Interactive Investor

These UK smaller companies are in rude health

7th October 2020 14:53

Graeme Evans from interactive investor

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The FTSE 100 might be underperforming, but plenty of domestic companies are thriving.

The resilience of Britain's smaller-cap companies was on show again today when Vertu Motors (LSE:VTU), fashion retailer Sosandar (LSE:SOS), window and door components maker Tyman (LSE:TYMN) and video gaming firm Codemasters (LSE:CDM) revealed strong momentum in the face of Covid-19 uncertainty.

The updates, which span a diverse range of sectors and marketplaces, included a best-ever September registration plate month for car dealership Vertu and a couple of record trading days for Sosandar amid increased demand for its work-from-home attire.

Shares in Tyman — the only stock out of the quartet not listed on AIM — surged 15% on the back of recovery in the UK housing market, while Codemasters shares continue to trade near all-time highs as lockdown-driven demand for its racing games has remained strong.

The updates highlight one of the investment trends of the summer, with the AIM All-Share Index comfortably outperforming the stuttering FTSE 100 index after returning to where it was at the start of the year. AIM's success owes much to the recovery of heavyweight stocks such as ASOS (LSE:ASC) and Boohoo (LSE:BOO), as well as interest in Covid-related stocks Novacyt (LSE:NCYT) and Omega Diagnostics (LSE:ODX).

Vertu Motors shares have returned to levels last seen in March, with the company's network of 135 sales and aftersales outlets benefiting from strong demand since reopening in June.

CEO Robert Forrester said the industry was in a sweet spot as households who saved money during the lockdown and then found themselves unable to go on holiday have either spent the money doing up their house or buying a car. The surge in home deliveries has also worked in Vertu's favour as it has benefited from couriers upgrading their van fleets.

The key plate-change month of September saw new retail volumes up 6.3% on a like-for-like basis, compared with a 1.1% decline in the wider market.

Aside from the current economic and Brexit uncertainty, Forrester is increasingly optimistic about the outlook for the rest of the financial year and says several opportunities for the expansion of the group were being actively considered.

Half-year results up to 31 August showed adjusted profits of £4.7 million but house broker Zeus Capital said this was better than the break-even position expected after 10 weeks of showroom closures. Zeus added:

“With a strong balance sheet and resilient systems platform that is proven, we see Vertu as an ideal consolidator.”

Liberum has a price target of 50p, which compares with just above 30p seen today after an initial post-results surge for shares ran out of steam.

An element of pent-up demand in the wake of Covid-19 disruption also benefited Tyman, whose like-for-like sales were up 9% in September. CEO Jo Hallas said industry growth drivers were clearly evident, particularly in the United States where the company trades as AmesburyTruth.

The UK market also continues to recover strongly, reflecting increasing numbers of housing transactions and very high mortgage approval levels. Underlying sales in the UK were up 8% in September, having been 28% lower in the first half of 2020.

Analysts at Numis Securities upgraded their earnings per share forecast for this year by 22% and 8% the year after, with the broker highlighting “an impressive recovery aided by market share gains.”. They have a price target of 330p, compared with today's price of 277.5p.

The performance of Sosandar, whose shares rose 6% to 16p, follows a 54% jump in revenues over the past month, including two record trading days in September. Its autumn womenswear ranges have been well received, with many sell out styles in knitwear, denim, loungewear and casual outerwear.

Half-year revenues were up 52% to £4.3 million, which should mean a substantial improvement in underlying losses. Shares had been trading as low as 4.6p in March.

CEOs Ali Hall and Julie Lavington added:

“Notwithstanding the continued uncertainty, we continue to believe that we can take significant market share within our demographic, particularly as the lockdown period escalated growth in online retail.”

Codemasters shares, meanwhile, were up 5% to 378p as the Warwickshire-based company said half-year revenues and underlying earnings more than doubled following the launch of new racing titles including F1 2020, Fast & Furious Crossroads and Project CARS 3. 

The F1 franchise has materially outperformed, driven by demand from new players in the United States in particular, and is well placed to do well throughout the Black Friday, Christmas and New Year promotional periods. The strong performance means cash on its balance sheet surged to £49.8 million at the end of September, from £24.6 million the year before.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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