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Liberum UK Small and Mid Cap companies 'bible' flags winners and losers in a challenging market

14 January 2016 | Analyst Insight

(LONDON) The annual 'bible' for the UK’s Small and Mid Cap equities market released today by Liberum concludes that it will see pockets of outperformance in 2016 led by companies with strong balance sheets or experiencing structural growth, as well as those who are dollar earners or that return cash to investors.

SMID Annual Cover2

The UK’s Small and Mid Cap market, or SMID, comfortably outperformed the FTSE 100 in 2015 and now tops the Investment Association’s asset class return list on a five-year view.

Liberum’s UK SMID Annual, headlined “Late Cycle Opportunities”, shows that Small Cap remains at a discount but historical late-cycle underperformance of value stocks supports the bank’s conviction that there are opportunities in stocks exposed to structural growth.

It finds greater valuations for companies who have returned cash to investors and expect this to continue in the form of higher P/E multiples in 2016.

“UK SMID has regained its title as the best asset class in the world over five years,” said Joe Brent, Liberum’s Head of Research.

For 2016, “we think strong balance sheets are key,” he added. “Sadly, companies that have invested have mostly been punished. Cash returners have performed well.  We argue that regular buy-backs are better than specials, but only regular dividends generate a valuation uplift.”

The report says that there is plenty to worry about globally; China, emerging markets, commodity prices, monetary tightening, negative earnings momentum, high valuations and a tired-looking bull market.

In the UK specifically, Brexit could trigger political instability, a Scottish Independence vote, weakness in Sterling and GDP softness… but more likely the UK will remain one of the highest growth economies in the G7.

The research also explores:

  • Tailwinds for the UK consumer
  • Tightening credit markets
  • The National Living Wage
  • Liquidity issues
  • How companies should spend their cash
  • Investing on AIM 

Professional investors only can contact Liberum’s research team by email strategy@liberum.com to know more. We regret we are unable to respond to retail investor queries. Important disclaimer > here.

Media enquiries: Redleaf Polhill

Emma Kane 
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Email: liberum@redleafpr.com

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