Small companies set for a buoyant future

Smaller company bosses are more confident about growth prospects than at any time in the past two years amid signs that the buoyancy of the consumer sector is poised to spill over into general industrial businesses. Earnings growth of almost 20 per cent a year for the next two years is expected to coincide with continued low inflation to create a strong background for smaller company shares.

Those are some of the findings of the latest SBC Warburg smaller company survey, which shows a marked upturn in confidence over the past six months since the last twice-yearly study. Among general industrial companies, more than one in two businesses say they have become more confident over the past 12 months. A balance of one in five expects orders to be easier to secure and more companies arereporting increased output.

The improvement in sentiment reported by 332 heads of companies with market values of under pounds 350m follows a long period of destocking which squeezed margins in many businesses and resulted in a steady downgrading of profits forecasts during the current year and a spate of profits warnings.

Warburg's Richard Hickinbotham and Darren Winder said the strength of responses in the survey made them much more confident that bullish forecasts for 1997 and 1998 would be maintained. Warburg's average forecast for its smaller companies predicts an 18 per cent earnings per share increase next year and 17 per cent during the following year. Latest estimates are that earnings will have grown 7 per cent this year.

That compares with forecasts of under 7 per cent earnings growth for FTSE 100 constituent companies and 13 per cent for the FTSE 250.