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; request a free guide on NISAs from Hargreaves Lansdown

News
A cleaner prepares the red carpet for the opening night during the 59th International Cannes Film Festival May 17, 2006 in Cannes, France.
newsPowerful vacuum cleaners to be banned under EU regulations
Arts and Entertainment
Loaded weapon: drugs have surprise side effects for Scarlett Johansson in Luc Besson’s ‘Lucy’
filmReview: Lucy, Luc Besson's complex thriller
Voices
Mosul dam was retaken with the help of the US
voicesRobert Fisk: Barack Obama is following the jihadists’ script
News
people
PROMOTED VIDEO
News
A polar bear’s diet is rich in seal blubber and half of its own body weight is composed of fat
i100
Life and Style
fashion David Beckham fronts adverts for his underwear collection
Travel
Flocking round: Beyoncé, Madame Tussauds' latest waxwork, looking fierce in the park
travelIn a digital age when we have more access than ever to the stars, why are waxworks still pulling in crowds?
Arts and Entertainment
Jeremy Clarkson has rejected criticisms of his language, according to BBC director of television Danny Cohen
tv
Extras
indybest
Arts and Entertainment
Judi Dench appeared at the Hay Festival to perform excerpts from Shakespearean plays
tvJudi Dench and Hugh Bonneville join Benedict Cumberbatch in BBC Shakespeare adaptations
Arts and Entertainment
tv
Sport
Is this how Mario Balotelli will cruise into Liverpool?
football
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Service Desk Analyst (Graduate, Helpdesk, Desktop, Surrey)

    Negotiable: Harrington Starr: Service Desk Analyst (Graduate, Helpdesk, Deskto...

    Service Desk Analyst (Graduate, Helpdesk, Desktop, Surrey)

    Negotiable: Harrington Starr: Service Desk Analyst (Graduate, Helpdesk, Deskto...

    Junior Quant Analyst - C++, Boost, Data Mining

    £25000 - £35000 per annum: Harrington Starr: Junior Quant Analyst - C++, Boost...

    Service Desk Analyst- (Desktop Support, Help desk)

    £25000 - £35000 per annum: Harrington Starr: Service Desk Analyst- (Desktop Su...

    Day In a Page

    Air strikes? Talk of God? Obama is following the jihadists’ script

    Air strikes? Talk of God? Obama is following the jihadists’ script

    The President came the nearest he has come yet to rivalling George W Bush’s gormless reaction to 9/11 , says Robert Fisk
    Ebola outbreak: Billy Graham’s son declares righteous war on the virus

    Billy Graham’s son declares righteous war on Ebola

    A Christian charity’s efforts to save missionaries trapped in Africa by the crisis have been justifiably praised. But doubts remain about its evangelical motives
    Jeremy Clarkson 'does not see a problem' with his racist language on Top Gear, says BBC

    Not even Jeremy Clarkson is bigger than the BBC, says TV boss

    Corporation’s head of television confirms ‘Top Gear’ host was warned about racist language
    Nick Clegg the movie: Channel 4 to air Coalition drama showing Lib Dem leader's rise

    Nick Clegg the movie

    Channel 4 to air Coalition drama showing Lib Dem leader's rise
    Philip Larkin: Misogynist, racist, miserable? Or caring, playful man who lived for others?

    Philip Larkin: What will survive of him?

    Larkin's reputation has taken a knocking. But a new book by James Booth argues that the poet was affectionate, witty, entertaining and kind, as hitherto unseen letters, sketches and 'selfies' reveal
    Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?

    Waxing lyrical

    Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?
    Texas forensic astronomer finally pinpoints the exact birth of impressionism

    Revealed (to the minute)

    The precise time when impressionism was born
    From slow-roasted to sugar-cured: how to make the most of the British tomato season

    Make the most of British tomatoes

    The British crop is at its tastiest and most abundant. Sudi Pigott shares her favourite recipes
    10 best men's skincare products

    Face it: 10 best men's skincare products

    Oscar Quine cleanses, tones and moisturises to find skin-savers blokes will be proud to display on the bathroom shelf
    Malky Mackay allegations: Malky Mackay, Iain Moody and another grim day for English football

    Mackay, Moody and another grim day for English football

    The latest shocking claims do nothing to dispel the image that some in the game on these shores exist in a time warp, laments Sam Wallace
    La Liga analysis: Will Barcelona's hopes go out of the window?

    Will Barcelona's hopes go out of the window?

    Pete Jenson starts his preview of the Spanish season, which begins on Saturday, by explaining how Fifa’s transfer ban will affect the Catalans
    Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

    We know all too much about the cruelty of Isis – but all too little about who they are

    Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
    Neanderthals lived alongside humans for centuries, latest study shows

    Final resting place of our Neanderthal neighbours revealed

    Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
    Scottish independence: The new Scots who hold fate of the UK in their hands

    The new Scots who hold fate of the UK in their hands

    Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
    Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

    Blight club: Britain's ugliest buildings

    Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape