3 attractive small-cap stocks for less than a pound

Look no further if you want three great small-cap investing ideas.

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What’s so special about a share costing under a pound? Well, nothing really — other things being equal, 10 shares at £1 are worth exactly the same as one at £10. But when I’m running my regular stock screens, I sometimes like to choose unusual filters because it can throw up otherwise overlooked candidates.

Solid telecoms

My first pick is KCOM Group (LSE: KCOM), which serves the Hull and East Yorkshire area, while providing domestic and business telecoms. This actually isn’t one I’d overlooked, as I’ve had my eye on it for some years. The share price hadn’t really gone anywhere much over the past decade, but at 90.5p as I write it’s doubled over the past 12 months.

EPS is forecast to drop this year and next, before stabilising, as the firm is restructuring to simplify its branding and operations. With first-half results, chief executive Bill Halbert said that “capital expenditure is likely to peak over this year and the subsequent year” as the firm’s fibre network is rolled out.

The key attraction for me is KCOM’s dividend, which is expected to yield 6.7% this year. It will be barely covered, but Mr Halbert promised us 6p per share for this year and next, and I can see KCOM maturing into a desirable cash cow.

Power to India

OPG Power Ventures (LSE: OPG) is one I didn’t really know, but I’m intrigued by what I see. The shares have fallen over the past couple of years, to 61p, but that gives us a prospective P/E ratio of only 7.5 for the year to March, and if growth forecasts come good, we’ll see that dropping as low as five by March 2019.

A PEG ratio of just 0.1 this year, rising only as far as 0.3 over the next two years, also puts the shares firmly into the range that growth investors look for — anything under 0.7 is typically seen as a good sign.

But what does it do? OPG develops and operates power plants in India, and first-half results released in December suggest we could be at a transition point. Revenue more than doubled, EPS rose by 41%, free cash flow came in at £20.6m, and gearing came down to 55% (from 58% six months previously). That led the company to declare its maiden dividend — only 0.26p per share, but it’s a healthy start.

I’ll need to investigate further, but OPG looks promising to me.

Cash from fibre

Shares in industrial thread manufacturer Coats Group (LSE: COA) have soared since September, to 60p, taking them up 170% over the past 12 months.

An October trading update told us that earlier “challenging market conditions” are improving, and that 2016 operating profit should be ahead of previous expectations — the results should be with us on 24 February. And after having been stopped in 2012, the dividend should be back this year — only a 1.4% yield, but it should be subsequently progressive.

The falling pound has helped Coats too, making its exports cheaper. And the firm has very little exposure to the EU, so Brexit shouldn’t really be a problem.

News that the UK Pensions Regulator will cease regulatory activity regarding two of the company’s pension schemes also gave the shares an extra boost, in December.

Even after this year’s gain, we’re still only looking at a P/E based on 2017 forecasts of 10.4, dropping to 9.5 next year. Definitely worth a closer look, I say.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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