These promising small-caps could boost your retirement fund

These expanding firms look set to outgrow their small-cap status over time.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In today’s world, the provision of legal services strikes me as a growth sector, and full-year results from Gateley Holdings (LSE: GTLY) this morning lend some weight to that idea.

Trading well

The firm delivers commercial law and complementary professional services and arrived on the stock market on 8 June 2015. That’s a positive for me because newly listed firms tend to be well financed and are often run by keen directors out to make their mark. The fact that Gateley was the first UK law firm ever to list on the stock market enhances the argument, I reckon.

The figures are good for the year’s trading to 30 April. Revenue pushed up 15.7% compared to the year before, basic earnings per share (EPS) lifted 15.3%, and the directors crowned the year’s achievements with a 17% hike in the total annual dividend.

Organic and acquisitive growth

Strong cash generation helped the firm execute its second acquisition during September 2016 and the integration is going well. Organic and acquisitive growth seems prominent on the agenda, supported by a business that is well balanced and resilient,” said chief executive Michael Ward.

Following an “excellent” second half of trading, the operational momentum continued in the first two months of the current trading year. Mr Gateley put such progress down to the strength of the service offering, the depth of client relationships and growth in the firm’s teams of skilled professionals.

At today’s share price around 184p, you can pick the shares up on a forward price-to-earnings (P/E) rating of just over 17 for the year to April 2018, and the forward dividend yield runs at 3.9%. City analysts expect earnings to grow 13% that year and to cover the dividend payout almost 1.5 times. Although the valuation is quite full, I reckon the firm may have a bright future.

Defensive qualities

It’s hard for me to imagine conditions when legal services will not be in strong demand. so, I reckon Gateley’s business has a potentially robust defensive element to it. Meanwhile, Swallowfield (LSE: SWL) is another firm that strikes me as having defensive, evergreen cash-generating qualities.

The company develops, formulates, and supplies personal care and beauty products on a contract basis to major brand owners and also produces its own portfolio of brands. We last heard from the firm on 6 July when it told us how the trading year to June had turned out. Trading has been brisk and the directors expect to report revenues up 30% on a constant currency basis with the full-year results in September. Excluding acquisitions, the organic element of that growth should come in around 7%.

Emerging branded consumer goods business

Within the set-up, the firm’s own brands are performing well and driving some of that growth. In June 2016, the company enhanced its own-brand offering with the acquisition of The Brand Architekts Limited, which joins the stable to sit alongside organically developed brands such as Bagsy and MR. and the 2015 acquisition of The Real Shaving Company.

At a share price around 362p, the shares change hands on a forward P/E rating of 15 for the year to June 2018, and earnings are predicted to lift 16% that year, which seems like a fair valuation given what is known.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any 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.

More on Investing Articles

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »

Investing Articles

2 FTSE dividend shares yielding more than 6% with P/Es of less than 9!

Harvey Jones picks out two brilliant FTSE 100 dividend shares that yield more than 6% but are selling at strangely…

Read more »