Every month, we ask our freelance writers to share their top ideas for small-cap stocks to buy with investors — here’s what they said for March!
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Accrol Group Holdings
What it does: Accrol produces toilet rolls, kitchen towels, and facial tissue products for major grocery retailers.
By Charlie Carman. Tissue manufacturer Accrol Group Holdings (LSE: ACRL) doesn’t exactly operate in a sexy sector on the face of it. However, a look at the firm’s finances makes this stock more glamorous than it might first appear.
Revenue growth exploded by 64% in the most recent half-year results. In addition, the business now has 21.5% of the market share based on sales volume. That’s a huge increase from the 5.6% share it had in 2017.
The Blackburn-based company has increased volumes across all product categories, but facial tissues (+50.2%) and wet wipes (+120%) have seen particularly impressive growth. Accrol is targeting further expansion opportunities in these areas.
One risk facing the firm is the 41% increase in net debt to £30.5m. However, the business has issued guidance that it’s already trading marginally ahead of expectations for FY23. If it can continue to deliver rapid growth, I think Accrol’s future looks bright.
Charlie Carman has no positions in Accrol Group Holdings.
Begbies Traynor Group
What it does: Begbies Traynor provides professional services in fields including insolvency, asset sales and funding.
By Royston Wild. Rising economic optimism has fuelled significant stock market gains in recent weeks. But improved investor confidence has seen many counter-cyclical shares plummet in value.
Insolvency specialist Begbies Traynor Group (LSE:BEG) is one UK small-cap stock that’s sank since the start of 2023. In fact it’s down a hefty 10%. I believe that this reversal presents an excellent dip-buying opportunity.
The number of companies in severe financial distress has ballooned and is tipped to keep rising. Last week business advisory firm FRP Advisory predicted that business volumes in the restructuring and administration market will grow this year.
It said too that enquiries for its restructuring services “continues to rise.” I therefore think that heavy recent selling of Begbies Traynor shares is premature.
Persistent inflation and increased borrowing costs are playing havoc with company balance sheets. With economists tipping a recession lasting well into 2024 conditions are likely to remain extremely difficult, too. And so businesses like Begbies Traynor could continue to generate robust earnings.
Royston Wild does not own shares in Begbies Traynor or FRP Advisory.
Begbies Traynor
What it does: Begbies Traynor Group plc is a business recovery, financial advisory and property services consultancy company
By Paul Summers: Shares in insolvency specialist Begbies Traynor (LSE: BEG) have done fairly well over the last 12 months. That’s not really surprising considering the bleak forecasts that have been hitting the headlines.
I think there could be more gains to come. Back in December, the company said that it expected “continued growth” due to “higher levels of enquiries and increasing economic headwinds”.
Sure, the Bank of England now believes a UK recession will now be shorter and less severe than first thought. However, I reckon a lot of small businesses could still be in deep trouble. A Q3 update from Begbies is due before the end of the month.
The stock isn’t expensive either. I can grab a slice for 13 times forecast earnings. There’s a near-3% yield in the offing too.
Having once been a holder, I’m tempted to buy back in.
Paul Summers does not own shares in Begbies Traynor.
Creo Medical
What it does: Creo Medical is a medical devices company that manufactures electrosurgical products used in endoscopic surgery.
By Ben McPoland. It’s been a stomach-churning 12 months for investors in Creo Medical (LSE: CREO) shares. After sliding 80%, the small-cap stock has shot up 65% in the last month. That’s due to a £28.5m fund raise. It may raise more money shortly via another share placement, which risks volatility in the stock.
However, the loss-making firm expects this cash will see it through to profitability, as adoption of its minimally-invasive surgical technology picks up worldwide. Its leading product is called Speedboat, which is a device attached to an endoscope. These are traditionally only used to diagnose diseases, not treat them. But Creo’s products can dissect, resect, coagulate and inject, all in a single device.
Last year, it signed a multi-year deal with med-tech giant Intuitive Surgical to optimise certain Creo products to be compatible with Intuitive’s robotic technology. This is a huge endorsement of Creo’s technology, and any future licensing revenue should be very high-margin.
At 31p a share, the long-term upside could be significant.
Ben McPoland owns shares in Creo Medical.
DX Group
What it does: DX Group is a delivery company that specialises in IDW (irregular dimensions and weight) packages and parcels.
By John Fieldsend. DX Group (LSE:DX.), with a current market cap of £169m, trades at around 28p. That’s a share price that is down around 78% from all-time highs. And despite the seemingly downward trend, the recent news has all been positive.
Revenue has been increasing, with year-on-year growth in each of the last seven years taking total revenue from £287.9m in 2016 to £428.2m in 2022. Net earnings have been more of a problem as the company was unprofitable for some time, and this is likely the reason for the stuttering share price. However, the latest earnings showed a profit of £22.1m at an earnings-per-share of 2.9p.
Looking forward, the ongoing desertion of high streets in favour of online shopping is a strong tailwind for the company. A recession and the cost-of-living crisis may pose a problem, but overall, the company looks like a strong small-cap stock to me.
John Fieldsend does not own shares in DX Group.
Keystone Law
What it does: Keystone Law is an innovative UK legal firm that operates a scalable platform model.
By Edward Sheldon, CFA. Keystone Law’s (LSE: KEYS) share price has taken a big hit since the start of last year and I’m not convinced the fall is justified.
This is a company that has grown at an impressive rate in recent years as it has added lawyers to its platform. Between FY2019 and FY2022, revenues climbed more than 60%.
And recently, the small-cap stock advised that it delivered another strong performance for the six-month period ended 31 January, 2023.
Of course, the big risk here is a lengthy UK recession. This could have an impact on the company’s sales and profits as demand for legal services is correlated to economic growth.
After the large share price fall, however, I think the risk/reward proposition here is attractive. Currently, the stock’s price-to-earnings (P/E) ratio is in the low 20s. That seems very reasonable to me, given the company’s track record and long-term growth potential.
Edward Sheldon owns shares in Keystone Law.
Sanderson Design
What it does: Sanderson Design is a UK-based luxury interior furnishings company, specialising in wallpaper, fabrics and paints.
By Harshil Patel. Some of the best small-cap stocks often have turnaround potential. One such share that I’d buy in March is Sanderson Design (LSE:SDG). Just a few years ago, a new CEO arrived and set out a clear strategy to drive sales.
She streamlined the number of products and made the business much more efficient. The next step is to leverage Sanderson’s designs to maximise their value.
In addition to its own manufacturing capabilities, it also offers a licencing model. This part of the business is highly profitable.
The turnaround seems to be making progress. Its high-margin licencing business performed very strongly last year, with sales up by 23% to £6.4m.
It also recently announced a major licencing agreement for its Clarke & Clarke brand with FTSE 100 retailer Next. That sounds encouraging to me.
Sanderson is cash-generative and has a solid balance sheet. With a price-to-earnings ratio of just 9, I’d say it’s too cheap to ignore.
Harshil Patel does not own shares in Sanderson Design.
Superdry
What it does: Superdry is a clothing brand with both retail and wholesale operations, combining vintage Americana styling with Japanese graphic design elements.
By Christopher Ruane. The founder and chief executive of Superdry (LSE: SDRY) has been topping up his stake lately. The shares have risks but look like a bargain to me, and I continue to hold them in my own portfolio.
The risks were highlighted by the company’s move last year to refinance some debt with high-interest loans. That suggests the retailer may have struggled to persuade mainstream lenders about its business prospects. Without the right financing in place, the seasonal cash flows common in the retail sector can kill a company.
But with a price-to-earnings ratio in the mid single digits, I see that risk as already priced in. Superdry has an iconic brand and revenues are growing, albeit modestly. I think the company could continue to grow in 2023 and see its current share price as cheap for such a well-known apparel brand. Apparently the firm’s boss feels the same way, given his recent purchase.
Christopher Ruane owns shares in Superdry.
UPGS Global Sourcing
What it does: UPGS owns and distributes a wide range of consumer products under homeware brands such as Salter and Beldray.
By Roland Head. UPGS Global Sourcing (LSE: UPGS) may not be a familiar name, but the small-cap stock’s products are a common sight in UK homes.
Growth was strong during the pandemic but slowed last year, as retailers cleared overstocking. However, UPGS’s outsourced production model means that the company doesn’t have too much cash tied up in stock.
Management are hoping to emulate the group’s UK success in other European markets, including Germany. Progress so far looks promising to me, but I can also see a risk that the group’s brand-driven UK strategy might not work so well in less familiar markets.
This business has generated attractive returns in the past, and February’s trading update confirmed results for the year to 31 July should be in line with forecasts. That prices the stock on nine time forecast earnings, with a 5% dividend yield.
I see UPGS as a decent buy at this level.
Roland Head does not own shares in UPGS Global Sourcing.
