Waking up to the small-cap potential

Derek Pain: No Pain, No Gain

When the stock market overreacts to what is likely to be the merest hiccup in a company's progress, it is often the time to think about buying the shares. Multi Group, until last month called Multi Equipment Rental, is an example of too harsh a view being taken over one set of figures.

When the stock market overreacts to what is likely to be the merest hiccup in a company's progress, it is often the time to think about buying the shares. Multi Group, until last month called Multi Equipment Rental, is an example of too harsh a view being taken over one set of figures.

When it produced interim results, its shares were riding at 19p. They are now 15.75p, having touched 14.75p. The casual observer could be forgiven for believing Multi, which rents equipment to builders and others, had run into problems, perhaps even suffered a profits fall.

Nothing could be further from the truth. Admittedly, its rate of profits growth was poor but the company still managed a gain, £438,000 against £423,000.

The pause for breath - and I believe it is no more - stems from start-up costs involving new depots and developing a new division.

Evidence of the group's continuing growth is provided by a 42 per cent jump in turnover to £3.9m and a 90 per cent growth in assets. Gearing is only 24.5 per cent.

But the stock market, in its present mood, is not prepared to take prisoners. Any disappointment prompts a savage initial reaction, which is probably more the result of a mark down than any selling rush.

And as a very small business, capitalised at only £6.3m, Multi can expect to be subjected to exaggerated price movements, thanks to the inevitable thin market in its shares and the likelihood its two market makers do not want much stock on their books. The shares have been as high as 26.25p since the group arrived two years ago. Their low point is 11p.

Leslie Kent, an analyst at the company's stockbroker, Seymour Pierce, has marginally reduced his year's profits estimate and is now looking for just more than £1.1m, compared with £856,000 last time. His forecast for next year is unchanged at £1.35m. On his current year's prediction, the shares are selling at not much more than seven times earnings, although the dividend yield is only 2 per cent or so.

Still, unlike so many of today's new breed of quoted companies, it is in a position to service its shareholders, providing the fundamentals of investment. Mr Kent would describe it as a "proper" company in an age when most of us old-timers blink in astonishment at some of the businesses being fêted on the stock market.

Multi, started nine years ago, is ambitious. It plans to expand its operations from half-a-dozen hire depots in London and the South-east. Birmingham and Manchester are in its sights and a move into one or both could come within a year.

It is also thinking about tapping into the do-it-yourself market. A chain of high street hire shops, perhaps inter-relating with its tradesmen's depots, is on the drawing board. Each shop would operate under a franchise, which should reduce the group's costs.

There is also a significant takeover in the offing, which could give the company a hi-tech dimension. If the deal comes off, Multi would have the best of both worlds, a profitable, growing and assets-backed business enjoying the perceived excitement of the new economy.

Clearly, little Multi is keen to grow. The stock market has treated its shares harshly following the modest half-year disappointment. The start-up costs that blighted first-half profits are unlikely to be repeated in the second six months and, anyway, the balance sheet is strong.

Unfortunately, Multi is a small cap and as such suffers from the market apathy towards shares on the undercard. It has only one institutional shareholder with a substantial stake, Granville Investment Management, with 12.3 per cent. Directors have about 30 per cent.

Like so many tiddlers, its shares deserve a higher rating. One day the stock market's neglect of small-cap shares will end and there could be a general re-rating on the undercard. But Multi is one of those shares which, once the interim disappointment is absorbed, should enjoy new investment appeal, particularly when investors realise the group is still on the growth ladder.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

    £16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

    SThree: Experienced Recruitment Consultant

    £20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    Day In a Page

    The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

    They fled war in Syria...

    ...only to get stuck and sidetracked in Hungary
    From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

    Title sequences: From The Prisoner to Mad Men

    Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
    Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

    Giorgio Armani Beauty's foundations

    Sumptuous fabrics meet luscious cosmetics for this elegant look
    From stowaways to Operation Stack: Life in a transcontinental lorry cab

    Life from the inside of a trucker's cab

    From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
    Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

    Kelis interview

    The singer and sauce-maker on cooking for Pharrell
    Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

    Cameron lowered the flag for the dead king of Saudi Arabia...

    But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Humanity must be at the heart of politics, says Jeremy Corbyn
    Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

    Joe Biden's 'tease tour'

    Could the US Vice-President be testing the water for a presidential run?
    Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

    Britain's 24-hour culture

    With the 'leisured society' a distant dream we're working longer and less regular hours than ever
    Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

    The addictive nature of Diplomacy

    Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
    Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

    Fashion: Ooh, Lady Chatterley!

    Take inspiration from DH Lawrence's racy tome with equally racy underwear
    8 best children's clocks

    Tick-tock: 8 best children's clocks

    Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
    Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

    Charlie Austin: ‘If the move is not right, I’m not going’

    After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea