Super stocks

Move over, Fever-Tree

The upmarket drinks maker is not the only smaller business that can shoot out the lights, writes James Connington

High-end drinks company FeverTree has become the poster child for Britain’s smaller companies sector. But which other small and mid-sized British companies are poised to deliver similar returns?

Since floating on the Aim market in November 2014, Fever-Tree’s share price has soared by more than 1,500pc (see graph, below). Its success has come from entering a neglected market it could quickly dominate. It has repeatedly exceeded profit forecasts, and over the past 12 months has grown earnings by 113pc, with a 35pc operating margin, according to investor screening service Stockopedia.

Last October Telegraph Money highlighted six companies tipped by professional portfolio managers to be the “next Fever-Trees”. Most have fared exceptionally well since then (see report, right). Here we identify five further firms that have similar promise and sparkle.

Bodycote

This £1.7bn business offers heat treating services for metals and operates across 23 countries.

Philip Rodrigs, manager of the River & Mercantile UK Equity Smaller Companies fund, explained that the firm is relied on by many leading industrial companies.

The company has recently launched its new “Powdermet” technology, which combines 3D printing with the firm’s own powdered metal processes.

“Bodycote’s radical approach to 3D printing metal components could be transformative for the business, and turn a cottage industry into the next major advance in manufacturing,” Mr Rodrigs said.

He added that a new management team had much improved the firm’s ability to deal with the cyclical nature of the industrial sector.

Quixant

Quixant designs and manufactures both software and hardware for the casino slot machine industry.

Eustace Santa Barbara, who comanages the Marlborough Special Situations fund with veteran smaller company specialist Giles Hargreave, said: “In recent years, leading casino slot manufacturers have moved toward outsourcing. Quixant is establishing itself at the forefront of this trend. Growth should continue through further gains in market share, an expanding range of products and the potential opening of new regulated markets, such as Brazil and Japan.”

He said there was scope for doubledigit earnings growth in the medium term, and that the £279m firm was in a strong position to buy up other companies.

B&M European Value Retail

This £3.6bn discount retailer is aiming to tap into the trends that have driven the success of Aldi and Lidl. Mr Rodrigs said the company’s attractive product pricing model was “strongly resonating with the UK consumer”.

“This is a combination of internal improvements after a period of disruption and the trend for consumers to hunt for value as inflation increases prices,” he said.

“Its high pace of growth is fuelled by cash generation, which is supporting the firm’s roll-out across the UK and Europe.”

He added that value retailers had been proven to perform well in a recession – adding protection.

Smart Metering Systems

This £551m business has delivered consistent profit growth by owning a growing network of smart meters on which utility companies pay rent. It also installs electricity and gas meters.

Dan Nickols, manager of the Old Mutual UK Smaller Companies fund, said that despite the company’s premium valuation, “earnings growth is significant at 20pc year on year”.

In addition, the business has a healthy operating margin that sits at around 30pc. The stock is a top 10 holding in Mr Nickols’ fund.

Attraqt

This £44m company sells software to online retailers that improves the presentation of websites and

offers customers personalised product recommendations.

Matt Tonge, co-manager of Liontrust’s UK Smaller Companies fund, said the business offered three particular strengths: “It has intellectual property in the software code, customers increasingly rely on the product and its products are sold on a monthly basis – meaning 90pc of revenues are recurring.”

Following a recent acquisition of a competitor, Attraqt is now also “the leading player in the field in a structurally growing market”.

Mr Tonge added that, compared with similar companies, the valuation was attractive.

Mixer-maker Fever-Tree has become a byword for rapid growth