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3 Small-Caps Beating the Market: Accesso Technology Group plc, 1pm plc & Fairpoint Group plc

It can be easy for investors to become despondent when the main indexes trend sideways or down during the summer months, or when investors fear the worst because of concerns about the Chinese economy slowing down or Greece being ejected from the Eurozone.

Not a day goes by without news that can make some investors fear the worst, sell up and park their hard-earned cash on the sidelines, waiting for the news to get better. It is usually the case that things do get better, often leaving those who sold up buying back in at a higher price. For those investors that repeat this practice, it can be a real value-destroying experience.

This type of behaviour is often seen with small caps. The share prices of these smaller businesses can and do move about all over the places, sometimes because of a business article in the press, sometimes because of institutional selling or buying. They can often lag a rising market, but hold firm as the main indices fall with general macro-economic news.

With that in mind, I’m highlighting three businesses that have suddenly sprung back to life after lagging the market on little to no news:

The Pass Master

Accesso Technology Group (LSE: ACSO), formally known as LoQueue, is engaged in provision of queuing and ticketing technology solutions to theme parks, water parks and zoos, cultural attractions and sporting events.

As can be seen from the chart, the share price has trended downwards — this despite a decent set of results in March. Any investors who got bored and sold up will be kicking themselves as the company released two items of news:

  • The first piece concerned the signing of a seven-year agreement with one of the largest global visitor attraction operators, Merlin Entertainments Group , to provide its fully hosted onsite ticketing and e-commerce solutions across the operator’s global portfolio;
  • And the second reiterating guidance for 2015, upgrading guidance for 2016, and materially upgrading guidance for the year ending 2017 due to strong contract momentum across the business.

With the shares trading at 23 times forecast forward earnings, and no dividend to speak of, they don’t scream cheap; however, I still believe that they are. You see, the price to earnings growth ratio, or PEG, is 0.75. Anything between 0.5 and 1 is usually considered good value as the market hasn’t yet priced in the growth to come, at least not yet.

One Per Month

Next up, 1pm (LSE: OPM) is a UK-based leasing company. The company is engaged in providing equipment lease rental finance to United Kingdom businesses. The company finances a range of business assets to small and medium enterprise (SME) finance.

Again, we can see how the company share price had lagged the market; indeed, this was the case for at least the last 12 months, as investors seemed to get bored with management’s decision to position the company for further growth by moving to bigger premises and recruiting additional staff.

It wasn’t until June that investors became interested again, as management announced that the preliminary results were expected to be significantly above market expectations due to exceptionally low bad debt.

Additionally, following the final results, management announced what looks like a smart acquisition of MH Holdings. This is expected to significantly enhance earnings of the next few years, whilst also opening up cross-selling opportunities and new markets, such as commission revenue from vehicle brokers and from equipment suppliers.

The deal is being funded by a placing and open offer, so I would expect some share price movement going forward but, over the long term, I trust management to plot a steady, profitable route.

The Legal Eagle

The final company that caught my eye is Fairpoint (LSE: FRP). The group plc is a provider of consumer professional services, including debt solutions and legal services. The company has four segments: individual voluntary arrangements (IVA) services, debt management plans (DMP) services, claims management and legal services.

Again, we see a similar pattern, with the shares trending downwards until recently when management announced that results would be in line with their expectations. In a separate announcement, investors were also informed about the group reaching an agreement to acquire the trade and assets of Colemans-CTTS LLP, CT Support Services Limited and the entire ordinary share capital of Holiday TravelWatch Limited (together referred to as “Colemans“), a consumer legal services business for an initial consideration of £9.0 million in cash and shares. Management expect the acquisition to be immediately earnings enhancing.

Despite the strong rise in the share price, the shares only trade on a forward multiple of just over 8 times earnings and are expected to yield over 4%. It is also worth remembering that brokers are likely to increase their forecasts going forward. According to data from Stockopedia, broker consensus EPS has increased from 17.24 pence in August 2014 to 18.15 pence currently, and I wouldn’t be surprised to see these figures increased further going forward.

I think that you will agree that small can indeed be beautiful.  The trick is finding a selection of quality companies, not yet in the news, or the mainstream investing community. That is why I am pleased to say that Mark Rogers, one of our top analysts has been putting in some long hours and has found a stock that has already delivered a powerful return in recent years, and he believes could have an upside potential of 45%!

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Dave Sullivan owns shares in Accesso Technology and 1pm. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.