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Issue 12 April 2015

Juicy profits The drinks firm putting big smiles on shareholder faces

another five AIM firms featured high-yielding bookmaker ambitious animal health firm confident financial services provider maturing software business free to private investors

AIMprospector AIMprospector

Issue 12 April 2015

Juicy profits The drinks firm putting big smiles on shareholder faces

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

An important date for AIM investor diaries: Blackthorn Focus will be running the investor event AIM Investor Focus again from 11am on April 21st at the London offices of broker finnCap. Private investors may attend AIM Investor Focus free of charge. another five AIM firms featured high-yielding bookmaker

ambitious animal health firm

Contents Welcome . .............................p2 Benchmark Holdings............p3 Top Pick: Nichols..................p4 AIM Investor Focus...............p6

confident financial services provider maturing software business

free to private investors

Blackthorn Focus endeavours to recruit some of AIM’s most successful companies to this event and again, four highly regarded AIM companies will be participating. They are: Christie Group, EMIS, NAHL and Fairpoint. Shares in Christie Group have advanced more than 40% in the last year as the recovering UK economy has strengthened the firm’s markets. Christie upgraded earnings expectations twice in the last year. EMIS Group reported results earlier in March. The company is a supplier of software solutions to the healthcare industry. Results showed a 15% increase in the company’s final dividend. This was the fourth successive year of dividend increases at EMIS. With a market capitalisation over £500m, EMIS is one of AIM’s blue-chip shares. It is rare to be able to meet a company of this scale at an event open to private investors and I am delighted to welcome EMIS to AIM Investor Focus. Fairpoint also announced results in March. The company is enjoying considerable success diversifying its revenue streams away from consumer debt services. With results, Fairpoint reported a 7% dividend increase, 15% uplift in EPS and a move to a net cash position. NAHL is the company behind National Accident Helpline. The company is essentially an umbrella organisation, marketing for a panel of solicitors under one brand. NAHL has been one of AIM’s most respectable recent IPOs. A large final dividend was announced with March’s finals. NAHL shares, like Fairpoint, offer a considerable dividend yield. According to Stockopedia, both companies are set to yield over 5% for 2015. To apply for a place at the event on April 21st, submit your details here: The event is open to private investors, fund managers, private client brokers and media. I hope that many AIM Prospector readers will join us. AIM Investor Focus will then run again later in the year on October 15th. Contact Blackthorn Focus if you would like to be on the mailing list for details of that event.

GVC Holdings......................p7 Idox.......................................p8 Executive Insight...................p9 Jelf Group...........................p10

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Published by: Blackthorn Focus Limited

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


Food science firm set to gain from demand growth

Benchmark is one of AIM’s newer companies. The firm joined AIM via an IPO in December 2013. The company was founded in June 2000, when a food supply chain advisory organisation, RL Consulting, was incorporated. As the company grew, other firms joined the group and new divisions were created. Today, Benchmark is principally involved in the production of animal health solutions (e.g. vaccines), along with the provision of technical expertise and publications to industrial participants along the food chain. Benchmark’s strongest market is aquaculture, defined by Wikipedia as ‘the farming of aquatic organisms such as fish, crustaceans, molluscs and aquatic plants’.

acquisitions target a fast-growing market The industry being served should give some encouragement to investors, given the success of similar quoted companies such as Eco Animal Health and Anpario. After the IPO brought in proceeds of £27.5m to the company, a further £70m was raised in December 2014. This was used to facilitate the acquisition of a Norwegian salmon genetics company and Stofnfiskur, an Icelandic salmon breeding company. Stofnfiskur will enable Benchmark to supply eggs to commercial salmon farmers throughout the year to enable production to meet year round demand. The aggregation of these activities has seen Benchmark become the world’s second-largest salmon egg producer. The acquisitions target a fastgrowing market. According to Norwegian Directorate of Fisheries,

production of salmon/trout in Norway has increased from 200,000 tonnes in 1994 to 800,000 tonnes in 2008. That’s a rate of increase of +10% per annum. 2014 full-year results (Benchmark has a September year-end) showed the considerable increase in scale of the business. Revenues increased by 28% to £35.4m. Staff headcount increased by 63 to 222. A further 60 staff were added post year-end, aided by the acquisitions. A loss before tax of £1.4m was recorded. IPO costs accounted for a significant amount of this, with Benchmark reporting £1.5m of exceptional corporate costs for the year. Like all such businesses, Benchmark must continue to invest in research and development (R&D) if it hopes to achieve sustainable growth. In 2014, Benchmark spent £6.5m on this activity. Most importantly, the company reported ‘strong growth across vaccines business’. Benchmark remains on the acquisition trail and regards bolt-on acquisitions as a key part of its longterm strategy. This will be enabled by the £16.5m net cash balance reported at year-end. The shares have rewarded IPO investors. From the forecasts issued, substantial growth is expected from Benchmark over the medium term.

considerable increase in scale of the business Global population growth looks set to guarantee strong demand for protein well into the future. This will stress the food chain for higher yields. This augurs well for Benchmark’s industry. Given the favourable demand outlook and sound balance sheet, it should not be a surprise to see the shares trade on a premium rating.

population growth looks set to guarantee strong demand for protein Benchmark Holdings (LON:BMK) FOR Industry supported by powerful trends Trading well AGAINST Risk integrating acquisitions High valuation Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£225m 97p:104p 22.5 0 78p:126p




Middle East brings foreign flavour to Nichols’ fortunes

Founded in 1908, Nichols plc is a soft drinks manufacturer headquartered in Newton-le-Willows, Merseyside. Nonexecutive Chairman, John Nichols, is grandson of the company’s founder. Nichols makes significant sales into foreign markets and is a true AIM blue-chip. The company produces still, carbonate and cordial products. The best known is Vimto. The drink is sold in over 65 countries. Vimto delivers 90% of UK turnover and 100% of foreign group sales. Vimto was created as a herbal tonic ‘for vim and vigour’ from ‘seriously mixed up fruit’ consisting of grapes, raspberries and blackcurrants. It has been consistently advertised since WW2. Nichols expenses all advertising costs above the line. The company sells a collection of other flavours under license. Nichols produces Sunkist under license in the UK from Sunkist Growers Inc. In 2010, Nichols added the license for Levi Roots’ Carribean-inspired flavours. The company’s ten year dividend

record illustrates Nichols’ success. From paying 8.8p per share for 2004, the payout has since increased year-onyear to hit 22.4p for 2014. In the last five years, the payout has increased by an average of 13.0% per annum. In that time, the shares have risen from 355p to 1,164p and 88.3p of dividends have been paid. This rise comprehensively beats the FTSE 100, which is up around 20% over the same period. For 2014, overall sales increased by 3.5% against a challenging UK market (79% of sales). Pre-tax profits before exceptional items increased

In the last five years, the payout has increased by an average of 13.0% per annum 14%. That 22.4p dividend was 14.2% ahead of the prior year, comfortably covered by earnings per share of 55p. The profit increase came from a combination of sales increases and margin improvement to 23% (2013: 21%). The latter is due to changes in the sales mix between home:overseas and carbonated:concentrate. The decreased sugar content of soft drinks (reflecting the trend toward health) assisted further. Earnings were enhanced by a lower tax charge of 21% (2013: 25%). On a constant exchange rate basis, overseas sales in 2014 showed a 7.3% increase. Concentrate sales to the Middle East rose 12.3%. In some of its markets, Nichols’ Vimto cordial

Nichols variations on Vimto




Earnings were enhanced by a lower tax charge occupies a strong niche as the de facto choice of fast-breaking drink during Ramadan. Overseas markets provide a similar contribution to the bottom line as the UK. A recent litigation setback, involving a dispute over licensing in an overseas territory, cost the company a containable £8.0m. As at the last balance sheet, Nichols was carrying a pension liability of £6.2m. The ratio of current assets (£62.7m) to current liabilities (£21.3m) at end 2014 was well in excess of 2.5, which is very comfortable. There was a cash balance of £34.5m.

occupies a strong niche Nichols is run by a focused board of five directors. This comprises a family representative (the nonexecutive Chairman), a Chief Executive appointed in 2013 with long experience in the soft drinks industry, a finance director with previous operational experience in the company and two non-executives with strong competition, retailing, compliance and financial experience. The total salary charge for directors for 2013 was £500k with a total including benefits and pensions of £758k. In the context of pre-tax profits for that year of £22.5m it is modest and should be noted by the remuneration committees of all public companies. Nichols’ focus on value over volume has encouraged analysts to forecast an EPS increase of around 6% for 2015. Given the diversified sales channels (less than 25% of sales go through UK major retailers), growing

Nichols has produced Levi Roots flavours since April 2011

overseas sales and the confident statement, this estimate could prove to be conservative. According to Stockopedia, an 8.3% dividend increase is forecast for the full year 2015. The healthy cash position gives scope for a larger increase, closer to the long term dividend growth rate of 13%. Nichols is a well managed and stable AIM company. After restructuring in 2005-2008 it has stuck closely to its business of soft drinks and dispensing, subsequently

an 8.3% dividend increase is forecast for the full year 2015 adding contemporary brands that have a strong appeal in niche markets. According to Stockopedia, Nichols is one of just six AIM-quoted companies to have increased its dividend every year for more than eight years and shown a compound annual dividend growth rate in excess of 10% over the last five years. Nichols’ financial strength and cash flows mean that the business’ development and dividends can be supported without recourse to borrowing. While the shares are not

development and dividends can be supported without recourse to borrowing obviously cheap, such successful and well-financed firms rarely are. The market rating would appear to be in-line with Nichols’ most comparable competitor, AG Barr (producers of Irn Bru) and broadly similar to its larger international peers. Nichols’ historic ability to increase its dividend should encourage longterm, patient investors. The significant family shareholding (around 35%) provides some assurance as to the company’s long-term independence and listed status. Nichols (LON:NICL) FOR Strong balance sheet Significant brand heritage AGAINST Challenge to grow in UK Confluence of fortune in 2014 Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£427m 1,150p:1,163p 19.9 2.10% 835p:1215p




Event - April 21st Blackthorn Focus will be showcasing four AIM-quoted companies on April 21st at the offices London offices of stockbroker finnCap

Since first running in April 2012, twenty-six companies have participated at AIM Investor Focus. Twenty of these companies have since gone on to increase their dividend to shareholders at every subsequent opportunity. The median return on the share price of a presenting company is +19%. (data as of March 30th, 2015)

Presentations begin at 11:00 on Tuesday, April 21st. The event is free for private investors. To apply for your place at the event, click on the button below. Apply

Fund managers and private client wealth managers who would like to meet the management of any of these companies should contact Blackthorn Focus here: Contact Media for Fairpoint and EMIS should contact Reg Hoare at MHP Communications: reg., 020 3128 8793 Media for NAHL should contact James Styles at FTI Consulting on 020 3727 1000. For Christie Group, media should contact Blackthorn Focus on 020 3239 5437.


Betting firm yields one of AIM’s biggest dividends Operating a collection of online betting websites across the world, GVC endeavours to pay at least 75% of net operating cashflow out in dividends. Few AIM companies offer a comparable yield today. Shares in GVC have been quoted on AIM since January 2005. Since then, the company has developed through acquisitions. The biggest change came about in 2013, when GVC formed a consortium with William Hill to purchase Sportingbet plc. Following the acquisition, William Hill took Sportingbet’s Australian operations and GVC took the rest, with William Hill retaining a call on Sportingbet’s Spanish business.

importance of the ‘B2B’ operations to GVC’s bottom line is likely significantly more Despite contributing only nine months of business, this acquisition saw GVC’s revenues increase almost threefold, from €60.3m for 2012 to €170m for 2013. However, with all gambling firms it is essential to gauge their regulatory position. In GVC’s case, this is particularly opaque in the Turkish market, where it operates a B2B (business-to-business) service for East Pioneer Corporation, a firm registered in the Dutch Antilles. This agreement looks to be responsible for around one third of GVC’s revenues. The importance of the ‘B2B’ operations to GVC’s bottom line is likely significantly more as unregulated markets are

Unregulated revenues will always be a concern to analysts and fund managers frequently highly profitable. It is not likely that Turkey will regulate online gambling. However, the situation appears to be more encouraging in Latin America, where GVC operates the betboo brand in Brazil. Management claim that this division continues to grow impressively and enjoys a market-leading position. Online gambling has been transformed by mobile and in-play offerings. These two trends lead to a greater number and less savvy bets being placed. Any firm with a strong mobile and in-play offer is therefore enjoying fast growth. This has a transformational effect on company margins. Encouragingly, GVC is making large strides in both in-play and mobile. The last results from the company revealed that mobile was generating 35% of sportsbook revenues. In-play delivered 73% of sports revenues. In addition to the Sportingbet sports business, GVC also owns CasinoClub, an online casino facing the German market. This service is licensed in Malta. Malta’s EU status enables GVC to legally run CasinoClub in the

German market, regardless of any local regulatory issues. While any company that operates in an online market with a dominant player (in this case, bet365) would normally concern me, GVC is clearly enjoying considerable success and progressing well. Unregulated revenues will always be a concern to analysts and fund managers. However, both GVC and Sportingbet before them earned significant long-term earnings from the Turkish market, despite frequent disruption of the payments processing mechanism. Scepticism over GVC’s quality of earnings has long been present. This has depressed the valuation, resulting in a high yield. GVC’s directors would almost certainly be arrested were they to ever visit Turkey. I expect that the high dividend payout and low amount of retained cash in the company is a deliberate strategy to protect shareholders should the company ever be sued. GVC Holdings (LON:GVC) FOR Big yield Serving growth market AGAINST Material earnings risk High director rewards Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£293m 472p:479p 9.1 7.70% 372p:505p



One of the few: AIM software company paying dividends Idox is a well-established technology firm. The company develops ‘information management’ solutions that are sold into the UK public sector and regulated engineering industries. Quoted since 2001, Idox today trades around the top 10% of AIM companies by market capitalisation. Idox reports figures with respect to its two divisions: Public Sector Software (PSS) and Engineering Information Management (EIM). In 2014, EIM made around half of the sales and profits delivered by PSS. According to the most recent results statement, the PSS division “is the leading applications provider to UK local government for core functions relating to land, people and property, such as its market leading planning systems and election management software”. The fact that the PSS operations recently delivered “the majority of electoral services for the Scottish referendum” gives credence to Idox’s claim to its market standing.

EIM made around half of the sales and profits delivered by PSS The EIM division offers a document control service, frequently deployed in heavy industry. EIM’s software product is used to control the thousands of engineering and management documents that relate to major upgrade, construction or installation projects. The North American market


is the majority of the EIM business. Around one third of Idox’s EIM sales are to the oil and gas sector, with the company listing a number of majors among its clients. 2014 full-year results (Idox has an October year-end), laid plain management concerns for earnings over the medium term. Shareholders were warned to expect little growth in public sector IT spending as governments step back from investing in anything but ‘frontline services’. Prospects in the oil and gas sector are limited as majors withdraw from major capital spending projects. It seems especially inauspicious that both sides of Idox’s business have simultaneously slowed. This leaves

warned to expect little growth in public sector IT spending

Dividends at the firm have increased in every year since 2006 net profit following a similar trajectory. Dividends at the firm have increased in every year since 2006. Only fifteen AIM-quoted companies have managed more than eight years of successive dividend increases. Idox is a quality AIM operation, currently trading through sticky markets. Debts at the company appear entirely manageable, with cash generated from operations more than ten times 2014 interest payments. The current share price appears to suggest that despite the gloomy outlook, Idox will deliver significant earnings growth this year and next. Alternatively, the market may simply have concluded that the company is of such calibre that a premium rating is deserved. IDOX (LON:IDOX) FOR

me with concerns over just how predictable profits are at the company. However, Idox does appear to have a strong position in its markets and management have previously delivered strong growth in a more favourable climate. Idox’s past record is one of the most impressive on all of AIM. In the last five years, sales have nearly doubled, with

Successful operation Strong market position AGAINST Soft markets High earnings growth assumed Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£144m 39.5p:40.5p 12.6 2.00% 35p:47p


Chris Boxall Fundamental Asset Management

Executive Insight The value of IHT planning shareholders For inheritance tax (IHT) purposes, shares in almost all AIM-quoted companies qualify for business property relief. Provided that they have been held for more than two years, such assets do not count towards the taxable assets of an estate. This makes AIM shares very attractive for anyone looking to reduce the tax charge paid on death. Principally due to the compelling IHT planning attractions, our firm are active investors in AIM-quoted companies. However, at Fundamental Asset Management we are frequently surprised how the senior management of many AIM companies, not to mention their advisers, fail to recognise the benefits of having IHT planning investors as shareholders. Contrary to the short term trading mentality of many investors in AIM, those investing for IHT planning purposes are not inclined to jump ship at the first hint of trouble. While investing for IHT planning purposes does permit trading and reinvestment in different AIM securities within the two year qualifying period, it becomes very hard to keep track of things if trading activity is too great. Of greater significance is that the two year qualifying period actually encourages patient long term investing. In order to secure the compelling tax reliefs, IHT planning investors are also obliged to remain fully invested in the respective AIM shares, notwithstanding market conditions. It is for this reason that so many specialist IHT managers delivered such incredible returns in 2009, post the financial crisis. In being obliged to avoid trying to time the market’s rebound they were in it from the beginning. The ISA rule changes in August 2013, which permitted the inclusion of AIM shares in ISAs, also encouraged a large

number of new IHT entrants into AIM as legacy portfolios were rebalanced. While companies recognised the greater attraction of AIM for many investors from this time, many failed to appreciate the principal source of this new money, specifically the more elderly investor who was simply rebalancing his/her portfolio. Those AIM companies that are aware of their attraction to more elderly investors are typically ones with large family ownership, such as Robinson plc, the packaging group. Robinson can trace its roots back to the 1600s when the Robinson family set up and ran pottery businesses. The group’s packaging business itself dates back to 1839. With such a long history, it is no surprise that Robinson has collected a number of property assets over the years, some of which are not currently used in the packaging business. However, the Group has always intended to sell its property portfolio and has never actively invested in or developed it. Unlike numerous AIM quoted companies, who seem to have little knowledge of the IHT attractions for UK investors, Robinson has a helpful page on its web site ‘Tax & AIM’, clarifying the reliefs and why it believes that it qualifies as ‘properties held are residue from previous trading activities and there is an active plan to dispose of them.’ Camellia, the global agriculture and horticulture group (whose activities also extend to engineering, food storage and distribution, banking and financial services) moved to AIM from the Main Market in 2014. Camellia has its origins in the 19th century, its foundation having been a very small quoted company on the London Stock Exchange in the early 1960s, called the Sephinjuri Bheel Tea Company Limited. The Group’s move to AIM was driven by the belief that AIM is a market appropriate

for a company of Camellia’s size and nature, and is a market that will attract new investors. The official announcement explaining the reasons for moving to AIM very helpfully guided investors by stating that while management believed that Camellia would qualify for the purposes of UK inheritance tax business property relief, based on the nature of its assets, it did not consider that full relief at 100% would be available. It was again encouraging that a substantial Group (Camellia employs over 73,000 people worldwide) had acknowledged the attractions of its AIM quote for IHT planning investors and was able to offer guidance. Before the market has another wobble it would be wise for the management of AIM companies to more fully embrace this patient, supportive category of investor.

Christopher Boxall is co-founder of Fundamental Asset Management Ltd. Fundamental invests in AIM companies to meet clients’ Inheritance Tax planning purposes. Chris is also co-founder of website Investors Champion which has developed a search tool for identifying qualifying AIM companies. 9


Jelf: a thriving services firm Jelf Group is a provider of financial services and advice to businesses and individuals. Jelf provides insurance broking services, alongside employee benefits and financial planning. This is achieved through a network of more than 30 offices across Great Britain. Jelf was brought into being more than twenty-five years ago and its shares have been quoted on AIM for over a decade. Some of Jelf’s growth along the way has been due to acquisitions of similar businesses. Jelf integrates these firms, typically realising significant synergies. In the past, this has been achieved using cash and/or shares.

thrives when businesses are forced to outsource all or part of their pension/benefits Its activities make Jelf easily compared with other stocks such as Mattioli Woods and Brooks Macdonald: two of AIM’s most successful companies of recent years. Jelf thrives when businesses are forced to outsource all or part of their pension/benefits provision. In a growing economy, the requirements of SMEs in particular grow quickly. Jelf profits as its services are typically required for the long term. Jelf’s offering is also ‘sticky’ as the upheaval involved in moving to another supplier would be a significant distraction for a business. Jelf’s most recent results, announced in December of last year (Jelf has a 10

September year end), showed a big advance on the previous year. Although revenues were ahead just 8%, a significant margin increase led to profit after tax surging 40% to £6.5m, with fully diluted EPS 35% ahead at 5.4p. The total dividend for the year was increased from 1.5p to 2.0p — the third successive year of increases. Debt came down fast, assisted by strong cash flows. In the twelve months, net debt fell from £13.5m to £5.7m. Jelf’s 2014 performance was boosted by the first full year’s contribution from 2013 acquisition The Insurance Partnership. However, the are signs that further strong growth is still to come.

margin increase led to profit after tax surging 40% to £6.5m Jelf is particularly bullish about the possibilities offered by pension changes, with final results declaring “major changes in the pensions regime, create considerable freedom for individuals to make their own choices regarding their pension savings. It is the most radical change to pensions in almost a century and will provide a significant opportunity for advice-led businesses such as Jelf” Consensus market forecasts reflect

underlying EPS projected to increase by 85% in 2015 this expectation, with underlying EPS projected to increase by 85% in 2015 before moderating in 2016. The company remains on the acquisition trail. At the end of December, Jelf announced the acquisition of Beaumonts Insurance, a deal that is expected to see gross written premiums increase by around 25% and immediately enhance earnings. Shares in Jelf have risen significantly since results were announced. On a P/E basis, the current valuation is ahead of the market. However, Jelf is a successful company with several economic and industry changes already working in its favour. Jelf Group (LON:JLF) FOR Well-positioned for change Longstanding success AGAINST Competitive marketplace High valuation Market cap Bid:offer NAVps Yield (forecast) 52week low:high

£153m 177p:183p 18 1.20% 110p:188p


AIMprospector A Blackthorn Focus publication


April 2015 AIM Prospector  

Featuring five AIM companies: Benchmark Holdings, GVC Holdings, Jelf Group, idox and Top Pick: Nichols plc.

April 2015 AIM Prospector  

Featuring five AIM companies: Benchmark Holdings, GVC Holdings, Jelf Group, idox and Top Pick: Nichols plc.