initial 35% interest in cybersecurity provider Avast’s marketing analysis unit, Jumpshot, for $60.8m. It is likely that in the coming years Ascential could take a majority stake in the business.
Ascential is a high-margin business with an adjusted earnings before interest, tax, depreciation, and amortisation, and margin of just over 29% which I think makes it easier for the group to grow. Net debt leverage has also been reduced dramatically which I think will boost future profitability, it now sits at 1.1 times. In 2017 it was 2.3 times.
As the cold winter nights draw in, I’m optimistic about the chances of success for both these companies that struggled to achieve share price growth in 2019. I think 2020 could be far more rewarding for shareholders.
