50. Renew
Renew (RNWH) last updated the market at the beginning of April, indicating it expected trading for the six months to 31 March to be in line with expectations. Focusing on the UK’s energy, environmental and infrastructure assets, the group derives the bulk of its earnings from engineering services. The impact of the Covid-19 pandemic on the second half of the year remains unclear, although with 80 per cent of its activities designated ‘critical’, work in rail, highways, water and telecommunications is continuing. There has been disruption in its civil nuclear business, however, with programmes at Sellafield and Springfields temporarily suspended.
In order to preserve cash, non-essential capital expenditure and VAT payments have been deferred and the half-year dividend suspended. The group expects to declare net debt of £15m-£17m as at 31 March, up from the September year-end due to the January acquisition of highways engineering specialist Carnell. It has reported £55m of headroom on its borrowing facilities.
With its focus on non-discretionary infrastructure markets with long-term regulated budgets, Renew should be insulated from a wider construction slowdown and economic turbulence. Buy. NK
49. Uniphar
Uniphar (UPR) did not feature in last year’s ‘Aim 100’ feature. The group – which provides sales, marketing, product access and supply chain services to pharma and medical tech companies – undertook a dual listing in Dublin and on London’s junior market last summer.
At the time of its final results in late March, the group described 2019 as an “excellent year” – with revenues up 17 per cent to €1.7bn (£1.5bn) and cash profits of €58.6m. It said that it was well positioned to deliver on its plan to double 2018’s pro-forma cash profits within five years of going public.
Performance was ahead of Uniphar’s expectations for the first two months of 2020, with minimal disruption from coronavirus. True, it did say that it anticipated investing in additional resources to manage higher volumes. And there could be a delay in medical-device revenue because of elective surgeries being pushed back, hitting cash profits by about €5m this year. But the group maintained its medium-term outlook, guiding to continued organic growth across all divisions. Pending a longer listed track record, hold. HC
48. iomart
iomart (IOM) was bullish in its trading update covering the 12 months to 31 March, saying its cloud computing products were largely insulated from the major changes to business brought on by Covid-19. “The vast majority of our customers are trading or operating online and may experience an increase in demand for their products and services over the coming months,” the company said.
Its 2020 financial year was defined by a more aggressive approach to selling, shown by a “complete refresh” of its sales team. This pushed its organic growth up to 6 per cent for the cloud services division, from 3 per cent in the 2019 financial year. The services focus also helps with the Covid-19 uncertainty, as 86 per cent of its revenue is “recurring in nature”.
Pitching harder is not the only growth strategy for Iomart, either; acquisitions are also being used to boost growth. It has bought two cloud companies this year, for up to £3m and £4.2m, respectively. Buy. AH
47. Alliance Pharma
Alliance Pharma (APH) opted not to propose a final dividend for 2019, in a bid to preserve cash. This seems – as the group describes it – prudent, although the balance sheet was in better shape at the end of December than 12 months previously. Net debt fell from £85.8m to £59.2m, keeping borrowings happily within Alliance’s covenant limit.
The healthcare group reported good sales and profit growth, helped by its international stars portfolio, which benefited from the acquisition of anti-dandruff shampoo brand Nizoral. And it says that it entered 2020 well positioned for further growth, notwithstanding its expectation of “some impact on revenues” because of the coronavirus crisis. At the time of these results – early April – Alliance said that its supply chain was holding up well and that its distributors held good levels of stock.
For now, Alliance reckons that trading in 2020 will be weighted to the second half. We’re content with watching from the sidelines; hold. HC
46. Ideagen
Ideagen’s (IDEA) integrated risk management software is considered ‘business critical’ by its customers. This, combined with a resilient ‘software-as-a-service’ (SaaS) model, has mostly sheltered it from the wider disruption caused by coronavirus.
The group has expanded its reach over the course of the past year, having acquired ‘RegTec’ business Redland Solutions, which targets financial services, for £15.8m, as well as health and safety compliance company Optima Diagnostics for £1.8m. The transactions bumped up net debt from £1.3m to £18m.
Still, Ideagen retains excellent revenue visibility, expecting a run-rate book of annual recurring revenue (ARR) of around £49m as at the end of April. The company did note in an update that it expects turnover for the year to come in slightly below previous expectations of £58.5m, at £56m. It has taken a cautious stance for its financial year ending in April 2021, and has therefore identified around £4m of cost savings. But with a product that is integral to its clients' operations, we are optimistic about its ability to ride out the storm. Buy. LA
45. Codemasters
Video game developer Codemasters (CDM) is a leader in car-racing games and perhaps best known for its Formula 1 series, which won Best Racing Game at the TIGA Awards in 2019 for the third consecutive year. The group has secured the F1 licence until 2025, with a possible two-year extension, and has recently announced its latest launch in the franchise, to be released in July on the PlayStation4, Xbox, Windows PC and Google Stadia. With several long-awaited features set to be unveiled, the developer’s track record to date suggests the franchise rights look secured until at least 2027.
Lucrative franchise rights extend beyond F1, too, thanks to its acquisition of Slightly Mad Studios in November last year. The developer also has an exclusive game licence for the Fast & Furious film series, which is set to be released in April 2021.
But the group has not been able to escape the disruption caused by coronavirus. It may be that the cancellations of F1 races and the delay of a new Fast & Furious film will hurt consumer awareness of Codemasters’ accompanying games. Indeed, analysts at Jefferies note that F1 race weekends typically boost sales. However, management has guided that as long as its Fast & Furious game is released by the first quarter of next year, it does not expect a material impact in 2021.
On the flipside, national lockdowns have propped up the video games industry. Codemasters has been transitioning to a games-as-a-service (GaaS) model, which focuses on digital downloads and streaming. This also has the effect of dramatically cutting costs: in the first half of its March-end financial year, gross margins rose to 89 per cent, with digital sales up from 53 per cent to 62 per cent of the total. Coronavirus restrictions have led to a drop in traditional retail and box sales as the majority of game retailers shut up shop – although digital growth has accelerated, boosting Codemasters’ margins further.
Management noted in an update in April that trading in the second half of the year was broadly strong, with full-year revenues up around 7 per cent to £76m and adjusted cash profits ahead of expectations at around £18.1m. With an attractive market backdrop, no debt and a leading niche position supported by franchise agreements, Codemasters remains an appealing growth story. Buy. LA
44. Impax Asset Management
For investors hoping to understand the trend towards sustainable investing, look no further than Impax Asset Management (IPX). In the three years to December, a mixture of strong market performance and a tidal wave of client mandates helped the environmental, social, and governance (ESG)-focused active fund group grow its assets under management by 218 per cent. The manager’s investment themes – especially its listed equity picks – remained in steady demand in the three months to March, as net inflows of £1.1bn helped to offset market weakness.
A wide range of fund distribution channels, and success in winning big mandates with larger investors, looks set to keep the taps on throughout near-term bouts of market volatility.
To analysts at Peel Hunt, this makes Impax one of the “clear winners” amid the pandemic-induced shocks. Despite dropping with the broader market in March, the shares are once again within touching distance of the highs set at the start of 2020. That leaves a stretched valuation, which looks justified only so long as the broader fund world remains behind the curve. Hold. AN
43. Midwich
Midwich (MIDW), which supplies audio-visual equipment to businesses, has already acknowledged that it is likely to face challenges within its supply chain and from some customers due to the coronavirus. However, management said it might see an uptake in demand for video and audio conferencing, as more employers consider their capacities for flexible working.
Nevertheless, the group has taken action to preserve liquidity, withdrawing its intention to pay a final dividend in respect of 2019 and halting all acquisition activity. In January, it also signed a three-year £50m revolving credit facility, of which £38m was undrawn, with a £30m option to extend.
The group has focused on growing sales of specialist technical products, which require higher levels of customer support, to help strengthen its market position. Sales of technical products, which also carry higher margins, rose 43 per cent last year and accounted for almost a third of the group total. While the economic fallout could weigh on demand, that risk is more than reflected in the shares’ valuation. Buy. EP
42. Alpha FX
Ah, the pitfalls of fast-growth Aim stocks. After a year of expectation-defying trading updates and earnings upgrades, shares in Alpha FX (AFX) were brought crashing back down to earth last month when the currency risk management company said it had seen a sharp drop-off in client trading activity and potential collateral issues among its clients.
Just 12 days before, management was confident of hitting bullish earnings forecasts, citing volatile markets’ limited impact on trading. But faced with unprecedented swings in currencies, Alpha was forced to row back and then warn on profits. An apparently low-risk model looks more fragile after Alpha’s largest client turned into a £30.2m debtor, and 223 others have had to cough up additional margin.
Looking ahead, there is downside protection. In 2019, the proportion of revenues from collateral-free non-forward contracts doubled to 30 per cent, while the group’s payment solutions business has added diversification. A director-led £20m placing at 680p should shore up confidence, but investors should look for signs of stability before turning bullish. Hold. AN
41. Silence Therapeutics
RNA (ribonucleic acid) therapy specialist Silence Therapeutics (SLN) has high hopes for 2020 – anticipating a “transformational” year. As we noted in our review of the group’s preliminary results last month, these are ambitious words against a backdrop that is not entirely stable – to say the very least.
But Silence does have encouraging partnerships in place. It announced an agreement with Mallinckrodt Pharmaceuticals last July, which entailed the group receiving a $20m upfront payment with a $5m equity investment and a further $2m on completion of its first milestone. And in March Silence revealed a collaboration to develop treatments with AstraZeneca (AZN). Astra made a $20m equity investment in Silence, with a cash payment of $60m and scope for additional payments.
Management expects to “create value through organic growth”, but is open to opportunities for more partnerships – as well as looking to broaden its share register and seeking a bigger following among North American healthcare providers. In any case, the profit-and-loss statement is not a particularly useful measurement of Silence’s progress; as a company steeped in research and development, revenues are minimal. Hold. HC
