Smaller Companies: Kleinwort says it will stick with second-line stocks

SIR NICHOLAS Redmayne, chairman and managing director of Kleinwort Benson Securities, is summoning up a much needed Dunkirk spirit on behalf of the smaller companies sector.

Although Kleinwort's involvement in smaller companies is 'not wildly profitable', he says there is no intention to give up market- making in second-line stocks.

His comments give the clearest indication yet of Kleinwort's strategy to maintain a significant presence in the sector.

The market has been rife with rumours that Kleinwort was about follow some of its rivals by withdrawing from market-making in second-line shares.

But writing in Kleinwort's latest research document, Sir Nicholas says: 'We regard the smaller companies area as an important part of our business, not only in market-making and sales, but also corporate finance.

'Whilst this area of our business is obviously not wildly profitable under current conditions, it is not our intention to alter our past policy with regard to market- making in these stocks - both those where we have a corporate interest and others.'

The decision comes at a time of growing fears about the liquidity of second-line stocks. The sector has seen a steady withdrawal of research and trading capacity over the past few years - most recently by County NatWest.

Other firms, such as Warburg Securities and Smith New Court, have also trimmed their coverage due to low volumes and profitability, but they (along with Winterflood Securities, the pure market-maker) maintain a strong presence in the sector.

Kleinwort's involvement is much smaller by comparison - it makes a market in about 300 stocks, half of which are also followed by its analysts. But the firm's continued support will be greeted with relief by many investors and companies.

Meanwhile, the firm's December circular on tiddlers recommends six companies.

They are: Adwest Group, the publisher; Carclo, the engineering group; First Technology, the safety equipment maker; Wholesale Fittings, the electrical distributor; Expament, the security components supplier; and Burnfield, the pressure gauges company.

All but the last two are Kleinwort's clients.