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The Day/Week in Small Caps

Week In Small Caps: March 2

02/03/202510 min read

The City Establishment

It has been brought to my attention from clearly a very diligent reader that there are times when I am perhaps are too negative regarding the City establishment and regulation. There are a couple of points to address on this issue. The first is that I would always say that the great and the good are obviously doing their best and not deliberately trying to undermine the stock market or the companies listed on it. Also, everyone has to make a living, so the cost of being listed and staying listed is expensive for a reason. It may also be noted that while the AIM All Share is back to late 2023 levels, the FTSE 100 is within a whisker of its all time high again. Therefore, it may be said that the pattern of blue chips buzzing and growth / small companies struggling is still in place. It is also something which is difficult to fix. Most new businesses, and small companies bite the dust.

Unloved UK Stocks Or The Golden Child?

The Financial Times chipped in on the debate this weekend under the headline that UK small cap stocks are the most unloved stocks in the world. I find this difficult to believe. One presumes that North Korea, Russia, and various dictator ruled countries may be less popular than dear old Blighty. But the point that the p/e ratio of small caps are 24 below the 10-year average does certainly hurt. That said, in the wake of Sir Keir Starmer’s meeting with President Trump this week, allayed fears over tariffs against this country led to the concept of the UK being the “golden child” of Europe.

LSEG

So what is the correct view? According to LSEG boss David Schwimmer, London is very liquid and we should not be concerned about the relative lack of IPOs. His company is also making money hand over fist from running it? But how reliable is this view for a company which is doing very well thank you in providing the picks and shovels of the stock exchange, rather than having to grapple with wide spreads and paying stamp duty as investors have to? The real answer may actually be that these days to get a healthy stock market you have to have top flight management, and solid, scalable cash generative businesses to invest in. In contrast, the blue sky stuff is just not for the London market any more.

Interviewing Aviva

As someone who is effectively addicted to Linkedin and all social media, it was difficult to miss the interview this week with Amanda Blanc, CEO of Aviva (AV.). What was interesting here, apart from the interviewer appearing over awed, and not wanting to blow it, was the deliver of Ms Blanc. If one did not know Aviva is a FTSE 100 company, her delivery was that of someone running a local shop, charity or school. All of this rather panders to my pet theory that for most blue chip companies one could replace the CEO with Coco The Clown, and it would make no difference. On a more serious note, the double digit growth is a result of Aviva’s massive pricing power, derived largely by the double digit growth in car and house premiums over the past year / two years. Consumers just have to suck up Britain’s rip off financial services sector.

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This Week’s Risers On News

A company which has caught my eye for some time is Great Southern Copper (GSCU), partly on the basis that the newflow has been very encouraging of late, and partly that we really need new copper producers. The fact that the company’s is focused on Chile, like many of the mining giant, it may have been a case of one plus one equalling 11. But so far this year such wonky maths looks as though it may be working. The shares have soared nearly 80% this year, most of this in the past week after they were called up in the Bulletin Board Heroes charting video. We are still looking for 3p plus by the end of this month, helped along by the latest Cerro Negro first assays reported during the week. I spoke to CEO Sam Garratt on Friday, and have to say both his CV and rundown of the company appeared very impressive.

What is also impressive, and a decent fundamental signal, is when a company which has raised cash sees its share price rise. This was the case for West Africa and India focused resources group Panthera (PAT). It tapped investors for £2.8m at 7p, with the stock ending the week at 9.5p, the best level since late 2023. Some in the market will no doubt take this share price rise as a sign that the big arbitration win in India is getting closer to happening.

First Class Metals (FCM) the Canada focused precious and base metal explorer, announced in December that it has entered into a conditional subscription agreement with The 79th GRP Limited with a total proposed investment of £2.8m. This week the prospectus for the deal was approved by the FCA, something which coincides with the company being well funded for its 2025 campaign. A company which was both a fundamental and charting buy this week was itim Group (ITIM), a SaaS based technology company. Revenues increased to £17.9m (2023: £16.1m) as a result of new contract wins and extensions, something which pushed the stock up by a third this week. Staffline (STAF) soared 40%, as the recruitment and training group, announced that it has disposed of its PeoplePlus Group for cash consideration of £12.0m, which includes £2.0m of deferred consideration. The company is set to celebrate with a share buyback.

Beowulf (BEM), the mineral exploration and development company, rose 37% on the week after it announced its unaudited preliminary financial results for the year ended 31 December 2024, as well as delivering an update on its current financial position. There was good news in particular from Sweden where there is progress at the Kallak Iron Ore Project towards PFS / Environmental Permit. There was also an assurance that financing discussions are at an advanced stage, something which explains the thumbs up from the stock market.

Wood Group

Part of the joy of going around the Coffee Houses of the City of London is that one keeps up with the latest gossips, something which is helpful if you are writing about the stock market. It was in response to such speculation I charted Wood Group (WG.) for the first time in the recent past on February 20. The chatter here was that there were buyers, some of Scottish origin buying into the stock at the lower levels, on the basis that the company could be saved / taken over on a “too big to fail” basis. The key ingredient here was that there were allegedly Scottish people buying stock, and as a Glasgow born person myself, it is even less likely that a Scot will buy shares than a round at the pub. Or perhaps more politely, if people from north of the border are into Wood Group it really could be a winner. The result is that this week the stock jumped 40% off the back of a possible bid for the engineering group.

Stocks Rising On No News

It has to be said that if there is one indicator combining fundamentals and technicals, it is the concept of stocks rising on no news. This is especially the case in current stock market conditions when most people are either skint, on holiday, ill, leaving the country, or actually enjoying other aspects of life. After all, who would buy a bucket load of stock late on  Friday afternoon, or actually, any afternoon, after lunch. Perhaps the sweetest example of a no news riser has been Upland Resources (UPL). The shares are up nearly 60% over the past month, similar to geopolitical play, Eurasia (EUA). Rather amazingly, there has been no news since September from junior hydrocarbon explorer with interests in Iraq and Ghana, Petrel Resources (PET), yet it has been able to rise 46% so far this year.

Non Movers On News

While many small cap new entrants to the stock market, as well as long standing listed companies have had a tough time over the past year, it is the case that helium / hydrogen group Georgina (GEX) has been particularly targeted by the bears. But while the shorters may have their reasons for running the rule over the company, it has kept the newsflow running, and held its nerve. This places the company as a potential recovery play for 2025, a process that started last month, and continued this week with the publication of the Scoping Study to Hussar & Mt Winter. This revealed A 40MMscfd raw gas flow scenario generating an IRR of 27.3% and an NPV of US$1.64 billion (10% discount rate). Pre-tax profits are estimated between US$7.3 million to US$208 million per annum, depending on production rates and gas prices. Even the lower end of the wide range would be much appreciated by shareholders currently.

A company which continues to be something of a head scratcher given the pedigree of the management, the assets, and the newsflow to date. The latest was this week, as Rome Resources (RMR) announced further assay results from two diamond core drill holes at its Kalayi tin prospect located in North Kivu, DRC. RMR said these results confirm the presence of high-grade tin mineralisation across multiple sub-parallel ore shoots validating the Company’s geological model and reinforcing the potential of tin as the Company’s drilling campaign moves closer to the interpreted granitic source. All of this should be enough for the share price to be rather nearer the 0.45p plus highs of the autumn, rather than 0.28p now.

Sovereign Metals (SVML) is a company where perhaps the share price and the price action give a false impression of how well the company is doing. After all, the shares were up 40% last year, and are already up over 20% year to date. This would suggest that the company’s regular, significant newsflow is hitting the spot with investors, helped along by the fact that Rio Tinto (RIO) as a major shareholder has already de-risked the situation. That said, this week as SVML confirmed Kasiya’s graphite has the key characteristics required for use in expandable (fire retardant) and expanded (gaskets, seals, and brake lining) applications, we do have the stock at 3 year highs and a near £300m market cap.

One of the best rising stocks on the London market last year was Roadside (ROAD), with an amazing 350% gain for 2024. Although this was a massive re-rate, it was and is not difficult to understand how and why it has been achieved. For instance, its out of town roadside project development with a strong funder, mean that no one can quibble regarding cash. The latest high profile deal was the Roadside JV with Meadow Partners buying 12 stores for £70m in October. This week ROAD updated on a partial sale of Cambridge Sleep Sciences shareholding to CGV, and the book value of ROAD’s holding in CSS has increased from £41.0 million to £47.8 million. This dual engine of value, the JV and CSS should enable further deals and growth to follow what we saw in 2024.

Xtract Resources (XTR) has been known generally as a company whose focus in Africa remains below the equator. Nevertheless, this week witnessed the announcement of a JV for the company in Morocco. It took the form of the acquisition of an initial 50% shareholding for US$500,000 in Wildstone SARL, a minerals exploration and development company developing an exploration carrying out small-scale mining operations in various commodities including copper, silver and antimony within Morocco. Of course, these days London investor are very keen that projects go into production sooner, rather than later.

Ajax Resources (AJAX) has been a rather unique situation over the past couple of years: a mining SPAC on the main market, with a young CEO. All of this is well and good. But as we know, finding a deal in the space is like trying to hit a moving target even at the best of times. This is because commodities can go from hot to not, between the time an asset is found and ink is dry on the deal. But it would appear that with the purchase of the Eureka copper / gold project in Northern Argentina, Ajax is bagging a near to production asset for a bite sized price, something which is a decent start in terms of it building a meaningful portfolio.

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