The Aim 100 was the best performing of all the UK’s broad indices in the past 12 months
80. FAROE PETROLEUM
Last year won’t go down as one of the finest for the oil and gas industry, but it was full of highlights for North Sea driller Faroe Petroleum (FPM), which made strides in expanding its portfolio. Reclassification of the Pil and Butch oil fields allowed Faroe to book an 88 per cent increase in its proved and probable (2P) reserves, while the exploration programme – which added between 3m and 8m barrels of oil after September’s successful drilling at the Boomerang well – was delivered under budget, and caused only a tiny drop in the net cash position.
Faroe has also used the stricken oil price environment to strip out significant costs from the current production pipeline. Thanks to a weaker Norwegian krone, higher production volumes and other efficiencies, the group brought down costs by a massive 30 per cent to just $23 a barrel in 2015, which helped to boost net operating cash flow from £71.4m to £92.6m. Production is likely to fall this year, but a robust cash position, coupled with Norway’s highly advantageous tax regime, should support the company’s current exploration programme, which drew a blank at the Kvalross well in the Barents Sea earlier this year. Buy. AN
79. ARBUTHNOT BANKING
Arbuthnot Banking's (ARRB) retail banking subsidiary, Secure Trust (STB), arguably has a stronger growth profile than its parent. Secure Trust’s loan book almost trebled last year, thanks to strong demand from residential property investors. Customer lending at Arbuthnot exceeded the £1.5bn mark for the first time last year, with £1.1bn of this on loans by Secure Trust. This year, Secure Trust plans to become even more firmly entrenched in the property market by entering the residential mortgage market and potentially buy-to-let too.
However, Arbuthnot is more than its stake in the challenger bank. Private banking business Arbuthnot Latham has a growing loan book, originating £250m in new loans last year. This year, the business plans to expand its commercial banking operations beyond its initial focus on clients in the media sector, to entrepreneurial clients in the real estate and professional services sectors.
Meeting the credit demand from those not catered to by mainstream lenders and without the legacy charges of the big banks, challengers are generating impressive profit growth. Arbuthnot is typical of the sector, with analysts at Numis expecting adjusted EPS to grow by more than a third this year. Buy. EP
78. ECO ANIMAL HEALTH GROUP
Eco Animal Health (EAH) is returning as an Aim 100 constituent, after a stellar year that saw the share price rise 45 per cent. The group specialises in animal medicine and its primary patented product, Aivlosin, which contains the antibiotic tylvalosin, is used to treat respiratory and intestinal diseases in pigs and poultry.
Antibiotic-resistant microbes, which threaten man’s ability to treat simple bacterial infections, are currently a major concern in healthcare. The rise of these ‘super-bugs’ has been largely attributed to the overuse of antibiotics in food-producing farm animals. This is good news for Eco Animal Health as Aivlosin’s low dosage and minimal withdrawal period means the drug makes its way out of the animal’s system before it enters the food chain.
Sales have been soaring across all regions, and the drug was also recently granted marketing approval by the Food and Drug Administration (FDA) in the US – the largest single market for the product worldwide – which sent the share price up 11 per cent in one day. The pipeline is also said to be progressing well, and Aivlosin is likely to continue to benefit from the concerns surrounding microbial resistance. Hold. MB
77. CRANEWARE
American hospitals and clinics face shrinking budgets, spiralling costs and a shifting regulatory landscape. Growing numbers rely on data-analysis software from Craneware (CRW) to determine which treatments are most cost-effective and deliver the best results for patients. Indeed, the dollar value of new contracts leapt 15 per cent in the six months to December, while the value of renewals exceeded 115 per cent as customers snapped up additional products. The upshot was a 12 per cent rise in adjusted cash profits to about $7m (£5m).
Craneware recently signed a five-year contract worth $7.5m with an operator of more than 50 hospitals. It also struck a reselling deal with US peer VestaCare that has expanded its range of patient-engagement and payment products. And it’s now developing Trisus, a platform that combines its billing, cost management and data analytics solutions.
Based on the group’s rapid progress and record revenue pipeline, broker Numis anticipates double-digit organic sales growth in the longer term. Moreover, robust cash generation and a sizeable cash pile create ample scope for acquisitions. But after soaring 45 per cent in the past year, Craneware’s shares trade at a punchy 26 times forecast earnings for the year to June 2016. Hold. TM
76. CURTIS BANKS
Acquisitions are an important part of the growth story for newly listed Sipp provider Curtis Banks (CBP). Last year the group bought a book of Sipps from Friends Life and took over administration duties from Capita for a book of Zurich Sipps. However, this year the group will complete its biggest purchase to date, snapping up Suffolk Life from Legal & General Retail Investments and doubling the size of its administered assets.
Last year’s pension ‘freedoms’ legislation has not dampened the group’s organic growth so far, with full Sipps administered growing by almost a fifth. However, founders chief executive Rupert Curtis and executive chairman Christopher Banks are in the process of developing a drawdown product. Judging by the increasing uptake of drawdown products from life assurers, this should propel organic growth even further.
Analysts at Peel Hunt are forecasting impressive EPS growth of more than half this year. Investors were only paid an interim dividend of 3.5p last year. However, management plans to pay an interim and final dividend in 2016, giving a forecast yield of 1.6 per cent. Add high cash generation and further consolidation potential and we think the shares offer more upside. Buy. EP
75. MP EVANS
Multinational agriculture group MP Evans (MPE) produced a challenged set of numbers at its interim results last year, but the drop in revenue and profit could have been worse had it not been for the small cattle side of the business counteracting the weakness of its palm oil interests. The company has now sold its Australian cattle-fattening property, Woodlands, to the Chinese Fucheng Group for A$28m (£14.9m), though, and related cattle and plant have subsequently been sold. Tristan Price, who was finance director at the half-year results, is now set to move atop the group to become its managing director come the June annual general meeting, with his old role being filled by Matthew Coulson. Philip Fletcher, the current managing director, will move to a non-exec role.
The bulk – 97 per cent – of MP Evans’ turnover in the interims came from its predominantly Indonesia-based palm oil plantations and this is likely to become 100 per cent if some Malaysian property investments are sold. The palm oil price has shown some life again in 2016, but its $562 a tonne price tag is still down by half since the last peak in February 2011 at $1,250. Calling a recovery now would be brave. Hold. BG
74. GOOCH & HOUSEGO
Gooch & Housego's (GHH) mission to diversify away from cyclical areas has proved to be a smart one. While its more economically sensitive industrial arm has come under pressure from weaker demand in China for microelectronics, the group’s fibre-based products have soared in popularity. Evidence of recent success can be found in the order book, which is up 13 per cent on 12 months ago.
Subsea telecoms and fibre-optic sensors topped the shopping lists, as global demand for communication systems overpowered concerns about the state of the world’s economy. Fibre lasers are rapidly displacing conventional solid-state lasers. Given their added reliability and versatility, this doesn’t look likely to change any time soon.
Progress in this area of operations prompted management to invest in other identified growth areas, such as aerospace and defence and life sciences. By hiring experienced business development staff, Gooch’s bosses are confident of drumming up a healthier appetite for its niche range of technology.
Meanwhile, lower research and development spend and operating efficiency measures are expected to boost profits in the more immediate future. Better trading patterns in recent months from China should also assist the group in matching its full-year guidance. Overall, we like what we see, but would argue that decent prospects are reflected in a premium rating of 22 times current-year earnings. Hold. DL
73. SAFESTYLE
The rise in unsecured credit, which increased at its fastest pace in a decade in the early part of 2016 according to Bank of England data, might be a worry for the economy down the line. But in the here and now, it is benefiting companies such as replacement window and door company Safestyle UK (SFE). The group recently launched a wider range of financing options for its customers and the move – alongside other factors such as increased advertising – has pushed installations to a record high.
An enticing thing about the company from an investor’s perspective is its strong cash generation, which has helped the group amass surplus funds of £16.5m. But management won’t be squirreling this away – it has pledged a 6.8p-a-share special dividend and is also investing more than £7m in the business to effectively double its capacity in the long run.
Of course, the credit cycle could change and fewer people could seek out financing to pay for their doors and windows. But the fact that the company has continued to build its market share in recent years in spite of the wider industry contracting, according to Fensa data, suggests it could remain robust even in more challenging conditions. Buy. BG
72. ACCESSO
Theme parks and museums are always looking for ways to reduce queue times for visitors and improve their ticketing processes. Accesso (ACSO) provides e-ticketing and ‘virtual queuing’ solutions that are used at Thorpe Park, the One World Observatory in New York and other global attractions.
Product investments and better selling helped the group win 92 new accounts spanning more than 200 venues in 2015. Organic sales climbed 17 per cent in the queuing business as new customers signed up and existing clients rolled out the technology in more sites. Moreover, the ticketing business extended its contract with Merlin Entertainment to encompass the theme park giant’s entire global estate of more than 100 attractions. The upshot was a 45 per cent rise in adjusted operating profits to about $13m (£9m).
Broker Numis thinks Accesso’s growing credibility could help it sign more big customers and expand existing deals. It expects adjusted cash profits to leap by a quarter to $19m in 2016. Bullish investors have sent the group’s shares up by three-quarters in the past year. They now trade at 25 times forecast earnings for 2017, pricing in the group’s prospects for now. Hold. TM
71. HIGHLAND GOLD
Highland Gold Mining (HGM), which operates several mining projects in Russia and Kyrgyzstan, finds itself in a much-improved position after a couple of tricky years. Last year, lower than expected grades at the Belaya Gora mine in Russia’s Khabarovsk region caused Highland to undershoot production targets. Despite this fall – and an average realised gold price of $1,154 an ounce – cash profit margins were supported by the devaluation of the rouble.
Given the number of development projects in the pipeline, cash flow is very important. In the second half of 2015, Highland started preparatory mining operations on the Kaftanovsky zone of the Sredny Golgotay deposit, ahead of regulatory approval for a 2016 mining plan. The miner also plans to publish its reserves for the Kekura development project, which in the medium term should offset the decline of the Mnogovershinnoye (MNV) project.
In 2015, the group expects declines at MNV to be balanced out by improvements at Belaya Gora, and for production to remain at last year’s level. As with fellow Aim-traded gold miner Pan African Resources, we think Highland’s commitment to dividends and the improved outlook for gold prices this year make the shares a speculative buy. AN
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