Three small-cap potential winners the market has missed
Professional investor Stuart Widdowson of the Odyssean Investment Trust, picks three smaller UK stocks that are trading at a discount to their intrinsic value.

One way investors can reduce risk is by buying assets trading at a discount to their intrinsic value. Several metrics can be used to determine the value of a business, including the price/earnings (p/e) and price-to-book value (p/b) ratios. Two others are Ebitda (earnings before interest, tax and amortisation) and Enterprise Value-to-Ebitda. The process can be more complex if a company has several operating divisions, which may have different attributes and prospects. The sum of private market valuations – the value that a trade or private-equity buyer would pay to acquire control – for each division may be higher than the valuation of the whole company, producing a discount to a “sum of the parts” valuation.
These discounts can narrow for several reasons. The stockmarket, driven by news or a shift in sentiment, can change its view of the valuation of the company; boards can unlock shareholder value by disposing of one or more divisions; or an investor identifies the opportunity and bids for the company. Below are three examples of smaller British firms that we believe are trading at notable discounts to their potential sum-of-the parts valuations.
A pharma group ripe for partition
Clinigen (Aim: CLIN), a pharmaceutical services and products group, has three divisions, built up through mergers and acquisitions (M&A) since its initial public offering in 2014. The shares trade at a forward p/e multiple of ten compared with a five-year average of 16. While there is some logic in keeping its three divisions together, each would appeal to different trade buyers. In our view, the current valuation is sufficiently attractive to interest a financial bidder, who could either integrate the divisions further or undertake a controlled break-up over time.
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
Cash-rich chemicals
Elementis (LSE: ELM) is a speciality chemicals firm with three “core” divisions and several smaller business units. There is some customer overlap among the core businesses. The current rating of ten times forward earnings is depressed owing to the impact of Covid-19 on its sales and relatively high borrowings. But these will fall over time as the company is very cash-generative. Disposal of one of the smaller, non-core business units would accelerate debt reduction, simplify the story and support a share-price rerating.
Making money in a media niche
Euromoney Institutional Investor (LSE: ERM) is a niche media firm providing companies with financial information. It consists of three divisions. The jewel in its crown is its pricing division, which is based on a subscription model and has grown well over recent years. M&A multiples for similar assets imply that one of the other two divisions is being completely overlooked by the market. Euromoney postponed plans to sell the asset management division earlier this year, but we suspect it will revisit this decision.
Private equity has acquired similar business-media companies over the last couple of decades. The forward p/e is just over 14, assuming some recovery from the trough. We believe that Euromoney’s profit recovery will continue for several years and the stock could again trade at its peak of £15 within four years, implying ample upside from here. The company has no debt and the capacity to pay a good dividend.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Stuart is a professional investor and Managing Partner at Odyssean Capital LLP. Prior to this, Stuart was a fund manager of strategic funds at GVQ Investment Management Limited for just over 10 years and then he spent 6 months as a partner at Harwood Capital to establish a new fund management business. He has been at Odyssean Capital LLP for just over 5 years and he has contributed to MoneyWeek’s share tips.
-
Investors should cheer the coming nuclear summer
The US and UK have agreed a groundbreaking deal on nuclear power, and the sector is seeing a surge in interest from around the world. Here's how you can profit
-
8 of the best houses for sale with follies
The best houses for sale with follies in the grounds – from a five-storey Victorian Gothic tower in Tonbridge, Kent, to a former mill in Oxfordshire with gardens that include a folly on an island in a lake
-
Investors should cheer the coming nuclear summer
The US and UK have agreed a groundbreaking deal on nuclear power, and the sector is seeing a surge in interest from around the world. Here's how you can profit
-
8 of the best houses for sale with follies
The best houses for sale with follies in the grounds – from a five-storey Victorian Gothic tower in Tonbridge, Kent, to a former mill in Oxfordshire with gardens that include a folly on an island in a lake
-
A tale of two Reits – why performance matters for valuation
AEW UK and Regional are two Reits that are valued very differently, despite a shared focus on properties outside London
-
Healthcare stocks look cheap, but tread carefully
Shares in healthcare companies could get a shot in the arm if uncertainty over policy in the US wanes, but are they worth the risk?
-
The Palace of Westminster is falling down
The Palace of Westminster is in need of repair, but the bill is prohibitive, says Simon Wilson
-
'It’s time to buy British equities'
Opinion There is no better place to start investing in UK equities than with two of MoneyWeek’s favourite investment trusts, says Max King
-
Sotheby’s fishes for art collectors – will it succeed?
Sotheby’s is seeking to restore confidence in the market after landing Leonard Lauder's art collection, including Gustav Klimt's Portrait of Elisabeth Lederer
-
How to cash in on overlooked British bargains offering both income and growth
Opinion Sue Noffke, manager of the Schroder Income Growth Fund, selects three UK stocks where she’d put her money