Bothered by Brexit? I think this secret small-cap stock could be worth holding in 2019

Paul Summers thinks this market minnow could do well in a market downturn.

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The farce that is Brexit continues to drag on, causing businesses to worry over how they will cope if the UK crashes out of the EU on 29 March without a deal. Naturally, all the uncertainty isn’t exactly helping investor sentiment.

With this in mind, here are a couple of companies that I think could do better than most if the economy does experience problems going forward, one of which reported to the market earlier today.  

Primed for growth?

Given its market capitalisation of just £76m, it’s to be expected that the majority of retail investors probably won’t have heard of Begbies Traynor (LSE: BEG). I think this could be set to change over the next year.

The market minnow has been around for almost 30 years and describes itself as “the UK’s leading corporate rescue and recovery practice“. In other words, it works with companies facing financial challenges — something that could increase substantially if Brexit proves the nightmare some are predicting.

For now, however, things are moving along fairly nicely. Revenue rose by £2m to £28m in the six months to the end of October with adjusted pre-tax profit also climbing by a little over 10% to £3.2m. This was, according to the company, “ahead of a strong comparative period” and the result of an increase in the number of new insolvency appointments and previous organic investments. 

In addition to a 14% increase to the interim dividend, the Manchester-based business also announced that net debt had fallen by a little under 9% to £6.3m by the end of the reporting period. 

Looking to the full-year, Begbies stated that it was well placed to meet current expectations, although results would be second-half-weighted. 

On almost 16 times earnings for 2018/19, the stock isn’t exactly cheap, especially at a time when markets continue to look susceptible to further falls. Nevertheless, for the potential growth on offer, I think this can be justified. I own a small amount of the stock and plan on retaining it so for some time to come. 

Discount demon

Another stock that I think might be worth holding if tougher times lie ahead is FTSE 250 retailer B&M European Value Retail SA (LSE: BME). That might seem odd when the rest of the industry is on its knees, but hear me out. 

If an economic downturn really is on the way, people won’t stop spending completely. Instead, they’ll likely head towards retailers that give them more for their cash. In such a situation, B&M will surely be able to benefit from the economies of scale that befit its near-£3bn market cap and offer exactly the sort of generic goods people want when funds are tight. That’s what happened with discounters in the aftermath of the financial crisis and we can be fairly confident that it will happen again. 

That’s not to say that B&M has been immune to the sell-off in the markets over the last couple of months. In early November, the stock hit 426p a pop. Today, the very same shares can be yours for 33% less. This leaves them trading on 14 times forecast earnings (and offering a secure yield of 2.9%). 

While clearly nowhere near as cheap as some retailers — particularly those in the clothing industry such as Superdry, Marks and Spencer and Quiz — again, I feel that this relatively high price can be justified.

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.

Paul Summers owns shares in Begbies Traynor Group. 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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