Hurricane Energy has been quite the performer over the last 12 months, rising a huge 315%. But the oil explorer is not the only small-cap that is trending upwards right now. Here’s a look at two smaller companies that have outperformed Hurricane this year.
System1 Group
System1 Group (LSE: SYS1) shares have been on fire in 2017, rising over 60% this year. Formerly known as BrainJuicer Group, System1 is a marketing and brand consultancy, with proprietary market research and advertising solutions based on the field of behavioural science. In layman’s terms the company focuses on understanding how people make decisions.
In the past, the research industry has assumed that humans make choices consciously and rationally. However according to System1, a growing body of evidence suggests these assumptions are wrong and that humans often make unconscious decisions that are influenced by their social, personal and environmental context. This is where System1 adds value – by helping its clients understand how decisions are made.
The £104m market cap company has enjoyed robust revenue and earnings growth over the last five years with revenue increasing 50% to £31.2m for the 12 months to the end of 2016, and earnings more than doubling in this time, from 15p to 32p. Cash generation has been impressive and the company generated a high return on equity of over 40% in 2016. System1 also has no debt.
The group is changing its year-end date from 31 December to 31 March, and earlier this week updated the market on trading for the 12 months to the end of March. Revenue grew 27% (13% on a constant currency basis) to approximately £33m, gross profit increased 29% (15% constant currency) to £27m, and management stated that the company has “continued to trade strongly since December 2016.”
With the shares up 60% year-to-date is it too late to buy? City analysts forecast earnings of 39.3p per share for FY2017, placing the company on a forward-looking P/E ratio of around 22.5 at the current share price. The group’s enterprise value (EV)-to-sales ratio is approximately 3.1. At those multiples, the stock isn’t cheap, but in my opinion it’s not overly expensive either given the growth record. I therefore wouldn’t be surprised to see the share price continue trending upwards.
Swallowfield
Another small-cap performing well in 2017 is £55m market cap, Swallowfield (LSE: SWL), rising 24% this year.
Swallowfield is engaged in the development, formulation and supply of personal care and beauty products, and owns brands including The Real Shaving Company and MR Jamie Stevens.
Revenue increased 10% in FY2016, and adjusted earnings per share spiked 91% to 12.6p. Analysts anticipate sizeable earnings growth for 2017, with 20.7p per share forecast. That places the company on a forward-looking P/E ratio of 15.9, a reasonable valuation given the growth in earnings in recent years. An EV/sales ratio of 1.04 is also undemanding.
Although Swallowfield recently stated that the fall in sterling and global inflationary pressures could bring uncertainty in the months ahead, the company also stated that it remains “confident that our strong overall trading momentum will compensate in the current year.” As a result, I see no reason why the share price can’t continue to move upwards over time.
