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Every month, we ask freelance writers to share their best ideas about small-cap stocks that investors can buy – here’s what they said in March!
[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]
Accrol Group Holdings
What we do: Accrol produces toilet roll, kitchen towel, and facial tissue products for major wholesale retailers.
By Charlie Carman. Tissue manufacturers Accrol Group Holdings (LSE: ACRL) is not exactly operating in the sexy sector on the face of it. However, a look at the company’s finances makes this stock more glamorous than it first appears.
Revenue growth exploded by 64% in its latest half-year results. In addition, the business currently has a 21.5% market share based on sales volume. That’s a big increase from the 5.6% share in 2017.
The Blackburn-based company has increased volumes across all product categories, but facial tissues (+50.2%) and wet wipes (+120%) have seen particularly impressive growth. Accrol is targeting further expansion opportunities in the region.
One risk the company faces is a 41% increase in net debt to £30.5m. However, the business has given guidance that it is trading ahead of expectations for FY23. If it can continue to grow at a rapid pace, I think Accrol’s future looks bright.
Charlie Carman has no position in Accrol Group Holdings.
Begbies Traynor Group
What we do: Begbies Traynor provides professional services in fields including insolvency, asset sales and financing.
By Royston Wild. Rising economic optimism has led to significant stock market gains in recent weeks. But improved investor confidence has seen many counter-cyclical stocks plummet in value.
Insolvency specialist Begbies Traynor Group (LSE: BEG) is one of the few UK small stocks to fall since the start of 2023. In fact, it’s down 10%. I believe this reversal presents a good buying opportunity.
The number of companies in financial distress is increasing and will continue to increase. Last week a business advisory firm FRP Advisory predict the volume of business in the restructuring and administration market will grow this year.
He also said that questions about restructuring services “keep going up.” Therefore, I think it is premature to sell Begbies Traynor shares now.
Persistent inflation and increased borrowing costs are taking a toll on corporate balance sheets. With economists tipping a recession lasting until 2024, things will also be tough. So businesses like Begbies Traynor can continue to generate strong income.
Royston Wild has no shares in Begbies Traynor or FRP Advisory.
Begbies Traynor
What we do: Begbies Traynor Group plc is a business recovery, financial advisory and property services consultancy.
By Paul Summers: Share in insolvency specialist Begbies Traynor (LSE: BEG) has done well over the past 12 months. That’s not surprising given the bleak forecast that has been making headlines.
I think there can be more results to come. Back in December, the company said it expected “continued growth“because”high level of questions and increasing economic headwind“.
Of course, the Bank of England now believes that the current UK recession will be shorter and less severe than previously thought. However, I think many small businesses still have problems. The Q3 update from Begbies is due before the end of the month.
Savings are also inexpensive. I can take a slice for 13 times forecast earnings. There is a yield of almost 3% on the front as well.
After becoming a holder, I would like to buy it again.
Paul Summers has no shares in Begbies Traynor.
I think it’s medical
What we do: Creo Medical is a medical device company that produces electrosurgical products used in endoscopic surgery.
By Ben McPoland. It’s been a rough 12 months for investors I think it’s medical (LSE: CREO) shares. After sliding 80%, the small-cap stock is up 65% in the past month. It is due to raise £28.5m in funding. It may raise money faster through other placements, which is the risk of volatility in the stock.
However, the loss-making company expects this cash to turn into a profit, as the adoption of minimally-invasive surgical technology increases worldwide. Their flagship product is called Speedboat, that is device attached to the endoscope. This is usually only used to diagnose the disease, not treat it. But Creo products can dissect, resect, coagulate and inject, all in one device.
Last year, he signed a multi-year deal with the med-tech giant Intuitive surgery to optimize certain Creo products for compatibility with Intuition robotics technology. This is a huge endorsement of Creo’s technology, and any future licensing revenue should be very high margin.
At 31p a share, the long-term upside could be significant.
Ben McPoland owns shares in Creo Medical.
DX Group
What we do: DX Group is a shipping company specializing in IDW (irregular dimensions and weight) parcels and parcels.
By John Fieldsend. DX Group (LSE:DX.), with a current market capitalization of £169m, is trading at around 28p. This is a stock price that is down about 78% from its peak price. And despite the apparent downward trend, the recent news has all been positive.
Revenue has increased, with year-on-year growth in each of the last seven years taking total revenue from £287.9m in 2016 to £428.2m in 2022. Net income has been more problematic because the company has not been profitable for some time, and this is likely the reason for the price stutter stock. However, the latest earnings show a profit of £22.1m on earnings-per-share of 2.9p.
Looking forward, active desertion in high streets in favor of online shopping as a strong tailwind for the company. The recession and cost-of-living crisis could cause problems, but overall, the company looks like a strong small-cap stock to me.
John Fieldsend has no shares in DX Group.
The Keystone Law
What we do: Keystone Law is an innovative UK law firm operating on a scalable platform model.
By Edward Sheldon, CFA. The Keystone Law‘s (LSE: KEYS) share price has taken a big hit since the start of last year and I’m not sure the fall is justified.
This is a company that has grown at an impressive rate in recent years as it has added lawyers to its platform. Between FY2019 and FY2022, revenues increased by more than 60%.
And recently, the small-cap stock has been tipped to deliver strong performance for the six-month period ending January 31, 2023.
Of course, the big risk here is a prolonged UK recession. This can have an impact on the company’s sales and profits because the demand for legal services is related to economic growth.
After the big stock price falls, however, I think the risk/reward proposition here is attractive. Currently, the stock’s price-to-earnings (P/E) ratio is in the low 20s. It seems very reasonable to me, given the company’s track record and long-term growth potential.
Edward Sheldon owns shares in Keystone Law.
Sanderson Design
What we do: Sanderson Design is a UK-based luxury interior furnishing company, specializing in wallpaper, fabrics and paints.
By Harshil Patel. Some of the best small-cap stocks often have turnaround potential. One of the stocks I bought in March was Sanderson Design (LSE: SDG). Just a few years ago, a new CEO came in and set a clear strategy to improve sales.
They reduce the number of products and make the business more efficient. The next step is to use Sanderson’s design to maximize value.
In addition to its own manufacturing capabilities, it also offers a licensing model. This part of the business is very profitable.
The turnaround appears to be progressing. The high-margin licensing business performed exceptionally well last year, with sales up 23% to £6.4m.
It also recently announced a major license agreement for its Clarke & Clarke brand with FTSE 100 retailer Next. That sounds encouraging to me.
Sanderson is cash-generative and has a solid balance sheet. With a price-to-earnings ratio of just 9, I’d say it’s too cheap to ignore.
Harshil Patel has no shares in Sanderson Design.
Super dry
What we do: Superdry is a clothing brand with retail and wholesale operations, combining vintage Americana style with elements of Japanese graphic design.
By Christopher Ruane. Founder and chief executive of Super dry (LSE: SDRY) has been increasing its share of late. Shares have risk but they seem like a bargain to me, and I continue to hold them in my own portfolio.
The risk was highlighted by the company’s move last year to refinance some of its debt with high-interest loans. That suggests retailers may have struggled to persuade major lenders about their business prospects. Without proper financing, seasonal cash flows common in the retail sector can kill a company.
But with a price-to-earnings ratio in the middle of one digit, I see the risk that has been priced in Superdry has a good brand and the profit is growing, although modest. I think the company can continue to grow in 2023 and see the current low stock price for a well-known clothing brand. It turns out that the company’s bosses feel the same way, because they bought a new one.
Christopher Ruane owns shares in Superdry.
UPGS Global Sourcing
What we do: UPGS owns and distributes a wide range of consumer products under homeware brands such as Salter and Beldray.
By Roland Head. UPGS Global Sourcing (LSE: UPGS) may not be a familiar name, but it’s a small-cap product that’s a common sight in British households.
Growth was strong during the pandemic but slowed as retailers cut back on overstocking. However, UPGS’s outsourced production model means that the company does not have a lot of money.
Management hopes to replicate the group’s success in the UK in other European markets, including Germany. Progress so far looks promising to me, but I can also see the risk that the group’s brand-driven UK strategy may not work in a lesser-known market.
The business has delivered good results in the past, and the February trading update confirmed results for the year to 31 July should be in line with forecasts. That is the share price in the nine period forecast earnings, with a dividend yield of 5%.
I see UPGS as a decent buy at this level.
Roland Head has no shares in UPGS Global Sourcing.
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