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Three strong small caps going cheap – MoneyWeek

LandofLeather’sbusinessisalsohugelycash-generativeanditsambitiousexpansionprogramme,whichwillseeitgrowfrom100to160storesoverthenextsixyears,willbeentirelyself-funded。

Thestockisnowforecasttoyieldmorethan7%withnetcashonthebalancesheet,andischeaponallvaluationmetrics。

Whiletheremaybeariskofaretaildownturn,ourresearchindicatesthatthegroup’srobustbusinessmodel,progressivemarginexpansionandstrongmanagementputsitinagreatpositiontorideoutthestorm。

Alsoattractive,althoughlessofahouseholdname,isElementis(ELM),achemicalsproducerwhosemanagementhasimpressedus。

Aninfusionofnewtalentatthetophastriggeredafreshstrategicapproachwhiledeliveringconsiderableimprovementsinoperatingefficiency。

Muchofitsimpressivegrowthhascomefromtheperformanceofitshigh-marginspecialitychemicalsoffering,butitscash-generativechromiumbusinesshasalsobenefitedfromstrongdemand。

Thesaleofpartofitspigmentsunitfor£70mhasleftthefirmwithanunleveragedbalancesheet,whichwillenablethecompanytoreinvestinother,morelucrativebusinesses,orreturncashtoshareholders。

First-halfresultswerestrongandweexpectmoreofthesameinthemonthsahead。

ThelevelofinfrastructuregrowthinEuropeandAsia,whichhasboosteddemandforthecompany’sproducts,islikelytoremainbuoyant,whileacapableresearchanddevelopmentfunctionwillhelptokeepElementisinafront-runningposition。

WearealsobullishonCorin(CRG),whichmakesorthopaedicdevices,specialisinginhipandknee-jointreplacements。

Itrecentlyreceivedregulatoryapprovaltoofferitsnewmetalhipresurfacingdevice,Cormet,totheUSmarket。

Weseeenormouspotentialinthisproduct:itmeetsasignificantclinicalneedandonlyoneothermanufactureroffersanythingsimilar。

Moreover,Corin’sUSdistributionpartner,Stryker,isamajorplayerinAmerica,withaconsiderablesupportnetworkthatshouldhelpgeneratesignificantmarketshare。

SharesinCorinhavemorethandoubledthisyear,butwebelieveinvestorsarestillunderestimatingtheirvalue。

ThereareconsiderablebarrierstoentryinthisfieldanddemandfromAmericaiscertaintogrowinlinewiththecountry’sageingdemographic。

ThestocksChrisFontenlalikes

Stock,12mthhigh,12mthlow,Now

LandofLeather,357p,198p,216pElementis,105p,77。

50p,96。

25pCorin,650p,234p631。

5p

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