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Giles Hargreave and Sid Chand Lall's small and mid cap winners for 2013

The co-managers of the Marlborough Multi Cap Income fund believe that despite continuing macroeconomic uncertainty, 2013 will be a year that presents attractive opportunities for the stock-picker and here are six of their top picks.

De La Rue

‘The world’s largest integrated commercial banknote printer, which is listed on the mid cap FTSE 250, is going through a period of restructuring under new chief executive Tim Cobbold. ‘The target is £100 million of annual operating profits by 2014 and we consider the CEO a conservative man, who is unlikely set targets the company cannot hit. So we would expect the company to either reach that target or surpass it. ‘De La Rue is re-tendering for its contract to print notes for the Bank of England and a switch from paper to polymer banknotes may be on the cards, which would be to the company’s advantage since it is one of only two in the world with the technology to produce them. ‘The yield is 4.5%, with the dividend flattish at the moment, but once the restructuring has taken effect there is significant potential for an upgrade because it is quite a cash generative business.’

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RWS Group

‘This is one of the world’s leading patent translation and search companies with significant exposure to the defensive pharmaceutical sector. Essentially, AIM-listed RWS allows companies to register patents in different countries and to protect them when they come up for renewal. ‘Although in recent years there has been much talk of fewer new products coming through the pipeline for pharmaceutical companies, RWS has managed to post strong profits. It seems to have the ability to overcome headwinds, is very well managed and has a strong brand. ‘RWS is in the process of acquiring Inovia, a US provider of web-based international patent filing services and could be an M&A target itself. ‘The company is yielding almost 3% but dividend growth is in double digits.’

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Stanley Gibbons

‘The UK’s leading stamp auctioneer and valuation expert, which is listed on AIM, is like the Christie’s of the philately world and we really like the company. The events Stanley Gibbons organises are a magnet for serious collectors and it has an extremely impressive line-up of experts. ‘The company recently acquired a US auction website called bidStart.com, which is essentially an eBay-style market place for stamps. It provides an exciting opportunity for Stanley Gibbons to grow its presence in online trading globally, particularly with all the specialist advice and expertise it has to back it up. ‘Stanley Gibbons is currently yielding 2.8% but for us this stock is more about capital growth.’

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Novae Group

‘This Lloyd’s of London insurer underwrites a mix of short and long-tail business, encompassing property, liability, marine and speciality classes and has performed relatively strongly in comparison to some of its larger peers. ‘Costs associated with claims for Hurricane Sandy have been relatively modest in comparison with some peers and overall the combined ratio, a measure of premiums received versus incurred losses and expenses, was much improved in 2012. ‘Novae is a small cap and its size makes it ripe for consolidation in the sector. Whether that happens or not, the company’s return on equity is improving and it has a good client book. It is in turnaround mode, with some recent management changes, and is a stock we see as having strong potential. ‘The yield is forecast to be 5.9% this year and dividend growth of 5%-10% is expected.’

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Metric Property Investments

‘This is a real estate investment trust (Reit) focused on UK retail sites and it has performed strongly. The company has a strong management team: the chief executive is Andrew Jones, who was previously executive director and head of retail at British Land. ‘The strength of this company is in the management of its assets. The management follow a very active approach in taking steps to enhance rent and occupancy at the company’s retail parks. ‘Metric is in the process of a proposed merger with London & Stamford Property, another Reit, which has a focus on commercial property, including retail, office and distribution properties. It looks like a natural fit because a number of the senior people at Metric and London & Stamford previously worked together at Pillar Property, which was taken over by British Land in 2005. ‘Metric is currently yielding around 3.3% but 15%-20% dividend growth is possible this year.’

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Tarsus Group

‘This small cap is a business-to-business media group with a focus on exhibitions and conferences. It is a very well-managed company and has a strong presence in a number of emerging markets, including China, Turkey, Malaysia, Thailand and Indonesia. ‘Tarsus has set a goal of achieving half of its annual revenue from emerging markets this year and recently completed the purchase of a 50% stake in the GZ Auto automotive trade fair in Guangzhou in China. ‘As a smaller operator, Tarsus is able to be pretty tightly focused on what it is doing. It is also careful about the markets it goes into, which is an important consideration with such a strong focus on the emerging economies. ‘The nature of the business means you get paid upfront so there is good earnings visibility, and we believe Tarsus could be a possible acquisition target by a larger player. ‘The yield is around 3.7% with the prospect of dividend growth of about 5%, but a key consideration for us is the reliable nature of the dividend because of the cashflows.’

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