Derek Pain: 'Undercard' shares suffer neglect but they can make a comeback
No Pain, No Gain
Saturday 21 January 2012
Small caps have become the great unloved. In the past few years they have endured a torrid time as investor neglect has become increasingly apparent. It is, perhaps, not surprising that in these difficult days attention is largely directed at what are perceived to be the far safer havens provided by large, well-established companies.
Dividends, with interest rates at an unprecedented low, are another factor, with some blue-chips offering yields that put the high street banks and building societies to shame.
Although some small caps are on the dividend list – indeed a few, like Printing.com, offer remarkably high returns – many prefer to plough profits back into the business, relying on capital appreciation to keep shareholders happy.
Unfortunately, the chances of any realistic upsurge in a tiddler's share price are far from outstanding. The lack of investor interest means stock market dealing is often pathetically thin – for some shares non -existent for days.
It is not surprising that more companies are questioning the value of a share quote – full listing, AIM and even Plus – and, with the cost of a market presence such a heavy burden, there is a growing tendency to delist. After all, undervalued, rarely traded shares offer a business little chance of tapping the market to raise expansion capital or mount takeover bids. Indeed, an unresponsive share price could leave a company vulnerable to a corporate strike.
The banking crisis, which took share indices to uncomfortably low levels in 2009, and then the current, not entirely unrelated euro debacle, have undoubtedly been more severe on small caps than on major stock-market constituents. I don't see any short-term solution, but I am convinced small caps will eventually recapture past glories.
The success of small companies, with an often entrepreneurial spirit, is vital to the overall business landscape and even in tough conditions many of them are able to prosper.
The trouble is that the stock market, in its present blinkered and evasive state, is refusing to accept the merits of small caps and accord them the dignity they deserve. There must be a remote danger that the undercard could become so thinly inhabited that small caps are regarded as an endangered species. I do not believe such a bleak possibility will occur. But the City must be on its guard.
The no pain, no gain portfolio has suffered from the fallout. In the past it has reaped rewards from its devotion to what is now an unhappy breed. However, I intend to retain a strong undercard presence, anticipating its return as an exciting force. I suppose in the present climate it is mainly exploration stocks that occasionally hit the jackpot, although many will go nowhere. I am not enamoured by the run-of-the-mill range of mining and resource shares on offer. Many just soak up investors' cash.
Perhaps the portfolio's heavily loss-making excursion into oil exploration and its involvement with Nighthawk Energy is still uppermost in my mind.
Still, I have not completely ignored the sector, last year alighting on Northern Petroleum.
Nighthawk, which under previous management indulged in a series of cash-raising private placings, is again on the money trail, but this time all shareholders have a chance to subscribe. The issue price is 2.5p a share, not far from the current stock market quote, but a long way from the 107p once reached.
When the portfolio descended on Booker, the current star performer, it was, admittedly, a fair-sized company but still very much an undercard player.
Last week Booker, now enjoying a £1bn-plus capitalisation, produced another impressive trading statement. The shares promptly fell. Probably the reaction was related to the mighty Tesco's shock revelation that it had endured far from impressive trading.
Both announcements appeared on the same day.
Still, as I write, Booker shares have overcome the Tesco influence. They deserved to as the cash-and-carry chain enjoyed a 7 per cent sales increase in the final quarter of last year with fruit and vegetable turnover up a healthy 17 per cent.
Chief executive Charles Wilson said: "Our plans to focus, drive and broaden the group are on track."
Besides continuing its cautious Indian expansion, the group is also stepping up its service to its larger food customers.
- 1 Howard Jacobson: Let’s see the 'criticism' of Israel for what it really is
- 3 Gingers face extinction due to climate change, scientists warn
Sustained immigration has not harmed Britons' employment, say government advisers
British jihadist calls for 'flag of Islam' over Downing Street and Buckingham Palace
Australia facing international condemnation after turning around Sri Lankans at sea
7/7 memorial defaced on anniversary of 2005 attacks with ‘Blair lied thousands died’ graffiti
Even when it brutalises one of its own teenage citizens, America is helpless against Israel
There’s a nasty smell in the political air – and it’s coming from the Tories
iJobs Money & Business
£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...
£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...
£300 - £380 per day: Orgtel: Financial Planning Manager, Banking , London, £30...
£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: A leading fina...
Day In a Page
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams