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3 UK small-cap shares I wish I’d bought one year ago

Paul Summers — Wed, 31 Mar 2021 07:09:37 +0000

Some of the gains made by stocks in the FTSE 100 and FTSE 250 over the last year have been hugely impressive. However, they pale in comparison to the profits investors will have made in certain UK small-cap shares. Today, I’m looking at three examples and asking whether there’s still time to ride this momentum.

Best of the Best

This time last year, shares in online competition firm Best of the Best (LSE: BOTB) were changing hands for 395p. Yesterday, the price closed at a staggering 3120p. Clearly, people have been very keen to win cars and other prizes while being forced to stay at home.

Back in February, the company revealed that strong trading had continued into the third quarter and that it remains likely to outperform management’s previous expectations. In fact, things have been going so well that BOTB has now removed its ‘for sale’ sign.

Despite rising by so much, I think this UK share could head higher. Analysts are forecasting a 14% jump in earnings in the next financial year. This gives BOTB a price-to-earnings (P/E) ratio of 21. That still looks very reasonable when you consider the outsize returns on capital and decent operating margins it achieves.

On the flip side, one does need to consider whether trading will remain quite so stellar once lockdown restrictions are fully lifted. So, as much as I like to ‘run winners’, I’d be mightily tempted to take some money off the table if I were invested.

Rainbow Rare Earths

A second company worth highlighting is Rainbow Rare Earths (LSE: RBW). One year ago, its shares were 1.45p. Yesterday, they closed at 17.75p!

Much of this momentum is probably due to the buzz surrounding renewable energy. Rare earth metals (such as neodymium and praseodymium) are used in magnets for electric vehicles and wind turbines. Importantly, they have no known substitute.

Rainbow looks well placed to capitalise on demand eventually outstripping supply. Its Gakara Project in Burundi gives out one of the highest-grade concentrates in the world.

However, where the RBW share price goes in the rest of 2021 is difficult to say. Mining stocks are notoriously volatile and some profit-taking would be understandable after such a strong recovery.

Then again, I also wouldn’t be surprised if many investors elected to stay put. With countries looking to secure their supply chains (China already controls 80% of the rare earth market), there could still be quite a bit of upside ahead.

Naked Wines

A final UK share that’s done extremely well for holders is online wine seller Naked Wines (LSE: WINE). Sure, the share price hasn’t performed quite as brilliantly as BOTB or RBW but we’re still talking about a gain of 200% or so. If only I’d backed my judgement back in 2020!

As one would expect, Naked has benefited hugely from the UK lockdowns. Back in November, it revealed a near-80% rise in revenue (to £157.1m) for the six months to 28 September. Since we’ve had yet another lockdown in 2021, I believe the full-year numbers will be just as good. An update is due in a couple of weeks.

The question, however, is whether demand is likely to moderate when we’re allowed to visit the pub again. I suspect this might be the case. For this reason, I would probably only take a small position now.

The post 3 UK small-cap shares I wish I’d bought one year ago appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Looking to protect your portfolio from coronavirus? I’d buy these 3 UK stocks

Paul Summers — Fri, 31 Jul 2020 09:10:52 +0000

Momentum can a powerful force in investing. What rises in value tends to go on doing so as people rush for a slice of the action, creating a virtuous circle. That’s certainly been the case with a number of UK stocks recently.

Here are three that investors can’t stop buying.

Top UK stock

Like nearly all stocks, IT specialist Computacenter (LSE: CCC) was hit hard by the market crash in March. Since then however, the share price has doubled. When you consider just how bullish last week’s trading statement was, it’s not hard to see why.

As a result of people needing to work from home during lockdown, Computacenter said it has seen huge demand for equipment and services. Adjusted pre-tax profit in the first six months of 2020 was consequently “substantially ahead” of that achieved over the same period in 2019.

Looking ahead, the firm now believes that adjusted profits in H2 will be “much improved” on the forecast given in April and that 2020 will turn out to be “a year of material progress“.

Of course, the usual caveats apply: no investment is ever ‘safe’ and there’s the possibility that a lot of this good news is already priced in.

Then again, concerns over a second coronavirus wave could force the share price even higher. Regardless, the growing trend of companies allowing their employees to work from home more often can surely only be a good thing for Computacenter.

At 21 times forecast earnings, this UK stock isn’t cheap. Nevertheless, I think there’s potential for more gains ahead.

Gold price beneficiary

Back in May, I suggested that £2bn cap gold miner Centamin (LSE: CEY) could be a good hedge against a looming recession. After all, gold has historically been a great store of value in troubled times.

Since then, of course, the precious metal’s price has rocketed to a record high. Centamin has followed suit, rising 20%. If you’d bought this UK stock in the dark days of March, you’d have pretty much doubled your capital.

I suspect this momentum will continue for a while yet. This is especially likely if the US Federal Reserve orders another bout of money-printing. Such a move further increases the risk of inflation — something gold helps to protect investors from.

Centamin’s shares currently trade on 16 times forecast earnings. Considering the precarious state of the global economy and the company is debt-free and still paying dividends, that still doesn’t feel excessive.

In demand

A final UK stock that investors can’t get enough of is online wine-seller Naked Wines (LSE:WINE). Again, the share price has almost doubled since mid-March. That’s a seriously good result considering most small-cap companies haven’t rallied as strongly as those in the FTSE 350.

Then again, this shouldn’t come as a complete surprise. Like Computacenter, Naked Wines has been a huge beneficiary of people spending more time at home. Last week’s trading update revealed a 67% jump in total sales in June compared to the same month in 2019. For Q1 as a whole, sales were 77% higher.

With numbers like these, it’s becoming increasingly difficult to challenge management’s belief that Naked is “ideally positioned to be a long-term winner from the inflection in consumer demand for online wine”.

As the potential for more local lockdowns in the UK grows, Naked’s purple patch could well be extended.

The post Looking to protect your portfolio from coronavirus? I’d buy these 3 UK stocks appeared first on The Twelfth Magpie.

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Is the Tesco share price the bargain of the year?

Roland Head — Mon, 25 Mar 2019 15:22:42 +0000

Investment ideas don’t get much more boring than the UK’s largest supermarket, Tesco (LSE: TSCO).

Boring can be good in the stock market, but we all need a bit of excitement. So today I’m going to look at Tesco and at a much smaller retailer that I think could be a long-term winner.

Big and well run

The efforts being made by Sainsbury’s and Asda to merge their operations tell you something about the advantage of being big in groceries.

However, Tesco is already roughly the same size as its two rivals combined. This means that chief executive Dave Lewis doesn’t need to worry about trying to push through complex merger deals, despite regulatory opposition.

Mr Lewis has been able to focus on two areas — operational excellence and finding other routes to growth. In my view he’s accomplished both of these feats. He’s made improvements to the group’s business practices to treat suppliers more fairly, and improved the performance of its supermarkets.

Alongside this, Mr Lewis has acquired fast-growing food wholesaler Booker, which has given the group a sizeable share of the convenience store and restaurant foodservice markets.

Financial turnaround

Tesco’s financial results reflect Mr Lewis’s changes. After falling to a low of £54m in 2016, group sales are expected to have reached nearly £61bn in the year ended 24 February. Profits have bounced back too. Analysts expect the firm’s adjusted earnings per share to have risen by 17% to 14p per share last year.

At the time of writing, Tesco shares trade on 14 times 2019/20 forecast earnings, with an expected yield of 3.1%.

I wouldn’t describe this as the bargain of the year. But I do think the shares remain a decent buy for investors wanting a reliable long-term income.

Wine goes online

Shares in wine merchant Majestic Wine (LSE: WINE) were down by 12% at the time of writing. The shares have now fallen by about 40% in six months as tough trading on the high street has dented the group’s profits.

Today’s fall was triggered by news that the dividend may be cut to fund extra investment in the group’s online business, Naked Wines. This former start-up buys wine directly from winemakers to sell to customers.

Chief executive Rowan Gormley — who founded Naked — has decided to scale back the group’s high street retail business and focus on online growth. The numbers suggest to me that Mr Gormley is probably right to make this decision.

During the six months to 1 October, Naked sales rose by 14% to £75.7m, while retail sales only rose by 1.9% to £122.9m. At this rate, it won’t be long until Naked is the group’s biggest business.

Naked Wines is already Majestic’s most profitable business, with half-year adjusted operating margin of 4.2%, compared to 2.7% for the retail business.

Buy, sell or hold?

The group will be rebranded as Naked Wines and profitable stores will be migrated to trade under the Naked brand.

Are the shares a buy? Perhaps. Given consumers’ growing preference for authentic products with a good story behind them, I think Naked Wines could be a long-term winner. Although earnings visibility is limited, I think the shares could be a long-term buy at under 250p.

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Roland Head owns shares of Tesco. The Motley Fool UK has recommended Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.