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AIMprospector

Issue 2 April 2014

Ten years of triumph

The AIM contender for UK’s Most Successful Share

five AIM companies profiled high-tech, turnaround and recovery plays significant news from last month’s companies what the budget means for AIM FREE to private investors

Supported by


AIMprospector AIMprospector

Issue 2 April 2014

Ten years of triumph

The AIM contender for UK’s Most Successful Share

five AIM companies profiled high-tech, turnaround and recovery plays significant news from last month’s companies what the budget means for AIM FREE to private investors

Supported by

Welcome back to AIM Prospector, the monthly magazine dedicated to AIMquoted companies.

Remember, if you want to receive AIM Prospector 24 hours before it is published to the internet, register your email address at www.aimprospector.co.uk. This month our featured TOPpick is one the most successful companies quoted on AIM. It just might be the most successful London-listed company of all. Those of you who know me and know AIM may already have guessed which company I am talking about. If you have not, flick to page five for the lowdown on this top performer. Elsewhere this issue you will find a financial services firm under new management who will be working to put an annus horribilis behind it. There is the company growing sales fast in London’s booming construction market and the technology player that has been signing up blue-chip partners at a lick. Finally there is the AIM company rolling out restaurants in London the South East. Congratulations to anyone who got the identity of any of these without looking! It has been a busy month for companies recently featured in AIMprospector. Maintel announced a 15% sales and dividend increase with its finals. EMIS reported a 22% increase in sales, met with a 13% dividend hike. Goals Soccer Centres successfully completed an £11.5m placing. This amounted to another 10% more shares being issued, at a price similar to the previous close. It was Sigma Capital that stole the show however, selling 25% more shares in their company at a 7% discount to the previous day’s share price. I expect these welltimed fundraisings will have a significant effect on how quickly Goals and Sigma can achieve their ambitions. Christie Group has its full year results scheduled for March 31st. On top of all this good news is the absolute barnstormer of a budget. The hike in the annual ISA allowance is a huge 30%. Given the propensity for private investors to invest in AIM, I’m guessing that this could lead to another significant increase in private investor participation. David O’Hara, Editor,

AIMprospector 2

Enjoy this AIMprospector and good luck with your AIM endeavours.

Contents Richoux............................p 4 RWS.................................p 5 ISG...................................p 7 London Capital Group.....p8 Proxama...........................p 9 next month.....................p 10

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

Published by: Blackthorn Focus Limited www.blackthornfocus.com

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Richoux Group is a classic AIM restaurant roll-out story With a portfolio of sixteen restaurants operating four themes, Richoux Group has grown sales steadily and is now reporting profits. Better still, the company has a significant net cash position. If a retail format with the potential to roll-out nationwide is identified early, share price gains can be significant when the business scales. A great AIM example is Prezzo: profits have soared as the chain has expanded.

no published forecasts for the company Richoux has existed on AIM for over ten years in a number of guises. Previously known as City Gourmets, Madisons Coffee and then Gourmet Holdings, Richoux Group plc took its current name in 2008. The company runs seven Italianstyle Villagio restaurants, two Zippers restaurant bar and grill establishments, five Dean’s Diners and four of the eponymous Richoux. Three years ago, the company ran twelve restaurants. Since then, Richoux has added one more Zippers, a further Dean’s Diner and another three Villagios. On researching Richoux Group, I am struck by a number of peculiarities. First, the company rarely issues any information on trading other than with 4

its six month and full year results. The last separate trading statement was issued in July 2012, when the company reported a significant improvement in profitability. The company’s septuagenarian Chief Executive, Mr Salvatore Diliberto, is never mentioned as a shareholder contact in regulatory statements. For a number of years, the company has not retained financial PR. That’s a little unusual for a £30m company, particularly one that operates leisure brands and would be expected to welcome media coverage. I can find no published forecasts for the company, suggesting that Richoux does not seek analyst coverage and has negotiated commensurately lower broker fees in return.

unlikely to ever be a liquid market for the shares Finally, nearly 80% of the company’s shares are owned by just four investors. Unusually, for a quoted business, three of these are private investors: Hon. Robert Rayne (17% of all shares), CEO Salvatore Diliberto (21%) and Mr Phillip Kaye (24%). The Kaye family are major players in the UK’s casual dining scene. Phillip Kaye was the man behind the Garfunkel’s, Deep Pan Pizza, ASK and Zizzi brands. His nephew Jonathan is today boss of AIM-quoted Prezzo. The fourth major shareholder is Michinoko Limited with

17% of the company. Strangely, I regard many of these points as positives. Engaging with ‘the market’ is an expensive and timeconsuming activity. With so little free float there is unlikely to ever be a liquid market for the shares, whatever the company does. Large management shareholdings are a significant incentive to succeed.

management shareholdings are a significant incentive to succeed The facts demonstrate the investment case better still. In 2007, Richoux reported a £0.5m loss on £2.5m of group sales. By 2012, this had improved to a £0.9m profit on £10m of sales. In the most recent six-month period, increased openings helped Richoux to report a 13% sales increase and a similar improvement in operating profits. For smaller investors who can live with Richoux’s atypical set-up, there is a successful business here, run by industry heavyweights. Furthermore, Richoux is well-financed for continued expansion. Richoux Group (LON:RIC) FOR Winning, established formats Strong balance sheet and cash generation AGAINST Rich valuation Hard to buy shares in size Market cap Bid:offer P/E (historical)

£31m 32p:35p 32.5

Yield (historical)

0

52week low:high

11p:37p

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AIMprospector

TOPpick

TOPpick: AIM blue-chip RWS Holdings may be the UK’s most successful listed company Buckinghamshire-based RWS Holdings is a supplier of translation services to patent filers worldwide. The company boasts a remarkable ten year record of uninterrupted sales, profit and dividend increases. More than two thirds of RWS’ business is the translation of patent applications. Here, RWS translates the patent filings of an innovator such as AstraZeneca into the languages of the territories where it wants protection. This requires a double-whammy of know-how: both linguistics and the application area i.e. pharmaceuticals or engineering. This level of expertise is rare, meaning that RWS can demand a high price.

level of expertise is rare, meaning that RWS can demand a high price. Around one fifth of sales comes from commercial translation services. 9% of sales comes from information services and a recent acquisition. If you were thinking that RWS’ ten year record was achieved with small advances you are wrong. In 2003, the company made £27m of sales and £5.6m of pre-tax profit. A dividend of 5p per share was declared. For 2013, RWS reported total sales of £77m, www.aimprospector.co.uk

RWS headquarters, Chalfont St. Peter

pre-tax profit of £21m and dividends per share of 20.25p. In the last five years, EPS has been increasing at an average rate of 9.8% a year. Dividends have been raised by 14.3% a year on average. Sales have been increasing at an average rate of 7.4%. According to Stockopedia, only nine UK-listed companies have a better record over the last five years. It is a job to find another company with a London listing that can match RWS’ record over the decade. RWS has thrived thanks to operating at the confluence of three major trends: outsourcing, the increase in patent applications and globalisation. As firms have become more willing to procure services from outside providers, organisations that previously translated their work inhouse have been turning to RWS. A recent presentation made by RWS to investors revealed the huge growth in patent applications. In the ten years from 2002 to 2012, a key measure of

patent applications showed an 80% rise. In only one year did applications fall – a decline of 5%. The average annual increase in annual applications in the ten year period was 5.6%. The third leg, globalisation, has increased pressures on inventors to file in multiple territories. The result has been a bonanza of work and profits for RWS.

Dividends have been raised by 14.3% a year on average. As the company has become known as a market leader, it has grown market share further. This has been managed while still maintaining a diverse customer base. RWS’ ten largest clients are drawn from across a number of different sectors and together account for just 27% of all sales. No single customer brings in more than 6% of revenues. The company’s most recent trading statement reported good growth from the core patent translation services.

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TOPpick

The typical RWS employee is a first-class languages graduate

Further good news came from news of trading at inovia, the recently acquired web-based patent filing specialist. inovia was purchased in a deal that completed in September 2013 as part of RWS’ strategy to buy businesses with “demonstrable growth prospects in closely related sectors”. inovia was previously RWS’ biggest customer. The acquisition looks set to be a significant success with sales already exceeding RWS’ expectations. Executive Chairman, Andrew Brode, is more than just the boss of RWS. He personally owns 5% of the shares in the company. A family trust he set up controls another 37%. That makes Mr Brode’s stake in RWS one of the most valuable AIM shareholdings in existence. Mr Brode is 73. That fact leads many to question how much longer

a bonanza of work and profits for RWS he will keep RWS out of the clutches of an acquirer. Although a purchase would require little more than Mr Brode’s assent, I do not regard a sale prior to Mr Brode’s retirement as inevitable. RWS’ scale and ability to deliver income makes the company’s shares an attractive long-term store of wealth. Another question to wrestle with is whether a manager could ever be identified who Mr Brode would trust to run the business. The growth story at RWS is expected to continue for another two

years at least. Broker consensus is for a 16% increase in EPS this year, followed by a 6% rise the year after. The dividend is forecast to be increased by 11% for two years. As of year-end, RWS enjoyed a net current asset position of £21m, £18m of which was cash. RWS is the classic AIM blue chip. It possesses a track record and financial strength that few other companies can compete with. Although its long term ownership status is hard to guess, the company has such a strong market position that it will likely continue to reward shareholders for many years to come. RWS Holdings (LON:RWS) FOR Proven winner Industry outlook still favourable AGAINST More highly rated than usual One key person Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

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£417m 965p:998p 22.8 2.4% 629p:1030p

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Event - April 30th The Blackthorn Focus event will again be showcasing six AIM-quoted companies on April 30th at the offices of finnCap

Return from companies presenting at past AIM Investor Focus events: April 2012 AIM Investor Focus: mean average +41%, median average return +66%. April 2013 AIM Investor Focus: mean +57%, median +56% October 2013 AIM Investor Focus: mean +17%, median +24%

Presentations begin at 10am on Wednesday, April 30th. 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 should contact Vicky Watkins at MHP Communications (020 3128 8100).


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Office fit out specialist ISG is perfectly positioned to ride London’s building boom. Unusually for a firm operating in the construction industry, ISG paid its shareholders a dividend throughout the financial crisis. Anyone that held on was well-rewarded – the shares now trade at a five year high. Previously named Interior Services Group, ISG is a building-services firm with 2,500 staff. As the UK economy recovers, successful large companies and retail chains are looking to expand again. This has led to a dramatic increase in business at ISG.

three divisions delivered 85% of sales The company segments its reporting among seven divisions: UK Construction, UK Fit Out and Engineering Services, UK Retail, Continental Europe, Middle East, Asia and Rest of the World. Last year’s annual report confirmed that the first three divisions delivered 85% of all group sales and employ around 70% of ISG’s staff. The absence of the Olympic Games makes 2013 comparatives difficult in the UK Construction division. The first half of 2014 saw

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ISG report a 17% sales decline in this division. However, confidence improved and the company won some large, prestigious residential work.

won the largest London office fit out contract The picture was much brighter in UK Fit Out as a 76% sales increase flowed through to a 50% rise in underlying profit. More wins followed the half-year close, with the company announcing that it had won the largest London office fit out contract of the last twelve months, a £125 million deal for Swiss bank UBS’ new UK headquarters. Less than one week later, this was followed by the news that ISG has won a £30m contract to remodel and refurbish London’s Art Deco Adelphi building. UK Retail showed a more subdued performance. This division typically works through ongoing frameworks with the likes of Marks & Spencer and Waitrose, refurbishing and updating sites throughout the year. The opportunity for UK Fit Out to dramatically increase group profits is clear. In the last full year, this division reported a 28% increase in operating profits on a 42% increase in sales. The recent six-month results revealed that sales growth has continued to accelerate. UK Fit Out reported a £254m order book for the current financial year compared with £129m twelve months previously.

Some investors will be put off ISG due to its thin operating margins. Margins remain low as the company completes work agreed during a much tougher environment.

analysts expect a 60% increase in EPS However, the UK’s return to growth, led by a continuing construction boom in London, could herald a vast improvement in profits. Indeed, according to financial website Stockopedia, analysts expect a 60% increase in earnings per share for the current financial year, with another 30% increase the year after. As London races to build more skyscraper offices and higher-rising high-end residential properties, ISG is ideally placed to profit. ISG (LON:ISG) FOR Net cash position Highly regarded in industry AGAINST Low margins Some recovery priced in Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£115m 286p:290p 12.6 3.3% 127p:324p

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AIMprospector

AIM spread bet firm has both turnaround and takeover potential With new management in place and legacy issues accounted for, London Capital Group is now positioned for progress. In 2008, financial spread bet firm London Capital Group declared a net profit of £7.6m and a dividend of 11p. In 2012, problems set in and the firm fell to an operating loss. The most recent trading statement confirmed expectations of an adjusted pre-tax profit for 2013 of £2.4m.

white label customers include Bwin.party London Capital Group (LCG), is the AIM-quoted business behind the Capital Spreads and Intertrader brands. LCG uses these brands to offer financial spread bet and Contract For Difference services to the public. In addition, LCG uses its expertise and technology to offer ‘white label’ services to other betting providers. Here, a specialist stockbroker or sports betting provider will offer its clients a spread bet/CFD service under their own brand. LCG then delivers the services through all of its own technology, administration and regulatory capability.

2013 was a wretched year One example is BetVictor Financials, an LCG provision to the www.aimprospector.co.uk

Victor Chandler betting operation. Other white label customers include European betting behemoth Bwin. party and Saxo Bank. Under a typical white label agreement, a customer like Victor Chandler will receive a fee from LCG each time a new client is recruited. The end user would then legally become a client of LCG. As the relationship continues, LCG would continue to pay BetVictor fees depending on the level of client activity. 2013 was a wretched year for London Capital Group. Complaints to the Financial Ombudsman Service (FOS) resulted in £1.2m of compensation being paid to customers of an LCG managed FX fund. This was followed by the departure of founder and CEO Simon Denham. The new CEO of the company then resigned after little more than six months at the helm, citing personal reasons.

London Capital Group would be a handy acquisition Between all of this, shares in LCG fell in September 2013 as it was announced that it would be losing one of its largest white label customers. TradeFair, the financials offering from BetFair, had previously contributed around 5% of LCG’s gross profits. The arrangement ended at the beginning of the year. CEO since July is Kevin Ashby, the former CEO of AIM-quoted Patsystems. Mr Ashby was joined in

December by David Sparks, a former regional FD for Sportingbet prior to its takeover by William Hill/GVC. The most recent trading statement from LCG prepared shareholders for a series of considerable write-downs and exceptional expenses. FOS claims, legal settlements, restructuring costs and IT changes were all flagged. Before running intro trouble, the company was a successful, profitable dividend payer. In an industry dominated by one large competitor (IG Markets), a cleaned-up London Capital Group would be a handy acquisition for an ambitious second-tier player. However, with the final FOS bill still undecided, such a takeover is unlikely to arrive imminently. That leaves Mr Ashby and his team with the challenge of returning LCG to being a highmargin spread bet provider and white label operation. London Capital Group Holdings (LON:LCG) FOR Clear upside if management can get it right Profitable on an underlying basis AGAINST Market now more competitive No obvious edge on competition Market cap Bid:offer

£19m 32p:34p

P/E (forecast)

no forecasts available

Yield (forecast)

no forecasts available

52week low:high

29p:48p

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AIMprospector

Leading tech firm combines partners and potential

AIM youngster Proxama is making fast progress in the NFC land-grab Proxama came to AIM in August 2013 through a reverse takeover. Since then, the company has announced one set of six-month results in September, raised funds in a placing in December and issued an interim management statement in January of this year. Proxama specialises in integrating Near Field Communications (NFC) and other mobile commerce technologies. Since listing, the company has interspersed its financial announcements with a series of impressive partnership announcements. If the technology proves to be a hit with consumers, shares in Proxama could be a big winner.

an enhanced connection with a customer, frequently at lower cost Services offered include mobile marketing via NFC, in-store mobile loyalty, payments and mobile wallets. Customers using Proxama’s services include mobile operators, banks, retailers and card issuers. Marketing runs through Proxama’s TapPoint solution. Here, a user can tap a device with their mobile phone (such as bus shelter advertisement) to receive current offers or vouchers from a brand. In-store mobile loyalty can remove 10

the need for membership cards and deliver electronic couponing. Proxama’s solution also enables product information to be transferred to a mobile device, for example via a QR code.

impressive partnership announcements The mobile wallet provision is a software infrastructure that Proxama can offer any business looking to launch a loyalty scheme or mobile payment ability. Proxama’s technology enables businesses to secure an enhanced connection with a customer, frequently at lower cost. One example is Proxama’s recently announced partnership with Argos. At the end of January, it was announced that Proxama had delivered an instore NFC solution at 40 Argos sites across the UK. Argos plans to use this to get their shopping app onto more customers’ phones, along with offers available at that time. For Argos, this will help push further mobile interaction and reduce hard-copy catalogue demand. Another striking deal was announced in October of last year with CBS Outdoor. Proxama will be powering all of CBS Outdoor’s NFC-enabled advertising worldwide. By the end of the year, this will include 5,000 devices on the London underground and 2,000

similar ‘assets’ (advertising posters, kiosks) at UK railway stations. Proxama gets paid on a Cost Per Tap model, along with receiving set-up fees and payments for reporting analytics.

Another striking deal was announced in October The company has also been selected as partner for Weve Pouch, a loyalty scheme offering to retailers. Weve is a joint venture between O2, EE and Vodafone. The aim is to integrate loyalty and mobile while seamlessly interfacing with a store’s crucial Point of Sale systems. It is still early days for Proxama. The company remains loss-making but well-funded after the £8.6m (before expenses) placing. Demand for this technology and level of consumer interaction is unproven. History shows however, that if an AIM-quoted company like Proxama can establish itself in a profitable niche, a larger organisation will likely bid for the company in short order. Proxama (LON:PROX) FOR Blue-chip partners already using technology Product use could scale dramatically AGAINST No profits yet Valuation demands belief in bright future Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£48m 5.9p:6.25p N/A (losses forecast) 0 2.25p:8.63p

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AIMprospector

Next month: Another five companies will be profiled in the May edition of AIMprospector Subject to newsflow, we will be leading with a long-established AIM company that may not be around for much longer. The share register of this profitable dividend payer has become so concertinaed that a well-heeled investor could very quickly gather the required assent to purchase the firm outright. As the tax and investment rules become even more favourable toward AIM-quoted shares, AIM Prospector will continue to highlight the companies available for investment. To get the lowdown on these stocks, make sure you get the notification email by joining the distribution list on the AIM Prospector website. Your details will not be shared with any other organisation.

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digging for dividends - panning for profits

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April 2014