September 2025

How do you currently view valuation levels in the UK small- and mid-cap space and what is your view of the year ahead from a market perspective?

Valuations of UK equities relative to global equities are at discounts not seen since the mid 1990s. Within the UK, smaller companies trade at wide discounts to larger companies.

While UK investors still seem to be reducing allocations to domestic companies, US investors have been materially increasing UK allocations so far this year. Despite (or perhaps because of) the macro economic and geopolitical uncertainties, the UK looks like a relatively attractive market when viewed with a global perspective. Low valuations price in an exceptionally pessimistic outlook which we believe is unwarranted.

International inflows and elevated takeover activity validate the view that savvy investors see value in UK small and mid cap equities. We agree. The relatively strong performance of the FTSE100 this year, particularly in sterling terms outperforming the US markets, we see as a necessary precondition to small and mid caps outperforming.

Do you feel there is too much short term-ism in the market?

The market remains volatile and sentiment driven and as a result reacts sometimes excessively to short term newflow and trading updates. We take a long-term fundamental view so short term dislocations and volatility often create fantastic entry points into high quality companies with great long term prospects at attractive valuations. The opportunities in the current market are compelling.

What capital allocation strategies do you prefer to see from growing small-cap companies? How should a listed company balance reinvestment for growth vs returning capital to shareholders?

In normal market conditions, we prefer companies to allocate excess capital to organic growth initiatives or strategic M&A activity, provided we are convinced of the potential return on that investment.

A sensible and progressive dividend policy is often also attractive, provided it is compatible with a company’s growth strategy. However, in current market conditions where many companies are trading at wide discounts to their intrinsic value we see a compelling case for using excess capital to buyback stock at low valuations as this is highly accretive to ongoing shareholders.

We believe boards undertaking buybacks for this reason should be very clear to the market with the message that they view it as a compelling use of capital that will generate positive shareholder returns, precisely because of their confidence in the undervaluation of their equity. This is a very topical subject in the current market.

What are common mistakes you see listed companies make when communicating with institutional investors?

Many listed companies don’t clearly articulate their vision for the future and strategy for the business, and how that links to shareholder value creation. A CEO should be able to articulate this in a small number of bullet points and not a 15 minute monologue, and also not give a purely financial target.

What will make this business valuable over the long term and what are the 3 or 4 things we will be focusing on as a management team that will really move the needle to achieve that?

Simple to say not always simple to execute!

What is the most interesting thing you’ve read or watched recently?

A novel called Apeirogon by Colm McCann from 2020 which explores the Israel/Palestine conflict through the experience of two bereaved fathers. It manages to cover generational conflict, geopolitics, personal tragedy and redemption as well as mathematics and the wonders of ornithology, the physics of bird flight and migration. An eclectic mix weaved together masterfully and a surprisingly easy read given the subject matter.

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Please note: The views and opinions expressed in this interview are those of the individual financial professional(s) and do not necessarily reflect the views or opinions of Alma Strategic. These insights are provided for informational purposes only and may not be relevant at the time of reading, as market conditions can change rapidly. The information provided should not be construed as investment advice or a recommendation to buy, sell, or hold any financial product or security. Individuals should conduct their own research and consult with a qualified financial advisor before making any investment decisions. Alma Strategic disclaims any responsibility for the accuracy or completeness of the information provided in this interview.