David Barnes: Begbies Traynor

If you fear a second stock market crash or think the economy will struggle in the short term, I think a good hedge would be to invest in Begbies Traynor (LSE: BEG).

The insolvency and restructuring work specialist should see business demand surge as government support for companies is removed. The company is also a financial advisory and property services consultancy.

The firm has growing revenue and earnings per share, and uses acquisitions alongside organic growth to boost their financial strength.

Begbies Traynor trades at a fair price-to-earnings ratio of 16 and has a progressive 3% dividend that looks to be safely covered.

David Barnes has no position in Begbies Traynor.

Toby Aston: Anglo Pacific

Anglo Pacific Group (LSE:APF) is a global natural resources royalty and streaming company with a fantastic margins (52% profit last year). Its shares are down around 50% since last December, meaning the share price is a just 7 times earnings and at just 93% of book value. Management own around 7% of the shares which is encouraging.

It also pays a solid dividend yielding nearly 7%, which has doubled since 2016. This is all protected by a healthy dividend cover.  At 116p the shares are trading at low end of the 52 week range, despite analysts price target averaging 196p.

Toby Aston has no position in Anglo Pacific Group.

Royston Wild: Sylvania Platinum

Gold’s surge to record highs above $2,000 per ounce has dominated commodities-related chatter recently. But the yellow metal’s ascent due to rising safe-haven interest has dragged platinum group metals (or PGM) prices to significant highs as well.

Platinum has just struck multi-month peaks around $1,000 per ounce. And this has swept micro-cap stock Sylvania Platinum (LSE: SLP)’s share price to its highest since February. 

I’d buy the miner’s shares with the view that continued macroeconomic fears could drive their value even higher in the weeks and months to come. Sylvania’s low forward price-to-earnings (P/E) ratio of 11 times certainly leaves plenty of scope for additional share price gains.

Royston Wild does not own shares in Sylvania Platinum.

Tom Rodgers: Open Orphan

£96m market cap contract research firm Open Orphan (LSE: ORPH) is the world leader in testing vaccines and antivirals through its unique quarantine unit and on-site virology lab. 

Sales have been boosted by biotechs developing Covid-19 vaccines. But ORPH has large, long-term cash flow prospects far beyond coronavirus. 

A £4m contract with an unnamed global giant for a human challenge study into RSV is just the latest win. 2019 revenue was only £3.84m but that is expected to jump tenfold to £35m by 2021. 

Analysts think shares will more than double from today’s 14p price. 

I’m buying big. 

Tom Rodgers owns shares in Open Orphan.

Kirsteen Mackay: Trans-Siberian Gold 

Russian gold producer Trans-Siberian Gold (LSE:TSG) is a micro-cap stock that has caught my eye. With the price of gold ascending at an astounding rate, gold miners are reaping the benefits.  

Since the March market crash, the Trans-Siberian Gold share price has risen 165%. The £113m company has a price-to-earnings ratio of 14 and dividend yield close to 3%. It has maintained operations throughout the pandemic and delivered a positive set of results at the end of July. Its second quarter produced 46.9% higher average gold grades than its previous quarter. With the gold price continuing its ascent, I think the TSG share price will follow suit.  

Kirsteen does not own shares in Trans-Siberian Gold.

Matthew Dumigan: Jubilee Metals Group

Industry-leading metal recovery business Jubilee Metals Group (LSE: JLP) boasts an expanding multi-project portfolio with aims to increase both its geographical and commodity exposure. Operating in a rapidly expanding market, I think Jubilee is perfectly positioned to capitalise on increased demand for a reduction in the global footprint of mine tailings. 

Having become profitable for the first time this year, I’m impressed by the group’s recent financial performance. Moreover, as Jubilee continues to remain largely unnoticed by institutional investors (market cap: £115m), I think there’s a lucrative opportunity here for those willing to hold for the long term.

Matthew Dumigan has no position in Jubilee Metals Group.

Edward Sheldon: Keystone Law

My top micro-cap stock for August is Keystone Law (LSE: KEYS). It’s an innovative UK law firm that is disrupting the market by enabling lawyers to work from home or their own offices.

Keystone Law has grown at a rapid pace in recent years and I think it looks well-placed for growth in a post-Covid-19 world. I say this because its model is designed to service clients remotely.

KEYS isn’t the cheapest stock around. At the time of writing, its forward-looking P/E ratio using next year’s EPS forecast is about 36. However, I think this company deserves a premium valuation as it has a lot of potential for growth. 

Edward Sheldon owns shares in Keystone Law.

Rupert Hargreaves: Inspecs

Manufacturer of eyewear frames Inspecs (LSE: SPEC) is a unique business. The company is one of the few listed eyewear companies in the world, which gives it a defensive nature.

Indeed, the eyewear market is projected to expand at a compound annual rate of 8% for the next few years.  

Based on this growth, analysts reckon the company’s sales will double by 2021. This will leave the stock dealing at a forward P/E of 17.8.

The company’s double-digit profit margins and strong balance sheet also make it a prime dividend candidate.

Rupert Hargreaves does not own shares in Inspecs.

Rachael FitzGerald-Finch: Concurrent Technologies 

Shares in computer product manufacturer Concurrent Technologies (LSE: CNC) are growing nicely, like the company’s underlying financial fundamentals and investment metrics.

In fact, the share price is hovering around its 52-week high price point but is still trading on a price-to-earnings ratio of 22, below the industry average of 30. Given the competitive advantages of the firm, in the form of a growing an innovative product range, I am expecting further stock price growth.

I think Concurrent Technologies is a desirable micro-cap growth stock to hold as part of a balanced portfolio.

Rachael FitzGerald-Finch does not hold shares in Concurrent Technologies.

Anna Sokolidou: Ariana Resources

Ariana Resources (LSE:AAU), a small cap miner, explores silver and gold in Turkey.

Its shares have recently plunged a bit just like the two precious metals. In spite of the several months’ gold rally, the investors seem to be in a risk-on mode right now. However, I don’t really believe it will last for a long time. There are plenty of macroeconomic and geopolitical risks. So, in my view, gold and silver will rise in value pretty soon.

Although I consider small caps to be rather risky, their shares tend to surge more than their larger competitors’.   

Anna Sokolidou has no position in Ariana Resources.

Jonathan Smith: Mattioli Woods

Mattioli Woods (LSE: MTW) is a UK-based wealth manager. Financial performance through to the year end of May 31st was strong, with net inflows of around £200mn, despite the pandemic hampering the final few months. The firm has also been proactive with responding to the pandemic, taking on cost cutting measures with employee compensation, saving over £2.7mn in the process.

I’m also impressed with the drive and pro-activeness around growth aims. Only this month news broke of the successful acquisition of another wealth manager, Hurley Partners. This should aid long term growth via economies of scale.

Jonathan Smith does not own shares in Mattiolo Woods.

Kevin Godbold: Concurrent Technologies

Specialist designer and manufacturer of high-end, embedded computer boards for critical applications, Concurrent Technologies (LSE: CNC) had a ‘good’ coronavirus crisis. We last heard from the company in June. The directors said the order book is “strong” and the company maintained production through the lockdown.

The firm serves the military, aerospace, communications, industrial, transport and scientific sectors. It’s a good business, which shows in the robust multi-year record of rising cash flow and dividends suggesting the enterprise has defensive qualities. As we emerge from recession, I think the firm looks well placed to thrive. I’m backing the micro-cap stock for August and beyond.

Kevin Godbold owns shares in Concurrent Technologies.

G A Chester: Sylvania Platinum 

Sylvania Platinum (LSE: SLP) has built a record of strong operational performance in recent years. This is founded on its low-cost, low-risk extraction of platinum group metals (PGMs) from chrome tailings in the renowned PGM-rich Bushveld Igneous Complex in South Africa. 

The company’s strong operational performance has been matched by a sensible financial strategy. It’s debt-free. It’s strong cash flows fund capital expansion and process optimisation projects. And also support opportunistic share buybacks and shareholder dividends. 

Adding a single-digit earnings multiple to the strong management and focus on shareholder value makes Sylvania my top stock to buy right now. 

G A Chester has no position in Sylvania Platinum.

Roland Head: Somero Enterprises

I’ve been using this year’s market crash to buy shares in high-quality businesses trading at knockdown share prices. One micro-cap stock I think looks very attractive at the moment is Somero Enterprises (LSE: SOM).

This US business makes high-precision equipment for laying perfectly flat concrete floors, such as those required for ecommerce warehouses. The company went into the COVID-19 crash with a strong order book and reported net cash of $28m at the end of June.

Management say it’s too soon to give guidance on current market conditions. But Somero looks cheap to me on just eight times forecast earnings. I rate the shares as a buy.

Roland Head does not own shares in Somero Enterprises.

Andy Ross: Franchise Brands

Franchise Brands (LSE: FRAN) is a franchisor. Its franchises include consumer-facing ones such as ChipsAway and Ovenclean as well as business to business ones such as Metro Plumb and Willow Pumps.

I like that management are experienced operators. The executive chairman spent 21 years at Domino’s, which operates a franchise model. A number of the board and other senior management personnel also worked at Domino’s so know the industry well.

It’s an entrepreneurial company which has made acquisitions and retains talent within the business.

Franchisors can make good margins because it’s an asset light business model and I think that bodes well now and in the future.

Andy Ross does not own shares in Franchise Brands.

Paul Summers: Somero Enterprises

I think laser-guided equipment specialist Somero Enterprises (LSE: SOM) is a great buy for the long term. It’s the clear leader in a niche market and generates consistently high returns on capital employed.

Recent trading has been inevitably tough. However, Somero remains profitable and cash generative and would likely remain so even if revenues were to fall an additional 20%. It also has $28m in net cash to weather the coronavirus storm.

Those looking for a quick return probably won’t find it here. However, anyone intending to stick around for the next infrastructure boom could be richly rewarded. The shares look cheap at just 8 times forecast FY20 earnings.

Paul Summers owns shares in Somero Enterprises.

Institutional investors agree, as all three of these stocks are at least 50% owned by a mixture of active managers. This shows that professional investors are expecting these companies to rally over the coming years.

iomart Group

iomart Group (LSE: IOM) has two major divisions, Easyspace and Cloud Services. Easyspace provides hosting and domain services to small businesses. Meanwhile, Cloud Services targets larger companies and offers cloud computing services. Easyspace revenue has declined marginally this year, due to the nature of its clients. However, revenue in the larger Cloud Services division continues to grow organically.

It’s one of the UK tech stocks I’d buy because it has a diverse and reliable customer base and the business model ensures recurring revenue. The debt level has also declined in recent years and the business has more than enough liquidity to cover all short-term liabilities. This means that iomart should be able to weather the uncertainty of this year and continue to grow going forward.

Concurrent Technologies 

Concurrent Technologies (LSE: CNC) manufactures essential computer hardware for various industries. The company focuses on high-end products, especially boards. Its customers are based in less cyclical sectors, like defence and aerospace. This should ensure that its revenue remains relatively consistent despite the crisis. The share price has mostly recovered from the lows, but Concurrent is a very solid business, which I believe has a bright future and is still a bargain.

It is the second UK tech stock I’d buy today because it has no long-term debt and a comparatively high level of cash. It also has relatively high margins and should continue to see long-term organic growth. The stock has also performed excellently in the past few years and should continue on this trajectory.

SDL

SDL (LSE: SDL) produces language translation tech and has four major divisions. The specifics of each division are not necessary; all you need to know is that the company has suffered little from the current crisis but the stock has still lost value. The company had no hit to revenue in the first quarter and has implemented a cost-saving plan to accommodate any second-quarter loss.

SDL is a UK tech stock I’d buy because of its low level of debt, high cash balance, and solid business model. The company has very few clients in highly damaged industries like retail and travel and, as a result, should continue to grow. The share price is still 18% down from its highs earlier in the year, making this a great opportunity to buy a bargain UK tech stock.

All three of these UK tech stocks that I’d buy should weather the current economic problems and continue to grow. I believe that they could offer great returns for brave investors.

And as one of the UK’s leading healthcare companies, its dividend record should, in my opinion, remain unbroken for some time to come. Indeed, as the world’s population continues to expand and age, demand for the company’s wound care products, knee and hip implants should grow.

That being said, competition in the healthcare sector is only intensifying, which is going to make it harder for Smith & Nephew to maintain its competitive advantage going forward. So, if you are looking for a growth stock, I believe Concurrent Technologies (LSE: CNC) might be a better buy for your portfolio.

Looking to the future

Concurrent describes itself as a “world-leading specialist in the design and manufacture of high-end embedded computer boards for critical applications.” Management believes that the company’s edge and lies in its range of products, such as its new VR E7x/msd processor board, which allows for “improved processing capability, faster connectivity and enhanced digital graphics output.“

Concurrent’s revenue for the year to the end of December fell slightly to £16.2m from £16.4m, but thanks to an increase in the gross margin, profit before tax increased by 2.3% to £3m. 

As well as organic growth management is also on the lookout for acquisitions. In today’s trading update, Chairman Michael Collins noted that the “board continues to look for worldwide acquisition opportunities,” but also sees “opportunities to grow the business organically into new market areas without taking unacceptable risks.” With £8.4m of cash on the balance sheet at the end of the year, it certainly looks as if the company has plenty of firepower to pursue whichever path it chooses to take. 

And the robust balance sheet is also supporting dividend growth. Over the past five years, the payout has grown at a compound annual rate of 5.6% and today, the firm announced a 5% increase in its full-year dividend per share to 2.2p, giving a dividend yield of 2.7%. In comparison, Smith & Nephew’s dividend has contracted by 12% over the same period and the company has £1.3bn of net debt. 

In my view, Concurrent’s growth is only just beginning, and the City seems to agree.  Analysts have pencilled in earnings per share of 7.1p, that’s up nearly 86% from 2017’s figure, and gives a forward P/E of just 11.6. 

In control of its destiny

Concurrent’s growth, combined with the firm’s dividend potential, clearly shows why it is a better buy than Smith & Nephew. 

Trading at a forward P/E of just under 19, the market apparently thinks highly of Smith & Nephew, but the dear valuation leaves the share price vulnerable to any disappointments. Meanwhile, City analysts believe the company’s earnings will grow at a relatively modest rate of approximately 8% per annum for the next two years. 

What’s more, for a long time, the group’s shares have been propped up by takeover talk, although as of yet no concrete deal has been signed.

With this being the case, I’d pick Concurrent over Smith & Nephew no matter how distinguished its dividend record might be as, if a deal fails to emerge, the capital loss could significantly exceed many years of dividend income.

Concurrent Technologies

£56m market cap Concurrent Technologies (LSE: CNC) designs electronic products for use in rugged environments. The company’s processor boards and software products are used by customers in the defence, security, aerospace, telecommunications and medical industries.

The firm has enjoyed strong growth in the last three years, with sales increasing from £11.9m to £16.4m, and earnings per share rising from 1.02p to 3.9p. Shareholders have been rewarded with an increased dividend each year, with last year’s payout of 2.1p equating to a dividend yield of 2.9% at the current share price.

Can this momentum continue? Let’s take a look at this morning’s half-year results for a clue.

For the six months to the end of June, Concurrent generated revenue of £7.8m, down from £9m last year. Profit before tax slipped to £1.4m from £1.5m, and earnings per share also declined, falling to 1.84p from 2.12p last year. While these numbers don’t make for great reading, the company did sound relatively upbeat in regard to future prospects. The group invested £1.2m in research and development during the period and it believes this investment will help “safeguard” revenues in future years. Chairman Michael Collins stated: “After a solid performance in the first-half of the year we have started the second-half with an expanding list of customers, many new opportunities and a strong balance sheet. The outlook for the future remains positive.”

The company raised its interim dividend by a generous 12.5%, which signals confidence from management, and a cash balance of £7.9m also gives the firm plenty of firepower going forward. With that in mind, while the market doesn’t like today’s numbers, I wouldn’t write off future growth prospects here just yet.

XLMedia

One small-cap dividend stock with a little more current momentum is online performance marketing company XLMedia (LSE: XLM). Indeed, interim results revealed a 33% surge in revenue to $67.9m, as well as a 23% increase in profit before tax.

The company, which uses proprietary tools and methodologies to drive traffic to its customers’ websites, has been an excellent performer for investors over the last two years, with its share price doubling in this time. The group also paid a well-covered dividend of 7.8 cents last year, a yield of 3.9% at the current exchange rate.

The stock trades on a forward P/E ratio of just 14, which appears to be a steal for a company that is forecast to generate revenue growth of 35% this year. However the low P/E is probably explained by the fact that XLMedia is an Israel-based company, and therefore investors are a little cautious of the stock in light of the performances of other similar international businesses (Globo, Telit Communications etc). As a result, XLMedia is perhaps best suited to more risk-tolerant investors.

Its strength lies in its ability to design computer boards that can operate in temperatures ranging from minus 40 degrees to as hot as 85 degrees, as well as withstand high levels of vibration and shock. Needless to say, this technology is of great use to militaries, the aerospace industry and telecoms companies, among others.

With a history of turning out high quality, durable products since 1985 and with offices in the UK, US, India and China to serve local customers, the company has built itself a wide moat to entry for competitors. And clients have found that it’s better not to skimp on the company’s mission-critical technology, which means incredible pricing power. The firm’s enviable EBITDA margin of 26.2% in 2016 shows the effects of this pricing power in action.

Margins of this level and low capital needs provide management with plenty of cash flow. At the end of December this cash had built up into a very neat pile of £7.8m, which is plenty considering revenue in the year was only £16.4m. This healthy balance sheet gives management the firepower for bolt-on acquisitions at the same time as paying out a reasonable 2.59% yielding dividend.

The potential for acquisition-led growth and the large addressable market for organic growth, together with high and rising margins, plenty of cash and a reasonable valuation of 12.5 times forward earnings makes Concurrent Technologies a stock I’ll be following closely.

Powering up for high growth 

XP Power (LSE: XPP) is a much larger growth share with a market cap of £475m, but as the developer of fairly obscure power control components for the electronics industry, it’s unsurprisingly little known to the majority of investors. This is a shame, because with four consecutive years of positive earnings growth behind it, high margins and plenty of room to grow its market share, the stock is one to watch.

The key to the company’s success is the bespoke design of power control systems for items such as drug delivery devices, factory machinery, or high-end communications devices. Being able to rely on suppliers for these critical items is obviously of paramount importance for customers, which gives XP high barriers to entry once it is on a customer’s approved vendor list.

As with Concurrent, XP puts this pricing power to work and notched up EBITDA margins of 25.4% last year, which led to impressive free cash flow of £23.6m from £129.8m in total revenue. Sales are also moving in the right direction and in Q1, constant currency revenue bumped up 23% and the order book increased by 36% year-on-year.

With only 6.1% global market share at year-end, XP Power has plenty of room to grow organically and through acquisitions funded by high cash flow. With net cash on the books, a decent 2.9% yielding dividend, and double-digit growth, its stock looks like a good value at 19.5 times forward earnings.

Today I’m going to take a look at two, including one of Lord Lee’s current holdings. I believe both firm have the potential to outperform the market over the coming years.

Rising profit margins

Software testing specialist SQS Software Quality Systems (LSE: SQS) gained 13% this morning, after revealing a sharp increase in profit margins during the first half of the current year. In its half-year trading update, it said increasing automation of its services had lifted the group’s adjusted operating margin to 7.5%, up from 6.9% for the same period last year.

The company said that it expects second-half revenue to be higher than for H1, thanks to “a number of known business wins starting later in the year”. Management says it has a “stronger pipeline” of sales opportunities than in 2016 and expects to benefit from “a range of emerging growth opportunities”.

In the medium term, SQS expects to be able to deliver an adjusted operating margin of 9% and a corresponding improvement in cash flow. This sounds appealing to me, especially given the stock’s modest valuation.

Investor confidence in the firm was shaken in March and the shares fell from more than 600p to less than 500p. Investors were alarmed by a drop in revenue in the Managed Services division that had showed up in last year’s results.

However, today’s update suggests to me that the steps taken to address these changing business conditions are working well. Evan after today’s gains, the shares are still trading on a modest forecast P/E of 12.7 with a prospective yield of 3.1%. That looks cheap enough to me.

A ‘sticky’ specialist

One of the stock holdings listed by Lord Lee in his parliamentary register of interests is electronics group Concurrent Technologies (LSE: CNC).

This is a specialist business that makes computer boards for critical applications, such as use in harsh environments. Many of the firm’s customers are in the defence sector, but Concurrent products are also used in other markets, including aerospace, telecoms, transportation and industry.

The shares have risen by about 30% since March, when the company reported a 6.2% increase in pre-tax profits and hiked the dividend by 10.5% to 2.1p per share, giving a yield of 2.6%.

The shares now trade on about 17 times trailing earnings, so they aren’t obviously cheap. Despite this, I think Concurrent could remain a smart long-term buy.

The group’s profits have been variable in recent years, perhaps due to the lumpiness of new product introductions and major customer orders. However, the trend in earnings has been upwards and dividend growth has been very consistent, averaging 6% per year since 2011. Net cash rose by 32% to £7.8m at the end of last year, accounting for more than 10% of the company’s £60m market cap.

I believe this business offers good long-term growth opportunities and appears to have a capable and prudent management team. In my view, the shares are definitely worth a closer look.