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AIMprospector

Event Review AIM Investor Focus ran on October 18th at the offices of Edison Investment Research. Executive management from AIM firms Orchard Funding Group, Next Fifteen Communications, James Halstead and Volvere all presented to an audience of investors.

Orchard Funding Group Shares in niche lender Orchard Funding have underperformed following a profit warning in July. The company blamed slow recruitment of sales personnel and longer FCA approval lead times for the setting up of insurance broker credit services. Yet the dimensions of the company’s specialty lending sector and current market environment of cheap money combine to make a very interesting investment case. Given the company’s declared intention to maintain a relatively modest lending ratio (c.f. the banks), the rate of balance sheet growth will be constrained by capital. Orchard Funding Group may have to tap the market for more money if management aims of gaining significant market share from dominant rivals are to be achieved. Orchard Funding (LON:ORCH) Unaudited interims (six months to 31 Jan 2016), showed Market cap £19m static interest income and a jump in gross profit margin but Bid: offer 85p:91p a pedestrian rise (+6%) in PBT as admin costs leapt 20%. P/E (forecast) 18.1 FY 2015/16 results are expected imminently. There is a Yield (forecast) 3.5% dividend and a commitment to continue paying.

Next Fifteen Communications It would seem that a significant component of robust recent Next Fifteen Communications’ growth is the contribution from acquired high growth companies (e.g. 2017 H1 total revenues +30.3%; organic revenues +12.8%). Margins have also widened impressively through both efficiency gains and the timely acquisition of high margin businesses in the fast growing tech sector. The market has rewarded skilled acquisition management in a strong absolute and relative share price performance. Two issues arise from this growth strategy: 1) the 17 (and soon to be more!) different acquired companies will need to be managed in a structured way so that as their sectors mature, the companies will continue to deliver the appropriate quality of results; 2) the typical acquisition price multiple of 5-6x ebitda has succeed so far but as competitors also buy up small players, the diminishing pool of potential target companies could lead to uneconomical prices being paid. For the moment the stand-out attraction of Next Next Fifteen Communications (LON:NFC) Fifteen is that 85% of profits are non-UK based. Earnings will benefit significantly from the current weakness of Market cap £267m sterling particularly against the US dollar. The shares will Bid: offer 334p:343p also continue to benefit from the increasing weight of P/E (forecast) 16.3 ‘tech’ agencies in the group. Yield (forecast)

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November 2016 AIM Prospector  
November 2016 AIM Prospector  

Featuring *NINE* AIM companies: Anpario, Colefax, James Halstead, Quartix, Marshall Motor Holdings, Next Fifteen Communications, Orchard Fun...