Two small-cap growth stocks that could still make you brilliantly rich

Bilaal Mohamed uncovers two smaller London-listed firms with significant upside potential.

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It’s been just over a year since I last looked at Tyman (LSE: TYMN), and in that time the door and window components supplier has impressed, with both its financial and share price performance.

Market leaders

The London-based business, previously known as Lupus Capital, is a leading international supplier of engineered components to the door and window industry, with all three of its main divisions being market leaders in their respective geographies. The group has 23 manufacturing sites in eight countries, along with a further 18 sourcing and distribution sites across the Americas, Europe, Asia and Australasia, with its products being found in homes and other buildings worldwide.

In its half-year update, the company reported a 30% improvement in group revenues to £260m, with underlying pre-tax profits rising 32% to £31.4m, compared to £23.8m for the first six months of 2016. Perhaps not surprisingly, investors responded by bidding up the share price to all-time highs of 367p earlier this year.

Today’s latest update however, wasn’t as impressive. Management conceded that underlying pre-tax profits for the full year were likely to be slightly below market expectations. principally due to increased input costs and temporary operational issues in its North American business. Nevertheless, full-year profits are still expected to be ahead of 2016.

North American market

The group’s North American business, known as Amesbury Truth, is a prominent manufacturer of window and door hardware components, extrusions and sealing systems. The division also includes Bilco, a leading US manufacturer of roof access hatches, smoke vents and sidewalk doors used in residential, commercial and infrastructure applications, which it acquired in 2016.

This is easily the group’s most important market, generating almost two-thirds of total revenues, with the two smaller divisions operating as EMA in the UK and Ireland, and Schlegel International throughout the rest of the world.

The share price is up 22% since my last recommendation, but I believe there’s plenty more upside left in the shares for growth seekers, with the added bonus of a rapidly-rising dividend that offers a prospective yield of 3.3%. For me, Tyman remains a long-term buy for both capital growth and income.

Turnaround programme

While Tyman’s shares have been on the up and up, the same can’t be said for fellow small-cap constituent Mothercare (LSE: MTC). At around 100p, the Watford-based retailer for parents and young children has now sunk to levels not seen since 2003. But with Brexit weighing on retailers, does this former high-street favourite have further to fall?

The share price slump could suggest that Mothercare is on its knees, but far from it, despite retail trade press reporting today that it’s mulling some HQ redundancies as it moves to become “more specialist and robust”. The company’s turnaround programme seems to be progressing well, with the UK business returning to underlying profit earlier this year. As the store restructuring and refurbishment programme continues, online sales have soared and now represent 41% of total UK turnover, with digital sales also rising fast internationally.

The battered shares now trade on a forward earnings multiple of 10 for the current year to March, falling to just eight for FY2019. Contrarians willing to brave the beleaguered retail sector might want to consider Mothercare as a long-term recovery play.

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 assessed. Consider taking independent financial advice.

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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