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I believe there are plenty of quality UK shares that perhaps go under the radar due to a lack of brand power or name recognition.
Two picks I reckon investors should consider buying are Topps Tiles (LSE: TPT) and Michelmersh Brick Holdings (LSE: MBH). Here’s why!
Tiling giant
Topps Tiles is one of the leading tile and flooring firms in the country. It possesses a vast physical presence as well as a long track record. However, it still trades as a small-cap stock.
From a bullish view, it’s hard to ignore Topps’ track record, longevity, and leading market position. This could help the stock provide good shareholder value over time. Plus, the business has moved with the times as shopping has evolved. A prime example of this is its online offering to cater for changing shopping habits.
Looking to the future, Topps is in a great position to benefit from interest rate cuts and the growing demand for housing. New and renovated homes need tiles and flooring. Topps can utilise its advantageous market position to grow performance and returns here.
Finally, a dividend yield of 8% looks attractive. However, it has been pushed up by a falling share price linked to economic volatility. Although payment coverage doesn’t look like an issue at present, it’s worth remembering that dividends are never guaranteed.
Reviewing the bear case, the e-commerce boom has welcomed unwanted competitors to Topps’ door. It must navigate higher overheads, such as rental expenses, and this could impact pricing power. Losing market share could hurt performance and returns. Another issue is that of economic volatility – like now – which could mean consumers have less money to spend on home renovation projects.
Despite some potential issues, Topps is a solid business with a good track record and attractive fundamentals.
Bricks and mortar
Michelmersh is a bricks, roofing tiles, and construction products manufacturer.
A big plus point for Michelmersh is the fact it manufactures its own products. This is from its own site in Telford. This can help control costs, as well as quality levels.
Moving on, demand for bricks and construction aggregates could soar in the coming years. This is linked to infrastructure demand increasing in line with a growing population.
Furthermore, demand for homes is outstripping supply. This shortfall needs to be addressed. All of these aspects could translate into boosted performance and returns for Michelmersh shareholders.
From a fundamentals view, the shares offer a solid dividend yield of 4.5%. In addition to this, the shares look decent value for money as they trade on a price-to-earnings ratio of 11.
Taking a look at risks, inflation could hinder Michelmersh as increased costs of raw materials could drive up operating costs. This could mean the firm must increase prices and risk losing customers, which could put its margins under pressure.
Another concern is economic volatility. It could hamper the property market — a bit like now — as well as infrastructure projects being delayed, or even cancelled.
Michelmersh may not possess a powerful brand name or wide reach. However, it has good fundamentals, and bright prospects for the future too.
The post 2 quality small-cap UK shares investors should consider buying appeared first on The Motley Fool UK.
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Sumayya Mansoor has positions in Topps Tiles Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2024