Interactive Investor

Eagle Eye rockets, and other AIM shares follow

11th November 2020 13:05

Graeme Evans from interactive investor


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Blue-chip shares have raced higher, and now these AIM stocks are playing catch up.

Upstaged by the FTSE 100 index earlier in the week, the AIM market was once again the place to find jumbo returns after Renold (LSE:RNO), Eagle Eye Solutions (LSE:EYE) and the share prices of at least a dozen other small caps rallied by double-digit percentages.

The bumper session included another notable rise for Arena Events (LSE:ARE) after the builder of temporary stands used at major sporting events, including Wimbledon and golf's Ryder Cup, was given a boost by the Pfizer vaccine breakthrough. Shares jumped a further 1.4p to 9.05p.

But sentiment was not just driven by Covid-19 recovery hopes, with digital payments business ThinkSmart (LSE:TSL) among those doing well after further highlighting the value of its remaining shareholding in Buy Now Pay Later business Clearpay.

It sold 90% of the Clearpay business to Australia's Afterpay in 2018, with the value of the remaining stake continuing to increase following the addition of retailers including Marks & Spencer, ASOS and Boohoo.

While the stake was valued at £53.7 million in June, the Afterpay share price has since risen 53% among continued interest from customers and merchants. Afterpay has an option to buy ThinkSmart's remaining holding any time after August 2023.

Chairman Ned Montarello told the company's AGM:

“Our share price has grown by over 250% in the 12 months to 10 November, and we fundamentally believe further value will accrue as we execute on our strategy both this year, and in the years to come.”

Shares rose another 5p to 63p today after ThinkSmart said it expected to pay a dividend of Aus$6.5 million (£3.6 million) in December, which equates to a yield of about 5.8%.

Analysts at Canaccord have an existing target price of 74p but note that the continued increase in the Afterpay valuation translated to a potential 83p for ThinkSmart.

There was also an Australian connection to the latest 15% share price rise for Eagle Eye Solutions after the marketing software business unveiled a five-year deal with one of the country's biggest retailers, Woolworths.

Eagle Eye’s AIR platform will be used to support Woolworths with real-time personalised digital promotions and the transition to a new rewards program.

Shore Capital said the contract win was one of “great strategic importance”, given that it showed the company's potential in the emerging Asia Pacific market and also demonstrated its resilience in the face of the pandemic.

The broker added: “Eagle Eye is becoming an essential partner to the ‘digital leaders’ within the consumer space around the world.”

Shares were 120p in March but now stand at a record 398p after a 31% surge in value this month, with sentiment further boosted recently by Pret A Manger picking the company for the coffee chain's new subscription service, YourPret Barista.

The rise for Renold reflected relief among investors after the industrial chains and gearbox maker produced a resilient set of half-year results.

Revenues for the six months to 30 September of £81.5 million were 17% lower due to the Covid-19 impact of plant shutdowns and lower levels of demand across its markets. Adjusted operating profits held up well, however, with the £5.8 million surplus showing the benefit of a 7.1% margin only slightly weaker than the 7.8% achieved a year earlier.

Analysts at Peel Hunt said the stand-out feature of the results was the £10.2 million reduction in net debt to £26.4 million, which reduces leverage to 1.2x from 1.5x in March.

They added:

“This is a robust performance and provides considerable confidence moving forward.”

The broker's current target price of 30p is now under review based on the strength of first-half trading. The stock today surged by as much as 12% to 13.4p, having been as low as 4.5p in April, before settling at just above 11p later in the session.

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.

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