Interactive Investor

AIM IPOs to buy

23rd September 2014 09:43

Andrew Hore from interactive investor

Although there have been plenty of new entrants to AIM during the past nine months there has been a mixed performance from these new companies. There are, however, some extremely attractive investments among them.

Last week I covered some of the companies that appear to be fully valued and this week it is the turn of the AIM new admissions that are around or below their admission price that are more attractive investments.

Below there are a range of companies some of which are more risky than others, but they all have a solid underlying business capable of good growth.

Scholium (SCHO)

Share price: 84p

Market cap: £11.4 million

Rare books and documents dealer Scholium Group (SCHO) has a strong management and a solid business and it is trading at a relatively modest rating considering the potential to grow thanks to the additional finance raised during the spring. Scholium's main businesses are book dealer Shapero Rare Books, bookseller South Kensington Books and Ultimate Library, which creates libraries for residencies and hotels. Scholium was established in 2009 by its chief executive Philip Blackwell, who previously ran Oxford-based bookseller Blackwell and was on the board of academic publisher Blackwell Publishing, which was sold for £572 million in 2007. Scholium’s chairman Jasper Allen was a founder of Noble Investments, which was acquired by Stanley Gibbons earlier this year.

On 28 March, Scholium raised £6.99 million, after expenses, at 100p a share and net cash was £7.04 million at the end of the month. Figures for the year to March 2014 show a small loss partly due to the costs of the flotation. Since then, Scholium has been investing cash in inventories of books and the benefits of this should show through this year and in the future. House broker WH Ireland forecasts 2014-15 earnings per share of 7p and it is expected to pay 3p a share in dividends.

Yet the shares have fallen to a discount and they are trading on 12 times prospective 2014-15 earnings. Earlier this month, non-executive director Charles Sebag Montefiore bought 10,000 shares at 81p each, which doubled his shareholding.

Tekcapital (TEK)

Share price: 21.75p

Market cap: £5.09 million

It is still early days for Tekcapital (TEK) but a recent acquisition should help it to move into profit next year. Tekcapital was not much more than a start-up when it joined AIM. The strategy is to offer corporates the service of locating, screening and acquiring technologies and intellectual property from academic institutions. Tekcapital scans through the available IP and provides its client with a top ten list of technologies relevant to their requirements. This service generates monthly fees and if Tekcapital helps to negotiate the licensing of any technology there will also be a success fee.

Tekcapital is connected to all the major research institutions thanks to its experienced management team. The company's chairman Clifford Gross has more than 25 years of experience of commercialising IP and he was boss of UTEK, a US-based IP commercialisation business that was previously quoted on AIM. The rest of the board has technology and relevant legal expertise.

The acquisition of InventionEvaluator.com provides additional revenues because the business provides analytical reports assessing the commercial potential that technologies have. Its customer base is both corporate and the research institutions and it provides a steady income stream.

In April, Tekcapital raised £2 million at 25p a share. House broker Northland expects a loss this year as revenues build up, but it believes that Tekcapital could make a profit of £200,000 in 2015. The prospective earnings multiple would be 31 on that forecast, but there should be scope to rapidly reduce that as additional revenues are spread over a cost base that should not need to significantly increase to cope with the extra business.

Rosslyn (RDT)

Share price: 25p

Market cap: £18.9 million

Cloud-based data analytics provider Rosslyn Data Technologies (RDT) says that joining AIM boosted the profile of the business and it is helping to attract more clients, but there is a lag before the benefits will show through in the figures. Rosslyn software helped Vodafone to find £10 million of savings after the merger with Mannesmann and in recent years the company has switched to a cloud-based model - this platform has cost £5 million to develop. The analytics software can work with many different operating systems and databases and can be adapted for different industries.

Rosslyn raised £10 million at 33p a share when it joined AIM at the end of April so the share price has fallen by one-quarter. In the year to April 2014, revenues increased from £1.8 million to £2.1 million but the loss also increased from £1.7 million to £2.6 million. This was partly due to the opening of a subsidiary in the US, where revenues are still small. Group revenue growth is expected to be faster this year, but costs will rise even faster as additional sales and marketing personnel are employed. House broker Cenkos Securities forecasts that Rosslyn will not move into profit until 2016-17 and even then it is expected to be a relatively modest profit.

One of the things that make Rosslyn attractive despite being loss-making is its customer list. This includes Xerox, Coca-Cola, Aberdeen Asset Management, Diageo and Sony and indicates the wide acceptance of the technology. Securing new partners will help Rosslyn to add further clients. Growth will come from adding those clients, but it will also come from existing clients buying more services.

In some ways Rosslyn has more in common with some of the companies included in last week’s article that were deemed to be overvalued. Admittedly, there is nothing in terms of the finances to hold up the share price, so it could drift lower. Rosslyn does appear to have good credentials, although there may be opportunities to buy shares at a lower price.

Galasys (GLS)

Share price: 23.25p

Market cap: £15.5 million

Asia-based theme park ticketing technology provider Galasys differs from the other companies in that it moved back above its flotation price when it issued interims at the beginning of September. Even so, the shares are trading on less than ten times prospective 2014 earnings with more growth to come. Galasys raised £3.1 million at 22.5p a share when it joined AIM in May.

Galasys is a major supplier of ticketing software and hardware, as well as integration services, in Asia. The Asian theme park market is growing at around 7.5% a year, which is faster than the rest of the world, and in a few years time it is expected to take over from North America in terms of visitor numbers.

Galasys has 85 installed sites in Asia. Pro forma interim revenues were one-third higher and pre-tax profit was 35% higher at just short of £1 million. Galasys is starting to use a ticketing IT outsourcing (TiTo) model for some clients, which helps to boost both gross margin and recurring revenues. It is also developing a service where Galasys receives a fee for each ticket sold. These additional models are just being launched and they will become more important. Galasys is a growth business with plenty of prospects in Asia and the potential to expand outside of the region in the longer-term.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. 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.

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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