Premium content from Motley Fool Hidden Winners UK

Our monthly Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of small-cap recommendations, to help Fools build out their stock portfolios.

Why we like it: Another recurring revenue business, Porvair (LSE: PRV) is a designer and manufacturer of specialist filters for a wide range of end sectors. This isn’t a sexy Software as a Service business with monthly or annual recurring revenue counted in the hundreds of millions and growing at double-digits. But it does have recurring revenue all the same. These recurring revenues are great for both management teams and outside investors seeking to forecast how the business will develop in the years ahead.

While Porvair and the filters it makes aren’t the most exciting subject ever, its often-patented filters aren’t easily interchangeable by its customers, and the company generally watches as the cash rolls in when these specialist filters are replaced at regular intervals. Even if the business itself isn’t glamorous, since the Financial Crisis the steady, profitable growth and shareholder returns the company has generated have been quite exciting. We think Porvair is a great example of a boring, dependable business that could generate impressive returns going forward too.

Why we like it now: Typically the shorter Porvair’s trading updates are, the better the news they contain. And that was the case with the very short full year trading update released earlier this week. We were told constant currency revenue growth for the full year should be around 13% (9% actual due to the strengthening of the pound) – a marked acceleration from the 8% (5%) figures posted in H1 respectively. Adjusted earnings per share are also expected to be slightly above market expectations, which would put Porvair on a P/E just shy of 18x. We think that’s attractive given the company’s net cash position, cash generative operations, high degree of recurring revenue, and organic and inorganic growth potential. .