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The Aim 100: 90-81

The Aim 100 was the best performing of all the UK’s broad indices in the past 12 months
April 22, 2016

The Aim 100 was the best performing of all the UK’s broad indices in the past 12 months

90. ALTERNATIVE NETWORKS

Selecting and maintaining computing and telecoms services can be costly and time-consuming for medium-sized organisations. Growing numbers rely on Alternative Networks (AN.) for services such as data hosting, virtual desktops and wide-area networks, and its advanced solutions business won nearly 50 contracts in the education sector and landed major assignments from Homeserve and London Internet Exchange in the year to 30 September 2015.

The division posted further gains in the six months to 31 March. For instance, it landed a project with a healthcare trust to replace the telephones of more than 3,500 people and provide five years of support. The number of mobile subscribers also grew by about 9 per cent to over 100,000. But management estimates that overall gross profits fell by more than a tenth due to pressure on roaming rates.

In light of those headwinds, broker FinnCap expects adjusted cash profits to slide 7 per cent this financial year, then rally 11 per cent in FY2017. Skittish investors have sent Alternative Networks’ shares down more than a quarter in the past year. They now trade at 12 times forecast earnings for this financial year, and there’s a big forecast yield of 5.6 per cent. But given the short-term uncertainty, we reiterate our hold advice. TM

89. PERSONAL GROUP

Personal Group (PGH) offers a range of employee benefit packages that it provides for predominantly blue-collar workers through clients such as Network Rail and Stagecoach. These include income protection, death benefits and hospital schemes. However, the group has been transforming itself with an array of fresh offerings, helped by the acquisition in 2014 of Lets Connect. It now operates a salary sacrifice scheme that provides clients’ employees access to discounted computer-related devices and mobile phones.

And by establishing its own mobile virtual network, it can now provide a mobile network facility. It has also set up a new technology platform called Hapi, which helps end-users manage plans such as convalescence schemes online through an easy-to-navigate system, all of which opens up the potential for cross-selling of its core insurance products. The group already has in excess of 2m customers using its facilities, and 2015 was a record year for generating new business. Profits growth in the coming year is likely to be affected by a slightly slower than expected rollout of its PG Mobile network service, but this will become available through the salary sacrifice scheme (which also helps client companies to save on National Insurance payments) later this year. Even so, the real benefits from Lets Connect and PG Mobile are expected to show through more clearly in 2017. Meanwhile, the group pays an attractive quarterly dividend and is debt-free. Buy. JC

88. INLAND HOMES

Inland Homes (INL) started life as a property developer, buying brownfield sites and bringing them through the planning process to sell on to hungry housebuilders. However, in line with plans laid down by chief executive Stephen Wicks, Inland has become a housebuilder as well, selling 93 private homes in the six months to September 2015 at an average price of £325,000. Over the same period, it also sold 244 plots to builders and has a number of projects in the pipeline.

Despite the solid progress, shares in Inland Homes look cheap in relation to the recently adopted valuation metric that includes unrealised gains in the property portfolio. On this basis, at 80p the shares are trading at a considerable discount to forecast adjusted net asset value of 93p for the year to June 2016. Operating outside central London, and selling homes at prices that are not hit by last year’s stamp duty changes (homes under £500,000 attract lower rates than previously), Inland looks set to benefit from the current demand for houses, boosted by low mortgage rates and an extension of the government’s Help to Buy scheme. Buy. JC

87. KBC ADVANCED TECHNOLOGIES

The Aim 100 is one company light this year, after the takeover of KBC Advanced Technologies (KBC) by Japan’s Yokogawa Electric at the start of April. Despite its exposure to weak oil & gas markets, KBC’s shares performed steadily over the past decade on Aim, and the significant share price premium paid by the Japanese sensors and industrial controls group is indicative of the kind of quality businesses that make Aim their market home.

86. MORTGAGE ADVICE BUREAU

Mortgage Advice Bureau (MAB1) has enjoyed a stratospheric rise in share price during the past 12 months. Since floating on the junior market in 2014, the mortgage broker has benefited from the growing popularity of intermediaries, which are taking market share from banks and building societies.

Data from the Council of Mortgage Lenders (CML) predicts that UK gross new mortgage lending will grow at 8 per cent and 10 per cent in 2016 and 2017 respectively. To take advantage of this, management hopes to continue growing its network of advisers, the majority of which operate under the MAB brand, even further. The group has got off to a good start so far this year, adding 54 advisers. Management says investing in technology will continue to be an important part of driving growth this year, particularly in generating new leads for its adviser network.

Analysts at Canaccord Genuity upgraded their earnings forecasts for this year and are expecting adjusted EPS of 18.8p, representing a

13 per cent increase on last year. Plus the shares offer good income, with a forecast yield of 4.8 per cent this year. Buy. EP

85. CENTRAL ASIA METALS

A long-time IC favourite, Central Asia Metals (CAML) is something of a rarity for an Aim-traded miner. That’s because in the five years since it joined the junior market, the company has paid shareholders more than the entire $60m it raised at IPO in 2010. It has been able to do this through a low-cost operating model, which has kept it profitable despite the drop in the price of copper since 2012, when Central Asia first started recovering the metal from its main plant.

There are good reasons to believe the company will continue to pay a good dividend, even if copper hovers around $5,000 a metric tonne this year and next. Firstly, Central Asia does not mine copper – instead it processes so-called ‘waste’ dumps of copper oxide and copper sulphide at its Kounrad plant in Kazakhstan via a process known as solvent extraction-electrowinning (SX-EW). That keeps operating costs at the foot of the global cost curve for the metal. Secondly, the miner completed an expansion of its SX-EW plant, increasing copper production capacity to 15,000 tonnes a year, which should stabilise revenues. Even allowing for a slight slip in the policy to pay 20 per cent of all revenues as dividends – which management does not expect – we think Central Asia is a good defensive copper play at the bottom of the cycle. Buy. AN

84. XEROS TECHNOLOGY

Xeros Technology's (XSG) washing machines use tiny polymer beads that not only clean fabrics, but also consume 80 per cent less water and half the energy of conventional laundry systems. That alone sounds very enticing, although, like many of its smaller-cap counterparts, the group still finds itself in the development stage, hence why it posted an adjusted cash loss of £5.4m in the five months to December 2015.

Xeros mainly installs its high-tech washing machines in North American hotels. While it currently fits one per day, the plan is to fit one every working hour by 2020. The £40m recently raised from a share placing should assist with this process of capitalising on a market where 10,000 laundry systems are sold each year. Management isn’t holding all its eggs in one basket, either. Smaller, specially designed washing machines are being developed to conquer the lucrative laundromat sector, while trials are also under way for a product catering to the high-growth, water-thirsty leather industry. German chemical giant Lanxess is its partner on the project.

Xeros has the makings of a disruptive star, but building a valuation case for buying the stock remains a tough one. House broker Jefferies expects the shares to underperform. And we’d argue that further volatility will almost certainly be in store, as the group fights and spends to commercialise its technology. Until there are more tangible signs that it can realise its potential, Xeros remains a shot in the dark. Hold. DL

83. IDOX

Mounting pressure on governments to slash costs and increase efficiency has been a boon for Idox (IDOX), which counts 92 per cent of local authorities among its customers. Brisk demand for its planning, election management and workflow tools drove adjusted cash profits up 11 per cent to over £18m in the year to 31 October.

The key public sector division has benefited from strong demand for its grants and compliance offerings, while the upcoming EU referendum should buoy the election business. Moreover, cost-cutting and a greater emphasis on managed services has widened the division’s adjusted cash profit margin to around 33 per cent. And iApply – a national register for planning, building control and licensing services – is quickly gaining traction.

The weak spot remains the engineering segment, but management is shifting away from depressed oil & gas markets and its focus on maintenance and subscription software has improved revenue visibility. Idox has also boosted growth and broadened its product range through two acquisitions: Reading Room – a data analysis, web design and social media consultancy – and Cloud Amber, which specialises in urban traffic and fleet management.

Broker N+1 Singer forecasts annual EPS growth of 8 to 10 per cent over the next three years, excluding further acquisitions. Idox’s shares have jumped a quarter in the past year and now trade at 15 times forecast EPS for the year to October. That looks enticing given the group’s dominant position and continued diversification. Buy. TM

82. PACIFIC ALL CHINA LAND

Closed-ended fund Pacific Alliance China (PACL) is unlikely to be on the tips of many people’s tongues. Listed in 2007, the fund invests in a range of property assets including new developments, distressed projects and real estate companies in China. The vast majority of the fund is invested in just four strategies, including a stake in Walmart China and a luxury residential block in Beijing (project Diplomat).

Net asset value (NAV) grew just 0.6 per cent to US$2.62 a share in the six months to the end of June. This is compared with 15 per cent growth in NAV during the prior six months. However, this is because the fund is in realisation phase, which means that as investments reach the end of their lives, returns are passed back to shareholders via stock redemptions rather than reinvested. In January PACL agreed to sell its 40 per cent stake in project Diplomat to a private equity company in the country for an expected $100.8m.

Management expects the majority of its investments will be realised by July. A NAV of $2.70 at the end of February means the shares are trading at a discount of a fifth on the current share price of $1.86. A very short-term speculative buy. EP

81. EPWIN

The basic need for Epwin's (EPWN) home improvement products may be there, but that hasn’t translated into strong demand just yet. Of the 27.8m homes across the country, only 40 per cent are maintained to a satisfactory level, according to figures from the Office for National Statistics. However, while demand for renovation, maintenance and improvement materials produced by Epwin’s fabrication and distribution business has been slower than anticipated, this is in contrast to the extrusion and moulding division, buoyed by the strong performance of housebuilders.

Over the next two years management will be investing in its IT systems in order to improve interaction between its different fabrication sites across the country. This should reduce costs and enable a more efficient use of labour. Acquisitions will also remain important to the building materials supplier’s growth strategy as it seeks to extend its product range and cross-selling opportunities. Shares in the group are trading at just 10 times forward earnings for this year, but we reckon further acquisitions plus structural growth opportunities such as demand from housebuilders should drive the share price up. Add in a consensus forecast yield of 4.7 per cent for the year and we rate Epwin’s shares a buy. EP

For the full run down of numbers 100-51 click the links below:

The Aim 100: 100-91

The Aim 100: 90-81

The Aim 100: 81-71

The Aim 100: 70-61

The Aim 100: 60-51