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Last week’s Budget shook up UK markets and smaller-cap companies like those on the FTSE 250 are particularly sensitive to such changes.
With the largest tax increases in three decades, many companies felt the effects. But some stand to gain better than others.
Here’s one FTSE 250 stock I’m avoiding and two that I think could benefit from the new budget.
Close Brothers Group
Close Brothers Group (LSE: CBG) is in hot water due to a probe by the Financial Conduct Authority (FCA) regarding motor financing. The FCA is investigating historical claims related to commissions that car dealerships may have received for setting higher interest rates on vehicle loans.
The bank is reportedly putting aside £400m to cover costs related to the probe.
Subsequently, the bank has suspended its dividend for the current financial year and warned that it may continue to withhold dividends until at least 2025. It’s also agreed to sell its wealth management unit to Oaktree for £200m.
If the bank successfully navigates this period and clears its regulatory challenges, there could be a decent recovery — especially if investor confidence rebounds and dividends resume. For investors looking to grab undervalued shares, that could be an opportunity.
For now, however, I’ll be avoiding the shares.
CMC Markets
Online trading company CMC Markets (LSE: CMCX) is popular for its contracts for difference (CFD) trading and financial spread betting.
It’s up 214% in the past year but may have more room to grow – it’s still 41% down from its high of 536p in April 2021. And with a price-to-earnings (P/E) ratio of only 18.6, it looks like good value at this price.
Recently, it’s been expanding beyond traditional CFD trading to other areas such as institutional trading services and technology partnerships. This diversification reduces its dependence on retail CFD trading and helps to create additional revenue streams.
That said, it’s exposed to the risk of changing regulations, especially in the retail trading industry. One recent example is restrictions on leverage within the EU. It also faces stiff competition from rivals like IG Group and Plus500.
As the popularity of retail trading grows, I think CMC is well-positioned to benefit. I don’t want to miss out so I’m buying the shares as soon as possible!
Kainos
Kainos Group (LSE: KNOS) is a digital services company specializing in IT services, software, and cloud solutions for the public sector, healthcare, and commercial clients. It’s benefited from increasing demand for digital transformation, particularly in the public and healthcare sectors.
On 31 October, the shares fell 14% after it released a profit warning. The next day, both Deutsche Bank and Berenberg put in buy ratings for the stock, reflecting a positive long-term outlook. But with the price down 36% this year, why do they think it will recover?
Kainos has partnerships with major tech companies like Microsoft and Amazon for cloud services. However, its key relationship is with Workday, a business management platform focused on finance and HR. This partnership has provided a steady stream of revenue and is a unique advantage, as Workday is widely adopted among large organizations and is expected to grow as more companies seek integrated cloud-based solutions.
With a solid business and broad market presence, I expect a strong recovery. This is another stock I plan to buy imminently.
