november 2014 aim prospector

AIMprospector

five AIM companies profiled

My favourite AIM shareFrom 1,100+ shares, I own just one

Issue 9 November 2014

world-leading manufacturer

thriving family business

dividend-paying software firm

free to private investors

service company growing again

AIMprospector

2 www.aimprospector.co.uk

Welcome to AIMprospector, the online magazine from Blackthorn Focus.This month’s AIM Prospector (finally!) features the one AIM company whose shares I personally have direct exposure to: Begbies Traynor plc. So far, I have been half-right on this one. While the

shares have risen significantly since I first climbed on board, the business performance is yet to pick up as expected. I hope that after reading the article on page 5 you concur with my reasons for backing the shares. This month also features a special write-up from the recent Blackthorn Focus event

AIM Investor Focus. Five AIM-quoted companies were present on the day: Cohort,

Ideagen, SCISYS, Sprue Aegis and Trakm8. An AIM Prospector staff writer met with

the management of each company, and a write-up appears from page 11.

One company previously featured in AIM Prospector that recently reported

is restaurant group Richoux. While the trading performance was down on the

previous year, management was very positive, particularly as the company has

solid plans to soon expand its most profitable operations: the Richoux pattiserie

and the American-style Dean’s Diner. Together, these plans could see the

company end 2015 with a portfolio of over 20 restaurants. I expect that this

would lead to an improvement in group sales of around 30%.

The recent market sell-off has been very unkind to some AIM companies.

Note particularly Iomart. Only in June, the company received a 285p cash bid. Yet

the shares recently traded as low as 170p as the market fell into a state of funk.

Another AIM share that is beginning to look attractively priced again is the

precision instruments firm Judges Scientific. Although the recently announced

organic growth from the company is modest, Judges is still moving ahead at

pace. The management team here has a comprehensive track record of success

and rewarding shareholders. I hope to take a closer look in a future edition.

A final call for David Stredder’s smallcap gala event in Derby beginning on

Thursday. Mello2014 is a three day investor-led event for investors, featuring

some high quality listed companies and top fund managers. Here at AIM

Prospector, we believe it is important that investor-

led initiatives such as Mello2014 are supported by the

community and industry. AIM Prospector readers have

kindly been offered discounted entry to Mello2014.

Register using the code PROSPECTOR-DISCOUNT for a

half price ticket at this event here.

“Enjoy this month’s AIM Prospector and good luck with your AIM endeavours.”David O’Hara, Editor, AIMprospector

ContentsWelcome ..............................p2

Dillistone .............................p3

Top Pick: Begbies Traynor ...p4

Executive Insight .................p6

Nationwide Accident Repair Services ....................... p7

FW Thorpe ..........................p8

Gooch & Housego ...............p9

AIM Investor Focus ............p10

Next month ........................p12

Contacttwitter: @aimprospector

email: [email protected]

www.aimprospector.co.uk

Published by:Blackthorn Focus Limited

www.blackthornfocus.com

AIMprospector

five AIM companies profiled

My favourtie AIM shareFrom 1,100+ shares, I own just one

Issue 9 November 2014

world-leading manufacturer

thriving family business

dividend-paying software firm

free to private investors

service company growing again


http://mello2014.com/

mailto:[email protected]


www.blackthornfocus.com

AIMprospector

www.aimprospector.co.uk 3

Software firm Dillistone is a great

example of an AIM winner. In the last

five years, the shares have more than

doubled as the company has been

reporting profits and paying dividends

to shareholders.

The company today looks like a

rare AIM investment opportunity:

a smallcap software firm with an

impressive dividend yield.

Dillistone is a provider of software

to the recruitment industry. The

company first came to AIM in 2006.

Dillistone’s current form has come

about via three acquisitions: Voyager

in 2011, FCP Internet (the company

behind ‘Evolve’) in 2013 and finally ISV

at the end of September this year.

Dillistone’s solutions are

configured for the different flavours of

recruitment that take place in industry.

Executive search is handled through

the group’s eponymous Dillistone

Systems. This division accounted for

just over half of H1 group revenues.

Voyager Software Limited

addresses the temp and contingency

recruitment market with customers in

more than 20 countries.

‘Evolve’ is a general recruitment

database programme with additional

mid-office software links through to

invoicing etc.

Distinct to these activities, but related,

is the group’s skills testing operation ISV

Software. Recruiters use this product to

assess candidates’ skill levels.

The company’s recent development

makes comparison with prior years

difficult. Things are complicated

further as sales move to a subscription

model. This is a phenomenon being

repeated across the industry. The

transition results in immediate

revenues being swapped for longer-

term recurring revenues.

This was evident with the company’s

recent interim results. Dillistone reported

non-recurring revenues down 6% at

£1.13m for the six months ending in

June. Recurring revenues, however, were

19% higher at £2.86m.

Pre-tax profit fell from £817k to

£646k. Currency movements have not

helped: if 2013 exchange rates had

held, adjusted H1 2014 pre-tax profits

would have shown a 4% increase on

the comparable period.

The dividend was increased 4%.

Dillistone Systems’ flagship

product FileFinder Anywhere has

recently been through an ambitious

upgrade. Management expects the

administrative overhead that comes

dividendsIf there is one thing I have learned about companies on AIM, it is that the successful ones have a habit of keeping on winning.

DILLISTONE GROUP (LON:DSG)

FOR

Longstanding success

Good dividend yield

AGAINST

FileFinder Anywhere needs to sell

Acquisition integration risk

Market cap £18m

Bid:offer 93p:98p

P/E (forecast) 12.7

Yield (forecast) 4.0%

52week low:high 88p:127p

Established niche-player with

Currency movements have

not helped

with rolling out the new product to

hold back immediate growth, resulting

in a 2014 outcome for the Group

similar to the previous year.

Given that Dillistone reported a net

profit of £1.2m last year, the shares

today do not look particularly cheap.

However, the company is well-financed

and can be expected to enjoy some

growth thanks to the recent acquisitions.

Dillistone has a solid track record.

It’s enhanced product range will bring

significant opportunities to cross-

sell. Recent noises around FileFinder

Anywhere are very encouraging.

Considering more than 80% of the

company’s revenues are earned at

home, improving business confidence

in the UK could deliver a significant

sales boost.

the company is well-financed


AIMprospector TOPpick


My best pick from all of AIM There are over 1,100 shares on AIM. I have taken a good look at several hundred and used screening software to measure up the whole lot.

Following years of researching AIM

companies, today I own shares (via a

spread bet) in just one: the Manchester-

based insolvency practitioner Begbies

Traynor.

Begbies Traynor (Begbies) is led by

its Executive Chairman and co-founder

Ric Traynor. Today, Mr Traynor owns

29% of the company.

The bull case is based on understanding

what an insolvency practitioner does and

what drives its business.

Basically, a company or individual

is insolvent if it is unable to pay its

debts. Creditors or a court appoint an

insolvency practitioner who endeavours

to ensure that the situation does not

deteriorate further and that creditors

are treated fairly.

Insolvency practitioners rarely get

involved unless there are substantial

assets involved.

To thrive, a business like Begbies

Traynor needs an environment where

corporate insolvencies are plentiful.

Surprisingly, despite the recession, this

has not been the case in recent years.

Experts frequently attribute this

phenomena to the ‘forbearance’ of

banks: lenders have been reluctant to

push companies into insolvency due to

concerns over bad publicity (especially

pertinent when two of the largest

banks were recently rescued by the

taxpayer) and the value that may be

realised for assets.

The fall in insolvency numbers has

hurt Begbies Traynor. From revenues

of £62.8m in 2010, income has fallen

every year since to £45.8m for 2014.

I bought shares in the company in

February 2013. At the time, the shares

were trading in the mid-30s. For the

six months ending 31st October 2012,

Begbies Traynor reported adjusted EPS

for 2.5p. The dividend was held at 0.6p.

That put the shares on an extremely

low P/E, with the prospect of a large

yield. At that price, the insolvency

market did not need to pick up for me

to see value in the shares. However, I

continue to expect an improvement in

Begbies Traynor’s market could start

soon. Moreover, such a recovery has

some way to go and could take the

shares much higher than they are today.

For the year ending 30 April 2010,

Begbies reported profit after tax of

£5.6m. Basic EPS came in at 6.3p, total

lenders have been reluctant to

push companies into insolvency

fall in insolvency numbers has

hurt Begbies Traynor

I bought shares in the company in

February 2013

Ric Traynor owns 29% of the company


AIMprospector TOPpick


dividends for the year were 3.1p and the

company had net assets per share of 75p

– in-line with the share price at the time.

According to government statistics,

in twelve months from July 2009 to

end of June 2010, there were just over

17,000 corporate liquidations in England

and Wales. In that period, 0.91% of all

registered companies failed.

Every year since then, the incidence

of company liquidations has been

declining. In the twelve months ending

June 2014 there were around 14,500

company liquidations — as just 0.6%

of companies collapsed.

This downturn was manifested

in Begbies’ 2014 full-year figures as

revenues fell to £45.8m and basic EPS

was just 3.3p. According to Stockopedia

data, the book value per share as of

the last balance sheet date was 65p, a

considerable premium to today’s price.

While these are not growth figures,

they do demonstrate the potential

profit upside if corporate insolvencies

increase.

I have identified three reasons why

this scenario might come about.

One reason why corporate

insolvencies can pick up in an economic

recovery is because the uptick in

demand produced by a stronger

economy cannot be met by already

stretched companies. The second comes

from the fact that creditors become

more confident in the amount of debt

that they can recover if they petition

for insolvency. Consider a public house

or other hospitality business. If you

were a bank with debts secured against

the premises, it would make excellent

business sense to wait for asset values

to pick up before taking action.

My third reason for expecting

insolvencies to increase is because I

expect interest rates to start rising.

In June this year, Bank of England

governor Mark Carney explained in a

BBC interview that he regards a 2.5%

base rate as “not inconsistent with

returning the economy to normal” and

that the Bank was forecasting this level

to come about by the end of Q1 2017.

If the first rate rise does not come

until just after the general election,

this timetable suggests that the Bank

would need to increase the base rate

by around 0.25% a quarter until the

‘normal’ rate was hit.

Such a rate of increase could prove

terminal for companies already in

financial distress.

According to Stockopedia, Begbies

Traynor is expected to make 4.35p of

EPS in the current financial year and

4.65p the year after. While that doesn’t

make Begbies shares especially cheap

at today’s price, a company that can

maintain a good level of profitability

through an industry downturn will

frequently trade on a premium P/E.

If the insolvency cycle does pick

up, or even race higher with interest

rate rises, then the 65p net asset value

seems a reasonable target price.

Begbies Traynor Group (LON:BEG)

FOR

Clear upside if cycle turns

Good yield

AGAINST

Management control is significant

Hostage to the market it serves

Market cap £41m

Bid:offer 44p:47p

P/E (forecast) 10.6



Begbies Traynor needs a stream of corporate insolvency work to thrive

the incidence of company

liquidations has been declining

could prove terminal for companies

already in financial distress


AIMprospector


Consider what motivates investorsBefore beginning any profile raising campaign, executives must consider what might attract potential investors to their company. Does it have unique, innovative or interesting products or services? What is the growth strategy and competitive edge? What are the realistic prospects of delivering an attractive return to shareholders through capital growth or dividend payments?

Keep it simple & bring the business to lifeIt is critically important to explain the business clearly, distilling any complicated messages into simple language and eliminating unnecessary jargon. And try to make it memorable. How much scope is there to bring the company to life through case studies, photography or video?

How to get noticed by the pressPress coverage can play a really useful role in gaining profile for smaller companies. But before talking to journalists, consider what the news angle is and why the press will be interested in your story.

There are now few dedicated small cap columns in the financial pages of the national papers. But there are specialist AIM publications and, if you

are inventive, there are also interesting opportunities to gain coverage in the mainstream press. Consider what columns might suit your business. Are you looking for personal profiles, are you an entrepreneur, do you have innovative products to talk about or are you creating jobs? Can you provide eye-catching photography or graphics to support your news? Journalists are keen to illustrate their stories with creative images and, for readers, they can create a lasting impression. And don’t rule out broadcast opportunities – the producers of dedicated business slots on radio and television are always keen to talk to articulate business leaders about their products and markets.

Extending your reachMany small cap companies will only have one analyst producing forecasts and research notes – and that will be their house broker. Nonetheless, it is important to take your investment case to the sales teams of other broking houses. High quality paid-for research can also be a useful way of reaching a wider range of potential investors.

Small cap companies should also consider targeting the retail investor market. Over £450bn is held in the UK for private clients, either directly or by broking firms, and of this over 80% is

invested in an advisory or discretionary capacity. Private client fund managers are generally interested in meeting companies with growth stories and/or dividend yields.

Communications ground rulesFinally, there are some golden rules in communicating with the financial audience, whether you are talking to investors, analysts or the media. Firstly, keep the market informed – aim to deliver regular news flow and consider how to maintain your profile between each set of results. Secondly, present to a high standard – a professional website, clear presentations and well-crafted press releases all create a favourable impression. And finally, cultivate your relationships – be approachable, be trustworthy and keep

your supporters onside.

Deborah Walter is a Director of

KTZ Communications, a specialist

financial PR consultancy focused

on advising AIM-listed companies.

KTZ provides strategic advice on

corporate positioning, profile

raising, IPOs, fund-raisings, M&A,

reputational issues and crisis

management.

Executive Insight With over 1,100 companies now listed on AIM, how can ambitious small caps stand out from the crowd? Investors have an overwhelming choice, less space is being devoted to smaller companies in many of the mainstream business publications and few equity analysts wish to write independent research on small caps where there is no obvious commercial benefit.

So how can companies gain recognition amongst potential investors and the wider financial audience?

Deborah W

alter


AIMprospector


well for the number of miles being put

in by drivers, something that will be

further encouraged by low fuel prices.

In the first half of its year, a

significant contract with AXA was

renewed. Further revenues were added

by the acquisitions of Exway (August

2013) and Howard Basford (February

2014). Post-period end, Gladwins,

a repair company operating eight

bodyshops, was acquired.

In aggregate, these three businesses

made annual revenues of £35m prior

to their acquisition. Given that NARS

made £156m of revenues in the year

prior to these additions starting, the

new operations will have a significant

effect on future revenues. The larger

geographical footprint of the repair

network should also bring margin

improvements.

The enhanced size of the group will

make servicing the group’s pension

deficit less onerous. For 2013, NARS

had to pay £1.3m to service a liability

that closed the year at £19m. At a

discount rate of 4.4%, NARS would

Nationwide Accident Repair Services (NARS) provides vehicle repair management services to motor insurers, fleet owners and private customers. These services include repair sourcing and repair itself – both the vehicle and glass.In recent years the company has been

diversifying from working exclusively

for insurers into fleet and consumer

work. Fleet work has grown substantially

and now represents 25% of group

revenues. Growing mobile repairs is

another ambition of the company as it is

frequently higher margin work.

NARS has been successfully building

on its leading position in the UK repair

industry through recent acquisitions.

Against this, one has to balance

an awkward balance sheet that is

encumbered with a significant pension

deficit, a lack of historic revenue growth

and the strong possibility of a large

share overhang.

NARS trades well when there are

more vehicles on the road and crash

incidence is high. Obviously, the first

factor can influence the second. The

strength of the pound has helped reduce

fuel costs: the September price for petrol

was the lowest since February 2011.

Growth in the UK economy bodes

Nationwide prepares to step up a gear

have to continue making payments for

another nine years.

A flurry of RNS announcements

was made earlier this year as Quindell

plc built a 25.3% stake in NARS. I

don’t expect Quindell to hold on to its

stake in NARS much longer. While this

may result in an unpleasant share

overhang, such situations can present

an opportunity for investors to acquire

stock at a depressed price.

The acquisitions are expected to

help EPS reach 8.4p this year, with

the dividend held at 2.9p. Given that

half-year revenues were 14% higher

and gross margins were 2% higher at

36.2%, a significant improvement for

the full year seems nailed on.

Nationwide Accident Repair Services

(LON:NARS)

FOR

Industry positioned for upturn

Margins set to improve

AGAINST

Possible share overhang

Pension deficit will deter some

Market cap £34m

Bid:offer 73p:76p

P/E (forecast) 9.0



Further revenues were added by

the acquisitions

NARS would have to continue

making payments for another

nine years


AIMprospector


The company was founded in 1936

by Frederick Thorpe. Family members

remain substantial shareholders today,

with members of the Thorpe family

owning around 54% of the equity.

Frederick Thorpe’s grandson, Andrew

Thorpe, is today Joint Group Chief

Executive and Group Chairman. He

owns 21.7% of the company.

FW Thorpe operates through

seven brands: Thorlux Lighting, Philip

Payne, Sugg, Compact, Solite, Portland

Lighting and TRT Lighting.

The dominant brand is Thorlux

Lighting. Over 60% of the products from

this business are sold to the commercial

sector, e.g. offices and hospitals.

Philip Payne produces bespoke

emergency exit signage for architects

and interior designers. Clients range

from Ascot racecourse and Wembley

Stadium to The Ritz Hotel and

Oxford’s Ashmolean Museum.

Sugg lighting produces decorative

and heritage outdoor lighting (i.e

held). The 2014 payout was further

augmented by a special dividend of

1.5p per share. Thorpe’s record of

dividend increases in the last five years

puts the company among the top

twenty on AIM.

Sales and profit growth have been

more pedestrian. Since 2008, annual

sales and net profits have progressed

at 3.4% pa and 3.8% pa respectively.

However, the last reported full-year

numbers showed growth significantly

ahead of this. There are reasons to

expect that higher growth might be

repeated in the future as the company

has launched initiatives to improve

LED margins and has made significant

investments in production and

warehouse capacity.

Sadly, there are no forecasts in the

market for the company. However,

the history of dividend increases,

along with the strong balance sheet,

would suggest another year of payout

increases is on its way.

FW Thorpe is a long-established family-controlled lighting business. The company is a paradigm of financial conservatism, using its continued business success to reward shareholders via consistent dividend increases.

Family firm is one of AIM’s leading lights

FW Thorpe (LON:TFW)

FOR

Long track record of success

Strong balance sheet

AGAINST

Controlled by the founding family

Only modest growth opportunities

Market cap £150m

Bid:offer 130p:135p

P/E (historic) 15.5

Yield (historic) 2.4%


Thorlux accounted for just over

80% of sales

fancy lamps). The company was

established in 1837 and acquired by

Thorpe in 1999. Sugg was awarded the

prestigious Royal Warrant in 2008.

Compact and Solite address

specialist niches. Compact provides

lighting to retailers. Solite specialises

in installations where cleanliness is a

priority — such as laboratories and

kitchens. Portland Lighting makes

lighting for outdoor signage/displays.

TRT Lighting was recently borne out of

Thorlux and is dedicated to road and

tunnel lighting.

In the year ending June 2014,

Thorlux accounted for just over 80%

of sales and over 90% of operating

profit. Geographically, 87% of group

sales are within the UK market.

The company recently opened an

office in Abu Dhabi to face the Middle

East market. TRT Lighting is finding

its own feet and moving toward

profitability.

Shareholder dividends at FW

Thorpe have been increased from

0.45p in 1997 to 3.25p for 2014. In

that time, the dividend was increased

in every year but two (when it was

no forecasts in the market


AIMprospector


The company researches, designs,

engineers and manufactures advanced

photonic systems, components and

instrumentation.

Wikipedia defines photonics as ‘the

generation, emission, transmission,

modulation, signal processing,

switching, amplification, and detection/

sensing of light’.

G & H’s work involves the provision

of components, sub-systems and systems

for laser-related end products, such as

providing much of the optical hardware

that goes into the Retinal Scanning

Systems found in high street opticians.

Customers include Honeywell,

Agilent Technologies, Northrop

Grumman and Leica. G & H serves its

customer base via three UK facilities

and five sites in the US.

Gooch & Housego provides

equipment used in, for example,

fibre optic telecoms systems. As the

deployment of photonics solutions

moves deeper into aerospace,

communications and medicine, G &

H looks set to enjoy continued sales

growth.

Management strategy is to move

the company up the value chain, from

being a manufacturer of components,

Chief Executive, Gareth Jones, took

the opportunity to point out that

management initiatives are delivering

greater operational efficiencies and

improved margins.

Current consensus is for a 2015 EPS

number that is just 9.6% ahead of the

forthcoming 2014 result. If the sales

and margin growth already reported

can be sustained then I would expect

forecasts to be upgraded.

As photonics applications

increase and the industry grows, G

& H is likely already on the radar of

larger engineering technology firms.

Meanwhile, the company continues to

reward its shareholders via dividends

and share price growth. Back in 2010,

the shares traded at less than two

pounds. Dividends totalled 2p per share

for the year. For 2013, dividends of 6.6p

were declared. The shares began 2014

trading at more than 700p, having

advanced at a slightly faster rate than

the dividend.

From its headquarters in Ilminster, Somerset, Gooch & Housego (G & H) is a world-class technology manufacturer and engineer, enjoying high sales and profit growth.

Hi-tech West Country firm is making hay

Gooch & Housego (LON:GHH)

FOR

Market leading position

Strategy looks to be working

AGAINST

CEO change at end of year

Strong pound could affect exports

Market cap £156m

Bid:offer 630p:655p

P/E (forecast) 18.6



to more specification, design and build

work. This would see the company

become a key partner for systems

manufacturers rather than just a

component supplier.

Based in Torquay, the company’s

Systems Technology Group is at the

forefront of this effort. This operation

draws expertise from all G & H sites.

The company has doubled the size of

this team in 2014. G & H’s most recent

trading statement suggested that its

strategy is already delivering, with

management highlighting new product

development initiatives that are aligned

with the company’s long-term strategic

objectives.

The announcement also confirmed

that the year to September 2014

is expected to finish in-line with

management expectations. The

Stockopedia 2014 consensus forecast

figure is currently 35.2p, a 27% increase

on the normalised EPS figure reported

last year.

More encouraging is the fact that

management reported an order book for

the start of the 2015 year that is 18%

ahead of where it was twelve months prior.

18% ahead of where it was

twelve months prior

three UK facilities and five sites in

the US


AIMprospector


In the last five years, defence supplier

Cohort plc has grown net profits from

£3.8m to £5.9m. In that time, the

dividend per share has been increased

five years running: from 1.2p for 2009

to 4.2p for 2014. The market forecasts

further significant profit and dividend

increases in the next two years. The

positive outlook given in the Cohort

management presentation at AIM

Investor Focus further underlined the

growth potential.

Cohort is a group of four

companies: MASS, technical

consultancy for the education and

military sector; SEA, systems, software

and electronic engineering services

particularly for the submarine

fleet (recently beefed up with the

September acquisition of J+S); SCS,

advisory services to the MoD; and

MCL, acquired in July, which delivers

electronic communications and

surveillance technology.

The company has a strong balance

sheet, with a net cash position of

some £4m, even after the purchase

of J+S for £12m. Cohort’s biggest

customer is the MoD. The company

is well embedded in the submarine

manufacture sector, which remains

a growth area. The business is thus

positioned to deliver long-term,

that was recruited following a 2007

acquisition. The company’s market

valuation remains attractively modest

relative to both small and large-cap IT

Services sector peers.

After many years listed on PLUS/ISDX,

fire safety products firm Sprue Aegis

joined AIM in April 2014. In 2008,

revenues were £9.4m and net profit

was £1.1m; for 2013, revenues were

£48.4m and net profits hit £4.2m. The

company declared a maiden dividend

of 0.5p for 2009 and the payout has

increased every year since, reaching

6p for 2013. 2014 interims revealed

sales up 11% and a 34% increase in

earnings per share; net cash was £11m

and a 2p maiden interim dividend was

announced. At the AIM Investor Focus

presentation, management confirmed

the continuing strong markets in

France and Germany with a record

order book extending into 2015.

For Sprue’s 2014 full year, the

market is forecasting a 20% increase

in sales to £60m and a jump of over

70% in net profits to £7.5m. Whilst

growth in sales and profits will be

more modest from 2015 onwards, the

magnitude of future growth will likely

remain significant enough to justify

October 23rd saw the Blackthorn Focus event AIM Investor Focus run for the fifth time. Five companies were present on the day. Each met with an AIM Prospector staff writer. Here is the lowdown on all five.

Event review: AIM Investor Focus

sustainable operating margins,

generating the cashflow required to

support further acquisitions and/or

dividend increases.

SCISYS is a computer software supplier

to specialist industry (media broadcast,

defence etc). The company has steadily

improved operating margins over the

past six years and has increased its

dividend to shareholders every year

for the last four years. In that time, net

profits have increased almost fourfold. In

their presentation at AIM Investor Focus,

management confirmed their hope to

bring in revenues exceeding £60m at

double-digit operating margins by 2018.

According to Stockopedia, the

market is forecasting a double-digit

increase in earnings per share for 2014.

SCISYS’ recent half-year results showed

a 19% increase in adjusted earnings per

share and a 10% dividend hike.

SCISYS is strongly cash generative

and achieved an operating margin

of 7.6% in 2013, demonstrating

the completion of its operational

rehabilitation following the demerger

of CODA in 2006. Much of the recent

strong financial performance has

been down to the management team


AIMprospector


Company Market Cap PriceP/E

(forecast)Yield

(forecast)

Cohort (LON:CHRT) £99m 235p:243p 14 2%

SCISYS (LON:SSY) £27m 90p:94p 9.7 1.7%

Sprue Aegis (LON:SPRP) £130m 280p:295p 17.1 2.8%

Trakm8 (LON:TRAK) £21m 70p:75p 12.7 0

Ideagen (LON:IDEA) £42m 33.5p:34p 16.9 0.5%

continued investor interest.

Jarden Corporation (an American

multinational with a market cap of

£4.9bn) is the largest shareholder in

Sprue Aegis and supplier of the BRK

appliances marketed and sold by Sprue

Aegis. After failing with a takeover

attempt pitched at 90p in 2013, Jarden

is now free to bid again for the whole

company. At some point in the future

and at the appropriate price, I expect

that Jarden will succeed in acquiring

Sprue Aegis and incorporate Sprue

products into its own vast offering of

global consumer appliance brands.

Trakm8 is an automotive telematics

business, established in 2002 and

listed on AIM in 2005. The company

has grown fast in recent years, through

both acquisition (four acquisitions

since 2006 with the latest, BOX

Telematics in 2013) and organic

growth. Revenues, which were flat

in the previous 4 years, more than

doubled in FY2013/14 following

the BOX purchase. The company

has been profitable since 2010 but

earnings doubled in FY2013/14 on

consolidation of BOX. During their

presentation at AIM Investor Focus,

management confirmed the growing

strength of recurring revenues and the

transformational impact of the BOX

acquisition.

The market is forecasting a further

surge in revenue and earnings growth

for FY2014/15 and beyond. Recently,

Trakm8 has successfully added blue-

chip customers such as Direct Line

Insurance, the largest motor insurer

in the UK. No dividend payments are

expected in the medium term but

the company could surprise given its

strong cash position.

As Trakm8 expands the number

and range of its installed telematic

devices, it is effectively building an

intelligence-based service derived

from data aggregation. The Executive

Chairman, John Watkins, has

previous experience in monetising

an information database, having

successfully sold Omitec, the UK’s

biggest vehicle diagnostics company,

to the German automotive giant

Continental in 2012.

Formerly known as Datum

International, Ideagen (listed on AIM

since 2012) is an information

management software company

specialising in GRC (i.e. ‘governance,

risk and compliance’) for major

enterprises and clinical content for UK

NHS Trusts.

The company has demonstrated

adroit integration capability having

acquired six companies over the last

four years, resulting in revenues growing

ninefold to £9m. Earnings trends have

been affected by amortisation of

sizeable acquisition intangibles during

the same period meaning that dividends

did not start until 2014.

Management is confident in its

outlook for FY2014/15 with continuing

growth in recurring revenues and a

further increase in earnings forecast. The

June 2014 acquisition of EIBS, a software

company with 40 major clients in the

NHS and other public sector bodies

is expected to be earnings enhancing

in FY2015/16. Ideagen will likely have

£4m in net cash at year end FY2014/15,

unless another acquisition is made.

The potential for growth in the

NHS is enormous because over 50% of

Health Trusts do not have appropriate

software for either EDM (i.e. ‘electronic

document management’) or OCM (i.e.

‘online case management’). Ideagen

provides both of these solutions.

Moreover, the flexible and modular

‘portal configuration’ of Ideagen’s GRC

software, already embedded in many

blue-chip multi-national companies,

should continue to be an attractive

offering to many more large and

especially international enterprises.

If you have not previously attended AIM

Investor Focus but would be interested in

participating at a future event, register your

interest with Blackthorn Focus.


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Smallcap markets seem to have returned to more

normal behaviour, with valuations fairly even.

Conditions like this make AIM a classic stockpickers

market. AIM Prospector will continue to introduce

the investor community to more AIM companies

worth further examination.

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