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Transcript of November 2014 AIM Prospector
AIMprospector
five AIM companies profiled
My favourite AIM shareFrom 1,100+ shares, I own just one
Issue 9 November 2014
world-leading manufacturer
thriving family business
dividend-paying software firm
free to private investors
service company growing again
AIMprospector
2 www.aimprospector.co.uk
Welcome to AIMprospector, the online magazine from Blackthorn Focus.This month’s AIM Prospector (finally!) features the one AIM company whose shares I personally have direct exposure to: Begbies Traynor plc. So far, I have been half-right on this one. While the
shares have risen significantly since I first climbed on board, the business performance is yet to pick up as expected. I hope that after reading the article on page 5 you concur with my reasons for backing the shares. This month also features a special write-up from the recent Blackthorn Focus event
AIM Investor Focus. Five AIM-quoted companies were present on the day: Cohort,
Ideagen, SCISYS, Sprue Aegis and Trakm8. An AIM Prospector staff writer met with
the management of each company, and a write-up appears from page 11.
One company previously featured in AIM Prospector that recently reported
is restaurant group Richoux. While the trading performance was down on the
previous year, management was very positive, particularly as the company has
solid plans to soon expand its most profitable operations: the Richoux pattiserie
and the American-style Dean’s Diner. Together, these plans could see the
company end 2015 with a portfolio of over 20 restaurants. I expect that this
would lead to an improvement in group sales of around 30%.
The recent market sell-off has been very unkind to some AIM companies.
Note particularly Iomart. Only in June, the company received a 285p cash bid. Yet
the shares recently traded as low as 170p as the market fell into a state of funk.
Another AIM share that is beginning to look attractively priced again is the
precision instruments firm Judges Scientific. Although the recently announced
organic growth from the company is modest, Judges is still moving ahead at
pace. The management team here has a comprehensive track record of success
and rewarding shareholders. I hope to take a closer look in a future edition.
A final call for David Stredder’s smallcap gala event in Derby beginning on
Thursday. Mello2014 is a three day investor-led event for investors, featuring
some high quality listed companies and top fund managers. Here at AIM
Prospector, we believe it is important that investor-
led initiatives such as Mello2014 are supported by the
community and industry. AIM Prospector readers have
kindly been offered discounted entry to Mello2014.
Register using the code PROSPECTOR-DISCOUNT for a
half price ticket at this event here.
“Enjoy this month’s AIM Prospector and good luck with your AIM endeavours.”David O’Hara, Editor, AIMprospector
ContentsWelcome ..............................p2
Dillistone .............................p3
Top Pick: Begbies Traynor ...p4
Executive Insight .................p6
Nationwide Accident Repair Services ....................... p7
FW Thorpe ..........................p8
Gooch & Housego ...............p9
AIM Investor Focus ............p10
Next month ........................p12
Contacttwitter: @aimprospector
email: [email protected]
www.aimprospector.co.uk
Published by:Blackthorn Focus Limited
www.blackthornfocus.com
AIMprospector
five AIM companies profiled
My favourtie AIM shareFrom 1,100+ shares, I own just one
Issue 9 November 2014
world-leading manufacturer
thriving family business
dividend-paying software firm
free to private investors
service company growing again
AIMprospector
www.aimprospector.co.uk 3
Software firm Dillistone is a great
example of an AIM winner. In the last
five years, the shares have more than
doubled as the company has been
reporting profits and paying dividends
to shareholders.
The company today looks like a
rare AIM investment opportunity:
a smallcap software firm with an
impressive dividend yield.
Dillistone is a provider of software
to the recruitment industry. The
company first came to AIM in 2006.
Dillistone’s current form has come
about via three acquisitions: Voyager
in 2011, FCP Internet (the company
behind ‘Evolve’) in 2013 and finally ISV
at the end of September this year.
Dillistone’s solutions are
configured for the different flavours of
recruitment that take place in industry.
Executive search is handled through
the group’s eponymous Dillistone
Systems. This division accounted for
just over half of H1 group revenues.
Voyager Software Limited
addresses the temp and contingency
recruitment market with customers in
more than 20 countries.
‘Evolve’ is a general recruitment
database programme with additional
mid-office software links through to
invoicing etc.
Distinct to these activities, but related,
is the group’s skills testing operation ISV
Software. Recruiters use this product to
assess candidates’ skill levels.
The company’s recent development
makes comparison with prior years
difficult. Things are complicated
further as sales move to a subscription
model. This is a phenomenon being
repeated across the industry. The
transition results in immediate
revenues being swapped for longer-
term recurring revenues.
This was evident with the company’s
recent interim results. Dillistone reported
non-recurring revenues down 6% at
£1.13m for the six months ending in
June. Recurring revenues, however, were
19% higher at £2.86m.
Pre-tax profit fell from £817k to
£646k. Currency movements have not
helped: if 2013 exchange rates had
held, adjusted H1 2014 pre-tax profits
would have shown a 4% increase on
the comparable period.
The dividend was increased 4%.
Dillistone Systems’ flagship
product FileFinder Anywhere has
recently been through an ambitious
upgrade. Management expects the
administrative overhead that comes
dividendsIf there is one thing I have learned about companies on AIM, it is that the successful ones have a habit of keeping on winning.
DILLISTONE GROUP (LON:DSG)
FOR
Longstanding success
Good dividend yield
AGAINST
FileFinder Anywhere needs to sell
Acquisition integration risk
Market cap £18m
Bid:offer 93p:98p
P/E (forecast) 12.7
Yield (forecast) 4.0%
52week low:high 88p:127p
Established niche-player with
Currency movements have
not helped
with rolling out the new product to
hold back immediate growth, resulting
in a 2014 outcome for the Group
similar to the previous year.
Given that Dillistone reported a net
profit of £1.2m last year, the shares
today do not look particularly cheap.
However, the company is well-financed
and can be expected to enjoy some
growth thanks to the recent acquisitions.
Dillistone has a solid track record.
It’s enhanced product range will bring
significant opportunities to cross-
sell. Recent noises around FileFinder
Anywhere are very encouraging.
Considering more than 80% of the
company’s revenues are earned at
home, improving business confidence
in the UK could deliver a significant
sales boost.
the company is well-financed
AIMprospector TOPpick
4 www.aimprospector.co.uk
My best pick from all of AIM There are over 1,100 shares on AIM. I have taken a good look at several hundred and used screening software to measure up the whole lot.
Following years of researching AIM
companies, today I own shares (via a
spread bet) in just one: the Manchester-
based insolvency practitioner Begbies
Traynor.
Begbies Traynor (Begbies) is led by
its Executive Chairman and co-founder
Ric Traynor. Today, Mr Traynor owns
29% of the company.
The bull case is based on understanding
what an insolvency practitioner does and
what drives its business.
Basically, a company or individual
is insolvent if it is unable to pay its
debts. Creditors or a court appoint an
insolvency practitioner who endeavours
to ensure that the situation does not
deteriorate further and that creditors
are treated fairly.
Insolvency practitioners rarely get
involved unless there are substantial
assets involved.
To thrive, a business like Begbies
Traynor needs an environment where
corporate insolvencies are plentiful.
Surprisingly, despite the recession, this
has not been the case in recent years.
Experts frequently attribute this
phenomena to the ‘forbearance’ of
banks: lenders have been reluctant to
push companies into insolvency due to
concerns over bad publicity (especially
pertinent when two of the largest
banks were recently rescued by the
taxpayer) and the value that may be
realised for assets.
The fall in insolvency numbers has
hurt Begbies Traynor. From revenues
of £62.8m in 2010, income has fallen
every year since to £45.8m for 2014.
I bought shares in the company in
February 2013. At the time, the shares
were trading in the mid-30s. For the
six months ending 31st October 2012,
Begbies Traynor reported adjusted EPS
for 2.5p. The dividend was held at 0.6p.
That put the shares on an extremely
low P/E, with the prospect of a large
yield. At that price, the insolvency
market did not need to pick up for me
to see value in the shares. However, I
continue to expect an improvement in
Begbies Traynor’s market could start
soon. Moreover, such a recovery has
some way to go and could take the
shares much higher than they are today.
For the year ending 30 April 2010,
Begbies reported profit after tax of
£5.6m. Basic EPS came in at 6.3p, total
lenders have been reluctant to
push companies into insolvency
fall in insolvency numbers has
hurt Begbies Traynor
I bought shares in the company in
February 2013
Ric Traynor owns 29% of the company
AIMprospector TOPpick
www.aimprospector.co.uk 5
dividends for the year were 3.1p and the
company had net assets per share of 75p
– in-line with the share price at the time.
According to government statistics,
in twelve months from July 2009 to
end of June 2010, there were just over
17,000 corporate liquidations in England
and Wales. In that period, 0.91% of all
registered companies failed.
Every year since then, the incidence
of company liquidations has been
declining. In the twelve months ending
June 2014 there were around 14,500
company liquidations — as just 0.6%
of companies collapsed.
This downturn was manifested
in Begbies’ 2014 full-year figures as
revenues fell to £45.8m and basic EPS
was just 3.3p. According to Stockopedia
data, the book value per share as of
the last balance sheet date was 65p, a
considerable premium to today’s price.
While these are not growth figures,
they do demonstrate the potential
profit upside if corporate insolvencies
increase.
I have identified three reasons why
this scenario might come about.
One reason why corporate
insolvencies can pick up in an economic
recovery is because the uptick in
demand produced by a stronger
economy cannot be met by already
stretched companies. The second comes
from the fact that creditors become
more confident in the amount of debt
that they can recover if they petition
for insolvency. Consider a public house
or other hospitality business. If you
were a bank with debts secured against
the premises, it would make excellent
business sense to wait for asset values
to pick up before taking action.
My third reason for expecting
insolvencies to increase is because I
expect interest rates to start rising.
In June this year, Bank of England
governor Mark Carney explained in a
BBC interview that he regards a 2.5%
base rate as “not inconsistent with
returning the economy to normal” and
that the Bank was forecasting this level
to come about by the end of Q1 2017.
If the first rate rise does not come
until just after the general election,
this timetable suggests that the Bank
would need to increase the base rate
by around 0.25% a quarter until the
‘normal’ rate was hit.
Such a rate of increase could prove
terminal for companies already in
financial distress.
According to Stockopedia, Begbies
Traynor is expected to make 4.35p of
EPS in the current financial year and
4.65p the year after. While that doesn’t
make Begbies shares especially cheap
at today’s price, a company that can
maintain a good level of profitability
through an industry downturn will
frequently trade on a premium P/E.
If the insolvency cycle does pick
up, or even race higher with interest
rate rises, then the 65p net asset value
seems a reasonable target price.
Begbies Traynor Group (LON:BEG)
FOR
Clear upside if cycle turns
Good yield
AGAINST
Management control is significant
Hostage to the market it serves
Market cap £41m
Bid:offer 44p:47p
P/E (forecast) 10.6
Yield (forecast) 4.8%
52week low:high 36p:55p
Begbies Traynor needs a stream of corporate insolvency work to thrive
the incidence of company
liquidations has been declining
could prove terminal for companies
already in financial distress
AIMprospector
6 www.aimprospector.co.uk
Consider what motivates investorsBefore beginning any profile raising campaign, executives must consider what might attract potential investors to their company. Does it have unique, innovative or interesting products or services? What is the growth strategy and competitive edge? What are the realistic prospects of delivering an attractive return to shareholders through capital growth or dividend payments?
Keep it simple & bring the business to lifeIt is critically important to explain the business clearly, distilling any complicated messages into simple language and eliminating unnecessary jargon. And try to make it memorable. How much scope is there to bring the company to life through case studies, photography or video?
How to get noticed by the pressPress coverage can play a really useful role in gaining profile for smaller companies. But before talking to journalists, consider what the news angle is and why the press will be interested in your story.
There are now few dedicated small cap columns in the financial pages of the national papers. But there are specialist AIM publications and, if you
are inventive, there are also interesting opportunities to gain coverage in the mainstream press. Consider what columns might suit your business. Are you looking for personal profiles, are you an entrepreneur, do you have innovative products to talk about or are you creating jobs? Can you provide eye-catching photography or graphics to support your news? Journalists are keen to illustrate their stories with creative images and, for readers, they can create a lasting impression. And don’t rule out broadcast opportunities – the producers of dedicated business slots on radio and television are always keen to talk to articulate business leaders about their products and markets.
Extending your reachMany small cap companies will only have one analyst producing forecasts and research notes – and that will be their house broker. Nonetheless, it is important to take your investment case to the sales teams of other broking houses. High quality paid-for research can also be a useful way of reaching a wider range of potential investors.
Small cap companies should also consider targeting the retail investor market. Over £450bn is held in the UK for private clients, either directly or by broking firms, and of this over 80% is
invested in an advisory or discretionary capacity. Private client fund managers are generally interested in meeting companies with growth stories and/or dividend yields.
Communications ground rulesFinally, there are some golden rules in communicating with the financial audience, whether you are talking to investors, analysts or the media. Firstly, keep the market informed – aim to deliver regular news flow and consider how to maintain your profile between each set of results. Secondly, present to a high standard – a professional website, clear presentations and well-crafted press releases all create a favourable impression. And finally, cultivate your relationships – be approachable, be trustworthy and keep
your supporters onside.
Deborah Walter is a Director of
KTZ Communications, a specialist
financial PR consultancy focused
on advising AIM-listed companies.
KTZ provides strategic advice on
corporate positioning, profile
raising, IPOs, fund-raisings, M&A,
reputational issues and crisis
management.
Executive Insight With over 1,100 companies now listed on AIM, how can ambitious small caps stand out from the crowd? Investors have an overwhelming choice, less space is being devoted to smaller companies in many of the mainstream business publications and few equity analysts wish to write independent research on small caps where there is no obvious commercial benefit.
So how can companies gain recognition amongst potential investors and the wider financial audience?
Deborah W
alter
AIMprospector
www.aimprospector.co.uk 7
well for the number of miles being put
in by drivers, something that will be
further encouraged by low fuel prices.
In the first half of its year, a
significant contract with AXA was
renewed. Further revenues were added
by the acquisitions of Exway (August
2013) and Howard Basford (February
2014). Post-period end, Gladwins,
a repair company operating eight
bodyshops, was acquired.
In aggregate, these three businesses
made annual revenues of £35m prior
to their acquisition. Given that NARS
made £156m of revenues in the year
prior to these additions starting, the
new operations will have a significant
effect on future revenues. The larger
geographical footprint of the repair
network should also bring margin
improvements.
The enhanced size of the group will
make servicing the group’s pension
deficit less onerous. For 2013, NARS
had to pay £1.3m to service a liability
that closed the year at £19m. At a
discount rate of 4.4%, NARS would
Nationwide Accident Repair Services (NARS) provides vehicle repair management services to motor insurers, fleet owners and private customers. These services include repair sourcing and repair itself – both the vehicle and glass.In recent years the company has been
diversifying from working exclusively
for insurers into fleet and consumer
work. Fleet work has grown substantially
and now represents 25% of group
revenues. Growing mobile repairs is
another ambition of the company as it is
frequently higher margin work.
NARS has been successfully building
on its leading position in the UK repair
industry through recent acquisitions.
Against this, one has to balance
an awkward balance sheet that is
encumbered with a significant pension
deficit, a lack of historic revenue growth
and the strong possibility of a large
share overhang.
NARS trades well when there are
more vehicles on the road and crash
incidence is high. Obviously, the first
factor can influence the second. The
strength of the pound has helped reduce
fuel costs: the September price for petrol
was the lowest since February 2011.
Growth in the UK economy bodes
Nationwide prepares to step up a gear
have to continue making payments for
another nine years.
A flurry of RNS announcements
was made earlier this year as Quindell
plc built a 25.3% stake in NARS. I
don’t expect Quindell to hold on to its
stake in NARS much longer. While this
may result in an unpleasant share
overhang, such situations can present
an opportunity for investors to acquire
stock at a depressed price.
The acquisitions are expected to
help EPS reach 8.4p this year, with
the dividend held at 2.9p. Given that
half-year revenues were 14% higher
and gross margins were 2% higher at
36.2%, a significant improvement for
the full year seems nailed on.
Nationwide Accident Repair Services
(LON:NARS)
FOR
Industry positioned for upturn
Margins set to improve
AGAINST
Possible share overhang
Pension deficit will deter some
Market cap £34m
Bid:offer 73p:76p
P/E (forecast) 9.0
Yield (forecast) 3.8%
52week low:high 61p:92p
Further revenues were added by
the acquisitions
NARS would have to continue
making payments for another
nine years
AIMprospector
8 www.aimprospector.co.uk
The company was founded in 1936
by Frederick Thorpe. Family members
remain substantial shareholders today,
with members of the Thorpe family
owning around 54% of the equity.
Frederick Thorpe’s grandson, Andrew
Thorpe, is today Joint Group Chief
Executive and Group Chairman. He
owns 21.7% of the company.
FW Thorpe operates through
seven brands: Thorlux Lighting, Philip
Payne, Sugg, Compact, Solite, Portland
Lighting and TRT Lighting.
The dominant brand is Thorlux
Lighting. Over 60% of the products from
this business are sold to the commercial
sector, e.g. offices and hospitals.
Philip Payne produces bespoke
emergency exit signage for architects
and interior designers. Clients range
from Ascot racecourse and Wembley
Stadium to The Ritz Hotel and
Oxford’s Ashmolean Museum.
Sugg lighting produces decorative
and heritage outdoor lighting (i.e
held). The 2014 payout was further
augmented by a special dividend of
1.5p per share. Thorpe’s record of
dividend increases in the last five years
puts the company among the top
twenty on AIM.
Sales and profit growth have been
more pedestrian. Since 2008, annual
sales and net profits have progressed
at 3.4% pa and 3.8% pa respectively.
However, the last reported full-year
numbers showed growth significantly
ahead of this. There are reasons to
expect that higher growth might be
repeated in the future as the company
has launched initiatives to improve
LED margins and has made significant
investments in production and
warehouse capacity.
Sadly, there are no forecasts in the
market for the company. However,
the history of dividend increases,
along with the strong balance sheet,
would suggest another year of payout
increases is on its way.
FW Thorpe is a long-established family-controlled lighting business. The company is a paradigm of financial conservatism, using its continued business success to reward shareholders via consistent dividend increases.
Family firm is one of AIM’s leading lights
FW Thorpe (LON:TFW)
FOR
Long track record of success
Strong balance sheet
AGAINST
Controlled by the founding family
Only modest growth opportunities
Market cap £150m
Bid:offer 130p:135p
P/E (historic) 15.5
Yield (historic) 2.4%
52week low:high 120p:150p
Thorlux accounted for just over
80% of sales
fancy lamps). The company was
established in 1837 and acquired by
Thorpe in 1999. Sugg was awarded the
prestigious Royal Warrant in 2008.
Compact and Solite address
specialist niches. Compact provides
lighting to retailers. Solite specialises
in installations where cleanliness is a
priority — such as laboratories and
kitchens. Portland Lighting makes
lighting for outdoor signage/displays.
TRT Lighting was recently borne out of
Thorlux and is dedicated to road and
tunnel lighting.
In the year ending June 2014,
Thorlux accounted for just over 80%
of sales and over 90% of operating
profit. Geographically, 87% of group
sales are within the UK market.
The company recently opened an
office in Abu Dhabi to face the Middle
East market. TRT Lighting is finding
its own feet and moving toward
profitability.
Shareholder dividends at FW
Thorpe have been increased from
0.45p in 1997 to 3.25p for 2014. In
that time, the dividend was increased
in every year but two (when it was
no forecasts in the market
AIMprospector
www.aimprospector.co.uk 9
The company researches, designs,
engineers and manufactures advanced
photonic systems, components and
instrumentation.
Wikipedia defines photonics as ‘the
generation, emission, transmission,
modulation, signal processing,
switching, amplification, and detection/
sensing of light’.
G & H’s work involves the provision
of components, sub-systems and systems
for laser-related end products, such as
providing much of the optical hardware
that goes into the Retinal Scanning
Systems found in high street opticians.
Customers include Honeywell,
Agilent Technologies, Northrop
Grumman and Leica. G & H serves its
customer base via three UK facilities
and five sites in the US.
Gooch & Housego provides
equipment used in, for example,
fibre optic telecoms systems. As the
deployment of photonics solutions
moves deeper into aerospace,
communications and medicine, G &
H looks set to enjoy continued sales
growth.
Management strategy is to move
the company up the value chain, from
being a manufacturer of components,
Chief Executive, Gareth Jones, took
the opportunity to point out that
management initiatives are delivering
greater operational efficiencies and
improved margins.
Current consensus is for a 2015 EPS
number that is just 9.6% ahead of the
forthcoming 2014 result. If the sales
and margin growth already reported
can be sustained then I would expect
forecasts to be upgraded.
As photonics applications
increase and the industry grows, G
& H is likely already on the radar of
larger engineering technology firms.
Meanwhile, the company continues to
reward its shareholders via dividends
and share price growth. Back in 2010,
the shares traded at less than two
pounds. Dividends totalled 2p per share
for the year. For 2013, dividends of 6.6p
were declared. The shares began 2014
trading at more than 700p, having
advanced at a slightly faster rate than
the dividend.
From its headquarters in Ilminster, Somerset, Gooch & Housego (G & H) is a world-class technology manufacturer and engineer, enjoying high sales and profit growth.
Hi-tech West Country firm is making hay
Gooch & Housego (LON:GHH)
FOR
Market leading position
Strategy looks to be working
AGAINST
CEO change at end of year
Strong pound could affect exports
Market cap £156m
Bid:offer 630p:655p
P/E (forecast) 18.6
Yield (forecast) 1.1%
52week low:high 591p:740p
to more specification, design and build
work. This would see the company
become a key partner for systems
manufacturers rather than just a
component supplier.
Based in Torquay, the company’s
Systems Technology Group is at the
forefront of this effort. This operation
draws expertise from all G & H sites.
The company has doubled the size of
this team in 2014. G & H’s most recent
trading statement suggested that its
strategy is already delivering, with
management highlighting new product
development initiatives that are aligned
with the company’s long-term strategic
objectives.
The announcement also confirmed
that the year to September 2014
is expected to finish in-line with
management expectations. The
Stockopedia 2014 consensus forecast
figure is currently 35.2p, a 27% increase
on the normalised EPS figure reported
last year.
More encouraging is the fact that
management reported an order book for
the start of the 2015 year that is 18%
ahead of where it was twelve months prior.
18% ahead of where it was
twelve months prior
three UK facilities and five sites in
the US
AIMprospector
10 www.aimprospector.co.uk
In the last five years, defence supplier
Cohort plc has grown net profits from
£3.8m to £5.9m. In that time, the
dividend per share has been increased
five years running: from 1.2p for 2009
to 4.2p for 2014. The market forecasts
further significant profit and dividend
increases in the next two years. The
positive outlook given in the Cohort
management presentation at AIM
Investor Focus further underlined the
growth potential.
Cohort is a group of four
companies: MASS, technical
consultancy for the education and
military sector; SEA, systems, software
and electronic engineering services
particularly for the submarine
fleet (recently beefed up with the
September acquisition of J+S); SCS,
advisory services to the MoD; and
MCL, acquired in July, which delivers
electronic communications and
surveillance technology.
The company has a strong balance
sheet, with a net cash position of
some £4m, even after the purchase
of J+S for £12m. Cohort’s biggest
customer is the MoD. The company
is well embedded in the submarine
manufacture sector, which remains
a growth area. The business is thus
positioned to deliver long-term,
that was recruited following a 2007
acquisition. The company’s market
valuation remains attractively modest
relative to both small and large-cap IT
Services sector peers.
After many years listed on PLUS/ISDX,
fire safety products firm Sprue Aegis
joined AIM in April 2014. In 2008,
revenues were £9.4m and net profit
was £1.1m; for 2013, revenues were
£48.4m and net profits hit £4.2m. The
company declared a maiden dividend
of 0.5p for 2009 and the payout has
increased every year since, reaching
6p for 2013. 2014 interims revealed
sales up 11% and a 34% increase in
earnings per share; net cash was £11m
and a 2p maiden interim dividend was
announced. At the AIM Investor Focus
presentation, management confirmed
the continuing strong markets in
France and Germany with a record
order book extending into 2015.
For Sprue’s 2014 full year, the
market is forecasting a 20% increase
in sales to £60m and a jump of over
70% in net profits to £7.5m. Whilst
growth in sales and profits will be
more modest from 2015 onwards, the
magnitude of future growth will likely
remain significant enough to justify
October 23rd saw the Blackthorn Focus event AIM Investor Focus run for the fifth time. Five companies were present on the day. Each met with an AIM Prospector staff writer. Here is the lowdown on all five.
Event review: AIM Investor Focus
sustainable operating margins,
generating the cashflow required to
support further acquisitions and/or
dividend increases.
SCISYS is a computer software supplier
to specialist industry (media broadcast,
defence etc). The company has steadily
improved operating margins over the
past six years and has increased its
dividend to shareholders every year
for the last four years. In that time, net
profits have increased almost fourfold. In
their presentation at AIM Investor Focus,
management confirmed their hope to
bring in revenues exceeding £60m at
double-digit operating margins by 2018.
According to Stockopedia, the
market is forecasting a double-digit
increase in earnings per share for 2014.
SCISYS’ recent half-year results showed
a 19% increase in adjusted earnings per
share and a 10% dividend hike.
SCISYS is strongly cash generative
and achieved an operating margin
of 7.6% in 2013, demonstrating
the completion of its operational
rehabilitation following the demerger
of CODA in 2006. Much of the recent
strong financial performance has
been down to the management team
AIMprospector
www.aimprospector.co.uk 11
Company Market Cap PriceP/E
(forecast)Yield
(forecast)
Cohort (LON:CHRT) £99m 235p:243p 14 2%
SCISYS (LON:SSY) £27m 90p:94p 9.7 1.7%
Sprue Aegis (LON:SPRP) £130m 280p:295p 17.1 2.8%
Trakm8 (LON:TRAK) £21m 70p:75p 12.7 0
Ideagen (LON:IDEA) £42m 33.5p:34p 16.9 0.5%
continued investor interest.
Jarden Corporation (an American
multinational with a market cap of
£4.9bn) is the largest shareholder in
Sprue Aegis and supplier of the BRK
appliances marketed and sold by Sprue
Aegis. After failing with a takeover
attempt pitched at 90p in 2013, Jarden
is now free to bid again for the whole
company. At some point in the future
and at the appropriate price, I expect
that Jarden will succeed in acquiring
Sprue Aegis and incorporate Sprue
products into its own vast offering of
global consumer appliance brands.
Trakm8 is an automotive telematics
business, established in 2002 and
listed on AIM in 2005. The company
has grown fast in recent years, through
both acquisition (four acquisitions
since 2006 with the latest, BOX
Telematics in 2013) and organic
growth. Revenues, which were flat
in the previous 4 years, more than
doubled in FY2013/14 following
the BOX purchase. The company
has been profitable since 2010 but
earnings doubled in FY2013/14 on
consolidation of BOX. During their
presentation at AIM Investor Focus,
management confirmed the growing
strength of recurring revenues and the
transformational impact of the BOX
acquisition.
The market is forecasting a further
surge in revenue and earnings growth
for FY2014/15 and beyond. Recently,
Trakm8 has successfully added blue-
chip customers such as Direct Line
Insurance, the largest motor insurer
in the UK. No dividend payments are
expected in the medium term but
the company could surprise given its
strong cash position.
As Trakm8 expands the number
and range of its installed telematic
devices, it is effectively building an
intelligence-based service derived
from data aggregation. The Executive
Chairman, John Watkins, has
previous experience in monetising
an information database, having
successfully sold Omitec, the UK’s
biggest vehicle diagnostics company,
to the German automotive giant
Continental in 2012.
Formerly known as Datum
International, Ideagen (listed on AIM
since 2012) is an information
management software company
specialising in GRC (i.e. ‘governance,
risk and compliance’) for major
enterprises and clinical content for UK
NHS Trusts.
The company has demonstrated
adroit integration capability having
acquired six companies over the last
four years, resulting in revenues growing
ninefold to £9m. Earnings trends have
been affected by amortisation of
sizeable acquisition intangibles during
the same period meaning that dividends
did not start until 2014.
Management is confident in its
outlook for FY2014/15 with continuing
growth in recurring revenues and a
further increase in earnings forecast. The
June 2014 acquisition of EIBS, a software
company with 40 major clients in the
NHS and other public sector bodies
is expected to be earnings enhancing
in FY2015/16. Ideagen will likely have
£4m in net cash at year end FY2014/15,
unless another acquisition is made.
The potential for growth in the
NHS is enormous because over 50% of
Health Trusts do not have appropriate
software for either EDM (i.e. ‘electronic
document management’) or OCM (i.e.
‘online case management’). Ideagen
provides both of these solutions.
Moreover, the flexible and modular
‘portal configuration’ of Ideagen’s GRC
software, already embedded in many
blue-chip multi-national companies,
should continue to be an attractive
offering to many more large and
especially international enterprises.
If you have not previously attended AIM
Investor Focus but would be interested in
participating at a future event, register your
interest with Blackthorn Focus.
AIMprospector
12 www.aimprospector.co.uk
Next month:AIM Prospector will be bringing another five AIM-quoted companies to readers next month.
Remember, to ensure that you get AIM Prospector
first, sign up here: www.aimprospector.co.uk.
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Smallcap markets seem to have returned to more
normal behaviour, with valuations fairly even.
Conditions like this make AIM a classic stockpickers
market. AIM Prospector will continue to introduce
the investor community to more AIM companies
worth further examination.
AIMprospectordigging for dividends - panning for profits
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