Three undervalued, nimble small caps from the UK

Ken Wotton, the portfolio manager of Strategic Equity Capital at Gresham House, selected these three UK small caps

In recent years, investors' preferences for large-cap stocks have left UK small caps underowned, resulting in a sizable valuation gap. But as confidence recovers and macroeconomic pressures level off, this disparity is starting to close. The strength of many small caps in the UK is starting to show. They operate in appealing niche markets, are frequently more nimble than their larger counterparts, and are still largely understudied, which makes them a prime target for mispriced opportunities. We take significant stakes, interact directly with management teams, and own a concentrated portfolio of excellent UK small caps. This enables us to filter out short-term market noise and promote long-term value creation. A growing number of smaller businesses in the portfolio are reaching distinct turning points, but share prices are still fixed in antiquated narratives.

For your portfolio, take a look at these three UK small caps.

Strong long-term structural tailwinds like growing household wealth and encouraging government policies continue to help the UK wealth management industry. In that industry, Brooks Macdonald (LSE: BRK) appears to be an intriguing recovery story. Results are starting to emerge from the company's recent investment and transformation efforts. Additionally, its model portfolio service, which currently accounts for 40% of assets and is expanding at double digits, is experiencing increasing momentum. The business has now produced two consecutive quarters of positive net flows, indicating a recent return to overall net asset growth. If maintained, this will demonstrate the effectiveness of management's efforts and may serve as a trigger for a significant rerating. The company might also be a target for a takeover. Whether used alone or in conjunction with another player, it is a useful tool.

Netcall (Aim: NET) appears appealing as well. It is a pioneer in software for business process automation and customer engagement, and it provides services to the financial services, healthcare, and local government sectors. The company has changed and its top-line growth has reached double digits since it started selling cloud-based products. It continues to turn a profit and has a solid balance sheet. AI is making the investment case stronger. As part of larger initiatives to automate services, Netcall assists public-sector clients in implementing AI. Since many of the relevant organizations lack internal IT resources, they need a reliable partner to assist them in maximizing the benefits of new technology. The central government's drive to digitize public services is directly aligned with Netcall's business strategy. Due to the "SaaSpocalypse" narrative that AI will render many software providers obsolete, the shares have recently declined. We believe that this misinterprets the circumstances. AI is assisting in the delivery of Netcall, not disrupting it.

Current BFIA issues. Video game publisher and developer Everplay (LSE: EVPL). 7590% of yearly revenue is usually derived from a back catalogue of hundreds of titles, offering resilience and diversity. Its strategy of purchasing and developing games created by independent producers reduces the risks associated with development and enhances the quality of earnings. Concerns regarding AI's potential effects on gaming development are reflected in the share price's recent decline. However, Everplay's strength is in finding and acquiring profitable intellectual property and overseeing it over time. AI will boost volume and increase the value of curation and selection if it makes it possible for developers to produce more content quickly and affordably. The investment case is strengthened by recent management changes. In a fragmented industry, we think Everplay is a well-positioned, scaled player with the potential to further consolidate or eventually become an acquisition target.

Current Videos from IMG IMG.