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Two under the radar small caps analysts think you should buy

A good portfolio is a diversified one, with the golden rule for any investor to ensure they never keep all of their eggs in one basket.

Two analysts have named these small cap stocks as potential buys and its possible they’ve flown under your investor radar up until now.

Ruralco Holdings Ltd (ASX: RHL)

Agribusiness company Ruralco Holdings Ltd has caught the eye of Wilsons Asset Management analyst Peter Moran.

Ruralco Holdings has more than 40 specialist businesses operating across its network, with expertise in merchandise, fertiliser, wool, livestock, real estate, risk management, finance and insurance.

Ruralco Holdings was down 0.3% to $3 at the time of writing after a volatile 12-months of share prices from a $2.81 low at this time last year to a 52-week high of $3.30 in January, with Moran viewing the current share price as an “opportunity to buy”.

Moran said while rural services sector growth rates were usually low, Ruralco Holdings has logged sustained growth, with the company’s raft of acquisitions in its water services and rural supplies businesses the ones to watch.

Ruralco announced an underlying EBITDA of $65.4 million for FY17, up 58% on the previous corresponding period, with underlying NPAT driving up a whopping 95% over the same time period to $26.2 million.

Moran said Ruralco’s continued cost-cutting should work to lift profits for future years with the company this month finalising the roll out of its digital transformation program to streamline sales.

Ruralco will hand down its interim report on May 15.

Shriro Holdings Ltd (ASX: SHM)

Kitchen appliance and consumer products company Shriro Holdings may only have a market cap of around $134 million, but according to Medallion Financial Group analyst Michael Wayne, its successful US expansion strategy could see this emerging small cap blossom.

Shriro Holdings market and distribute a range of products under well-known brands across Australia and New Zealand, including Omega, Robinhood, Everdure and Omega Altise.

Shriro Holdings shares were $1.41 at the time of writing with share prices on an upwards trend in the last 12-months from $1.30 at this time last year.

According to Wayne, Shriro’s domestic operations are “mature” with “positive signs” emerging from the US expansion – especially out of the Everdure barbecue brand – which is targeting a 1% market share in US and German markets and could give earnings a significant boost.

Wayne said Shriro investors were “essentially getting a free option” on the company’s US and German barbecue market expansion, with Shriro trading at 9 times earnings and paying an 8% fully-franked dividend yield.

Shriro released its annual report on March 15, with highlights including a revenue boost of 2.6% on the previous corresponding period to $188.3 million thanks to growth in the Everdure and Omega Altise brands.

Further product releases are planned throughout 2018, with Shriro leveraging on its product development strength in 2017 to book solid results, reporting a FY17 NPAT of $14.5 million, up 9.8% from the previous corresponding period and a reduction of $2 million in net debt at December 31, 2017 with a net debt to EBITDA multiple of only 0.1 times.

The company’s FY18 outlook includes plans to identify potential acquisitions in product categories consistent with Shriro’s core competencies and a focus on increasing presence in overseas markets.

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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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