100. Bioventix
Bioventix (BVXP) will soon report figures for FY2023. The company, a manufacturer of antibodies used in diagnostic applications, has indicated that changes to tax treatments in relation to research and development and the headline corporate tax rate could impact future earnings and cash flows. But it has a record of consistently growing both sales and reported earnings, with the latter measure up by an average of 7.5 per cent a year since FY2018.
It has also maintained a solid balance sheet unencumbered by debt – something of an outlier where London’s junior market is concerned. There is always a 'blue-sky' element when it comes to biotechnology stocks, but it’s the kind of innovative stock that Aim regulators are keen to get on board.
And for a relative minnow (market cap £190mn) it offers an inbuilt competitive advantage in that the lengthy regulatory process synonymous with antibody technology, while it does have the potential to exasperate investors, stands as an effective barrier to entry.
The company has been ploughing resources into what is termed the 'Tau biomarker' antibody, which has diagnostic and treatment-response potential for neurodegenerative conditions including Alzheimer's disease – a prime growth area within the biotechnology space. We rate the stock as a hold as it stands, but it could conceivably be a viable long-term addition to your portfolio. MR
99. Faron Pharmaceuticals
Like all pre-revenue drug developers, the fortunes of Faron Pharmaceuticals (FARN) depend entirely on regulatory approval, and the three-stage clinical trial process that precedes it.
Faron’s bexmarilimab, an immunotherapy intended to treat acute myeloid leukaemia, is due to enter phase II trials in the fourth quarter this year. It is, in other words, still a fair distance from commercialisation. But there is one reason for would-be investors to be hopeful: in August the drug was granted orphan drug designation by the US Food and Drug Administration (FDA).
This means Faron is awarded certain benefits – including tax credits for clinical trials and exemption from FDA application fees – because it’s developing a treatment for a rare disease. While the designation doesn’t guarantee that the drug will make it through clinical trials, it does mean the process will be more affordable.
The group entered Q3 with almost €13mn (£11mn) in funds, which it says is sufficient to support operations into the following quarter. But things are often touch-and-go for small biotechs at this stage, so we’d be inclined to wait for further trial outcomes before getting involved. Hold. JJ
98. Cohort
At first glance, the lower valuation attached to Cohort (CHRT) compared with some of its listed defence peers looks unfair. Since the end of 2019, the company’s shares have lost around 30 per cent of their value during a time when others have made gains as governments across Europe have pumped billions more into defence budgets.
The reason is that Cohort, an acquisitive business that operates six different divisions, has been weighed down by the underperformance of some of its more recent purchases – most notably the Chess optical radar sensors business bought in 2018. That, and a naval communications systems provider bought two years earlier known as EID, contributed to a 9 per cent decline in earnings per share (EPS) in 2021 and an 8 per cent slide in the following year.
Results for the year that ended on 30 April showed a marked improvement, though. Although EID declared another “marginal” trading loss, which was blamed on continued delays to new programmes for the Portuguese Navy, higher overall sales (up by a third) and a better performance from Chess meant adjusted profit grew by 23 per cent and EPS by 17 per cent.
It also seems to be picking up momentum. Its order book stood at £370mn as at 22 September, after the company picked up £90mn of new orders since its year end. This means 93 per cent of expected revenue for the current financial year is covered, but it also has more than £100mn of orders for 2025-26 and beyond, “guaranteeing a solid flow of revenue for a decade”, chief executive Andy Thomis said.
He expects the current higher levels of defence spending “to be maintained in the long term”, not only to counter Russia’s threat in Europe but also to counteract increased threats in the South China Sea.
The company is having to increase its own capital expenditure (capex) to meet demand – Thomis forecasts an average spend of £10mn over each of the next two years before falling back to around £3mn-£4mn in its 2025/26 financial year. As a result, the FactSet consensus forecast is for a slight (2 per cent) decline in EPS for the current financial year, before a 5 per cent increase in 2024/25 and a 7.5 per cent increase in 2025/26. For those prepared to take a long-term view, Cohort's current share price of around 14 times earnings, in line with its five-year average, doesn’t appear too taxing. Buy. MF
97. LBG Media
Is LBG Media (LBG) settling into a rhythm, or is the owner of Lad Bible and a handful of other 'laddish' websites still clinging onto some youthful naivety? For the second year in a row, it posted a pre-tax loss for the six months to 30 June, but the company insists this is in line with a "seasonal split" that it has seen in the past. In other words, its audience of younger people is more engaged with its light-hearted content over Christmas and the winter months in general.
The company has indeed made a calendar year pre-tax profit for the last three years, but while analysts forecast healthy cash profit growth this year, that rate of increase then slows markedly in future years. LBG has sizeable audience numbers but that makes future market penetration harder. Given its still-elevated current valuation, we stick to hold. ML
96. Brickability
Brickability (BRCK) has just announced its 12th deal since floating on Aim in 2019 and its second-largest to date.
It is buying Glasgow-based cladding remediation specialist Topek in a deal worth up to £45mn, which will be “immediately earnings accretive”. This will come in handy, as it will help to make up for an anticipated fall in profits in its existing business given the weaker housebuilding market – like-for-like sales in the first half were down 14 per cent.
Acquisitions have helped the group to diversify – it now makes 60 per cent of sales from bricks, compared with 80 per cent on flotation. It has also reduced its dependence on housebuilding.
Shore Capital expects the weaker trading "to be fully offset" by the inclusion of Topek's numbers. We find it difficult to disagree with the broker's contention that Brickability's shares offer "excellent value", given that they are currently priced at under five times FactSet's consensus forecast earnings and offer a dividend yield of 6.8 per cent. Buy. MF
95. Somero Enterprises
Somero Enterprises (SOM), a maker of concrete levelling devices that help to create the type of perfectly flat floors needed in warehouses and other buildings, reported a few bumps and gaps in its first-half results.
There was a 14 per cent year-on-year decline in revenue and pre-tax profit fell by 30 per cent. Although sales grew in three of its four geographic regions, a 24 per cent decline in its core North American market was blamed on clients delaying projects, which is having a knock-on effect in terms of creating bottlenecks for approvals, it said.
The company has taken action to reduce overheads, including job cuts that are “commensurate with revenue decline” and inventory reductions to preserve cash. Still, house broker Cavendish expects a 23 per cent decline in adjusted full-year profit to $32.5mn (£26.7mn) and a 24 per cent cut to its dividend.
Even so, the 27 per cent year-to-date slump in the company’s share price means that Somero’s shares currently offer an “eye-catching dividend yield” of around 8 per cent. The broker argues that they offer “significant upside scope” as the market recovers, but the chances of further hits to earnings before then leave us more circumspect. Hold. MF
94. Accsys Technologies
To describe the past 12 months as a “year of transition” for treated wood specialist Accsys Technologies (AXS) would be generous. Admittedly, things weren’t as awful as the previous year, when the company put work on its severely delayed Tricoya plant in Hull (originally due to complete in 2019) on hold until market conditions improve. Its consortium partners had grown tired of funding the seemingly-endless work, so it took full control of the venture and issued new Accsys shares in return for their stakes.
This year began acceptably, with the now former chief executive Rob Harris stating in January that the company had delivered “strong revenue growth” given robust demand levels and an increase in capacity at its (only existing) plant in Arnhem.
The company highlighted an eight-fold increase in underlying pre-tax profit to €11mn (£9.5mn) at its March year-end, but this was dwarfed by an €86mn writedown recorded on its Tricoya assets. Half-year results are due next month but once again look set to make for grim reading.
Accsys had argued that its main problem was supply constraints – everything made at Arnhem was sold, and even the unfinished Tricoya plant was “essentially sold out”, Harris told the IC back in late 2021. Its popularity in the US sparked a joint venture with chemicals company Eastman where a $136mn (£112mn) Accoya wood plant is due to open at Kingsport in Tennessee by mid-2024.
But a trading update last month warned that trading conditions had softened since March and many of the company's distributors were destocking. Revenue in its current financial year is likely to be lower than expectations, and cash profit “significantly below”, the company said. “Immediate and decisive steps” are being taken to rein in costs.
Edison Investment Research cut its pre-tax profit forecast to just €700,000 and noted the company expects to “just” stay within debt covenants.
The next 12 months therefore look like something of a tightrope walk and there remains a real prospect of equity value being further diluted – or even completely wiped out. But Accoya is a proven product that (recent performance notwithstanding) is well regarded by the industry. Much will depend on the macroeconomic outlook, but with the US housebuilding market proving resilient the company has a chance not just of survival but of achieving meaningful growth once the Kingsport plant starts producing.
Given the risk, Accsys' enterprise value is now just five times FactSet's forecast cash profit – at the bottom end of its five-year range. Hold. MF
93. Sylvania Platinum
Here is a rare sight, an Aim-traded business that pays dividends and is running a share buyback programme. Sylvania Platinum (SLP), which operates in South Africa, saw its shares surge in value in mid-2020 as the price of palladium skyrocketed, sending profits way up in turn. At one point it was trading at a forward price/earnings ratio of just 1.5 times.
The fall in the palladium and rhodium prices and greater appreciation of the company’s cash generation have combined to take this metric up to its current six times. The profit levels of 2021 (underlying Ebitda of $147mn) may well be an anomaly but the company should rebound after a weaker 2023, in which it delivered an underlying cash profit of $66mn. It is a highly profitable business – with cash profit margins around 50 per cent – because it processes tailings, rather than doing its own mining. There remain plenty of expansion options in the coming years, so there is still something here for a long-term investor. Buy. AH
92. Fonix Mobile
Retailers’ desire to reduce the number of online transactions that are abandoned at 'checkout' lies behind the impressive results that have driven the share price performance at Fonix Mobile (FNX). The company’s technology allows merchants to charge customers’ mobile phone bills, turning the device itself into a payment enabler. The tech is used by most as an extra payment channel that complements existing services such as Google, or Apple Pay. When it adds customers, they tend to stay signed up and Fonix has experienced very little in the way of churn.
The company has around 145 active customers, including large enterprises such as ITV (ITV) and Channel 4, and there is an international push in progress with Fonix adding customers in Ireland such as state broadcaster RTÉ. Media companies represent roughly 75 per cent of gross profits, with more opportunities available as broadcasters develop their online service offering. Buy. JH
91. Jubilee Metals Group
On the other side of the Bushveld geological complex from Sylvania Platinum is Jubilee Metals Group’s (JLP) operation, and it is a similar business – extracting platinum group metals (PGMs) and chrome from tailings, which are waste products already put in the processing plant. In the past, these plants were often less efficient (and/or prices were lower), meaning metal was left behind. Jubilee’s business also has the rights to copper and cobalt-containing tailings in Zambia. In the financial year ending 30 June, the company produced 42,000 ounces of PGMs and 2,900 tonnes of copper.
Lower prices for PGMs knocked earnings, but the company is focusing more heavily on chrome output this year. Guidance is 1.45mn tonnes of chrome concentrate for the 2024 financial year, up from 1.2mn in 2023. A new partnership agreement should see chrome margins rise, too.
The processing growth plans are a positive for the company, but even after a sell-off it looks pricey compared with more profitable miners. Hold. AH
