Interactive Investor

AIM share tips review 2021: twice as good as the FTSE 100

24th December 2021 10:43

Andrew Hore from interactive investor

Stock picking requires skill and understanding, both of which our award-winning AIM writer has in spades. Here’s how he outperformed all the major UK indices in 2021.  

The 2021 recommendations performed well as an overall portfolio of five shares, even though two of them declined. It was a particularly good performance considering the underperformance of AIM during the year. All five of the companies still have good prospects.

Begbies Traynor

+56.8%

Business recovery and property services provider Begbies Traynor (LSE:BEG) has performed well, even though the expected increase in insolvencies did not happen during the year because of government support for businesses. There are signs that insolvency numbers are starting to increase, which will help organic growth. This year’s results will be second half-weighted.

At the moment, the final government support measures will come to an end in March and insolvencies are already heading towards 2019 levels. The company has doubled its share of the administration market to 12%, mainly due to acquisitions. Administration numbers are expected to increase from subdued levels. The share of the total insolvency market has risen to 14%.

The property services division has grown despite the lack of insolvency related business. Organic growth has been supplemented by significant acquisition activity for both divisions.

In the six months to October 2021, revenues were 39% ahead at £52.3 million, with acquisitions contributing growth of 36%. Underlying pre-tax profit jumped 60% to £8 million, thanks to an improvement in operating margin from 14.4% to 16% as overheads were spread over a larger base. Net cash was £1.2 million at the end of April 2021, even though there were acquisition payments and an increase in working capital requirements. There are deferred consideration payments of £3.8 million due in the second half.

Begbies Traynor has paid 3p a share in dividends since I made my recommendation, with an interim of 1.1p a share announced with the recent results. The shares go ex-dividend on 7 April.

A full-year pre-tax profit of £17.5 million is forecast, up from £11.5 million the previous year. The shares are trading on just over 15 times prospective 2021-22 earnings. The outlook is positive. Buy.

Anexo

-2%

Anexo (LSE:ANX) has been frustrating. The credit hire and legal services firm has stayed around the recommendation price of 130p for most of the year, except for when there was a potential bid in June. The bidder could not agree an offer with the independent directors and the share price fell back from above 148p to previous levels.

Despite the lack of share price movement, the business has made good progress. Demand for the core credit hire business has grown. Interim revenues were nearly one-third ahead at £48.3 million and underlying pre-tax profit improved from £6.3 million to £8.9 million. Net debt was £44.4 million, and facilities have been increased to cover growth. More recently, Anexo won a new contract with MCE Insurance to provide claims services for non-fault motorcycle accidents, which is higher margin business

Anexo has launched a specialist housing disrepair legal team. It already has 1,600 cases and housing disrepair could become a more significant generator of business. These cases tend to be settled faster than the vehicle litigation. It is estimated that 1.5 million rental homes do not meet the decent homes standard.

The 2021 pre-tax profit is expected to be £20 million, rising to £22.1 million. The share price is trading on a single figure 2021 multiple. The Volkswagen emissions litigation still provides further upside but there has been little progress reported.

Dividends of 1.5p a share have been paid this year, but that does not make up for the share price decline. The share price should eventually catch up with the business performance.

Belvoir Group (LSE: BLV)

+58.9%

Franchised lettings and estate agency Belvoir has enjoyed numerous forecast upgrades during the year. The property sales part of the business benefited from the stamp duty holiday, while the lettings side continued to generate steady revenues. The finance business continued to grow rapidly.

The latest upgrade takes the 2021 pre-tax profit forecast to £9.6 million, up from £7.5 million in 2020. This is not likely to be a sustainable level of profit in the short term, because of the bumper house sales business.

Revenues from sales will fall in 2022, although lettings and financial services income should grow steadily. The Nottingham Building Society’s mortgage and protection services business was acquired for £600,000 during the year. Belvoir already had a lettings agreement with the building society and this deal will boost the financial services income.

On top of the share price increase investors have received total dividends of 9.1p a share this year, although that is partly due to the timing of payments. The total 2021 dividend is 8.5p a share and set to continue to grow.

Pre-tax profit is expected to decline from £9.6 million to £8.9 million in 2022. That still represents a significant increase on the 2019 figure.

Belvoir is the best performer of the five recommendations, but the shares are trading on less than 13 times prospective 2022 earnings and the forecast yield is 3.6%. Steady growth prospects mean that the shares remain attractive.

2021 AIM recommendations

     

Company

Tip price (p)

Current (p)

change (%)

Anexo

130

127.5

-2

Begbies Traynor

87

136.4

+56.8

Belvoir

151

240

+58.9

Real Estate Investors

31.2

38

+21.8

SourceBio International

160

150

-6.3

   

Average

+25.8

   

AIM All Share

+1

   

AIM 50

-1.8

   

AIM 100

-2.3

   

FTSE 100

+12.5

Real Estate Investors 

+21.8%

Midlands-focused property investor Real Estate Investors (LSE:RLE) started the year at a huge discount to its net assets. There were concerns about the real estate investment trust’s (REIT) portfolio as some larger properties had major tenants that were going to leave. That means that there was a risk of loss of income, but it also provides opportunities to re-let properties at higher rents or to develop them.

In June, occupancy was lower at 83.4% because of the expected ends to certain tenancies, but management says that there are potential new tenants. Disposals reduced loan to value to 45% at the end of June 2021 and more sales have been made since then. This provides a strong balance sheet to take advantage of buying opportunities, although management says that there are no attractive deals yet.

On top of the share price rise investors have received total dividends of 3p a share, which is nearly 10% of the original recommendation price. Net tangible assets were 58p a share at the end of June 2021 and it should be similar at the end of 2021.

The discount to net asset value (NAV) remains high at 35%, compared to more than 40% at the same time last year. NAV is expected to rise to 61p a share next year and there is also potential for a further narrowing of the discount. Buy for further recovery.

SourceBio International

-6.3%

The latest variant of Covid-19 sparked a recovery in the SourceBio International (LSE:SBI) share price due to anticipated demand for its Covid-testing laboratories. The share price is still lower than at the beginning of the year. Testing revenues and cash generation had not been as high as hoped at the beginning of 2021.That hit the share price.

PCR testing requirements were reduced in the autumn, but the Omicron variant has increased demand, and testing levels are set to exceed the highest level since the beginning of the pandemic. The rolling average weekly number of tests was 454,000 in early December and that is likely to increase in the short-term.

The health diagnostics, genomics and stability storage businesses continue to provide a strong base for the company. Trading has recovered to past levels and there is potential to acquire businesses in these areas.

Forecasts have been cut. Revenues of £52.6 million and pre-tax profit of £6.1 million are forecast for 2022. There should be net cash of more than £21 million at the end of 2021 and that could rise to £33 million one year later, which is around 30% of the current market capitalisation. It should be noted that the 2022 forecast has not been updated for the rise in PCR testing so there is potential upside. Covid testing was expected to fall sharply in previous forecasts.

Investing the cash pile in acquisitions should enhance earnings. Management is actively assessing potential deals. There will be a trading statement in early 2022. Hold on for further recovery.

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.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.