50. IGAS ENERGY
There’s no shortage of press comment on the subject of hydraulic fracturing – or ‘fracking’ – in the UK. This controversial method of releasing hydrocarbons from tight geological formations has taken off over the past decades due to advances in directional drilling hardware and 3D appraisal technology. And though UK companies were quick to exploit the trend towards unconventional sources of oil and gas abroad, there have been limited opportunities domestically. Aim-traded IGas Energy (IGAS) is looking to change all that by replicating the success of shale gas drillers across the Atlantic.
The company’s focus is on the East Midlands and the Weald Basin in the south of England and it currently produces around 3,000 barrels of oil equivalent a day from conventional sources, but it is looking to expand that rate through new shale and coal bed methane prospects in the UK. IGas recently completed drilling at the Irlam-1 well in Barton Moss on the outskirts of Manchester – an exploration exercise which has delivered promising early indications. The results of wire line logs will now be used with other data to evaluate the prospect of both the shale interval as well as the coal measures that were encountered during the exploration work. Investors will need to wait until the second half of this year to get the results of a laboratory analysis, but early signs are encouraging. Buy. MR.
49. WANDISCO
As machines and devices worldwide churn out information, enterprises are demanding secure, reliable data storage and real-time analysis. That has benefited WANdisco (WAN), which owns a technology that instantly replicates data across computer networks, eliminating the risks of downtime and data loss.
WANdisco’s main division, which lets clients synchronise their software applications, continued to thrive last year. Its bookings rose 84 per cent to $14.5m (£8.7m) as it attracted high-profile customers including Canon. But the other side of its business is the one making waves. An acquisition in late 2012 brought with it two founders of Hadoop, the leading platform for managing vast pools of different types of information, or ‘big data’. The pair helped WANdisco leverage its flagship technology to launch Non-Stop Hadoop, which is now being trialled at a Californian Hospital that wants to analyse patient and machine data to pre-emptively fight illness, and at British Gas.
It’s still early days for WANdisco’s big-data segment, which recorded only $0.2m in bookings last year. And the company looks unlikely to turn a profit anytime soon, with cash losses more than doubling to nearly $8m last year as it hired dozens more engineers and sales staff. Moreover, broker Panmure Gordon expects its pre-tax losses to widen almost 70 per cent this year. Hold. TM
48. PAN AFRICAN RESOURCES
As far as gold miners go, South Africa-focused Pan African Resources (PAF) is one of the best on Aim. The company transformed itself into a mid-tier miner last year by acquiring the Evander gold mines for a cool £115m, more than doubling its gold production to around 200,000 ounces a year and diversifying its asset base. Moreover, the company’s long-life mines boast substantial high-quality reserves, enjoy decent margins, and have good operational track records.
Still, risks remain. The South African mining sector is inherently volatile, suffering from occasional union strikes, violence, power cuts, cost inflation, currency fluctuations, tax law changes and other problems. While the country is certainly a better place to conduct business in than, say, Zimbabwe, that’s not saying very much.
But the biggest risk of all has to be the gold price. The yellow metal has decreased in value by a quarter this past year, sending gold mining equities down with it. Looking ahead, we see gold prices holding firm at the present level around $1,300 an ounce, but it’s certainly possible that price floor could be broken should central bankers take dramatic steps to reign in loose monetary policy in 2014.
That said, Pan African’s shares currently trade at just eight times broker finnCap’s 2014 adjusted earnings estimate, so there could be significant value on offer in the event the gold price recovers. On balance, we rate the shares a hold. MA
47. ADVANCED MEDICAL SOLUTIONS
Woundcare as a practice incites nostalgic, and some might say long-forgotten principles of the healthcare sector. And developer of mesh-implants and adhesives for the treatment of wounds, Advanced Medical Solutions (AMS) proves taking it back to basics pays off.
Its new hernia operation mesh product is expected to reignite growth in Germany when it officially launches in Europe in the second half of 2014. The product already sells well on home soil via the NHS and A&E departments. In fact, sales of ActivHeal dressings rose 32 per cent to £5.5m in 2013. Similarly, its adhesive product LiquiBand pushed sales up by 5 per cent in the UK last year. Even US sales are in recovery, having suffered at the hands of a failed distribution agreement with Cardinal Health in 2012, which stripped AMS of a chunk of its market share. The group will launch its tissue-adhesive product there later this year, having booked regulatory approval from the drugs authority.
Next, the group will hanker for regulatory approval of LiquiBand in China later this year but any potential upside from such a high-profile achievement will be slow burning. In the meantime a forward PE ratio of 18 looks taxing. Hold. HR
46. DOLPHIN CAPITAL INVESTORS
Dolphin Capital (DCI), it could be argued, invested in the wrong place at the wrong time, and only now is there any sign that the worst may be over. The group started trading in 2005 with the intention of acquiring large seafront sites of striking natural beauty in the eastern Mediterranean, Caribbean and Latin America with a view to creating leisure integrated residential resorts. An economic slump, near financial ruin in Greece and Cyprus and a banking crisis effectively brought things to a halt.
Things are on the up, though. The group is still working to strengthen its capital position, and debt as a percentage of assets has fallen to 20 per cent. And for the first time for six years net asset value showed an improvement, largely thanks to an uplift in property valuations. There is still a long way to go however, and while there was around €13m (£11.2m) of income generated from operating golf courses and hotels last year, this was dwarfed by overall pre-tax losses of €102m. Before taking into account deferred income tax liabilities, net asset value was 78p a share, which means the shares are trading at half NAV. Given the prospect of little significant income being generated in the short term, this seems justified, and anyone wishing to hold the shares must be in for the long run. Hold. JC
45. MAJESTIC WINE
Wine merchant Majestic (MJW) had a great 2013, but after bumper Christmas trading, when like-for-likes sales grew 2.8 per cent, the company issued a profit warning and the shares slumped. A material slowdown since the start of 2014 means underlying sales and pre-tax profit will now be flat for the whole financial year. The company will also be making significant investment in infrastructure, including new offices, beefing up the commercial team, investing in e-commerce and boosting capacity, while pouring money into streamlining distribution. These higher costs will result in minimal profit growth in 2015 too.
This might all sound rather bleak, but we think it’s too early to write off the shares as corked. Majestic has maintained its market share of 4.1 per cent and offers a competitive, customer-centric alternative to boring supermarket wine. Staff are well-trained and generally very knowledgeable about the stuff they sell. There are still interesting growth opportunities in the commercial business and online, while the store rollout continues apace. What’s more, it’s highly cash generative and well run. With the shares now priced at 435p, there’s a nice 3.6 per cent yield too. Buy. JB
44. GREENKO
Indian clean energy player Greenko (GKO) was founded in 2004 and found its way on to Aim three years later. As the owner and operator of wind, hydropower and biomass assets, Greenko is riding two key trends in the Indian power market – growing demand and government support for renewables. Rapid population growth is expected to drive India’s demand for power to over 950 gigawatt (GW) by 2030 and the Indian government wants renewable energy to represent 15 per cent of installed generation capacity by 2020.
Reporting half-year results in December, Greenko said that its current capacity was 426 megawatt (MW), up 75 per cent since March 2013. Profits followed capacity upwards with adjusted cash profit up by around a half to €24.6m. A further 609MW of generating capacity under construction and a cash injection from Singaporean sovereign wealth fund GIC means Greenko is on track to meet its aim of having 1,000MW capacity by 2015 and around 2,000MW by 2018.
That ramping up of capacity should continue to lead profits higher. Current City consensus forecasts compound annual earnings growth of 48 per cent over the next two years, which pushes the price-earnings ratio down to 11 times for the financial year ended March 2016. That’s an attractive rating for a high-growth story. Buy. KG
43. TELIT COMMUNICATIONS
Companies worldwide are racing to leverage the data churned out by their machines and devices, and many are turning to wireless-connectivity specialist Telit Communications (TCM). Its sales grew 17 per cent last year as revenues from its new cloud-based platform, m2mAIR, rose five-fold. That helped operating profits rise 139 per cent to just over $14m (£8.3m).
Telit addressed rising US demand by buying two American businesses last year, Crossbridge and ILS Technologies. That helped increase its sales there by $30m to account for 43 per cent of its total revenues, from 36 per cent in 2012. It earned a similar proportion in Europe, the Middle East and Africa, with the balance stemming from Asia Pacific. Telit also bolstered its staff by almost a quarter to keep apace with its international growth.
It continued its buying spree this year with the $11.2m purchase of ATOP, which provides wireless technology to car manufacturers. Its applications include eCall, which aims to deliver rapid assistance to motorists involved in collisions within the EU.
Perhaps realising Telit’s potential, investors have driven Telit’s shares up over 150 per cent in the past year. They now trade at 20 times forecast earnings. That’s pricy, even for a global business exposed to the fast-growing connectivity market. Hold. TM
42. HARGREAVES SERVICES
Hargreaves Services (HSP) was established in 1994 as a bulk haulier. Chief executive Gordon Banham led a management buyout in 2004 and flotation a year later. On the face of it, Hargreaves has built some compelling market positions. It is the largest independent importer of coal into the UK, the leading importer of coke and minerals into Europe and has the largest bulk haulage transport fleet in the UK. Recent half-year results were decent, with underlying operating profit up by a quarter and a 28 per cent hike in the dividend.
But despite the apparent progress and dominant market positions, the price-earnings ratio for the current year is languishing at a little over six times, and that drops to a mere 5.5 times next year’s earnings. The reason for that rating is that Hargreaves faces a big question mark over its long-term future as the UK reduces its reliance on coal. For its part, Hargreaves says that concerns over the security of gas supply and delays in investment in new generating capacity means that coal will have a “significant role” for many years to come. But we feel the uncertainty over future prospects will continue to cast a shadow over the shares. Hold. KG
41. YOUNG & CO’S BREWERY
Those pub groups that drove expansion via an overleveraged model of leasehold properties are being forced to face up to their futures, with pub owner Punch Taverns directly in the firing line. But Young & Co’s (YNGA) managed estate fared well in 2013, taking advantage of a summer heat wave in London and the South East.
Using the weather to defend or praise profits is old-hat in the sector, but there can be little doubt many of the pubs had the British climate to thank last year. But Young & Co’s can also be grateful for the fact most of its estate is London-based. Figures from marketing research company Coffer Peach proved trading outside of the capital was largely flat last summer while pubs within the M25 saw like-for-like sales up nearly 10 per cent in July alone. Even more appealing is the diverse nature of Young & Co’s estate: it includes hotels alongside its branded Young’s and Geronimo pubs.
We advised buying the shares back in 2012, but given the tense nature of the pub industry of late, we’re inclined to stick with our now neutral stance taken at the time of the half-year results. Hold. HR
40-31: Iomart to Avanti Communications
