Interactive Investor

Five of AIM's post-Brexit stars revealed

30th September 2016 15:15

Andrew Hore from interactive investor

It is just over three months since the EU referendum. The initial fall in AIM share prices has been recovered and the overall market has been on an upwards trend since then.

Knee-jerk reactions to the leave vote sent the whole market down and AIM was no exception. However, since then the FTSE 100 index is nearly 10% higher and AIM is more than 12% ahead. Some AIM companies have done far better than that.

There is no real association between the best AIM performers and any benefits from leaving the EU. The top of the list is dominated by resources shares. They deal in commodities that are dollar based so they will benefit from the decline in the pound over the past quarter, but that would not explain their enormous outperformance.

One-off positive news is behind a number of the main risers. Some have generated all or most of their share price increase in one day. The size of these share price rises is always likely to be brought about by positive newsflow.

SolGold

The best performer is explorer SolGold, which has been quoted on AIM for more than a decade and originally raised cash at 50p a share. The company has refocused its interests having invested in the Cascabel discovery in 2012.

SolGold owns 85% of the company that owns Cascabel, a copper gold discovery in northern Ecuador, plus an 11% interest in the company that owns the other 15%. This is sited on the Andean copper belt. News that finance is being raised at a premium to the then market price sent the share price rocketing.

SolGold has already invested $33 million on its interest in CascabelThe attractions of SolGold and Cascabel are underlined by the fact that it initially accepted an investment at 8 cents a share from international mining company Newcrest for 10% of the company, but it was subsequently approached with a better proposal.

Maxit Capital, which receives fees and options as part of the deal, and its clients have offered to invest $10.1 million at 16 cents (12p) a share and Newcrest is subscribing $22.8 million (£17.5 million) at the same share price to take a 10% stake in SolGold. This will take Brisbane-based SolGold's cash pile to $48 million.

Newcrest is an important participant because it has experience mining similar deposits in Australia, Papua New Guinea and Indonesia, particularly deeper deposits.

SolGold has already invested $33 million in acquiring its interest in Cascabel and financing exploration drilling. There are 14 potential drill targets, but only one has been drilled so far and a resource statement on this prospect is expected before the end of this year. The cash raised will finance further exploration.

Sound Energy

Positive drilling news and the securing of Schlumberger as a partner in its Badile project in Italy has generated enormous investor interest in oil and gas explorer Sound Energy.

When it joined AIM in June 2005, Sound was valued at £16.5 million at a placing price of 5p - equivalent to 50p after a ten-for-one consolidation in 2013. Given that the oil and gas sector has been so weak in recent years, the fact that the current share price is much higher is a good performance. The original focus was Indonesia, but Morocco is the main focus currently.

Sound has $27 million in the bank and a bank facility, but a fundraising must be temptingThe main catalyst to the share price rise has been positive news from the Tendrara gas field in Morocco. The TE-6 well has been completed and the flow rate was 17 million cubic feet per day (mmcfd) following mechanical stimulation.

The well provided information that is being used on TE-7, which is a slanted rather than horizontal well. TE-7 has been drilled to a depth of 2,623 metres, which is 10 metres away from the target reservoir.

Sound has $27 million in the bank and further funds available via a bank facility, which is enough for its immediate requirements, but, given the share price rise, another fundraising must be a temptation. Broker finnCap has a target share price of 104p - two months ago that target was 32p. Further positive drilling news from Tendrara, and even Badile in Italy, could lead to a further increase in the target price.

Altitude

Altitude Group is the only non-resources company in the top five performers. It provides technology for promotional products suppliers and operates an exhibitions and publications business.

The securing of a five-year deal with Philadelphia-based AI Mastermind, a buying group representing more than 1,000 promotional product resellers, gave the share price momentum. It should be earnings enhancing from launch in October.

Altitude has been cutting costs and the company returned to profit in the first half of 2016The agreement involves Altitude providing an ecommerce site to each member in return for a share of gross margin processed by the platform.

The deal could be renewed for a further five years. This followed a similar deal with printing and promotional products supplier Aprinta.

Altitude has been cutting costs and the company returned to profit in the first half of 2016. The new deals should provide further momentum to profit next year.

Altitude floated in November 2005 at 36p a share and it has not been anywhere near that share price for a number of years prior to recent weeks. The share price rise has prompted investor Octopus to take some profit. It still has three-fifths of its stake, but the money raised was more than the whole stake was worth two months ago.

Futura Medical

Further down the list, sexual health products developer Futura Medical was boosted by the results of a clinical efficacy study for its MED2002 treatment. Even so, the share price is trading at around the same levels it was three years ago.

MED2002 is a topical treatment for erectile dysfunction, which uses Futura's DermaSys skin delivery know-how enabling it to be rapidly absorbed. The clinical study showed that MED2002 is effective, safe and quick to act - 54% of mild erectile dysfunction patients saw a reaction within five minutes and 82% within 10 minutes.

The real money will be made from out-licensing MED2002 for when it is approvedFutura believes the treatment could build up to annual sales of more than $500 million at its peak.

Futura has out-licensed MED2002 to Quantum Pharma as an unapproved medicine in the UK because it offers something that no other approved treatment does. However, the real money will be made from out-licensing the treatment for when it is approved. A second clinical study will be required for the regulators.

This is not instant gratification. Futura has been quoted for 13 years and at that time it was developing MED2001, which was reformulated as MED2002 one year later. Futura raised £1.7 million at 70p a share when it joined AIM.

CSD500, a condom that incorporates an erection enhancing treatment, was also being developed at the time of flotation and that has already become a commercial product even though MED2001 had been expected to be the first product.

Blue Prism

There are some newer companies in the top performers. Software robotics supplier Blue Prism floated during March and the shares got off to a good start. A positive trading statement at the beginning of August sparked the main rise in the share price, though.

New contract wins and renewals by customers of the company's robotic process automation software mean that Blue Prism will outstrip market expectations this year.

Blue Prism will still be loss-making, though, because it is still building up its presence in the US in order to take full advantage of its strong market position.

Long tail of companies

Many, though, have been around a lot longer. Software company Sopheon joined AIM in 1996 and the share price is nowhere near the heights of the tech boom or even its level ten years ago, but it is more than eight times the level it was at the beginning of 2015.

One thing that this list does show is that companies that may have been written off as failures in the past because of their poor performance can redeem themselves. That may come from perseverance, like Futura, or by finding different assets, like SolGold and Sound Energy.

The long tail of very small companies on AIM is often criticised but some of these companies do get a second wind and find a way of recovering a substantial part, or all, of their previous share price decline.

TIDMNameMarket Cap (£m)% change since 23 JuneSector
SOLGSolGold208467Mining
SOUSound Energy463420Oil & Gas Producers
ASAASA Resources36.3378Mining
HMIHarvest Minerals18.1358Mining
ALTAltitude Group23.0324Support Services
CLNRCluff Natural Resources12.9308Oil & Gas Producers
EVRHEVR Holdings24.1227Mobile Telecommunications
KODKodal Minerals4.80219Mining
IRRIronridge Resources22.5217Industrial Metals & Mining
CTAGCloudTag61.5209Health Care Equipment & Services
TLOUTlou Energy27.6200Oil & Gas Producers
IGEImage Scan Holdings7.90178Electronic & Electrical Equipment
HNLHague and London Oil3.00168Oil & Gas Producers
FUMFutura Medical64.9167Pharmaceuticals & Biotechnology
SPESopheon23.4157Software & Computer Services
PRSMBlue Prism Group172150Software & Computer Services
HURHurricane Energy390144Oil & Gas Producers
IPPIPPlus10.9142Support Services
PXOGProspex Oil & Gas6.50135Mining
WSGWestminster Group24.4129Support Services
Source: SharePad

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