Interactive Investor

Four small caps primed to outperform

31st July 2014 09:42

Andrew Hore from interactive investor

Small caps had a difficult first half. The AIM index fell by over 8% compared with a flat six months for the FTSE All-Share index. But there are signs that companies have already come clean about the state of business and that the worst is possibly over.

Indeed, July has been a reasonably flat month for AIM, but clearly some companies will do better than others. Small-cap expert and former AIM Journalist of the Year, Andrew Hore, has scoured the junior index and picked four exciting companies he thinks could pull a surprise or two in the months ahead.

CentralNic (66p)

New domains that have already been launched by CentralNic and its partners include .luxury, .ink and .build. Zeus Capital forecasts that CentralNic should grow its pre-tax profit from £1 million to £1.7 million in 2014, rising to £3.7 million in 2015 as more of the new domains make a greater contribution. Cash generation is strong with net cash of £6.8 million expected by the end of 2014. The shares are trading on 38 times 2014 earnings, falling to 15 in 2015.

Safestyle UK (177p)

Safestyle does not need to significantly grow its second half revenues in order to achieve forecast profit growth from £15 million to £17.1 million for 2014. That puts the shares on just over 11 times prospective earnings with a forecast yield of 4.9%. However, there is potential for greater growth in the second half providing additional potential upside for the shares.

Stadium Group (85p)

On the back of the acquisition of machine-to-machine (M2M) wireless connectivity business United Wireless for up to £8 million in cash and shares, house broker N+1 Singer has upgraded its 2015 earnings per share forecast by 25% to 10.5p a share. United's customer base includes, automotive, telematics and vending businesses. The acquisition will enable Stadium to provide a full service to customers when it manufactures their equipment. The shares are trading on seven times forecast 2015 earnings and a yield of 3.7%.

MyCelx Technologies Inc (427p)

The interims will be reported on 12 September and show revenues of less than the $9.42 million (£5.57 million) reported in the first half of 2013, which yielded a profit of £333,000. N+1 Singer still forecasts a 2014 profit of £2.11 million, rising to £4.62 million in 2015. The shares are trading on more than 40 times prospective 2014 earnings, falling to less than 20 in 2015. The potential for the technology is enormous but the timing of contracts is likely to continue to be uncertain.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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