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AIM share tips for 2016
By Andrew Hore | Thu, 31st December 2015 - 12:42
Angle - 69.5p
It takes years to develop and commercialise medical devices, but Angle (AGL) has reached a point with its Parsortix circulating cancer tumour cells capture technology where it has started to generate revenues from initial sales to research organisations. The test data coming out of universities and hospitals is positive, with Parsortix more reliable, in terms of capturing tumour cells and not giving false positive readings, as well as easier to use, than its competitors. The Cancer Research UK study using Parsortix for lung cancer found that it was able to capture cells that would not be detected by rivals. A clinical trial evaluating the use of Parsortix in detecting ovarian cancer is planned.
The device uses a disposable cassette to capture and remove tumour cells, which are larger than healthy cells, from a patient’s blood. The cells can be used for a liquid biopsy rather than having to carry out a normal biopsy to assess the patient. The system is available in the US for research, but it is still in the process of gaining US FDA (Food and Drug Administration) approval for clinical purposes.
Revenues will be modest in the year to April 2016, but next year they could be more than £2 million. The research market is worth £250 million a year, with the long-term possibility of Parsortix continuing to be used by a commercial treatment as a companion diagnostic. Angle will still be burning cash, but these revenues will help to cover some of the outflow.
Angle has just received the final £700,000 for the previous sale of its stake in software company Geomerics. This will supplement the cash that is already in the bank and there should be nearly £4 million left at the end of April. Angle is well-financed so that it can make continued progress with commercialising the Parsortix technology, although it will probably need to raise further cash in the longer-term. Angle has just moved to the biotech sub-sector of the healthcare sector which could help to focus interest on the company.
Getech - 29p
The slump in the oil price provides an opportunity to take a look at the value available in oil-related businesses. Geological information provider Getech (GTC) has warned that this year will be tough and house broker WH Ireland slashed its 2015-16 profit forecast from £2.7 million to £700,000 - down from £2 million last year - even though revenues are still expected to rise due to the April 2015 acquisition of seismic consultancy ERCL. A lack of exploration expenditure by oil and gas companies will hit demand for information.
Management has gone through a number of ups and downs in the oil sector and it can ride this one out. Last year’s figures were boosted by a $5 million Sonangol contract so it was always going to be difficult to reach that level again this year, but the continued weakness of the oil price is likely to hamper oil exploration activity for some time. There are opportunities to take advantage of oil companies cutting direct costs by offering outsourced services.
The current valuation is partly underpinned by net cash of £3.6 million - 11p a share. The dividend is expected to be held unchanged at 2.2p a share even though it would not be covered by the current earnings forecast of 1.7p a share. The yield is 7.6%. The high operational gearing of the business means that any upturn in revenues should lead to a significant rise in the profit contribution to Getech. It is difficult to assess timing, but prospects could be much better in one year’s time.
Amino Technologies - 109p
IPTV set top box technology developer Amino Technologies (AMO) was hit by a profit warning in October. The core Amino business was knocked by contract delays and customer consolidation. Recent acquisitions Entone and Booxmedia are trading strongly and have widened the product range and customer base. The Entone boss has taken over as head of sales for the whole group and dedicated regional sales teams set up.
Major shareholders have been taking advantage of the slump in the share price to add to their stakes following the profit warning. Kestrel Partners has increased its stake to 15.1%, Schroders raised its stake to 12.2%, Investec (INVP) has increased its shareholding to 5.38%, while Downing has taken its stake above 3%. Miton (MGR) trimmed its stake.
Underlying profit for the year to November 2015 will be flat at £4.3 million and then it is forecast to jump to £8.3 million, with full contributions from Entone and Booxmedia. The shares are trading on 12 times prospective 2015-16 earnings. The business is cash generative and net cash is £2.1 million. Management has reiterated that it can continue to increase its dividend by 10% a year. That means 5.5p a share is expected for the year just ended and then 6.1p a share this year. The shares are yielding 5% on this year’s expected dividend. The modest rating and high yield mean that Amino is an attractive recovery play.
Coral Products - 20p
Injection moulded packaging manufacturer Coral Products (CRU) used to be focused on supplying DVD and CD cases. That market has slumped and Coral has replaced the business by expanding in other sectors, including food and online retail - Coral supplies delivery crates. Non-media sales are more than 85% of the total revenues, whereas four years ago they were one-fifth. Recycling product sales have been weak, but there are signs that demand is picking up.
The business is cash generative and net debt has been reduced to £2.8 million at the end of October 2015, even after acquiring the food-focused Nieman Packaging. There is spare capacity at the Haydock factory so minimal capital expenditure is required. Further add-on acquisitions are likely, though. Small Companies Dividend Trust (SDV) and Miton have both been willing backers for deals, so getting the funding for deals should not be a problem.
House broker Daniel Stewart forecasts an improvement in profit from £1.165 million to £1.6 million in the year to April 2016 - the interims show that Coral is nearly 50% of the way towards this profit and there will be a profitable contribution from the Nieman acquisition in the second half. That means the shares are trading on less than nine times prospective earnings - based on a 10% tax charge. The forecast yield of 5% on a dividend of 1p a share is an added attraction. Coral offers organic and acquisitive growth from being a consolidator in the sector.
Ten Alps - 2.38p
TV programme producer, publisher and digital communications services provider Ten Alps (TAL) has a good business, but it has been hampered by a weak balance sheet. That has changed following the refinancing during the summer, which also included the acquisition of TV documentaries producer Reef TV. Ten Alps has pro forma net cash and is in a strong position to grow. Serial entrepreneur Luke Johnson, who has an 11.9% stake, joined the board at the time of the refinancing.
Ten Alps has got this far because it had the backing of Herald Investment Trust (HRI), which has consistently provided loans and acquired shares as Ten Alps tried to sort it out. Herald has 34.5% of the company and Artemis Alpha Trust (ATS) has 15.6%. These shareholders will also back Ten Alps in its expansion plans.
Management is seeking to grow the television programme production business organically and through acquisitions. Elsewhere, the strategy is to focus on its most profitable market sectors and expand the digital content and events operations through acquisition.
N+1 Singer forecasts a 2015-16 profit of £1.12 million, rising to £1.83 million the following year. The shares, which have drifted back after a 10-for-one share consolidation, are trading on less than six times prospective 2016-17 earnings. Hopefully, the broker and Ten Alps have been sensible enough to set a realistic and achievable target. The market is obviously unsure at the moment and this provides a buying opportunity.
*Share prices as at close of business on 22 December 2015
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
|HERALD INVESTMENT TRUST PLC...||1,105.50p||0.05%|
|ARTEMIS ALPHA TRUST PLC ORD 1P||290.50p||0.17%|
|CHELVERTON SMALL COMPANIES ...||254.00p||0.40%|
|All data 15min delayed as of: 01:23:40 23/09/17|