2 ‘secret’ small-cap stocks offering value, growth and income

If you think it’s impossible to find stocks offering a combination of growth and income trading on low(ish) valuations, think again. Thanks to the unwillingness or inability of many fund managers to invest in smaller companies, here are two examples that are still to be fully appreciated by the market. 

Still reasonably priced

Those already holding shares in £98m cap specialist currency manager Record (LSE: REC) will have enjoyed the superb 85% rise in its share price over the last year. Thanks to ongoing political uncertainty and its impact on currency markets, it seems logical to expect more upside ahead for the Windsor-based firm. In its last trading update, it reported having just under $60bn of assets under management equivalents at the end of June — a 2.9% increase on the $58.2bn it had in March. 

Despite recent good form, Record’s stock still looks reasonably priced on 15 times earnings for the current year based on EPS growth estimates of 14%. The latter leaves it on a price-to-earnings growth (PEG) ratio of 1.72, again suggesting that the stock isn’t overpriced. This begins to look an even better deal when you consider the consistently high operating margins and returns on capital the company has been able to generate for a number of years.  

Income hunters may also be drawn to the stock for the forecast 5.4% yield. Analysts are now expecting this to rise even higher — to 5.9% — in the 2018/19 financial year, assuming the company is able to continue growing revenue and profits.

With another trading update due in October, now might be a great time to take a closer look at Record.

Well positioned

Another stock that deserves more attention is Liontrust Asset Management (LSE: LIO). Over the last year, it has also put in a stellar performance, climbing 39% to just under the £5 mark. Even so, the shares still look fairly cheap, trading as they do on 13 times forecast earnings for the 2017/18 financial year.

Recent results from the independent fund management group go some way to explaining this run of form. In the year to the end of March, Liontrust recorded a 15% rise in revenue (to £51m) and 18% increase in adjusted pre-tax profit (to £17.2m). At the end of the reporting period, it had £6.5bn of assets under management — 36% more than at the end of the previous year. The subsequent acquisition of Alliance Trust Investments Limited at the start of April added another £2.5bn to this figure. By mid-June, total assets under management had climbed to just over £9.3bn.

In addition to highlighting a seventh successive year of positive net inflows, CEO John Ions was bullish on Liontrust’s outlook, stating that the company is “well positioned to move forward in a competitive and demanding environment”. Chairman Adrian Collins also reflected that recent political events had served as a reminder that the need for sound financial advice is likely to become even more important as people grow increasingly anxious over having sufficient savings for their retirement or achieving their financial goals.

Like Record, Liontrust is no slouch when it comes to returning cash to shareholders. Last year’s 15p per share payout is expected to rise to 18.5p in the current year, equating to a yield of 3.7%. What’s more, analysts are already pencilling in a further 14% hike in the 2018/19 financial year, leaving Liontrust yielding with a really-rather-attractive 4.2%.