However, one small-cap business I’ve discovered has a forward-looking yield above 5.5% and it’s building up a decent multi-year dividend record.

Income and business growth potential

Many small-cap businesses focus on growth, and that often means spare capital is ploughed back into operations rather than distributed to shareholders. But this company’s doing both, and that’s rare.

It’s called Cake Box Holdings (LSE: CBOX) and operates as a franchise retailer and manufacturer of cakes. The business has been growing fast, and now has around 225 stores in the UK.

The franchise expansion model is key to the firm’s growth and the company doesn’t directly own or operate any Cake Box stores.

In some ways, the business model is quite niche. The cakes are egg-free, and the directors believe there’s no detrimental effect on taste or texture because of that. However, the absence of eggs allows the business to target “a much larger potential market”.

City analysts anticipate double-digit percentage advances in earnings in the current trading year to March 2025 and the year after. They also expect the dividend to chip up by single digits in both years.

Since 2021 – after the pandemic lockdowns – the record for the dividend’s impressive. There’s been a rise every year, and the compound annual growth rate is running at just over 20%.

We almost never see dividend growth as big as that from the larger passive income dividend stocks such as National Grid, Legal & General and others. So that’s one of the main reasons I think Cake Box Holdings is worth further research and consideration now.  

The stock could sit well in a diversified portfolio of dividend-paying stocks.  But as well as the potential for a growing income from dividends, shareholders may see capital appreciation from a rising share price.

Can strong growth continue?

However, such outcomes aren’t certain. There are plenty of risks.

For example, the market capitalisation is tiny at about £69m, and small-caps are known for the volatility often experienced in their operations and share prices. A quick glance at the chart shows this one is no different.

It’s unknown when the rate of business expansion will slow. Perhaps that will be soon. After all, the focus of operations seems to be quite narrow.

Will cream cakes lose popularity? Maybe. If that happens, the dividends and the share price may plunge like a stone. There’s also the possibility of competitors eating into the company’s market share.

Nevertheless, small-cap businesses often find ways to keep growing, and this one has proved its business model. Revenue, cash flow, earnings and dividends have all been growing consistently over several years.

There’s also a small net cash position on the balance sheet rather than net debt, suggesting the growth story is well-financed.

I’m tempted to dig in with further research now. But if buying the stock, I’d aim to mitigate some of the risks by reducing my normal position size.

The post Dividend up 10%! A rare small-cap stock to consider for passive income and growth appeared first on The Motley Fool UK.

Cakes and treats

As a quick reminder, Cake Box is a franchise retailer that manufactures and sells egg-free cakes. The business has grown through franchise expansion and currently has 220 outlets throughout the UK, made up of traditional storefronts and smaller kiosks.

Cake Box shares have been falling in price in the past 12 months. As I write, the shares are trading for 178p. At this time last year, the shares were trading for 302p, which is a 41% drop over a 12-month period.

To buy or not to buy?

So what are the pros and cons of me buying this stock?

FOR: Cake Box’s growth to date has been nothing short of remarkable, in my opinion. The first store opened in 2008 and the company has grown via its franchising model to 220 locations as of 31 March 2022. All of its executive directors have previously led and operated their own successful stores in the past so have experience and a vested interest in the company’s direction and overall success. It continues to open new locations and wants to continue building its presence and profile.

AGAINST: I believe Cake Box shares have been affected by macroeconomic headwinds. These issues are a real worry for me. Soaring inflation, the rising cost of materials and the supply chain crisis could have a material impact on operations, its balance sheet, and profit margins. This could affect investor returns. If profit margins are being squeezed, prices may need to rise, which could also result in a loss of custom. Cake Box is not the only AIM stock to be at the mercy of these headwinds or see its share price decline in recent months.

FOR: Cake Box has an excellent track record of performance. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see that revenue and profit has grown year on year for the past four years. Full-year results for 2022 are due soon but it has already confirmed it is expecting to meet its expectations.

AGAINST: Despite impressive growth, I am wary of businesses that operate and rely heavily on the franchise model. Although there will be processes and fail safes that franchisees must abide by, there is always the risk of operational and quality standards falling. This could have an impact on performance, and eventually returns. This is something I must be wary of.

An AIM stock I’d buy

I like the look of Cake Box shares and would happily add some to my holdings. Since the shares have fallen, they look better value for money on a price-to-earnings ratio of 13. In addition to this, the shares pay a dividend that would boost my passive income stream. It is worth noting that dividends can be cancelled at any time, however.

Overall, I believe Cake Box shares could be a good long-term addition to my holdings. The business has a good track record of growth, is performing well despite macroeconomic challenges, and pays a dividend too.

The post This FTSE AIM stock is down 40% in 12 months. Should I buy it now? appeared first on The Motley Fool UK.

Zaven Boyrazian: Bioventix

Bioventix (LSE:BVXP) is a specialist producer of monoclonal antibodies. These are an essential ingredient for performing blood tests when diagnosing a patient. It’s undoubtedly a niche product but remains in high demand as revenues have consistently grown by double digits over the last five years.

Recently, the stock has taken a hit as hospitals have prioritised spending in areas dealing with Covid-19. Consequently, the group’s bottom line has suffered for it. But, with the vaccine rollout making good progress and the world adapting to the pandemic environment, these disruptions may soon be coming to an end.

As such, I think this could be an excellent addition to my portfolio.

Zaven Boyrazian does not own shares in Bioventix.

Ed Sheldon: Calnex Solutions

My top British small-cap stock for January is Calnex Solutions (LSE: CLX). It’s a leading provider of testing and measurement services to the telecommunications industry.

Calnex looks well placed to benefit from the global telecommunication industry’s upgrade to 5G technology. 5G is ultimately the key to many of the exciting new technologies we keep hearing about such as self-driving cars and remote surgery. Networks will need to be tested thoroughly in order for these kinds of technologies to go mainstream.

One risk to consider here is the ongoing semiconductor shortage. This could cause disruption. However, with the stock trading on a P/E ratio of less than 25, I think the risk/reward proposition is favourable.

Edward Sheldon owns shares in Calnex Solutions.

Roland Head: Finsbury Food

My small-cap pick for January is bakery firm Finsbury Food (LSE: FIF). This group supplies supermarkets and also sells under its own brands.

Finsbury has been going through a turnaround period, but now appears to be trading well. Earnings rose by 15% last year and brokers expect growth of 26% for the year ending 26 June.

Rising costs are a concern and supermarkets will always be tough customers. But I’m impressed by Finsbury’s recent performance. I think the stock still looks good value at under 10 times forecast earnings. I hold Finsbury shares and would buy more.

Roland Head owns shares of Finsbury Food.

Rupert Hargreaves: Michelmersh Brick Holdings

My top small-cap is Michelmersh Brick Holdings (LSE: MBH). The specialist brick manufacturer looks set to report a bumper year of growth for 2021, which could underpin further development in the year ahead.

The firm has no debt and a cash-rich balance sheet, suggesting that it has the financial headroom to support its growth ambitions this year. There is also room for shareholder returns. Michelmersh currently supports a dividend yield of 2.5%.

Inflation and competition are the two primary risks the business will have to overcome going forward. Despite these challenges, I would buy this small-cap stock today.

Rupert Hargreaves does not own shares in Michelmersh Brick Holdings.

G A Chester: B.P. Marsh & Partners 

B.P. Marsh (LSE: BPM) is a specialist investor in unquoted, early-stage financial services businesses that are in need of growth capital. 

Marsh looks for strong management and business plans. It takes a minority equity stake (typically 20%-40%), and aims to be a supportive, long-term partner. It works with management to grow the business’s value, ultimately towards a profitable exit via a public flotation, trade sale or other route. 

It has a long history of delivering value for shareholders through net-asset-value (NAV) appreciation and dividends. The shares are currently trading at a 20%+ discount, and I’m expecting a further NAV uplift in an early-February trading update. 

G A Chester has no position in B.P. Marsh & Partners.

Niki Jerath: Zephyr Energy 

For January, I’m looking at Zephyr Energy (LSE:ZPHR). This has oil and gas interests in Utah, Colorado and North Dakota.  

As oil and gas prices increased during 2021, its shares surged by over 600%. Although year-to-date, the stock is down around 2% due to worries about the Omicron variant. 

That said, its Paradox Basin project, in Utah, shows a lot of promise for 2022 and it has a pending deal in North Dakota, which was delayed last year. 

I could be wrong, but if the transaction goes ahead, I expect the share price to see a jump. 

Niki Jerath does not own shares in Zephyr Energy

Royston Wild: Card Factory 

I think Card Factory (LSE: CARD) is a small-cap stock whose eye-catching all-round value merits serious attention. The card and greetings retailer trades on a forward P/E ratio of below 6 times. It sports a mammoth 6.1% dividend yield as well. 

I like Card Factory for a number of reasons. Its strategy of selling products at low prices puts it in good shape to ride the value retail revolution. Recent investments in digital will allow it to make money during the e-commerce boom. I also like Card Factory’s focus on a more-defensive part of the retail market. We don’t stop celebrating birthdays, Christmas and other special occasions when times get tough, right? 

Royston Wild does not own shares in Card Factory.

Paul Summers: Cake Box Holdings

At 25 times earnings, shares in Cake Box Holdings (LSE: CBOX) certainly aren’t cheap. That said, the company’s fundamentals help justify this valuation. Returns on capital and operating margins are consistently high and there’s net cash on the balance sheet. CEO Sukh Chamdal also owns almost 25% of the company, which should mean that his interests are aligned with those of other investors.

Having already climbed 70% in the last year, share price growth may moderate in 2021. However, this looks like the sort of quality minnow I’d be comfortable holding a stake in for years rather than months.

Paul Summers has no position in Cake Box Holdings

Andy Ross: Property Franchise Group 

Shares in Property Franchise Group (LSE: TPFG) bring together an attractive combination of growth and income. Over three years the shares have gone from 120p to around 314p. Historic share price growth then has been good. The dividend yield is currently around 3%, but with decent levels of dividend cover, as well as earnings growth, I’m sure the dividend can keep growing.  

As a franchising operation, the business has high operating margins and returns on capital. For me, this makes Property Franchise Group a top British small-cap stock and I’ll likely be adding more, especially if the share price dips again.  

Andy Ross owns shares in Property Franchise Group.

The post Top British small-cap stocks for January 2022 appeared first on The Motley Fool UK.

Revenues surged 90%-plus at Cake Box franchise stores in the four months to September. It was a result that didn’t just reflect the weak comparatives of a year earlier when Covid-19 lockdowns hit trade. It also illustrated the success of new store rollouts and trials in major supermarkets. The baker’s tie-up with the likes of Uber Eats to exploit the online delivery boom is also paying off handsomely.

Pleasingly, Cake Box doesn’t seem to be slowing down with its ambitious growth drive either. The company has opened another three franchise stores since the beginning of October alone, taking the total to 177. Competition is intense from supermarkets, along with other specialist bakers like Greggs. But I still think Cake Box’s spectacular growth makes it worth serious consideration today. Right now it trades at 397p per share.

A cheap UK healthcare share

I’d use recent share price weakness at ECO Animal Health Group (LSE: EAH) as an opportunity to nab a bargain. The business — which creates and markets pharmaceuticals for livestock — recently closed at its cheapest since December 2020. At 245p per share, the business is now just 3% more expensive than it was a year ago.

ECO Animal Health has trended lower because of continued weakness in the Chinese pork market. Farmers are struggling to get a good price for their product due to oversupply, which is, in turn, hitting demand for the cheap UK share’s medicines. This is a big problem as ECO Animal Health sources the lion’s share of group revenues from the Far East.

However, as a long-term investor, I’m prepared to look past this turbulence and buy the stock today. Global meat demand is expected to soar in the years ahead, primarily due to rising wealth and population levels in emerging markets. And pleasingly, ECO Global Health has considerable exposure to these fast-growing regions.

Takeaway titan

I think Domino’s Pizza (LSE: DOM) is also a great buy for various reasons. It’s a market leader in an industry which is tipped for continued strong growth. Analysts at Statista think the UK online food delivery market will be worth a whopping $17.2bn by 2025. That’s up significantly from the $11.3bn predicted for this year.

Domino’s Pizza saw like-for-like sales jump an impressive 15.6% in the 39 weeks to 26 September. And it is investing heavily in its online operations and store network to continue its recent successes. It remains on course to open 30 new shops this year alone, and 200 more over the medium term.

I think Domino’s could deliver explosive earnings growth over the next decade in spite of intense competition from other restaurants and internet food delivery giants like Deliveroo and Just Eat. Domino’s Pizza trades at 382p per share.

The post 3 of the best cheap UK shares under £5 to buy appeared first on The Motley Fool UK.

The franchise retailer and cake maker has a growing store base across the UK. And the overall business is delivering some impressive quality indicators, such as the figure for return on capital at almost 30%.

Expanding at pace

The business model works. And the directors have been rolling out the expansion strategy at pace. According to today’s half-year results report, the company had 174 franchise stores in operation by 30 September. And that’s up from 139 a year earlier.

In the first six months of the current trading year, there was also a “successful” trial of seven kiosks in Asda, which could augur well for the potential future growth of the business. Such diversification reminds me of the approach followed by fast food company Greggs.

These days, we can find a Greggs outlet at railway stations, motorway service areas, airports, retail parks and just about everywhere that people gather. The company’s expansion strategy has taken the business well beyond the high street. Perhaps Cake Box can pull off a similar trick in the years ahead. But the Cake Box concept is focused on a narrower product range than Greggs, so it may not.

Cake Box specialises in making crafted and personalised fresh cream cakes for purchase on demand or ordered in advance from its stores or online. By contrast, Greggs sells a range of savoury and sweet foods as well as hot and cold drinks.

Chief executive Sukh Chamdal has “confidence” the business will meet full-year expectations and progress further in the years ahead. City analysts expect earnings to surge by around 43% in the current trading year to March 2022. And they expect a further uplift worth about 13% the following year. But of course, such outcomes aren’t certain. Operational challenges could arise to derail those forecasts.

More than just robust recovery

But today’s interim figures show revenue rose by almost 92% when compared to the challenging equivalent period in the depths of the pandemic last year. And earnings per share shot up by just over 116%. The directors slapped an extra 35% on the interim dividend.

But those advances represent more than just a robust recovery. If the forecasts prove to be correct for the full year, earnings will have risen by more than 50% since 2019, before the pandemic.

If investing was just about identifying a great business, this would be a no-brainer stock for me. But a big part of the process involves buying shares when valuations make sense.

With the share price near 393p, the forward-looking earnings multiple is near 26 for the trading year to March 2023. And expected dividend yield is around 1.9%. That’s not a cheap valuation, but I think the company has earned its rich rating.

However, an elevated valuation adds risks for investors and I could lose money on the stock if the valuation falls because of any operational setback or other reasons.

Nevertheless, I reckon the growth story has the potential to run for years with this one. So I’m inclined to buy the stock now to hold for the long term.

The post A UK small-cap stock to buy in November appeared first on The Motley Fool UK.

Best stocks to buy

One of my favourite growth shares I’d buy is speciality cake manufacturer Cake Box Holdings (LSE:CBOX). With a market capitalisation of just £150m, it’s a small company, but one that’s growing fast.

It released a string of encouraging trading updates this year. Most recently, it reported strong trading momentum across its stores and online channels. Sales in the six months to 30 September jumped by 91% compared with the same period last year. Store closures in last year’s lockdown amplified this gain, but it’s interesting to note that sales are also ahead of pre-pandemic figures.

So what’s boosting sales? As usual, it’s a variety of factors. Online sales were boosted via food delivery platforms including Just Eat and Deliveroo. The company also opened 20 new franchise stores in the first half the year. The pipeline for signing up new franchisees looks exciting to me, with 62 deposits held for new stores. This should drive growth further over the coming years.

One thing I have to bear in mind, however. The shares are relatively illiquid as the founder owns over 30% of the company. This can make it difficult for large funds to buy a slice, but it shouldn’t be an issue for smaller investors. Also, at some point, new franchisee sign-ups will start to slow and it’s a point I’ll be watching for very closely.  

Motoring ahead

Although there’s no fixed definition, value shares often trade at a discount to their intrinsic value. They are often described as cheap stocks. The top value share I’d buy in November is Vertu Motors (LSE:VTU). It has several financial ratios that are typical of value shares. With a price-to-earnings (P/E) ratio of just 7x, and a price-to-book-value (P/B) of 0.7, these shares look cheap to me.

It’s important to note that it’s sometimes not enough just to find cheap value shares. Cheap shares can stay that way for quite some time. That’s why I like my value shares to have other qualities that could propel their share prices higher.

As with many car retailers at the moment, Vertu Motors is in something of a sweet spot. Delays and shortages in computer chips are driving the prices of used cars upwards. This is great for Vertu. In fact, it recently reported record results, beating market expectations. If car prices continue to stay elevated, I don’t think Vertu will remain cheap for too much longer.

A word of warning, however. Chip shortages are likely to be temporary. At some point, the market for new and used vehicles will normalise. Also, as with many companies in the current climate, cost pressures are being seen. Vertu specifically noted a rise in employment costs.

Weighing everything up, I’d say Vertu Motors could be too cheap for me to ignore though, and could be one of the best stocks to buy this November for my ISA.

The post 2 of the best stocks to buy in November appeared first on The Motley Fool UK.

The stock market can fall sharply due to all kinds of reasons. Global economy concerns, or unfavourable news regarding a particular industry or country can cause stock market weakness. Recent sharp falls in share prices were due to concerns over Chinese property group Evergrande and its potential effect on global markets.

I reckon the concerns are overdone and it’s a great time to add my favourite shares to my Stocks and Shares ISA. But which ones?

Top UK shares

One of my favourite UK shares I’d buy is Reach (LSE:RCH). Formally known as Trinity Mirror, this news publisher is moving firmly into the digital age. Despite physical news readership falling, digital news is going from strength to strength.

Online readership figures are on the up. This is great news for Reach as it owns over 70 online brands. In addition to national newspapers, it also owns many regional publications. Online content is big business and Reach is in prime position.

Little known to many, it owns the fifth largest digital asset in the UK, behind the likes of Google and Facebook. It also has an audience of over 40m.

With such a large audience comes much customer data. This mid-sized company is trying to monetise more of its customer data by growing digital advertising. And it looks like it’s working.

That said, there are some issues to look out for. It’s possible that print revenues could fall by more than the company expects. Converting customer data into advertising revenue also comes with challenges. Regulation could make it more difficult to capture data.

Overall, this company’s updates are encouraging. In fact, I reckon it’s still early days for Reach. Its share price is up by over 550% in the past year, but the recent fall could be a great opportunity, in my opinion.

Technology focus

The move from physical to digital is a big trend that isn’t going away. Several industries have been disrupted by technology and many are still undergoing changes today. That’s why I like to focus much of my portfolio on technology. Even non-technology companies can use tech to their advantage to gain market share.

In particular I like firms that offer double-digit growth and recurring revenues. Sales that regularly repeat are far more valuable than a one-off purchase.

In addition, I like technology companies that have bold, global ambitions and are ready and able to disrupt their respective industries. However, many of the companies that have these qualities are based outside of the UK.

With investments focused on UK shares, I could buy Scottish Mortgage Investment Trust (LSE:SMT) instead. This UK-listed global technology fund has performed phenomenally well in recent years. In the past year it has returned around 50%. Even over a 10-year period, it has managed to produce a 27% annual return.

It owns several “exciting new businesses with deep competitive advantages, targeting large opportunities.” For example, it’s largest holding is Moderna. This US-based biotech company focuses on medicines based on mRNA technology. Scottish Mortgage also has large holdings in Tesla and Amazon.

There are some things to bear in mind, however. Fast-growing technology companies are often more volatile than some of the mature FTSE 100 firms. This can often lead to greater swings in share prices. In addition, some of the tech firms that the fund invests in are based in China. Every country operates differently, and some countries have greater regulatory risks than others.

Overall, I’d say it’s an excellent, well-managed fund that I’d be happy buying in any stock market crash.  

A small slice

I like to own UK shares of all shapes and sizes. Spreading a selection across industries can diversify my investments. And having a mixture of small-cap, mid-cap and large-cap shares can create a nice mix. Scottish Mortgage Investment Trust is large-cap and Reach is mid-cap. Which leaves my small-cap idea.

One small-cap share that I’d buy in a stock market crash is franchise retailer Cake Box Holdings (LSE:CBOX). It manufactures fresh cream cakes and supplies them to its franchise-operated retail stores.

The reason why I like this firm isn’t just its delicious cakes. It also has a tasty business model. Much of its earnings come from new shop openings. It has over 150 stores and it’s growing at a reasonable pace. In fact, it opened 24 new franchise stores in the most recent financial year. And it has an encouraging pipeline of upcoming sites across the UK.

Also, demand for its cakes is strong and I reckon it’ll continue to be so over the coming months. As many restrictions were relaxed this year, I think there would have been many parties and celebrations during the summer months. This could bode well for its next trading update.

I like that it has entrepreneurial leadership, with the company founders still running the show. I also like that it offers big, fat, juicy returns and profit margins. It’s also growing at pace, the shares are relatively cheap and it even offers a 2% dividend. What’s not to like?

Well, there are some negatives. One thing to bear in mind is that the shares are relatively illiquid. This is mainly due to the founder owning a large portion of the company. Less liquid shares can make large purchases and sales more difficult. For individual private investors like me, however, this could be less of a factor. Also, I would look out for when growth of new franchises starts to slow. It’s currently growing swiftly, but any sign of a slowdown could have a negative effect on its share price.  

Overall, if a stock market crash lowers its share price, I’d love to add a slice of these shares to my portfolio.

The post 3 UK shares I’d snap up in a stock market crash appeared first on The Motley Fool UK.

Tasty profit

First up is fresh-cream-but-egg-free cake maker/retailer Cake Box (LSE: CBOX). Back in June, the company reported revenue and pre-tax profit had climbed 16.9% and 11.8% respectively over the 12 months to the end of March. That’s really something when you consider its stores had to temporarily close during 2020.

Thankfully, online sales took the strain. These rose 84%, supported by the development of its own delivery platform. In addition to this, CBOX has also been introducing new products that cater to vegans and those on gluten-free diets.

Based on its rapidly expanding estate, I think the future looks pretty sweet for the company. Operating a franchise model, it had 157 stores by the end of the financial year. A further nine franchise stores have since been added with the company targeting 18-24 in total over FY22.

Factor in many people wanting to celebrate important events they previously couldn’t and I think it unlikely trading will suddenly reverse. I’m also encouraged by CEO Sukh Chamdal still owning 32% of the company. If I’m to back a small business, I want to know those running it have a significant amount of their own cash at stake.

Hot market

Another stock that could prove to be one of the best shares to buy in the small-cap space right now is Property Franchise Group (LSE: TPFG). Now the largest property franchisor in the UK, the firm also manages the second largest estate agency network and a portfolio of lettings properties in the UK.

In its recent trading update, the company reported like for like revenue and management service fees were “significantly up” over the first half of 2021, compared to the same six months in 2020. While that might be inevitable considering the impact of Covid-19, this result also beat numbers from 2019.

The reason? A white-hot UK housing market has generated huge sales growth. Increasing prices have also allowed the company to collect a larger average fee. Since this shows no signs of slowing down just yet, TPFG now is confident of “a very strong trading performance for the full financial year“. The recent purchase of Hunters estate agents will no doubt help as well.  As such, I think the shares could go higher from here.

Know the risks

Before buying either (or any) small-cap stock, investors need to be aware that their share prices have the potential to be highly volatile. Part of the reason is that minnows tend to have small ‘free floats’. This refers to the proportion of a company’s shares trading on the market. In practice, a small float means it only takes a bit of selling or buying to produce big swings.

There are more specific things to consider. Based on current earnings estimates, CBOX shares change hands for 25 times earnings. That’s not excessive, but nor is it a bargain either. A P/E of 14 makes Property Franchise far cheaper. However, it’s naturally exposed to a slowdown in the property market — although this may be some way off.

As always, it’s vital to keep expectations in check. 

The post 2 of the best small-cap shares to buy now appeared first on The Motley Fool UK.

Rupert Hargreaves: Braemar Shipping Services 

Braemar Shipping Services (LSE: BMS) is an international shipbroker and shipping services provider. Its exposure to seaborne trade suggests the company is highly leveraged to the global economic recovery. Indeed, analysts reckon group earnings per share will increase 40% this fiscal year. 

Based on these projections, the stock looks cheap trading at a forward price-to-earnings (P/E) multiple of 12.8. 

The company’s valuation and growth potential are the reasons why I’d buy Braemar as a recovery stock in July. 

That said, if the economic recovery fails to live up to expectations, Braemar may be one of the first to suffer. As such, this investment has quite a high level of risk. 

Rupert Hargreaves does not own shares in Braemar Shipping Services.

Edward Sheldon: Keystone Law

My top small-cap stock is Keystone Law (LSE: KEYS). It’s an innovative, platform-based law firm that’s disrupting the UK legal industry. Last year, it won ‘Law Firm of the Year’ at The Lawyer Awards.  

Keystone has generated strong revenue and profit growth in recent years and I expect it to continue doing so in the years ahead. In the short term, the company should benefit as the UK reopens and economic activity picks up. In the long run, the expansion of its platform should drive top- and bottom-line growth higher.

One thing to be aware of is that the stock’s valuation is quite high. This adds risk to the investment case. Overall, however, I think the risk/reward proposition here is attractive.

Edward Sheldon owns shares in Keystone Law

Harshil Patel: Cake Box Holdings 

Cake Box Holdings (LSE:CBOX) is a specialist retailer of fresh cream cakes. It’s a franchise business and delivers most of its growth by opening new stores.  

So it’s encouraging to see a strong pipeline of new locations. It currently has 157 franchised stores and another 18-24 are expected this year. It’s also trialing several kiosks with a national supermarket. 

At some point, locations could become saturated and an optimum number of stores will be reached. That said, there’s currently plenty of eligible franchise applicants and potential locations to keep Cake Box growing.  

Overall, Cake Box is a quality company led by entrepreneurial management. I like that it offers double-digit earnings growth and strong margins. Its balance sheet looks strong and even offers a well-covered dividend. 

Harshil Patel owns shares in Cake Box Holdings.

Tom Rodgers: SCS

With home refurbishment markets booming, sofa manufacturer SCS Group (LSE:SCS) is my top small-cap stock for July 2021. The £116m market cap firm has produced operating profit growth of 30.6% in the last 12 months as sales and profits surge post-lockdown. Dividends are expected to return in force, as high as 12p per share for 2022, offering substantial future income even after a 40% rise in the share price in the year to date. A forward P/E of 11 times earnings is cheap and I see more upside for July and beyond.

Tom has no position in SCS at time of writing.

G A Chester: B.P. Marsh & Partners 

Founded in 1990, and still founder-led, B.P. Marsh & Partners (LSE: BPM) is a specialist private equity investor in early stage financial services businesses. There’s higher risk with fledgling businesses, but the company has an impressive long-term record of growing its net asset value (NAV). It reported another year of growth last month, with NAV up £13m to £150m. 

The stock is currently priced with a market capitalisation around £120m. In other words, at a 20% discount to NAV. Given the company’s track record of delivering strong shareholder returns (including dividends), and the growth prospects of its investee businesses, I think there’s exceptional value on offer here. 

G A Chester has no position in B.P. Marsh & Partners.

Zaven Boyrazian: Bioventix 

Bioventix (LSE:BVXP) is a biotech company that manufactures specialised antibodies for blood testing. It’s a niche product. But remains an essential ingredient for diagnosing almost every type of disease – including Covid-19.

The firm generates revenue from direct sales to in-vitro diagnostic companies and royalties from any product developed using its propriety material. The latter has yet to evolve into a substantial source of income. But it does provide the facility for a recurring revenue stream in the future.

Bioventix operates in a highly regulated industry. This undoubtedly adds some operational risks. Suppose the firm or any of its royalty-generating customers fail to comply with regulations. In that case, its reputation and income could be compromised. But personally, I think the potential reward is worth the risk.

Zaven Boyrazian does not own shares in Bioventix.

Roland Head: Vertu Motors

Car dealership group Vertu Motors (LSE: VTU) is one of the UK’s largest motor retailers, with brands including Bristol Street Motors. Vertu says that demand for used cars is “exceptional” at the moment. The latest update from the company revealed strong trading and triggered an upgrade to profit forecasts.

The main risk flagged by the company is that the global chip shortage will cause delays to new car deliveries. However, Vertu’s share price is covered by the value of the group’s property portfolio, and the business currently trades on just seven times forecast earnings. Brokers are also forecasting a useful 3.6% dividend yield this year.

In my view, Vertu looks like a good, cheap, small-cap stock. I recently added the shares to my portfolio.

Roland Head owns shares of Vertu Motors.

Paul Summers: SDI Group

Having multi-bagged over the last year, shares in shares in scientific product maker SDI Group (LSE: SCI) look expensive. However, I suspect they could eventually be worth a lot more thanks to an acquisition-focused growth strategy similar to that of FTSE 100 top stock Halma.

There could even be more upside in July. The company stated in May that it would exceed previous estimates on FY21 revenue and adjusted pre-tax profit (given in February). I wonder if trading since then, combined with the lifting of restrictions, will lead management to also upgrade its FY22 guidance later this month.

Paul Summers has no position in SDI Group or Halma.

Christopher Ruane: M&C Saatchi

Things have been looking up for the previously troubled advertising small-cap stock M&C Saatchi (LSE: SAA).

The shares are up 156% already over the past year. For a company whose survival was in question at one point, that is impressive. But I see further possible gains ahead. The advertising market generally is buoyant. M&C Saatchi is poised to benefit from that. The company recently lifted its forecast for the year.

The company’s reputation remains tarnished, though, which could act as a dampener on growth.

Christopher Ruane does not own shares in M&C Saatchi.

Royston Wild: Begbies Traynor 

The British government’s furlough schemes have helped keep a lid on insolvency rates during the pandemic. But with these financial support programmes set to end, I think now could be a good time to invest in Begbies Traynor Group (LSE: BEG). 

Indeed, buying this UK share before full-year results are released on Tuesday 20 July could be a very good idea. Despite a depressed insolvency market Begbies Traynor said in May that full-year revenues would grow ahead of market expectations following a strong fourth-quarter performance. News that trading has remained robust in the new financial period (to April 2022) could help lift the small cap again following recent share price weakness.

At current prices Begbies Traynor trades on a rock-bottom forward price-to-earnings (PEG) ratio of 0.4. This provides plenty of scope for a fresh move higher.

Royston Wild does not own shares in Begbies Traynor. 

The post Top small-cap stocks for July appeared first on The Motley Fool UK.

One such company is Cake Box Holdings (LSE: CBOX). It’s a specialist retailer of fresh cream cakes and it’s growing. Despite government restrictions, it reported a year of strong growth. It experienced a strong recovery in trading once its shops were allowed to reopen following the first UK lockdown last year.

Cake Box is a franchise business that earns much of its income from new shop openings. There were 24 store openings during the year, taking the total number of stores to 157. It’s also encouraging to see a strong pipeline of upcoming openings. The company is currently holding deposits for 52 sites across the country.

The company continues to innovate with new product offerings and delivery options. It also launched an own-brand delivery platform, which helped to deliver year-on-year online sales growth of 84%.

Quality UK shares

Cake Box has many impressive characteristics that I like to see in quality UK shares. It offers a return on capital of over 30%, and an operating margin of over 20%. With double-digit earnings growth, and an undemanding price-to-earnings (P/E) ratio, I reckon these UK shares are cheap. Its balance sheet also looks strong and net cash is up 70% on the prior year.

I like that the company is entrepreneurial and founder-led. Both the CEO and CFO hold significant shareholdings in the company. They have skin-in-the-game and it shows in how they’ve managed to grow the business from one store in 2008, in my opinion.

One downside is that the significant shareholding by the founder can make the shares relatively illiquid. This can make larger purchases and sales more difficult. Another potential risk is whether Cake Box can continue to find more suitable locations without cannibalising sales from other stores.

Since I last considered shares in Cake Box in February, the share price is up 24%. It gained 135% over the past year, but despite the triple-digit performance, I’m still considering them.

Resilient retailer

Another resilient retail business that not only survived but managed to grow during the pandemic is B&M European Value Retail (LSE:BME).

Better known as B&M, this leading variety goods value retailer reported strong revenues and margins in its third quarter. Like Cake Box, B&M is also opening new stores. It opened 18 new UK stores in Q3. In its trading update for Q4, I was pleased to see that B&M guided to increasing earnings and a continuation of strong margins. Also like Cake Box, B&M management are entrepreneurial and hold a significant shareholding in the company. 

Despite a positive update, the company warned about significant forecasting challenges due to the impacts of Covid-19. This could create some uncertainties for investors for the rest of the year. In addition, retail is highly competitive with relatively low barriers to entry. To thrive as an investment, B&M will need to continue growing and remain competitive.

I like B&M’s quality metrics. It offers a return on capital of 19%, and double-digit operating margins. It also offers a dividend yield of nearly 4%. Overall, I’d consider these quality UK shares for my Stocks and Shares ISA.

The post 2 UK shares I’d buy this April appeared first on The Motley Fool UK.