September 2014 AIM Prospector

AIMprospector

Issue 7 September 2014

Worries and woes The share that would stop me sleeping

write-ups on five AIM-quoted companies thriving retailer low-profile, growing smallcap successful niche defence supplier cut-price income stock free to private investors

AIMprospector AIMprospector

Issue 7 September 2014

Worries and woes The share that would stop me sleeping

Welcome to AIMprospector, the online magazine from Blackthorn Focus.

If you are reading this on issuu.com then you are late. AIM Prospector is sent as a pdf to registered subscribers at least 24 hours before it goes public. If you have not already signed up, you may do so at www.aimprospector.co.uk. write-ups on five AIM-quoted companies

Contents Stockopedia...................p3 Rotala............................p4

thriving retailer

low-profile, growing smallcap

successful niche defence supplier cut-price income stock

free to private investors

Plus500..........................p5

Supported by

Again, this month’s magazine features a recent IPO, retailer Bonmarché. The company first came to AIM in November 2013. Since then, the company has been one of AIM’s more successful introductions, with the shares today standing nearly 25% ahead of their IPO price. Bonmarché is capitalising on several strong retail trends, as demonstrated in recent results.

I am also very pleased to include a write-up on Rotala plc, the AIM-quoted bus and coach operator. The company looks to be the kind of firm that typifies AIM: a young, successful, niche operator that is inexpensively priced perhaps because many fund managers consider it too small. Covering companies such as Rotala is the raison d’être of AIM Prospector.

There is no Top Pick this month. Instead, I am featuring some research undertaken on AIM-quoted CFD provider Plus500. Although the shares have performed brilliantly since coming to the market in July last year, I just cannot feel confident about the company.

Note that neither David O’Hara, or Blackthorn Focus is financially exposed to the share price of any company featured in this edition of AIM Prospector. Such a position would always be declared.

This month we welcome back sponsors Spreadex. The company is a provider of financial spreadbetting services and is particularly proud of its offering across a broad range of AIM shares. I have personally been a user of Spreadex for nearly ten years and have made good use of their AIM service.

AIM Prospector welcomes back Mr Adam Hart. This month is the final instalment of Adam’s ‘checklist for AIM companies’ in the Executive Insight feature. Next month we expect to bring you the perspective of a highly regarded UK smallcap fund manager. If you feel similarly qualified to write such an article, please get in touch as AIM Prospector continues to bring expert perspectives to AIM executives.

Spreadex............................p7 Bonmarché....................p8 Executive Insight...........p9 Belvoir.........................p10 Cohort.........................p11 next month..................p12

Contact twitter: @aimprospector email: editor@aimprospector.co.uk www.aimprospector.co.uk

Published by: “Enjoy this month’s AIM Prospector and good luck with your AIM endeavours.”David O’Hara, Editor, AIMprospector 2

Blackthorn Focus Limited www.blackthornfocus.com

www.aimprospector.co.uk

AIMprospector

Stockopedia is an online stock filtering and research community. I have been a customer of Stockopedia’s for several years and am happy to be able to tell AIM Prospector readers how I use the system to discover investment opportunities.

Last month I showed how Stockopedia screens can quickly deliver AIM investment ideas. My first screen simply returned a list of companies trading near a 12-month low. The second, gave a list of companies that have been rapidly increasing shareholder dividends.

Stockopedia does more than just AIM stocks. It is mid and large-cap shares where the system really comes into

The first is a screen for contrarian investors. This uses Stockopedia data to identify the FTSE 100 stocks that the broker community is least positive on. In the table below are five that I have selected. A higher consensus number indicates a less popular stock.

What is notable is how diverse this list is, containing shares drawn from across different sectors. David O’Hara, Editor of AIM Prospector, owns shares in Royal Bank of Scotland. Despite RBS’ unpopularity with analysts, they have been upgrading their earnings forecasts for the bank in recent months. Stockopedia shows that the consensus forecast for 2014 EPS has increased from 19.7p in April to almost 30p today.

Metals producer (primarily copper) Antofagasta will always be a geared play on global industry. The company’s share price frequently records large rises and falls in response to economic news from China. At this price, the shares are trading near a three year low. It is often best to take a view on the underlying commodity before investing in this sector.

Some large-cap companies currently out-of-favour with analysts Company

Price (p)

Consensus Recommendation

P/E

Yield (%)

WM Morrison Supermarkets (MRW)

184

3.4

12.3

7.1

Royal Bank of Scotland (RBS)

366

3.4

12.4

0.0

1,319

3.4

15.7

3.0

808

3.2

18.9

7.1

1,506

3.2

15.1

5.8

Smiths (SMIN) Antofagasta (ANTO) SSE (SSE)

My second screen, is more positive, looking for companies that have seen earnings forecasts increased significantly in the last three months.

The intention here is to discover stocks that might be enjoying a tailwind: frequently brokers are too slow to cut forecasts and too slow to raise them.

its own. Here, there is considerable broker coverage, giving a richer source of recommendations and forecasts.

Blackthorn Focus, publishers of AIM Prospector, are happy to subscribe to Stockopedia and recommend the system to others. Here are two new screens I have prepared, examining UK large- cap shares.

Possibly of most interest here is fund manager MAN Group. The company was written off only recently as funds under management were in decline and its flagship fund underperformed. However, if things are picking up then this could be a good opportunity to get on board. Before things started to go wrong at MAN the company was making around twice the profit being forecast for 2014. There is also an attractive dividend on offer while you wait for the recovery (if it comes — reader’s voice).

Go-Ahead Group is a bus and train operator. The company owns a number of rail and bus franchises, such as Southeastern Trains, London Midland and Oxford Bus Company. Dividends at the company have been stuck at 81p since 2008. However, now that forecasts have reached 147p for the year, the possibility of dividend increases has returned.

It is a surprise to see Royal Dutch Shell pass this screen. In the absence of shocks, earnings forecasts at titan stocks are normally very steady.

Unfortunately, the fast pick-up in profit expectations has been matched by a strong share price rise. While a large dividend yield remains, the bargain opportunity may have passed.

Unless you are planning on running a diverse, mechanical portfolio, a tool such as Stockopedia should never be the sole source of investment decisions. For investors that base their decisions on company fundamentals, it is an invaluable source of facts and investment ideas.

A selection of large-cap shares that have seen earnings upgraded in last three months.

Company

Price (p)

Royal Bank of Scotland (RBS)

%3m EPS Upgrade

Yield %

P/E

366

12.0

0.0

Berkeley (BKG)

2460

10.7

7.3

13

Go-Ahead (GOG)

2270

6.2

3.6

17.2

122

6.1

4.6

24

2537

4.9

4.4

14.4

Man (EMG) Royal Dutch Shell (RDSB)

12.4

The annual subscription to Stockopedia is dwarfed by the gains I have made from shares that it has helped me to find and research. If you think that this comprehensive data product could help you, click here for more information.

by David O’Hara, Editor, AIM Prospector www.aimprospector.co.uk

AIMprospector 3

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AIMprospector

Rotala: a little-known gem Rotala owns a group of bus companies, operating in various locations across the UK. The company was formed in 2005 and took an AIM quote the same year. Since then, Rotala has made several acquisitions and now comprises four companies: Flights Hallmark, Diamond, Wessex and Preston Bus. Flights Hallmark was Rotala’s first acquisition back in 2005. Flights runs a fleet of high-spec coach vehicles (see: vipcoach.co.uk). Airport air crew and passenger transportation is a key market for Flights, satisfied from its Heathrow depot.

Rotala purchased Go West Midlands in 2008, renaming the brand Diamond.

The company runs public transport bus services in Lichfield, Worcestershire and the West Midlands.

balance sheet survived the acquisition trail well The Wessex brand is the second largest provider of public transport services in Bristol, Bath and South Gloucestershire. Preston Bus was acquired in 2011 and runs public transport services in the city.

The company’s balance sheet survived the acquisition trail well.

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Debt has ranged between £17.9m and £22.5m in the last five years.

Fixed assets have naturally risen with the acquisitions, resulting in the company’s book value increasing from £11.5m in 2008 to £24.2m at the end of 2013.

Rotala’s P&L has similarly done well. Shareholders have enjoyed significant advances in profitability and dividends. Five years ago, Rotala made a net profit of £1.2m on £35.7m of sales. By 2013, net profit reached £1.9m on sales of £53.3m.

The company declared its maiden dividend in 2010, paying 0.9p per share. This has been increased every year since, hitting 1.6p for 2013.

acquisitions and a share buyback are being actively considered Recent half-year results showed impressive increases in profits, shareholder dividends and assets. The company has taken advantage of the strong pound to hedge all fuel costs for 2014 and 2015. There were some negatives in the results however, with the Chairman, John Gunn, expressing concerns over pressures on local authority budgets and their ability to subsidise bus contracts.

Management made the promise with interims that as free cash flows

and underlying earnings improve, the company will move progressively to a level of payout such that dividends are covered by earnings 2.5 times.

Hire purchase interest costs are expected to fall to £3.4m for the year, versus £4.5m in 2013. Management confirmed with the interims that acquisitions and a share buyback are being actively considered.

book value increasing from £11.5m in 2008 to £24.2m at the end of 2013 With a modest market capitalisation, Rotala could be just the opportunity that private investors frequently search for on AIM: a successful, dividend paying company that is off the radar screens of most fund managers.

According to Stockopedia data, Rotala is set for 12% EPS growth for the full year, in-line with the number achieved at the half-year stage. A similar rate of increase is expected in the dividend. More growth is forecast for 2015.

Rotala (LON:ROL) FOR Predictable, diverse income stream Successful AGAINST Vulnerable to policy change Shares thinly traded Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£20m 57p:59p 10.7 3.1 46p:60p www.aimprospector.co.uk

AIMprospector

TOPpick

Plus500: a stock with plenty of attention Plus500 is an Israel-based provider of financial Contract for Differences (CFDs). The company is regulated in the UK by the Financial Conduct Authority. Its service is then ‘passported’ throughout the EU, meaning that it can legally take customers from any EU nation.

Plus500 first came came to the market in July 2013 at around 115p. The shares have recently changed hands for more than 650p.

Shares in the company have attracted considerable interest from the UK’s private investor community.

Plus500 has become one of AIM’s fever stocks, producing some large share price moves as bulls and bears of the stock thrash it out on bulletin boards.

When I first heard of Plus500, I will admit that I didn’t get it. First, I am an avid reader of the financial press and bulletin boards but had never heard them discussed as a service provider.

Second, the market that they entered was already populated by dozens of providers, including one 800-pound gorilla, IG Markets. It seemed very hopeful to expect a new entrant to succeed in such a well-established industry.

The bull case for Plus500 comes from claims around its innovative customer recruitment model and low cost base. Financial statements reported by the company have shown industry outperformance in both revenue growth and customer acquisition. Plus500 runs an affiliate programme whereby ordinary people can get paid significant amounts to recruit new customers.

The company makes much of the strength of its mobile offering. www.aimprospector.co.uk

The android app has over 1 million installs and enjoys an average rating of 4.3 in Google Play. The app has over 16,000 reviews and more than 50,000 recommendations on Google+. That’s a long way ahead of IG, whose android app has an average score of 4.0, less than half a million installs, 1,213 reviews and just 2,637 recommends on Google+. It was surprising that Plus500 received so much more attention on Google Play than its much larger, established and recognised competitor.

AIM Prospector research of some websites discussing Plus500 has brought further confusion. AIM Prospector examined the website www.plus500findings.com. The site claims to be ‘informative’ and contains a ‘Plus500 CFD Broker Review’. The author writes about the services offered by Plus500 and how the business is regulated. The site itself contains a number of advertisements for Plus500. The URL in the banner ad for Plus500 in the review contains parameters that make me suspect that the owner of the site is being paid

by Plus500 for click-throughs. Also, reading the data that is transferred to my browser when clicking ‘Open Real Account’, the URLs requested contain a number of parameters that again make me think that there might be a commercial arrangement between

Plus500 and the operators of the plus500findings.com domain. The review concludes: ‘I would definitely recommend Plus500’. However, I do not consider the review to be independent, nor could I find anything on plus500findings.com declaring a commercial relationship with Plus500.

Of further concern is the identity of the reviewer ‘Connor Bradshaw’.

Plus500 is keen at all times to point out that it does not accept US customers. The author writes: ‘I got my $25 welcome bonus and then funded $300 (minimum is $100) to my live account. After a few weeks later, I funded another $8,000 into my account once I decided to really trade with them.’ I could not find anything on the plus500findings.com website where it is made explicit that the review author had actually placed a trade with Plus500. So why is the review being written?

The review site contains a link to a Google+ profile for the claimed author. Here, ‘Connor Bradshaw’ claims to be an Engineer working in the UK. The site genesreunited.co.uk records only three births of a ‘Connor Bradshaw’ in England and Wales that would now be of adult age. The oldest of these is just 21. The review writer claims to have been ‘trading the market since 2011’, so they could be the same person. The Google+ profile claims that the author has ‘2 kids... awesome wife’. That would be some cracking on for a 21 year old. It is also quite an un-British way to write about one’s family.

A comment attributed to ‘Connor’ 5

AIMprospector

TOPpick

Review count and word analysis of reviews at reviewcentre.com Provider

CMC Markets

Review count

Mean word count per review

Word count inter-quartile range

46

140

81

139

99

76

16

77

46

285

70

51

Plus500.co.uk

1191

45

40

Plus500.com

915

39

34

Plus500.de

231

40

35

Plus500.nl

175

44

36

Plus500.fr

47

37

38

IG Capital Spreads City Index

and carrying the same photo as the plus500findings.com site appears on the website productivewriters.com.

Here, ‘Connor’ writes: ‘Competition is very fierce nowadays. On freelancer. com, the rates are very depressing.

The indian writers are willing to take up $1.00/article for general articles.

How do we compete?’ The profile on productivewriters.com gives a twitter account for ‘Connor’ as connorbradshaw0. The referenced twitter account gives the user website as plus500findings.com.

The image of Connor Bradshaw on plus500findings.com, twitter and Google+ is not Connor Bradshaw. It is a library image of a man named Victor Pilipko. He appears in short internet film here. Who then, is Connor Bradshaw? An engineer working in the UK, or perhaps an American freelance writer?

AIM Prospector has also been examining reviews placed on reviewcentre.com. On this site, Plus500’s various domains appear 6

in each of the top five places in the section dedicated to Stocks and Shares providers. Weirder still is the huge number of reviews that Plus500’s services have attracted. A total of 2,559 reviews have been placed for Plus500 across its .com, .co.uk, .de, .nl and .fr domains. IG attracted a total of just 139 reviews. Given that IG’s reported revenues are around five times those of Plus500’s, why has IG attracted so few reviews by comparison? The disparity is similar when counting reviews for CMC Markets and Capital Spreads (review count of both is in-line with IG’s when scaled for reported turnover). It is also noteworthy how brief the Plus500 reviews are compared with the others.

The inter-quartile range figures in the table suggest that a large number of Plus500 reviews are very brief.

The quality of English used in the Plus500 reviews is frequently poor. For example, this review by ‘143Bowen’ states: ‘I found wonderful to trade with plus500 which much user friendly and

easy understanding compared to the other trading tool available.’

The broker review site ForexPeaceArmy contains a large number of negative reviews of Plus500. There were some positive counters to these reviews, such as this from ‘Sean, Estonia’ ‘Plus 500, it’s very dynamic, easy to use and it gives a lot of bonus to the trader’. I’m unsure how common ‘Sean’ is in Estonia.

More troubling is a review where the author’s name is given as ‘Josh Reclar, France’. This was apparently modified by ForexPeaceArmy admins to read ‘Josh Reclar, France, Paris (Really Plus500’s offices in Israel)’.

The review rating was removed and ForexPeaceArmy added: ‘This review did not come from France. It came from Israel, where Plus500 is located. It came from the same location that a Plus500 employee emailed the FPA from.’ These reviews were submitted in 2010 and can be found here.

Another peculiarity with Plus500 is the way that the company is regulated. Most of its operations take place in Israel. The company uses a regulated UK subsidiary to access the EU market. However, there are far fewer staff members authorised by the FCA with Plus500 than any of its UK peers. According to the Financial Services Register, IG Markets has 71 approved persons working in their firm.

City Index has 26 such staff members.

Plus500 has just three. One of these is a non-executive director i.e. not an operational role. That seems odd.

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Bonmarché: fashion for females over fifty Retailer Bonmarché came to AIM in November 2013. The company is a high-street and online fashion retailer, focused on serving women over fifty.

Bonmarché was established in 1982 and today runs over 250 stores across the UK from its Wakefield headquarters. Its plus-size clothing range and styles are targeted at older, female shoppers.

target customer is one of the fastest growing groups online The company is positioned at the confluence of three themes: an ageing population, a heavier population and longer working lives.

The ‘multi-channel’ theme features heavily in the company’s communications with shareholders.

Alongside straight store sales, the company also runs its ‘Bonus Club’ loyalty scheme. This has 1.8m active members. The company also sells via mail order, telephone, TV shopping and direct in care homes to customers that are unable to access shops.

The company’s target customer is one of the fastest growing groups online. Bonmarché has moved to capitalise on this, with a website replatform and the appointment of a new digital marketing agency.

Results for the year to March 2014 showed an 84% increase in online

8

sales, to £11.6m, from total annual sales of £195m. By comparison, Debenhams makes around 15% of its sales online. This suggests that online still has some way to go at Bonmarché.

The results included an impressive margin improvement and a big rise in earnings per share. The balance sheet showed £43m of total liabilities and £44m of current assets.

According to market data firm Verdict, the UK’s 55+ female demographic is growing at double the rate of the female population on average. Bonmarché is positioned in a sweet-spot and is thriving like few other listed retailers.

a business that is powering ahead The most recent trading update from the company, issued at the end of July, showed a business that is powering ahead. Total sales were 16.9% higher than in the same quarter of last year. Like-for-like sales (a measure that is adjusted for store closures/openings) showed a punchy 13.4% increase. By comparison, Sports Direct (one of the high street’s most successful retailers of recent years) reported like-for-like growth of ‘just’ 10.5% last year.

Forecasts are for the company to deliver a net profit of £10.8m by 2016. While that doesn’t make the shares particularly inexpensive against today’s market capitalisation, Bonmarché is on a roll. Expectations for 2015 EPS have been rising steadily since March and analysts are forecasting much larger dividends this year and next.

Bonmarché is on a roll The US experience shows how much further the trend for plus-sized consumers could go. Demographics and the forced increase in retirement ages will further expand Bonmarché’s market. The company is well capitalised and the strong pound will help input costs. Few AIM companies can have so much in their favour.

Bonmarche Holdings (LON:BON) FOR Favourable dynamics Modest valuation AGAINST High street still weak Must remain on-trend Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£139m 276p:280p 14.2 2.5 212p:302p

www.aimprospector.co.uk

AIMprospector

Executive Insight is a new AIM Prospector feature.

Each month, AIMprospector brings a collection of advice and insight targeted at company directors. The second contribution to this series comes from Mr Adam Hart.

In the last issue, I discussed how the careful selection of advisors can help an AIM company get maximum value from its listing. Below, I examine some other important factors that can have a material effect on a company’s share price.

If an AIM company cannot deliver an interesting growth story to attract investor attention it will be hard to achieve share price momentum. If a company repeatedly fails to deliver growth, it is questionable whether it should remain on the market at all.

Long-term growth is the key to delivering share price performance.

But even some companies that are delivering regular profit increases fail to secure real investor interest. If your company falls into that category, a collection of actions might help change this.

Setting sensible targets and providing a regular news flow to the market will generate investor interest and trust that future growth can be achieved. Even setbacks, which are bound to occur, can have a minimal effect on the share price if plenty of warning is given and a full explanation is provided. A last minute and badly thought-out explanation can wreak havoc and take years to repair!

www.aimprospector.co.uk

There is little point in generating newsflow and then not capitalising on it by actively pursuing the press. A good PR company should be able to gather a roster of positive journalists for even a small company where its story is consistently good. Senior management must then spend time meeting with both existing and potential investors — institutional and private investor forums alike.

The availability of easily digestible information on a company is also key. A well thought out and readable website is a great place to start, but they are often not updated for recent events. Regular public statements over and above the interim and annual reports are useful to track changes, and hats off to those AIM companies that publish interim management statements as they are not compulsory on AIM. However, nothing beats a comprehensive research report from an independent research house or the company’s own broker. Such research, describing a company’s business and opportunities, is an excellent basis for assessing a company’s prospects.

Finally, research has shown that those companies that are able to pay a regular and rising dividend generate

Adam Hart, London Bridge Capital

Executive Insight

significantly more investor interest and are able to achieve positive share price momentum more easily. Even a relatively modest, but rising, dividend should not be underestimated.

Too many companies, which have the potential to shine, hide themselves away. This is to their own, and their investors’ detriment.

Although the above suggestions take time, effort and cash, the resulting change in perceptions can generate significant rewards for investors. If executed well, a significantly lower cost of capital will be achieved should a company raise finance in the future.

Adam Hart is Chairman of London Bridge Capital. He enjoyed a long career as a nominated adviser acting for many AIM companies and served on the Stock Exchange’s AIM Advisory Group for over 14 years, spending more than five years as Chairman.

9

AIMprospector

Recent IPO with long-term prospects Belvoir Lettings PLC came to AIM in February 2012. The company is a franchisor of residential lettings businesses.

Founded in 1995, Belvoir Lettings today has over 160 offices across the UK. The dynamics of the UK housing market point toward strong long-term growth from this sector.

Belvoir runs a residential lettings franchise ‘Belvoir!’. Belvoir revenues come from an initial franchise fee plus service fees which are a percentage of the franchisee’s monthly turnover. The plc also provides its franchisees with training and support. One example is the Belvoir Lettings mobile app. A mentoring service is also provided in the early stage of operations. Tenants contract with the franchisee directly, not Belvoir, meaning that Belvoir only carries reputational risk.

a business model that has served shareholders well It is a business model that has served shareholders well. In 2008, Belvoir reported a net profit of £0.7m from £3.4m of sales. By 2013, Belvoir was delivering sales of £5.8m and a net profit of £1.2m. The company paid its maiden dividend in 2012, delivering a 17% increase the following year.

Some of this growth has been achieved through acquisition. Here, 10

existing franchisees, often with some finance assistance from Belvoir, have acquired competitors and brought their portfolio under the Belvoir umbrella. In July last year, Belvoir announced additions to portfolios in London, Ipswich and Telford. A similar transaction took place in Hereford earlier this summer.

strong progress across the board In September 2013, Belvoir launched a residential sales pilot, utilising the traditional lettings offices.

There is a certain logic to this. A lettings business’ clients will frequently be looking for new properties (even with tenants in situ) and may seek to trim their own portfolio from timeto-time. In March, Belvoir reported a favourable response to this trial.

The most recent results from the company (March’s finals) showed strong progress across the board. Revenues were 44% ahead of the previous year and pre-tax profit was 16% higher. The dividend was raised 17%.

set for long-term growth. While 15% of all UK homes are rented today, some government estimates are for this figure to reach 20% within the next eight years.

Rental’s ability to grow with the economy has attracted large, long-term investors, such as Legal & General, to the sector. In March this year, L&G announced that it had secured a portfolio of 4,000 units. AIM Prospector has previously reported on AIM-quoted Sigma Capital’s plans on a similar scale in the North-West.

The quality of this income stream is manifested in the dividends paid out

by Belvoir. The consensus is for Belvoir to pay a 6.8p dividend for 2014, equating to a very attractive yield.

Private residential renting is here to stay. Belvoir looks a great way to access this.

Belvoir Lettings (LON:BLV) FOR Strong industry dynamics Attractive yield AGAINST Interest rate rises could scare market

consensus is for Belvoir to pay a 6.8p dividend

High P/E Market cap Bid:offer

With continued immigration to the UK and the high price of home ownership, private residential letting looks

P/E (forecast) Yield (forecast) 52week low:high

£30m 124p:130p 19.6 5.4 110p:195p

www.aimprospector.co.uk

AIMprospector

Cohort: a growth defence firm Cohort plc is a group of four technology companies, each centred on the defence industry.

Cohort is dividend paying, with a strong balance sheet to support further acquisitions.

From its headquarters near Reading, Cohort made around £70m of sales in the year to April 2014 and a profit before tax of £8.3m.

The company’s four divisions are: MASS, Marlborough Communications (MCL), SCS and SEA. Responsible for more than half of the order book at year-end (£46.4m of £82m), MASS is a technical consultancy, primarily operating around electronic warfare, secure information systems and data management. The company services the full life cycle, from design through to system integration, support and training. There is a split in the value of its services, with defence export work being higher margin than education.

fifth time in six years that Cohort has increased its dividend SEA delivers systems, software and electronic engineering services to government and industry. The company’s biggest activity is servicing the UK submarine flotilla. Here, SEA might be contracted by a firm such as Babcock to deliver the required electronic units for a submarine’s communications systems. SEA is

www.aimprospector.co.uk

scheduled to deliver £25m of Cohort’s year-end order book.

SCS is an advisory business. Their principal customer is the MoD. Its key expertise is what it terms ‘capability integration’. In July 2013, the division won a £4.1m contract with the MoD to manage the integration of the new F-35 into the Air Force. SCS is responsible for around one eighth of the year-end order book, making it the smallest of the four divisions.

defence ministries take great care over who they work with Cohort announced results for the year to April 2014 at the end of July.

The group made sales of £71.6m, flat on the previous year. Adjusted profit before tax came in at £8.3m, up from £7.5m. Total dividends for the year were 20% ahead of the previous year.

This was the fifth time in six years that Cohort has increased its dividend, with one modest cut in that period.

The company’s balance sheet strength is impressive. Current assets were more than twice total liabilities, leading to a ‘net funds’ position of £16.3m.

MCL was purchased for a maximum of £8m in July, two months after Cohort’s year-end. The company is a supplier of electronic communications and surveillance technology. End uses

of MCL equipment include unmanned aerial vehicles and submarines. The deal is expected to be immediately earnings enhancing.

principal customer is the MoD Sensitive organisations such as defence ministries take great care over who they work with. Cohort has brought together a collection of companies that is successfully selling to customers that are famously reliable payers and work to long-term goals. While contract delays and cuts are always a risk, Cohort has a broad range of services under its umbrella and a commendable track record.

A double-digit dividend increase is forecast for 2015. Strong sales growth is expected this year and next.

According to Stockopedia, Cohort shares are selling on a 2016 P/E of 11.4, with the prospect of a 2.8% yield.

Cohort (LON:CHRT) FOR High quality customers Strong balance sheet AGAINST Valuation uncompelling Acquisition integration risk Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£82m 193p:203p 11.9 2.5 160p:225p

11

AIMprospector

Next month: In October’s edition, AIM Prospector will be covering five more AIM shares.

not be shared with any other organisation and there is no spam.

Smallcap fund management requires a distinct set of skills to large/midcap investing. Next month, we also hope to bring Executive Insight from one of the UK’s most respected smallcap fund managers.

AIM continues to excite, with a steady stream of companies joining the junior market. Next month, AIM Prospector will be covering a well-known company that has not long been available to investors.

If you are not already a subscriber to AIM Prospector, sign up here: www.aimprospector.co.uk. Registered subscribers receive the magazine as a pdf at least 24 hours before it goes live to the public. Your details will

AIM survived the summer months well in 2014. There has, however, been a stream of profit warnings recently, many bemoaning the strong pound. Valuations appear finely balanced.

AIMprospector

digging for dividends - panning for profits

Blackthorn Focus is a publications and events business dedicated to the financial markets.

AIMprospector AIM Investor Focus is an AIM-dedicated investor and media event exclusive to AIM-quoted companies.

The event runs twice a year.

Blackthorn Focus is proud to publish AIM Prospector.

A new online magazine

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