Three Small-Cap Ideas

Published in Investing on 15 June 2012

We take a look at some of the shares being talked about on our discussion boards.

We like to take a regular look at what's happening on the Fool's discussion boards, and this week I've been paying special attention to investment ideas.

We're all searching for ideas all the time, which is why The Motley Fool has been looking at where ace investor Neil Woodford has been stashing his cash, and you can find out by getting a copy of the Motley Fool report "8 Shares Held By Britain's Super Investor" -- but hurry, while it's still free.

Our boards are also a great way to find ideas, and they have the strength of uncovering promising companies that are often overlooked by the mainstream news.

So here are three suggestions, from some of our regulars...

Hyder Consulting

SteveMarkus noticed final results from Hyder Consulting (LSE: HYC) a couple of days ago, and told us about them on the Paulypilot's Pub - Share Ideas board.

The overall feel from that short discussion seems to be "decent, if boring, results, but boring is good". And boring really can be good, because it often describes the kinds of companies that escape the attention of the media and that can offer bargains. So what is Hyder Consulting and does it look like a good buy?

Hyder offers design and consultancy expertise for major engineering projects, and has contributed to Dubai's Burj Khalifa, Sydney Harbour Bridge and even London's Tower Bridge. The majority of its revenues come from the Asia Pacific and Middle East regions, with only 30% in the UK, so it seems reasonably well insulated from the current European crisis.

It's a relatively small company, listed on the FTSE Small Cap index and valued at around £150m. Sales and profits were fairly flat this year, though the firm's order book looks sound. So what's its attraction?

Two things shout out to me -- low price-to-earnings (P/E) ratio and net cash.

The reported earnings per share (eps) figure of 44.3p puts the 388p shares on a P/E of under 9, which seems low for a company that ended its year with £15m net cash and has a couple of years good forecasts ahead of it. Okay, the dividend is low with a yield of 2.3%, but the 9p per share payout is 16% ahead of last year.

Is Hyder Consulting due a re-rating? It might well be.

Lamprell

Lamprell (LSE: LAM), the oil and gas engineer, was in the news this morning after the completion of its latest oil rig contract pushed the share price up 12%, but it's had a dire year so far. Back in May, a profit warning slashed 65% off the value of the shares, just a couple of weeks after two directors had offloaded huge chunks of their holdings. Hmm.

In fact, at 89p, the shares are down 75% from their year's high point, which raises the question of whether the fall is overdone.

Well, there's been an ongoing discussion on the boards, started by DJSlam back in November, which last week highlighted another profit warning from the company, and people still seem very wary.

There is going to be a first half loss, but forecasts for this year and next put the shares on a forward P/E of 10 and 7 respectively. The current dividend forecast suggests a 2012 yield of nearly 9%, though I wouldn't place confidence in that being achieved.

But, the question remains of whether the shares price has been pushed down too far, and if there's a recovery opportunity here. Would you catch this knife? Do tell us in the Comments section, below.

Blinkx

Now, here's a speculative punt if ever I saw one. Blinkx (LSE: BLNX) is an AIM-listed software company that makes a video search engine, and PlayDumb has been wondering whether there's a good techie opportunity here.

The video search thingy uses all sorts of clever stuff relating to speech-to-text, tags, images, titles, and other such wheezes, and it licenses some clever technology from Autonomy, the smart search experts recently bought out by Hewlett-Packard (NYSE: HPQ.US).

The Blinkx share price climbed a mountain in 2010 and reached a high of 158p last year, but has since slid back all the way to 34p.

The actual fundamentals don't make much sense at the moment, as the company is only just in profit, and if it is on the brink of a nice growth phase for its product, then the current P/E will tell us nothing of importance.

So what's the score on this one?

Well, a possible upside is that the technology is successful and the company is bought out by one of the big players a little way down the line, leading to riches all round. But on the downside, who's to say that one of those same big players (perhaps HP itself) won't come up with its own product and sideline Blinkx?

It's definitely one for a high-tech growth investor, if anyone, but those are pretty thin on the ground these days. Does it tickle your fancy? Do let us know, below.

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> Alan does not own any shares mentioned in this article.

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