1 UK small-cap stock I’d buy with £1,000

A young woman sitting on a couch looking at a book in a quiet library space.

If I had £1,000 today, I’d buy UK small-cap stock Bloomsbury Publishing (LSE: BMY). The shares are up over 25% since the beginning of 2021 and have risen by more than 75% in the last 12 months.

I first covered the stock in June and was bullish then. I reckon the stock could still rise. The trading update last month has only reinforced my positive view on the company. Here’s why.

The announcement

It was a short but sweet announcement from the company last month. But it was packed with a lot of punch. The publisher experienced strong trading for the first four months of its financial year. In fact, it delivered 28% year-on-year sales growth in the period.

That’s pretty impressive and it clearly highlights that it has managed to maintain the momentum from last year’s strong results. What’s also encouraging is that it has seen improved numbers across all its divisions during the four months.

Total Consumer sales increased by 26% with high demand for print and e-books. The Non-Consumer segment delivered a 31% rise in revenues. In particular, its digital offering has been driving the increase in its Academic and Professional division.

Acquisitions

Strategic acquisitions are very much part of Bloomsbury’s growth strategy. It offers the publisher a quicker way to boost revenue. It recently purchased two businesses.

One was within its Consumer Adult division and the other in its Non-Consumer Academic and Professional segment. This has improved its overall performance in the four months.

And acquisitions remain on the cards for the firm. In its update it also said that it’s “actively targeting further acquisition opportunities” in line with its long-term growth strategy. I guess I should watch this space.

Outlook

The board still believes that it can deliver its full-year performance in-line with market expectations. As a reminder, this is total revenue of £193.4m along with profit before tax and highlighted items of £19.3m.

It’s worth noting here that these numbers are higher than the UK small-cap firm delivered in its 2021 financial year. Previously, it generated £185.1m in sales, and profits of £19.2m. It’s reassuring that it expects the strong momentum to continue and translate to an increase in revenue and profitability.

Risks

The pandemic has helped the likes of Bloomsbury. Many people picked up reading as a hobby during lockdown. But now that economies are starting to emerge from the coronavirus crisis, I question whether the company will continue to see this strong momentum for the rest of its financial year. There’s no guarantee that it will meet market expectations. And if is doesn’t, then the stock is likely to fall.

Why I’d buy

The shares trade on a price-to-earnings (P/E) ratio of 19x. This isn’t cheap, but it isn’t too expensive either. Acquisitions are helping performance. And its digital offering allows it to scale the business too.

The stock also has a modest dividend yield of 2.5%. I don’t think this is too bad considering that it’s a UK small-cap stock, with a market cap of less than £300m. Hence, I’d buy Bloomsbury if I had £1,000 today.

The post 1 UK small-cap stock I’d buy with £1,000 appeared first on The Motley Fool UK.

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Nadia Yaqub has no position in any of the shares mentioned. The Motley Fool UK has recommended Bloomsbury Publishing. 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.

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