Three attractive AIM shares for your ISA

It is the ISA season and in the next couple of articles I will be writing about AIM companies that are attractive investments to hold in an ISA.

In this article, I am concentrating on companies that can provide a growing dividend stream so that investors can take full advantage of the untaxed dividend income in ISAs. Like the companies that I wrote about last month that have consistently grown their dividends these companies should also provide capital appreciation.

All three of these companies joined AIM last summer so they do not have a long track record as quoted companies. Two of them have long-term trading records and trade on relatively low profit multiples, while the other is a newer business that is still building up its revenues but will later this year start to provide growing dividends.

Epwin Group (EPWN)

93.5p

Epwin (EPWN) is a well-established building components business that floated on the Unlisted Securities Market in its original form. It was taken private in 1999 and returned to the market last July. The need for additional housing in the UK means that there is a positive backdrop for demand and Epwin offers steady growth prospects and an attractive yield.

Epwin supplies extrusions, mouldings and other building components and products. The original business started supplying PVC-U window fabrications 39 years ago, but subsequent acquisitions have widened the product range and it includes roofline extrusions, thermoplastic doorsets and glass sealed units. Epwin is still dependent on demand from housebuilding, social housing and property refurbishment with sales going through installers, builders' merchants and DIY-based sales to consumers. However, Epwin is less exposed to consumer spending than Safestyle and entu.

The 2014 figures will be published on 16 April. In 2014, underlying pre-tax profit is expected to grow from £14.5 million to £17.8 million on revenues that have edged up from £259.1 million to £264 million. The benefits of the cost savings from the 2012 merger with Latium, which was previously part of Heywood Williams, are continuing to show through. A 2014 dividend of 4.2p a share is forecast.

At the time of the flotation £10m was raised by Epwin and £83.9 million raised by existing shareholders. Epwin had net cash at the end of 2014 and the cash pile is forecast to continue to grow.

Edison forecasts a 2015 profit of £18.9m, with growth coming from increased revenues rather than any more cost savings, although the earnings per share growth will be modest because the additional flotation shares will be included in the calculation for a full 12 months. A 2015 dividend of 6.4p a share is forecast.

Epwin is in a sector where, over the long-term, there is going to be some cyclicality. That could put pressure on the dividend at the bottom of the cycle, but the 2015 forecast dividend is covered 1.75 times by expected earnings and it is also well-covered by cash generated.

Epwin has dipped below last July's 100p placing price, but last month's trading statement was in line with expectations and at that time Ruffer increased its stake to 5%. This means that the shares are trading on a multiple of less than nine times prospective 2015 earnings and have a forecast dividend yield of 6.8%.

NAHL Group (NAH)

270p

Personal injury claims lead generator NAHL (NAH), or National Accident Helpline as it is better known to the public, is growing its core business as well as moving into a new area. This should ensure rising profit and dividends.

NAHL spends around £23 million a year on TV advertising, posters and other advertising using its Underdog brand in trying to encourage people to make claims, but it has to make sure that the (non-road traffic) accident and medical negligence personal injury leads it passes on have a strong case. The leads generated are given to a local solicitor on the company's panel that specialises in these claims. NAHL receives a fee for each lead provided based on a cost plus model. NAHL is a marketing services company not a legal business. That means that it gets paid upfront by its solicitor clients and does not have to wait a year or more to be paid like a solicitor does.

Last month, NAHL paid an initial £3 million for Fitzalan Partners, which is a profitable online marketing business that offers lead generation to lawyers and surveyors in the conveyancing sector. Fitzalan has developed a similar model to NAHL in a new area for the group and the deal is earnings enhancing.

NAHL traded slightly ahead of expectations in 2014 with underlying profit likely to come in at £12.4 million. A profit of more than £14 million is forecast for 2015 and the dividend should grow in line with profit due to the cash generative nature of the business.

The share price is more than one-third higher than May's 200p a share placing price. Even so, the shares are trading on little more than 10 times prospective 2015 earnings. House broker Investec's 2015 dividend forecast of 18.3p a share provides a prospective yield of 6.7%. A dividend of 20.3p a share is forecast for 2016.

A stock overhang has been removed with Lloyds Development Capital and Inflexion each selling their remaining 15% stakes.

Aggregated Micro Power Holdings (AMPH)

97.5p (95p/100p)

Aggregated Micro Power (AMPH) differs from the other two companies in that it is a relatively new business and it does not pay dividends yet. The plan, though, is to pay a dividend for the second half of this financial year.

AMP is a developer and operator of biomass energy projects with two near-term biomass gasification projects, requiring capex of £6.2 million each, and a 1MW wood gasification power plant in Cumbria, which has been refurbished. AMP also develops smaller biomass boiler projects and sells processed wood chip and pellets to the commercial heating market. Management is experienced in developing cleantech projects and other technologies, such as anaerobic digestion and waste-to-energy, may be considered.

The company uses established technology, which reduces the risk of the projects. Sourcing biomass will potentially be a bigger problem. AMP intends to site projects where there is a long-term source of feedstock but securing that source could potentially delay new projects.

There is also political uncertainty surrounding the General Election and any potential changes in government policy. Growing clean energy generation is likely to continue to be a focus for any government and a project that is already signed up to a particular subsidy will continue to receive it for 20 years. If there are changes in subsidies it could change the level of revenue that can be generated from future projects.

Biomass gasification projects tend to have a power output of 1.5MW and they can generate an annual EBITDA of £1.3 million based on an assumption that AMP gets a similar price for its electricity as larger generators plus incentives. By the end of 2020 there could be 12 projects in operation.

A placing at 100p a share raised £9.5 million and the pace of expansion will depend on AMP's ability to finance new projects. Capex of around £13 million is expected in 2015 and 2016. Aggregated Micro Power Infrastructure Ltd (AMPIL) is a separate company which has been set up to purchase projects from AMP, which will receive a development fee, 10% of project value, and continue to operate the plants. This will enable AMP to recycle capital and grow faster.

In its initiation note finnCap estimates that there will be a 1.5p a share dividend paid for 2015, rising to 3.11p a share in 2016 when a full year's dividend is paid. From then on a 5% annual increase is forecast. The 2016 yield is just over 3%.

This is a long-term investment with revenues expected to grow to £12.2 million in 2016 and all reported profit in the next couple of years coming from unrealised increases in the value of assets. Operational cash flow should cover any dividend payments with capex financed by debt. Longer-term growth in the value of the business will be realised through project disposals.

Trading volumes in the shares tend to be modest or non-existent and the bid/offer spread is fairly wide. In February, there were three trades valued at £75,000 in total. This means that caution is required because buying interest in the shares could spark a jump in the share price, which would not necessarily be sustained in the short-term.