Small-cap shares round-up: Card Factory, Yu Group, Videndum

Contrasting moves by Card Factory (LSE:CARD) and Yu Group (LSE:YU.) were among today’s small-cap highlights in a session when the fallout from the US screenwriters’ strike hit Videndum (LSE:VID) shares hard.

The red-pen treatment for Card Factory followed a run of upgrades that culminated in today’s results showing half-year adjusted profits more than double last year’s at £22.1 million.

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Trading since August has been in line with board expectations, but with the Christmas period looming the lack of an upgrade prompted investors to take money off the table.

Analysts at Peel Hunt praised the half-year performance, particularly a 10.5% jump in store like-for-like revenues as consumers look to have accepted price increases, traded up within the company’s ranges and attached more gifts.

However, the broker pointed to rising stamp prices and uncertain consumer conditions as reasons not to be too rash with second-half forecasts. It is also nervous about the bricks-and-mortar greetings card industry, which is why it prefers shares in Moonpig Group Ordinary Shares (LSE:MOON).

Peel Hunt said: “The strategy is the right one, but there is very little that Card Factory can do about structural change in the sector, with more and more business going online. Therefore, whilst respecting the progress made, we stick with a Hold recommendation.”

In May, Card Factory set out plans to invest £24 million a year in a bid to deliver targeted revenues of £650 million by 2027 and an improved profit margin of about 14%. It said today it remains confident it will deliver on those aims.

For AIM-listed Yu Group, the strong run for shares has continued after the supplier of electricity, gas and water to business customers delivered a sixth consecutive set of results where it has beaten or met expectations.

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Half-year profits jumped 62% to £8.9 million and the 480% rise in earnings per share to 58p came in 26% stronger than house broker Liberum forecast.

Chief executive, founder and major shareholder Bobby Kalar expects the strong trading performance to continue, with guidance for annual adjusted earnings substantially ahead of the market at more than £33 million. His optimism is fuelled by the rollout of Yu Smart, which provides nationwide coverage of smart metering services.

Shares have more than doubled since May and rose another 37.4p to 987.4p today, but Liberum believes there’s more to come after upgrading its price target from 1,208p to 1,415p. Its target price was 717p at the start of this year.

Liberum said: “Some investors question the sustainability of Yu’s success and attribute it to unusual conditions in the energy market.

“Overall, we attribute Yu’s success to its commercial optimisation of pricing, a less competitive environment, and the benefit of scaling Yu Smart business on debt.”

The stock listed on AIM at 185p in 2016 and topped 1,200p in early 2018 but ended that year back closer to 50p following the discovery of accounting issues.

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The rebuilding of Yu’s valuation has since been fuelled by various upgrades to guidance, most recently because customers have been locking in longer-term supply contracts in order to avoid commodity volatility and guarantee price certainty.

In the FTSE All-Share, the outlook for content creation technology provider Videndum is shrouded in uncertainty due to the worse-than-expected impact of strike action by screenwriters and actors in the US.

The company, whose customers range from broadcasters and media studios through to vloggers and influencers, decided not to pay a dividend with today’s interim results and said it may require an equity raise in order to bolster its balance sheet.

Despite this week’s hopes of a deal to end the screenwriters’ dispute, the company remains unable to provide financial guidance for this year. Today’s results showed a 25% drop in revenues to £165 million with profits down 65% to £10.1 million.

The company, which used to be known as Vitec, lost its place in the FTSE 250 index in June and has now lost two-thirds of its value this year.