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Issue 4 June 2014

1000% profit opportunity The AIM company with the potential to tenbag

write-ups on another five AIM companies the AIM play on bank privatisations successful retail rollout penny stock that is on the up free to private investors

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Welcome to AIMprospector, the monthly online magazine from Blackthorn Focus.


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Celtic................................p 5

To start reading AIM Prospector before anyone else, register your email address at This will ensure that you receive a link to a pdf of the publication first. Blackthorn Focus will not share your email address with any other organisation. As always, AIM Prospector has five companies featured for readers this week, including one double-page top pick. This week’s Top Pick is a company that I believe could go on to increase in value by more than tenfold. Better still, this company is already profitable, has over 100 years of trading history and carries minimal debts. See page 5 for the details. AIM Prospector appreciates the support of its commercial advertisers. Thanks again must go to Walbrook PR, the leading City smallcap public relations firm. A warm welcome to our new sponsor: Spreadex. I will declare at this point that I am personally a Spreadex customer of some seven years. I have used their service to profit from both rises and falls of shares and commodities. Quite uniquely in the industry, they also run a sportsbook, which I use every year for my Grand National bet. Spreadex has dedicated significant resources to helping clients profit from AIM shares tax free. I currently have two AIM share bets open with Spreadex and earlier this year made profits betting against the share price of another company. To learn more about their service, click here. We have recently seen full-year results from Richoux Group, the restaurant roll-out that featured in the April edition of AIM Prospector. Thanks to new store openings, Richoux reported a 17% increase in turnover. In 2013, the company opened five new restaurants and currently trades from 18 sites. Richoux has firm plans to open another Dean’s Diner in July of this year and hope to open three or four sites in total this year. While that may feel like a rather slow roll-out, Richoux is very well financed with £4m of cash on the balance sheet. Elsewhere, Goals Soccer Centres, the first ever Top Pick in AIM Prospector, confirmed that next year will see the company open a second site in the USA. This is very encouraging as the possibility of a sustained US roll-out was the motivation for Goals’ Top Pick selection in April’s AIM Prospector. Don’t forget to register your email address at



Issue 4 June 2014

1000% profit opportunity The AIM company with the potential to tenbag

write-ups on another five AIM companies the AIM play on bank privatisations successful retail rollout penny stock that is on the up free to private investors

Supported by

“Enjoy this month’s magazine” David O’Hara, Editor, AIMprospector 2

Boohoo.............................p 4

Hardide plc........................p 8

Share plc........................p 10 next month.....................p 11

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Is Boohoo a £280m Company With a £560m Price Tag? Boohoo plc is an online-only designer, manufacturer and retailer of fashion for budgetconscious 14–35 year olds. The company listed at the height of AIM’s recent IPO frenzy. How fair is today’s share price?

and an operating profit of £9m. The story behind the recent growth has been Boohoo’s non-European operations. In the twelve months ending Feb 2011, Boohoo sales outside of Europe totalled £0.5m. In the ten months ending December 2013, total sales to the same region hit £25.5m. Between the same two periods, UK sales increased from £22m to £58m and European sales rose from £2m to £8m.

Founded in 2006 by rag-trade executives Carol Kane and Mahmud Kamani, Boohoo plc joined AIM on March 14th of this year. The company has around 500 employees, fulfilling sales to over 100 countries.

IPO at 50p valued the company at £560m

Boohoo shares have attracted a strong market rating Thanks to favourable comparisons with AIM superstar ASOS, Boohoo shares have attracted a strong market rating. According to its own corporate website, Boohoo’s plan is to exploit the double-whammy of clothing sales’ continued migration to the internet and the expected revival in the UK fashion sector. The company plans to use the IPO proceeds to turbo-charge its growth by expanding into the USA, Central Europe and Scandinavia. Boohoo’s trading history has further encouraged comparisons with ASOS. After making revenues of £25m and an operating profit of £0.2m in 2011, Boohoo reported sales of £67m for the year to Feb 2013, with an operating profit of £3.3m. Even more impressive, in the ten months following, Boohoo made sales of £92m 4

Boohoo’s IPO at 50p valued the company at £560m. After soaring as high as 85p on its first day of trading, the shares lost ground as investor appetite for high-growth internet story stocks faltered. Even at today’s reduced price, the shares still trade on a very demanding multiple. Boohoo is priced as though it will replicate ASOS’ success. While the ex-UK growth has been very impressive, the majority of revenues are still generated at home where growth has been far less.

risk is that Boohoo fails to execute its expansion strategy flawlessly Boohoo is the kind of share that can suffer in a market sell-off. Not only will the company have to deliver a perfect report card, wider stock-market conditions must stay bullish. I expect that global stock markets may enter a period of correction as the central banks begin tightening. An increase in the yield on low-risk assets

such as bonds and treasuries means that growth stocks like Boohoo have to work even harder to deliver an acceptable return. Unlike ASOS, Boohoo does not have any significant early mover advantage. Online fashion is more competitive than it was a decade ago. IPO investors in Boohoo could get jumpy if they see the wider market turn. The biggest risk is that Boohoo fails to execute its expansion strategy flawlessly. This would bring a reduction in earnings forecasts and a big cut in the company’s market rating. The result would be a dramatic share price decline. That said, Boohoo has been incredibly successful so far and has powerful consumer trends working in its advantage. After weighing all of this up, I have decided that Boohoo shares are trading at around twice the price they should be. For this reason, I have opened a short spread-bet with Spreadex, betting that the Boohoo share price will fall. The fever around smallcap IPOs has broken. It could be a long way down for several young AIM companies. article by David O’Hara Boohoo.Com (LON:BOO) FOR Enjoying fantastic growth Consumers buying more fashion online AGAINST Demanding valuation Kind of stock that market is turning against Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£560m 49.5p:50.0p 49 0 42p:85p



TOPpick: Could £70m Celtic FC become a £1bn football club?

Once a giant of European football, Celtic is priced below much less substantial English clubs. If they could escape the Scottish Premier League, shares in Celtic plc would rocket. While in the past, the suggestion of Celtic leaving the Scottish Premier League for England has been dismissed as soon as it is suggested, I envisage a scenario whereby it could just happen. Celtic FC are Britain’s first ever European Champions. They are the opponent of choice for many of the world’s top clubs in friendly fixtures. Their stadium is the second largest club ground in the UK behind Manchester United’s Old Trafford. Celtic has a heritage and support that exceeds even the likes of Chelsea and Manchester City. Yet the market rating of the shares suggests that the club is worth not even half the asking price for Premier League strugglers Aston Villa.

that would result in a 1,300% increase in Celtic’s valuation At first sight, that seems bonkers. However, the disparity in television revenues and financial rewards between top flight football in England versus Scotland is so vast that under the status quo, the market is probably right. Yet, there is the tantalising possibility

Celtic Football Club has an illustrious history image: NYC2TLV, Wikimedia Commons

that if there were to be a shake-up in the structure of the British game, Celtic would swiftly move to a valuation closer to Arsenal Football Club’s. At today’s market prices, that would result in a 1,300% increase in Celtic’s valuation. Any readers scoffing at this possibility need to ask themselves just how the English Premier League and UEFA Champions League came to be in their current form. Fed up of providing nearly all of the entertainment but receiving no more television money than fourth tier flops, the Premier League was formed when English football’s (then) big five threatened to break away and form their own competition. This led to an exclusive TV deal for England’s top flight clubs. International club football has also undergone signficant change. Previously a straight two-leg cup competition, the European Cup was converted to a league system. This guaranteed a

number of games (thus revenues) for the participants. However, the runnersup and also-rans knew that they had a similar level of box office appeal as their domestic league champions. To head-off any attempt at reconstituting the European game, UEFA expanded the Champions League further to include some of the most successful teams from the big leagues.

five Welsh teams are allowed to play in the English system, so why not Celtic? If Division One can break away from the Football League, the European Cup can become the Champions League and the Champions League can include teams that have failed to win anything, could Celtic join the Premier League? Five Welsh teams are allowed to play in the the English system, so why not Celtic?


AIMprospector In the last ten years, Premier League football clubs have been changing hands at enormous prices. After all of Roman Abramovich’s success with Chelsea however, the top table now looks dangerously crowded. Leeds United famously went bust after they failed to reach the Champions League. As the top end becomes more competitive, the possibility that big investors could encounter frequent financial shortfalls has increased. A canny business person will be live to this risk. If another Champions League place is not forthcoming, pressure could build again for a richer domestic television deal. The agreement of Celtic plc could play a key part in securing that. The current domestic broadcast deal sees rights split between BT and BSkyB. BT currently has the smaller package and is entitled to around one quarter of all live broadcast games. BT’s decision to bet the farm on sports resulted in a The Celtic brand has global appeal

TOPpick deal price 70% higher than the one it replaced. Even the boss of the Premier League was surprised at how much the rights sold for. The trouble is, history has shown that only a monopolistic provider (i.e. BSkyB) can make a sustainable return from Premier League football. If BT cannot make football pay, the next TV deal that the Premier League gets could be lower.

Premier League football clubs have been changing hands at enormous prices In the international markets, the Premier League has to compete with Spain and Germany, both of whom have better clubs and are home to nearly all the world’s very best players. Adding Celtic to the Premier League would introduce another ‘blue riband’ club. This would result in a dramatic increase in fixtures involving a blockbuster side and

games between those teams. What would make such a deal more likely is the current parlous state of the Scottish Premier League. Since Rangers have been absent, this has not been an effective competition. This fact may make it more likely that the necessary regulators of the game would give their assent to Celtic making the switch.

only a monopolistic provider (i.e. BSkyB) can make a sustainable return from Premier League football In the meantime, Celtic will have to stay put. The plc will continue the struggle to increase revenues and remain reliant on the club discovering players that can be sold for a multiple of their purchase price. Celtic (LON:CCP) FOR Strong brand, heritage Well-run operation AGAINST Revenues under pressure No clear route to growth Market cap Bid:offer P/E (forecast) Yield (historic) 52week low:high


£68m 74p:74.5p no forecast available 0 55p:80p

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Penny share with a big bucks partner Industrial coatings company Hardide recently announced a significant deal with global blue-chip GE. The possibility of further sales to GE means Hardide is one to watch. After several years of disappointment, shareholders in industrial tech outfit Hardide may finally see some fast progress. Listed on AIM since 2005 and with a market capitalisation today of £25m, Hardide is a specialist chemicals business, providing coatings for metal parts. According to the company website, Hardide technology can increase the lifetime of critical metal parts operating in “abrasive, erosive, corrosive or chemically agressive environments”. The last set of results revealed that for the full year ending September 2013, Hardide made sales of £2.4m and a loss before tax of £0.9m. The company reported a cash balance of £1.0m.

marginal sales can have a significant impact on profitability Shares in the company perked up in March as it announced a “Strategic Supply Agreement” with General Electric (GE). Under the agreement, Hardide will supply coatings for one component that GE currently uses. In return, Hardide has been promised approximately $1.3m until February 2016. While this may not sound like big bucks to Hardide, it is important to note that due to the nature of its business,


marginal sales can have a significant impact on profitability. What has really excited the market is the possibility that this GE deal will lead to further sales of a similar scale. Development and testing is “well-advanced” for Hardide’s technology to be used on other GE components. Management has confirmed that such additional sales would “significantly increase the overall value of the Agreement.”

Development and testing is “well-advanced” The most recent trading statement from the company revealed how trading in the first six months of the company’s year was well ahead of the same period last year. This disappointing result for 2013 was blamed on the inventory management of one key customer in the oil and gas sector. Investors are frequently scared off companies whose trading result is dependent on a small number of external client decision makers. Hardide appears to be wise to this and has been trumpeting a significant increase in new accounts. While this is all very positive, Hardide has not been successful in recent years. In 2008, the company’s shares were suspended and trading was not restored until an emergency

fundraising was concluded. In the last five years, Hardide has reported a net profit just once and this figure was exceeded by losses in each of the other four years.

a significant increase in new accounts Hardide is a great example of how an AIM company gets to be a penny share. It developed a technology but failed to deliver returns to remotely justify its share price. Very few AIM companies have ever made it back from being such a disappointment without undergoing a significant transformation in their business. However, the net cash balance and the prospect of further sales to GE raise the exciting prospect of significant share price rises. Hardide (LON:HDD) FOR Proven technology High margin business AGAINST Business remains unproven Still reliant on few key customers Market cap Bid:offer P/E (forecast) Yield (historic) 52week low:high

£23m 2.0p:2.2p no forecast available 0 0.8p:2.5p


Prezzo keeps piling on the pounds Since listing, Prezzo has grown beyond the eponymous pizza restaurant chain. Today, Prezzo is a group of three restaurant brands: Prezzo, Chimichanga and Cleaver. Prezzo is one of AIM’s most successful ever roll-outs. The company listed on AIM in 2002. Its first financial results showed sales for the half-year of £1.2m and a portfolio of eight eateries. Recent full year results showed sales of £167m from a total of 238 trading restaurants. At the last finals, the group comprised 194 Prezzo, 37 Chimichanga (Mexican) and four units operating a new grill concept — ‘Cleaver’. Management expects to open another 25-30 restaurants across all three brands in 2014.

Management expects to open another 25-30 restaurants Prezzo’s success is no fluke. The company is run by Chief Executive Jonathan Kaye. Mr Kaye comes from a dynasty of UK restauranteurs. His father and uncle successfully rolled out the Garfunkels and Deep Pan Pizza chains in the 1980s. His cousins, Adam and Samuel Kaye, built and sold the ASK pizza chain to Pizza Express in 2004. His uncle, Philip Kaye, today owns 24% of the shares of another AIM-quoted restaurant roll-out play — Richoux Group. Roll-outs work by taking the profits from one successful site to pay for a site in another location and so on. Provided the concept is right and sites are well-managed, the profit

momentum can be extremely powerful as success snowballs. Prezzo’s net profit record shows this. In 2009, the figure reported was £10.1m. Four years later, net profit hit £18.5m.

profit momentum can be extremely powerful The company first declared a dividend for 2004. Since then, the payout has never been cut and has been increased seven times. Earnings per share at Prezzo more than doubled between 2008 and 2010. Since then, profit growth has slowed as sites have reached maturity. In the last three years, annual sales growth has averaged 16.7% a year. Earnings per share in that time has averaged 11.4% a year.

Chimichanga is being rolled out fast Now looks an appropriate time to reappraise the group’s prospects. First, you should note that Chimichanga is being rolled out fast. Last year, this chain numbered 28, twelve months before there were just fifteen. While there is little history of a Mexican chain enjoying success in the UK, this space is much less crowded than Prezzo’s home turf (Zizzi, Pizza Express, Strada) and management has been

making very confident noises about Chimichanga. The prospects for Cleaver are less convincing. Nando’s has become the de facto grilled chicken restaurant in the UK. I am unsure how large the opportunity for an upmarket grill is in the UK. I also worry for margins in that business as meat price inflation shows no sign of slowing. Double-digit earnings growth is forecast for this year and next. That puts the business on a 2015 P/E of 16.5. The forecast dividend means that the shares trade on a prospective yield of 0.2%. Although that stops Prezzo shares being an attractive income play, the momentum in the roll-out justifies continued capital investment rather than distribution. The valuation assumes that Jonathan Kaye’s success will continue. With his track record, I’d be reluctant to suggest otherwise. Prezzo (LON:PRZ) FOR Successful market-leader Growth potential remains AGAINST Competitive market Strong valuation Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£327m 138.75p:142p 18.3 0.2% 100p:165p



Share plc profiting from industry changes Tax changes, stock market conditions, industry dynamics and the interest rate environment mean that profits at Share plc are set to hit record levels. Share plc is the company behind online stockbroker thesharecentre. Headquartered in Aylesbury, Bucks, thesharecentre has been operating since 1991. Share plc listed on AIM in 2008. The first thing to understand about Share plc is the dominance of its founder, Executive Chairman, Gavin Oldham. Mr Oldham’s family concert party owns 76% of the company’s shares.

Mr Oldham can control any aspect of the company’s management and strategy When a small company has a large management shareholding, any appraisal requires special care. Mr Oldham can control any aspect of the company’s management and strategy. He could even delist the company. The current set up, with a new CEO in place in the form of Richard Stone, while Mr Oldham acts as Executive Chairman is rather unusual. There can be very few listed companies with both an Executive Chairman and a Chief Executive. However, with such a large shareholding, no claim of ‘non-


executive’ or ‘independent’ status for Mr Oldham would be credible. Mr Oldham has ensured that shareholders have been rewarded as the company has grown. In 2008, Share plc made revenues of £12.0m and paid a dividend of 0.22p per share. By 2013, sales hit £15.0m and the company declared a dividend for the year of 0.52p. A collection of tailwinds mean that thesharecentre’s growth could accelerate from here.

thesharecentre’s growth could accelerate from here The UK’s private investor community are, in aggregate, a predictable bunch. They are frequently drawn to trading the same large caps (Lloyds, Vodafone) and have a strong propensity toward AIM shares. This can be seen in the ‘most traded’ statistics from stockbrokers where AIM-quoted shares such as Quindell Portfolio and Gulf Keystone Petroleum can be traded more than the blue-chips. AIM stocks account for around 30% of all thesharecentre’s trades. The recent change to allow trading in AIM shares within ISAs has already provided a significant increase in trading volumes at thesharecentre. A further boost will likely arrive when the self-select ISA limit is increased to £15,000 in July this year. Interest received on customer deposits will increase significantly when the expected rate rises begin.

Management estimates that a 0.5% increase in the base rate would boost Share plc profits by £750k per annum. The Royal Mail IPO, forthcoming sale of TSB and the government disposal of its stake in Lloyds will raise public interest in share investment. If new offerings are successful, a growing number of new investors will be drawn to share ownership. The size of a retail broker’s addressable market could realistically triple in the next five years. thesharecentre’s award-winning offering will likely be a significant beneficiary, taking Share plc profits to record levels.

increase in the base rate would boost Share plc profits by £750k There can be few businesses on AIM that are operating in such a favourable environment. Although the current valuation looks punchy, the potential is very real. Short-term market moves won’t change that and may present an opportunity should the shares take a step back. Share (LON:SHRE) FOR Excellent market opportunities Strong brand AGAINST Rich valuation Revenues dependent on market conditions Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£61m 42p:44p 35 1.2% 20p:53p


Next month: At the time of going to print there are a number of contenders for Top Pick. If you are lucky we might even feature the AIM share whose share price our editor has bet will rise via Spreadex, or it may be an AIM-quoted company reporting results in June. With the market turning away from blue-sky tech stories, I am hopeful that the number of bargain investment opportunities on AIM will start to increase. Remember, the summer months are frequently difficult times for smallcap markets as investment managers take holidays and liquidity dries up. Keeping watch on a large number of AIM companies can be important at times like these, even if they have previously been considered too expensive to invest in. Summer smallcap sell-offs are common and can present great opportunities. Don’t forget to register your email address at to get your copy of this publication first. See you in the next edition.


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June 2014 AIM Prospector  

Featuring:, Celtic plc, Hardide, Prezzo and Share plc.

June 2014 AIM Prospector  

Featuring:, Celtic plc, Hardide, Prezzo and Share plc.