It’s been a torrid time for the AIM market for around 2 years now, with the AIM index down just under 40% in that time. Yet things are far better than you might expect and what the declining share prices imply, if you know which companies to look at.
We have assessed 39 AIM stocks, representing ‘Core’ or ‘Satellite’ holdings within our AIM IHT Growth Portfolio (as opposed to our AIM IHT Income Portfolio). The average weighted market capitalisation of all stocks is £683m, which means we are primarily weighted to larger, more resilient AIM companies. What are the reasons to be positive?
In our webinar this week ‘AIM A HALF YEAR UPDATE’ we covered this and other topics. You can view the webinar here and download the slides for AIM a half year update.
1) VALUATION APPEAL
We aren’t fans of the much used PE ratio in assessment of valuation given the number of adjusting items in arriving at ‘E’ and prefer to focus on Free Cash Flow (‘FCF’) in our assessment of profitability and valuation.
The average FCF yield of 4.47% of our 39 stocks is the highest we have ever seen for our AIM portfolio, highlighting their valuation attractions. This figure also adjusts for anomalies in a single year, in which case an average FCF over 3 years has been used.
2) DIVIDEND YIELD
Average forecast dividend yield is 2.65%.
Only 3 of our companies don‘t declare a dividend at all as they reinvesting available cash to support growth at higher rates of return.
Within our AIM IHT Growth book, this is the highest dividend yield ever. The average FCF/dividend cover is 1.71 times, suggesting dividends are well covered by cash flow.
3) STRONG CASH POSITIONS
10 companies are in a position of net debt and we are not currently buyers of 3 of these stocks, whereas 29 companies hold net cash.
Others in a net debt position are well within covenants and have reliable and supportive cash flow and are able to pay down debt rapidly. This puts them in a very strong position.
4) GEOGRAPHICAL EXPOSURE
20 companies have the majority of their revenue coming from the U.K. (11 of these only operate in the U.K.). 2 of these are considered beneficiaries of a more challenging consumer environment.
3 of these are underpinned by UK government contracts (healthcare, infrastructure, energy).
2 Companies are estimated to have an even split in revenue between the U.K. and Overseas.
17 companies (43%) get the majority of their revenue from overseas markets, with some wholly overseas businesses.
5) HEIGHTENED VOLATILITY PRESENTS OPPORTUNITY
Good stocks are being thrown out with the bad.
There is a wonderful opportunity to acquire good ‘growth’ companies on far more modest valuations, which is one of the reasons why several AIM companies have been acquired by private equity firms who are also sniffing around numerous others.
Sentiment around AIM can quickly change.
Back in 2020, a 35% decline turned into a 20% gain. This sort of change can happen very fast.
THOUGHTS FOR THE REST OF 2023
The AIM market has fewer “bad” companies than back in 2007/8 financial crisis. When you look into many of the larger companies and how they are performing (turnover, profitability, order books, cash flow etc), they continue to trade well, although you wouldn’t believe it from the languishing share prices! Once small investors start gaining confidence again, these companies will be well placed for share price increases.
FURTHER INFORMATION
If you or your clients would like to speak to one of our portfolio managers, please contact Business Development Manager, Jonathan Bramall at [email protected] or on 01923 713 894
Inheritance Tax (IHT) receipts were up again April 2022 to February 2023. Compared to the same period in the previous year, there was an increase of £0.9bn with a total of £6.4bn being received. This serves as a timely reminder of the ISA Deadline for clients who wish to deposit new or additional funds with Fundamental Asset Management’s AIM IHT portfolio service.
ISA DEADLINE DATES
Existing clients: 5th April.
New clients: 3rd April at the latest (assuming all information needed has been provided).
With HMRC IHT receipts up again, don’t miss out on this year’s ISA allowance. Whole or part of existing ISAs can be transferred (subject to the existing ISA manager) to potentially reduce IHT further.
Our last webinar AIM ISAs here.
To find out more about the benefits of AIM, please speak to our Business Development Manager, Jonathan Bramall, via email [email protected] or phone 01923 713 894.
As the provider of the best performing stock tip of 2022, a rare positive in a horrid year for AIM and client portfolios, the Telegraph’s Questor column once again turned to Chris Boxall, portfolio manager at Fundamental Asset Management, for their Questor AIM IHT share tip for 2023.
The latest request coincides with the launch of Fundamental’s new AIM IHT Income Portfolio service, so Chris thought it was appropriate to suggest an income stock and one of the new holdings in the new income portfolio for the “Tip of the Year” stock – the 8% dividend yield being the primary appeal in the short-term.
If you have a subscription, you can read The Telegraph article online here.
The new Fundamental AIM IHT Income Portfolio is available on Fundamental’s own designated broker platform or via a range of IFA wrap platforms including Abrdn (formerly Standard Life) Wrap & Elevate, Fidelity Funds Network, Nucleus, Transact, M&G Wealth and others. It is available in both an ISA and General Investment Account.
You can find out more about our AIM IHT Income Portfolio in our webinar here and video interview here.
To find out more about the benefits of investing in AIM, or if you wish to discuss the current situation, please speak to our Business Development Manager, Jonathan Bramall, via email [email protected] or phone 01923 713 894.
In this video interview, Chris Boxall, co-founder of AIM specialist investment manager Fundamental Asset Management, discusses the opportunities for income investors in AIM IHT ISA portfolios.
With AIM companies set to pay out just over £1.2 billion in dividends in 2022 there are plenty of high yielding AIM stocks to choose from, although prospective investors need to be wary of certain factors as Chris highlights.
You can watch the interview by clicking the image above.
The interview coincides with the launch of Fundamental’s new AIM IHT Income Portfolio service which was also covered in a recent webinar here.
DIFFERENCES BETWEEN THE EXISTING AIM IHT GROWTH PORTFOLIO VS THE AIM IHT INCOME PORTFOLIO?
The existing AIM IHT Growth Portfolio is a discretionary investment management service where clients can obtain 100% mitigation from Inheritance Tax, benefit from the capital growth afforded by the AIM market and retain control of their assets. Fundamental has been managing this portfolio since inception in 2004.
The new AIM IHT Income Portfolio is designed for clients to still take advantage of the potential Inheritance Tax relief afforded by the AIM market and retain control of their assets, at the same time as providing a greater level of dividend income.
To find out more about the benefits of investing in AIM, or if you wish to discuss the current situation, please speak to our Business Development Manager, Jonathan Bramall, via email [email protected] or phone 01923 713 894.
Is it time to be greedy when others are fearful?
It has been a painful time recently for AIM investors. In the upcoming Fundamental Asset Management webinar on Wednesday 12th October at 3pm we ask: AIM: cheap for good reason or bargains to be snapped up?
To register your spot and to be able to watch it after the event, please click here.
Fundamental’s portfolio managers Chris Boxall & Stephen Drabwell will be reviewing the last quarter as well as looking ahead to Q4.
AGENDA
– Q3 Review.
– What lies ahead for Q4.
– It has been a terrible time for AIM stocks; could now be the time to invest?
– Trading performance vs share price performance.
– Valuations.
– Impact of “mini budget”.
– Questions.
For more information about reducing Inheritance Tax using Business Relief (also known as Business Property Relief) click here.
To find out more about the benefits of investing in AIM shares for IHT planning purposes, please get in touch via email at [email protected] or phone 01923 713 894
Since arriving on AIM in 2011 at 60p per share (currently 930p) and a market capitalisation of only £50m (currently £1.25 billion), Glasgow headquartered Smart Metering Systems (‘SMS’) has evolved into a fully integrated energy infrastructure company.
SMS is a long-term holding in Fundamental Asset Management’s AIM IHT portfolios.
The global energy market has changed rapidly over the last few months and the requirement for a low carbon, flexible and secure energy system has never been greater or more acute. The core focus of SMS is to facilitate a lower cost, lower carbon energy future.
At the time of its arrival on AIM, SMS was primarily a provider of gas infrastructure connection services and gas meter asset management services. It had also developed advanced smart metering technology solutions. Fast forward to the present time and the enlarged group now provides total energy solutions for its customers, helping businesses and consumers use energy for the better, with the aim of achieving a greener and more sustainable energy system.
In addition to their core meter asset management business, SMS now independently develops, owns and operates Battery Energy Storage Systems (BESS) that serve a greener, resilient, and more flexible grid and independent Electric Vehicle (‘EV’) charging solutions.
Inflation proofed returns
A positive trading update for its first half to 30 June commented how the installation of smart meters continued to pick-up with 230,000 installed during the first half of 2022, and the average monthly installation rate rising to 40,000 meters. As a result, the Group’s total smart meter portfolio increased to 1.9 million meters, with the order pipeline c.2.42 million meters.
The Group’s growing portfolio of smart meters supports plenty of reliable, inflation proofed, Index Linked Annualised Recurring Revenue (‘ILARR’), to which an annual RPI adjustment of +4.3% was applied on 1 April 2022.
The UK smart meter rollout continues to present a significant opportunity to grow their ILARR, with Ofgem requiring energy suppliers to exchange at least 85% of all meters to smart by the end of 2025. Ofgem has also proposed mandatory settlement of energy on a half-hourly basis, which would significantly increase the market size for these services from c.300,000 electricity meters to over 26 million meters by 2026.
SMS’ first grid-scale battery site (Burwell, 50MW) commenced trading at the end of January 2022 and the site’s current performance is well ahead of expectations.
New developments
The Group’s new Solopower solution, which was launched in 2021, aims to radically reduce carbon emissions within the UK’s social housing stock using solar generation and battery storage. Pilot projects are being progressed in over 1,000 homes across the UK, as well as early-stage projects in the Republic of Ireland.
Sustainability
The SMS website highlights how their investment case is rooted in sustainability, with its Sustainability Report providing detailed disclosure on the practical steps being taken to progress Environmental, Social and Governance (ESG) responsibilities within their business strategy, culture, and everyday operations.
Their ‘net-zero by 2030’ target will see SMS drastically reduce their organisational carbon emissions to achieve a balance between the amount of greenhouse gas emissions produced and the amount removed from the atmosphere.
Green Economy Mark
SMS carries the London Stock Exchange’s Green Economy Mark. This recognises London-listed companies and funds that derive more than 50% of their revenues from products and services that are contributing the environmental objectives such as climate change mitigation and adaptation, waste and pollution reduction, and the circular economy.
Inheritance Tax receipts hit another record
HMRC’s latest figures show that Inheritance Tax (IHT) receipts for April 2022 to July 2022 were £2.4 billion, that’s £0.3 billion higher than in the same period a year earlier.
The Office for Budget Responsibility (‘OBR’) forecasts that as many as 6.5 per cent of estates could be liable for Inheritance Tax by 2026 – 75 per cent more than the 3.7 per cent that the figures show for the latest financial year.
With the AIM market down substantially from 2021 highs, now could be a great time to consider investing in qualifying AIM shares as part of a sustainable Inheritance Tax plan.
To find out more about the benefits of investing in AIM for Inheritance Tax planning purposes, where sustainability is also a key consideration, please speak to our Business Development Manager Jonathan Bramall via email [email protected] or phone 01923 713 894.
This video presentation here provides a brief introduction to the Fundamental AIM IHT portfolio service, while our webinar here reviews the second quarter of the year and discusses our ESG and PRI developments.
Fundamental Asset Management
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