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The Aim 100: 70 to 61

Numbers 70 to 61 of our top 100 Aim companies
April 19, 2013

70. Fyffes

Tropical fruit importer Fyffes (FFYL) joined Aim in 2007 after splitting with its fresh produce arm. Now, for the first time since the de-merger, the oldest fruit brand in the world reported full-year revenues totalling more than €1bn - a 19 per cent rise on the previous year. It also closed the year with €8.6m in net cash. That's not bad given Fyffe's vulnerability to factors beyond its control. Profits are inherently volatile as they're at the mercy of selling prices, exchange rates and costs of fruit, shipping and fuel. Last year Fyffes offset this by increasing volumes and overhauling shipping costs, so that adjusted operating profit grew an impressive 45 per cent to €28.3m. It's also worth noting that Fyffes is organised into two separate operating divisions: Tropical Produce grows and imports bananas, pineapples and melons for distribution; while Property is a 40 per cent stake in international property developer Balmoral. Fyffes' share of Balmoral's losses in 2011 amounted to €5.9m. Should it report losses this year, the maximum impact for Fyffes would be a further write-down of its investment from €50,000 to nil.

Fyffes' shares have jumped 18 per cent year-to-date and now trade on just seven times earnings, with a decent dividend yield, too. An operating margin of just 3.5 per cent doesn't leave much room for manoeuvre, but is on par with bigger sector peers, such as Del Monte. With the shares near historic lows, it might be a good time to speculatively take a bite. Buy. JB

 

For the first time since its de-merger, Fyffes, the oldest fruit brand in the world reported full-year revenues totalling more than €1bn.

 

69. Numis Corporation

Three phrases sum up the state of the London stockbroking fraternity - consolidation, liquidation and survival of the fittest. Falling work-loads, notably in mergers and acquisitions, has driven some brokers into the hands of the administrators, while a handful of others have been swallowed up by larger banks and asset managers.

Numis Corporation (NUM), however, is one of the survivors, thanks to a successful programme of cost control and a more diverse revenue stream, notably from an increased focus on the retail bond market. It also has a cash pile of over £50m, useful because earnings haven't covered dividend payments for three years, and cutting the dividend is an unlikely option given that employees hold 43 per cent of the shares.

Still, despite the tough climate, business is picking up as Numis attracts business from brokers no longer in the market, and the company reckons that profits in the six months to the end of March will be substantially ahead of the previous year. However, it is too early to say whether the more active start to the year will continue. And there is plenty of catching up to do. For example, there were 462 flotations on the Aim market in 2006, raising £9.9bn. Last year there were just 71, raising £707m. Hold. JC

 

68. May Gurney

May Gurney's (MAYG) shares look destined to be leaving the junior market after rival construction groups Costain and Kier entered into a takeover battle for the beleaguered infrastructure support services company. May Gurney operates in local government, providing services such as filling potholes and collecting rubbish, as well as digging holes and fixing pipes for utility companies. For years this provided steady, if unglamorous income, attracting investors with the steady dividend growth and chunky yield. But May Gurney found itself in the eye of an austerity storm, having to maintain levels of service as customers hacked back their budgets.

An ambitious growth strategy of acquiring Scottish utility maintenance company Turriff and expanding waste collection activities under the MaGos scheme ran into trouble last year. The decision of a major customer, Scotia Gas, to take its contracts back in-house was followed by two contracts under the MaGos collection system turning loss-making. A profit warning in September last year saw the shares collapse and this was backed up by dismal half-year results, which saw the group slump to a loss. It looks like the best hope of salvaging some value from shares in May Gurney will be a successful bid from either suitor, but we wouldn't advise chasing one because any upside is likely to be already in the price. Hold. JF

 

67. Wandisco

It's been one big party for investors in enterprise software company Wandisco (WAND) ever since it came to market in July 2012 in an oversubscribed IPO - shares in the company have more than tripled since then. The question now, though, is whether the price has run too far ahead of the company's financial reality.

Certainly, Wandisco has developed innovative technology, which allows multinational companies to work more efficiently by synchronising their servers around the world and eliminating downtime. It already boasts a blue-chip client base that includes the likes of Wal-Mart, HP and even China's telecoms equipment giant Huawei, and analysts are optimistic that its new patent protected 'Non-Stop NameNode' product should help it make massive strides into the nascent 'Big Data' market. That market - which is being driven by the growth of cloud-based applications - is expected to grow at 32 per cent a year to reach $24bn by 2016.

However, while Wandisco's sales have been rising fast, they're still only forecast to hit $7.8m this year, and the company won't make a pre-tax profit until 2014, when sales will hit $22m - that's because costs are ramping up, too, as it makes strategic hires and puts distribution in place. But that doesn't take into account any contribution from its unique Big Data capability so, even though the shares are pricey, they're worth hanging on to. Hold. JSH

 

66. Eland

Eland Oil & Gas (ELA), a relative newcomer to Aim, raised around £107m net to fund the acquisition of some of Royal Dutch Shell's (RDSB) non-performing assets in Nigeria. Shell pulled out of some areas in the Niger Delta in 2006 on safety concerns, so on the face of it you would think it a risky proposition given the security situation. One would also assume this was reflected in the sale price, especially considering that Eland's board is largely comprised of highly-experienced industry veterans, including chief executive Ian Blair, who is no stranger to the challenges faced by oil companies in the region.

The jewel in Eland's crown is the effective 20.25 per cent stake that it holds in the OML 40 licence that was purchased from Shell, Total and Agip Oil by the Elcrest joint venture for $154m. Elcrest is split 45:55 between Eland and local partner Starcrest, while OML 40 will be operated by 55 per cent owner Nigerian National Petroleum Corp - the prominent involvement of local interests should ease security concerns to a degree.

Eland is currently undertaking remedial work at the wells previously shut-in by Shell, and will move on to development targets later in the year, as part of a plan to boost daily production to 50,000 barrels by 2017. Early days for Eland but significant production and cash flows could be just round the corner, although more cost details are needed prior to a valuation. Hold. MR

 

65. Idox

Cash-strapped local authorities have been cutting back their spending recently, but they're generating more money for Idox (IDOX) than ever. The electronic document processor supplies the public sector with a range of software that helps speed up and manage everything from development and planning to London's Mayoral elections. Its engineering information management (EIM) division has grown fast, too, with a combination of organic growth and acquisitions tripling revenue last year and increasing cash profits five-fold. However, the company warned in February that sales of EIM software licenses to oil companies, architects, construction companies and utilities had been slower than last year. Management anticipates a pick-up in the second half, but sentiment toward the shares has softened in recent weeks.

Nonetheless, Idox remains in growth mode and has an eye for earnings-enhancing acquisitions. It's beginning to throw off lots of cash, too, yet the shares trade on a relatively modest 12 times expected earnings. Buy. LW

 

64. Impellam

Recruiter Impellam (IPEL) provides nearly 6,000 temporary and contract staff to industry, many of whom are classed as blue collar. As the economy flirts with a triple-dip recession, employers are reluctant to make a commitment on permanent staff and have resorted to temporary workers to fill the gaps. Impellam has been a beneficiary and the shares have soared over 60 per cent in the last 18 months to near record highs of 426p.

With Impellam's services increasingly in demand, business is good and the provision of staffing services is generating plenty of cash. Last year net cash balances jumped from £1.8m to £16.8m even after £2.8m of share buy-backs. The group also paid a 12p dividend and a further £15.4m was returned to shareholders in April via a special 35p a share dividend.

It is not all plain sailing, though - the Carlisle division that provides staffing to the UK retail sector is struggling and a £9m goodwill impairment and £5.7m of restructuring costs were taken in the most recent results. Even before these exceptional items, group operating profits were 8 per cent lower at £33.6m. But Impellam has plenty of room for manoeuvre, with cash on the balance sheet, and broker Cenkos thinks end-2013 cash net cash balances could top £25m. So with the shares on a PE ratio of seven times, based on broker Cenkos’s adjusted EPS forecasts of 65.8p, they remain a buy. Buy. JF

 

Impellam provides nearly 6,000 temporary and contract staff to industry.

 

63. Oxford Catalysts

Oxford Catalysts (OCG) caught our attention a year ago with its promise to turn household waste and cheap gas into valuable liquid fuel. So-called gas-to-liquids (GTL) technology using Fischer-Tropsch synthesis was perfected nearly 100 years ago and made it possible to convert fossil fuels such as natural gas and coal into liquid synthetic fuels. Placing Oxford's highly-active catalysts in more efficient compact microchannel reactors made by its Velocys subsidiary makes the whole process up to 1,000 times faster than conventional reactors.

Oxford has spent over $300m (£200m) getting this far, funded largely by commercial backers – Russian billionaire and Chelsea Football Club owner Roman Abramovich took a stake late last year when Oxford raised £30.6m via a heavily oversubscribed placing at 125p. Just a month earlier, British Airways confirmed it would buy $500m of sustainable jet fuel made at a plant in East London which uses Oxford's technology. There's also a partnership with oil refinery builder Ventech, whose client list includes BP, Chevron, Shell and Exxon Mobil. A commercial order is also in from refiner Calumet, although there's no indication when the plant will be built. Analysts estimate every 1,000 bpd of installed capacity should generate $50m of revenue for Oxford.

Having trebled since our speculative buy advice (55p, 12 March 2012) and with profits still a couple of years away, we now rate the shares a hold until we see clearer evidence of commercialisation. Hold. LW

 

62. Valiant

In March, Ithaca Energy (IAE) agreed to acquire Aim stablemate Valiant Petroleum (VPP) in a £203m cash/scrip deal. The latter had instigated a strategic review when it was forced to book a series of heavy exploration write-downs at the half-year mark that eventually led to it being put up for sale in September.

Although Valiant's shareholders received no premium to the company's share price when it announced the review, the deal makes strategic sense given that Ithaca gains access to Valiant's production from an extensive portfolio of assets in UK and Norwegian waters. The tie-up could conceivably generate sufficient operating cash flow to pay for itself in less than two years, while unit cost benefits should accrue from the combination of the development/exploration programme.

Ithaca will also gain a $500m tax loss benefit to offset against future North Sea profits, while daily production for this year should be in the range of 14,000-16,000 barrels oil equivalent. MR

 

61. Plexus

The Deepwater Horizon disaster in 2010 obviously wasn't the best thing that's ever happened to the global oil and gas industry, but every dark cloud has a silver lining. Certainly, the beefed-up regional safety regimes instigated in its wake have been a boon for specialist oil service equipment manufacturers such as Plexus Holdings (POS).

Aberdeen-based Plexus has developed and patented a friction grip method of engineering for oil/gas field wellheads and connectors, named POS-GRIP, that works by deforming one tubular member against another to effect a tight grip and seal. The POS-GRIP user roll-call features just about every oil and gas major imaginable, and Plexus is also involved in a joint industry project to develop a leading POS-GRIP deepwater design, which could potentially gain universal industry acceptance.

The growing acceptance of Plexus's proprietary technology within the oil and gas industry was recently reflected in double-digit revenue and profit growth at the half-year results, while the company's share price is up by 175 per cent on our long-term buy recommendation. Many readers would have already cashed in on their initial investment, but we suspect that Plexus's growth story has some way to run yet. Buy. MR

 

Beefed-up safety regimes instigated in the wake of the Deepwater Horizon disaster have been a boon for Plexus Holdings.