Investing in UK small-cap shares can sometimes be a dangerous business.
When economic conditions get tougher, the growth potential of younger, smaller companies can come under severe scrutiny. This can, in turn, lead to painful share price slumps. Slighter businesses can also be more vulnerable to failure during tough times because of their weaker balance sheets.
Yet buying certain early-stage companies can also fire up an investor’s long-term returns. Profits can grow much faster than those over at more mature shares, leading to market-beating capital appreciation.
With some careful research it’s still possible to find top small-cap shares to buy despite the uncertain near-term economic outlook. Here are three I think are great investments today.
Aura Energy
Mining for raw materials is a complex and often expensive business. For Aura Energy (LSE:AURA), earnings could suffer if it encounters problem developing its Tiris uranium-vanadium resource in Mauritania.
Yet I believe the potential benefits of buying this Alternative Investment Market (AIM) share make it an attractive investment. As countries switch away from fossil fuels, demand for nuclear power is tipped to grow strongly, meaning increased demand for radioactive uranium.
Rising energy demand from rapidly-expanding emerging markets also means consumption of the yellow commodity could soar. This is why the International Atomic Energy Agency thinks nuclear capacity will more than double over the next 27 years, to 873 gigawatts electric (GWe).
Demand for Aura Energy’s product could also rise as the building of nuclear submarines ramps up. Saxo Bank said last week that “we expect nuclear and uranium demand to increase” as Australia announced plans to build a fleet of new subs under the AUKUS programme.
Finally, I like Aura Energy because of encouraging drilling work at Tiris. In February, it announced a “major resource upgrade” at the asset, with measured and indicated resources rising by an impressive 52%.
With the business also developing the Häggån uranium project in Sweden I think it could have a bright future.
Iomart Group
IT companies like Iomart Group (LSE:IOM) could endure some earnings turbulence in the near term. Even in our increasingly digitalised world, spending on technology could slip if the global economy remains weak for longer.
Yet as a long-term investor, I believe this small-cap share remains highly attractive. As remote working grows in popularity, I expect demand for its services to steadily rise.
Iomart provides cloud computing platforms that allow workers to perform their daily tasks from anywhere. It is also an expert in cyber security, connectivity and data management, and provides IT consultancy services to businesses.
This broad range of services gives it ample opportunities to generate profits as workplace digitalisation clicks through the gears. Telecoms giant AT&T predicts that the hybrid work model will almost double from 42% of workplaces in 2021 to 81% by next year.
It’s true that Iomart doesn’t carry the financial clout or brand power of industry giants like Microsoft or IBM. But strong recent trading suggests it could still deliver excellent profits growth in spite of high competition.
