90. ASIAN CITRUS HOLDINGS
It was a tough year for Asian Citrus Holdings (ACHL) in 2013, and uncertainties over this year’s weather patterns in Asia don’t augur well for prospects in 2014. The company is the biggest orange plantation owner in China, with two orange plantations: the Hepu Plantation in the Guangxi Zhuang Autonomous Region, and the Xinfeng Plantation in Jiangxi province.
In 2013, adverse weather conditions, plant disease, and an ongoing replanting programme at Hepu brought down total orange production by 8 per cent to 147,927 tonnes. But the performance of the large Xinfeng plantation was even worse. Xinfeng contributed over half of total revenues, but persistent heavy rainfall washed away nutrients and forced Asian Citrus to employ more fertilisers and pesticides. As a result, the gross margin at Xinfeng collapsed from 33 per to just 3 per cent.
The production yield from Hepu Plantation has yet to return to volumes reported prior to last year’s citrus canker infection, but the company has signed supplier agreements for a total of 57,000 tonnes of summer oranges in the first half of 2014, which is in line with the 57,367 tonnes produced in the same period last year. Overall, Asian Citrus is building capacity and diversifying its revenue streams, and last year’s problems have left the shares looking too cheap. Buy. MR
89. STANLEY GIBBONS
Unless you’re an avid collector of rare coins and stamps, it’s unlikely you would know that Stanley Gibbons (SGI) is a leading global purveyor of these philatelic and numismatic products, as well as other collectibles, ranging form military memorabilia to autographs. The business operates from retail outlets and online, it holds auctions, carries out valuations and offers investment services for people who want to diversify their portfolios. The company made big news in the world of collectibles late last year with the acquisition of Noble Investments. The merger saw the two largest players in coins and stamps join forces to form a company with formidable industry clout.
Not only will Stanley Gibbons now benefit from sheer scale, but the integration will produce significant cost savings which will be felt later this year, as well as lucrative cross-selling opportunities. Business is booming too, with profits up 9 per cent last year to £6.9m, on 16 per cent sales growth – and that was almost entirely without any contribution from Noble. The company continues to expand, opening new offices overseas and developing its online portal. Despite this, the shares trade on just 14 times earnings forecasts for next year and might therefore make a nice specimen to add to your collection. JB
88. FW THORPE
FW Thorpe’s (TFW) share price has tripled in the past five years, and despite increased volatility it has jumped by almost a quarter in the past 12 months. Yet growth at the lighting group – still run and half-owned by the founding Thorpe family – has been steady rather than spectacular.
Indeed, results for the year to June 2013 were disappointing. Revenue was flat, but pre-tax profit fell by 9 per cent to £11.6m, caused largely by a “lull” in the spring of 2012, which meant a far smaller backlog of orders to begin the new financial year. Thorpe has since returned to growth, and exports increased by over 10 per cent in the first half. That’s all encouraging stuff. Its new light emitting diode (LED) technology is doing well, too, and now generates 35 per cent of group revenue compared with just a quarter only six months earlier. Orders are also improving at Thorpe’s start-up street and road tunnel lighting business TRT Lighting. That’s slowed cash burn there, leaving more to invest on LED and more sales staff.
Just weeks after full-year results, and still trading on 16 times historic earnings, we continue to rate FW Thorpe’s shares a hold. LW
87. RETROSCREEN VIROLOGY
Viral test specialist Retroscreen Virology Group (RVG) has seen its share price soar 55 per cent in the last 12 months, no doubt underpinned by the monumental sales growth reported in 2013. The group generated £27.5m of revenue in the year, almost doubling year on year, and exceeding analysts’ forecasts.
Originally a spin-out from Queen Mary, University of London, Retroscreen conducts clinical trials based on the human viral
challenge model. Volunteers are inoculated with various respiratory viruses (including the common cold) and kept in purpose-built quarantine units to test the efficacy of new antiviral drugs or vaccines. Such tests are considered commonplace, but Retroscreen’s growth is being driven from a strong pipeline of client engagements, which are now running in two facilities. The revenue growth is principally due to the increased number of client engagements and quarantines conducted during 2013, together with the study set-up and volunteer recruitment for a number of new engagements with quarantines scheduled for 2014. A new state-of-the-art 42,000 sq ft facility in Essex built to accommodate growing demand implies ongoing progress at Retroscreen. And a £26m fundraising last July boosted existing cash reserves, so the balance sheet looks strong. Buy. HR
86. SCAPA (SCPA)
Scapa (SCPA), a new entrant into the Aim 100, has been a favourite of ours since November 2011 (Buy, 48p), and we’ve been rewarded handsomely. Making bonding tapes for the automotive, medical, industrials and electronics sectors is generating substantial revenue, and a strong first half sets the stage for a possible surprise at Scapa’s next trading update due soon.
As Numis Securities points out, Scapa made £1.3m of the extra £1.6m of full-year pre-tax profit in the first half. And the broker admits its forecasts for annual profit of £14.4m and adjusted EPS of 6p look “highly prudent”. They certainly do. Scapa has turned from a self-help story into a real growth play, and restructuring has improved margins substantially to 6.6 per cent. Management reckons double-digit margin is entirely possible, in line with big-hitting rivals.
Addressing legacy issues has helped, too. The unit responsible for asbestos assets and liabilities has been sold and the restructuring of its defined benefits pension schemes will cut costs. A new finance facility gives £60m of fire-power for acquisitions to enhance earnings, which are already tipped to race ahead for the next few years. Admittedly, a cash-adjusted forward PE ratio of just under 16 is not cheap, but we expect progress to outpace forecasts. Buy. LW
85. GLOBO
Mobile software group Globo (GBO) ran afoul of short-sellers last year, who raised questions about its cash flow and accounting. Three of its directors selling most of their holdings didn’t help matters, either. But that hasn’t hampered trading – Globo provides a platform for businesses to run secure mobile applications, meaning it is well-placed to address both employer and employee demands. Its revenues rose 57 per cent last year, and sales of its Go!Enterprise product soared 155 per cent to €31m.
Globo has also been improving its distribution channels. In February, it expanded its distribution agreement with Ingram Micro, meaning its products will now be sold to large enterprises in the US and Canada, as well as smaller ones. And last month it announced a partnership with Bechtle Direct in the UK, allowing it to tap into Bechtle’s 3,000-strong client base. Both deals should feed into its top line this year.
Last year’s troubles have sent Globo’s shares down to nearly half their value from last October. They now trade at seven times forward earnings, well below the sector average. That’s cheap for a company expanding geographically, offering both consumer and enterprise products, and with the likes of Dell and Oracle on its client list. Buy. TM
84. ARBUTHNOT BANKING
Arbuthnot Banking’s (ARBB) earnings are generated from two sources – its private banking arm and its 67 per cent stake in fellow Aim-traded retail bank, Secure Trust. That latter operation boasts a market value that’s over twice that of Arbuthnot’s.
Most of the group’s earnings come from Secure Trust, which saw underlying profit jump 52 per cent last year to £25.2m as the lender benefited from stronger consumer conditions. That was driven significantly by a hefty 28 per cent jump in its motor finance book, amid robust demand in the car market. Secure’s personal loans business is also doing well, while last year’s acquisition of retail finance business V12 and 2012’s acquisition of sub-prime loan unit Everyday will help further bolster growth and drive diversification. Arbuthnot’s private bank, meanwhile, is also making progress – its assets under management jumped 40 per cent last year after increased headcount brought an influx of new clients. And while last year’s £7.7m profit was swelled by a £6.5m gain from the sale and leaseback of the group’s headquarters, investing those proceeds is also bolstering longer-term growth prospects. In fact, Arbuthnot has now opened a presence in Dubai, where it hopes to serve the large British expat community.
Still, the shares trade on a demanding 21 times Numis Securities’ 2014 earnings estimate, although, add in last year’s 18p special dividend, and they also yield a decent enough 3.7 per cent. Hold. JA
83. ELAND OIL & GAS
Things haven’t quite gone to plan for Nigeria-focused Eland Oil & Gas (ELA) since it raised £118m and listed on Aim in late 2012, but that is not so surprising given the region it operates in.
Eland used the money to acquire a minority interest in a jewel of an oil field in the Niger Delta from Shell, who shut down production and pulled out of the area in 2006 because of safety concerns. With the help of some influential local partners, Eland said it could re-refurbish existing infrastructure and pipelines to get oil flowing within six months; it finally did so on 4 February 2014, one year behind schedule.
Despite the delay, the timing could hardly be better. The Nigerian government is pressing ahead with a new fiscal regime for oilfields majority-owned by local interests, such as Eland’s. Heritage Oil (HOIL), another London-listed oil group who acquired a minority interest in a Nigerian onshore field, recently received a five-year tax holiday from the marginal petroleum tax rate of 66 per cent. Eland has yet to receive the same status, but the company disclosed last month that it is “in discussions with relevant government departments in Nigeria about its tax status” and it should soon “benefit from a significant reduction in underlying tax rates”. We reckon success could be around the corner, but only the brave should chase it. Buy. MA
82. REGENERSIS
Big consumer electronics companies such as Samsung and LG Electronics may sell you a mobile phone or television, but they won’t necessarily be the ones who fix it if things go wrong. That is where consumer electronics repair specialist Regenersis (RGS) comes in. Founded in 1979 and initially focusing on mobile phone repair, Regenersis floated on Aim in 2005. Since then it has expanded into new product areas such as set-top boxes and tablet PCs, and new regions establishing a presence in 15 countries. The aim is to become the global leader in its market and the company is about halfway there in terms of annual revenues.
First-half results indicated that a focus on emerging markets and offering more advanced services are paying off, with underlying operating profits up by a fifth. And the recent Blancco acquisition, which takes Regenersis into the data erasure market, looks like another shrewd move. Regenersis is a highly successful and long-standing buy tip and, despite a more than 400 per cent increase in the shares since our original buy advice (76p, 7 October 2011), we believe a price-earnings multiple of just over 18 times next year’s earnings still offers a decent entry point for this astute operator. KG
81. CVS HOLDINGS
If you have a pet, you’ve probably taken it to the vet, but what you might not have known is that the practice you took it to may well have been owned by Norfolk-based CVS Group (CVSG). It operates 255 veterinary surgeries across the UK under a number of local brands and has an 11 per cent share of the UK small animal sector. It also runs three referral practices – where the big profit really lies. But as well as clinics, which rake in the lion’s share of revenue, CVS has diversified into other areas. It runs five diagnostic laboratories, three pet crematoria, online dispensary Animed Direct and a locum recruitment agency.
More recently, it has started developing its own brand of medical products. Current trading is impressively strong, with 4.6 per cent underlying sales growth in the six months to 31 December and a 15 per cent rise in adjusted cash profit. The outlook is rosy, too. With the veterinary market growing, corporate consolidators such as CVS have the money to snap up small regional practices and the scale to drive down costs. This acquisition-led growth strategy is set to continue, along with plans to open new referral centres and push the fast-growing Animed Direct into Europe. But with the shares up 65 per cent in the past year, they’re due a bit of a breather. Hold. JB
80-71: Redcentric to Telford Homes
