Edward Sheldon: Calnex Solutions

My top micro-cap stock is Calnex Solutions (LSE: CLX). It’s an under-the-radar technology company that specialises in testing and measurement services for telecommunication networks.

Calnex is benefitting from the rollout of 5G networks and the widespread adoption of cloud computing. The company’s H1 results for the six months to 30 September 2020, for example, showed revenue growth of 37%. Meanwhile, the company recently advised that its revenue for FY2021 would be ahead of market expectations. It also said that it is well positioned to deliver its historical growth rates over the long term.

Like any micro-cap, this stock could be volatile. However, overall, the investment case looks attractive, in my view.

Edward Sheldon owns shares in Calnex Solutions.

Christopher Ruane: Foxtons

Estate agent Foxtons (LSE: FOXT) offers exposure to any rebound in the London property market.

The pandemic had an impact and revenue fell 12% last year. However, the pre-tax loss was sharply reduced from the prior year despite the difficult market. The company moved back into profitability in the second half of last year and says financial performance has continued to improve. Revenue in January and February was well ahead of the prior two years.

Its well-known brand is an asset in the crowded London market. I would consider buying Foxtons at its current price.

Christopher Ruane does not own shares in Foxtons.

Jonathan Smith: McBride 

McBride (LSE: MCB) is a UK-based manufacturing firm that offers private label services as well as producing some own-label products. This is mostly in the household cleaning area. 

The share price is up over 40% over the past year, thanks to increased demand from lockdown for many lines. Fiscal half-year operating profit (H2 of 2020) was up 83.6%, which impressed me.

Going forward, I think the business is well diversified with operations in 12 countries. It also appeals to ESG investors, given that 99% of packaging produced is recyclable.

Jonathan Smith has no position in McBride.

Royston Wild: Michelmersh Brick Holdings 

Continued strength in the UK housebuilding industry leads me to believe that Michelmersh Brick Holdings (LSE: MBH) will release encouraging trading news later this month. The AIM-quoted company is due to unveil full year results on Tuesday, March 30. 

Michelmersh certainly impressed when it last updated the market in November. Then it said that production capacity had returned to pre-coronavirus levels and that trading had remained “resilient” since June. Consequently it said that underlying revenue and profit would beat market estimates for 2020.

Today Michelmersh trades on a price-to-earnings growth (PEG) ratio of just 0.9 for 2021. This suggests that the company is being undervalued by market makers. And it’s a reading so low that I think another positive update in the coming days could prompt a sharp re-rating of the brickmaker’s shares.

Royston Wild does not own shares in Michelmersh Brick Holdings.

Conor Coyle: MacFarlane Group 

MacFarlane Group (LSE:MACF) is a micro-cap stock I think could be set for significant long-term growth. The company designs, manufactures and delivers packaging to businesses throughout the UK. Demand for packaging products has shot up as the number of online deliveries has increased due to the pandemic.

The Glasgow-based company is a well-established business and has continued to post strong profits despite economic uncertainty in the last year. I think its online retail profits will continue to grow, and with key customers in the aerospace industry bouncing back this year I see further growth ahead.

Conor Coyle does not own shares in MacFarlane Group.

Roland Head: UP Global Sourcing

One small-cap stock whose prospects excite me is UP Global Sourcing (LSE: UPGS).

This firm owns and licences a range of consumer goods brands, such as Russell Hobbs, Salter, Beldray and Constellation. Demand for kitchen, laundry and cleaning products has been strong during lockdown, with sales up 11% during the six months to 31 January.

There’s obviously a risk that demand could slow as the UK exits lockdown. But the firm recently upgraded its sales guidance for the year ahead, reporting “strong momentum” in new orders.

UPGS shares are up by 50% from their pre-pandemic levels. I believe they have further to go.

Roland Head owns shares of UP Global Sourcing.

Tom Rodgers: Alumasc

Sustainable building materials producer Alumasc (LSE:ALU) is one of my favourite kinds of stocks. The kind that no-one’s heard of until suddenly everyone’s heard of it.

Established in 1945, the AIM-listed firm’s shares are trading at a three-year high, and it will pay a hefty 5.4% dividend yield next year. It boasts a forward P/E ratio of just 7.8 and a forward PEG of 0.4, making it seriously undervalued in my book. The fact that the company’s £61.7m market cap is well below its annual £80.4m revenue does it no harm at all, either.

Tom Rodgers has no position in Alumasc.

Jabran Khan: Yourgene Health

Yourgene Health (LSE:YGEN) is a genetic testing firm that produces non-invasive products for male fertility and prenatal screening for cystic fibrosis and more. Yourgene joined the Covid-19 products market with a testing solution.

It has established a presence in the UK, Europe, the Middle East, Africa and Asia. YourGene relies on commercial partnerships with larger firms, which I see as a positive.

Trading in the past year has shown progression for the £117m market-cap business. FY results are due soon and are expected to be positive. At just 16p per share, Yourgene could be a micro-cap gem for the long term in my portfolio. 

Jabran Khan has no position in any of the shares mentioned.

Rupert Hargreaves: Belvoir Group

Property franchise group Belvoir (LSE: BLV) offers a range of services from lettings to sales and financial services.

Growth since 2014 has been outstanding. Net income has grown at a compound annual rate of 28%. And Belvoir is expecting to report revenue growth of 12% for 2020.

Despite its historical growth, Belvoir has its risks. If the UK property market should start to struggle, the firm’s income may begin to shrink. Still, I would buy this micro-cap stock considering its potential to grab market share over the next few years.

Rupert Hargreaves does not own shares in Belvoir.

G A Chester: Trans-Siberian Gold 

Trans-Siberian Gold (LSE: TSG) is a low-cost, high-grade producer from its Asacha mine in Far East Russia. It also has exploration and development assets in the region. 

Its strong balance sheet and cash generation enable it to invest for growth, and reward shareholders with dividends and share buybacks. It aims to pay a sustainable base dividend through the commodities cycle, and – as currently – higher payouts when cash flows permit. The running yield is near 8% right now. 

Operational risk is currently concentrated due to TSG’s single producing mine, but it does have ambitions to become a mid-tier, multi-asset gold producer. 

G A Chester has no position in Trans-Siberian Gold.

Andy Ross: Totally 

Shares in healthcare services provider Totally (LSE: TLY) have more or less trebled over the last 12 months. In my opinion, it’s a strong micro-cap business with long-term potential and room for more share price growth.  

I believe that the shares should continue to do well because the group has launched an insourcing business, has a strong relationship with the NHS and has made selective acquisitions that will boost earnings growth. It’s addressing a huge potential market across the UK & Ireland, and in time potentially further afield.  

The group is likely to become profitable shortly, has been growing revenues rapidly year-on-year and already pays a dividend, which is a bonus.  

Andy Ross does not own shares in Totally.

Nadia Yaqub: Scancell

I reckon things look promising for Scancell (LSE: SCLP). It’s an immuno-oncology company. That’s a fancy way of saying it develops treatments that stimulate the body’s own immune system to treat or prevent cancer. Some of Scancell’s products are being tested in clinical trials.

But I reckon the real gem is its second generation Covid-19 vaccine. According to Scancell, its version of the jab could develop long-term immunity to the virus and offer better protection against the variants. It’s still early days, but I think Scancell has bags of potential.

Nadia Yaqub does not own shares in Scancell.

Kevin Godbold: Ramsdens Holdings

Ramsdens Holdings (LSE: RFX) operates from around 157 stores in the UK, offering pawnbroking, financial, retail and foreign currency exchange services. It’s a decent business and the firm sports some impressive quality indicators. City analysts expect earnings to bounce-back by almost 60% in the trading year to September 2022.

With the share price near 172p, the forward-looking earnings multiple is just above 11. And the anticipated dividend yield is around 3.5%. I like the net cash position on the balance sheets and the positive outlook for growth in earnings. That’s why I’d buy this micro-cap stock to hold for March and beyond.

Kevin Godbold does not own shares in Ramsdens Holdings.

Kirsteen Mackay: Trans-Siberian Gold

My top micro-cap stock for March is Trans-Siberian Gold (LSE:TSG). I think gold stocks can help achieve a diversified portfolio. With low interest rates likely to stay low for some time, this provides a favourable environment for gold. And hints of inflation on the rise make me think gold remains a good hedge.

Trans-Siberian Gold operates in Russia and recently reported a significant upgrade to the resources at its flagship gold mine following a successful drilling campaign. Its market cap is £81m and it has a price-to-earnings ratio of 14. The company pays a 7% dividend yield. 

Kirsteen Mackay does not own shares in Trans-Siberian Gold.

Zaven Boyrazian: Tracsis

The UK government recently unveiled its roadmap to ease lockdown restrictions within the UK. As more people head back to the office or go on a long-overdue holiday, the demand for Tracsis’ (LSE:TRCS) services is rising.

Tracsis engages in traffic data analysis, along with railway fault detection systems. Using its software solutions, optimised routes for vehicles can be plotted within pedestrian-rich areas.

The business is far from risk-free. Covid-19 led to a significant rise in operational expenses, and there are numerous competitors to outperform.

But despite these threats, I think the stock is on track to continue delivering long-term growth for my portfolio.

Zaven Boyrazian does not own shares in Tracsis.

Manika Premsingh: McBride

The private label household and personal-care goods’ manufacturer McBride (LSE: MCB) has made share price gains since late 2020. However, its price is still way below its pre-pandemic levels.

I could see it staying there if McBride was Covid-19 hit. But the opposite is the case here.

It has actually seen a rise in revenues for the six months ending December 31, 2020 as the pandemic drove up cleaning products’ demand. It is also profitable and expected its full-year pre-tax profits to be 10% ahead of the consensus estimate at the time it made the statement.

McBride’s profits have fluctuated in past years and its debt is growing. But on balance, I am optimistic about its prospects, making it my top micro-cap stock for the near term.

Manika Premsingh has no position in McBride.

Paul Summers: Ramsdens Holdings

My top micro-cap pick for March is Ramsdens Holdings (LSE: RFX).

Investing in a pawnbroker may not be everyone’s cup of tea but Ramsdens is also a jewellery retailer, precious metals buyer/seller and foreign currency specialist. Although there can be no guarantees, the last of these might recover strongly once UK holidaymakers are allowed to travel again. In addition to this earnings diversity, the company’s finances look strong and it makes great returns on invested capital. 

Shares remain far below the highs hit in early 2020. With lockdown restrictions set to end, I think we might see this gap close over the rest of the year. 

Paul Summers owns shares in Ramsdens Holdings.

A growth share the could turn around

I think one such company is Driver Group (LSE: DRV). It combines a cheap valuation, decent return on capital employed (ROCE), and, before the pandemic, strong operating profit growth. It has also promoted a new chief executive internally. In other companies, this has sometimes helped lift sentiment towards a company as the strategy evolves.

Driver Group provides construction industry expertise, particularly around dispute resolution. Given a lot of countries will boost infrastructure spending post pandemic the pipeline of work could well grow.

I think the reason this company is cheap is because it hasn’t always performed brilliantly in the past. It went a few years without paying a dividend. I believe new management will want to make sure the future is brighter. To achieve this they have made some changes.  

The group has opened an office in New York and restructured the Middle East and the Asia Pacific operations to meet the changing business demands in those regions. Given how cheap the shares are on a price-to-earnings ratio of only around 11, I think the shares could help me towards a £1m ISA.

Potential for growth and strong fundamentals 

Shares in the pawnbroking business Ramsdens (LSE: RFX) also combine many of the same features as Driver Group – cheap (the P/E is six), high ROCE (around 21%), and strong operating profit growth. Pawnbrokers also haven’t closed down during the pandemic, as they are classed as essential.

This isn’t the kind of company that would get investors excited. It’s a declining industry and yet Ramsdens, alongside H&T (also a listed business), seem like overlooked investments because of this.

Looking at the fundamentals I think it’s a strong business. It’s profitable, pays a dividend, and there’s real demand for its services.

Also, as the industry shrinks, it’ll consolidate into fewer players, so Ramsdens can pick up market share. This all means it could end up being added to my portfolio at some point in the future.

A distributor boosted by e-commerce growth under lockdown 

Packaging and distribution group MacFarlane (LSE: MACF) is another business I like the look of. The Glasgow headquartered business is the largest distributor of protective packaging products and services in the UK. The business has been hit by Covid-19, but not that hard and I think is well positioned to recover. For example, in the six months to 30 June 2020, operating profit was £4,264,000 versus £4,873,000 in the corresponding period the year before.

Given the huge impact Covid-19 has had on many businesses, this doesn’t strike me as being too severe. I think MacFarlane is helped by serving growth markets like e-commerce.

The board is now restoring the dividend, which is a boost for investors. I have a lot of confidence in the business in the future. I’m likely to add it to my own portfolio. 

Today, I’m taking a closer look at three stocks that have seen their share prices soar over the last year and asking whether it might be time for Foolish investors like me to bank profits, buy more or simply do nothing.

Top performer

Homewares seller and FTSE 250 member Dunelm (LSE: DNLM) has been one of the big winners on the UK-focused index in recent times, let alone within the retail sector. The shares are now 59% higher in value than they were one year ago and January’s trading update suggests this could continue, at least in the short term.

Total like-for-like sales moved 5% higher over the 13 weeks to 28 December, bringing the percentage to 5.6%  for the first half of the financial year. Gross margin also improved as a result of the company’s decision to shun Black Friday and “additional pre-Christmas discounting“.

The only drawback to this good news is that the shares now trade on almost 21 times earnings for the current financial year. That’s fairly pricey for any retailer in the current climate, but particularly one that, as far as I can see, doesn’t have much of an economic moat. 

Personally, I’d be tempted to bank at least some profit in the near future.

Comfortably ahead

Much to my satisfaction, another company bucking the trend has been pawnbroker, gold buyer, foreign exchange specialist and jewellery retailer Ramsdens (LSE: RFX). Shares in the Middlesbrough-based business — the largest holding in my own ISA portfolio — are up 54% from this time last year. Again, I suspect there could be more gains to come. 

Like Dunelm, the company stated that it too had seen excellent trading over Christmas, so much so that full-year pre-tax profit was now expected to be “comfortably ahead of market expectations“.

Forecast earnings per share growth of 26% in the year to the end of March leaves Ramsdens on a P/E of almost 12. That kind of valuation, combined with the fact that its market capitalisation is still under £80m (compared to rival H&T’s near-£150m), leads me to think that the shares could still be worth having. The 3.1% yield, easily covered by profits, is another positive.

Confirmation bias aside, I therefore rate Ramsdens as a ‘buy’, even more so if the gold price continues to head higher.

Hot stock

To say that FTSE 250 baker Greggs (LSE: GRG) is doing well is something of an understatement. Thanks in part to the great marketing success of its vegan sausage roll (and now steak bake), the shares have increased 56% in value over the last 12 months as trading has exceeded expectations.

Are the shares now too expensive? Possibly. A forecast P/E of 26 for 2020 does seem rather extreme for a company that is potentially reaching saturation point on the high street.

That said, I’d be far more comfortable devoting a decent amount of my capital to Greggs — with its strong brand, solid balance sheet, decent returns on capital and fairly predictable earnings — than I would the vast majority of listed companies that feature in towns and city centres.

It’s a ‘hold’ for now, but I certainly plan on gobbling up more of the stock should an opportunity present itself over the next few months.

Trading has “remained strong” since the end of H1, according to the £3.5bn-cap online giant, “with a record performance across the Black Friday weekend.” Somewhat unsurprisingly, Boo has therefore continued to trade “comfortably in line with market expectations,” suggesting an earnings upgrade could be just around the corner.  

Despite no longer being a holder of the stock, I continue to see this as a classy outfit and certainly one I’d own over peer ASOS, thanks to its bullet-proof balance sheet and the high returns generated on the capital it invests.

The fact that new additions Karen Millen, Coast and MissPap have all been integrated — and initial ranges “very well received” — is also both unsurprising and a further endorsement of the company’s growth strategy. 

As usual, the only drawback to owning a top growth stock like this is the high valuation (57 times earnings before markets opened this morning). While I don’t think owners should necessarily jump ship yet, I’d be tempted to wait until after some inevitable profit-taking has occurred if I were intent on building a position from scratch. 

Also bucking the trend

Another exception to the all-retailers-are-suffering ‘rule’ has been jewellery seller Ramsdens (LSE: RFX). Revenue from this part of its business rose 22% to £5.5m over the six months to the end of September.

But this market minnow is more than just a play on our love for things that sparkle. Having exchanged £340m to more than 500,000 customers over the reporting period, income from its currency exchange business was up 15% to £8.4m — not bad considering how weak sterling has been as a result of our EU departure being delayed. 

The rise in the price of gold over the period was also reflected in the £4.1m gross profit made on precious metals purchases, up 57% compared to the same period in 2018. A 17% increase (to £4.3m) in income at its pawnbroking arm rounded things off nicely. 

All told, revenue and underlying pre-tax profit improved 30% and 12% respectively, with CEO Peter Kenyon saying the company “remains confident” of meeting its full-year expectations following a “solid start” to H2. Given that it’s growing its estate at a time when many retailers are closing stores, this looks very achievable.

Three new sites were opened during H1 with another added since the end of the reporting period. Four stores were also captured following the demise of rival The Money Shop. Despite these outlays, the company continues to boast a strong balance sheet with net cash of £12.3m. 

But Ramsdens is more than just a prudently-managed growth story. It’s also a great income stock, evidenced by today’s 13% increase to the interim dividend (to 2.7p per share).

Before this morning, analysts had penciled in a 7.24p per share total cash return in FY20, covered 2.8 times by expected profits. That equates to a very satisfying yield of 3.6% based on today’s share price. 

I’ve been a holder of Ramsdens for some time now and, based on these numbers (and the fact that the shares still trade on a little under 10 times forecast earnings), there’s no danger of me selling anytime soon.

Overreaction?

As a result of its leading status in a niche market, excellent returns on capital, robust balance sheet, and experienced management team, laser-guided equipment manufacturer Somero Enterprises (LSE: SOM) is a company I’ve admired for some time. Following a surprise profit warning earlier this month, as a result of very poor weather in the US, it’s finally taken a place in my own portfolio.

According to the company, trading over the first fives months of 2019 dipped below expectations following record rainfall and the subsequent slower pace of equipment sales to customers (Somero’s technology ensures concrete floors are laid absolutely flat). Despite remaining positive on market conditions, the small-cap revised its revenue and earnings expectations for the year, to $87m and $28m, respectively.  

Unsurprisingly, the market didn’t take this news well and Somero’s shares fell almost 23% on the day of the announcement. 

As you might gather, I consider this an opportunity for new investors to climb on board. While certainly not immune to the economic cycle, Somero continues to invest in its future by expanding its training facility and developing new products.

It’s attempting to grow in other markets such as Europe and China to reduce its dependence on the US and is also a great source of dividends with an expected yield of 5.4% this year. 

There’s a chance that this warning might not be a one-off, of course. On a price-to-earnings ratio (P/E) of 10.5, however, I consider it worth the risk. 

Industry consolidator

Another stock I think looks undervalued is pawnbroker, jewellery retailer, gold buyer/seller and foreign exchange specialist Ramsdens Holdings (LSE: RFX).

Annual results for the 12 months to the end of March were perfectly respectable with the minnow reporting a 17% increase in revenue (to £46.8m) and 4% rise in underlying pre-tax profit (to £6.7m). All parts of the business showed growth with jewellery retail revenue jumping 23% to £9.8m.

A total dividend of 7.2p was declared — 9% more than the previous year and equating to a trailing yield of 3.9%, covered well over twice by profits.

With a market-cap a touch below £60m, Ramsdens still has a lot of room left to grow. And that’s just what it’s doing. 

It acquired 18 stores and five loan books from rival The Money Shop in the previous financial year and another four stores and 12 loan books after March.

Given the latter announced last week that it would cease trading as a result of poor financial performance and a flood of customer complaints, it seems likely that Ramsdens will continue adding to its estate in the not-to-distant future. As CEO Peter Kenyon said a few weeks ago, the company “continues to see further opportunities to grow Ramsdens by capitalising on consolidation opportunities in what remains a highly fragmented market.”

Taking into account all this potential, the diversified business model, solid financials, decent dividend yield, and the recent spike in the price of gold, Ramsden’s continues to look far too cheap on a valuation of just under 10 times forecast earnings. 

According to CEO Malcolm Le May and co, the £1.3bn offer undervalues the company and its prospects as well as presenting “significant operational and execution risks given NSF’s track record of value destruction“. Ouch. 

Instead, shareholders are being asked to put their faith in Provident’s management team and their strategy to return the business to growth.

Based on last week’s numbers, they do appear to be making at least some progress. The mid-cap reported a statutory pre-tax profit of £90.7m for 2018 compared to a £147.9m loss the year before.

Shares understandably reacted well to the news, although they’re still worth 75% less than the 2,300p-a-pop valuation hit back in April 2017. 

Quite what happens next is anyone’s guess, particularly as the Competition and Markets Authority (CMA) has confirmed that it will investigate Non-Standard Finance’s bid and Provident has refused to comment on whether it is in talks with other companies on a possible merger.

Personally, I can do without the hassle of wondering how this increasingly hostile state of affairs will resolve itself. Investing is hard at the best of times and attempting to profit from such uncertainty (as opposed to the more general ‘be greedy when others are fearful’ maxim) is fraught with risk. 

Moreover, the dividends aren’t really worth the bother. A 10p total cash return for the last financial year gives a trailing yield of just 1.7% — far less than you can get elsewhere in the market. 

All things considered, I certainly won’t be joining the queue for Provident’s stock.

Hassle-free

Right now, I still favour a different set of alternative ‘financial’ stocks, namely pawnbrokers Ramsdens Holdings (LSE: RCX) and H&T Group (LSE: HAT).

Last week, the latter released another encouraging set of full-year numbers, which included a 13.4% rise in pre-tax profit to £13.5m and, interestingly, a 37.6% rise in its net loan book from £14.9m to £20.5m.

For its part, Ramsdens recently revealed that it had bought 18 stores trading as The Money Shop for a total consideration of £1.5m. Management expects these will make “a small contribution” to pre-tax profit in FY 2020 and “approximately £0.6m” the following year. More deals like this are expected. 

To be clear, these are not glamour stocks whose share prices will rocket. They are, however, well run, diversified businesses (both also offer foreign exchange currency services and are involved in gold purchasing and jewellery retail) and should do well if the economy takes a turn for the worse in the next few years.

Another positive is that both still trade on the same reasonable valuation of around 11 times forecast earnings. Dividend yields are pretty much identical at 4.1% and are covered over twice by expected profits at each company. 

That said, I’m perfectly happy to stick with only owning stock in Ramsdens for now. Returns on capital and operating margins are higher at H&T’s smaller rival and it also had net cash of £12.4m at the half-year point back at the end of November. Expect an end-of-year trading update in early April.

With its stock already trading on a low multiple, is this simply another example of an already-skittish market overreacting?

Growth and dividends

The initial 6% fall in the share price certainly seems a bit harsh, particularly as revenue rose 10% over the interim period to just under £24m.

Ramsden’s jewellery business was arguably the best performer, growing revenue by 27% to £4.5m.  The fact that this included a 126% rise in online sales is encouraging, particularly given the all-important festive trading period that lies ahead. Elsewhere, income from pawnbroking rose 5% and gross profit in its precious metals division climbed 6% to £2.6m.

On the downside, income from its currency exchange service — the biggest part of the market minnow’s diversified offering — declined 2% to £7.3m, due in part to the superb weather experienced across the UK in the summer motivating more people to stay at home.  

All told, earnings before interest, tax, depreciation and amortisation (EBITDA) fell 3% to £5.7m — something the company attributed to “the absence of peak Easter holiday FX trading“, ongoing investment and new store openings. Hardly the stuff of nightmares.

Positively, the four new stores added to Ramsdens estate over the six months are already “trading ahead of initial expectations” when combined with those opened in the second half of the last financial year. Four more stores have been added since the end of September. 

As mentioned, shares in Ramsdens were already looking pretty cheap at under 10 times earnings before this morning. In contrast to some listed companies, dividends are also growing with today’s interim payout, at 2.4p per share, 9% higher than in 2017. At the current share price, the 7.13p total cash return expected by analysts this year equates to a yield of 4.7%, covered more than twice by profits. 

The above, when combined with the fact that Ramsdens continues to boast a solid net cash position of £12.4m, means that I’m in no hurry to sell my holding just yet. 

Bargain for Brexit?

Another small company whose shares trade on a low earnings multiple while also offering a more-than-decent dividend is the UK’s second-biggest home collected credit lender Morses Club (LSE: MCL). 

Back in October, the company reported a 6% increase in statutory revenue (to £57.5m) and a 20.6% rise in adjusted pre-tax profit (to £10.5m) over the six months to 25 August. Customer numbers remained stable at 230,000 and the number of live Morses Club Cards was 145% higher (at 27,000) than at the same point last year. 

In addition to its growth potential, the business should also appeal to income hunters. A hike of 18.2% to the interim payout (to 2.6p per share) was over double that rewarded to Ramsden’s owners today. If analyst projections prove correct, the stock will yield 5.8% in the current financial year.  

Having fallen over 20% in value since July, you can now pick up the shares for 10 times earnings. If you believe that the UK economy is likely to suffer post-Brexit (assuming, of course, we do end up leaving the EU) and that demand for the company’s services could rise, the current price of just over 137p looks a pretty attractive entry point.  

Providing services everyone needs 

One such potential gem that’s currently covered by just two analysts is £190m market cap support services firm Marlowe (LSE: MRL). Since forming two years ago, the firm has exploded onto the scene thanks to an acquisition-heavy business model that has seen it hoover up 19 competitors offering support services such as installing and maintaining fire, water and air protection systems.

This had been a highly fragmented market with small players offering a few local clients only a single one of these services. Marlowe on the other hand has grown rapidly by bundling these services together to offer business customers lower rates while still improving its own margins by more efficient use of system engineers, as well as cutting out duplicate head office costs.

With revenue up 72% last year to £80.6m, EBITDA jumping 81% to £7.2m and a management team coming from highly successful roll-ups like Restore and Impellam, I don’t expect Marlowe to be an under-covered hidden gem for long.

Premiumisation pays off 

I also expect big things from City Pub Group (LSE: CPC). It owns and runs 46 pubs focusing on higher quality food and drink for customers willing to pay extra for less corporate-feeling places in which they can spend some time. With its share price up over 20% since listing in late 2017, the company’s market cap has grown to £130m, yet it’s still only covered by just two analysts.

I reckon this will change in the near future as the company is growing quickly by both acquiring new pubs and increasing sales at its existing outlets. In the year to December, this two-pronged growth strategy saw revenue rise 35% to £37.4m thanks to like-for-like sales increasing 3.8% and the addition of new pubs.

Due to increasing benefits of scale, the group’s adjusted EBITDA rose 51% during the period to £6.1m. With a net cash position and proven ability to gin up increased sales out of its pubs, I expect further acquisitions to be made in the wealthy southern towns the company targets.

A hidden income and growth gem

With a market cap of just £54m, it’s not a surprise there’s only one analyst covering diversified financial Ramsdens (LSE: RFX). However, I reckon this may change going forward as the Northern-focused company grows where others fear to tread by offering customers pawnbroking, cheque cashing, jewellery retail and foreign exchange services from its growing estate.

In the year to March, the addition of a net four stores took its estate up to 131 stores, which together with positive growth in each of its four offerings and an increased focus on online sales led to revenue rising 16% to £39.9m. Meanwhile, increased scale boosted EBITDA by 31% to £7.9m.

And even after increasing its full-year dividend payouts from 1.3p to 6.6p year-on-year, rising profits meant the group ended the year with £12.7m in net cash. As a trusted name in a much maligned sector, I see plenty of potential for Ramsdens to use its financial firepower to continue taking market share and rewarding investors with both great income and capital appreciation.   

I’ve long thought pawnbroker H&T Group (HAT) fits the bill nicely.  

“Solid start”

Having seen an influx of new customers, pre-tax profit rose 10.9% to £6.1m in the first half of 2018. That’s a pretty good result given that the average gold price dipped 2.6% (to £958 per troy ounce) over the reporting period. All told, the company’s net pledge book rose 8.6% in value to £47.8m. 

Elsewhere, the £117m cap’s personal loan book soared by 78% in value over the reporting period to £17.8m. In addition to this, I particularly like the fact that 54% of H&T’s lending now falls outside of the “High-Cost Short Term credit category“, implying that it has no intention of pursuing a questionable ‘growth-at-any-cost’ strategy. 

Hailing a “solid start to the year“, CEO John Nichols stated that the company would carry on investing in its digital offering following the overhaul of the retail-focused www.est1897.co.uk, in addition to H&T’s main site. Given the importance of offering a quality online experience these days, that seems sensible to me, even if the increase in expenditure has contributed to a sizeable rise in net debt from 11.5m in June 2017 to the £16.8m revealed today.

But H&T should have appeal for income as well as growth-focused investors. The 2.3% increase to the interim dividend (to 4.4p per share) may look modest but the company is forecast to yield 3.7% in the current financial year, with the payout easily covered by profits.

H&T’s shares were up over 4% in early trading, suggesting that the market is more than satisfied with progress at the Sutton-based business. Notwithstanding this, the stock still looks a screaming bargain at just 9 times earnings, particularly for those who are pessimistic on the health of the UK economy in the short-to-medium term.

Even bigger yield

While I continue to be a fan of H&T, I’m even more positive about its high street jewellery rival Ramsdens Holdings (LSE: RFX).  It does, after all, boast a higher forecast yield (4.5%) and net cash position. 

That said, the recent disposal of shares by management hasn’t helped sentiment towards the stock, compounded by investors’ growing indifference to the shiny stuff. Back in June, the company’s IT Director, the wife of its Operations Director and CEO Peter Kenyon all sold significantly large proportions of their holdings.

While such news may have unnerved some investors, I can’t see anything to worry about just yet. With recent trading being very strong, I’m attributing the sales as nothing more than a desire to crystallise profits following the doubling of Ramsden’s share price since coming to the market back in February 2017. I could be wrong, of course.

Even if the stock continues to struggle for a while yet, the fact that it changes hands on a near-identical P/E suggests Ramsdens is just as much — if not more — of a bargain as H&T. 

Reporting “continued growth across all business segments” this morning, group revenue at the small-cap rose 16% to just under £40m over the 12 months to the end of March.   

The diversified firm’s Foreign Currency Exchange and Retail divisions were the standout performers, with revenue growing 26% (to £11.3m) and 35% (to £8m), respectively. That said, the pawnbroking arm continues to tick along nicely with revenue here rising 14% to £7m. Precious metals revenue rose by a single percentage point to just under £11m.

The most interesting number to catch my eye, however, was the 242% increase in online jewellery sales over the reporting period. This, combined with the 117% rise in its Click & Collect currency exchange service, is further evidence that Ramsden’s focus on building its IT infrastructure and digital presence is really starting to reap benefits.

Speaking of which, underlying pre-tax profit soared by 60% to £6.5m, compared to the £4m achieved in the previous financial year.

Based on the 16.3p earnings per share achieved in 2017/18, Ramsdens is currently trading on a trailing price-to-earnings (P/E) ratio of just under 12. That still looks very reasonable considering the company also had a net cash position of £12.7m at the end of March, compared to £9.5m in the previous year. Aside from the value on offer, income hunters should also be encouraged by the 400%+ rise in the (easily covered) dividend from 1.3p to 6.6p.

Ramsdens might not shoot the lights out in terms of share price performance but, as a gentle grower in a market where many companies continue to over-promise and under-deliver, I believe it remains an excellent candidate for small-cap-focused portfolios.

Gathering speed

Of course, Ramsdens isn’t the only small business that could be a great buy at the current time. For those willing to take on a little more risk, eye-tracking technology specialist Seeing Machines (LSE: SEE) might fit the bill.

While there’s been lots of progress since I last covered the company back in 2016, things have really kicked into gear over the last few weeks, for two reasons.

First, there was news that the EU is to mandate Driver Monitoring Systems (DMS) — technology designed to monitor attentiveness/distraction — by 2020. Given its industry-leading status, this is clearly an excellent development for the Canberra-based business.

More recently, the £230m-cap announced a programme design win with a “global US-headquartered automotive OEM” (Original Equipment Manufacturer) to employ its FOVIO chip “into multiple vehicle platforms for mass production from 2020“. Although the name of the latter hasn’t been revealed, there are strong indications that it’s none other than Ford.

With other OEMs likely to begin/continue knocking on its door and confirmation that Euro NCAP — the vehicle safety advisory body — will favour camera-based systems as the preferred DMS option looking likely, it feels like Seeing Machines has hit something of a purple patch. 

Having climbed well over 100% in value since the beginning of May, a degree of profit-taking in the near future wouldn’t surprise. For those (like me) willing to continue holding, however, I think the biggest gains — and possibly a takeover bid, or two — are still to come.