Small-cap round-up: featuring Frontier Developments, K3 Capital and more…

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Small-cap round-up: featuring Frontier Developments, K3 Capital and more…

In this weekly summary, Mark Watson-Mitchell updates his readers on previous company profiles and other news of interest from the exciting world of small cap stocks…

Frontier Development (LON:FDEV) – still a ‘hot stock’ in a ‘hot sector’

Brokers Liberum Capital is rating the shares of this Cambridge-based leading developer and publisher of videogames as a ‘buy’ ahead of its trading update due in the middle of next month.

Encouraged by the busy start to the group’s December sales period, the brokers to the company estimate that sales to end-May 2021 will rise 18.4% to £90m, lifting pre-tax profits up 20.9% to £22m, with earnings of 51.4p per share.

For the coming year, it estimates £140m of sales and £36m profits to lift earnings to 83.1p per share.

The increase of the group’s portfolio of games and planned new releases will certainly boost the takings.

Considering just how hot the games market is presently, it is not surprising that FDEV’s shares are trading at new all-time highs, now 2,960p.

Despite having almost trebled in the last year, I consider that they are still well worth holding.

(Profile 01.10.19 @ 1,000p set a Target Price of 1,500p*)

K3 Capital (LON:K3C) – average upwards on any price falls

This multi-disciplinary professional services consultancy to SMEs has had a good first half year to end-November.

Expectations are that the group will have seen revenues 20% higher in just H1 than it did in the whole of last year.

Profit upgrades by its broker finnCap suggest that some £36.8m is possible in sales for the year to end-May 2021, generating £10.1m pre-tax profits, 58% higher than last year. 

Reflecting the recent acquisitions, the group’s earnings per share should be little changed at 11.9p, although the dividend could be raised to 9p (7.5p).

The brokers have calculated a ‘sum of the parts’ valuation for the group’s shares at 300p.

In less than two months we have enjoyed an excellent price run with the group’s shares, which close the week at 245p – a 66% increase in that time.

Hold tight has to be the message, and then look to average upwards on significant price falls.

(Profile 21.10.20 @ 147.5p set a Target Price of 200p*)

SigmaRoc (LON:SRC) – cashed up now and with resilient trading

The heavy construction materials group, with operations in the Channel Islands, Benelux and the UK, is looking forward to growth in the second half of its trading year.

Further near-term earnings-enhancing acquisitions can be expected following its announced £12.4m placing.

Brokers to the group Liberum Capital rate the shares as a ‘buy’, having increased their price objective from 60p to 70p this week.

The group should announce a trading update for the year to end-December sometime in January, with its results being published in April next year.

The brokers are looking for sales of £120m (£70.4m) and pre-tax profits of £10.5m (£8.2m), with earnings of 3.6p per share.

Next year could see £144m of revenues, £14m of profits and 4.1p per share in earnings.

The gentle earnings increase reflects the business model of the company as it creates a formidable grouping.

The CEO of SigmaRoc, Max Vermorken, stated the following: 

“The group’s performance for the eleven months to 30 November 2020 is very strong given the context and risks we faced. The group has continued to demonstrate that a decentralised business model focussed on local markets is a robust approach in our industry, particularly in challenging times.”

He went on to say that, “The group is supported by a solid asset base and will continue to confront all challenges head-on while executing on its buy-and-build strategy to deliver further shareholder value.”

The group should do well as the construction markets in both the UK and Belgium improve.

The shares at 62p are 1p lower than their 2020 high and look set to rise still further.

(Profile 04.09.20 @ 49p set a Target Price of 65p)

Driver Group (LON:DRV) – sensing profits recovery now underway

This global professional services group provides consultancy to the engineering and construction sectors. 

Its finals to end-September, signalled in late October, saw revenues down 9% to £53.1m, while underlying pre-tax profits were 17% lower at £2.5m and earnings were halved to just 2.6p per share. However, net cash was up over 50% at £8.2m.

Encouragingly CEO Mark Wheeler stated that this year has started positively with higher activity.

The group’s brokers N+1 Singer expects that, supported by an improving Covid-19 backdrop, the group will return to profit growth in this current year.

Guidance on profitability is suspended for a while yet, but we do know now that after its recent strategic review, the group is targeting a double-digit operating profit margin over the next five years.

The shares at just 52p have good upside potential as that recovery gets underway.

(Profile 23.04.19 @ 59p set a Target Price of 85p)

Gulf Keystone Petroleum (LON:GKP) – revised targets and hoping for more cash settlements

This Kurdistan operator and producer published an update earlier this week. 

Having revised previous targets, current CEO Jon Ferrier states the group has made big strides to remain on-track.

Ferrier is leaving shortly, and the search is on for his replacement.

As of last Monday, the group had a $142m cash balance.

Will oil and gas prices increase in the short term? GKP must hope so.

It must also hope to see more settling of payments from the KRG.

Brokers Arden Partners rates the group’s shares as a ‘buy’. The market has obviously approved of the start of week statement, with its shares rising from 101p to close the week at around 121p.

That is still a long way off both my profile and my target price – however I still hope that we will see some more price recovery.

(Profile 26.09.19 @ 235p set a Target Price of 300p)

OnTheMarket (LON:OTMP) – looking for greater revenues

With the majority of its shares owned by the estate agents on its portal, this property sector online business is beginning to please the market.

On Monday it issued a trading update that suggests that for the year to end-January 2021 it will see revenues increase from £18.8m to £22.5m, upon which it will turn itself around from a previous £9.2m loss to an adjusted pre-tax profit of £1.5m, with earnings of 1.9p per share against a loss of 14.1p previously.

Its brokers Zeus Capital estimate that its net cash position will be some £9.5m at this year-end.

Currently capitalised at £94m, with its shares at 130p, the brokers now expect the group’s revenues to grow strongly next year, as well as its profits.

(Profile 24.09.19 @ 96.5p set a Target Price of 175p)


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