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The Aim 100 2020: part 2

Does a solid balance sheet matter if Covid-19 wipes out your business model?
The Aim 100 2020: part 2

Amid the Covid-19 pandemic, there can be no doubt that cash is king. Companies with low or no debt have trumpeted their foresight in keeping a steady balance sheet in preparation for this rainy day. But what if the cash buffers we discussed last week in part 1 of the Aim 100 aren't all they're cracked up to be?

The number three Aim company by market capitalisation, Fevertree Drinks (FEVR), has said it would “not be unaffected” by the pandemic, a clumsy way to tell shareholders the bar and pub side of the business’s sales would plummet through March and beyond. The on-trade side of the company brought in 45 per cent of sales in 2019. Fevertree is in a net cash position, and said last month it was “well positioned” coming out of the shutdown. 

The novelty of this crash compared with the last one is that the recovery will bring a different world, however. 

Polling from Ipsos Mori shows the UK is unlikely to rush out to the pub the moment the government gives the green light, so Fevertree investors might have to rely on a shift in the business. This new Fevertree could push a pub-like experience to sell its drinks and mixers as people return to work but hesitate to return to crowded venues. 

So if a company like Fevertree – with its strong balance sheet and admirable preference for employee re-deployments over furloughs – is not a prime candidate for the post-Covid-19 world, then what is? 

Those companies least affected to date have contracted work that has continued through the crisis, with cloud computing specialists such as iomart (IOM) demonstrating that its remote-access products work by its own ability to continue operating at full strength.

The benefit of flexibility is demonstrated across other sectors: in the legal space, Keystone Law (KEYS) is better placed than Burford Capital (BUR) because of its low full-time employee structure and revenue-sharing model with ‘principals’, who are self-employed. While earnings will certainly come down for Keystone as legal business slows, its flexible operation means the costs are low, too. Working on legal matters, rather than investing in them as Burford does, helps to smooth out delays in the courtroom and business disruption. Shares in fellow legal services company Knights Group (KGH) are actually up on a year ago, despite falling from a high point since its 2018 float of 488p. Its restructuring and insolvency business is likely to be busy right now. 

Others that appear to be coping are also well suited to post-Covid-19 society: Strix (KETL) makes kettle safety controls, while digital security company Kape Technologies (KAPE) quickly recovered from the sell-off and says it now has scope for growth. Video game developers Frontier Developments (FDEV) and Codemasters (CDM) look nicely positioned for a populace increasingly positioned in front of their consoles.

Those relying on people going right back to their old ways could end up losing out. Young & Co (YNGA) has embraced the government’s furlough scheme, highlighting its complete reliance on people showing up to pubs. Only 29 people were kept on as of 27 March, while 4,500 are at home not working. This scheme is due to end in June at the time of writing, and the company has not outlined its next steps. Young’s has relatively low debt and was generating good margins, but these will not matter if no one comes back to the pub. 

 

RankingTIDMCompany name1-year change (%)
50RNWHRenew12%
49UPRUniphar-
48IOMiomart-10%
47APHAlliance Pharma-5%
46IDEAIdeagen14%
45CDMCodemasters23%
44IPXImpax Asset Management45%
43MIDWMidwich-26%
42AFXAlpha FX-13%
41SLNSilence Therapeutics511%
40GROWDraper Esprit-22%
39JSGJohnson Service-16%
38WJGWatkin Jones-29%
37YNGNYoung & Co.'s Brewery-35%
36YNGAYoung & Co.'s Brewery-40%
35CTHCareTech14%
34CRWCraneware-37%
33RSTRestore13%
32NICLNichols-31%
31FDEVFrontier Developments66%
30IGRIG Design-13%
29DGOCDiversified Gas & Oil-12%
28AMSAdvanced Medical Solutions-28%
27ITMITM Power492%
26YOUYouGov43%
25GRPGreencoat Renewables5%
24CVSGCVS41%
23FDPFirst Derivatives-20%
22CWRCeres Power123%
21EMISEMIS Group-10%
20CLINClinigen-29%
19TM17Team1798%
18SMSSmart Metering Systems17%
17HGMHighland Gold Mining54%
16DTGDart Group-41%
15LTGLearning Technologies51%
14JHDJames Halstead-1%
13PRSMBlue Prism-31%
12KWSKeywords Studios-1%
11BURBurford Capital-72%
10GAMAGamma Communications18%
9SIRSecure Income REIT-33%
8ASCASOS-36%
7BREEBreedon9%
6GBGGB Group11%
5RWSRWS-5%
4DATAGlobalData111%
3FEVRFevertree Drinks-44%
2ABCAbcam5%
1BOOboohoo37%
Source: S&P Capital IQ. Ranking accurate as of 27 Mar, price moves accurate as of 7 May.

Aim 100: Part 1

Aim 100: 100-91

Aim 100: 90-81

Aim 100: 80-71

Aim 100: 70-61

Aim 100: 60-51

Aim 100: 50-41

Aim 100: 40-31

Aim 100: 30-21

Aim 100: 20-11

Aim 100: 10-1