The Alternative Investment Market (Aim) deserves the attention of every serious investor. It's here that you'll find exciting investment opportunities with the potential for galloping growth, plus lots of sturdy small companies operating in a wide range of sectors. It's also a great way to watch companies and learn. But what should you buy? separating the winners from the losers isn't always an easy task so we've asked our Aim experts to select the best shares on the market. These are Andrew Hore's selections.
Altona Resources
Altona Resources is developing an ambitious coal-to-liquid project in South Australia. The process turns the coal into diesel as well as removing the CO2. Altona expects to complete the pre-feasibility study for the Arckaringa project in the first quarter of 2008. This is a long-term project that will cost more than $3bn and partners will be required to help finance it. The project will use coal from Altona's Wintinna deposit in South Australia and will include a combined cycle power plant, which could increase South Australia's generating capacity by more than 10 per cent. Altona has also signed a memorandum of understanding with South Australia's largest electricity producer to supply it with 4m tonnes of coal a year for 25 years. Electricity demand is increasing in South Australia and new mines will need even more power. Altona has appointed Bell Potter as its Australian adviser. An ASX quotation would make sense and might help the share price to recover.
Aukett Fitzroy Robinson
Architect Aukett Fitzroy Robinson doesn’t appear to have been hampered by its failed merger talks with rival SMC Group. It says that results for the year to September 2007 will be in line with expectations and will be announced on 15 January. Aukett has also gone from a net debt position of £180,000 to a net cash position of £1.68m over the past 12 months. Aukett is an architect, design and planning services business formed by the merger of Aukett Group and Fitzroy Robinson at the end of March 2005. By merging the two companies and creating a larger and more financially sound group it improved its chances of winning work on larger projects. Clients include Royal Bank of Scotland, Land Securities, Arlington, Norwich Union and Diageo. The group has offices in continental Europe, including Poland and Russia. Management describes the order book as buoyant. Projects range from international hotels in the UAE to offices in the UK.
CareCapital
CareCapital develops and invests in healthcare properties in the UK and Germany so most of its rental income is effectively guaranteed by the government. Its developments include primary care medical centres (including pharmacies), intermediate care facilities, treatment centres and dental centres. Some of these developments also include retail space. The current UK portfolio includes 13 medical centres, five pharmacies, two dental practices and one health promotion unit, plus a number of new developments. It also owns three centres in Germany with another four being developed.
CareCapital floated on Aim in August 2006 at 30p a share, but the £1.5m it raised was less than it originally wanted. It needs to raise more cash, but the low share price is making that difficult. Management has been approached by institutional investors interested in taking equity stakes in its newer developments. This could be a way of financing growth without the need for a dilutive share issue in the short term.
Gladstone
Membership software developer Gladstone has a strong position in the health and leisure club sector and it plans to build up its presence in the education sector. Cash generated from the existing operations will help to finance the development of this new market, although it will hold back short-term profits. Gladstone has recurring revenues of more than £3.3m, out of last year's turnover of £9.19m. Education turnover is only a small percentage of the group total at the moment, but it will be the main source of growth. Gladstone OnRecord software covers cashless payments and e-registration. The UK government has earmarked cash for spending in this area and Gladstone has won its first few contracts. Gladstone had net tangible assets of 11p a share at the end of August, which included net cash of £5m. Share buy-backs, at 22p, 22.5p and 20p a share, will have used up nearly £1m of that cash.
Independent Media Distribution
Independent Media Distribution (IMD) developed technology to send radio adverts digitally to radio broadcasters and then widened its customer base to TV ads. TV revenues have now overtaken radio revenues. IMD sees itself as the digital postman for adverts on behalf of advertisers, their advertising agencies and video post-production houses. Previously, copies were sent by bike. IMD is the major player in both of its core markets and it is winning work from its main competitor. In December 2006, IMD bought Optimad, which operates a platform that links media buyers, advertising producers and broadcasters. The company's system takes orders and helps broadcasters reduce errors. A new service, called Legato, will help to improve the efficiency of media buying and IMD has also expanded into Germany.
In the first half of 2007, IMD went form a loss of £150,000 to a £430,000 profit. In November, IMD said that second-half trading was strong and this is expected to continue into next year. Prior to the end of 2007, its chief executive bought 25,000 shares at 40.25p each and the finance director acquired 25,000 shares at 39p each.
Plant Impact
Plant Impact, which develops technology to improve crop yields, is talking to a number of large companies that could become partners or licensees of its technology. This will be a crucial year for the company because it needs to turn some of these potential agreements into deals. Many of these large agrochemicals companies approached Plant Impact when they heard about the positive test results of its products. Management has high hopes for its BugOil pest-control product. It is being patented and could be on the market in a much shorter time than other, non-natural pesticides. Another key market could be the growing of crops in areas where the water has a high salt content - Plant Impact is developing a crop nutrient called Alethea that can help. There is still £2.36m of cash on the balance sheet, but that will run out in about 18 months if additional revenues don't come through. Hichens Harrison believes that the company can break even with sales of £3m-£4m.
Probability
Mobile gaming company Probability has gained a strong position in this growing market because of its early entry and technological expertise. It has signed up a number of high-profile partners, including Rank (Blue Square), Orange and The Sun. This will help to accelerate its rate of growth. It started out offering casino-based games, such as roulette and blackjack, and has diversified into bingo and slot-machine-type games, which offer higher margins. Probability's technological expertise gives it an edge over its competitors and acts as a barrier to entry. Making sure that games are compatible with new handsets when they are launched is deceptively difficult. Probability's games can be played on thousands of different handsets. Probability lost £599,000 in the six months to September 2007, but it broke even at the operating level in September. It will make a much smaller loss for the year as a whole and could make £800,000 profit in 2008-09. Probability still has cash of £1.03m in the bank.
Surgical Innovations
Surgical Innovations' core business is developing instruments for keyhole or minimally invasive surgery. It has a good reputation in Europe and wants to build up its sales in the US, which is the biggest market in the world for these instruments. Last year, Surgical Innovations raised £4m at 3.5p a share to finance marketing in the US, additional stock and further product development. There is a move towards instruments in which part of the instrument can be reused in order to keep down costs, while other parts are replaced each time it is used. Surgical Innovations has launched a new product in this area which it believes will be much more cost-effective than its disposable competitors. The company has signed a five-year distribution deal worth $20m with MGM Med Inc in the US. The loss of an outsourced manufacturing contract hit sales in the first half of 2007, but they have been replaced by additional sales of its own products.
Vindon Healthcare
Vindon makes environmentally controlled clean cabinets and blood bank storage units, but its growth is coming from offering outsourced drug and compound storage services to the major pharmaceutical companies. Services account for nearly two-thirds of turnover. There are already £1.9m of committed revenues for 2008 - more than one-third of forecast revenues for the group. Last year, Oldham-based Vindon raised £1.9m to finance a move to larger facilities. The delay in sorting out the new premises hasn't helped the share price but, just before Christmas, Vindon announced it had secured a site close to the M62 in Rochdale. The new facility will be nearly 30,000 square feet when it is finished next autumn and will cost £3.3m. The sale of the Oldham site will produce further cash to help finance this. Vindon will be able to double its manufacturing capacity and increase its storage and disaster recovery facilities by nearly five times as a result.
Andrew Hore was formerly Investors Chronicle's smaller companies editor. He now works as a freelance journalist, contributing to the IC, Growth Company Investor and the Aim Bulletin.
