Three small businesses with enormous potential

The portfolio manager for The Global Smaller Companies Trust, Nish Patel, chooses three small businesses to invest in

The Global Smaller Companies Trust aims to expose investors to small enterprises in both developed and rapidly expanding emerging markets. When the trust finds high-quality, expanding companies at a substantial discount to their intrinsic value, it invests in them using a long-term, cautious strategy.

Rather than following fads in the market, this methodical approach to investing prioritizes long-term value creation and capital preservation. In both the public and private sectors, we have discovered exciting opportunities in businesses that stand to gain from increased construction spending.

Three startups to put money into.

With its headquarters in the United States, Martin Marietta Materials (NYSE: MLM) manufactures ready-mix concrete, cement, and aggregates. Since the company sells goods with a low cost-to-weight ratio, it essentially runs a number of regional monopolies. Due to the high cost of transportation, materials from the company's quarries are rarely moved more than fifty miles. Despite challenging times, the company has a history of raising prices for its clients.

The £11.2 trillion Infrastructure Investment and Jobs Act (IIJA), which was passed in 2021, is probably going to put a lot of demand on the company's infrastructure division. For Martin Marietta, longer-term factors that contribute to organic revenue and profit growth include investments in manufacturing and data center infrastructure as well as a rebound in single-family home construction. Due to its sound capital allocation and robust balance sheet, the business is able to withstand more difficult market conditions.

In the UK, a comparable company is Breedon Group (LSE: BREE). It recently acquired a company in the US and has exposure to both Britain and Ireland. In the UK and Ireland, construction activity has yet to return to its pre-2000s levels, which presents an opportunity. From the standpoint of supply, obtaining permits for new assets is extremely difficult, which limits industry capacity and strengthens the company's ability to raise prices.

By applying industry best practices to the operations of acquired companies, management has a track record of generating shareholder value from acquisitions. More acquisitions of smaller rivals are probably in the company's future. There is a lot of room for more purchases, particularly in the US. Insiders own a large portion of the company, which brings management and shareholders together.

Engineering services in the fields of transportation, infrastructure, environment, property, and power are provided by Canada's WSP Global (Toronto: WSP). The business has become a "one-stop shop" by providing a comprehensive range of services to its clients, which has allowed it to acquire market share naturally.

WSP's extensive global reach and solid client relationships also aid in securing large contracts and repeat business, which increases the predictability of its revenue streams. The business has natural drivers behind it in the form of an aged infrastructure base that needs updating, urbanisation, climate change and water scarcity. It supports this expansion by making strategic acquisitions that give the company new skills.