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Although the relative performance of London's small cap companies has held up fairly well in recent years (compared to a raging bear market), the sector still suffers from the same old problems, namely lack of liquidity and poor interest from institutions.

As if on cue, research conducted by KPMG Corporate Finance last year found that 50 per cent of institutional investors felt their desire to invest in the small company quoted sector was constrained by the lack of shares available on the market. On top of this, the recent dearth in new initial public offerings to boost interest in smaller companies among the institutional big boys has also depressed the sector, a fact reflected in the fall of the Small Cap Index to 1681.49 against 2551.35 a year ago.

Sailing ahead of City targets

James Fisher sailed in with record 2002 numbers ahead of expectations. The shipping company, which is focusing on marine support services, steered profits from £8.1 million to £9.7 million on turnover of £71.1 million. City analysts now expect the expanding marine support services side to buoy 2003 numbers and the shares are trading at 147.5p, against 52-week peaks and troughs of 178.5p and 96.5p respectively.

Meanwhile, motor retailer CD Bramall accelerated 14p to 307.5p on calendar 2002 profits that also topped expectations within the Square Mile. Turnover raced past £1 billion for the first time thanks to a seven months' contribution (sales of £346 million) from acquisition Quicks and profits motored ahead 26.5 per cent to £24.1 million. 'The year has started well and we are in front of our budget after two months,' roared Tony Bramall, the chairman. Analysts at KBC Peel Hunt maintained 2003 estimates following the numbers – investors should look for trading pre-tax profits of £26 million and earnings of 48p, for a forward rating of only 6.4 times.

Elsewhere, news of a buy-out approach left Hamleys, the toy retailer famed for its store in Regent Street, 11.5p happier at 138p. The 'general retailer'-listed company has granted chief operating officer John Watkinson and finance director Ian Parker permission to look into raising cash for a possible MBO. The shares are trading against a 52-week high of 177p, partly due to nervousness towards London retailers whose sales may have slowed due to the congestion charge, the closure of the Central Line and absent tourists.

It was a stellar month for another toy business – train set stock Hornby, which waltzed off with the Company of the Year Award at the prestigious PLC Awards 2002 dinner. The shares, currently switching hands for 511.5p, have outperformed the FTSE All-Share Index by roughly 185 per cent in the year to February.

Support surge

March saw the results season in full flush and many 2002 numbers were well received in the support services sector. Watermark Group gained 8p at 87p as profits, sales and earnings per share reached all-time highs yet again for 2002. Bossed by former broker John Caulcutt, the company provides marketing support to the international travel industry.

Another marked higher was Management Consulting, headed by the affable Kevin Parry. The shares sparked up 0.5p to 39.5p as sales swelled 49 per cent to £107.3 million, EBITDA was boosted from £900,000 to £9.2 million and the company returned to the dividend list.

Furthermore, John Menzies, the newspaper and magazine distributor-cum-air cargo and passenger handling services concern, moved 16.5p higher to 270p on a return to profit for the year to 28 December. Chief executive David Mackay unveiled a 128 per cent profits rise to £25.9 million last year on turnover up 4.5 per cent to £1.2 billion — helped by a turnaround to profit in aviation services and after adjusting 2001's figures for a year-end change. Nevertheless, the shares have waned from a 351p 52-week peak.

Hardy higher on half-time profits

The star turn in the finance sector was Lloyd's insurer Hardy Underwriting. It doubled pre-tax profits to £1.8 million in the half year to last June, following a similar 100 per cent increase to £3.2 million pre-tax in calendar 2001. At 224.5p, the shares have risen up from a 139p low over the past 12 months, in defiance of the rest of the stock market.

Looking forward

Engineer Metalrax stirred investors with sterling annual numbers for the year to December 2002. Pre-tax profits were up 6.3 per cent to £12.3 million on another year of record turnover boosted from £108.5 million to £111.7 million. Chairman Eric Moore said the figures represented 'a robust trading performance in difficult economic circumstances'. Savvy management of cash saw a net inflow of £16 million (higher than pre-tax profits for the sixth year in a row). Broker Arbuthnot Securities has pencilled in pre-tax profits of £13.2 million this year giving earnings of 7.6p per share and another 5.4p distribution. On these numbers the 71p shares are trading on 9.3 times forecast earnings and yield a prospective 7.6 per cent.