At Odyssean Investment Trust we seek to invest in high-quality UK businesses trading below their fundamental value, with scope for that value to grow through proactive management action. One area where we have been active recently is an unglamorous part of the market: British small-cap industrials.
The UK industrials sector is overlooked and unloved. Investors often conflate “industrials” with visions of grubby metal bashers serving a diminishing manufacturing base. In truth, this sector is highly diverse, and for those prepared to look, you can find a number of first-rate, globally-focused businesses with exciting growth prospects.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Second, while industrials can be cyclical, many companies enjoy exposure to long-term growth megatrends such as AI spending, renewables investment or growing demand for healthcare. Short-term swings can often hide longer-term secular stories, offering opportunity for the patient investor.
Finally, industrials businesses can be complex: managing production, ongoing research and development (R&D) and an evolving demand environment are not easy. High quality management can add significant value; backing proven, experienced teams is crucial.
Three British industrial stocks that are powering profits
XP Power (LSE: XPP) fits our criteria nicely. The business is a leading designer and manufacturer of power supplies that enable high-technology applications across industrial, healthcare and semiconductor end markets. It uses its world-leading expertise to design power supplies that meet the needs of the most demanding cases.
The group has a strong track record across the cycle, benefiting from growing demand for semiconductor-manufacturing capacity – a trend set to continue given current geopolitical and AI demand drivers. Led by a proven team who have delivered strong operational control through the recent cyclical downswing, this stock’s long-term potential is overlooked by the market.
Another emerging UK industrials champion is Xaar (LSE: XAR). The company manufactures ink-jet printheads with unique technology that allows the deposition of high viscosity fluids at high accuracy for a range of industrial applications. Based on intellectual property developed over many years, the group’s print heads are sold globally and are the core component of its customers’ printing machines.
The group is active in a number of sectors, but under its current leadership has recently used the unique abilities of its technology to open up markets previously unaddressed by ink-jet deposition solutions. These new opportunities offer a route to long term growth regardless of shorter-term market cycles and, we believe, herald an exciting future for the company.
Another UK-based industrial with a niche, global leadership position is Dialight (LSE: DIA), a leading provider of LED lights used in hazardous industrial environments. The group’s design expertise allows it to offer industry-leading reliability, critical for the extreme, niche-use cases it serves.
LED lighting continues to gain share from traditional alternatives given its higher reliability and lower power usage, providing a tailwind of growth for the group across economic cycles. After a tough period, Dialight has been rejuvenated in recent years under a new leadership team with proven experience of driving value at industrial businesses. We believe it is one more of the gems in UK small-cap industrials.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
Scammers steal over £600 million from Brits - how to protect yourselfFraud cases in the first half of the year surged by 17% compared to the same period in 2024. Is your money at risk?
-
Financial support for carers: what can you get?Unpaid carers miss out on an average £6,400 a year in annual salary by cutting work to support loved ones. We explore benefits that can plug the financial gap.
-
How to invest in undervalued gold minersThe surge in gold and other precious metals has transformed the economics of the companies that mine them. Investors should cash in, says Rupert Hargreaves
-
Debasing Wall Street's new debasement trade ideaThe debasement trade is a catchy and plausible idea, but there’s no sign that markets are alarmed, says Cris Sholto Heaton
-
Europe’s new single stock market is no panaceaOpinion It is hard to see how a single European stock exchange will fix anything. Friedrich Merz is trying his hand at a failed strategy, says Matthew Lynn
-
Should UK schools ban smartphones?The effects of smartphones on young minds are disturbing, with calls for politicians to make school smartphone bans mandatory. Is radical action needed?
-
Albert Einstein's first violin sells for £860,000 at auctionAlbert Einstein left his first violin behind as he escaped Nazi Germany. Last week, it became the most expensive instrument not owned by a concert violinist
-
Who is Rob Granieri, the mysterious billionaire leader of Jane Street?Profits at Jane Street have exploded, throwing billionaire Rob Granieri into the limelight. But it’s not just the firm’s success that is prompting scrutiny
-
Emerging markets boast top-quality growth stocks at bargain pricesOpinion Lim Wen Loong, investment director at Ashoka WhiteOak Capital, selects three growth stocks where he’d put his money
-
Beware the bubble in bitcoin treasury companiesBitcoin treasury companies are no longer coining it. Short this one, says Matthew Partridge
