In this article, I’m taking a look at the investment appeal of these two small-caps following their results today.
Dividend increase
Shares in insurance group Randall & Quilter (LSE: RQIH) gained as much as 7% today after the company reported a more than tripling in profits in 2016. As after-tax profits increased from £2.8m to £8.3m, the Bermuda-based insurance investor and service provider also announced its first dividend increase since 2012, boosting its full-year dividend from 8.4p per share to 8.6p per share. This gives its shares a tempting prospective dividend yield of 6.8%.
The insurer is also upbeat about its prospects going forward. “2017 is expected to be a year characterised by further profit growth and strong strategic focus,” the company said in today’s announcement. R&Q sees further acquisition opportunities this year and expects to reap the rewards from the expansion of its product offering and stronger distribution in North America after years of investment and underperformance.
However, not everything is rosy. The company managed to deliver an extremely strong performance in its Insurance Investments Division following the completion of a series of 15 legacy transactions during the year and an improvement in investment returns. But profits fell sharply from its Insurance Services division, while losses widened at its Underwriting Management unit. This indicates an unbalanced reliance on investments as a source of growth, which could become a cause of concern should the company struggle to acquire new businesses and investment returns decline.
Growing acceptance
Meanwhile, Xeros Technology (LSE: XSG) announced the rollout of its commercial laundry machines continues apace. Shares in the developer and provider of polymer-based technologies gained by as much as 4% today as the company reported group earned income increased to £2.5m in the 17 months to 31 December 2016, up from £480,000 for the year to July 31 2015.
The company’s progress in the laundry market continues at a steady pace, with Xeros seeing multiple successful customer trials in the performance workwear market and increasing in its order backlog to 438 machines at the end of March. In addition, Xeros is seeing promising trial results for its polymer technology in tanning and textile manufacture applications, which could underpin the long-term growth prospects of the company.
Xeros is still some way away from delivering significant profits, as its pre-tax loss in the 17-month period widened to £21.1m, from a loss of £10.7m in the year to July 2015. However, the company is moving towards generating meaningful revenues — CEO Mark Nichols advised that “2017 will be a year of execution, in which we significantly progress the commercialisation of our highly disruptive, innovative technology.”
Year-to-date, shares in Xeros haven gained 26% — but they may yet have further to go. Xeros is looking to expand its distribution network and has recently secured a significant forward channel partner agreement to enter the Australian commercial laundry market. And as the rollout continues, Xeros could prove that there is growing acceptance and demand beyond the US and UK commercial laundry market. This would be a major boost to the company’s growth plans, increasing the penetration of its target markets.
