The FTSE 250, long overshadowed by its larger sibling, is drawing renewed attention from investors seeking value in an uncertain market.
With a blend of domestic and international businesses, the mid-cap index has become a fertile hunting ground for shares offering robust fundamentals at a discount.
Underlining this point is the bid interest with a slew of mid-cap companies such as Deliveroo PLC (LSE:ROO), H&T Group PLC (AIM:HAT), Warehouse REIT PLC (AIM:WHR) and Dowlais Group PLC (LSE:DWL) in the cross-hairs of bargain-hunting predators. This is rational stock market economics exemplified.
Screening for value
So, to help investor in their search for value at reasonable prices, Proactive commission investment research platform Stockopedia to run a screen.
It highlights a trio of companies with strong financials, moderate valuations, and improving market sentiment. Using a rules-based methodology focused on price-to-earnings ratios, return on capital employed, and proprietary “StockRanks,” the screen aims to uncover stocks with a blend of quality, value and momentum.
From a universe of 1,289 London-listed shares, Stockopedia’s screen zeroed in on the FTSE 250 with three main criteria: a price-to-earnings ratio of less than 12, a return on capital employed above 10 per cent, and a StockRank score greater than 70.
“Identifying shares with slightly lower P/E ratios can point to contrarian value opportunities, especially if their earnings are stable or growing,” the firm said.
Below are three companies that meet those criteria and currently sit at the top of the list.
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Keller Group PLC (LSE:KLR)
Market Cap: £1.1bn | P/E: 7.7 | ROCE: 19.8% | StockRank: 96
Keller, a global geotechnical specialist contractor, operates across infrastructure, industrial and commercial construction sectors. Despite its broad international reach and a recent uptick in operating margins, the group trades on just 7.7 times forecast earnings.
“Infrastructure spending remains resilient globally,” Stockopedia noted, adding that Keller’s high return on capital employed and low valuation suggest the market has yet to fully price in its operational improvements.
IG Group Holdings Plc (LSE:IGG)
Market Cap: £3.9bn | P/E: 10.3 | ROCE: 20.2% | StockRank: 96
Online trading platform IG Group recently acquired retail investing app Freetrade in a move that signalled a shift towards broader client services. The group has a high return on capital and strong cash generation, which supports its ambitions.
“IG trades on a P/E of 10.3, generates a ROCE of 20%, and has a defensive, cash-rich model with strong recurring revenues,” Stockopedia said. While the business model is not without regulatory risk, its valuation leaves room for upside.
ITV PLC (LSE:ITV)
Market Cap: £3bn | P/E: 9.3 | ROCE: 18.6% | StockRank: 96
Best known for its free-to-air broadcasting, ITV has been pivoting towards digital services and content production through its ITV Studios division. The transformation has yet to convince all investors, but the underlying numbers are compelling.
“At 9.3x earnings with a ROCE of 18.6%, ITV trades on a discount compared to its peers,” the screeners found. While legacy broadcasting faces structural decline, ITV’s expanding content and streaming arms could drive returns if digital initiatives succeed.
A Repeatable Process
The StockRanks system aggregates quality, value and momentum scores into a single number, based on historic drivers of outperformance. Stockopedia claims shares ranked above 90 have delivered 11.9 per cent annualised returns since 2013.
Rather than relying on thematic trends or market timing, the aim is to apply consistent, data-driven criteria. “Value investors would just look for ‘cheap’ shares,” the firm said. “The StockRanks look for ‘good, cheap, strong’ shares.”
While the screen is not a substitute for full due diligence, the approach offers a starting point for investors seeking underpriced shares with solid financial credentials.
“Applying rules-based filters like these can tilt the odds in your favour,” Stockopedia said, “especially if you are looking for contrarian, quality shares at reasonable valuations.”
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*The data provided is correct as of May 25