Our award-winning AIM writer Andrew Hore highlights the companies that floated in 2021 with recovery potential and the ones where share prices could continue to rise.
Although there are plenty of underperforming new admissions to AIM from 2021, there are some that are attractive longer-term investments. Even some of the better performers still have potential for further rises.
There are already investors that have spotted value among the fallers. For example, online fashion retailer Boohoo Group (LSE:BOO) has made a strategic investment in cosmetics supplier Revolution Beauty Group (LSE:REVB), which recently announced a profit warning and was the second-worst performer among the class of 2021. Revolution Beauty products are sold through several of Boohoo’s websites. Boohoo has built up a 12.9% shareholding, while AXA and Jupiter have reduced their stakes during August. Pentwater Capital Management has taken a 5.98% shareholding.
Here are five companies with the potential for a share price recovery, or even a further increase in the share price.
Video games publisher and developer TinyBuild Inc (LSE:TBLD) has been hit by the poor investor sentiment towards the sector due to the disappointing trading of fellow US-based video games developer Devolver Digital Inc (LSE:DEVO), where new releases performed poorly. In March 2021, tinyBuild raised £36.2 million at 169p and the shares initially went to a significant premium before falling back.
One of the drawbacks of video games companies is their dependency on one or two major games and launching updated versions of them. In contrast, tinyBuild has a broad portfolio of games where it owns the IP and it is starting to exploit these games in other media, such as books and TV. There is also a focus on niche markets with loyal customer bases.
Management has shown that it is adept at acquiring teams of games developers and integrating them into the group. There is a limited supply of skilled developers, so it is important that tinyBuild has enough developers to continue to grow.
Last month, tinyBuild reiterated that trading was strong in the first half of 2022. There is increasing interest in tinyBuild from analysts. Peel Hunt initiated research last month. There are seven analysts covering the company, which is a decent number for a small company. The shares are trading on 16 times prospective 2022 consensus earnings with earnings growth set to be in double digits. Worth buying.
Team (LSE:TEAM) joined AIM in March 2021 when it raised £7.5 million at 88p a share. The strategy is to build a wealth and asset management business through acquisitions, and it has a strong niche position in the market in Jersey following its first four acquisitions.
It is early days, and it takes time to gain the regulatory approvals to buy businesses. This month, Team has gained regulatory approval to complete the purchases of retirement planning and investment advisory services provider Omega Financial Services and financial planning and investment consultancy Concentric Group.
The businesses have been working together, but now Team can fully integrate them and take greater advantage of cross-selling the different services. The latest acquisitions mean that Team should become cash generative.
In August, executive chairman Mark Clubb bought 5,000 shares at 57.9p and 10,000 shares at 55.54p. He has been regularly buying shares since the flotation, many purchases have been a much higher prices, and his stake has risen to 17.15%.
The full benefit of the integration should start to show through next year and that should help the share price to recover.
Made Tech Group
Made Tech Group (LSE:MTEC) joined AIM last September 2021 when it raised £15 million at 112p a share. The cash is helping to broaden its geographic coverage. The share price has slumped, but the latest trading statement indicates that trading in the year to May 2022 is slightly better than forecast.
Made Tech provides digital and data services to the UK public sector. Made Tech helps these public sector organisations to digitally transform their operations through the modernisation of systems and accelerating their move to digital operations.
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At the end of February, a contract worth up to £37.5 million over two years was signed with NHS Digital, although this is in partnership with Answer Digital so Made Tech will receive around 50% of the value. In July, a £7 million contract was won with the Met Office and it lasts for 24 months.
Trained staff are vital for this business and staff numbers were doubled in the past year. Management is confident about trading and the shares are worth buying.
Northcoders (LSE:CODE) provides software training and there is a shortage of people with these skills, so demand is likely to remain strong for many years. One year ago, Northcoders raised £3.5 million at 180p a share and a steady flow of positive news means that the share price has gone to an impressive premium.
The 12 to 14 weeks coding courses provide an understanding of the fundamentals of programming. The final phase enables the students to use the skills gained as part of a greenfield project.
Manchester-based Northcoders has been broadening its geographical footprint in the UK. This month Northcoders won a £4 million contract from the UK government to provide scholarships for software training for individuals.
In 2022, revenues are expected to more than double from £3 million to £6.5 million, with £2.3 million already generated in the first half. Northcoders is on course for a £800,000 profit, while also increasing its investment so that it can boost longer-term growth prospects. That pre-tax profit could quadruple to £3.2 million in 2023. The business is highly cash generative. Net cash of £1.9 million is forecast for the end of 2022 and could rise to £3.4 million by the end of 2023 – even if dividends start to be paid.
The 2023 prospective multiple is less than nine. This is a business where demand is outstripping supply and it is an excellent long-term buy.
Bradda Head Ltd
Lithium explorer Bradda Head (LSE:BHL) has not done too badly since it joined AIM in July 2021 when it raised £6.2 million at 5.38p, but the share price has halved since March. The peak was just before £6 million was raised at 13.5p a share in April. Prior to that a $10.5 million royalty agreement was secured with Lithium Royalty Corporation for Bradda Head’s sedimentary lithium assets, including a $2.5 million share investment at 7.68p a share.
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This means that Bradda Head has plenty of cash to push ahead with its development activities and does not have to worry about the share price. Management has put together a portfolio of potential lithium prospects in the US. Lithium demand for batteries will continue to increase and new lithium supply will be required to satisfy that growing demand. It is estimated that demand will increase by 42 times by 2040. Recent US legislation stipulates minimum levels of US lithium content in batteries produced in the US, which are set to eventually rise to 80%.
The main prospects are in Arizona and Nevada, so political risk is low, and they are in areas where there is already evidence of potential resources. They are also near to planned sites for battery manufacture. The initial focus is sedimentary assets, with other prospective pegmatite and brine assets. Drilling has already commenced.
Mining companies are always risky and there is a long way to go before any lithium is produced. However, Bradda Head is a good way of gaining exposure to lithium. There are plans for a TSX Venture Exchange quotation in the autumn, which will widen the potential investor base and could help to reinvigorate the share price.
Andrew Hore is a freelance contributor and not a direct employee of interactive investor.
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