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The FTSE 250 was hard hit by the pandemic last year, but some companies grabbed the opportunity to shine and saw their share prices soar. Royal Mail Group (LSE:RMG) and FirstGroup (LSE:FGP) have both surprised shareholders for the better. So, do they now look like good long-term investments for me?
FTSE 250 Dividend payer
FTSE 250 stock Royal Mail has made an impressive comeback. After dying a death from 2018 until Covid-19 hit last year, the company has staged a remarkable turnaround. The Royal Mail share price is up 313% in a year and 15% in a month. Best of all, the company has announced it will pay a one-off final dividend to loyal shareholders of 10p a share on 6 September. This creates a 1.9% dividend yield.
After years of witnessing the demise of its letters business, it took the bull by the horns to focus on improving its parcels business. This has paid off handsomely as lockdowns encouraged a rise in e-commerce and sending gifts through the post.
The company now expects adjusted operating profit to come in at £700m. This is double year-on-year. Its price-to-earnings ratio is 32 and earnings per share are 16p.
While the good news is long overdue, there’s still concern that it’s a direct reflection of the Covid-19 environment we’re living in. Whether the parcels business will continue to thrive post-pandemic remains to be seen. It’s a competitive arena, and Royal Mail will need to be vigilant to stay ahead of the game. I’m pleased to see Royal Mail doing so well after years of bad news, but I think I’ve missed the boat with the share price rise and I’m not tempted to buy the shares today.
Will FirstGroup be fully booked?
Bus company FirstGroup has also seen its share price rise spectacularly in the past year. It’s up almost 90%, but volatility remains fierce. With Covid-19 lockdowns dragging on a lot longer than anyone predicted, road and rail passenger travel has been extremely low. But with summer approaching and lockdowns’ end in sight, there’s strong belief that the buses and trains will be busy again.
In the US, it runs a school bus business called First Student, along with its Greyhound coach travel. Both endured a 50% drop in revenues last year. First Bus in the UK fell 59%, but First Rail enjoyed a revenue increase of 30% as summer 2020 lockdowns eased and passenger demand soared.
Having looked at its historical price, I’m not tempted by this share. It’s been on a downward trajectory since 2007. With its US presence, I think it could still face challenges ahead. The director of the US public health agency, (CDC) shocked America on Monday when she said she has a feeling of impending doom and is very scared a fourth wave of Covid-19 is about to hit. It also has around £3bn of debt.
Both these FTSE 250 stocks are British companies that I’d like to see thrive. They’ve done surprisingly well this past year, but continue to face challenges ahead. I’m nervous of investing when the share price has already risen rapidly and I think there are more appealing shares elsewhere.
Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
