Happy New Year! What with it being the first full week of January it’s that time of year where we take a view on where the big value lies over the course of the next 12 months.

So, where do we go in 2020? In our opinion, UK smaller companies remains an attractive area of growth with some really outstanding business but, as usual, careful stock-picking is required.

In 2020 this could be more the case than usual: while market median growth remains robust at +5.5% (sales) and +13% (EBIT), earnings momentum is at the lowest level we have seen and there does not appear to be any economic tailwind yet. This coupled with the market trading on elevated multiples (14.6x EBIT and 17x Earnings), means that extreme care needs to be exercised.

As a result, the main theme for our ‘11 for 20’ stock picks is ‘undiscovered value’. These are companies where we believe there is some significant element that is yet to be fully appreciated by the market, be it unjustified low valuation versus peers, M&A potential or ability for the company to exceed market expectations.

What follows is a summary of our view. To read the report in full (and if you’d like to see how our picks from last year performed), please contact sales@finncap.com

Our picks for undiscovered value

Atalaya Mining

This copper producer is showing near-term growth driving earnings.

Atalaya Mining offers exposure to a focused copper mining business in Spain. The company has just commissioned a second expansion at its Rio Tinto mine, increasing nameplate capacity from 9.5 Mtpa to 15 Mtpa. Operations are currently focused on the low-grade Cerro Colorado pit though a significant exploration programme is targeting down dip extensions of previously mined higher grade ore for potential mining by underground methods. The company’s second mining project, Touro, is well advanced with permitting in progress.

Belvoir Group

Entrepreneurial skills look set to drive market share gains in the UK’s largest property franchise group.

The UK residential property market is undergoing significant structural change at the same time as economic uncertainty continues to dampen sales activity. This is putting substantial pressure on traditional market participants but providing a range of opportunities for entrepreneurs. Belvoir’s franchise model maximises entrepreneurial potential, flexibility and cash flow while minimising risk. With EPS having grown an average 18% p.a. over the past three years, we back management and the underlying franchisees to capitalise on the growing opportunities.

Circassia Pharmaceuticals

This UK-based, commercial-stage specialty pharma company focused on the respiratory market is operationally geared to drive growth.

Circassia has an established commercial infrastructure in the world’s two largest healthcare markets, the US and China. The company is currently well positioned to drive substantial revenue growth over the next five years from three FDA-approved products and a further product to be filed shortly with FDA. NIOX is the gold standard asthma (inflammation) diagnostic test; Tudorza and Duaklir are two products for COPD (supported by GOLD prescribing guidelines) with differentiated prescribing labels and LungFit PH, a treatment for pulmonary hypertension in new born children, to be filed with the FDA in Q1 2020, is expected to launch in late 2020.

City of London Group

City of London Group provides financial services including debt finance to UK SMEs and individuals through three currently operating subsidiaries.

After two years of detailed preparation and significant investment, 2020 looks set to be the year where COLG’s subsidiary, Recognise, gets its banking licence and starts trading. The market is attributing limited value to Recognise at this pre-licence stage. However, once the licence is in place and Recognise opens for business, a much higher chance of reaching the earnings goals is likely to be reflected in the group valuation. We see more than 100% upside to the current share price once the value of Recognise becomes more tangible.

Independent Oil & Gas

UK domestic gas supplies have been in decline for over a decade and while the UK government is encouraging tight gas developments, the heavy reliance on imports is expected to grow.

IOG has a fully funded, low-risk, high-quality SNS gas development project which should transform it into a cash generative production company with the assets, infrastructure, management and strategic partnership to become a material North Sea gas player. We expect project execution alongside new complementary growth opportunities over the next 12-months.

M.P. Evans

M.P. Evans (MPE) is a producer of sustainable Crude Palm Oil (CPO) and a CPO price surge sets MPE up for strong 2020. CPO is a food staple in India and China and an ingredient in a growing number of western foodstuffs and industrial products. CPO consumption is growing c5% p.a. driven by increasing per capita GDP in India/China and substitution in EU/US as CPO is cheaper than traditional alternative vegetable oils.

We expect MPE to have a tailwind in 2020 for three reasons: i) the CPO price has rallied 50% in the last three months of 2019, which could result in material upgrades through FY2020; ii) we forecast CPO equivalent output growth of 11% and revenue growth of 20% in FY2020E, and; iii) the group remain materially undervalued at US$12,600/ha (world class plantation assets are worth cUS$18,000/ha).


This UK and South Africa-focused supplier of bathroom and kitchen hardware looks set to be tapping into some positive growth this year. The group operates as a consolidator in a significantly fragmented marketplace, where several weak competitors offer scope to gain market share organically, or open up selective acquisition opportunities.

The shares look well-placed to continue to outperform over the next year. We see some positive catalysts and a modest improvement to underlying trading conditions. Previous negative influences are now receding in importance.

Nucleus Financial Group

Nucleus is an investment platform that allows IFAs to wrap all their investments in one, convenient place. The company has been positioning itself for scale over the past 18 months through development of its platform and an unbundling of its outsourced IT set-up.

Being always on the lookout for enormous boons, we find one in Nucleus’s nascent scale, which provides an opportunity to own an Integrafin/AJ Bell-style business (c.£1.0-2.0bn market cap. companies) before the greatest level of growth has been achieved. The company is grossly undervalued given the inherent upside as a result of exposure to the platform market as well as the long-term trends likely to play out in the savings and investments sector.

SRT Marine Systems

Don’t miss the boat on this one. SRT Marine Systems (SRT) develops and delivers advanced Maritime Domain awareness (MDA) technologies, products, and systems, with particular expertise in Automatic Identification Systems (AIS).

Since 1987, customers from around the world have relied upon SRT to provide them with solutions for maritime monitoring, management and surveillance. Over three decades it developed world leading AIS expertise, from which it built a solid hardware business, supplying both its own brand transceivers as well as modules and components for 3rd-party OEMs. AIS is a cutting-edge vessel identification and information technology which is now mission-critical to MDA solutions, fuelling expansion into a huge global market.

Sumo Group

Is FY20 to be a pivotal year in SUMO’s evolution? SUMO is a compelling defensive growth play on growing outsourcing opportunity in a growth industry, and is our favoured way to access the video games sector’s booming growth without ‘hit’ risk.

The impressive scale and growth rate of the global video games industry are well recognised by investors. The following plausible scenarios would likely be rewarded with a higher valuation multiple, in our view: (1) management has consistently expressed its ambition to look for the right sizeable M&A deal; (2) SUMO to increase its low-risk/low-cost commitment to self-publishing its own IP games; and (3) FY20 is the third financial year post SUMO’s IPO in December 2017 and therefore important given the LTIP with three-year performance criteria based on EPS growth and total shareholder return over the performance period. Our view that SUMO is undervalued on a growth-adjusted basis relative to its peers.

ZOO Digital

ZOO has pioneered an innovative technology-led strategy to address key challenges facing its clients in the media localisation supply chain, delivering significant client benefits including faster time to market, scalability and quality, that differentiate the company from more traditional competitors.

With near and mid-term catalysts from delivery of both Digital Packaging and localisation to the Hollywood-focused media industry, ZOO is positioned to enjoy 2020. As reverence for Netflix as the subscription based OTT provider of choice is challenged by content producers’ platforms (such as Disney+, HBO Max, Peacock), these platforms need Digital Packaging – the adaptation of the current film format to the format suitable to their platform – and localisation services (subtitling and dubbing) to maximise returns through contemporaneous content release in as many territories as possible. As an innovator in introducing workflow and processing technology to the video localisation services industry, with a freelance cost base deployed to match revenue, ZOO’s upside is significant and the timing immaculate.

To find out more about accessing this quarterly sector note in full, please contact  sales@finncap.com