Former AIM writer of the year Andrew Hore picks small companies he thinks could make it big long term.
Previously I have suggested AIM growth companies to include in ISAs that are predominantly profitable and cash generative. This year I am focusing on the long-term growth prospects of companies that could take off in the next few years.
Some may not prove a success, at least in share price terms, but others should do well enough to more than make up for that.
These companies are predominantly loss-making, so are high risk, and some will require further funding in the next year or so. They will have volatile share prices and they should, as part of a diversified portfolio, be viewed as long-term investments with the potential to provide capital gains that will be shielded by their inclusion in an ISA.
Antimicrobial technology developer Byotrol (LSE:BYOT) has gained US Environmental Protection Agency clearance for two versions of 24-hour surface sanitiser Byotrol24. All 50 States have also cleared the product and it is being rolled out in Target stores with other retailers interested.
It has taken a long time but Byotrol has reached a point where it should begin to get significant returns on its investment in antimicrobial technology.
Byotrol transformed itself last year through the acquisition of Sevenoaks-based Medimark, which sells infection control products in the human and animal health markets. This provides a profitable base for the business, but it is still the company's antimicrobial technology that provides the real upside. Medimark provides a sales team that can sell Byotrol's products.
Byotrol24 is not Byotrol's only product. Other product groupings are Invirtu hand sanitisers and Actizone, where Byotrol has partnered with chemicals firm Solvay and received upfront payments combined with potential future royalties.
Importantly, there was net cash of £3.55m at the end of September 2018, helped by a £4m plus fundraising at 4p a share in 2017. That is expected to fall to £3.3m by the end of March 2019 and then start to rise. This provides a good buffer if there are any short-term disappointments, which is a distinct possibility.
It has taken a long time to get Byotrol to a point where commercial revenues are becoming more significant. Broker finnCap forecasts a loss for this year and a £900,000 profit in the year to March 2020, thanks to a full contribution from Medimark. The most important thing, though, is that Byotrol shows that it can build up sales of its own products.
Online gaming technology developer GAN (LSE:GAN) provides an opportunity to gain exposure to the legalisation of online gaming in the US. The company has contacts and casino clients that can help it to expand across the US.
It has been estimated that US sports betting – online and onsite - could be worth $6bn by 2023. GAN generates revenues via a share of net gaming revenues.
GAN recently signed a five-year extension to its agreement with Paddy Power Betfair (LSE:PPB). This means that GAN will provide the gaming platform in Pennsylvania and West Virginia, on top of the existing agreement for New Jersey. Parx Casino has signed up GAN to help launch an online sports betting service in Pennsylvania.
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New Jersey is providing evidence of how online gaming revenues can grow. The gross amount of money wagered jumped from $241m in December to $305m in January.
In 2018, GAN's revenues were between £10.5m to £11.3m, which is mainly recurring revenues and is ahead of expectations. The growth is coming from real money gaming in the US and the operations in Italy. There was £5.3m in the bank and little requirement for further capital investment. This year, total revenues are expected to be at least £18m, with nearly two-thirds likely to come from revenue shares with real money gaming clients. There is much more growth to come and GAN should make a pre-tax profit in 2020.
AorTech (LSE:AOR) has generated limited revenues from licensing its medical device technology after over optimistic expectations when it joined AIM two decades ago. Last year, management restructured the business and completed outstanding litigation involving a previous chief executive.
Aortech raised cash last summer to exploit the valuable portfolio of intellectual property for medical grade polymers, mainly Elast-Eon, and medical devices.
Elast-Eon has qualities that include that it is non-inflammatory, non-calcific, biostable, durable, abrasion resistant and biostable. Aortech has invested £30m in this technology.
A manufacturing and development contract with RUA Medical will help to reduce the costs of bringing patches and large bore grafts to market in the next two years. RUA will supply these products at cost in return for future royalty income.
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A new synthetic heart valve is a longer-term project. It will take two years for animal trials to take place and to analyse the data from them. There could be a further six months before human testing begins. Medical device developer Vascular Flow Technologies is providing project management, admin, engineering and design for a fixed quarterly fee.
Cash is likely to continue to flow out of the business for another two financial years. There was £2.59m in the bank at the end of September 2018.
Aortech has patch and graft products that are near to becoming commercial products and that would provide a significant boost to the share price. Successful progress with the heart valve will provide even more upside.
Event-driven marketing technology company Mporium Group (LSE:MPM) has signed an important deal with claims management company Allay, which has taken a 25% stake in the AIM company, and within a few weeks the benefits have started to show through. In each of the first two periods of two weeks since the deal was finalised, Mporium has billed more than £1m, so in four weeks it has generated more revenues than in 2017.
The IMPACT platform developed by Mporium enables an advertiser to choose the optimum time to publish an advertisement on television, online or in other media. Specific events or television programmes stimulate the interest of consumers and the technology means that the advertiser can advertise at these times for maximum value for its money.
Mporium is exclusively generating digital leads for Allay for PPI, timeshare, flight delay and loans claims. The initial success will make other companies take notice and should lead to greater demand for Mporium's services, which are based on a pay for performance basis. There is also business generated via advertising agencies, where Mporium does not buy the airtime.
Mporium is set to move into profit in 2019. Broker finnCap has yet to publish forecasts following the Allay deal. When they are published it could provide further momentum for the share price.
I have written about Angle (LSE:AGL) and its Parsortix diagnostics test in the past and the share price has not made much progress, even though the verification of the technology has. Over the next couple of years there will be results of clinical trials and they should have a major effect on the value of the business.
The Parsortix liquid biopsy cancer test can capture circulating tumour cells (CTCs) in cancer patient blood obtained via a standard blood test.
The instrument uses a separation cassette that only captures cancer cells.
CTCs are shed into the bloodstream by primary cancer tumours and they can end up causing secondary cancers. Parsortix can also be used to isolate CTC clusters, which are cells tethered together as a single mass that can be associated with a greater spread of the disease. The University of Basel plans a clinical trial for breast cancer patients based on isolating CTC clusters to show that drugs can be used to break them down.
Angle is undertaking a clinical trial for breast cancer in the US as part of the strategy to get FDA approval and patient enrolment should be completed in the near future. There are 260,000 new metastatic breast cancer patients in Europe and the US each year and Parsortix could be used as a companion diagnostic.
The first subjects have been enrolled in an ovarian cancer clinical verification study by the University of Rochester Medical Center Wilmot Cancer Institute. The study will also use Angle's Ziplex analysis technology to detect the presence of ovarian cancer in women with a pelvic mass. This study will be completed in the first quarter of 2020.
There should be enough cash to last into 2020 and more will be needed to be raised. Parsortix can be used for many more types of cancer but Angle is focusing on the larger markets, which on their own would make Parsortix a highly valuable diagnostic technology.
Andrew Hore is a freelance contributor and not a direct employee of interactive investor.
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