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2 UK small-cap shares I’m considering right now

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I’m fond of investing in UK small-cap shares. Sometimes little companies can reward me faster than some slow-moving big-caps.

But the reverse is also true. If I’m wrong with my analysis, or if unexpected negative news arrives, small-cap stocks can plunge fast and far. And it’s possible to suffer big losses in hours rather than days. There’s often little time to sell if I realise I’ve made a mistake.

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Big-cap shares can be more forgiving. Often share movements tend to be slower and run for weeks on a theme, rather than mere hours. But all stock investing carries risk. However, my aim is to reduce the risk as much as possible by careful research before buying.

Why I’m considering these UK small-cap shares

And right now, I’m considering the merits of two UK small-cap shares. The first is digital specialist-fit fashion clothing and homewares retailer N Brown (LSE: BWNG). The company’s market capitalisation is near £326m.

The business has been struggling for years and there’s a record of patchy earnings. But the company raised a gross £100m in a placing and open offer at the end of 2020. And the directors used the net proceeds to repay all unsecured debt.

Perhaps the financial reset will combine with a tighter focus on cash management to improve the prospects of the business. The company plans to use some of the funds from the capital raise to invest more in its digital capabilities and “accelerate its growth strategy.”

Meanwhile, with the share price near 69p, the forward-looking earnings multiple is just below eight for the trading year to Feb 2020. That valuation looks undemanding, but N Brown has been something of a serial disappointer. And there’s no certainty that the operational recovery and growth in the business will continue.

The second UK small-cap share I’m looking at Portmeirion (LSE: PMP) with its market capitalisation near £81m. The company manufactures ceramic tableware, cookware, giftware, glassware, barware, home fragrance products and associated homewares for markets worldwide.

An optimistic outlook

In the full-year report released in March, chief executive Mike Raybould was optimistic about the prospects for the business. In 2020, the firm raised around £10m from the stock market. And the directors used the money to expand the online and digital marketing teams.

Raybould reckons more efficient operations will help the business deliver “consistent, sustainable sales growth”. And there will also likely be better operating margins ahead. Meanwhile, City analysts have pencilled in a rebound in earnings for 2022 in excess of 50%.

Measured against those anticipated earnings, the forward-looking earnings multiple is around 10.  However, Portmeirion’s business has delivered patchy profits in the past. And the share price has been volatile. There’s no guarantee the improved operational set-up will deliver better returns for shareholders ahead.

Both these UK small-cap shares have recently received extra funds from the market and could shift into a more efficient gear ahead following the boost to their finances. But of course, as with all shares, there are risks. Yet I’m watching these two closely with a view to buying for the long term.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Portmeirion Group. 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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