The FTSE 350’s worst performers of 2023

The UK stock market has endured a challenging 2022 with another disappointing year, with the country’s major indices lagging behind global peers.

Investor appetite has been suppressed by a cocktail of inflationary pressures, interest rate hikes, weak economic growth and geopolitical instability.

The FTSE 100 is down 3.1 percent since the start of the year, while the FTSE 250 is down around 1.5 percent.

In contrast, the US S&P 500, the Japanese Nikkei 225 and the Eurostoxx 600 are up 13.9, 26.6 and 3 percent respectively in 2023.

Both the blue chip FTSE 100 and midcap FTSE 250 indexes are down in 2023, but which companies have had the worst shareholder returns and do they offer good investment opportunities? Here are five:

Spirent communications (-60.2 percent)

As a company that tests telecom equipment for tech giants like Apple and Siemens, Spirent Communications is theoretically well positioned to benefit from the widespread rollout of 5G technology.

But since late last year, many of the Crawley-based company’s customers have postponed spending and scaled back investment plans amid increased economic uncertainty.

Last month, Spirent warned it expected annual sales to fall by a fifth this year after it revealed orders had fallen by around a quarter in the first nine months of 2023.

Long-term benefits: As a company that tests telecom equipment for tech giants, Spirent is well-placed to benefit from the widespread rollout of 5G technology

It blamed “slow” launches of standalone 5G networks and Chinese government cuts to Ethernet testing services.

But while Spirent has posted the worst returns of any FTSE 350 company, it has one big structural tailwind in its favor: the rapid growth in demand for faster and more reliable internet connections.

A recent one This is what the Indian market research agency Fortune Business Insights predicts that the global 5G infrastructure market will grow from just $20.2 billion last year to $348.8 billion by 2030.

“Spirent has regained its balance in the past, and those long-term growth trends have continued, which could be possible in the future, making this a potential recovery scenario,” said John Moore, investment manager at RBC Brewin Dolphin.

Mobico Group (-46.8 percent)

The rebranding of National Express to Mobico Group was justified by the bus company’s CEO, Ignacio Garat, as a way to project a more global image.

It appears to have done little for the group’s operating result. The company posted a £23.4m loss in the first half due to wage increases and a £60m loss in Covid-related funding, despite solid sales growth in all areas.

Last month, Mobico suspended its full-year dividend and cut profit expectations due to rising costs in its UK and North American divisions.

Wrong direction: Mobico Group, owner of National Express, posted a £23.4m loss in the first half due to wage increases and a £60m loss in Covid-related funding

Passenger volumes in Britain have also not recovered to pre-pandemic levels, even with increased industrial action among rail workers this year, and the company is saddled with significant debt.

Mobico is trying to sell its North American school bus division to reduce high levels of debt, which would help accelerate debt reduction, as have recent price increases and cost cuts.

“There are signs of optimism,” says Moore, “but the key to the recovery will be executing the business plan, reducing debt and reducing the potential impact of, for example, North American school bus contracts.”

Liontrust Asset Management (-45.6 percent)

Liontrust’s year was defined by the failed takeover of Swiss asset manager GAM Holdings for £99 million, a deal that FTSE 250 shareholders had overwhelmingly supported.

In an August broker’s note, Peel Hunt analysts claimed that a successful takeover, which would have created a company with £53bn of assets under management, would carry ‘significant execution risks but uncertain financial rewards’.

But like many asset managers, Liontrust’s 2023 share price fall is driven by a continued exodus of investors from funds with UK assets.

Investors continue to take money out of UK equities, due to the country’s poor economic performance, and convert it into cash, where returns have become increasingly generous.

Over the past two years, Liontrust’s total assets under management have fallen by around 25 percent to £27.5 billion, while Liontrust shares have plummeted by 74 percent.

A cut or freeze in interest rates by the Bank of England and a more positive perception of UK markets would help turn things around, but when that will materialize is difficult to predict.

Ben Laidler, a global market strategist at eToro, believes the group’s heavy 13 percent dividend yield would be very attractive, as long as the group can “get on a stable footing.”

St James’s Place (-36.75 percent)

Unlike Liontrust, St James’ Place has generated solid net inflows in a more challenging environment characterized by high inflation, interest rates and customers moving their money from shares to cash.

But Britain’s largest asset manager has faced a major problem unique to its own business model, as regulators tighten scrutiny of fees.

Watchdogs have long been concerned that SJP charges customers excessive or unfair fees for financial advice and early withdrawals.

Under new ‘Consumer Duty’ rules introduced in July, the Financial Conduct Authority is requiring all financial services providers to provide ‘fair value’ and ‘timely and clear information’ to customers.

High costs: Asset manager St James’s Place has faced increased scrutiny from regulators over long-standing concerns that it charges excessive fees to clients

SJP’s shares have fallen by around 30 percent since these regulations were introduced, far more than any other asset management company.

Much of the fall came after the group revamped its cost structure under pressure from the FCA, removing exit charges for new bond and pension investments.

When the changes were announced, it admitted they would “impact the shape of its cash result going forward” and weaken underlying cash performance “over the next few years”.

Acquire (-28.3 percent)

British gambling companies have reaped a financial whirlwind from their expansion in the US since the Supreme Court overturned a near-nationwide ban on sports gambling five years ago.

However, the threat of new regulations aimed at curbing problem gambling seriously endangers that growth. In April, a UK government white paper proposed the introduction of betting limits for online gambling games and a ban on bonus offers such as free bets.

Ladbrokes owner Entain has been particularly affected by these proposed laws, with further implications of ‘customer friendly sports results’ – or more punters making successful bets.

Entain has also been hit by £585 million in costs related to a bribery investigation into its former Turkey-focused business and by raising almost £600 million from investors to fund its takeover of STS, a Polish sports betting operator.

Its recovery will depend heavily on the performance of Entain’s BetMGM joint venture, which has seen astonishing growth after being founded just four years ago and generated $1.4 billion in revenue last year.

Matt Britzman, equity analyst at Hargreaves Lansdown, said: ‘The recent weakness means the valuation is below its long-term average, which may not fully reflect the huge opportunity in the US.

“With a 50 percent stake in US-based BetMGM, Entain has a major stake in what looks like it will be a major asset across the pond.”

Which other stocks have seen the biggest declines this year?

Ferrexpo (-51.8 percent) – The escalation of the conflict in Ukraine has caused iron ore production to plummet at the mining group, which suffered a blockade of the port of Pivdennyi by the Russian navy.

Ceres Power Holdings (-43.5 percent) – In order to still make a profit, the fuel cell developer recorded a 13 percent higher operating loss in its half-year results, because sales growth could not keep pace with increasing capital expenditure.

Fresnillo (-37.3 percent) – A stronger Mexican peso, higher energy and labor costs and start-up costs for a new underground mine in Juanicipio caused the world’s largest silver producer’s half-year profit to plummet by more than a third.

Croda International (-32.1 percent) – Two profit warnings have been issued by the specialty chemicals supplier this year as more customers reduce inventories instead of buying products.

Anglo-American (-32 percent) – Shrinking commodity prices and rising inflation have seriously hurt the mining giant, whose latest interim dividend payments were less than half the amount paid out last year.

Note: All data is provided by Morningstar and is based on the performance of HSBC’s exchange-traded funds between January 1 and October 31.