With many stocks bouncing strongly over the past few weeks, you could be forgiven for thinking that the world was back to normal, coronavirus a minor concern and a recession firmly off the cards….if only!

The FTSE100 index and its constituents of aged dinosaurs has risen 23% from the March lows, the S&P500 index has climbed 35% and the AIM index is up a staggering 48%, meaning it is now only 10% below the year highs.

While the initial sell-off was brutal for AIM, and in some cases fully justified given the questionable outlook for many companies whose businesses are faced with considerable challenges, the rebound from many stocks is all the more remarkable.

The week saw shares in boohoo Group (LON: BOO), the leading online fashion group and AIM’s largest company, rise to all-time highs as it acquired the remaining 34% of shares in prettylittlething.com Limited (‘PLT’) from its minority shareholders. BOO’s market capitalisation of £4.7bn makes it the UK’s fourth largest listed retailer by market capitalisation, ahead of Morrisons (£4.5bn) and Sainsbury’s (£4.3bn). At the current share price of 383p BOO shares trade at 60x revised forecast earnings for 2021 or 3.3x revenue and 42x earnings for 2022. There is no doubting the attractions of its online operating model and ability to acquire struggling brands on the cheap, but in a recessionary climate that is a mighty rating by any stretch. To put things into context, shares in Next (LON:NXT), another excellent retailer with a substantial online presence, trade at only 13.7x forecast earnings for 2022 or 1.7x sales. BOO has silenced the doubters before but it has a lot to live up to.

Video gaming companies on AIM have performed particularly strongly over the pandemic and in this interview with Jeremy Naylor of IG markets, Chris Boxall, co-founder of Fundamental Asset Management, discusses the recent performance of these and thoughts for the future.

Companies covered in the interview include:
Team17 (TM17), an existing Fundamental AIM portfolio holding.
Frontier Developments (FDEV)
Codemasters (CDM)
Keywords Studios (KWS)
Sumo (SUMO)

You can find out more about Fundamental’s high performing AIM portfolio service, including the latest fact sheets, from the link here.

Fundamental Asset Management has delivered exceptional investment returns investing in AIM for more than 16 years.

Video gaming companies on AIM have performed particularly strongly over the pandemic and in this interview with Jeremy Naylor of IG markets, Chris Boxall, co-founder of specialist investment manager Fundamental Asset Management, discusses the recent performance of these and thoughts for the future.

Companies covered in the interview include:
Team17 (TM17), an existing Fundamental AIM portfolio holding.
Frontier Developments (FDEV)
Codemasters (CDM)
Keywords Studios (KWS)
Sumo (SUMO)

You can find out more about Fundamental’s AIM portfolio service, including the latest fact sheets, from the link here.

Fundamental Asset Management has delivered exceptional investment returns investing in AIM for more than 15 years.

It was a big week for fund raises across AIM with one of our AIM portfolio constituents receiving strong support from its shareholders sending the shares significantly higher.

Fundamental AIM portfolio constituent Watkin Jones (LON:WJG), the developer with a focus on the Build to Rent and student accommodation sectors, reported strong results for the 6 months ending 31 March 2020. Revenue rose 16.7% to £185.7m, underpinned by both student accommodation development and, increasingly Build to Rent. Adjusted pre-tax profit rose 6.4% to £26.6m and the group closed the period in a net cash position of £37.5m with an additional £71.1m of undrawn facilities available to it. With £390m of revenue to come from a forward sold pipeline for the current financial year Watkin Jones has decent visibility. It also has 17,721 student accommodation beds and apartments under management providing another stream of high margin income. Despite the short-term challenges, with cash in the bank and a decent forward order book, it looks in good shape.

International home repairs and improvements group Homeserve (LON:HSV) has proved to be remarkably resilient across the crisis. Results for the year ending 31 March 2020 announced this week saw revenue grow 13% to £1.1bn and pre-tax profits rise 12% to £181.0m. The group’s North America business performed strongly and is now the largest part of the group working with over 950 utilities and with access to 64m households. Across the coronavirus crisis no staff have been furloughed or made redundant and free repairs have been offered for NHS and social care workers in the UK, with over 2,000 repairs completed to date – a great effort!

Shares in Dart Group (LON:DTG), the leisure travel and logistics group which operates the Jet2 airline and is a more recent Fundamental AIM portfolio holding, soared following news of a successful fund raise of £172m at 576.5p per share. Having budgeted several scenarios, including one where flying operations only re-start on 1 April 2021, management believes that the proceeds of the equity raise, together with £300m drawn on the Bank of England Corporate Financing Facility and the Group’s fully drawn facility of £100m, will see them through even the most challenging of trading environments.

The latest update from Belvoir Group (LON:BLV), the UK’s largest property franchise, has reassured that the rental market might be holding up better than expected. The update could bode well for our satellite AIM portfolio holding Property Franchise Group (LON:TPFG) where lettings is also a major contributor to gross profit.

Exceptional demand in the final quarter of the year saw Pets at Home (LON:PETS) lift revenue 10.2% to £1,058.8m for the year ending 26 March 2020, the first time they had surpassed £1bn. The lock-down proved highly beneficial to their online operations and subscription customers however, as anticipated, the exceptional demand witnessed in the closing weeks of the last financial year has unwound in the current year which, combined with social distancing has temporarily depressed normal levels of turnover and profits. It remains to be seen whether customers will be less inclined to use their 453 stores as lockdowns ease, in which case PETS might be faced with needing to reduce the number of stores. A business initially doing nicely from the pandemic may ultimately see its business suffer as a new normal prevails.

Time Out (LON:TMO), which operates the popular Time Out Markets as well as the original media assets, raised £45m at 35p per share. £22.5m of the new funds raised will be used to redeem its outstanding loan notes with the balance used to provide working capital and support the development of new markets. With Time Out markets around the world currently closed and advertising revenues meaningfully lower, the group is facing a very uncertain future while also carrying a significant amount of costly debt. We were really impressed with Time Out Market in Lisbon, which appeared to be thriving before the pandemic struck, welcoming 4.1 million visitors in 2019. Time Our Markets are a great concept and we very much hope they go onto succeed, but the group certainly entered the crisis with a very fragile balance sheet. There could be a cracking recovery play here….for the brave.

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

Have an excellent weekend

Fundamental AIM portfolio constituent, Jarvis Securities, announced a 69% increase in its second quarterly interim dividend to 11p, reflecting continuing strong trading for the stock broker as it benefits from the volatile environment. While the full year forecast dividend remains unchanged at 30p, equating to a yield of more than 5%, the suggestions are that this may be materially lifted if trading continues to be strong, as seems likely.

The share price of Halfords has continued to climb from March lows. As a provider of essential services, the UK’s leading provider of motoring and cycling products has remained open during the lockdown period, albeit under more restrictive conditions. The stock market is clearly encouraged by Halfords’ essential status pushing the shares back to September 2019 levels.

New arrivals to AIM over the past few months have had very different experiences, with one benefiting from the challenging corporate environment but others not so lucky.

The share price of Brickability Group, a distributor of construction materials, languishes well below its August 2019 IPO price, which looked reasonable value at the time, although plenty has happened since. As the construction sector gets back to work and with a more diversified offering than before, the group should be well-placed to progress.

Inspecs Group, the designer and manufacturer of eyewear frames, arrived on AIM in February and has seen its shares fall 12% from the IPO price. Thankfully the group’s factories in China and Vietnam are now almost back to full production capacity, although most of their retailer customers have been forced to close during the lockdown, with opticians among the first to be closed due to the close proximity to their customers.

Contrastingly, FRP Advisory Group, one of the UK’s largest restructuring firms, has seen its shares soar over 60% since arriving on AIM in March. Its services should unfortunately continue to be in high demand as the corporate world struggles.

Focusrite, the global audio products group and another constituent of our AIM portfolios announced in-line results for the six months ended 29 February 2020. Consumer demand for some of its products has been high, especially via ecommerce, while demand for others has been affected by the lack of live music events. The timing of acquisitions made not long before the pandemic struck wasn’t ideal, but this remains a nice business delivering attractive margins.

Sage Group, a constituent of our general portfolios, announced interim results which highlighted the considerable resilience of accounting software in the current climate. Organic revenue rose 5.7% to £935m with recurring revenue up 10.3% to £826m, representing 88% of the total. With cash continuing to flow and plenty of available liquidity, the group is easily able to commit to an interim dividend of 5.93p per share, up 2.5%.

Dart Group, which operates airline Jet2.com as well as smaller logistics business Fowler Welch, announced that it has put in place a £300m commercial paper programme to access the government’s COVID Corporate Financing Facility. The facility will be used to provide standby liquidity, should that be required, and is currently unutilised. Executive Chairman and 36% shareholder Philip Meeson commented that, together with the fully drawn bank facility of £100m, these two sources of additional liquidity will provide the Group with sufficient firepower to deal with the present disruption. The company continues to be encouraged by the volume of customer bookings for summer 2021 and their associated pricing. Dart is a constituent of many of our AIM portfolios and we continue to believe that the group’s Jet2 businesses will come out of the crisis in far better shape than many.

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

Have an excellent weekend

Having bounced strongly off lows, we are somewhat reassured that stock markets closed the week in more sceptical territory with some semblance of a return to normality as trade tensions between the US and China resurfaced, if one calls that normality. It was a big week of earnings announcements from the major technology groups, several of which are held in Fundamental Bespoke portfolios 

The week saw US listed Gilead Sciences (US:NSQ) on this occasion offer encouragement, after a trial found that its antiviral drug Remdesivir hastened patients’ recovery from coronavirus, pushing its shares back close to year highs.

While Microsoft (US:MSFT), a long standing holding of Fundamental Bespoke Portfolios, continued to impress with strong growth in sales and earnings, quarterly earnings from Amazon.com (US: AMZN) disappointed, pushing the shares lower, although that is after hitting all-time highs on the last day of April.

Despite reporting revenue up 26% to $75.5bn, Amazon’s profit fell 29% to $2.5 billion, well short of consensus estimates of $3.26 billion, as the online giant struggled to fulfil customer’s orders and incurred higher costs in trying to do so. We sympathise that the company was in a ‘no win’ situation, as it would probably have been accused of profiteering if profits had been better. We think Amazon should be commended for its excellent service in such difficult circumstances.

Founder Jeff Bezos commented that in the second quarter Amazon intends to spend $4 billion or more, the entirety of the quarter’s operating profit, on Covid-19 related expenses, getting products to customers and keeping its employees safe, including its own Covid-19 testing systems.

Apple (US: AAPL) surprised with top line revenue growing 1% to $58.3 billion, ahead of revised expectations, but its profit fell 3% to $11.25 billion, or $2.55 a share.  Apple’s services and wearables business, which include App Store sales and the now ubiquitous AirPods, saw sales rise 18% to $19.63bn, while sales of legacy products like the iPhone, iPad and Mac, fell 7% to $38.68 billion.

Apple said it would add a whopping $50 billion to its share-buyback program and also approved a 6% increase in its quarterly dividend to 82 cents a share. Despite the challenging environment Apple continues to generate mountains of cash. An operating cash inflow of $13.3 billion in the quarter helped lift quarter end net cash to $83 billion, this after spending $46.2 billion on dividends and share buy backs.

Facebook (US:FB) also impressed with its quarterly numbers. Advertising revenue grew 17% to $17.4 billion with daily active users up to 1.73 billion, representing the largest sequential increase since the first quarter of 2017. However, Facebook noted that advertising revenue in the first three weeks of April was flat against prior year numbers and, with small businesses comprising 30% to 40% of its overall advertising base, there could be struggles ahead. Pre-tax income for the quarter grew 68% to $5.8 billion, representing an operating margin of 33%, with period end cash $60.29 billion.

Earlier in the week Google’s parent Alphabet Inc (US:GOOG) reported total revenue in the first quarter of $41.2bn, up 13% and ahead of consensus expectations of $40.8bn, with operating profit up 21% to $8bn. Advertising revenue through its YouTube division rose 33% to $4bn as it attracted a growing number of viewers in lock-down. The major impact of Covid-19 will clearly be felt in the second quarter and Alphabet management cautioned that March produced “a significant and sudden slowdown in ad revenues.”

Alphabet shares are currently down 12% from February highs and trade at 25x forecast earnings for 2021. That doesn’t look bad value relative to many other lesser groups, especially considering $112 billion of net cash.

Fundamental portfolios hold shares in Alphabet, Apple and Microsoft

Quartix Holdings (LON:QTX), the leading provider of subscription-based vehicle tracking systems and a constituent of our AIM portfolios, was swift to react to the pandemic and provided another honest assessment of things. The group remains well-funded and revenue is underpinned by a subscription base of more than 150,000 commercial vehicles, a large element of which is recurring in nature.

Have an excellent weekend