Small Cap Catch-Up – Three Growth Stories

4 mins. to read
Small Cap Catch-Up – Three Growth Stories

Renold (LON:RNO) – Heard It Before? An Excellent Chain Story

On Wednesday of next week (17th) the leading international supplier of industrial chains and related power transmission products will be announcing its Final Results for the year to end March 2024.

Way back in mid-April the company informed investors that it had seen a continuation of the strong H1 momentum and that the results for the full year were now expected to be materially ahead of current market expectations, with adjusted operating profit approximately 20% higher than the prior year, driven by a further improvement in margin.  

It also noted that it had continued to strengthen its financial position, which provides funding capacity to support its strategic growth objectives.

Those objectives include investment to further enhance operational capabilities and also for value-accretive acquisitions from its developing pipeline of opportunities.

Analyst David Buxton at Cavendish Capital Markets had a Price Objective of 58p, which I feel continues to be too conservative.

His estimates for the results are for revenues of £241.4m (£247.1m), but with adjusted pre-tax profits having risen to £21.7m (£18.6m), increasing earnings to 6.6p (5.9p) per share.

For the current year Buxton looks for £243.2m of sales, with £22.7m profits and earnings of 6.8p, enabling a dividend of 0.4p (nil) per share.

I really like this £124m company’s shares – they are under-rated by the market at the current 59.40p.

They have recently been up to 66.80p and will soon be over that price very soon.

(Profile 04.06.19 @ 30p set a Target Price of 60p*)

(Profile 08.11.23 @ 29p set a Target Price of 36p*)

Loungers (LON:LGRS) – Only 40% There With Another 60% To Grow

The results, announced on Tuesday of this week, for the 53 weeks ended 21st April reported revenues 24.7% better at £353.49m (£283.51m) while the pre-tax profit was a healthy 56.0% up at £11.44m (£7.33m), with earnings coming out 30.8% to the fore at 8.5p (6.5p) per share.

They were record revenues that were shown by this leading operator of all day café/bar/restaurants across the UK, trading under the Lounge, Cosy Club and Brightside brands.

It opened another 36 new sites in the year, taking the number now up to 226 Lounges, 35 Cosy Clubs and 3 Brightsides – while it has an ambition of a spread of 665 sites across its estate.

CEO Nick Collins is obviously sounding very positive about the group’s prospects:

The improving macroeconomic environment, with falling interest rates and declining inflation, adds to our confidence in Loungers’ trading prospects for the coming year. In the longer term, we continue to believe that 665 sites is a conservative target.”

Analyst Anna Barnfather at Panmure Liberum rates the shares as a Buy, looking for 400p a share, with scope for the group more than doubling in size.

She is estimating £394m revenues for the year to end April 2025, with profits of £17.2m and earnings of 11.3p per share.

Clearly anticipating further growth, she has £452m, £21.9m profits and earnings of 14.7p for 2026, while going for £508m takings in 2027, generating £27.0m profits and 18.3p earnings per share.

The shares, which have been up to 296p and are now at 283p, would appear to have growth written all over their rating.

(Profile 03.09.19 @ 205p set a Target Price of 275p*)

Time Finance (LON:TIME) – Ideal ‘Money Machine’ Takeover Target?

Wow – just take a look at the share price graph over the last few weeks – does it have ‘takeover prey’ written against its profile?

Or is it a reaction to the end June Trading Update by the independent specialist finance provider?

For the year to end May it reported that it had delivered significant increases across its key performance indicators, with revenue and profitability ahead of market expectations.

When it reports its Final Results in September it is expecting to show a 20% increase in revenues to £33.0m (£27.6m), while going for a 38% increase in pre-tax profits of £5.8m (£4.2m), against an uplift of 18% in its gross lending book to £200m (£170m).

The company stated that the increase in revenue was primarily driven by the growth in both the Invoice Finance division and the ‘Hard Asset’ subset of the wider Asset division, both areas of which operate in the larger-ticket, more secured lending space, and they now comprise over 75% of the group’s entire lending book.

CEO Ed Rimmer stated that:

“I am delighted to provide this trading update in respect of Time’s full-year results which clearly demonstrate the ongoing success of the Group’s strategy. 

To have delivered such growth, despite wider macroeconomic headwinds, is testament to the hard work of our team, to the clear focus on our strategy and the strong demand for finance from UK businesses which continue to prove remarkably robust.

What is especially pleasing is that the performance is based on maintaining appropriate margins, underwriting robustly and in keeping a wide spread of risk. 

As a result, I am confident the Group is well positioned for future growth and in delivering further increased shareholder value.”

Analyst Andrew Renton at Cavendish Capital Markets has estimates for the current year to end May 2025 looking for revenues of £34.5m, adjusted pre-tax profits of £7.2m and 5.8p in earnings per share.

He has a Price Objective of 71p on the shares, which are currently 51.50p.

Despite the recent rise, the shares continue to be totally undervalued at this price, in my view.

(Profile 23.12.20 @ 21.5p set a Target Price of 30p*)

(Profile 07.01.22 @ 23.5p set a Target Price of 30p*)

(Asterisks * denote that Target Prices have been achieved since Profile publication)

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