Small Caps vs Blue Chips
Given the day job, I am asked on a regular basis what the state of the stock market / small caps is, especially with reference to the Labour government and the aftermath of the Budget. I suppose what they are looking for “ it is not as bad as expected” or “ it is a disaster.” But of course, the reality is rather more nuanced. There are a number of reasons for this. The first is that while the Budget has left the stock market on the wrong side of CGT and IHT, it is still the case that shares as a concept are still a very good one. One has the £20,000 annual tax free ISA allowance, and as compared to setting up a company with all its slings and arrows, it is a comparatively easy ride. This is particularly at the blue chip end of proceedings, with the latest example being this week’s star Games Workshop (GAW) off the back of its better than expected trading outlook. If one looks at a company such as GAW, one might wonder what the point of looking at small caps at all.
However, GAW was of course a small cap at one time. Its big breakout level was £9 in 2017 and although it halved in 2022, has never really looked back. The battle that those trading the minnows are fighting is of course to find the next GAW. The challenge is not helped by the way that most of the small caps we have to choose from are in the resources space, where very often things are as difficult or even more so than in tech.
As has been said here on several occasions, that all growth companies have to do is pull rabbits out of hats. As the economic environment becomes more and more difficult, with the costs, regulation, and judging by the latest sickness benefit figures in the UK, not many people willing to do hard work, getting blood out of a stone may be a better analogy for potential small cap success.
This Week’s Risers
Although it may be the case that not that many people are aware of Carbon Black, or the benefits of a Carbon Black substitute. But shares of Ferro-Alloy Resources (FAR), previously a rather unloved vanadium play, rocketed off the back of the company’s revelation regarding the commercial possibilities its CBS product, which could overtake its vanadium angle.
Also in the rabbit / hat area was Sealand Capital (SCGL], as the IT, Social Media & Technology company announced a conditional entrance into the AI industry. The share price doubled, albeit the company is still only sitting on a £2m market cap, so it may take a while to get up to “Magnificent Seven” status. Sticking with the AI space, and shares of IQ-AI (IQAI) were up nearly 50% on the week off the back of a well known brain tumour specialist to the board, as well as positive distribution news regarding its subsidiary.
No News Is Good News
Of course a favourite indicator amongst small caps is derived from the risers who rise off the back of no news. This is particularly important as our Nomad blighted stock market is policed by those who insist on “speeding ticket” RNS release when shares rise sharply. This logically means that as things stand it is almost impossible for minnows to become giants on the London market.
Perhaps because it rose on Friday, and whoever watches these things may have been off for the weekend, Phoenix Copper (PXC) jumped 37% with no speeding ticket RNS. Ten days ago the company said that it was progressing with its copper bond financing, and that it has enough cash to get to Q2 2025. Rather strangely the shares fell off the back of that constructive update, so perhaps the latest rebound is simply correcting that injustice.
Also up significantly off the back of no new news was Goldstone Resources (GRL). Here the Ghana focused gold producer was up 44% on the week, after announcing a Homase Gold Mine update a couple of weeks ago. The key here was that expansion plans / fresh production to start as soon as early Q1 2025.
Other notable risers on no fresh news this week were Alkemy Capital (ALK), up 20% as we await funding news on its $25m convertible bond for its Tees Valley Lithium project, while EnergyPathways (EPP) also pushed ahead 20%, after revealing at the start of November the appointment of a senior engineering project team to oversee the development of its MESH project.
Finally, after being subjected to a barrage of bearish accusations, which seem to have run dry, shares of hydrogen / helium developer Georgina Energy (GEX) rose 20%. Given that the shorters appear to have run out of ammo, one would expect a further squeeze higher for the shares.
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