The Aim 100 was the best performing of all the UK’s broad indices in the past 12 months
100. Matchtech
The acquisition of specialist recruiter Networkers International last year has proved transformative for Matchtech (MTEC). Not only has the move substantially expanded the recruiter’s geographic reach, but early cost synergies have already fed through into a 160 basis point increase in contract margins, to 9.2 per cent. The deal also enhanced Matchtech’s specialist offering, a key defensive feature in an industry at the mercy of cyclical downturns. As opposed to its peers, three-quarters of the group’s net fee income (NFI) comes from contractor placements, while long-term prospects are tied to relatively buoyant areas of industry, including the infrastructure, automotive, IT and telecoms sectors.
The engineering division, in particular, continues to power ahead. Underlying NFI was up 7 per cent at the half-year, driven by continued strong demand from rail, water and infrastructure starts, while top-line visibility is impressive due to long-dated projects including the Thames Tideway Tunnel, Crossrail (phase 2) and the Wessex to Waterloo line upgrades. We think the shares are a snip at just 10 times forecast earnings. Buy. MR
99. CONYGAR INVESTMENTS
The renaissance in commercial property values is now stretching as far as North Wales, which is good news for Conygar (CIC), which operates from sites in both the north and south of the country. Recent developments include Llandudno Junction, where it has obtained a resolution to grant planning consent for a new superstore and restaurant development in partnership with Conwy County Borough Council. Other projects include a 450-berth marina and 253 apartments at Fishguard, which includes a 19-acre platform for a Stena Line port expansion. It also recently acquired a 204-acre brownfield site on Anglesey, which is not far from the proposed Wylfa nuclear power station. The site is ideally placed to accommodate the workforce for the new facility, which is expected to exceed 8,000 temporary workers.
Elsewhere, outline planning permission has been obtained for developing the Holyhead waterfront to include 326 town houses and apartments, as well as a 500-berth marina and 50,000 sq ft of commercial and office space. All of these sites have been acquired at a considerable discount to their potential development value, and the development portfolio is currently valued at cost. The potential remains to crystallise these gains as new developments are completed, and trading at a 24 per cent discount to forecast net asset value, the shares look cheap. Buy. JC
98. PARK
Park (PKG) is a multi-retailer voucher and prepaid gift card business, which focuses on the corporate gift and Christmas savings markets. Sales tend to be generated via the internet, but also come from a team of direct sales agents. Preliminary results from the company are due in early June, but a trading update released in early April revealed the momentum seen in the first half of the year has continued into the second. Christmas, which is a crucial trading period for the company, went well, with growth seen across all parts of the business. The balance sheet is said to be in good health too, with cash balances ahead of last year. The company has seemed to benefit from a rise in household incomes, something that might improve further with the introduction and implementation of the new national living wage (NLW).
However, the company warned that sales are still declining over at the consumer credit division, and could come in below £4m for the full year – a £16m reduction on the year before. Increasing sales across other segments though mean group sales will only fall by £2m across the business as a whole. We remain buyers. HR
97. AVANTI COMMUNICATIONS
Soaring demand from consumers and businesses for high-speed wireless connectivity continues to stretch the capacity of telecoms providers. Satellite specialist Avanti Communications (AVN) offers a solution: it rents out data capacity to mobile and broadband providers such as BT. Strong demand drove underlying sales up 18 per cent in the six months to 31 December, resulting in an operating loss of about $28m (£20m).
Avanti has made further progress in 2016. For instance, a subsidiary of Turkish banking giant Isbank recently agreed to use the group’s satellites to serve enterprise clients. Management has also signed the first customer for its HYLAS 4 satellite, which is scheduled for launch in early 2017. Those gains support its short-term guidance: growing constant-currency sales by half in the year to June and turning a second-half cash profit.
Avanti’s sizeable cash reserves and banking facilities, combined with a bulging order backlog and management’s plans to reduce capital spending next financial year, should assuage concerns about its liquidity. Moreover, analysts at RBC Capital Markets anticipate compounded annual revenue growth of more than 40 per cent over the next four years. But the group’s shares have more than halved in value this past year, and considerable risks remain at this early stage. Hold. TM
96. RM2 INTERNATIONAL
When Neil Woodford buys big stakes in a company it rarely goes unnoticed. However, the star fund manager’s 28 per cent stake in Luxembourg-based RM2 International (RM2) won’t do his reputation for good stockpicking any favours, at least for the time being.
Shares in the producer of super-strong composite pallets used to shift consumer goods, food and drugs around the globe have encountered a turbulent year. That’s mainly because, prior to announcing interim results, the company’s management team revealed that it had been forced to change from a powder-based to a gel-based pallet coating system. A wider pre-tax loss followed, as did a share placing to raise gross proceeds of up to £30m.
Some progress has since been made negotiating the mass production of its latest pallet at a lower price in China. The problem is that it won’t commence until early 2017, meaning this year’s production targets have fallen by the wayside.
Over the long term, RM2’s BLOCKPal pallets look likely to succeed, particularly as they can help reduce a company’s carbon footprint. But until we see evidence that the recent stream of bad news is over, we’d rather watch how things progress from the sidelines. Hold. DL
95. SQS SOFTWARE QUALITY SYSTEMS
Cologne-based SQS (SQS) is a leading provider of software testing that counts BP, UBS and Daimler among its clients. In response to mounting competition and pricing pressure, it has expanded its range of services and now offers comprehensive testing of software and hardware interactions. It has also shifted its focus towards winning more lucrative managed services and specialist consulting contracts. The new strategy paid off in 2015: adjusted cash profits rose 11 per cent to around €21m (£17m).
Sales dipped in the regular testing business as management cut loose unprofitable customers. But managed services revenue soared 27 per cent to account for nearly half of total turnover, while specialist consultancy revenues surged more than three-quarters. The group’s broader offering has proved popular in the US, helping it win clients in healthcare, financial services, hospitality and other sectors. It has also made a trio of acquisitions that have bolstered its US presence and provided a foothold in Italy.
Broker Stockdale expects cash profits to climb a fifth in 2016. Moreover, shares in SQS trade at an unassuming 14 times forecast EPS for 2016. But in light of the challenges in regular testing and the risk of hiccups during the group’s transition, we consider that a fair rating. Hold. TM
94. LXB RETAIL PROPERTIES
Retail park developer LXB Retail Properties (LXB) isn’t likely to be around for much longer because, following a series of meetings, shareholders have voted in favour of selling all the group’s assets and distributing the proceeds. A vote to this effect was secured in February, and the board has indicated that there are unlikely to be any constraints that will prevent full liquidation by 31 March 2017. The sale of Rushden Lakes to The Crown Estate is expected to go through towards the middle of this year, realising cash of around £75m.
The sale of further assets at Greenwich and Sheppey should be completed in the summer, while cash from the sale of assets in Stafford and Sutton is expected to come through by the end of the year. Shareholders have already received 45p a share after LXB sold its Biggleswade investment in June last year. At the September year-end, the group’s net asset value per share stood at 103p compared with a share price of 95.5p. Since then, the shares have moved to a premium, but it’s likely that the NAV will be revised up at some point, and that liquidation will offer a greater return than that shown by the share price. Hold. JC
93. NEXT FIFTEEN COMMUNICATIONS
Leading technology companies including Google, Facebook and Moneysupermarket.com employ the services of Next Fifteen Communications (NFC). The appeal of its 17 media agencies is that they specialise in using software, data analytics and digital communications to understand and engage with consumers. Brisk trading and stringent cost control propelled comparable operating profits up 30 per cent to around £17m in the year to 31 January.
The growth engine remains the US business: sales leapt 14 per cent there as M Booth, Beyond and other local agencies outperformed. Management has also been relentless in simplifying the business. It exited South Africa and Denmark, restructured its operations in several regions and merged several agencies. And it continues to use acquisitions to bolster its margins and broaden its service range. For instance, it recently snapped up technology-focused digital agency Twogether and specialist content agency Publitek.
Next Fifteen’s rapid progress leads broker Peel Hunt to predict that cash profits will jump a quarter this financial year. Its shares have soared by almost half in the past year, yet still trade at just 13 times forecast earnings for this financial year. That rating leaves substantial value on the table. Buy. TM
92. SINCLAIR PHARMA
A year ago Sinclair Pharma (SPH) was bulky and indebted, but is now hardly recognisable as its former self which went by the name Sinclair IS Pharma. In November the group sold the entirety of its non-aesthetics business to fellow Aim company Alliance Pharma. The £132m sale was used to clear net debt and pay off royalties that it had owed to the former owner of one of its drugs.
Now, with just four products in its portfolio, Sinclair is fully focused on the aesthetics business – its products are all cosmetic and are sold to physicians performing plastic surgery. Its healthy net cash position has given it scope for its next big move – to launch its products in America, the biggest market for aesthetic pharmaceuticals. Management currently plans to sell products via distributors in the US, as it does in several Asian countries, while in Europe it will continue to sell directly.
In-market sales of the products were up during the year, and although costs associated with the disposal exacerbated losses, N+1 Singer analysts anticipate it will move into profitability by 2017. Although tough to value at the moment we have moved this stock to a speculative buy. MB
91. BLANCCO TECHNOLOGY GROUP
Blancco Technology Group (BLTG), until recently known as Regenersis, has been reborn as a ‘pure play’ software business. In February, the group sold off its repair services arm in order to focus on Blancco, its key data erasure business, hence the subsequent name change. A sizable portion of the proceeds are now to be returned to shareholders via a £50m tender offer.
Revenues and reported operating profits fell in Blancco’s half-year to December 2015, but that reflected a change in the business mix and the adoption of IFRS accounting for subscription sales. But at the time of publication, the IC noted that invoiced sales figures from Blancco show a 40 per cent growth rate at constant currencies, which goes some way to explaining the change of tack.
The transformation also involved the relocation of the group’s headquarters to Atlanta, Georgia, in order to tap into the world’s biggest IT marketplace. Market penetration will be helped along by the September acquisition of the Tabernus business group, a privately owned provider of software erasure. Blancco’s share price has performed well since publication of its interim figures, but it still trades on an underlying earnings discount to rivals and growth opportunities abound. Buy. MR
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