15 of the best investment ideas among UK small and mid-caps from broker Jefferies

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A telecom towers owner, an oil & gas producer, a translation services provider, a Lloyd’s of London insurer, a maker of cigarette filters and a housebuilder are among the top investment picks among UK mid-caps and small caps, according to analysts at Jefferies.

Including some of the best ways to play a number of big-picture themes as well as some stock-specific ideas and self-help stories, the broker’s 15 quarterly ‘best ideas’ in the SMID landscape, which on average offer 33% potential upside.

The most upside is seen from a 149p target price for Serica Energy Plc (LON:SQZ) versus its last close price of 94p.

READ: Serica Energy adds acreage near Bruce area

Currently around 80% of the company’s production is UK gas but even though UK gas prices having more than doubled in the past two months and seem to be continuing higher, the share price having fallen in correlation with the weaker oil price.

The stock therefore “has break-out potential due to gas price strength driving cashflow” in the second half, while its cash-positive balance sheet that allows for a potentially “transformational” M&A strategy.

There is also plenty of upside seen at Helios Towers PLC (LON:HTWS), with a share price target of 238p versus the last close at 149.6p.

This Africa-focused telecom towers provider “possesses the ‘holy trinity’ of growth fundamentals, excellent operational leverage and high revenue visibility”, with a falling cost of capital and M&A potential that offers “scope for the equity to quickly re-rate”.

READ: Helios Towers sees earnings rise in first half, shrugs off coronavirus pandemic

Insurer Beazley PLC (LON:BEZ) was Lloyd’s most profitable name in 2019 and, says Jefferies’ insurance analyst, “offers investors compelling value and one of the few growth opportunities in insurance”.

Despite an improving industry outlook, the COVID-19 crisis has prompted the shares to de-rate from above 15 times 2022 forecast earnings to just 6.4 times, “creating what we believe is an attractive buying opportunity”.

For Beazley the price target of 470p is around 47% higher than the last close price of 319p, while for RWS (LON:RWS) a target of 761p would suggest nearer 40% upside.

RWS’s agreed merger with fellow language and translation specialist SDL, adds operational improvements and could bring cost and revenue synergies of GBP32-50mln to underlying earnings that would give a 21% first-year accretion.

Essentra PLC (LON:ESNT), with a 360p target price; Barratt Developments PLC (LON:BDEV); with a 682p target; Avast PLC (LON:AVST), with a 685p target; and Codemasters PLC (LON:CDM), at 465p, all potentially offer between 30% and 40% upside to their last close prices, according to the Jefferies analysts.

Other best ideas include electronics distributor Electrocomponents PLC (LON:ECM), offering 24% upside at 900p; Ladbrokes owner GVC Holdings PLC (LON:GVC), with a target price of 1,250p offering 22% upside; drinks maker Britvic PLC (LON:BVIC) with 20% at 950p; photography equipment maker Vitec PLC (LON:VTC) with 19% at 905p; Synthomer PLC (LON:SYNT) offering 18% at 370p; and S4 Capital Media PLC (LON:SFOR) offering 16% at 450p.

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