Alternative Networks (AN.) keeps businesses running with the latest in managed voice and data services. It acts as a middle man between mobile phone providers and the customer, finding companies cheaper and more appropriate deals on handsets and tariffs with Vodafone and O2. A regulatory squeeze on mobile and fixed-line prices has hit sales and, despite increasing its mobile subscriber base by 13 per cent last year, replicating that growth in 2013 could prove more difficult given the downturn in Europe. Alternative also installs complete phone systems, although the weak economy and public sector spending cuts are having an impact here, too.
A £5m tender offer at 251p in October flushed out a potential bidder, but talks came to nothing and speculation about interest from elsewhere has died down. Nevertheless, a management reshuffle sounds interesting. Founder James Murray becomes executive chairman, and the suspicion is that the new chief executive, former finance boss Ed Spurrier, will start buying growth with some of Alternative's £20m cash pile. But the company must boost profits one way or another to cool multiples that already look overheated at 14 times forward earnings. Hold. LW
Breedon Aggregates (BREE) was formed in 2010, and in a roundabout way came from the Ennstone quarry business that collapsed in 2009. So, its attraction is in the assets it owns, which just recently doubled following the proposed acquisition of more reserves.
In fact, when the deal goes through, Breedon will have 37 quarries holding 400m tonnes of aggregate reserves, enough for 76 years of extraction at current rates, as well as 22 asphalt plants, 48 concrete plants and two concrete block plants.
The quality of the board would flatter some much bigger companies, too. Executive chairman Peter Tom formerly worked at Aggregate Industries before its £1.8bn acquisition by Swiss group Holcim, while group finance director Ian Peters came from Hanson, as did chief executive Simon Vivian. Their remit is to consolidate what remains a highly-fragmented industry with very high entry barriers.
Understandably, an economic slump and what seems like permanent bad weather have not helped, although profits last year rose more than threefold thanks to a number of cost efficiencies and two small acquisitions. And while demand remains subdued, the group is operating on tick-over, with very high operational gearing set to boost profits sharply once demand picks up. What’s more, Breedon Aggregates has impressive asset backing, with 22p a share of property and equipment alone. True, there is no dividend and the shares are trading on 23 times forecast EPS, but for the patient investor the growth potential is an obvious attraction. Still a buy. JC
78. Mytrah Energy
Indian wind-power developer Mytrah Energy (MYT) has rapid expansion plans to meet the nation's burgeoning energy needs through renewable power. The company raised $79.2m before expenses in October 2010 to build wind-turbine farms across India and, despite a turbulent start to listed life, the shares are now recovering as earnings come through.
The company recently announced it expects to enter the 2013 wind season with 370 megawatts (MW) of operational assets, up from 334MW previously announced in December - it's targeting 600MW of operational assets by the end of the year, and 1,500MW by the end of 2015. The company believes this will make it the biggest independent wind-power producer in India. Revenues leapt from $2.3m to $30.7m in the six-month period to September, and this resulted in cash earnings of $27.9m and post-tax profits of $12.2m.
The Indian government has sent mixed messages regarding support for renewables after it reiterated generating incentives in the budget, but cut the tax breaks under which they could accelerate depreciation. But if, over the long term, electricity prices continue to rise in India as expected, Mytrah will be a major beneficiary - so we retain our buy recommendation. Buy. JF
Iron ore explorer West African Minerals (WAFM) is a bit of an anomaly for an Aim 100 company - it has no mining operation to speak of, let alone an advanced-stage development project. Instead, it has a half-dozen early-stage exploration permits located near major undeveloped iron ore deposits in Cameroon.
So far, drilling by WAFM on the best two permits has failed to turn up much high-grade (60 per cent) iron ore mineralisation - the valuable, so-called 'direct shipping ore' (DSO) - although there's still a chance follow-up exploration drilling could come good. We're not very hopeful, however, as the initial holes tested a wide swathe of targets spread throughout the properties.
Besides, the market has been frosty toward high-cost West African iron ore companies ever since iron ore prices dropped by nearly a half last summer. Considering there are already several other companies with far more advanced iron ore operations in the region, and that their market capitalisations are generally far smaller than WAFM's, we think there is more risk than potential reward here. A market valuation of £151m for anomalous exploration permits is simply too rich and speculative. Sell. MA
76. Coal of Africa
Coal of Africa (CZA) is bleeding money from its low-value thermal coal operations in South Africa and the company's key challenge will be to sustain itself until it can develop its higher-value metallurgical coal assets, also in South Africa. Yet those assets remain a long way from commercial production and doubts persist as to the company’s ability to finance their development.
Coal of Africa has maxed out its debt facilities and lost $112m (£74m) in the half-year to 31 December - somewhat exaggerated by a $50m impairment against its Mooiplaats thermal colliery - but help recently came from a state-backed Chinese coal group, Haohua Energy, which plugged $100m into Coal of Africa in return for a large equity stake. Haohua has also signed a "co-operation agreement" with Coal of Africa to help it find further funding.
At this stage, shares in Coal of Africa are very much a high-risk asset play on coal prices. There's plenty of potential should coal markets improve. But broker Investec recently cut its net asset value (NAV)-based target price from 37p to 16p, given the uncertainties about the scale and timing of future project development. Until we see initial signs of a recovery, the shares are no better than a hold. MA
75. Advanced Medical Solutions
Closing wounds without needing to stitch them is considerably easier for doctors, as well as more comfortable for patients who tend to see their wounds heal faster. Advanced Medical Solutions (AMS) is another Aim company that has built up an interesting medical niche with its Liquiband wound sealant product.
Expansion over the past few years has come mainly in Europe where AMS bought German surgical sutures company RESORBA for £55m back in 2011, which helped to boost AMS’s subsequent reported revenues by 50 per cent. However, the company has struggled to make any real in-roads in the key US hospital market by finding itself stuck in a non-performing contract with a US-based distributor. AMS can extract itself from the agreement without too much hassle but it illustrates the main risk with medical devices companies that attempt to break into new markets - namely, the tendency for larger companies and distributors to sit on products, rather than try to market them aggressively.
So AMS has to find a strategy that can promote Liquiband - which rates highly in comparison with similar products - successfully. Potential investors should probably expect the company to set up its own business in the US in order to compete effectively. Hold. JH
74. IGAS
Some readers would have profited handsomely from our previous long-running buy call on IGas Energy's (IGAS) shares, but it was perhaps inevitable that the speculative element that drove the market price would eventually dissipate. That's not to say that the share price performance was solely down to the company's status as one of the early movers in Britain's unconventional hydrocarbons industry. The company's risk profile has been enhanced by a strategic decision to extend the business mix from unconventional gas into a lower-risk conventional and unconventional portfolio - even for speculators, that makes sense.
Work on unconventional shale gas deposits in the UK ground to a halt after the process of hydraulic fracturing was shown to have caused minor earthquakes in the north-west of England, but following a 'green light' from central government in December, IGas has implemented a farm-out process to de-risk the development of its promising shale gas acreage. That process should be aided by a £23.1m placing to institutional investors conducted earlier this year, which will be put towards two exploratory wells in the Bowland Shale near Manchester, in addition to the acquisition of the Singleton oil field in Sussex from Providence Resources. Development plans will also be helped along through a planned $165m bond issue. With increased funding clarity, we feel that IGas's shares - at 82p - are back in speculative buy territory. MR
73. IQE
Most of IQE's (IQE) wafer products find their way into wireless devices such as smartphones made by Apple and Samsung. The Cardiff-based company sells the wafers to microchip manufacturers who then sell the finished article on to electronics manufacturers. It enjoyed phenomenal success in 2011 and the share price peaked just shy of 60p. In the last two years, however, progress has stalled and worries about competition from Qualcomm have caused a wobble in recent weeks. Still, those concerns look overdone and there could be an opportunity here.
IQE bought three companies last year, including RF Micro Devices. Higher than expected volumes there in the fourth quarter mitigated the impact of a destocking elsewhere, says management, but it's this radio frequency (RF) business that Qualcomm wants. Analysts at Espirito Santo doubt the inherent physical limitations of silicon are any match for IQE's Gallium Nitride-based technology and the Welsh company looks able to mix it with the American intruder.
Recent results matched expectations, and momentum built through the second half of last year has spilled over into 2013. Big savings from integrating acquisitions will continue to drive a sharp improvement in margins, and a forward PE ratio of less than 10 fails to reflect the potential for dramatic growth in profits for at least the next few years. Buy. LW
IQE's wafer products are used in Apple's iPhone.
72. London Mining
Shares in emerging iron ore producers such as London Mining (LOND) have yet to fully recover from the drubbing they took during the meltdown in iron ore prices last summer. The price of the key steelmaking ingredient fell by nearly a half on fears of an economic hard-landing in China, but they've since bounced back to nearly the same levels as before, around $140 to $150 a tonne.
And while we see the potential for another, smaller pull-back in the iron ore price over the short term, London Mining’s main Marampa mine in Sierra Leone should still be able to turn in a good profit, with operating costs of around $78 a tonne in 2012. And that number should come down to around $50 a tonne by 2014 as the Marampa operation expands nearly fourfold over the next two years.
London Mining's shares are lowly rated on 6.2 times forecast earnings for 2013, falling to four times 2014’s earnings estimates, assuming $120 a tonne iron ore prices. The company is a heavily geared play but we like its chances. Speculative buy. MA
Iron ore prices have bounced back, which is good news for London Mining.
71. Gemfields
Coloured gemstones miner Gemfields (GEM) plans to do for gemstones what De Beers did for diamonds: build up the allure and value of emeralds, amethysts and rubies through clever marketing and branding. To that end, Gemfields acquired luxury jewellery brand Fabergé earlier this year in an all-stock $142m (£94m) deal. It also named Hollywood actress Mila Kunis as its "brand ambassador", who is already towing the company's line well by talking up Gemfields' "ethical, socially responsible and environmentally friendly" operations in Zambia and Mozambique.
The market for coloured gemstones is growing so a deal to move up the value chain makes long-term sense. But sentiment for the shares has been hit lately by worrying news from Zambia, where the government has announced it wants Gemfields to always sell its stones in-country instead of abroad, where better prices could be had. Gemfields' shares were also hit hard by the dilutive nature of the expensive Fabergé purchase.
Nevertheless, Gemfields' mining operations continue to perform strongly; the company is on a solid financial footing with net cash of about $30m; it has a pipeline of growth prospects; and its shares are now cheap by some metrics, trading on just 1.3 times enterprise value to operating profits. Granted, a consensus forward earnings ratio of about 17 doesn't sound overly discounted - but that's partly because one-off factors are expected to hit topline figures. We don't recommend betting the farm on this one, but the shares remain a buy. MA
