Traditionally, there’s a motive to consider the FTSE 250 may do nicely within the coming years. Following intervals of excessive rates of interest, the mid-cap index sometimes fares nicely as soon as they go down once more.

With the primary cuts already administered this 12 months, now could be the time. Right here, I study why this occurs and what shares to contemplate. 

Debt allocation

Debt’s a crucial a part of any enterprise however it may be utilized in alternative ways. Smaller firms generally use debt primarily to fund operations till they flip sufficient revenue to pay it off. Whereas bigger, extra established corporations usually steadiness debt and fairness to maximise their market worth and scale back tax obligations.

When rates of interest soar, smaller firms with a lot of debt can wrestle to make funds. This strangles their funds, making it arduous to develop the enterprise and even stay solvent. However when rates of interest drop, those that survived all of the sudden have a lot of spare money to play with.

With rates of interest set to fall, I feel these two FTSE 250 firms may stand to profit.

Computacenter

I’ve been getting extra bullish in regards to the UK tech business these days. For many years, we’ve lagged behind the US regardless of trailblazing the event of computer systems within the twentieth century.

Established in 1981, Computacenter‘s (LSE: CCC) relatively old for a tech company with only a £3bn market-cap. It’s additionally extremely established, with 20,000 staff working in places of work world wide.

After a stoop in 2022, gross sales recovered 11.3% in 2023, pushing gross revenue to a record-breaking £1bn. With sturdy money flows anticipated to proceed, the shares are estimated to be undervalued by nearly 50%. It has a price-to-earnings (P/E) ratio of 15.3, barely beneath the business common of 20.

One threat is that companies are more and more adopting low-cost AI for his or her customer support and IT administration wants. Computacenter should meet that demand or lose out. However contemplating it was named ‘AI Transformation Partner of the Year’ on the Dell Applied sciences UK Associate Awards 2024, I feel it’s already forward of the sport.

That’s why I plan to purchase the shares this month earlier than they take off.

Ocado

Down 61%, Ocado‘s (LSE:OCDO) one of the worst-performing shares on the FTSE 250 over the past year. The company operates high-tech customer fulfilment centres (CFCs) that deliver goods for retailers such as Marks & Spencer. On the face of things, it’s a superb firm with wonderful tech and a number of high-value partnerships.

However years of excessive inflation hit the corporate arduous. It carries a heavy debt load of £1.48bn, barely greater than its £1.37bn in fairness. Since late 2022, fairness’s been falling whereas debt rises — not an excellent scenario.

Nonetheless, extra lately, it seems like a restoration may very well be on the playing cards. In its half-year 2024 outcomes, income was up 12.6% and it lowered its losses earlier than tax by 46.8%. It stays unprofitable however earnings per share (EPS) rose from a 29p a share loss to solely a 17p loss.

It nonetheless has a lot of work to do however falling rates of interest may definitely assist it higher handle its debt. I’m not planning to purchase the shares right this moment as I feel the price may nonetheless fall additional. However for the primary time this 12 months, I’m optimistic about its long-term prospects.