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On the hunt for value

Our small-cap expert highlights two lowly rated companies: an international freight management services group, and a manufacturer and distributor of products for the self-care markets.
January 31, 2022

The spike in share price volatility has been a feature of financial markets since the start of this year, and no more so that in my small-cap hunting ground. However, investors have been indiscriminately selling off shares even when the fundamental case for investing is sound, and valuations are attractive.

A good example is Braintree-based international freight management services group Xpediator (XPD: 56p). Having initiated coverage at 45p (Alpha Report: 'Profit from a Brexit winner’, 19 February 2021), and seen the share price almost hit my upgraded 85p target last summer, I feel that the subsequent de-rating represents a repeat buying opportunity.

A modest 2022 enterprise valuation of 5.6 times cash profit (28 per cent discount to peers), price/earnings (PE) ratio of 12.5 (14.5 for peers) and 3 per cent prospective dividend yield (2.7 per cent) shout value. Moreover, the board has just announced that it will comfortably meet its 2021 profit guidance, having already raised pre-tax profit guidance by more than 10 per cent to £8.5mn last summer. Zeus Capital now expects annual profit of £8.75mn on a third higher revenue of £298mn. On this basis, expect 14 per cent higher EPS of 4.45p and a 11 per cent hike in the payout to 1.7p a share.

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