An excellent report from specialist growth company research house, Equity Development, has highlighted the huge benefits AIM brings to the UK economy and how the mild encouragement provided by the Inheritance Tax concession to those considering an IPO onto AIM is a very large multiple of the cost in tax foregone by HMRC. We would urge you to read the report from the link here.

Equity Development considers AIM companies contribute over £33bn Gross Value Added (GVA) directly – over 40% more per employee than the national average – and just as much indirectly to the UK economy since their direct GVA has increased by 35% in the last five years, more than twice as fast as the average. Not only are AIM companies more productive than average, their productivity is growing – at 11% pa, significantly faster than average.

A report by Grant Thornton on AIM’s first 25 years shows that small companies listed on AIM perform ‘better’ – generating more added value, more employment and far greater tax receipts for HMRC – than comparable “private” companies. Grant Thornton found that:

• In their first year on AIM companies on average grew profits by 36%, and by 24% per annum for the next four years.

• Revenues grew 40% p.a. for three years, then 20% p.a. for the next two. Over the last five years AIM companies have outgrown, by a significant amount, the “private” companies in their sectors in nearly every case

AIM’s superior growth has, in just the last five years, added £4.7bn pa to UK economy and more than £1bn per annum to HMRC. But you may ask, at what cost?

The IHT concession is not a precise sum that can be easily calculated, but Equity Development reckons it ‘costs’ the Treasury c. £50m pa.

Like us, Equity Development questions why HMRC would abolish Business Relief (on which the IHT reliefs are based) to gain roughly £50m at a probable future cost to themselves exceeding £1bn per annum. They also suspect that much of the publicity given to suggestions that Business Relief should be abolished comes from promoters of more expensive, less useful IHT-avoidance schemes who are losing customers to simple AIM IHT ISAs. We have experienced on numerous occasions at first hand the added complexity and cost, including outrageous legal fees, imposed on relatively small estates with trust structures in place and would urge investors to think carefully before going down this route.

Not only is AIM of huge benefit to the UK economy but AIM listed companies represent the primary source of growth for UK small cap investors, reflected in the significant outperformance of AIM for IHT managers, including Fundamental, over the past decade or more.

You can find out more about Fundamental Asset Management’s high performing AIM portfolio service, which has been delivering exceptional investment returns for more than 16 years, from the link here.

A recent article in the popular press has alluded to the potential withdrawal of Inheritance Tax/Business Relief on AIM shares.

As a well-established investor in AIM for Inheritance Tax (‘IHT’) planning purposes, we have become used to regular press mutterings over the 16 years we have been managing our AIM for IHT portfolios. The introduction of an Autumn statement gave the press another opportunity to cover this topic, whether they had anything worthwhile to say or not.

It is also somewhat ironic that the latest press report comes at a time when AIM is probably enjoying the most positive period in its 25 year history, with numerous small AIM pharma and biotech groups at the forefront of developing tests and vaccines in the battle against Covid-19. This has not been possible without the support of their shareholders, many of whom have been encouraged to invest with the added attraction of IHT relief.

While there has always been the risk that tax relief might be removed or restricted in some form, if anything the tax reliefs for investing in AIM have been enhanced over the years. The availability of AIM shares in ISAs from 2013 resulted in a wave of new money finding its way to London’s growth market and the majority of new investment in our AIM for IHT portfolios (and no doubt those of other providers) is now via ISA transfers. The withdrawal of stamp duty on AIM shares in 2014 provided further encouragement.

Business Relief rules in brief
Investments that qualify for Business Relief (formerly Business Property Relief) can be passed on free from Inheritance Tax upon the death of the investor, provided the shares have been owned for at least two years at that time.

The shares of qualifying AIM companies benefit from the Business Relief rules, which were introduced in the 1976 Finance Act by Labour Chancellor Denis Healey. The primary objective at that time was to ensure that, after the death of the owner, a family-owned business could survive as a trading entity, without having to be sold or split up to pay an IHT liability. For the purposes of the Business Relief rules, AIM does not meet the HMRC definition of ‘listed’, accordingly shares in qualifying companies on AIM carry the same Business Relief benefits as private trading companies.

Not all AIM companies qualify for Business Relief and, for a modest outlay, our associated Investor’s Champion’s AIMsearch tool can tell you which do, which don’t, and which are doubtful.

The evolution and maturity of AIM now means that many substantial companies and their shareholders benefit from Business Relief, causing some to question the appropriateness of this attractive tax incentive – AIM quoted boohoo Group, the UK’s fourth largest listed retailer with a market capitalisation of £5.3bn, which would gain it entry to the FTSE100 Index, qualifies for Business Relief purposes.

Intelligent Partnership, the UK’s leading provider of education and insights on alternative investments, has commented how, prior to the last Budget there was speculation that Chancellor Rishi Sunak might alter IHT – from something as radical as replacing it with a lifetime gifting allowance through to reducing or removing some of the Inheritance Tax reliefs, including Business Relief.

The removal of Business Relief would clearly have negative effect on the AIM market. According to Investor’s Champion’s AIMsearch, 65% of AIM companies qualify for the relief and a further 10% offer some qualification, subject to exclusion for excepted assets on their balance sheets. We consider that any impact from the withdrawals of relief may be less significant for larger more liquid AIM companies (Mkt cap £250m+), the share registers of which are now dominated by mainstream institutional investors, rather than AIM for IHT managers. For example, the share register of Fevertree Drinks, one of AIM’s largest and most successful companies with a market capitalisation of £2.4bn and a Fundamental AIM portfolio holding, is dominated by mainstream institutional funds, which hold 39% of the equity. The founders still retain a combined 11.76% but institutions have proved to be keen buyers of their shares in the past. The same applies to many other large, rapidly growing AIM companies, with institutions eager buyers of large parcels of shares if the opportunity arises. This has been notable over the pandemic where numerous AIM fund raisings have been supported by large mainstream institutional investors, as opposed to IHT money.

Furthermore, the premium rating of many AIM companies is less about IHT investor buying and more to do with the attractive growth prospects of many substantial AIM companies compared to the low-growth opportunities available on the main UK stock market.

Sunak ultimately left IHT and Business Relief alone with some speculating that planned tax rises and relief cuts have now been pushed back until after the coronavirus threat has subsided. However, the government re-iterated its support of mechanisms through which growth can be generated, stating: “The government places a high priority on expanding the supply of finance through the cycle to support long-term investment to increase the productive capacity of the economy, across all regions and nations of the UK. This includes, but is not limited to, areas such as infrastructure, SME finance, venture and growth capital”

The UK government will have a need for new sources of revenue in view of the huge cost of supporting the pandemic and, a so-called tax expert quoted in the recent article, commented how the removal of Business Relief could be much more attractive than raising VAT or income tax. However, this seems questionable if one considers the irrelevance of IHT relative to the total UK tax collection, the current corporate funding demands and need to stimulate growth.

The HMRC Annual and Report and Accounts 2018/19 (a must read!) reveals that IHT receipts, which are lumped together with Other taxes, were a meagre £5.3bn, or 0.854% of total tax revenues of £628bn in 2018/19. Wealthy individuals paid £54bn of tax, small businesses £115bn and large businesses £135bn. VAT, which is included in the business numbers, contributed £135.6bn to the overall tax. Inheritance Tax doesn’t even get a specific mention in the HMRC report.

HMRC Statistics indicate the value of Business Relief claimed on unquoted shares was £828m in 2016/17 across 1,480 estates, an average of £559k per estate. Other Business Reliefs were £417m on 848 estates. This implies total tax saved of £498m through the combined Business Reliefs (40% x £828m+£417m) or 0.08% of total tax receipts, if applied to the 2018/19 numbers.

These numbers highlight the irrelevance of IHT relative to the bigger tax take, suggesting the government will need to address the main sources of tax to boost its coffers, rather than tinker with IHT.

Furthermore, it would surely make better economic sense to enhance, rather than diminish, tax incentives for individuals in smaller companies. This would help stimulate growth and ultimately do more to boost overall tax collections by boosting the major tax collection points of PAYE, VAT and corporation taxes.

To avoid the potential pitfalls of a change in the Business Relief rules, the legal profession would like investors to embrace the apparent benefits of using a trust. When the two-year minimum holding period for AIM shares had been reached, solicitors suggest the shares could be put in trust to cement the tax exemption. This could conceivably protect investors from any retrospective change to the rules, although the estate will then be saddled with a costly and unwieldy trust structure which comes with its own set of tax rules and places the investor’s assets in the control of others.

We have experienced on numerous occasions at first hand the added complexity and cost, including outrageous legal fees, imposed on relatively small estates with trust structures in place and would urge investors to think carefully before going down this route.

Since launch on 19 June 1995, AIM has supported nearly four-thousand growth companies in raising over £117bn, 61% of which has been through follow-on fundraisings. The equity fund raisings over the pandemic have seen investors plough £billions into UK companies to help keep them going, removing a further burden from the government and 158 AIM companies have raised £1.9 billion of follow-on capital in the first five months of 2020. Research from Grant Thornton shows that AIM companies directly contributed £33.5bn to UK GDP and supported more than 430,000 jobs in 2019.

The London Stock Exchange’s collaboration with Primary Bid has also broadened retail investors’ access to follow-on equity raisings during this challenging period. Many of these same fund raises have also been supported by founders whose continuing equity interest in their companies is underpinned by Business Relief attractions.

It would be strange timing for the government to remove incentives for investment in companies, large and small, at the time they most need it. In a recessionary climate the greater focus surely needs to be on supporting growth, which will ultimately lead to enhancing the bigger tax collections.

For a limited period, we think the government should actually consider enhancing the tax incentives for investing in the newly issued shares of UK listed companies, whatever their size, whether on the main market or AIM. Now that’s a radical thought!

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

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

Shares in high flying ITM Power (LON: ITM), the energy storage and clean fuel company, had an interesting week after announcing a distinctly underwhelming year end trading update.  It is quite staggering how a business with real annual sales revenue of only £3m can now be valued at over £1bn. There is clearly a huge opportunity ahead, but the valuation appears to be well ahead of itself and ITM is yet to demonstrate an ability to actually make any money from its technology. The market is  clearly unfazed by such trivial concerns.

Later in the week senior management of ITM exercised options over 3.9m shares, netting themselves over £13m. Shareholders probably won’t begrudge CEO Graham Cooley his seemingly outrageous £6m options bonus, with the shares up over 700% over the last 12 months. However, there does seem to be something inherently wrong with a system which richly rewards management based on a temporary share price growth, yet modest real commercial achievement.

RWS Holdings (LON:RWS), the world’s leading provider of intellectual property support services issued full year results which were broadly as anticipated and news of two acquisitions. Fundamental AIM portfolios hold shares in RWS, whose group businesses carry out patent translations, international patent filing and searches and life sciences translations. It is also a leading provider of localization services supporting blue-chip clients around the world. Overall, RWS is currently seeing limited impact on customer demand from Covid-19, with increased activity from large technology and life sciences clients who are working on vaccines and antibody testing. RWS also announced two fascinating acquisitions, one of them being a company developing best-in-class neural machine translation solutions.

Another Fundamental AIM portfolio company, Advanced Medical Solutions Group (LON: AMS), the surgical and advanced wound care specialist, issued a reassuring trading update. AMS has been experiencing a slowdown in demand for its products caused by the cancellation or postponement of elective surgeries, dental procedures and a reduction in the volume of accident & emergency treatments. However, with plenty of money in the bank and cash continuing to flow in, management reconfirmed its intention to recommend the payment of a final dividend for 2019.

There was a great story from Hornby (LON:HRN), the model railway group, which has been struggling over recent times. The fundraising efforts of Captain Tom Moore inspired Hornby to produce a model of the GB Railfreight Class 66 diesel locomotive which has been named after him, with the profits going straight to the NHS. The model sold out within hours of release, raising approximately £140,000 for NHS Charities Together, which will be donated on the launch of the model, later this year.

Portmeirion Group (LON:PMP), the designer and manufacturer of high quality homewares, raised £10m to fund its growth aspirations. The new money being raised will be used to accelerate its online efforts, extend its Wax Lyrical line and invest in its UK manufacturing operations. With more of us set to avoid restaurants, Portmeirion could do well as we refresh our cupboards, although perhaps they could do with some more youthful designs.

We struggle to understand the stock market suitability of OnTheMarket (AIM: OTMP), the majority agent-owned company which operates the OnTheMarket.com property portal. Its full year results were predictably terrible and another fund raise will surely be required to keep it afloat. The listed Group is 65% owned by over 3,000 agent shareholders which operate 6,000 branches which are offered preferential deals and shares in the listed group. The non-agent shareholders providing the real equity capital are therefore continuously being diluted through the issuance of incentive shares to agents.

Healthcare diagnostics has become a very hot area over the pandemic and Diaceutics (LON: DXRX), the diagnostic commercialisation company, raised £20.5m in the week to help support its ambitions.  Our associated research site Investor’s Champion recently published an in-depth commentary on Diaceutics.

Another diagnostic company, Immunodiagnostic Systems Holdings (LON:IDH), announced that its new automated Covid-19 IgG assay test had achieved CE marking and is expected to be available for sale by the end of this month. Shares in IDH soared more than 50% to levels not seen since 2017 in reaction to the news. The test is highly accurate, providing results in 25 minutes, and all the steps are automated with no manual reagent preparation required, ensuring minimal hands-on time for lab staff and therefore a high daily throughput.

Provider of essential infrastructure services, utilities connections and smart energy infrastructure, Nexus Infrastructure (LON:NEXS), announced decent results for the six months to 31 March 2020 and news of a £10m fund raise, with founders and Directors contributing £528,000. Fundamental AIM portfolios hold shares in Nexus.

Two of our general portfolio companies Games Workshop (LON:GAW) and Moneysupermarket (LON:MONY) issued updates, with the former the pick of the bunch.

Games Workshop confirmed that 306 of its 532 stores are now open in 20 countries, with the recovery in business since re-opening better than it had expected. For the year ending May 2020 they now anticipate sales of c£270m, which is ahead of consensus forecasts of £261m, and pre-tax profit no less than £85m which is marginally below. This includes royalties from licensing of £16m, up 40% on 2019 – the royalty opportunity for this business looks significant! With plenty of cash in the bank, management is already talking about repaying the government subsidies received to date.

While some of Moneysupermarket’s markets have been quieter, notably money and insurance, it has seen growth in energy switching searches and broadband. With cash continuing to flow into its coffers, net debt was a modest £0.8m, even after paying a final dividend of £46m, making MONY one of the few companies with the resources and cash flow to be able to commit to a final dividend.

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

Please visit our YouTube channel from the link here for a video covering news from the week.

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

Wizz Air Holdings (LON:WIZZ), the largest low-cost airline in Central and Eastern Europe, announced fantastic results for the year to 31 March 2020. Despite the challenging environment WIZZ is committing to the purchase of plenty of new aircraft over the next few years and has also announced its first ever flights from London Luton to Moscow and St. Petersburg. The shares of WIZZ and other airlines, including Fundamental AIM portfolio holding Dart Group (LON:DTG), operator of Jet2.com had another strong week, despite the UK government’s quarantine travel rules, which are coming into force on June 8. With the UK suffering the second-highest Covid-19 death rate after Spain, according to excess mortality figures, we find it somewhat ironic that the UK wants to restrict the movement of evidently more healthy visitors to these shores.

The latest AIM statistics from the London Stock Exchange highlight a strong bounce from London’s growth market which will celebrate its Silver Anniversary on 19 June.  At the end of May 2020 there were 832 companies on AIM, with the total market value £98.6bn compared with £88.5bn at the end of April. Our associates Investor’s Champion cover all the monthly updates from AIM.

AIM, which was originally called the Alternative Investment Market, was launched on 19 June 1995 as a replacement to the previous Unlisted Securities Market that had been in operation since 1980. At launch, AIM comprised only 10 companies valued collectively at £82.2m, with only one survivor, remaining from the original 10. May closed with 18 AIM companies valued at more than £1bn, several of which are Fundamental AIM portfolio constituents.

Fevertree Dinks (LON:FEVR), the world’s leading supplier of premium carbonated mixers, and another Fundamental AIM portfolio holding reassured with its AGM statement. While their On-Trade market remains fully or partially closed across many of their regions, Fevertree has been doing nicely from the increased consumption at home during lock-down. At home (Off-Trade) sales in the first full month of lockdown were up 24% year-on-year in the UK and they have seen continued positive momentum since, with its core tonic range performing particularly well. Off-Trade sales in the US nearly doubled in April and May.

XP Power (LON:XPP), one of the world’s leading developers and manufacturers of critical power control components to the electronics industry, and a long-term holding in Fundamental General Portfolios continues to impress. XP has been experiencing exceptional levels of demand from its Healthcare customers which includes critical applications used to treat Covid-19 patients (including ventilators). As usual this fabulous business looks in great shape.

IG Group (LON:IGG), the online trading platform and another Fundamental General Portfolio holding reported 119% growth in trading revenue in the fourth quarter of its financial year, with full year revenue 36% higher at £649m. The shares were flat on the news, implying that the good news was already priced into the current share price.

Gamma Communications (LON:GAMA), the provider of cloud communication services and one of AIM’s largest companies, continues to impress reporting strong growth and heightened demand for its Cloud based products. However, even Gamma’s robust business model has not fully escaped the impact of Covid-19 and some staff have taken temporary “leave of absence” while continuing to receive their full pay. Although the Group has met the criteria to make a claim under the UK Government’s Covid-19 Job Retention Scheme, management decided not to make such a claim on the grounds that that scheme was designed to protect jobs rather than to boost profits for companies who have been able to continue to trade.  With cash continuing to flow in and the balance sheet in great shape with plenty of cash, Gamma is one of the few companies confident enough to commit to the payment of a final dividend of 7.0 pence per share, up 13% on the prior year, which will cost £6.5m. Fundamental AIM portfolios hold shares in Gamma.

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

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

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.

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

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 Jet2.com 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.

The Conservative election victory, supported by progress with the US/China trade negotiations, triggered a strong rally from stock markets, with the UK index of 100 leading shares up just over 1%, the UK mid-cap index surging over 3% and US stocks hitting record highs. The AIM index was up just over 2%, but who were the biggest winners on our AIM portfolios from this short term ‘Boris bounce’?

Anything associated with housebuilding, construction and infrastructure spending had a terrific day, with notable risers from our AIM portfolios  Breedon (construction materials) and Nexus Infrastructure (infrastructure services to UK housebuilders). Having struggled in the first half of the year, Nexus announced its full year results this week with a strong order book offering plenty of encouragement for the future.

Shares in Adept Technology, which provides managed IT services to over 100 councils, NHS trusts, schools and other government bodies, also rallied. The share price of this excellent business, which generates plenty of reliable recurring revenue and cash, has struggled to make much progress over the past few months. With the election out of the way and a more stable political outlook hopefully it will start to attract greater interest.

Highly rated foreign exchange brokers Alpha FX Group and Argentex will have had a busy time supporting their clients in the face of a rising pound, but their share prices barely moved today. With many predicting that the pound will continue to rise over the coming months their services should continue to be in high demand from corporate clients needing help managing foreign exchange exposures.

RWS Holdings, the intellectual property support services and localization provider, was a notable faller on the day. AIM’s 8th largest company announced excellent results this week but warned that, having previously benefited from positive exchange rate movements, currency is proving less supportive at the start of its new financial year. A resurgent pound won’t have helped sentiment in the short-term but this terrific business has weathered far greater currency storms over the past 10 years.

For further information on Fundamental’s high-performing AIM portfolios and thoughts on winners and loses from the election please contact Chris or Stephen on 01923 713890. You can download fact sheets and other information from the Publications section here. 

While the UK market was clearly the main focus of attention for many, a US listed company which we hold on some of our general portfolios stole the show for us and highlights the terrific investment opportunities available on overseas markets. Adobe will be well known many through its free Acrobat software which is used to read PDF documents, however, there is clearly much more to this creative and digital media software business. This US giant has delivered tremendous growth over the past 3 years and now boasts a market capitalisation of $150bn. Despite its huge size Adobe has just reported a 24% growth in like-for-like annual revenue to $11.17billion and 15% growth in earnings per share. And who says elephants can’t gallop!

Adobe is also a constituent of Investor’s Champion’s Ultimate Stocks Portfolio which you can find out more on from the link here.

The share price of CVS Group (LON:CVSG), the UK’s leading veterinary services business, rose strongly this week on the back of another positive trading update. CVS has been a mainstay of Fundamental AIM portfolios for many years, although it’s tested our patience on numerous occasions.

The dynamics of the UK veterinary market have changed significantly over the past few years and a shortage of newly qualified vets, combined with the rapid consolidation of the sector, has been making life harder for CVS, the UK’s largest consolidator.

We were getting particularly concerned by CVS management’s strategy of pursuing high priced acquisitions, despite the evident challenges in the sector which needed addressing. Generally speaking Fundamental is a very cautious investor in pure ‘buy and build’ business models of the sort being run by CVS. From our perspective, there comes a point when the focus needs to be on internal matters and organic growth. However, we like the defensive attributes of this sector and the management team had done a pretty good job up to now, so we were prepared to see this through.

Other investors were clearly also worried about the state of play sending the share price down sharply to a low of 362p in January 2019 from 1140p just six months earlier.

The interim results for the six months ending 31 December 2019, announced at the end of March 2019, offered a first glimpse that things were improving, with management addressing several of the key issues which had contributed to the previous underperformance.

What encouraged us more than anything was the greater reluctance to pursue acquisitions, unless the price was right, and a greater focus on organic growth. The interim results commented on an increase in the number of in-house referrals, which would benefit the group’s referral centres like Lumbry Park, which we visited in the summer and in which they had made significant investment. The growing numbers joining CVS’ Healthy Pet Club scheme, which provides care through a monthly subscription model also looked encouraging.

Results for the year ended 30 June 2019 announced in September provided further evidence that things were continuing to improve with like-for-like sales growth of 5.2%, of which 4.3% came from the core Veterinary Practices division. Earnings before interest tax, depreciation and amortisation (EBITDA), after central office costs, rose 14.5% to £54.4m.

The group’s Healthy Pet Club had 401,000 members at the year-end, an increase of 10.8% in the year, with 133% growth in their new Healthy Horse Programme to 7,000 members. These membership schemes bind the group to its clients and their pets and lifted annual monthly based subscription revenue 19% to £45.4m.

The update this week offered more encouragement with like-for-like sales increasing 8.0% in the four months to 31 October 2019 driven by a strong performance from the core Practices Division, which has seen like-for-like sales increase 7.4%.

It’s also reassuring to note that employment costs and vet vacancy rates have remained stable and only one acquisition has been made since September 2019.

The latest update cautioned that comparatives become more challenging in the second half of the current financial year given the improved second half performance seen in the previous financial year but it all sounds a lot more promising than 12 months ago.

While the shares still remain well below previous highs, they have performed strongly over the past 10 months rising over 170% from lows.

Having assessed the holding on numerous occasions over the past 18 months, our patience and ongoing commitment has been well rewarded…..up to now.

Hopefully onwards and upwards!

To find out more about other investment opportunities on AIM, the Main Market or overseas markets, contact Chris or Stephen on 01923 713890 or email [email protected]