We here at the Motley Fool love to dig into the depths of the LSE to find great companies. We firmly believe that the best companies aren’t always those in the FTSE 100 that garner the most attention, but the small caps in unexciting industries that consistently deliver solid results.
One company that fits this description perfectly is specialist filter producer Porvair (LSE: PRV). Shares of Porvair are up over 300% in the past five years as sales of the company’s industrial filters for planes, power plants and base metal smelters have grown by double-digits.
The key to Porvair’s success is finding a niche need and becoming the market leader through organic growth or acquisitions. This not only gives the company a wide moat to entry for potential competitors, but also ensures considerable pricing power and hefty 9.1% operating margins as of H1.
Porvair’s balance sheet remains strong with net cash of £6m at the end of August due to impressive cash generation and a sustainable expansion and capex policy. Shares are pricey at 24 times forward earnings but a market-leading position, recurring revenue from happy customers and growing dividends make Porvair one to watch in the future.
Nuts and bolts
Another stellar performer in an equally unsexy industry is industrial fastener manufacturer Trifast (LSE: TRI). Making and distributing the nuts, bolts and screws that go into your car, oven and electronics has boosted share prices by over 370% in the half decade.
Trifast has grown quickly due to a strategy of winning contracts with large multinational manufacturers that need a consistent supply of identical fasteners for plants across the globe. Working with these large multinationals means a steady stream of revenue as well as growth opportunities by cross-selling to other divisions and plants.
In the six months through September revenue grew 8.1% if you strip out the positive effects of the weak pound. And like Porvair, an industry-leading position, great customer satisfaction and economies of scale lead to impressive operating margins of 9.7% in H1. Trifast’s balance sheet is constantly improving and with management on the outlook for bolt-on acquisitions to complement strong organic growth, Trifast looks set to continue its strong run of success.
Printing profits
Another incredibly successful small-cap that may be more familiar is promotional materials marketer 4imprint (LSE: FOUR). Shares of 4imprint are up over 600% in the past four years as customers clamour for umbrellas, notebooks, coffee mugs and anything else they can have made with their name or logo on it.
In the six months through June alone sales grew a whopping 17% year-on-year driven by increased orders from its main market in the US. Aside from its dominant position in America, future growth prospects are bright in the UK. In H1 only 4% of group sales came from Britain, which leaves a massive market open for it to target. The company will need this growth if shares are to live up to their 22 times forward P/E, but a healthy balance sheet leaves plenty of room for acquisitions to go alongside continued double-digit organic growth.
