Encouraging news from AIM

While the prior week closed with stock markets buoyed by promising news of a potential Covid-19 treatment from Gilead Sciences (US: GILD) this week was different story, with trial results casting doubt on the effectiveness of its drug remdesivir.

The quest to find a test, treatment or vaccine for coronavirus is certainly heating up. Academics and companies have shifted resources away from traditional operations to fight the Covid-19 battle and identify solutions which could make a big difference to how the UK deals with the illness. Successful companies are likely to enjoy an enormous boost amid the demand of a population under siege.

The challenges posed by Covid-19 could also provide a big turning point for the UK’s small pharma industry which has languished for several years as the plethora of companies which listed around 2015 have struggled to commercialise treatments. Now money is flowing freely into these early stage businesses as the world tries to battle the pandemic.

Abcam (AIM: ABC), the global leader in the supply of life science research tools and one of our AIM portfolio companies, issued a reassuring update this week. Many of Abcam’s customers are directly engaged in the effort to develop diagnostic tests, vaccines and treatments for Covid-19.

Many companies are continuing to struggle in the lockdown. Staff furloughs and equity raises are helping them scrape through the challenges. Although some will not come through the carnage unscathed many others remain cash generative and their operations are in high demand, meaning dividends can still be paid.

AB Dynamics (LON: ABDP), the specialist provider of advanced testing systems and measurement products to the global automotive sector, announced excellent interim results this week. Founded in 1982 as a vehicle engineering consultancy, the group arrived on AIM in 2013 at a share price of 86p and market capitalisation of only £14m. Despite recent steep falls, the shares are still up over 1600% since IPO and the business looks in great shape with plenty of cash and a new manufacturing facility to support its growth. Fundamental AIM portfolios hold shares in AB Dynamics.

Fevertree Drinks (LON:FEVR), the world’s leading supplier of premium carbonated mixers, reassured with its full year results, reporting strong growth in overseas markets and encouraging signs of progress outside the key tonic category. It is hard not to be impressed with Fevertree’s constant product innovation and slick marketing, which encourages customers and consumers to keep coming back for more. Fundamental started acquiring shares in the company for client portfolios towards the end of January 2020 and it has certainly been a tricky period. Covid-19 has severely impacted Fevertree’s On-Trade business although Off-Trade has been doing very nicely as consumers stock-up at home. This has always has always been a terrific business, generating high margins and returns on equity and heaps of cash. Our primary concern surrounded the high valuation for what was essentially a single product, UK-centric business. It is now much more than this and if it starts to deliver in the US and other overseas markets, we believe the shares could deliver handsomely over the coming years. While our entry point wasn’t ideal, it was certainly much better than a year or so previously when the share price was more than double current levels. You can read Investor’s Champion’s in-depth of review of the results here (Fundamental clients have free access to Investor’s Champion’s premium content).

The timing of our investment in Dart Group (LON:DTG) was far from ideal. A few months later and the operator of the airline and Jet2holidays leisure travel business was the vanguard of the coronavirus with the majority of its business is on hold and fleet grounded. The good news is that management now anticipates pre-tax profit for the financial year ending 31 March 2020 will be as high as £270m, 49% up on the prior year, although that’s reflective of the past and the short term outlook is clearly very different. Surprisingly, given the current economic climate, they are seeing customers making bookings for late summer 20 and winter 20/21 programmes, with encouraging numbers choosing to rebook rather than cancel. With a decent balance sheet, carrying £1.5bn of cash at 18 March 2020 the group should come through the current crisis in reasonable shape.

The week was dominated by news of the tumbling oil price due to falling demand as much of the world remains at home and fears that storage facilities will soon be full to capacity. Fundamental portfolios thankfully have no exposure to oil and gas markets.

Fundamental AIM portfolio holding Smart Metering Systems (LON: SMS), which installs and manages smart meters and carbon reduction assets, confirmed the completion of its asset disposal for £282m. The group now has the luxury of £45m cash at bank, access to a fully undrawn £300m revolving credit facility and importantly a portfolio of assets which will continue to generate lots of cash, whatever the economic climate. SMS announced the deal on 12 March 2020 as markets were in turmoil, thereby benefiting from some impeccable timing. The 4% dividend yield looks relatively assured and we remain happy holders.

A first quarter trading statement from Unilever (LON:ULVR) showed how even the most defensive companies are struggling to maintain any semblance of growth in the current environment. The blue chip saw increased sales of hygiene (Eg Domestos; Lifebuoy) and in-home food products (Flora; Hellmann’s; Marmite; Pot Noodle and plenty of tea) which benefited from the rush to stock-up. However, non-existent out of home consumption is affecting its food service and ice cream business (Ben & Jerrys; Wall’s). This well-diversified giant  will be impacted less than many and is still able to maintain its quarterly dividend which will be paid on 4 June. Fundamental general portfolios hold shares in Unilever.

To keep up to date with the coronavirus impact on these and many other companies please visit our associates Investor’s Champion.


News from a single company lifts global stock markets

As another turbulent week came to a close, stock markets were lifted by news that a drug developed by US listed biopharma group Gilead Sciences (US: GILD) may be showing promise as a Covid-19 treatment.

Of 125 patients recruited by the University of Chicago for Phase 3 Trials taking Gilead’s drug remdesivir, of which 113 cases were considered severe, most have been discharged, according to a report from STAT News. Gilead cautioned how anecdotal reports, while encouraging, do not provide the statistical power necessary to determine the safety and efficacy profile of remdesivir as a treatment for COVID-19. It expects data from the trials to be available at the end of April, with additional data from other studies coming in May.

Earlier in the week smaller US listed biotech company Moderna (US:MRNA) also encouraged with news of promising early data from a Phase 1 trial of its experimental Zika vaccine, which could be a good sign for its Covid-19 vaccine, currently in Phase 1 trials.

Here is a summary of news over the past two weeks from some of the other companies we follow, many of which are holdings in our AIM and Bespoke client portfolios.

London’s growth market AIM experienced a 20% decline in market value in March falling to levels last seen during the financial crisis years of 2008/09. At the end of the month there were 843 companies on AIM, with its total market value of £74.3bn some 21% lower than the value at the end of February. Restructuring and corporate finance specialist FRP Advisory Group (AIM:LON) was the sole AIM newcomer in the month and it certainly joins at a time when its services should be in high demand.

Our latest quarterly update covering the performance of Fundamental AIM portfolios during a torrid quarter for equities can be downloaded from our Publications page here.

Even accounting software group Sage (LON:SGE) has suggested that it is likely to be impacted by the current crisis alluding to a potential slowdown in new sales. Up to now the group’s business operations have continued with minimal disruption and with cash continuing to flow it looks in much better shape than many. Sage is a constituent of Fundamental general portfolios.

Online spread betting group Plus500 Group (LON:PLUS) splits opinion among investors, but there is no doubting its dividend appeal, which is receiving an extra boost in the current climate. For the three months ending 31 March 2020, group revenue rose an eye-popping 487% to $316.6m due to the increased volatility across global financial markets. The group reiterated its policy to return at least 60% of net profits to shareholders, through a combination of dividends and share buybacks.

British video game developer Codemasters Group (LON:CDM), which specialises in high quality racing games, issued a positive trading update for its financial year ended 31 March 2020. The COVID-19 pandemic has seen an acceleration in the move of the group’s games to digital downloads which has also contributed to higher margins.

The share price of HomeServe (LON:HSV), the international home repairs and improvements business, has bounced strongly over the past few weeks and the latest update was characteristically reassuring with all group companies continuing to respond to emergency repair requests from customers in all the countries where it operates. At the current share price of 1107p, Homeserve shares trade at a heady 25x forecast earnings for the year ending March 2021. This is an excellent business, with evident defensive attributes, but there is surely better value around.

With its entire estate of 787 cinemas in 10 countries closed as a result of the pandemic, these are desperate times for leading cinema operator, Cineworld (LON:CINE). The $7.6bn of net debt the group carried at the December 2019 year-end, suggests a major re-financing will be required. The shares have fallen 80% from the highs of May 2019 an could be tempting recovery play for the brave.

WH Smith (LON:SMWH), which had been delivering consistently excellent returns until the pandemic brought its business to a standstill, found plenty of willing support for its fund raise, securing £165.9m at 1,050 pence per share, a modest 4.0% discount to the closing price the day before. Directors showed commitment, acquiring in aggregate £475k of shares in the placing. Fundamental portfolios hold shares in WH Smith.

Specialist credit hire and legal services provider, Anexo Group (LON: ANX) has drawn attention to a preliminary judgment announced on 6 April 2020 in the High Court of Justice regarding the class action against Volkswagen AG, which could be very good news for Anexo. The judgment ruled that VW group subverted key air pollution tests by using special software to reduce emissions of nitrous oxides under test conditions. A specialist team within Anexo’s legal services division is currently acting on behalf of a large number of individuals who have registered their intention to pursue a claim against VW. Our associates Investor’s Champion covered the announcement in more detail here.

Online wine retailer Naked Wines (LON:WINE), which sold its Majestic Wine business last year, announced higher levels of demand in all of their markets, but particularly in the US. Thankfully, following the sale of the Majestic business, Naked is well-funded, with over £50m of cash and no debt at 31 March 2020. Perhaps its time has come during this challenging period and the shares have certainly performed strongly over the past few weeks.

In an open letter to shareholders, stockbroker Jarvis Securities (LON:JIM) reassured that it is business as usual. The group has benefited from a marked increase in trade volumes following the election result in December and due to the recent heightened market volatility. There was further reassurance of its intention to pay a second interim dividend in June 2020. Full year forecasts for the year ending December 2020 are a dividend of 27.8p, which equates to a seemingly reliable yield of 6.4% at the current share price. Fundamental AIM portfolios hold shares in Jarvis.

dotdigital Group’s (LON: DOTD) business model should be standing up better than most and the customer engagement platform, a mainstay of Fundamental AIM portfolios, is predicting only a slight softening of revenue this year, with earnings and cash for the full year to 30 June 2020 anticipated to be in line with forecasts. With 90% of revenues recurring, no client representing more than 1.5% of revenue and cash of £22.0m at the end of March, the group remains in decent shape to weather the crisis.

SIMEC Atlantis Energy (LON:SAE), the global developer, owner and operator of sustainable energy projects, has seen minimal disruption to its tidal business with its flagship MeyGen tidal project in Scotland continuing to export power reliably to the grid.

Just before the Easter break, Abcam (AIM: ABC), the global leader in the supply of life science research tools, announced it had raised £110m at 1100 pence per share. The Cambridge based business, which supports two-thirds of the world’s 750,000 life science researchers with its antibodies, reagents, biomarkers and assays, is one of AIM’s largest companies and a long term holding in Fundamental AIM portfolios.

Apple Inc. (US:AAPL), a holding in Fundamental general portfolios, has launched a smaller, lower-priced iPhone SE to tempt customers. This is a radically different move for Apple, befitting the more challenging economic climate, as the technology giant has previously focused on launching more advanced products at higher prices to compensate for shrinking unit sales. With many customers preferring a smaller phone, it could prove a successful move to help reinvigorate iPhone sales and further boost the sale of apps and cloud storage.

To keep up to date with the coronavirus impact on these and many other companies please visit our associates Investor’s Champion


Encouraging news from the week

Bioventix (LON:BVXP), the developer of high-affinity monoclonal antibodies for applications in clinical diagnostics, announced excellent interim results for the six months ending 31 December 2019. Revenue rose 21% to £5.3m and pre-tax profit was up 31% to £4.3m. The operating cash inflow was £4m boosting period end cash to £5.5m.

Bioventix isn’t facing quite as many challenges as others companies during the coronavirus lockdown. Healthcare products and services are priority products, with diagnostics among the most crucial. Management therefore expects its customers will continue to operate and Bioventix will continue to supply antibodies to them.

It’s also one of the few companies in the current climate able to commit to their dividend, with a 20% increase in the proposed interim to 36p.

Fundamental AIM for Inheritance Tax planning portfolios hold shares in Bioventix

While operating in totally different sectors, Bioventix joins Sage Group (LON:SGE) and Microsoft (US: MSFT), both Fundamental portfolio companies, as one of the more resilient companies on the stock market in the face of the current crisis.

Manufacturer of commercial floor coverings, James Halstead (LON:JHD), announced record 1st half results and, as a preferred supplier to the health service, its products continue to be in high demand.

For the 6 months ending 31 December 2019 sales rose 3.7% to £130.4m, pre-tax profit was up 2.8% to £25.2m and basic earnings per share increased 4.1% to 9.5p. The operating cash inflow of £28.4m boosted period end cash to £64.3m, just what’s needed going into the current crisis.

The group contemplated long and hard about the payment of its dividend. Approximately half their UK workforce and around 60% of former employees (who are now pensioners) are shareholders and rely on the dividend for income. Accordingly, they have decided to declare a first interim dividend of 2.125p per share, representing half of the interim dividend they would otherwise have declared. They will subsequently review the payment of a second interim dividend in August when visibility of the global economy may be clearer.

Who would have thought that flooring would have demonstrated such defensive properties. James Halstead is a long-term holding of Fundamental AIM portfolios.

Argentex Group (LON:AGFX), the provider of foreign exchange services to institutions, corporates and high net worth private individuals has kept a relatively low profile since listing in June 2019 but it continues to deliver on the significant promise. Fundamental AIM portfolios have started acquiring a satellite position in Argentex.

The latest trading update covering the 12 months to 31 March 2020 highlighted a strong performance, with revenue up over 30% to c.£29m and management confident of meeting full year profit expectations.

Somewhat surprisingly, there was no mention of material impact from the current crisis, other than continued strong performance. Non-Executive Director Henry Beckwith was an enthusiastic buyer of shares earlier in March and holds a 6.5% stake.

It appears to be almost business as usual for surgical and advanced woundcare specialist Advanced Medical Solutions Group (LON: AMS).

With £65m of cash in the bank and no debt at 31 December 2019, AMS is in robust financial condition. Furthermore, in the unlikely event that it’s needed, there is also an undrawn unsecured £80m credit facility.  AMS is committing to a final dividend for 2019 of 1.05p per share, which will cost approx. £2.25m.

AMS is another long-term core holding of Fundamental AIM portfolios. (LON:MONY) reported 2% overall growth in revenue for the first quarter ending 31 March 2020 with insurance related revenue leading the way, growing 8%, while other areas saw reduced activity.

Diversified revenue streams, strong cash conversion and net cash of £30m at 31 March means the group is able to commit to the final dividend of 8.6p per share, which will cost £46m and equates to a yield of 2.93% at the current share price of 293p.

While other, previously admired, online groups like Rightmove (LON:RMV) and Auto Trader (LON:AUTO) have been found wanting in the current exceptional environment, MONY continues to deliver, although that hasn’t stopped the shares falling 30% from the July 2019 highs.

Pets at Home Group (LON: PETS), the UK’s leading pet care business issued an encouraging update for its financial year ending 26 March 2020, with full-year underlying pre-tax profit now anticipated to be slightly ahead of expectations following exceptional levels of demand, both in-store and online, in the last few weeks of the financial year as customers stocked up.

While the group carries substantial debt (net debt was £539m at 30 Oct 2019), unlike many retail businesses, its designation by the UK Government as an “essential retailer” means business continues and cash continues to flow.

PETS is also generously helping communities with £1.1m of funding to nominated pet charities, a £1m crisis fund for colleagues and discounts to NHS workers.

While revenue will clearly be impacted over the coming months, PETS is in a better position than many retailers and, as a result, the shares have held up better than most.

CMC Markets (LON:CMCX),the online derivative and stockbroking trading platform, issued a very positive update for the year ending 31 March 2020.

If, as is likely, stock markets remain volatile CMC will continue to reap the rewards, that’s assuming its clients don’t suffer too many losses!

The supportive environment and CMC’s strong balance sheet means that it will be able to commit to a dividend equivalent to 50% of profits after tax. Consensus forecasts for the March 2020 year were for a dividend payment of 14.43p per share, equivalent to a yield of 7% at the current share price, however, this might now be on the low side given the very strong final quarter.

While stock markets have tumbled, CMC shares have proven to be an excellent contrarian investment, rising 35% over the past 3 months.

To keep up to date with the coronavirus impact on these and many other companies please visit our associates Investor’s Champion