UK small caps stocks have outperformed the biggest domestic equities over the past year.
The FTSE SmallCap Index [SMX] struck a record high at 7,229.80 on Monday 10 May, before falling back to 7,106.08 at the close on 12 May, marking an impressive 53.87% rise over the last year. In comparison, the FTSE 350 Index [NMX] of the UK’s largest stocks has gained just 19.32% over the last 12 months to 3,981.12 at 12 May’s close, and remains below its 2020 peak of 4,311.06 recorded in January, prior to the pandemic-induced crash.
Why are UK small caps outperforming?
A number of factors have helped to propel UK small caps higher, including receding Brexit worries and the successful COVID-19 vaccine rollout. The potential for faster growth from internal operations, plus a greater chance of takeovers by larger rivals, are also factors that traditionally boost small stocks’ share prices, according to Indriatti van Hien, portfolio manager of UK equities at Janus Henderson, as reported by the FT. Van Hien also reckons that a heavier weighting in sectors like travel, leisure and retail have given smaller firms an edge.
In light of this relatively stellar showing, we take a look at some of the FTSE SmallCap stocks making notable strides out of lockdown.
UK small caps to watch
Halfords’ [HFD] share price has made strong gains over the last year, increasing 130.29% to 387.80p at 12 May’ s close, giving the bicycle and car parts retailer a market capitalisation of £752.24m. In its last trading statement, released midway through its final quarter in March, Halfords said pre-tax profit for the full-year would be between £90m and £100m, after "overall trading has been stronger than we initially anticipated across the business" in the first seven weeks of Q4. Halfords’ preliminary annual results are scheduled to be released on 17 June.
Halfords' share price rise over the last year
In March, Halfords agreed a £15m deal for garage chain Universal Tyre and Autocentres, as part of the group's push to expand its motoring services business. The transaction will take the number of its garages to 374 – the goal is to have more than 550 garages across the UK – and will increase its coverage of the commercial van and truck market. CEO Graham Stapleton said:
"We have a clearly stated strategy of building a market-leading motoring services offer, and the acquisition of Universal is another important step forward in helping us to achieve that goal."
One of Europe's leading retail logistics providers, Clipper Logistics’ [CLG] share price has leapt an impressive 228% over the last year to 692.00p at 12 May’s close, giving the firm a market cap of £700.4m. The stock closed at a new all-time high of 710.00p only last Friday, followed by a new intraday peak at 720 00p on Monday 10 May.
The storage, packaging and returns management provider for retailers including H&M, John Lewis and Marks & Spencer, has seen its share price rise boosted by a government contract to distribute personal protection equipment, as well as rumours of potential interest from private equity, says The Share Centre’s Alexander Bueso.
Clipper Logistics' share price rise over the last year
Leeds-based Clipper said on 25 February that it expects results to exceed consensus estimates in the current year to 30 April 2022, following "major" new contracts with River Island and Mountain Warehouse, which represent a "significant step change" in activity levels, and will increase revenue by more than £40m over the year. Executive chairman Steve Parkin said:
"We’re delighted to welcome two iconic retailers to the ever-growing family of Clipper customers.” Of two analysts covering the stock, Clipper has one strong buy and one buy rating, according to The Share Centre.
Equiniti [EQN] is on the brink of accepting an improved takeover offer from US-based private equity group Siris Capital. The 180p-a-share offer, reported on 28 April, beats a previous 170p-a-share offer and values the outsourcing services and payment provider at £660m. The news helped Equiniti’s share price jump 8.37% on the day to 176.00p. US private equity groups have been looking for potential deals in the UK, where valuations have not recovered at the same pace as in the US as the pandemic has eased, according to ShareCast’s Sean Farrell.
Clipper Logistics' YTD share price rise
Looking over the slightly longer-term, Equiniti’s share price has risen 53% to 170.40p so far in 2021, as of 12 May’s close, giving it a current market cap of £625.01m. The takeover offer comes in the wake of a tough period for the business during the pandemic – Equiniti reported an annual pre-tax loss of £6.6m on 1 April, down from a £39.8m profit in 2019, as revenue fell 15.1% to £471.8m. On 29 April, broker Berenberg Bank maintained its hold rating on the stock, but raised its price target to 180p, according to ShareCast, which would represent a 5.63% rise from 12 May’s close.
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