I’m an ex-IT man so when analysing small-cap UK shares, I have a tendency to take a look at tech shares. That is an trade I’ve plenty of expertise in, making it simpler for me to gauge if these firms are doing the best factor and are price contemplating.

Two which have popped up on my radar currently seem like buying and selling far under their truthful worth. That’s all the time a superb place to start out however it’s no good in the event that they don’t have sturdy development potential.

So I made a decision to dig deeper.

An up-and-coming IT agency

Redcentric (LSE: RCN) is a managed providers supplier, providing the standard IT mixture of distant entry, networking and cloud assist. With a £187.5m market cap and 659 staff, it’s an up-and-coming firm listed on the AIM market.

It’s been unprofitable for the previous two years and the shares have fallen 22% since late Might. However future money circulation estimates stay excessive and the present price is estimated to be undervalued by 48% utilizing a reduced money circulation mannequin. That means there could possibly be first rate development potential — if the forecast earnings development of 63.8% materialises.

May that occur?

Effectively, in its full-year 2024 outcomes launched in August, income was up 15%. It nonetheless posted a internet lack of £3.4m however earnings per share (EPS) improved from a 5.9p loss to a 2.2p loss. General, efficiency has been enhancing over the previous few years.

Nonetheless, it’s treading a advantageous line with debt. At £43.5m, it seems to be like its working earnings solely covers debt curiosity by 0.6 occasions. That places it prone to defaulting if earnings are available decrease than anticipated.

For now, it’s sufficiently coated by fairness however it might want to drop a bit earlier than I contemplate the inventory a purchase for my portfolio.

A assured electronics agency

TT Electronics (LSE: TTG) hit the information final week when it rejected three takeover bids — two from fellow electronics agency Volex and a 3rd from an nameless supply. The shares skyrocketed 54% on the information, which seems to be nice till we zoom out.

The price is definitely down 30% this yr as a result of the corporate reported potential profitability points in September.

Following information of the rejected bids, Deutsche Financial institution put in a Purchase score on the inventory.

TT Electronics manufactures electrical parts for vital industries like healthcare, aerospace and defence. It operates throughout Europe, offering options for wi-fi connectivity, movement sensors and energy administration. It’s a comparatively small firm, with a £198m market cap and fewer than 5,000 staff. Income in 2023 got here in at £613.9m.

In September, it delivered a buying and selling replace revealing operational points in North America. In consequence, it lowered its anticipated income and earnings for the second half of 2024. The price fell 37% following the information, prompting the takeover bids I discussed above.

That’s the place the chance is available in. If the problems in North America aren’t resolved, earnings might take an extra hit. It’s already a small firm working in a reasonably aggressive trade. As a a lot bigger agency, the jilted Volex might attempt to elbow in on its market.

Nonetheless, the rejections of the takeover bids reinforce the corporate’s religion in its true worth. With confidence that sturdy, it could nicely get well, making the present low valuation a possibility price contemplating.