SMALLCAP Report

The SmallCap trades at 2202.2, compared to 2119.65 around a year ago, while the FTSE Fledgling trades at 2090.5, against 2093.55 this time last year. But where will these smallcap bellwethers finish come the end of 2003? Well, the majority of cagey City analysts are loathe to commit to forecasts – indeed, the consensus seems to be that picking winners will be very much 'a stock-specific game'. So investors could do worse than trust their instincts, look for potential bid targets and buy into those firms churning out strong earnings.

The household goods and textiles sector, awash with much share price activity this month, is home to one such stock. Games Workshop fought up to a new 52-week high of 653.5p ahead of full-year results, against a low of 407.5p. When the table-top war games maker revealed its figures for the year to 1 June they did not disappoint. Pre-tax profits rose from £13.5 million to £17.5 million, as sales surged by £20.5 million to £129.1 million, and earnings were lifted 8.8p to 37p.

'For us this has been a wonderful year,' crooned chairman and chief executive Tom Kirby, 'which is another way of saying it has simply been more of the same.'

Bids galore

A welcome return of merger and acquisition activity also brightened up the scene, with bed maker Silentnight stoking up 15.4 per cent to 138.5p on an 'indicative' 140p-a-share offer from shareholder Soundersleep.

Silk ties and scarves maker Silk Industries sauntered 22.6 per cent higher to 32.5p after admitting it is in preliminary talks about a possible offer.

Aston Villa jumped 14p to 187.5p as it confirmed a take-over approach and then added another 22.5p to close at 210p the following day. Villa confirmed the chairman received unsolicited approaches by phone from intermediaries acting for parties they were not prepared to disclose, who might be interested in acquiring shares. The calls were 'speculative in nature and no further details are available', said the club, but recent media reports suggest Villa is being targeted by a number of private financiers. One suspect is Jack Petchey, who has increased his stake in the club over the past few months through bid vehicle Trefick.

In the engineering sector, Charter clipped ahead 14.5p to 74p on speculation surrounding a takeover of its Esab welding unit. Swedish engineering venture Sandvik has been mooted as a buyer for Esab, the world's biggest producer of welding and cutting equipment. This would leave Charter with Howden, a supplier of industrial fans and gas compressors, as the core business.

Also on the move was retailer Moss Bros – marked up 0.5p to 62p on confirmation that Shami Ahmed had boosted his interest in the company to 21.15 per cent. This interest is held through contracts for differences with Cantor Fitzgerald, the owner of the underlying shares.

Support service stocks also got into the groove. Tribal, the Aim graduate and public sector support services provider, danced 6p higher to 329.5p after acquiring Kinetic Technologies for a total consideration of up to £6.96 million. Kinetic provides property and asset management software to local authorities that helps them maintain an up-to-date property register, and will merge with Tribal's asset management interests to form Tribal Asset Management.

Mouchel marched 8.1 per cent north to 160.5p on a boastful pre-close trading statement. Trading for the year to 31 July should 'again reflect significant growth in the business'. But it was not all plain sailing in the sector. Telecommunications recruiter Glotel gave up 1.5p at 68.5p, despite narrowing pre-tax losses for the year to March. Chairman Les Clark unveiled a £1.3 million deficit, down from £4.4 million, on lower sales of £75.9 million, a reduction from £98.4 million.

Another heading south was plant hire firm Ashtead, which released a profits warning back in March. The stock surrendered 6.7 per cent to 14p after the company unveiled pre-tax losses for the year to April of £42.2 million, widening from £15.5 million the previous year. Sales were lower at £539.5 million, a fall from £583.7 million.

Looking forward – Peacock struts

Peacock, focused on fashionable clothes for 25-45 year- olds, recently ruffled a few stock market feathers. The shares powered up 8p to 160p on a bullish AGM announcement from John Lovering, the chairman. He claimed like-for-like sales were up 10.8 per cent in the first quarter to June while like-for-like gross profit rose 13.6 per cent.

In a year of real progress to March, profits flew up 41 per cent to £23 million on sales up 47 per cent to £396.6 million – this included a £109 million contribution from last year's successful Bon Marche acquisition.

For 2004, Nick Bubb, analyst at Evolution Beeson Gregory, envisages profits flying to £32.5 million, on turnover of £483.9 million. This translates to an improvement in earnings from 15.3p to 20.3p and a lowly rating of just 7.7 times. 'Profits are moving up sharply,' insists Bubb, 'and though the shares have rallied sharply as well, from a low of 67p last autumn, the valuation is undemanding even at this price.'