Interactive Investor

AIM share tips 2016: the first four months

22nd April 2016 16:50

Andrew Hore from interactive investor

The 2016 AIM tips have made a slow start to 2016, although the majority of them have recovered from their falls in the early weeks of the year. True, the average decline is 4.5%, a little worse than the 1% decline on the FTSE AIM All-Share index, but this should change very easily.

Last year's tips soared by an average 84%, and this year is just four months young. The positive progress made by all of the companies should hopefully be recognised by year-end.

Here's what's happened to our famous five so far.

Angle

Tip price: 69.5p

Current price: 70.5p

Angle had a poor start to the year in share price terms, but it has clawed back all of its losses. Further positive studies using the Parsortix circulating cancer tumour cells capture technology have been announced. The most recent was a metastatic breast cancer study by the University of Southern California.

This study showed that the cancer cells captured had a similar biology to those gained from a tissue biopsy. The full paper will be published in a few months, but the results indicate that Parsortix is an alternative way of assessing treatment. Larger studies will have to be made in order to confirm this, but it potentially opens up an additional market and the use of Parsortix could replace tissue biopsies.

Ovarian, prostate and breast cancer are the main focus at the moment, but Parsortix could be used in a wide range of cancers. Initial revenues are starting to come through from sales of the Parsortix system to research and clinical clients, but the big money will come from specific use as part of the diagnosis and treatment of one or more cancers.

Cash is always a concern with this type of business and revenues remain modest in comparison to the investment required. Angle is expected to have net cash of £3.9 million at the end of April 2016, with around £1 million forecast to be left by the end of April 2017. Angle continues to make good progress and further positive news is likely to propel the share price higher.

Amino Technologies

Tip price: 109p

Current price: 109.5p

Internet Protocol Television (IPTV) set top box technology developer Amino Technologies is a good business, but it had its problems last year. That's why the share price was so attractive and it remains that way. Acquisitions have been integrated and the business restructured. Amino reported annual figures in line with downgraded expectations and it is set for a big jump in profit this year.

In the year to November 2015, revenues grew from £36.2 million to £41.7 million, while underlying pre-tax profit improved from £4.3 million to £5.1 million. Net cash was better than expected at £2.1 million, and the dividend increased by 10% to 5.5p a share.

Amino is an international business with a good spread of customers. Acquisitions have widened the product range with cloud services growing strongly from a small base. Recently, Amino has extended its relationship with Vodafone Netherlands relating to its TV services.

House broker finnCap maintained its 2015-16 profit forecast of £8.3 million. The shares are trading on less than 12 times prospective earnings and a further 10% increase in the dividend will provide a yield of 5.5%. Even after paying out the dividend and starting to pay corporation tax, Amino's net cash should remain around current levels. Amino has a solid balance sheet and good growth prospects.

Coral Products

Tip price: 20p

Current price: 21.5p

Injection moulded plastic packaging manufacturer Coral Products continues to make earnings-enhancing acquisitions and this has led to a profit upgrade from house broker Daniel Stewart.

Coral paid £160,000 for the fixed assets, stock and business of Manchester-based Rotalac Plastics, which was in administration. This was followed by the £3.6 million cash and shares acquisition of Global One-Pak, which takes Coral into the personal care sector. Products include lotion pumps and trigger sprays. In 2015, Global One-Pak generated earnings before interest, tax, depreciation and amortisation EBITDA (cash profit) of £640,000 on revenues of £2.89 million. There is potential additional consideration based on the amount EBITDA is increased by in 2016. Every £1 of additional EBITDA leads to a payment of £2.50 in shares at the market price at the time.

Daniel Stewart forecasts a rise in pre-tax profit from £1.2 million to £1.7 million in the year to April 2016. A full contribution from the acquisitions will help the profit rise to £2.4 million in 2016-17. Cash generation is expected to cut debt by up to £1 million over 12 months.

Miton has taken its stake in Coral to 20% following the placing at 20p a share that financed the Global One-Pak acquisition. The institutional investor is keen on dividends and a 1p a share dividend is forecast for this year, rising to 1.25p a share in 2016-17.

This year's forecast yield is 4.5% and the shares are trading on less than 10 times prospective 2015-16 earnings, falling to eight the following year. The underlying value of the business will eventually be recognised.

Getech

Tip price: 29p

Current price: 24.5p

Geological information provider Getech fell into loss in the first half as trading was knocked by the low oil price, which hit investment in oil exploration, but Getech is in a strong position to benefit from a recovery in investment. Management believes that sales have been delayed rather than cancelled and costs have been cut, which will also help the second half performance and the full benefits will come through next year.

Getech swung from a profit of £707,000 to a loss of £704,000 at the interim stage as revenues dipped from £3.62 million to £3.29 million. Net cash was £1.8 million at the end of January 2016. The net asset value (NAV) of £9 million is higher than the market capitalisation, although one-third of that NAV is goodwill on acquisitions.

There was no interim dividend and Getech may decide to pass the final dividend as well.

Raymond Wolfson is stepping down as chief executive by the end of July and taking on the role of commercial director. Getech is seeking a new chief executive with more of a commercial, rather than academic background.

The second-half has started well with the sale of a $720,000 (£501,000) data licence and the gaining of a $1 million contract, most of which will be delivered by July. Other contracts which were delayed could be completed in the second half, but there is no certainty this will happen. The cost base has been cut by one-fifth from its peak.

Getech is not assuming any recovery in its market in the short-term and it believes that there is scope for add-on acquisitions. A better second-half should help the share price to recover, but the timing is uncertain.

Ten Alps

Tip price: 2.38p

Current price: 1.75p

TV programme producer, publisher and digital communications services provider Ten Alps was included as a 2016 tip because of the scope for recovery in the performance of its business following its refinancing. However, it has got worse before it has got better, with a profit warning at the end of January.

Weak advertising sales in the publishing division were the main reason behind the disappointment. In the six months to December 2015, revenues increased from £10.2 million to £12.1 million and the loss before tax fell from £998,000 to £354,000.

There was a small net cash position at the end of the period and £750,000 was raised in February through a loan from the ever-supportive Herald Investment Trust. The company should still make a full-year profit.

Ten Alps continues to make add-on acquisitions. Corporate video producer Straker Films has been acquired for £110,000 plus deferred consideration relating to a percentage of revenues achieved in the 12 months after acquisition.

Ten Alps intends to change its name to Zinc Media Group later in the year and the new website can be found here.

At the time of the original recommendation, N+1 Singer forecast a 2015-16 profit of £1.12 million rising to £1.83 million the following year. These figures have been downgraded to £300,000 in 2015-16 and £1.3 million in 2016-17. That means the shares are trading on 18 times prospective 2015-16 earnings, falling to six the following year. Still a good recovery bet.

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.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. 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.

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