Trends and themes from the 2022 Small Cap Awards

At the end of June, after a six month long judging process, the winners of the 2022 Small Cap Awards were finally announced. The ceremony, organised by Master Investor, celebrated the best small cap companies and market participants from the 2021 calendar year, with 13 awards being handed out.

During the deliberation process, which involved a long list being cut down to a short list and then to the eventual winners, a number of themes were highlighted by the judges. Let’s take a look at a few of those and suggest what themes might come up in next year’s awards.

Small caps bouncing back

Over the 13 awards there was a trend for many companies being nominated for their successful recovery from the strict pandemic lockdown restrictions imposed during 2020 and 2021. Up for the Company of the Year award was Brickability Group, theconstruction materials distributor. While it saw revenues fall by 3% in the year to March 2021, the six months to September saw them soaring by 197% to £223.5 million as demand recovered.

Businesses which helped society during the pandemic were recognised too. Also up for Company of the Year was Totally, the provider of frontline healthcare, corporate fitness and wellbeing services. After strong trading during the year and beyond it reported that EBITDA for the year to March 2022 would be substantially ahead of consensus market expectations as a result of enhanced demand attributed to the impact of the global pandemic. Totally was also nominated for the Impact award, with its frontline healthcare services helping to cut treatment waiting times and improve patient outcomes.

While the above nominees didn’t win their respective rewards, taking the AQSE Company of the Year title was Shepherd Neame. The company is Britain’s oldest brewer, established in 1698 and now operates over 300 pubs. Last year saw revenues recover to their pre-pandemic levels as punters returned to the boozer, with a return to profitability seen and a dividend declared.

Management is key

As any investor should know, management is key when looking for small cap companies to invest in. The one award that recognises individual management success is the Executive Director of the Year prize. From a judging perspective this award is slightly different in that the judges look for directors who have a long history of success and who deliver strong growth trends over time. The judges were not looking for directors of companies who just had a good, one off year.

Some of the nominees have been with their companies for decades. For example, Henrik Bang, CEO of customer engagement software business Netcall, joined in 2004. Over that time he has overseen revenues growing from £2.4 million to £27.2 million last year. Meanwhile, Neil Crabb has been with IP developer Frontier since its IPO on AIM in 2011, growing its investment portfolio to £43.9 million by the end of 2021.

Neil Gandhi, CEO and Co-Founder of TPXimpact, was a worthy winner of this year’s award. He set up the business in 2016 to help clients digitally transform their businesses for the automation age and listed it on AIM in 2018. During 2021 he continued the company’s transformation with a unified brand/restructuring and delivered an ongoing strong financial and operational performance, with revenues up by 62%.

Individual success over the long term is perhaps best recognised in the annual Lifetime Achievement award. This year the judging panel gave the gong to life sciences legend David Evans. His career saw nearly 30 years of board experience in the diagnostics and life science industry, with the last 18 primarily in a role as Chairman of various public and private companies. Many of his companies have delivered significant returns for shareholders, with David helping 12 companies to go public and overseeing four successful exits.

Ethics on the agenda

Given the growing importance which investors give to ethically focussed companies, this year saw the addition of two additional awards. Joining the historic ESG (Environmental, Social, and Governance) Company of the Year award were Impact Company of the Year and an award for Diversity and Inclusion. A survey last year from accountants PWC found that almost 80% of respondents said ESG was an important factor in their investment decision-making, so the judges wanted to reflect this in this year’s ceremony.

The Impact award sought to recognise companies which make a real difference to the world, either for people or the environment. Nominees included a range of alternative energy companies such as AFC Energy and EQTEC, both of which are looking to advance clean, green fuels. Also nominated was mental health platform owner Kooth, which provides access to its products to over 7 million children and young people. The winner Saietta Group was recognised by the judges for the positive contribution its technology makes to improving air quality, along with its Green Economy Mark from the London Stock Exchange.

Meanwhile, candidates in the Diversity and Inclusion award were nominated for a range of factors including the promotion of working from home practices, having good staff training programmes, improving gender diversity on the board and supporting under-represented groups. TPXimpact took home the trophy, with the judges impressed by its commitment to reflect the richly diverse communities that it serves and making progress in closing 72% of the inclusivity gaps that it measures. In a trio of trophies, TPX also took home the ESG award, the judges commenting that it has the most comprehensive ESG report by a company of its size in terms of quantity, quality and frequency of reporting.

What’s to come in 2023?

With just over half of the year gone, attention is already turning to next year’s awards. One prize not mentioned yet is the IPO of the Year award, given to the best company which listed on the markets during the calendar year. With less than ten IPOs having been completed on AIM at the time of writing, the judges may have slim pickings. An early candidate however may be film production services provider Facilities by ADF, which recently announced revenues grew over threefold in 2021 after it recovered from the pandemic restrictions.

Of course, ethical treatment of people and the planet should continue to be a recurring theme for next year’s awards. In the current inflationary environment, next year’s judges might want to consider how companies have treated their customers and suppliers in helping with the cost of living. After all, the best companies, both small and large, are those which focus on the needs of all people involved, not just shareholders.

Richard Gill, CFA is Head of Research at Align Research and has been a judge at the Small Cap Awards for the past ten years.