The best-performing AIM sectors of Q1

Healthcare and alternative energy did well last year, but has this continued into 2021?

Last year, healthcare and alternative energy companies dominated the better performers on AIM. While the healthcare sector has continued to perform relatively well - despite the halving of the Novacyt SA (LSE:NCYT)share price - the alternative energy companies have slipped back, and the media sector is the best performer among the major sectors.

It is not that surprising that fuel cell and hydrogen companies have not managed to maintain their share price momentum.

The AFC Energy (LSE:AFC)share price has fallen by one-fifth and it is one of the worst performers in the FTSE AIM 100, while ITM Power (LSE:ITM) has fallen by 5.3% and Ceres Power (LSE:CWR)by 6.7%. All three are in the bottom 20 performers in the AIM 100. To put this in perspective, though, each of these companies has a share price treble the level it was 12 months ago. All three companies remain in the top 10 most-traded shares.

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Proton Motor Power (LSE:PPS) is the exception among the fuel cell companies because it has risen 4.3% this year. The share price has fallen back from its high, though.

The share prices of these companies are still looking far ahead. The potential is enormous, but unless there are significant new deals done it is difficult to see the share prices rising significantly in the short term.

Mining companies also did relatively well last year, but the basic resources sector is the worst performer in the early months of 2021. Greatland Gold (LSE:GGP)was one of the best performers among the larger AIM companies last year, but this year it has lost more than one-third of its value. Three of the worst five performers in the AIM 100 are mining companies. The others are gold miner Pan African Resources (LSE:PAF) and Eurasia Mining (LSE:EUA).

The share price of lithium and tantalum project developer Premier African Minerals (LSE:PREMhas quadrupled and the performance of gold and copper explorer Xtract Resources (LSE:XTR) is nearly as good. Both are in the top five risers for the whole of AIM, but they are small in comparison with the three big fallers.

Fevertree Drinks (LSE:FEVR)accounts for nearly two-thirds of the food and beverages sector and its poor performance explains the decline in the sector.

Although the automobiles and parts sector is the best performer, it only contains two companies. Both have higher share prices, with brake technology developer Surface Transforms (LSE:SCE) 40% ahead. Even so, the share price is barely back to the level when it moved from Plus/Aquis Stock Exchange to AIM in 2002.

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Media is the second-best performing sector, with a 27.1% gain. None of the companies is the top 10 weightings in either the AIM UK 50 or AIM 100. Media companies with significant digital exposure have been some of the better performers in the sector.

The share price of digital marketing company XLMedia (LSE:XLM)has risen 107% and that of programmatic advertising platform operator Tremor International (LSE:TRMR) has increased by 78%. The Tremor share price started taking off last autumn when forecasts were being upgraded.

Prior to Tremor’s interims in September, finnCap was forecasting a pre-tax loss for 2020. There were a series of upgrades and the outcome was a $30.8 million (£22.4 million) pre-tax profit, albeit down from $40 million the previous year.

Tremor is trading on a prospective multiple of 32. That is probably because of investor hopes for the expected US listing. The share buyback strategy has been paused ahead of the proposed listing.

Magnite acquired SpotX for 33 times 2020 earnings before interest, tax, depreciation and amortisation (EBITDA). On the same basis, Tremor would be valued at much more than its current market capitalisation. It has been pointed out by finnCap that US listed advertising technology businesses have higher multiples than Tremor.

First quarter trading was strong and pre-tax profit could rise to $42 million this year. Firmer news about the US listing, which could take place in the current quarter, could provide further upward momentum but it should be understood that a US listing does not automatically lead to a higher share price – as many AIM companies have found out.

There has been a steady share price rise at Next Fifteen Communications (LSE:NFC) and it is 50% higher this year. The marketing services provider has been increasingly focusing on digital operations and this has helped it to continue to grow.

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In the year to January 2021, Next Fifteen increased revenues by 7% to £266.9 million and underlying pre-tax profit was 22% higher at £49.1 million. Acquisitions helped but earnings per share still jumped by 17% to 40.7p. Profit improved in each of the two halves of the financial year, although the pace of growth was higher in the second half.

Earlier this month, Next Fifteen acquired Shopper Media, which is a data-driven social media marketing business. In the year to September 2020, the business made a pre-tax profit of £3.5 million. The initial payment was £15.7 million in cash and shares. Deferred consideration is payable based on performance over the next two financial years.

Next Fifteen has shown its ability to grow in tough economic times and a prospective multiple of 17 is not particularly high for a company with such a good long-term track record. The shares are good value.

AIM sector performance in 2020

Prices at 13 April 2020.

There are also some media companies that are recovering from low share prices. An example of this is cinemas operator Everyman Media Group (LSE:EMAN). The recent results show the devastating effect of last year’s lockdowns on revenues. They fell from £65 million to £24.2 million, which led to a swing from a pre-tax profit of £2.3 million to a loss of £22.2 million. The banking facility has been increased to £40 million, so there is plenty of headroom.

One year ago, Everyman raised £17.5 million at 100p a share. The share price fell to 66p when the second lockdown came into force in November, but it has bounced back to 156p. There has been a 42.5% gain since the beginning of the year when new chief executive Alex Scrimgeour.

Investors are hoping for a turnaround in performance once cinemas are back up and running in the middle of May. Delayed film releases mean that there should be plenty of films attractive to cinema goers.

Everyman is valued at £142.1 million, whereas peak pre-tax profit was £2.7 million in 2018. Net assets were £52.2 million at the end of 2020. Everyman has more screens than two years ago, but the shares appear to be highly valued and have got ahead of events given the continued uncertainty.

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The Ebiquity (LSE:EBQ) share price has doubled this year and the directors have been buying. Most of the share price improvement has been in the past two months.

Ebiquity analyses the effectiveness of billions of dollars of media spending around the world and it is winning contracts with high-profile firms, such as Colgate Palmolive and BMW.

Ebiquity fell into loss last year and it is expected to bounce back to a pre-tax profit of £2.6 million in 2021. There may even be a dividend this year. That profit could double next year, and forecasts suggest that it could reach £7.7 million in 2023.

Unlike Everyman, Ebiquity shares still look attractive even though they have soared this year. The shares are trading on just over eight times prospective 2022 earnings. That is a low multiple given the rate of profit growth expected and the shares are a ‘buy’.

Another media company that has rebounded this year is M&C Saatchi (LSE:SAA), which fell out of the AIM 50 just over one year ago after announcing significant accounting adjustments to past figures. Profit has slumped but it is expected to recover rapidly – partly due to ditching loss-making businesses and vacating excess office space.

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Even so, the M&C Saatchi share price is 78% higher this year. This reflects a complete overhaul of management and share buying by directors, including a £500,000 investment by new chief executive Moray McLennan, who bought at 89p a share in February.

A pre-tax profit of £10.9 million is forecast for 2021, rising to £16.6 million in 2022. The prospective 2022 multiple would still be more than 20. Even so, new joint broker Liberum has initiated research with a share price target of 210p.

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