With a market cap of just over £60m, finnCap (LSE: FCAP) is one of the smaller shares listed on the UK stock market. Yet it could be a superb little growth stock, combining capital growth with income, which I think is a very powerful combination.
The group focuses on providing financial services services to quite a number of listed companies, but also privately-held growth companies. Its activities include corporate finance and broking, equity sales, agency trading and market-making and research. So it’s a financial services company.
Why it’s a great little growth stock
Apart from its small market capitalisation, which gives it plenty of headroom to grow into a much larger company, I really like finnCap’s financials. They indicate to me a stock that has serious growth potential.
The group has a three-year compound annual growth rate (CAGR) for sales of 29%. This is important because, as an investor, I want to know that demand for a company’s products/services is continuously increasing. A company growing sales should, if it keeps control of costs, be able to make more profit. The figure is impressive and could underpin future growth and share price appreciation.
FinnCap also has a strong operating margin, which has jumped to 18.7% from 4.6%. That was lower than the pandemic but the margin now is also higher than in 2019. Return on equity has also improved a lot in the last three years to 29%. It was 16.4% in 2019. These percentages to me indicate a quality business that’s well positioned for long-term growth.
The dividend yield of 4.2%, which this year is covered nearly three times by earnings is a massive bonus. The shares are also pretty cheap on a price-to-earnings (P/E) ratio of under eight.
But arguably, for a ‘growth company’, the historical revenue rise has been fairly pedestrian and so it would be good to see revenues really pick up. Potentially, if there’s a slowdown in the IPO market, finnCap could be hit. It’s also pretty reliant on the UK for making money, which presents country-specific risk. And there are risks associated with finnCap’s expansion, such as costs going up and a change to its company culture.
Overall though, I have to say the growth and income from a UK small-cap share like this appeals to me and I’ll consider buying the shares.
Another growth stock option
Sylvania Platinum (LSE: SLP) is a share I hold. The South African miner and processor of platinum group metals is dirt cheap with a P/E of around three. It also combines growth potential with income as it has a yield of around 5%.
When it comes to growth, tighter environmental standards for cars is one catalyst for the share price. On top of that, there’s strong historical revenue and profit growth, which I think can carry on into the future or even accelerate. Margins and cash flow are very good, so this is a miner with a rock solid balance sheet and a lot of potential.
Of course as a miner it’s in a cyclical industry, prices are beyond the group’s control as they’re set by international markets, and the mines could be hit by political instability in South Africa.
Bearing all that in mind though, I think it’s another good growth share. I’m likely to buy more given the income and the growth on offer.