Penny shares can be an exceptional way to target long-term wealth. There’s no denying they can be prone to share price volatility. But over time, while some will sink, the best small-cap shares can transform an investor’s portfolio by delivering enormous capital gains
The FTSE SmallCap Index has risen an impressive 13% over the last year. It could be set for further stunning gains too, as investors pile into cheap penny stocks and other undervalued UK shares.
City analysts believe these British small-caps could surge during the next 12 months and are worth considering. The question is: are these forecasts realistic or simply pie in the sky?
Michelmersh Brick
Michelmersh Brick (LSE:MBH) shares slumped into penny share territory towards the back end of 2025. They dropped as sales weakened in key construction markets. Yet brokers are confident the brickmaker will rebound from this point.
Of the four rating the company, each call it a Strong Buy. And the average share price target is 134.5p, up 63% from today’s levels.
I’m not surprised by these bullish forecasts. A lot will depend on the state of the British economy and its impact on the housing market. But I think demand for Michelmersh’s bricks will accelerate as more interest rate cuts and an ultra-competitive mortgage sector boost sales of new homes.
Its low valuation should also support a share price recovery. Its forward price-to-earnings growth (PEG) ratio is 0.5, below the bargain watermark of one.
Topps Tiles
Topps Tiles (LSE:TPT) might also enjoy a share price bump as construction markets improve. The four City brokers who rate the company are confident, drawing up an average 12-month target of 70.6p per share.
That’s up 65% from today’ levels. Three of those four analysts consider the retailer a Strong Buy, with the other ranking it a Hold.
As with Michelmersh, Topps could underperform depending on economic conditions. On top of this, it has significant competitive pressures to overcome. However, work to improve its digital channels and product ranges puts it in great shape to exploit a market recovery.
The penny stock also looks dirt cheap at today’s prices. Its forward PEG ratio is 0.4.
Iomart
Catching a so-called falling knife is a notoriously risky business. But Iomart (LSE:IOM) — whose share price is down 77% over the last year — could be an attractive dip buy for more adventurous investors to consider.
Four brokers currently have ratings on the cloud computing specialist. Two consider it a Strong Buy, with two giving it a Hold rating. But the average price target is far more promising. At 48.8p, this is up 192% from current levels.
So what might spark a strong share price rebound? Over the past year, Iomart has suffered from high customer churn and increased borrowing costs. However, November’s financials showed some green shoots of recovery, with customer renewal rates up in the six months to September and order bookings at record highs.
Like Michelmersh and Topps Tiles, I think there’s a good chance this penny share bounces back in 2026.
