3 Top FTSE 250 Shares to Watch in 2023
The UK’s FTSE 250 index is comprised of 250 mid-cap companies listed on the London Stock Exchange (LSE). The index is full of a diverse range of stocks which provide investors with both growth and income opportunities.
In this article, we will examine 3 top FTSE 250 shares for investors to watch in 2023.
Table of Contents
What Is the FTSE 250?
The FTSE 250 is the UK’s second tier stock index, after the FTSE 100. Whilst the FTSE 100 is comprised of the 100 largest companies by market capitalisation listed on the LSE, the FTSE 250 is made up of the next 250 largest companies.
As such, many of the companies are much smaller than the FTSE 100 constituents, which can offer investors better opportunities for growth.
Although the FTSE 100 is usually deemed the UK’s benchmark index, many of the companies within it are international corporations which draw the majority of their revenue from overseas. The FTSE 250, on the other hand, is far more domestically focused and, for that reason, is viewed by many as a better gauge for the health of the UK economy.
If you are interested in learning more about the differences and similarities between the FTSE 100 and the FTSE 250, you can read our other article:
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Top FTSE 250 Shares to Watch in 2023
The FTSE 250 had a year to forget in 2022, with the UK’s high inflation, rising interest rates and weak economic growth taking its toll on constituents. Consequently, the FTSE 250’s slump of almost 20% was its worst year since the financial crisis in 2008.
Will 2023 be any better? And which stocks could perform better in the year ahead? In the following sections, we will take a look at 3 top FTSE 250 shares to watch in 2023.
|Tritax Big Box REIT|
|NextEnergy Solar Fund|
Tritax Big Box REIT
Despite the Bank of England (BoE) raising interest rates to bring down inflation, it remains elevated and is likely to remain high throughout 2023.
Therefore, investors will need to consider rising inflation when choosing investments this year, which is what we’re doing with the first of our top FTSE 250 shares, Real Estate Investment Trust (REIT) Tritax Big Box.
The property sector tends to perform well during periods of high inflation, due to the fact that property prices rise and landlords can usually increase rent.
Tritax owns a large portfolio of warehouses which it rents out to major businesses - including Amazon, Morrisons, Tesco and B&Q - providing the business with a reliable stream of rental income. The nature of Tritax’s business means that it is well positioned to benefit from future growth in online retail.
Tritax’s share price struggled in 2022, dropping 44% over the course of the year. However, despite a poor performance in the stock market, its financial results tell a different story, showing a business which appears to be in good health.
In the six months ended 30 June 2022, Tritax reported contracted annual rent roll of £216 million, an increase of 10.5% from the previous year. Operating profit also rose by 5.6% to £88.8 million, the lower profit growth reflecting a significant increase in costs. At the time of writing, the stock has a dividend yield of 4.94%.
Despite inflation, rising interest rates and lower consumer spending, revenue at Games Workshop has held up rather well in the current climate.
What started out as one shop in London, Games Workshop, a manufacturer of miniature wargames, has turned into a global operation, with over 500 stores worldwide.
Most likely due to the discretionary nature of its products, Games Workshop shares struggled in the first ten months of 2022, as the global economic outlook soured. However, the stock saw a resurgence in the last two months of the year, helped by news in December that Amazon Studios had secured the film and TV rights to the company’s most popular product, Warhammer 40,000.
This could end up being a gamechanger for the FTSE 250 stock, which already generates a modest amount of revenue from licensing royalties, a source of revenue with very high profit margins (90% in the six months ending 27 November 2022).
As already mentioned, despite a challenging economic environment, Games Workshop has continued to generate consistent revenue. In the six months ended 27 November 2022, revenue increased by 7% year on year.
However, due to an increase in cost of sales and other operating expenses, operating profit fell by around 5% in the same timeframe.
Nevertheless, thanks in part to the large amount of net cash generated from operating activities, which increased 42% year on year, Games Workshop hiked their dividend to 165p per share, 65% higher than the dividend declared in the same period the previous year. This gives the stock an attractive dividend yield of around 4% at the time of writing.
NextEnergy Solar Fund
The events of 2022 have led to increasing concern around the world regarding energy security. We have witnessed first-hand the danger of importing our most valuable resource which, combined with increasingly volatile weather, has led to an increase in momentum for renewable energy.
Consequently, additions in renewable energy are forecast to explode over the next five years, meaning it could be an opportune moment to diversify into this sector.
There are several renewable energy stocks within the FTSE 250, one of which is NextEnergy Solar Fund.
As the name suggests, NextEnergy Solar Fund is a company which invests in solar energy farms around the world, although predominately in the UK. The company already has a fairly large portfolio, with an installed capacity of 865MW across its solar farms and more than £500 million worth of projects in the pipeline.
Despite a rough year for FTSE 250 constituents, NextEnergy’s share price gained 10% in 2022 and the company posted solid interim results. In the six months ended 30 September 2022, NextEnergy generated £86 million total net income, an increase of 60% year on year (YoY). Profit also soared, rising 70% YoY and coming in at an impressive £77 million.
One of the most attractive things about this FTSE 250 stock is its dividend distributions. Since going public in 2014, the NextEnergy has increased its dividend each year and has a yield of 6.55% at the time of writing.
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