Stock Market Week: Small caps take the biggest hammering

SPARE A thought for small cap shares as the stock market bloodbath stains every portfolio in the land.

Last week Footsie plunged to its worst level since November, yet the poor old small caps are rubbing along at their lowest since the early months of 1995.

Smaller companies often start the year well; this year was no exception, with the small cap index stretching to a 2,782.2 peak in the spring.

Since then the collapse has been breathtaking. Last week the index ended at 1,914.2.

FTSE International, the organisation which governs the various stock market share indices, put a minimum valuation of pounds 65m when it last decided the composition of the smallcap index.

It deliberates on the indices' make up each December. Next time round it will, no doubt, be forced to lower the cut-off point a long way below pounds 65m, perhaps even to pounds 40m, if it wants to retain a realistic indicator of the smaller company sector.

The dramatic meltdown in smaller company valuations comes on top of what has been a long period of under-performance against Footsie and the mid caps. For a short time in 1996 small cap shares looked the rest of the market in the eye.

Even when the six-year-old index was riding at a record level this year, the small timers were largely playing second fiddle to their Footsie peers.

The difficulty in dealing in the shares of the smaller brethren is often cited as the main reason for their poor showing on the market's under- card. Institutional and international investors exacerbate the liquidity problems by largely ignoring any share below the mid cap index; indeed some restrict their attention solely to the blue chip Footsie constituents.

With the liquidity problems, and in the current economic environment, the stockbroker Teather & Greenwood says the relatively harsh recent mark-down is to be expected.

Yet the small cap collapse could have far-reaching implications. The under-card is a vital part of the market, where the private investor is still a powerful force and private client stockbrokers manage to hold their own.

And, of course, a healthy market is vital as a cash-raising source for British commerce and industry, not only for the giants but the small fry as well.

If the market under-card is seriously damaged it could have a devastating impact on vast swathes of the business community.

As the steady flow of takeover bids, usually for cash, demonstrate, there is still sound value among the small groups. Why are, for example, buccaneering venture capitalists prepared to pay more than the market price in hard cash for the likes of Regal Hotels and brewer Ushers of Trowbridge?

There has already been one round of overseas cash bids for engineers and the like. Another is likely.

Some experts are pointing to the staggering dividend yields on some small companies in unfashionable sectors as examples of oversold shares.

Leeds, the textile group which has promised to hold its dividend, is yielding nearly 22 per cent at 40p. The market is either mad, does not believe the company will maintain its payment or expects the dividend will disappear next year.

Sirdar, involved in floor coverings and spinning and seemingly trading well, yields nearly 12 per cent at 58.5p. It is one company where directors' options, exercisable next year, are out of the money unless there is a sharp recovery.

Incidental intelligence suggests most small investors, perhaps with the exception of unit trust holders, are keeping their heads down and letting the storm roll over them. But some of the traders, particularly those in the T-25 game, have taken a pasting.

Certainly there is continuing evidence of director buying. It seems that many boardrooms just cannot believe such an unrelenting share depression is justified. Director buying in the past has been an encouraging signal.

This week's paltry reporting schedule is a small companies affair.

Thornton, the chocolate group, is expected to record a 12 per cent advance to pounds 12.5m over the year, although a higher tax charge will hold back the earnings per share figure.

Joan D'Olier of the investment house BT Alex.Brown, expects the accompanying trading statement to indicate a slowdown in current like-for-like sales.

Like other members of the small cap index, Thorntons shares have melted in the heat of the setback. In the spring the price was nudging 300p; last week it was 177.5p.

The engineer McKechnie, a midcap constituent, is likely to produce year's figures around the pounds 61.5m mark, which would represent a commendable 11 per cent advance for a group operating in such a tough environment.

The shares, at 248p, bump along at a 12-month low against a 568.5p high. They cannot buck the market trend, although the sale of its Australian operations, which could be announced with the figures, would be well received and provide a prop for the shares.

William Sinclair, a leisure equipment group, is expected to report little- changed year's results of around pounds 6.2m and Johnston, the building materials group, should manage interim figures of pounds 2.5m against pounds 1.2m.

Start your day with The Independent, sign up for daily news emails
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

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

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
The ZX Spectrum has been crowd-funded back into play - with some 21st-century tweaks

The ZX Spectrum is back

The ZX Spectrum was the original - and for some players, still the best. David Crookes meets the fans who've kept the games' flames lit
Grace of Monaco film panned: even the screenwriter pours scorn on biopic starring Nicole Kidman

Even the screenwriter pours scorn on Grace of Monaco biopic

The critics had a field day after last year's premiere, but the savaging goes on
Menstrual Hygiene Day: The strange ideas people used to believe about periods

Menstrual Hygiene Day: The strange ideas people once had about periods

If one was missed, vomiting blood was seen as a viable alternative
The best work perks: From free travel cards to making dreams come true (really)

The quirks of work perks

From free travel cards to making dreams come true (really)
Is bridge the latest twee pastime to get hip?

Is bridge becoming hip?

The number of young players has trebled in the past year. Gillian Orr discovers if this old game has new tricks
Long author-lists on research papers are threatening the academic work system

The rise of 'hyperauthorship'

Now that academic papers are written by thousands (yes, thousands) of contributors, it's getting hard to tell workers from shirkers
The rise of Lego Clubs: How toys are helping children struggling with social interaction to build better relationships

The rise of Lego Clubs

How toys are helping children struggling with social interaction to build better relationships
5 best running glasses

On your marks: 5 best running glasses

Whether you’re pounding pavements, parks or hill passes, keep your eyes protected in all weathers
Joe Root: 'Ben Stokes gives everything – he’s rubbing off on us all'

'Ben Stokes gives everything – he’s rubbing off on us all'

Joe Root says the England dressing room is a happy place again – and Stokes is the catalyst
Raif Badawi: Wife pleads for fresh EU help as Saudi blogger's health worsens

Please save my husband

As the health of blogger Raif Badawi worsens in prison, his wife urges EU governments to put pressure on the Saudi Arabian royal family to allow her husband to join his family in Canada