Interactive Investor

Two new AIM stocks worth buying

18th August 2017 13:10

Andrew Hore from interactive investor

There have been false dawns when it comes to increased levels of new admissions to AIM but there has been an upturn in activity in the past couple of months. There are not only more companies joining but they are also raising more money, although that is partly down to a couple of large fundraisings.

In reality, there may be an element of delay in some of the flotations as they waited for the general election to be completed.

The level of money raised by new entrants this year is already near to the £1.1 billion raised in the whole of 2016. The most raised in a single year in the past decade was £2.6 billion in 2014. That level may not be reached in 2017 but this year appears set to beat the next highest level of £1.24 billion in 2015.

The £237.6 million fundraising by renewable energy generation projects investor Greencoat Renewables and the £190 million raised by kettle components supplier Strix have helped in the past few weeks to boost the amount raised this year.

There were 64 new entrants in 2016 and 61 in 2015 - including reversals and market switches. Even if the new issues market weakens in the next few months these totals should be beaten this year.

There have been 49 new entrants to AIM so far this year but, stripping out the reversals, readmissions and transfers from the main market, there are 32 completely new companies that have joined the junior market. These are spread across the resources, industrials, consumer and financials sectors.

AIM new admissions in 2017
DateTickerCompanyFloat price (p)Current price (p)% change
07/04/2017AFXAlpha FX Group196512.5161.5
11/02/2017RFXRamsdens Holdings86146.570.3
11/04/2017K3CK3 Capital Group9513036.8
04/08/2017GETBGetBusy28.338.2535.2
29/06/2017ENETEthernity Networks Ltd14018632.9
08/08/2017KETLStrix Group100131.3831.4
13/07/2017ANGAngling Direct648431.3
06/03/2017AAOGAnglo African Oil & Gas2025.1325.7
06/07/2017TAMTatton Asset Management156186.519.6
26/06/2017TXPTouchstone Exploration7.258.6319.0
11/08/2017XPDXpediator2428.2517.7
05/07/2017GYGGYG100117.517.5
08/02/2017ECOEco (Atlantic) Oil & Gas Ltd1618.6316.4
28/07/2017QUIZQuiz161183.514.0
22/02/2017GBGIGBGI Ltd15016912.7
17/08/2017WCHWilmcote Holdings120132.510.4
25/07/2017AREArena Events5558.56.4
25/07/2017GRPGreencoat Renewables€1€1.066.0
30/06/2017FFIFFI Holdings150156.54.3
10/08/2017ALSAltus Strategies1010.383.8
11/07/2017NEXSNexus Infrastructure1851902.7
03/02/2017DGOCDiversified Gas & Oil6566.52.3
25/04/2017ESLEddie Stobart Logistics160159-0.6
05/04/2017SBTXSkinbiotherapeutics98.88-1.3
10/08/2017VDTKVerditek98.75-2.8
29/06/2017PGMPhoenix Global Mining Ltd43.88-3.0
18/05/2017VELVelocity Composites8580-5.9
29/06/2017JANJangada Mines54.63-7.4
18/05/2017EVEeve Sleep10188.5-12.4
24/02/2017SRONSaffron Energy Ltd54.38-12.4
25/07/2017I3EI3 Energy5533.5-39.1
05/04/2017SKINIntegumen52.63-47.4

Of those 32 companies, 22 are trading at above their issue price and 10 are lower. The average performance, not taking account of the time that the shares have been traded, is a gain of more than 13%. The best performer is Alpha FX, which has risen by 161.5%, while pawnbroker Ramsdens is 70% higher than its issue price.

The biggest loser is skin treatments and cosmetic products supplier Integumen, where the share price has nearly halved. The most precipitous decline has been the I3 Energy share price, which has fallen by two-fifths in less than one month. The UK-focused oil and gas explorer is the one company that did not raise additional funds at the time of the flotation.

The majority of the 2016 new entrants are also ahead of their issue prices. This can be partly put down to the strong market, but this will not hold up share prices of companies that are doing badly. This suggests that the quality of new entrants is reasonably good, although there are always some disasters.

There are not many companies that have stated that they are coming to AIM in the short term. This may be because of the summer holidays. The companies that have joined AIM in July and August will have started the process before the summer. Historically, October has tended to be a busy month and this could be true in 2017.

One potential flotation is OnTheMarket, the online property portal operator. The quotation of the business is dependent on a vote on 6 September by the estate agencies that effectively own the business via a company limited by guarantee. The plan is to set up a new holding company and raise £50 million, valuing the company at between £200 million and £250 million.

Biotechnology firm Destiny Pharma, which is focused on treatments for infectious diseases, has announced its intention to join AIM next month but there is no indication of how much will be raised. SaaS-based app sales platform appScatter is also on course to float in early September.

International companies are still coming to AIM but they are a lower percentage of the total new admissions than they were in previous years. Zimbabwe-based fast food restaurants operator Simbisa Brands, which is already quoted on the Zimbabwe Stock Exchange, and ASX-listed Lucapa Diamond Company are both planning to join AIM later this year.

There appears to be a recovery in investor interest in resources companies. In the first few months of the year these were predominantly oil and gas firms but miners are starting to put their head above the parapet - three in the past eight weeks - and not all of them are chasing fashionable minerals such as lithium.

Altus Strategies

One of the indications that there is an improving appetite for resources companies is the flotation of Africa-focused mineral projects generator Altus Strategies.

Altus boss Stephen Poulton says that the timing of the flotation is deliberate. He did not want to float when the market was near the top, but he wanted to make sure the market was not at the bottom, either. He believes that the sentiment in the resources sector has improved.

Altus provides a way of gaining exposure to early-stage project which may prove unviable or could have enough potential to interest joint venture partners who would then finance the more expensive exploration and feasibility studies. Altus would be diluted but retain a stake.

Altus has raised £1.1 million, although £330,000 went on expenses. This would not normally go far but Altus could add to its present portfolio of a dozen projects over five subsidiaries and multiple African countries.

According to MinEx, newly discovered projects in Africa, excluding South Africa, are at average depths of 9 metres compared with a world average of 78 metres. This means that there can be signs of mineralisation on the surface and the costs of discovery can be lower.

The focus is on the "old favourites", such as copper, gold, tin, tungsten and bauxite, rather than fashionable minerals like lithium. This is because the value is in these areas but Altus does not mind what mineral is involved in the project as long as there is a good chance of doing a commercial deal.

Poulton says that having a portfolio of projects means that management do not get fixated on one project and try to push it forward even if it is a waste of time and money.

There is no guarantee that any of the projects will end up being commercial, but the portfolio nature means that at least there are a number of bets.

Harvey Nash

Executive search and recruitment firm Harvey Nash has moved from the main market to AIM, so it is not strictly a newly quoted company.

The move was for a specific reason. Having sold off non-core activities to focus on the technology and digital markets, Harvey Nash wants to supplement organic growth with acquisitions. This would have been costly as a premium-listed company because even small, add-on acquisitions require shareholder approval.

The main geographic focus is reinforcing the leading positions in markets in the UK and Europe with potential to build up the group's presence in the US and Asia. Sweden-based executive development business PAT Management is likely to be the first of many acquisitions. Harvey Nash has paid £1.7 million and could pay a similar amount in deferred consideration over a three-year period.

This is just the type of earnings enhancing deal that the group expects to make with management staying on to run the business. There is also potential to work with existing group businesses.

There have already been two profit upgrades in the past couple of months. The share price has improved on the back of these forecast increases but the shares are trading on less than eleven times prospective 2017-18 earnings.

Net cash was £5.6 million at the end of January 2017 and the dividend has been increased each year for the past decade and this record is set to continue. A dividend of 4.09p a share was declared for the year to January 2017 and this set to rise to 4.3p a share this year. The forecast yield is 4.5%.

Recruitment is a cyclical business but Harvey Nash can be make earnings enhancing acquisitions to further reduce its forecast multiple.

In my next article, I will looking at the proposals that AIM new entrants should raise a minimum amount of cash when they join AIM.

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