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The Aim 100 2021: 20 to 11

The Aim 100 2021: 20 to 11
The Aim 100 2021: 20 to 11

20. Secure Income Reit

When the pandemic hit, Secure Income Reit’s (SIR) concentrated commercial property portfolio was heavily exposed to restrictions in social movement. In a flash, once-sound bets on the long-term dependability of tenants, including Alton Towers-owner Merlin Entertainments, and Travelodge Hotels, suddenly looked dicey.

Fast forward to autumn 2021, and the rollercoaster ride looks to have ended, in part because rollercoasters are once again running. By 8 October, 100 per cent of the rent owed for the September quarter had been received, including £17.6m due from Merlin that had been deferred from June and September 2020.

That has helped close the shares’ once wide discount to net asset values, which analysts now expect to climb to 455p per share by December 2022. Dividend coverage could get an extra kick from an upcoming refinancing. And investors shouldn’t yet rule out a potential tie-up with the Main Market-listed LXI Reit (LXI), which could bring cost synergies and diversification. Buy. AN


19. YouGov

In a world where demographic insight is becoming ever more critical, data analytics company YouGov (YOU) is in a great position to prosper. Despite some of its clients’ discretionary spend being hit by the pandemic, YouGov still managed to boost operating profit by 17 per cent and improve operating margins by 80 basis points to 15.1 per cent in the 12 months to July.

With capex on the rise, the company is in a growth stage and expanding globally following bolt-on acquisitions of data companies in Turkey, Australia and Canada. It also completed its fourth acquisition of the year with the purchase of Rezonence, which offers users access to premium content in exchange for responding to interactive adverts or surveys.

FactSet puts the consensus earnings forecast at 20.2p this year and 30p per share in 2023, which against the current share price translates to a keen market valuation.

However, the important thing with any data analytics businesses is scale. The more data one has, the more valuable inferences can be made from it, so heavy investment now should pay off handsomely in the future. As the pandemic wanes, companies will be looking to expand marketing channels. Buy. AS


18. Impax Asset Management

Investing is often a case of being in the right place at the right time, with the performance of Impax Asset Management (IPX) being a case in point.

The fund manager attracted some of the biggest asset inflows for the entire fund management sector over the past year as its long-acknowledged specialisation in ethical investing bore fruit at a time of huge interest in ESG: over the 12 months to September, assets under management grew 84 per cent to £37.2bn.

The interesting point is that the manager is still at the size where rapid fund growth is still possible on an organic basis. By contrast, mega fund houses such as Abrdn and Jupiter find it much harder to generate organic growth through originating new business on their own account and must turn instead to mid-sized acquisitions to sustain their growth profile. Impax’s specialisation in ESG, and its high exposure in some of its funds to technology, is a provider of market alpha which the share price tracks, but also a source of potential weakness if the trend reverses, which is why a cautious approach is needed. Hold. JH


17. Breedon

The supply chain pressures that recently slowed activity in the UK construction sector affects some parts of the industry more than others. If you’re a bathroom supplier waiting on goods to arrive on a container from China, shipping costs and capacity will have been more of an issue than if you’re Breedon (BREE), the aggregates supplier that digs its products out of the ground.

The company, which owns more than 100 quarries and 200 ready-mix concrete plants across the UK and Ireland, kept the show on the road during the pandemic – social distancing in quarries isn’t too tricky – and in the first half of this year reported a 79 per cent increase in revenue, reversing a half-year loss of £10.1m last year into £46.2m profit. Top-line growth was largely the result of its acquisition of several UK assets of Mexican cement giant Cemex for £178m last year, although it had to dispose of some of these to ease competition concerns.

It also took on more debt to pay for the deal, but when issuing half-year results the group said it had used cash generated to pay this down – leverage stood at 1.2 times earnings at 30 June, versus a multiple of 2.1 at the end of last year.

This should fall to below one next year, chief executive Rob Wood said in July. He added that underlying earnings would be “at the top end of market expectations”. Following this, broker Shore Capital upgraded its earnings forecast by 9 per cent this year and 6 per cent for 2022 to 6.4p per share. This looks reasonable given its ongoing deleveraging and the strength of the market – year-to-date prices for concrete, cement and other non-metallic minerals were up 5.5 per cent in September. Buy. MF


16. Learning Technologies

Learning Technologies (LTG) is going through a process of transformation, after the digital learning and talent management service provider completed a $394m (£286m) acquisition of workforce performance business GP Strategies in October.

The enlarged business is forecast to hit £500m in pro-forma revenues, a near fourfold increase on LTG’s latest full-year results. Added scale will also help the group grow globally, with plans to operate in over 80 countries and expand the workforce to 5,000 employees. Management expects the move to be “significantly EPS accretive from 2022”.

After a rough 2020, numbers for the half year to June suggest the underlying business is in robust shape and sparked a 20 per cent rise in the half-year dividend.

Numis raised its guidance on the acquisition news and expects 31 per cent revenue accretion and adjusted EPS of 7.3p for fiscal year 2022, up from 2021’s estimated 4.9p. The group has solid fundamentals and growth prospects. Buy. CA


15. GlobalData

Data, as the now trite observation of the modern world goes, is the new oil. The parallels with the black stuff are multiple: use is vital to businesses trying to navigate the world, extraction and control mean power, and monopolisation has helped to create today’s largest companies.

But while oil is largely commoditised, data is increasingly differentiated by its richness, timeliness and quality. GlobalData (DATA), which sells business intelligence and data analytics on sectors from pharmaceuticals and mining to travel and tourism, is a neat play on this theme.

In recent years, the company has pursued an acquisition-led strategy that has seen it integrate smaller data firms on its platform and reap the benefits of scale. A measure of its success was clearly displayed in the 2019 financial year, when the consolidation push tailed off and the gross margin kicked on to 30.5 per cent. After a hiatus, GlobalData returned to deal-making form in September when it agreed to purchase IHS Markit’s life sciences business for an undisclosed sum.

In addition to bolt-on growth, the data business can count sticky existing customers, recurring subscriptions and good revenue visibility. So much so, that GlobalData hopes to achieve “at least 10 per cent annual organic growth” this year and next. If that ambition bears fruit, then the adjusted cash profit margin, which hit 34 per cent in the six months to June, could rise to as much as 40 per cent.

Such growth metrics help to explain two further features of the investment case: a historically thin dividend cover ratio, and a rising price-to-earnings to growth (PEG) ratio. The dividend question has been of little concern, given GlobalData’s strong earnings growth and balanced use of leverage. But the shares’ lofty PEG – now around nine, against FactSet-compiled forward forecasts – suggests they are getting more expensive against expected growth.

Of course, should current company guidance prove conservative, then a sky-high multiple will look justified. But investors should not lose sight of the group’s risks. These include fierce competition, despite a differentiated stable of niche products, as well as the post-pandemic fate of the events business.

But, on balance, GlobalData is as mature a business as you’re likely to find on Aim, and the sort of company that will get snapped up if its shares underperform. Should that one day happen, founder and chief executive Mike Danson’s 64 per cent holding will give him the final say. For now, the stock’s valuation looks fair, if a little toppy. Hold. AN


14. Gamma Communications

Virtual meet-ups look here to stay. Perhaps not the Zoom quizzes, most of which (mercifully) left with lockdown one, but certainly remote work meetings and online conferences. Gamma Communications (GAMA) has prospered under the new conditions, reporting a strong start to the year, with robust monthly billing and organic growth. 

Gamma supplies business communications systems both via channel partners and directly to customers, and – impressively for a company that mainly serves small- and medium-sized enterprises (SMEs) – reported operating profits of over £75m in 2020, seemingly unaffected by the bad debts and falling sales activity experienced by many sectors. In a canny move, it is also collaborating with rivals, rather than competing with them, and has integrated some of its own software with Microsoft Teams. 

Looking ahead, Gamma expects full-year revenue to be within the range of current market expectations – which were raised following trading updates in May and July – and adjusted Ebitda to be in the upper half of current expectations.

There is one potential glitch in the system, though. At its half-year results, published in September, Gamma warned that the ongoing global chip shortage could disrupt the supply of certain equipment. Investors need to keep an eye on how this affects demand. Hold. JS


13. CVS

While their clients are animals, veterinary practices are fundamentally people businesses. Their success depends on the skills and vision of the professionals they employ. It is encouraging to see, therefore, that CVS (CVSG) is on a recruitment drive. The vet operator, which owns over 500 vet surgeries in the UK, Netherlands and Ireland, intends to add new clinical roles across the company to capitalise on an expanding market. It is also targeting graduates, partnering with the University of Nottingham to deliver a graduate programme. 

CVS performed strongly in its financial year to June, with revenue rising 19.2 per cent and adjusted Ebitda up 37.3 per cent. Management has also recommended a return to CVS’s progressive dividend policy, with the payment of a final dividend of 6.5p per share. The group’s practice division has been bolstered by the flurry of lockdown pet purchases: in the UK alone, 3.2m households are believed to have bought a pet during the crisis. 

CVS’s expansion plans need sufficient staffing, however. The veterinary sector is particularly dependent on European workers and there are concerns about a post-Brexit shortage. Let’s hope CVS’s recruitment drive does the trick. Buy. JS


12. GB Group

We’re suffering from a mass identity crisis – apparently. A marked increase in e-commerce is providing ever greater opportunities for online fraudsters. It’s a worrying trend for consumers and businesses alike, but it’s fertile ground for GB Group (GBG), a specialist in digital identity software.

The group, which is divided into three business units, providing location, identity and fraud solutions, was the beneficiary of an accelerating trend towards online commercial activity during the early part of the pandemic, so management thought that performance might wane in 2021 against strong prior year comparators. In the event, revenue for the six months to September is expected to be approximately £109m, a year-on-year increase of 5.3 per cent. One reason for the better-than-forecast sales was a 2020 project linked to the US government's financial stimulus, which continued into 2021 at higher-than-expected volumes.

It’s surprising the number of companies that have benefited from one-off effects brought about by the pandemic, but in the case of GB Group they merely amplified the long-term structural growth drivers at the heart of the investment case. This, we should add, is borne out in a forward PE rating above an already lofty five-year average. Hold. MR


11. Burford Capital

Litigation funder Burford Capital (BUR) deployed more cash in the first half of the year than ever before, but it may take a while for it to see this turned into income. The issue with litigation funders is that it can take years for cases to settle, making their income stream lumpy.

Disruptions to the courts have accentuated this problem. Burford swung from profit before tax of $187m (£140m) in the first half of last year to a loss of $67.5m this year because 43 per cent of its ongoing cases were delayed by Covid-19.

The good news is that it has a 95 per cent return on invested capital. So its track record of backing cases is strong and it made $503m of capital commitments in the first half of the year. Brokers seem confident that its growing case portfolio will translate into profits. The FactSet consensus is that EPS will be 32p for the end of the year before jumping to 94.5p for FY 2022. This seems promising, but analysts have historically missed EPS forecasts by double-digit percentages, so don’t hold your breath. Hold. AS