2 FTSE 250 bargains for both growth and income chasers

Go-Ahead Group

While investor appetite for Go-Ahead Group (LSE: GOG) remains less-than-electrifying, I reckon now could be a great time for bargain hunters to pile in.

Its share price, although bouncing from three-year troughs, has failed to spring higher after troubles at both its bus and rail divisions forced the company to release a profit warning in late February.

And the City expects profits to remain under the cosh beyond the current period. The travel titan is expected to follow a predicted 3% earnings drop in the year to June 2017 with an extra 2% fall in fiscal 2018.

But for long-term investors I believe Go-Ahead remains an attractive selection. While passenger growth in the UK remains weak, the company’s drive to improve the quality of its services should steadily improve the number of passengers jumping onto its buses. And the move into new markets like German rail also provides the business with terrific revenues potential.  

In my opinion, a prospective P/E ratio of 8.6 times (some way below the bargain benchmark of 10 times) represents an enticing level at which to latch onto the company’s improving growth outlook.

And despite the prospect of some near-term earnings woe, Go-Ahead is expected to remain a generous dividend payer. Indeed, last year’s reward of 95.85p per share is anticipated to increase to 102.2p in the current period, a figure that yields 5.6%. And a forecast 105.1p dividend next year nudges the yield to 5.8%.

Build a fortune

Like many of its housing sector rivals, earnings growth at Bellway (LSE: BWY) is expected to cool from the ripping double-digit increases of recent years as moderating homebuyer demand —  worsened by tax changes on second homes implemented last year — whacks demand.

Predictions of an imminent slump in the UK housing market were given fuel last week after Nationwide announced home prices fell again in May, by 0.2%. This is the third successive monthly fall, something that has not been seen since the global recession eight years ago.

But while the industry is undoubtedly losing some momentum, I believe that Britain’s long-running housing shortage should prevent home values plummeting any time soon. Besides this, while galloping inflation may be damaging homebuyer affordability, the steady improvement in mortgage rates is helping to keep sales ticking over.

Bellway is expected to deliver profits growth of 10% and 6% in the years to July 2017 and 2018 respectively. Consequently the builder changes hands on a forward P/E ratio of just 8.1 times. And current forecasts also create a prospective PEG reading of 0.8 (anything below one is widely considered terrific value).

And Bellway offers plenty of upside for income chasers too. Supported by predictions of further earnings growth and excellent cash generation (Bellway generated £209.4m of operating cash during August-January), the company is expected to lift last year’s dividend of 108p per share to 114.4p this year, and again to 122.8p in fiscal 2018.

As a result Bellway sports gigantic yields of 4.1% and 4.4% for this year and next.

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Royston Wild has no position in any 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.

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