Alternative therapy: the verdict on Aim’s recent additions

Still, whether or not you buy the theory that uncertainty around the general election stalled pent up demand for IPOs, life seems to be trickling back to Aim in time for its 20th birthday next month. There have been five new listings in May at the time of writing, with at least two more expected before the close of the month. Businesses including a fishing tackle retailer and a Burmese social networking site are lining up to float. Some of those companies to join the market in recent weeks are beneath the £20m market capitalisation floor we normally set as a floor on our day-to-day coverage - others, though, are fairly substantive businesses. Among both groups are some interesting businesses, eight of which we review here.

VERSEON

The largest float of the period went to Californian biotech group Verseon (VSN), which achieved a £302.5m valuation earlier this month despite having no drugs in clinical development. Early-stage investors, including Standard Life and Neil Woodford’s recently floated Patient Capital fund, are backing the company’s ability to discover medicines through computer algorithms. By doing so, the platform founded by mathematician and chief executive Adityo Prakash aims to vastly reduce the time it takes to develop and bring new drugs to market. Early-stage development of treatments for cardiovascular disease, diabetes and solid tumours is under way, which the company hopes will lead to partnerships with larger pharma companies. At 212p, investors willing to take the same long-term approach as Mr Woodford now have the opportunity to get in at just 5 per cent above the price his fund paid for shares, but without clear forecasts - either financial or on the development pipeline - we are happy to sit tight. But given Verseon’s computer-aided business model, milestones that might give a clearer indication of an appropriate valuation shouldn’t be far away. Hold.

MOTIF BIO

Continuing the pharmaceuticals theme is Motif Bio (MTFB) a drug development company which priced at £20m on its April float. One of the great threats to modern medicine is the rise and spread of antibiotic-resistant microbes, a scenario Motif hopes it can stave off with the eventual commercialisation of its icalprim antibiotic. Shortly after listing, the company received the green light from the FDA to enter Phase 3 clinical development of the drug, which an earlier holder of the icalprim patent failed to achieve when it sought approval in 2008. Successful Phase 3 results would provide the catalyst to move our hold recommendation to a speculative buy, given the huge global demand for new antibiotics. Another play on this story is Redx Pharma (REDX), which beat Motif to the market by listing in March.

MAYAIR

From battling the health risks posed by infection to those of pollution, one of the larger fundraisings of the period went to Mayair Group (MAYA), an air filtration and purification technology provider headquartered in Malaysia which tapped investors for £16.2m for its listing at the beginning of May. A trading update on the first day of dealings was immediately encouraging, and stated sales in the first four months of 2015 were 90 per cent up on last year. At 133.5p, Mayair shares trade at 13 times 2014 pre-tax profits, which looks like decent value for a fast-growing company.

Given the company’s main operations are in China – where it is the market leader – our instinct is to exercise extra caution, though large contracts to service the industrial cleanrooms of OSRAM, Sony and SanDisk are all to the good, as are the prospects of greater residential and commercial sales. The lumpy nature of Mayair’s order book is of greater concern, however: three projects set to complete this year account for “a substantial proportion” of all agreed sales. Hold.

WINDAR PHOTONICS

Windar Photonics’ (WPHO) business also concerns the movement of air, although it is unlikely you will be familiar with its main product: a sensor placed on top of wind turbines which measures the direction and speed of the wind using a laser beam. But Windar’s LiDAR system – which reduces stress on the turbines’ components and can help generate an extra 4 per cent increase in power – will certainly be on the radar of all wind energy companies and their financiers. Sales are expected to significantly ramp up next year, when broker Edison estimates pre-tax profits will hit €12.7m (£9.1m), translating to 26¢ (19p) earnings per share. At 123.5p, that puts the shares on 7 times 2016 forecast earnings. It’s early days, but such a clearly disruptive (and patented) technology offers huge upside, beyond the early gains on the 100p listing price. Buy.

MARSHALL MOTOR HOLDINGS

Main market listings for Auto Trader and BCA Marketplace so far this year have highlighted the gearshift in ownership of companies in the car dealership market. Joining Aim in April was Marshall Motor Holdings (MMH), a motor dealer and leasing specialist which raised £40m to value the company at £115m.With a good exposure to the buoyant premium car segment and the shares trading on less than ten times 2014 operating earnings, Marshall has parallels with Cambria Automobiles (CAMB), another quality small car dealer and longstanding buy tip. The new entrant is profitable, growing at a similar rate and looks well-managed. Buy.

STRIDE GAMING

Another company joining the public markets at a time of broader shifts in its industry is Stride Gaming (STR), which began trading on 19 May following an £11.2m equity raise. The group hopes to benefit from consolidation in the gaming sector following last year’s changes to the point of consumption tax. Stride is pursuing a buy and build strategy, though it already owns a number of online gaming and bingo brands including Kitty Bingo and Jackpot Café, and counts former Sportingbet chief executive Nigel Payne as a non-executive chairman. The shares are up 40 per cent on their 132p placing, giving a price-earnings ratio of 18 times annualised cash profits for 2014. This is towards the lower end for the sector, but given growth in online bingo sales is slowing, the margin of return on any acquisitions will face challenges. Hold.

TECHFINANCIALS

The recent travails of Techfinancials (TECH) make Aim-traded trading outfits seem like a bit of a gamble. The developer of binary options software for traders saw its share price soar following a 27p placing in March. But it seems to have contracted some of the negative market sentiment for trading platform companies sparked by the collapse and suspension of shares in fellow Aim stock Plus500 (PLUS). With a touch of 20-25p, illiquidity in Techfinancials' shares is likely to blame for its own share price decline, but given the uncertainty in the sector, now doesn't feel like the time to jump in. Hold.

ZEGONA COMMUNICATIONS

Other floats in the period include media investment vehicle Gate Ventures (GATE) and Zegona Communications (ZEG), the latter of which raised £30m from big-name investors such as Marwyn and Fidelity with the promise of acquiring a struggling European network communications or entertainment company with a sound strategy and an enterprise value of at least £1bn. That fundraising reflects the faith in the company’s experienced management team, which oversaw the $24bn (£16.2bn) sale of the media and telecoms provider to Liberty Global in 2013. It is likely Zegona has identified a target already, though at this stage it’s difficult to give a recommendation on management alone. Hold.

New Aim listings since 1 March 2015