interactive investor’s award-winning AIM writer reviews this year's tips and reveals which ones are up over 50%.
Choosing five AIM shares for 2021 was a difficult task. Many companies had recovered strongly from their lows earlier in 2020, but there still appeared to be some attractively valued opportunities.
Four out of the five shares have performed well, while the other has fallen back from its high. So far, the portfolio has significantly outperformed AIM and the Main Market with an average gain of 31.3%.
Credit hire and legal services firm Anexo (LSE:ANX) continues to trade strongly and is currently has 8.5% more hire vehicles on the road than at the same time last year.
This news has been overshadowed by the bid approach from DBAY Advisers, which bought a 29.9% stake at 150p a share from management last year. That was a premium to the market price at the time. DBAY is offering to buy the rest of the shares at the same price, subject to due diligence.
Two of the previous sellers - executive chairman Alan Sellers (17%) and Samantha Moss (18%), managing director of solicitor Bond Turner - are supportive of the bid. That would provide DBAY with around 65% of the shares.
The shares have gone ex-dividend for the final dividend of 1p a share and DBAY says that this will not affect the bid price.
Arden reduced its 2021 pre-tax profit forecast from £22.6 million to £20.6 million at the time of the 2020 results release. That was due to additional investment in the legal services business. Even on that basis, the bid price multiple is less than eleven.
Bear in mind that there is nothing in the forecast for potential revenues from the 15,000 VW emissions cases being handled by Bond Turner, although there are costs included.
There should be further news concerning the VW emissions cases later this year. The range of services provided by Bond Turner is being broadened to include legal action concerning social housing disrepair.
Anexo is not a company that warrants a fancy rating, but the bid level does not seem particularly generous, particularly given the potential for growth from investment that is currently being made and is holding back short-term profitability. The Arden target share price had been 280p. Await developments.
Business restructuring company Begbies Traynor (LSE:BEG) has been highly acquisitive this year. Management also says that the figures for the year to April 2021 will be better than expectations. This is despite a decrease in insolvencies.
Initial contributions from recent acquisitions have sparked a series of upgrades of the 2020-21 pre-tax profit forecast. It has reached £11.5 million, compared with a forecast of £9.5 million at the end of last year.
The acquisitions are increasing the scale of the business restructuring business. They include David Rubin & Partners, which was bought for up to £25 million. Begbies raised £22 million at 105.5p a share to help finance the deal, which should be immediately earnings enhancing.
Not all the acquisitions were of business restructuring companies. Midlands-based MAF Property is a finance broker, which was acquired after the year end. MAF could cost up to £11.75 million depending on the achievement of profit targets. MAF helps clients arrange finance for asset purchases and this fits with the existing property activities, where trading has recovered in recent months.
The sector is itself undergoing a restructuring with Deloitte selling its restructuring services division to Teneo. Begbies is expected to make a 2021-22 pre-tax profit of £17 million, which puts the shares on a prospective multiple of 15. Management has shown that it can make earnings enhancing acquisitions that will bring that multiple down. There is also the prospect of increasing numbers of insolvencies when government support measures come to an end. The shares are still attractive.
Franchised property lettings and sales company Belvoir (LSE:BLV) has gone from strength to strength this year. The 2020 figures were better than expected and the forecast pre-tax profit has been upgraded from £7.1 million at the time of the original recommendation to £9.3 million.
Belvoir is the best performing of the five AIM shares. On top of that share price performance there has been a 5.1p a share dividend paid.
Management service fees were 22% higher in the first four months of this year, while financial services income was 24% ahead. Belvoir is acquiring Nottingham Building Society’s mortgage and protection services business for £600,000. This follows its purchase of the building society’s lettings business last year. The latest deal will enhance the financial services business, which is becoming increasingly important.
The 2021 performance will be boosted by the stamp duty holiday and other government measures and that is why the 2022 pre-tax profit forecast is cautious, assuming a small dip in profit. Belvoir has built up a track record of profit upgrades and this figure could prove conservative.
Even after the share price rise, the prospective 2022 multiple is less than 13 and the forecast yield is 3%. Still a buy.
Real Estate Investors
Midlands-based Real Estate Investors (LSE:RLE) continues to trade at a significant discount to NAV with potential for medium-term improvement in valuations and a strengthening balance sheet putting the company in a good position to take advantage of any post-Covid property buying opportunities.
The year-end portfolio valuation slightly lower than expected, due to additional void properties. nPower was the largest tenant and ended its lease in April. NAV fell 18% to 55.2p a share – the forecast had been 59p a share.
There has been a 1.5p a share dividend payment made since the recommendation. The shares will go ex-dividend for the latest dividend of 0.75p a share, up from 0.5p a share for the same period the previous year, on 1 July. The total dividend for the year is expected to be maintained at 3p a share.
Real Estate Investors has fixed £35 million of its £49 million bank facility at a rate of 2.6% per annum, from January 2022 to March 2024. The average cost of debt will rise slightly to 3.5% a year, but this will hedge against any general interest rate rises. Loan to value was 49% at the end of 2020, but disposals will reduce the figure this year.
- Discover how to be a better investor here
- Open an ISA with interactive investor. Click here to find out how
NAV is expected to be maintained at around 55p a share at the end of 2021. That means that the discount to NAV is currently more than one-quarter. Real Estate Investors has shown that it can continue to pay attractive dividends – the forecast yield is 7.5%. There is still upside in the share price from narrowing the discount.
SourceBio International (LSE:SBI) is the laggard of the five recommendations, although at one stage the share price did reach 235p. Demand for Covid-19 laboratory testing services remains strong and there has been diversification into mobile testing, but Covid-19 also seems to cloud investors’ views on the valuation of the business.
There is uncertainty about how much the continued travel restrictions could hamper demand for tests and thereby SourceBio’s ability to achieve expected group revenues of £156 million and pre-tax profit of £55 million this year. Whatever happens SourceBio will make a significant profit this year.
Even with this uncertainty, the potential cash generation will be impressive. Net cash was £7.8 million at the end of 2020, and it is expected to rise to £51 million at the end of 2021 and £73 million one year later. SourceBio has a market capitalisation of £115 million.
The annual growth rate of the health diagnostics, genomics and stability storage businesses is expected to be in double digits, after a tough 2020. Hospital waiting lists will have to be addressed and that will help demand for the company’s services to increase.
Forecasts assume no revenues from Covid-19 testing in 2023, but SourceBio would still make a pre-tax profit of £4.9 million. It seems likely that there could still be a contribution from Covid-19 testing for a few more years.
There has been no sign of earnings enhancing acquisitions yet, but there is plenty of cash to fund them. The share price is below last year’s flotation placing price of 162p a share. It is possible that the share price may not show the growth I had expected by the end of this year, but this should just be a timing issue, and it should do so over the medium-term. Buy.
|2021 AIM recommendations
|Tip price (p)
|Current price (p)
|Begbies Traynor (LSE:BEG)
|Belvoir Group (LSE:BLV)
|Real Estate Investors (LSE:RLE)
|SourceBio International (LSE:SBI)
|AIM All Share
|All prices as at close of play 24 June 2021
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.
We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.
Please note that our article on this investment should not be considered to be a regular publication.
Details of all recommendations issued by ii during the previous 12-month period can be found here.
ii adheres to a strict code of conduct. Contributors may hold shares or have other interests in companies included in these portfolios, which could create a conflict of interests. Contributors intending to write about any financial instruments in which they have an interest are required to disclose such interest to ii and in the article itself. ii will at all times consider whether such interest impairs the objectivity of the recommendation.
In addition, individuals involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles.