Ten Small-Cap Value And Growth Ideas For 2024

2nd Jan by Graham Neary

36 comments 12281 reads

Hello! Graham here with part 2 of my annual round-up.

In this article, I’m going to compile my ten favourite ideas for 2024.

Previous articles in this series:

As always, none of this can be construed as advice. I’m describing the stocks I find most interesting, but it’s important for you to do your own research and to manage your investments in a way that is suitable for your own individual circumstances.

This article is not going to contain very much analysis of individual companies. Instead, it will describe for you my decision-making process as I decide which stocks to include in my 2024 list.

Walking you through my process

Narrowing down the list of all stocks I am bullish on is a very difficult task.

From last year’s list, I have a positive view on eight of the ten stocks. I have temporarily turned neutral on one of them (S&U (LON:SUS)) and another has been delisted (Numis (LON:NUM)).

The remaining eight ideas from last year’s list are:

A G Barr (LON:BAG)
Cavendish Financial (LON:CAV) (formerly finnCap (LON:FCAP))
Nichols (LON:NICL)
MS International (LON:MSI)
Mercia Asset Management (LON:MERC)
Mortgage Advice Bureau (Holdings) (LON:MAB1)
Peel Hunt (LON:PEEL)
Trustpilot (LON:TRST)

So if I leave all of these on the list, I only have two spaces for new entrants.

And my bias is very much to leave all of these on the list, if I can. I have kept up to date with them throughout the year and I am happy with how all of them are performing. Please see the 2023 review for more information on their individual performances.

But there are so many more stocks I could add to this list for 2024. Checking the SCVR archives over the past couple of months, there are at least 25 stocks I could add - one of the consequences of depressed markets being that many companies I like appear to offer good value.

But then I doubt that anybody wants to read an article with the headline “33 ideas for 2024”!

Ruthlessly narrowing it down

Here…

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Graham Neary

3rd Jan

Cheers Camtab, HNY to you too! Best of luck. G

Thanks Cricketfan, appreciate the comment. I would have loved to include more fund managers in the list but wanted some degree of diversification in a short list. Best of luck with your selection. G

Pete112

What a great article! Many thanks Graham, I love the description of the process.

icm

4th Jan

Bought PayPoint (LON:PAY) some time ago on the basis a chap like Woodford must know what he was doing. Would be good to see it advance.

donald pond

I see all the 5 year CAGR figures for PayPoint (LON:PAY) are red. I can’t believe something with non-existent growth would be regarded as a fintech stock. Is the UK market that moribund?

Silver Moon

'Morning Don, what's your verdict on its free cash flow? I hold some PayPoint (LON:PAY) .

BnB

PayPoint (LON:PAY)

The whole business was forced into a reset when the pandemic accelerated the switch from cash to digital payments. As a consequence, it has introduced a significant number of new revenue lines which account for the more recent growth from the trough of 2020. It would not be unfair to describe the sheer number of new initiatives as having the appearance of some desperation. But some of the new revenue streams, for example, the acquisition of Appreciate, do have some potentially good prospects. So the thesis is not based on its historical growth performance, but rather on its future growth prospects. And the chart tells its own story: even a recovery to halfway back to the levels of 2018 would represent a good profit for buyers today.

Bouden54

PayPoint (LON:PAY) Yes historic performance poor, but the bull case is the new growth initiatives (digital payments, parcels, gift vouchers, etc) should start to come through and offset the decline in the legacy business. I had a closer look at this today, but can't say I'm fully convinced yet and suspect overall growth will remain sluggish. No doubt it's cheap, so will put on the watchlist and may buy some if it dips.

Tortoise investor

9th Jan

Just as well you didn't listen to me! (Anyone looking at Jupiter Fund Management (LON:JUP) should read the RNS 9/1)

Ditherer68

Woodford?! [deranged emoji]--argh!

A belated "You're Welcome!". Cheers Pete.

12th Jan

Hi Graham - I have been looking at Trustpilot (LON:TRST) today. For background I until very recently used to work for a company which was a competitor of sorts albeit a competitor providing 'expert' rather than user-led reviews. (I won't say which company as I like to maintain a degree of anonymity).

Several times across past Stockopedia articles you've said it doesn't have much competition. I agree that's mostly true of the UK - I think it has some sector-specific user generated review competition e.g. Checkatrade. But how confident are you that that is true of other countries as well? I am familiar with the UK review market but I have little clue about the US or Europe for example.

I've noticed you've had no user comments on Trustpilot so hopefully I can join in from now on so you feel a little less lonely in your commentary!

Hi Tortoise, thanks for the comment. Have you heard of Bazaarvoice? https://www.bazaarvoice.com/

They have been mentioned to me as providing competition. Although I'm not really convinced that they do, in the sense that nobody looks for a Bazaarvoice rating before buying a product!

Yes, dodged a bullet by leaving that one out! G

abtan

Trustpilot (LON:TRST)

Hi Tortoise Investor (and Graham)

Thanks for your comments here.

I've too wondered about the non-UK competitors (Feefo, sitejabber, etc..?), but irrespective of what I think, the non-UK revenues seem to be doing okay based on the last published figures.

Note the 19.1% bookings growth within Rest of World (ROW), which has now become the largest segment.

There's lots to like with Trustpilot, especially if operating leverage kicks in soon.

However, I hope it's okay to add one main bear point, which is the decreasing growth in paying customers.

This is the main thing that has kept me from investing so far.

It's also worth pointing out that the number of reviews sent out by active customers* looked quite low in FY23-H1 vs the previous 12 months, although perhaps this shouldn't be surprising given the macro environment.

(*my calcs here are estimates based on actual figures published by the company)

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It will be interesting to see whether the number of paying customer numbers starts to rise when the next results are released.

13th Jan

Good spot re only 4% increase in paying customers - that should be an upfront KPI not put on page 4 of the half year results. So presumably that means most of the revenue increase in the last half year is accounted by fee increases or existing paying customers paying for more expensive subscriptions?

"So presumably that means most of the revenue increase in the last half year is accounted by fee increases or existing paying customers paying for more expensive subscriptions?"

It looks like it, doesn't it?

EXISTING FEE-PAYING CUSTOMERS

I personally think Trustpilot is an excellent business, but not a monopoly.

And whilst price rises will work for existing customers who won't want to lose their review history, it might not work so well when attracting new customers who have other options out there.

On this latter point, the below might be of interest (although it's biased):
https://www.linkedin.com/posts...

FREE CUSTOMER GROWTH RATES

I'm not sure the above would be a big issue if the number of free customers was increasing, as presumably these customers won't look at the pricing until they need to, by which time it's too late for them to escape the Trustpilot ecosystem.

But the Year-On-Year growth rates for Free Customers has fallen from +67% in 2019 to +16% in 2023-H1, a consistently decreasing growth rate since peaking at +72% in 2020.

This lowers the potential number of customers upgrading to fee-paying accounts in the future.

For me the business case at the current Market Cap ($900m) only works if operating leverage kicks in rapidly, which I'm not entirely convinced of right now based on the above.

Parsley

22nd Jan

Before I retired, I was a director at a large motor dealer group. About 8 years ago, I added Trustpilot as part of our marketing programme. It was a bit of a no brainer. TP were the market leader, low cost and we could harness our already great customer scores ( we were used winning numerous awards from manufacturers, Motability etc.)

The mechanics of the TP system are simple. Each month you send them a download of all the customers email addresses for the ones that bought a car. The vast majority of customers are delighted with their shiny new (and/or in our case used) car and its easy to get lots of good reviews.

If a customer is not happy about their purchase, you generally know about it within a couple of weeks. Therefore, unscrupulous companies can easily not forward TP their email addresses.

Obviously, TP allow customers to write a review directly, but its a numbers game - few do in comparison to the customers who have been prompted for a review by TP shortly after their purchase.

Contrast that to companies who are on TP but not TP customers themselves - their reviews numbers are not massaged in any way and are often brutally low. It was easy for our sales people to use these TP scores to win over sales.

Since then, TP have really blown away the competition, and it must be very difficult to not be on it if you want to protect both your company's reputation and sales.

ROCE Balboa

27th Jan

Hi TI,

For the untrained eye, what is the significance of the RNS 9/1?

Ten Small-Cap Value and Growth Ideas for 2024

Walking you through my process

Ruthlessly narrowing it down

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Graham Neary

36 comments

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