Stock Market Week: Bombed out small caps yield up value amid the rubbl e

IS SMALL becoming beautiful again? After years of neglect there are signs that the stock market is rediscovering the merits of small companies and their rock-bottom valuations are starting to improve.

This year the small cap index, although still a long way from its peak, has looked the blue-chip Footsie index in the eye and showed the sort of form it once displayed in its halcyon days.

And the new all-small index, embracing the small cap and fledgling indices, has clearly outperformed its Footsie betters so far this year with a remarkable 15 per cent advance.

For far too long many institutional investors have avoided the undercard. They have concentrated on Footsie constituents and another 50 or so of the 250 mid cap shares because of the perceived perils of trading down among the smaller fry. Institutions have to deal in size and they complain, with some justification, that they are in perennial danger of being short- changed.

Too often, they have found themselves making a big splash in a small pool and consequently unable to deal at what they regarded as a suitable price.

But, with blue-chip valuations looking increasingly stretched, more institutions are dipping their toes into what they have hitherto regarded as dangerous waters.

They are suddenly finding that the valuations among the ugly ducklings are irresistible. It has been estimated that small cap shares are undervalued by as much as 50 per cent. No wonder, then, that cash bidders, particularly from overseas, are swarming. And more and more managers want to take their companies private by making venture capital-backed cash bids at a little above the depressed market price.

Last week the Legal & General insurance giant's tolerance finally snapped. Besides having a telling swipe at the computerised share trading order book (Sets), it displayed its vexation at the absurdity of some of the small cap deals going through.

L&G reckons that 65 bids and buyouts are now being discussed. In most cases deals are only contemplated because the shares are cheap. The company's investment head, David Rough, warns that the insurance group will not stand by "like mugs" and accept rock-bottom prices for firms in which it has stakes.

L&G is one institution that has continued to play the undercard at a time when many rivals have stuck to Footsie and the bigger mid caps.

Now it is increasing its small cap presence, encouraged by the amazing value it sees lurking among the companies too small to get into Footsie or even the supporting mid cap index.

Private investors, who by and large have banked on the undercard through thick and thin and provided most of what business has taken place, must welcome the L&G initiative. It can only help to improve liquidity and provide more impetus to the revival among the small players.

Many of the results due this week are from companies not even within hailing distance of Footsie or the mid cap index.

Blue Circle Industries is the biggest, a mid cap constituent with a capitalisation of pounds 2.9bn. The building materials group is expected to produce year's profits of pounds 325m, down from pounds 342m.

RMC, the cement group, is also due to report year's figures. Here again the result will be lower, perhaps pounds 265m against pounds 307.7m. Rugby, another group known for its cement, is likely to report a pounds 2m fall to pounds 75m.

Highland Distillers, the Famous Grouse scotch whisky group that has forged a close relationship with Remy Cointreau, the French drinks group, is unlikely to be the spirit of the week with its interim figures. They may show a modest advance, say from pounds 25.1m to pounds 25.5m, as the flat spirits market and the fall-out from the Asian setback continue to inhibit growth.

The Remy link has not won universal approval. But with Highland locked into an unquoted French company, which controls Remy, and the Cognac brandy group holding 9.4 per cent, there seems little prospect of any strategic change.

On the retail pitch, Signet's sparkling revival should continue with the jeweller producing year's profits of pounds 87m, up from pounds 68.7m. The dramatic recovery since the dark days following Gerald Ratner's gaffe will be underlined by a return to the dividend list - a payment of perhaps 0.65p a share.

Selfridges, demerged from Sears, should also sprinkle a little retail cheer with profits higher by some 18 per cent to pounds 18m. T&S Stores, the convenience shops chain, should produce year's profits up from pounds 21.1m to pounds 25.5m. Save, the petrol retailer, will miss the fun; profits, before exceptionals, will be down from pounds 9m to pounds 5.5m.

Johnston Press, the newspaper publisher, is thought to be set for a year's out-turn of pounds 45m against pounds 38.1m, and engineer McKechnie's interim figure should be around pounds 29m (pounds 28.8m).

Manchester United brings a sporting touch to the run-up to Easter with interim figures. There is some doubt as to how it will treat transfer fees. Assuming they are not stripped out of the figures Man Utd, still awaiting Westminster's decision on the controversial BSkyB takeover bid, will offer around pounds 17m against pounds 17.5m.

Clubhaus will not achieve hole-in-one status but the golf club group should manage a spectacular 90 per cent profit increase to pounds 6.7m.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
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.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor