Bonus report included on innovative small companies
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case for making yourself heard as an
Why markets welcomed Scott Bessent as Treasury secretary
Baillie Gifford-managed Edinburgh Worldwide plans up to £130 million capital return
Unilever confirms ice cream IPO and productivity programme remain on track
JD Sports slumps to two-year low as sales
Look out for an update on bookings momentum alongside On The Beach results
Salesforce tries to find right balance between revenue growth and marrgins 14 Data suggests caution ahead of the Budget may have slowed UK growth
15 Associated British Foods could be about to see earnings growth accelerate
Why Fidelity Special Values is an all-weather winner
19 Why the PayPal rebound story has run its course
21 What does it mean when a company is said to have a ‘wide moat’
Three important things in this week’s magazine
FINDING GROWTH STOCKS GENUINE
Explaining
Examining
Research
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Did you know that we publish daily news stories on our website as bonus content? These articles do not appear in the magazine so make sure you keep abreast of market activities by visiting our website on a regular basis.
Over the past week we’ve written a variety of news stories online that do not appear in this magazine, including:
The case for making yourself heard as an investor
Why participating in AGMs and EGMs is well worth considering
When you purchase shares, you are not just buying numbers on a screen - you are becoming a part-owner of a business. It’s important to remember this fact because, as a part-owner, you have a say in how the business is run and the ability to vote at annual general meetings (AGMs) and extraordinary general meetings (EGMs).
AGMs provide a platform for shareholders to engage with the company’s management and influence significant decisions. Not engaging with these meetings means missing out on an opportunity to shape the future of the company you’ve invested in.
Even if you don’t own individual shares, it doesn’t mean EGMs and AGMs are irrelevant as investment trusts also hold shareholder meetings, which provide scope to hold fund managers to account for consistent underperformance.
The usual format for an AGM includes the presentation of the annual report, a shareholder vote on various resolutions and a Q&A session.
Typical AGM resolutions include:
• To receive the report and accounts
• To declare a dividend
• Election/re-election of directors
• Authority to allot shares
• To approve the remuneration policy and report
While it’s rare for resolutions to be voted down, significant opposition can influence future decisions. Special resolutions like moving headquarters, changing the company name or approving a sale require a 75% majority, showing how important your vote can be. Often these take place outside of the regular AGMs in socalled EGMs.
Major shareholders can also requisition EGMs,
often to remove or appoint directors. Ignoring these meetings can mean losing control over significant changes to your investment.
For example, Boohoo (BOO) is currently facing a battle for control with Frasers (FRAS), which has a 26.1% stake in the online fast-fashion play and has requisitioned a meeting looking to appoint Mike Ashley as CEO, instead of the recently-appointed incumbent Dan Finley, to be held on 20 December.
Attending AGMs in person can allow you to question directors directly. If you hold shares in a nominee account (almost always the case when using an investment platform), you’ll need a letter of representation from your platform to attend in person and you should allow a bit of time for this paperwork to be dealt with.
Realistically, most of us probably don’t have the time to actually attend, particularly if we don’t live in London, but voting electronically is a convenient alternative.
That’s why the new AJ Bell service which lets you vote at AGMs and EGMs more easily is such a boon. With alerts on the platform and the ability to have your say at the click of a button, being a genuine part-owner of a business just got a whole lot easier.
DISCLAIMER: AJ Bell referenced in this article owns Shares magazine. The editor (Ian Conway) and author (Tom Sieber) of this story own shares in AJ Bell.
Why markets welcomed Scott Bessent as Treasury secretary
Trump’s pick seems open to a more relaxed stance on tariffs even if the president-elect continues to threaten them
US
stock and bond prices moved higher on 25 November after president-elect Donald Trump revealed his pick for Treasury secretary was hedge fund manager Scott Bessent.
The reaction was partly relief that Trump opted for a market savvy individual and a ‘safe pair of hands’ rather than someone with little capital markets experience to implement his economic agenda.
Secondly, Bessent is seen as pragmatic when it comes to tariffs. In a letter to investors earlier in 2024 Bessent commented: ‘the tariff gun will always be loaded and on the table but rarely discharged’.
Hopes Bessent would soften the new administration’s stance on tariffs were somewhat undermined by subsequent pronouncements from Trump that he would introduce sweeping tariffs on China, Canada and Mexico from day one of his presidency. How much of this is a negotiating tactic rather than a realistic prospect – investors are left to guess.
There was general support for Bessent’s appointment from the investment industry with Daniel Loeb and Bill Ackman applauding the nomination while Kyle Bass described it on social media as ‘the single best choice.’ Treasury yields spiked higher following Trump’s election victory as investors priced in stickier inflation and potentially higher national debts. The 10-year treasury yield jumped from 4.2% to 4.5% following the election. It eased on news of Bessent’s appointment and, as we write, there has been a limited reaction to Trump’s subsequent more fiery rhetoric.
Bessent honed his investing skills working with billionaire George Soros in the 1990s and became chief investment officer in 2011 overseeing successful bets against the Japanese yen.
In 2015 Bessent launched his own firm Key Square Capital Management which specialises
US 10-year treasury yield
in global macro investing. This involves analysing economic data and the geopolitical landscape to make bets on big market moves.
Following his appointment Bessent says his priority will be delivering on Trump’s planed tax cuts as well as enacting tariffs and cutting spending.
Bessent has advised the Trump team to pursue a ‘three arrows’ economic policy which includes reducing the budget deficit to 3% by 2028, speeding up economic growth through deregulation and adding three million barrels of oil a day to shore up energy security.
He has also advocated extending the 2017 tax cuts and Jobs Act, paid for by reducing expenditures elsewhere or increasing revenue.
One area where Bessent will have oversight is in the issuance of treasuries. The federal government has nearly $28 trillion worth outstanding, making it one of the world’s biggest bond markets.
The hedge fund manager has been critical of current Treasury secretary Janet Yellen for issuing too much short-dated debt at a time when shorterterm interest rates were higher than long-term interest rates. [MG]
Baillie Gifford-managed Edinburgh Worldwide plans up to £130 million capital return
Move comes as part of a wider restructuring to boost trust’s ailing performance
Edinburgh Worldwide Investment Trust (EWI) surprised the market this week when it announced it had developed ‘a comprehensive action plan to improve execution’ and would return up to £130 million of capital to shareholders next year.
‘Our vision, to identify and manage a carefully selected portfolio of transformative businesses, has the potential to deliver outsized returns for shareholders,’ insisted the board.
For much of the last three years, the trust has traded at a double-digit discount to NAV (net asset value), which has ‘led to further soul-searching’, according to analysts at Deutsche Numis.
The trust’s shares have fallen 49.7% in the three years to September 2024 compared with an 8% gain for the S&P Global Small Cap index, according to its website.
The dramatic fall may be partly attributable to some of holdings in the trust’s portfolio being unquoted, while others are high-growth or are yet to make a profit.
The trust’s largest holding is Space Exploration Technologies, which accounts for over 12% of NAV, while in the also top 10 is online retailer Ocado (OCDO), whose shares have fallen 42% so far this year due to various headwinds.
However, the board has decided to continue to
back Baillie Gifford’s growth strategy ‘whilst some changes to the approach are being incorporated to seek to manage risk and focus the portfolio’, add the Deutsche Numis analysts.
In a circular, Edinburgh Worldwide outlined proposed changes to the composition and structure of the management team to enhance performance as well as a reduction in the number of holdings from between 75 and 125 to between 60 and 100 companies.
The company said over the first half of the year to 30 September it had bought back shares in a move which had reduced the discount to NAV and would be value accretive for investors.
Dan Coatsworth, investment analyst at AJ Bell said: ‘Investor appetite for higher-risk, lesser-known companies diminished when interest rates and inflation shot up, creating a difficult environment for Edinburgh Worldwide to prosper.
‘While risk appetite has started to recover, Edinburgh Worldwide has been left behind and performance in recent years has been disappointing. It’s no surprise to see a reset of the strategy.’ [SG]
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Sabuhi Gard) and the editor (Ian Conway) own shares in AJ Bell.
Unilever confirms ice cream IPO and productivity programme remain on track
Consumer goods goliath Unilever (ULVR) is pushing ahead with the IPO (initial public offering) of its ice cream unit and plans to slim down rather than spin off its food division, as CEO Hein Schumacher’s turnaround strategy continues to gain traction.
At the FTSE 100 giant’s recent investor event (22 November), the Hellmann’s mayonnaise-to-Dove soap maker set out its strategic priorities under Schumacher’s ‘Growth Action Plan 2030’ to deliver ‘consistent, higher performance with marketmaking, unmissably superior brands’.
Unilever has aborted plans to find a private equity buyer for the ice cream business, home to some of the world’s best-selling ice cream brands including Ben & Jerry’s, Magnum and Walls. To recap, Unilever believes the unit’s future growth potential will be better delivered under a different ownership structure, since it has distinct characteristics compared with Unilever’s other businesses.
At the investor day, Unilever confirmed that
it is on track to separate ice cream, and deliver its ’comprehensive’ €800 million productivity programme, by the end of 2025. Following the separation, Unilever will be focused on four business groups: Beauty & Wellbeing, Personal Care, Home Care and Foods, which will be driven by 30 Power Brands and operate across 24 markets representing the thick end of 85% of Unilever’s turnover.
Under Schumacher’s Growth Action Plan, the Persil-to-Sunsilk maker will focus on its so-called ’Power Brands’ and the key markets where it can drive the biggest returns. Priorities will include doubling-down in India, growing ‘select’ emerging market ‘powerhouses’ as well as accelerating and internationalising the growth of its prestige and wellbeing products. Schumacher also informed the Financial Times that instead of spinning off the division, Unilever will slim down the food arm through disposals and that he has identified several brands to ‘prune’.
There was also relief as Unilever reiterated its medium-term guidance. Post the restructuring of the business, it aims to deliver mid-single digit underlying sales growth, supported by volume growth of ‘at least’ 2%. Investors can also expect ‘modest’ operating margin improvement as the company expands its gross margins and benefits from cost savings and productivity improvements.
Schumacher insisted management is ‘excited about the opportunities to drive Unilever’s future growth, as we continue to progress Unilever’s transformation and unlock the company’s full potential.’ On 24 October, the company reported third quarter organic sales growth of 4.5%, ahead of the 4.1% consensus estimate with volume growth increasing to 3.6%. [JC]
How Imperial Brands shares hit a new five-year high
Five-year strategic plan, strong capital returns and next-generation products lift tobacco firm
Shares in multi-national tobacco company Imperial Brands (IMB) recently hit a new five-year high (25 November) of £25.64 despite a push by governments around the world to crack down on the number of people smoking and vaping.
Year-to-date the shares have gained 41% outperforming three of the ‘Magnificent Seven’ group of tech giants said analysts at Panmure Liberum in a recent note.
So, what is the FTSE 100 company which owns several tobacco brands including Davidoff, West, Golden Virginia and JPS doing right?
On the 19 November, Imperial
reported a robust set of full-year results buoyed by so-called next generation products (NGPs), essentially the product range beyond cigarettes, as it continued its recent track record of generous capital returns to shareholders.
‘We are on track to deliver fiveyear capital returns of circa £10 billion, representing 67% of our market capitalisation in January 2021 when we launched our strategy,’ said chief executive Stefan Bomhard.
The company reported a 4.6% increase in net revenue (less duties and sales of peripheral products), a
JD Sports slumps to two-year low as sales disappoint
Recent downward momentum in JD Sports Fashion (JD.) has been exacerbated by the company’s latest disappointing update.
The firm announced on 21 November it now expects pre-tax profit for the year to January 2025 to be at the lower end of its original £955 million to £1.035 billion guidance range, news which sent the shares tumbling 16% to a two-year low of 95.2p.
JD blamed ‘increased trading volatility’ in October for
the downgrade, highlighting a US slowdown and continued weakness in the UK, although chief executive Regis Schultz insisted his charge remains ‘well positioned’ for the upcoming peak selling season.
The firm witnessed much softer consumer demand and trading toward the end of the quarter due to higher levels of discounting and unseasonal weather, which would have affected demand for higherticket items.
While like-for-like sales were down in North America, the UK and Asia Pacific, they were up in Europe and JD Sports still managed to improve
4.5% rise in operating profit to £3.5 billion and a 26% rise in NGP net revenue to £335 million with growth from all regions and improved gross margins.
In the area of vaping, the company launched new blu formats to meet demand across several markets and said its market share in heated tobacco continues to grow in Europe. [SG]
its gross margin by 30 basis points or 0.3% to 48.1%.
The stock was already facing pressure in anticipation of and off the back of a Budget which contained a double-whammy of an increase in employee national insurance contributions and the national living wage. [TS]
FULL-YEAR RESULTS
29 Nov: Genedrive
2 Dec: SRT Marine Systems
3 Dec: Gooch & Housego, Greencore, Marston’s, On The Beach, Paragon Banking, SSP Group
4 Dec: Treatt, Tritax Eurobox
FIRST-HALF RESULTS
29 Nov: Northern Bear, Peel Hunt
3 Dec: Discoverie, Mind Gym, Ondo Insurtech, System1
5 Dec: Baltic Classifieds, Carclo, SDI, Smith (DS)
TRADING ANNOUNCEMENTS
5 Dec: Balfour Beatty
Look out for an update on bookings momentum alongside On The Beach results
All eyes will be on demand over recent weeks and the online package holiday firm’s partnership with low-budget airline Ryanair
There is quite a lot for investors to look out for when online package holiday provider On The Beach (OTB) reports full-year results on 3 December. First up will be bookings since the end of its financial year on 30 September. Are people still making holidays a priority despite continuing pressure on household budgets?
In the company’s pre-close trading update, On The Beach reported record TTV (total transaction value) of £1.3 billion – a 15% increase from last year and summer 2024 year-on-year volume growth of 13%.
On The Beach chief executive Shaun Morton said at the time winter 2024 volumes were ‘currently 34% ahead of the prior year’ as customers were seeking winter sun and ‘enjoying longhaul destination packages’.
Second, investors will be looking to see how On The Beach’s relationship with Michael O’Leary’s low-budget airline Ryanair (RYAAY:NASDAQ) is progressing.
What the market expects of On The Beach
On The Beach
Under the distribution deal signed in February this year, On The Beach is now able to offer its customers flexible payment plans and ATOL protection.
Benjamin Sandland-Taylor, analyst at Berenberg ,notes the firm has delivered earnings in line with consensus expectations for 2024 despite the fact it had to absorb some one-off costs as a result of its integration with Ryanair.
‘Recent trading remains robust, and coupled with the removal of the Ryanair overhang, we believe the outlook for the business is even more attractive,' Sandland-Taylor says.
Finally, shareholders will be waiting to see the level of final dividend declared after the reintroduction of a first-half payout in May. [SG]
Salesforce tries to strike a balance between revenue growth and margins
AI Agent a hoped-for catalyst for better quality profitability
A global enterprise applications gorilla, Salesforce (CRM:NYSE) has spent 2024 (and 2023) trying to rebuild profit margins after activist investor StarboardValue started kicking up a stink. Net profit margins had sunk to low single digits during the pandemic, which might be understandable, but why were they not recovering, was StarboardValue’s reasonable question.
It seems to have done the trick, with net margins staging a recovery to the mid-teens as management attacked a bloated cost base, and they ran at 15.3% in the second quarter of fiscal 2025 (which ends 31 January 2025) from what have been stable gross margins in the mid-70s in percentage terms.
It means third-quarter terms numbers on 3 December 2024 will be closely watched and investors will be wondering how high can net margins go without crimping top line growth, with the firm seemingly favourably placed in the AI ecosystem?
Finding the right balance here will be crucial for a share price which has gained about a third during 2024. Consensus forecasts say margins could go a lot higher, with
US UPDATES OVER THE NEXT 7 DAYS
QUARTERLY RESULTS
2 Dec: Zscaler
3 Dec: Marvell, MongoDB, Salesforce
4 Dec: Campbell Soup, Dollar Tree, Hormel Foods, Synopsys
5 Dec: Brown Forman, Cooper, Dollar General, Lululemon Athletica, Ulta Beauty
26% net profit margins largely being forecast for fiscal 2026, based on Stockopedia data.
Salesforce reported second quarter earnings, revenue and operating margin which topped consensus estimates in August, although revenue guidance was a little soft. At its DreamForce annual user conference, Salesforce touted AgentForce, its new autonomous AI agent for business customers. More software companies are pivoting to AI agents, so an important contributor to the wider group may emerge here. [SF]
Data suggests caution ahead of the Budget may have slowed UK growth
Consumers took a wait-and-see attitude ahead of tax-raising exercise
Investors were recently served up two fairly unflattering UK data points – October retail sales, which came in lower than expected, and public borrowing, which came in higher than expected.
After three months of rises, retail sales fell 0.7% by volume in October due to a combination of
consumers holding back on spending ahead of the Budget and milder-than-usual weather which reduced purchases of winter clothing.
While the public borrowing figure also predated the Budget, at £17.4 billion it was significantly higher than expected and the largest October spend since 2020 when millions of workers had their wages subsidised during the pandemic.
A large part of the rise was due to the decision to increase public-sector pay to avert strikes, but higher interest costs were also a factor which raises the question of whether the moves in the Budget will be enough to balance the books.
Market sentiment was further dampened this week, not by any macro data but by a tweet from Donald Trump proposing aggressive trade tariffs on Canada, China and Mexico from day one of his presidency, which knocked stocks across a wide range of industries dependent on exports.
As Shares went to press investors were bracing for a deluge of US data including third-quarter GDP, core consumer prices, personal income and spending and house prices, all of which will feed into the Federal Reserve’s thinking on interest rates ahead of its next meeting in December, where the odds of a cut now look a lot less promising than they did just a few weeks ago.
Associated British Foods could be about to see earnings growth accelerate
Associated British Foods (ABF) £21.93
Market cap: £16.1 billion
As the proverb says, mighty oaks from little acorns grow, and that has certainly been the case for conglomerate Associated British Foods (ABF), which has transformed itself from a single bakery in 1935 to a group of market-leading food and clothing businesses.
Best-known for its Primark low-cost fashion stores, which are a feature of high streets up and down the country, the company also has a large grocery division, with nine out of 10 UK households using its brands, and a global ingredients business as well as producing sugar and agricultural products.
Even factoring in the pandemic, the firm has
grown its earnings per share at an average of 7% per annum or thereabouts over the last 35 years, which is roughly twice as fast as the FTSE 100 index with remarkably little volatility and almost no down years.
During that time, the share price has risen more than 10 times and total shareholder returns including ordinary dividends, special dividends and share buybacks are almost 2,500%.
Yet for this kind of reliability, investors are currently being asked pay just over 11 times earnings for the year to next August even though growth could be faster than has historically been the case.
RETAIL POWERHOUSE
Out of a total of £20 billion of revenue for the year to August 2024, the Primark business accounted for £9.45 billion or just over 47% and was the main engine of growth, delivering a 6% increase against 4% for the group.
In terms of operating profit, Primark accounted for £1.1 billion or 55% of the group total of £2 billion as margins rose from 8.2% to 11.7% thanks to lower material and freight costs, although these were somewhat offset by higher labour costs and increased investment technology and digital marketing.
Although a poor summer meant second-half likefor-like sales of clothing in particular were negative,
the firm still grew sales overall with a positive product mix, and its Click & Collect service seems to have achieved the impossible in the world of online retailing, generating both higher footfall and overall growth rather than cannibalising instore sales.
As well as the UK and Ireland, Primark has stores across Europe and in the US, and management believes there is enough ‘white space’ for its expansion programme to contribute around 4% to 5% to annual growth ‘for the foreseeable future’, meaning overall sales and earnings could increase at a faster rate for the next few years.
A BROAD PORTFOLIO OF BRANDS
The grocery division, which makes up 20% of sales and includes well-known brands like Twinings, Ovaltine, Patak’s, Jordans and Mazola, is truly global spanning Europe, the US and Asia, and tends to grow slightly more slowly than retail but has a higher operating margin.
Sugar, ingredients and agriculture, which make up the other 30% or so of revenue, had a mixed year with positive results in the first two divisions held back slightly by the third which suffered lower sales in the compound feed business due to soft demand in the UK and China.
Sugar sales and profitability on the other hand were strongly ahead of the previous year thanks to higher beet prices in the UK and Spain, its two main markets, although a drop in prices over the summer means earnings for the current year will fall before picking up again in 2026, which is fairly typical for a commodity business.
The ingredients business is less volatile and
higher margin, and the plan is to grow through building new plants, making selective acquisitions and expanding into specialist areas like enzymes and nutrition where growth is higher than yeast and bakery ingredients which are its core products.
BETTER TOGETHER
The question which arises every time we bring up Associated British Foods is ‘why don’t they float Primark as a separate company?’, which is reasonable given there would seem to be few synergies between clothing and food, but the founding Weston family have always maintained there is a strong case for being diversified.
In fairness, ABF financed the very first Primark store in Dublin, in 1969, based on the vision and entrepreneurship of its founder Arthur Ryan, who remained chief executive for 40 years, so the history of the two businesses is intertwined.
When he was asked by the city’s mayor at the opening of the first Primark in the US in 2015 if he ever thought he would get to Boston, Ryan replied he didn’t think he would get to Cork, yet with the Westons’ backing the business now has over 450 stores in 17 countries.
data correct as of 25 Nov 2024, company has an August financial year-end Source: Stockopedia
As the pandemic demonstrated, diversification is no bad thing, and whereas other retailers saw their earnings collapse, ABF group profits held up well and very quickly rebounded to top their pre-Covid levels, since when they have gone on to hit new highs. [IC]
Chart: Shares magazine • Source: Historic earnings data Refinitive; Eanings forecasts Q3 2024 on Stockopedia
Why Fidelity Special Values is an all-weather winner
Managed by canny contrarian Alex Wright, this trust can perform well across a range of market conditions
Fidelity Special Values (FSV) 311.5p
Market cap: £1.01 billion
Wider than the five and 10-year average of 4%, a near-9% share price discount to NAV (net asset value) at Fidelity Special Values (FSV) presents an attractive entry point into a fund with an impressive long-run record and a contrarian, value-focused investment philosophy that’s proven to work.
The trust, which recently celebrated its 30th anniversary, is a diversified portfolio of unloved yet high-quality companies spanning the market cap spectrum. And the fund offers investors a great way to capitalise on what chair Dean Buckley calls ‘a quiet renaissance in the still-unloved UK equity market’ as well as the pick-up in mergers and acquisitions activity.
THE WRIGHT STUFF
Managed by Alex Wright since September 2012, Fidelity Special Values aims to generate long-term capital growth by investing primarily in UK-listed companies that Wright and co-manager Jonathan Winton believe are undervalued with a potential catalyst for positive change. Supported by Fidelity’s deep bench of analysts, Wright and Winton pursue a contrarian, value-oriented stockpicking approach with a focus on downside protection.
Their bread and butter is looking for unloved companies that are entering a period of positive change that the market has not yet recognised and the consistent application of this winning approach has enabled the fund to perform well in a range of market conditions.
In fact, Wright has outperformed the FTSE All Share benchmark in
Fidelity Special Values
eight of his 12 years as lead manager, generating a NAV total return of 272.2% and a share price total return of 305.5%; with dividends reinvested, an investment of £1,000 over this period would have returned £3,055. Fidelity Special Values is also the best performer in the seven-strong UK All Companies peer group over the last three, five and 10 years, with relative performance particularly strong since the end of 2020, when the fund’s value style has been more in favour.
DARING TO BE DIFFERENT
Fidelity Special Values’ portfolio typically holds 80 to 120 stocks at all points of the market cycle and the approach results in a portfolio that looks very different to the benchmark; as at 31 October, the fund’s active share (a measure of this divergence) relative to the FTSE All Share was 87%.
A quiet renaissance in the still-unloved UK equity market”
The company continues to make good use of the structural advantages of investment trusts including gearing, which has contributed positively to performance, and the ability to invest in small caps, where co-manager
Investors should also benefit as underlying holdings re-rate, delivering a performance double-whammy”
Winton’s expertise with the Fidelity UK Smaller Companies (B7VNMB1) open-ended fund comes in handy. The £1.1 billion cap trust invests across the market cap spectrum, although there is a bias towards small and mid cap stocks with 34% of net assets invested in sub-£1 billion market cap companies at last count.
DOUBLE DISCOUNT
Fidelity Special Values extended its formidable record in the year ended 31 August 2024, delivering an NAV total return of 24.1%, ahead of the FTSE All-Share’s 17% return. Positive contributors ranged from ground engineering leader Keller (KLR) and Irish housebuilders Cairn Homes (CRN) and Glenveagh Properties (GLV), to financials including Just Group (JUST), NatWest (NWG) and Aviva (AV.), fresh prepared food provider Bakkavor (BAKK) and support services company Babcock (BAB). Market outflows from small and mid cap stocks have presented Wright with the opportunity to buy stakes in online personalised greetings cards-to-gifts concern Moonpig (MOON), web services company Team Internet (TIG:AIM) and media platform Future (FUTR). Wright has been finding new ideas in cyclical areas such as industrials, advertising,
Fidelity
Top 10 holdings
Special Values - market cap exposure (% of assets)
staffing, real estate and housing, where ‘demand is stabilising and valuations remain low’, and has found more opportunities in defensives, having initiated a new position in Tesco (TSCO) and added to consumer health and hygiene brand owner Reckitt Benckiser (RKT), tobacco behemoth British American Tobacco (BAT) and National Grid (NG.) on weakness.
Besides the 9% NAV discount on the trust, investors should also benefit as underlying holdings re-rate, delivering a performance double-whammy. As Wright explained in his manager’s review, Fidelity Special Values’ holdings continue to trade ‘at a meaningful circa 20% discount to the broader UK market, despite resilient earnings, superior returns on capital and relatively low levels of debt. This quality profile gives us confidence that we can continue to deliver attractive returns to investors.’
While the focus is on long-term capital growth rather than income generation, dividends have historically formed an important part of the trust’s total shareholder return. And last year’s inflationbeating 8.4% increase in the total dividend to 9.54p will provide shareholders with a 15th consecutive year of growth in the annual distribution. Ongoing charges are 0.7%. [JC]
Why the PayPal rebound story has run its course
(PYPL:NASDAQ) $87.77
We pitched PayPal (PYPL:NASDAQ) roughly a year ago, arguing that even in the face of fierce payments competition, a single-digit PE (price to earnings) multiple was too tempting to ignore. This week, the stock hit $87.77, its highest level in two years and putting the trade’s gain at more than 60%.
WHAT HAS HAPPENED SINCE WE SAID BUY?
A lot of operational progress and plenty of share buybacks worth close on $5 billion since the start of the year. Most recent third quarter 2024 trading illustrates that PayPal remains a strong competitor in a tough payments world where, so far, consumer spending has held up reasonably well.
This is reflected in total payment volumes growth declining to 11% year-on-year, but improving transaction margin dollars, up 8% year-on-year. That last figure is interesting because it effectively
tells us that while gross transactions are growing more slowly, they are becoming more profitable for the company, a crucial part of PayPal’s structural rethink.
Elsewhere, there was news of partnerships with Amazon (AMZN:NASDAQ) (a checkout deal for its Prime operation) and Shopify (SHOP:NYSE), which should bolster volume growth down the line, and the launch of PayPal Complete Payments in China and Hong Kong.
WHAT SHOULD INVESTORS DO NOW?
The backcloth for digital payments remains fairly bullish, in our view, as e-commerce takes an increasingly large slice of overall consumer spending but it’s hard to argue against the enormous competition in the space. PayPal has done reasonably well to stiffen operating margins from around 15.4% to 18.2%, as high as they’ve ever been, so further upside here looks limited to us.
That suggests that PayPal’s glory growth days are behind it as future earnings track closer to singledigit revenue growth. A consensus analyst price target of $89.57 implies a meagre 2% upside to current levels, and while we don’t put too much weight on this as a valuation measure, it is another grain of doubt to add to the mix.
In short, the best of the recovery story has been had so it is time to take profit and look for better opportunities elsewhere. [SF]
What does it mean when a company is said to have a ‘wide moat’?
We explain the concept and show you a short cut to finding the right companies
Warren Buffett is often thought of as a value investor, yet what he actually looks for is companies with ‘economic moats’ or a sustainable competitive advantage over its competitors.
‘When you have a wonderful business, it’s like having an economic castle, but the nature of capitalism is people want to come in and take your castle, so what you need is a castle with some durable competitive advantage, one with a moat around it,’ says Buffett.
While this sounds sensible, how can you as an investor decide whether a business has a good ‘moat’ or not?
WHAT IS AN ‘ECONOMIC
MOAT’?
For a company to defend its returns, it has to have a product or service which is so good it compels customers to return time and again rather than go to one of its rivals.
Capital tends to flow to where returns are the highest, so if a company starts up and is generating amazing profits it will only be a matter of time before another company starts up doing the same thing and tries to grab some of the pie.
Research and ratings group Morningstar defines an economic moat as ‘a durable competitive advantage that allows a firm to keep competitors at bay and generate economic profits over an extended period’.
To help investors identify companies which possess an economic moat, Morningstar’s equity research team assigns one of three ratings: ‘wide’, ‘narrow’ or ‘none’.
For a company to earn a moat rating of ‘wide’, it has to satisfy two major criteria: it must be likely to generate returns on invested capital above its weighted average cost of capital for at least the next 20 years; and it must enjoy one or more economic ‘moat source’ giving it a structural competitive advantage.
Qualities which help support a moat include:
• A network effect — This is when the value of a network increases for new and existing users as the network grows.
• A cost advantage — This allows a firm to sell at the same price as its rivals but still enjoy economic profits thanks to lower unit costs of production.
• Efficiencies of scale — When a company serves a market which is limited in size, new competitors may not have an incentive to enter, especially if the cost of entry is high. New entrants would cause returns for all players to fall well below the cost of capital.
• Intangible assets — This could be brands, patents or regulatory licenses which block competition and/or convey meaningful pricing power.
• Switching costs — This is when either due to time or money, the expenses a customer would incur to change from one producer/ provider to another outweighs the benefits of staying put.
HOW CAN YOU FIND AND INVEST IN ‘WIDE MOATS’?
Using the ratings produced by its equity analysts, Morningstar has constructed its own
VanEck Global Wide Moat ETF Top 10 Stocks
Data correct as of 13 November 2024
Table: Shares magazine
• Source: VanEck, Morningstar
US and global Wide Moat Focus Indices so as to generate high-conviction portfolios of stocks with durable competitive advantages and attractive valuations.
As they are not constrained by traditional style classifications or benchmarks, the positioning of these indices moves to wherever the most attractive opportunities are found.
According to Morningstar, ‘this unique approach combines fundamental insights with objective
portfolio construction, which facilitates consistency and investability’.
There are three US indices – a large-cap version, a small- and mid-cap version and a sustainable version – as well as a global index.
To allow UK retail investors to get exposure to these, index provider VanEck has produced ETFs (exchange-traded funds) for all four priced in sterling.
The fund with most appeal is likely to be the broad VanEck Morningstar US Wide Moat ETF (MOTV), which holds 54 stocks, has a market cap of $46 million and a 0.46% total expense ratio.
For investors who want even broader exposure, the VanEck Morningstar Global Wide Moat ETF (GOAT) holds 74 stocks, has a market value of $59 million and an 0.52% total expense ratio.
Besides VanEck, insurer Legal & General (LGEN) has constructed what it considers to be a ‘wide moat’ fund under the banner of the L&G Global
VanEck US Wide Moat ETF top 10 stocks
Brands ETF (LABL), although it is much smaller than the other funds and its top 10 holdings reads like a who’s who of tech stocks, so it is hardly any different to the S&P 500 or Nasdaq Composite.
TransUnion (TRU:NYSE)
Market Cap: $19.7 billion
Price: $101
Along with US peer Equifax (EFX:NYSE) and UK company Experian (EXPN), TransUnion (TRU:NYSE) is a major consumer credit bureau providing the consumer data which lenders use as the basis for granting credit.
Barriers to entry in this market are high, and given the importance of accurate information and the amount of risk involved in lending and insurance, whatever TransUnion charges for its service is negligible to its customers, giving it strong pricing power according to Morningstar analyst Rajiv Bhatia.
To give some idea of scale, there is around $1 trillion of outstanding credit card debt in the US, which generates around $1 billion of annual revenues for the three firms, and car loan origination is typically over $700 billion per year, which generates another $600 million or so in annual revenue.
Currently, over three-quarters of TransUnion’s revenue comes from the US, but the company is looking to replicate its success further afield, and Bhatia believes India, with its large population and rising incomes, could be an evergreen source of growth for the firm.
By Ian Conway Deputy Editor
Introducing Foresight Environmental Infrastructure: A FTSE 250 investment company celebrating 10 years of sustainable investing
To mark our 10-year anniversary in 2024, we rebranded from JLEN Environmental Assets Group Ltd (JLEN) to Foresight Environmental Infrastructure Ltd (FGEN). While our new name better positions us to capitalise on the clear commercial benefits available through a closer association with the Investment Manager brand, investors can rest assured that we retain the same experienced team targeting a sustainable financial return by investing in a diversified portfolio supporting the drive towards decarbonisation, resource efficiency, and environmental sustainability.
The last decade has seen demand increase in the environmental infrastructure sector as the decarbonisation agenda continues to accelerate, with consumers and governments waking up to the benefits of a green economy. FGEN’s diversified mandate allows us to unlock a broader array of opportunities across the energy transition and renewables, the circular economy, and other lowcarbon and sustainable solutions. These offer infrastructure-like characteristics such as inflation protection and long-term cash flows, which investors would otherwise struggle to access directly.
FGEN’s long-term performance track record speaks for itself. We believe today, just as we believed ten years ago, that investors don’t have to choose between attractive returns and investments with
demonstrable, real-world environmental benefits. Since launch, the portfolio has grown from just seven assets to 42 across a broad range of environmental solutions. We have increased the dividend every year since launch, having paid investors £321 million in dividends to date while growing the value of the portfolio through accretive acquisitions and asset enhancements.
As we move into the next decade, we have confidence and belief in the investment case and our ability to continue to deliver attractive riskadjusted returns to investors.
This article has been issued by Foresight Group LLP (“Foresight”) which is authorised and regulated by the Financial Conduct Authority (“FCA”), under firm reference number 198020. Foresight’s registered office is The Shard, 32 London Bridge Street, London, SE1 9SG. This article has not been approved as a financial promotion for the purpose of Section 21 of the Financial Services and Markets Act 2000 (“FSMA”). This article is intended for information purposes only and does not create any legally binding obligations on the part of Foresight. Without limitation, this article does not constitute an offer, an invitation to offer or a recommendation to engage in any investment activity. If you are in any doubt about the content of this article and/or what action you should take, you should seek advice from an independent financial adviser authorised under FSMA who specialises in advising on opportunities of this type. The product described in this article is not suitable for all investors and puts investors’ capital at risk. The value of an investment, and any income from it, can fall as well as rise. Investors may not get back the full amount they invest. Past performance is not a reliable indicator of future performance. Foresight does not provide financial, legal, investment or tax advice. Personal opinions may change and should not be seen as advice or a recommendation. Investors must read the relevant Prospectus and Key Information Document before making an investment decision.
FINDING GROWTH STOCKS GENUINE
How the experts do it
By Tom Sieber Editor
Identifying genuine growth stories is not easy but can be extremely rewarding. Nvidia (NVDA:NASDAQ) may be the ultimate growth stock example now but who was flagging its potential 10 years ago when revenue and profit was just a fraction of what it is today and when the widespread application of AI was still restricted to think pieces in periodicals. Some did catch on early and would have enjoyed extraordinary returns if they held all the way through to the stock’s current highs. Investment trust Scottish
Mortgage (SMT), whose whole purpose is to find growth companies, has achieved a return of more than 8,000% on its initial investment in the chip specialist in 2016.
A slightly more recent convert is Tim Gregory, manager of Vermeer Global (BZ000X7) (soon to be rebranded as Goshawk Global Fund). ‘People have been talking about AI for years but it was listening to a call that the Nvidia CEO Jensen Huang did about three years ago, which highlighted that the industry had reached an inflection point where the
combination of 5G speeds, edge computing, the cloud and artificial intelligence was going to lead to an industrial revolution in computing. That was the trigger to buy the shares and we’ve benefited hugely from that.’
In this article we hear from a selection of leading fund managers on how they identify genuine longterm growth opportunities among the stories which might shine bright for a short time then fizzle out. We also identify two names which we believe can deliver growth over the long run.
ADOPTING A GROWTH MINDSET
Being a growth manager is not just about looking at the numbers – it requires a certain mindset and an inquisitive mind. Manager of Allianz Technology Trust (ATT), Mike Seidenberg says:
‘Our process is predicated on a strong intellectual curiosity which is annoying to my kids but serves us well in technology investing. At our core, we are product people and love good products. My background having worked in enterprise software allows me to operationalise and understand how the products work and interact within a corporation IT environment.
‘We pride ourselves on observing and interacting with users of the products we invest in. The ability to identify happy customers in technology investing is important and happy customers give you the right to sell them more stuff.’
Scottish Mortgage manager Lawrence Burns says: ‘Rather than relying on information from the investment industry, which often focuses on the short term and is already priced into valuations, investors need to seek broader and differentiated views.’
As Burns says, this requires going outside the world of finance to build networks with founders of private and public companies, leading academics and ‘captains of industry’.
‘It’s important that I spend time learning from people who are far smarter than me to
We pride ourselves on observing and interacting with users of the products we invest in”
understand how the world is changing and thus where opportunities are emerging. Then comes the psychological part. It is necessary to accept and indeed embrace opportunities where the range of outcomes is wide. These opportunities are uncomfortable but often ultimately the most valuable.’ Burns notes owning Nvidia and Tesla (TSLA:NASDAQ) hasn’t always been an easy ride but it’s undoubtedly been rewarding.
A TOP-DOWN APPROACH
While stock selection is a key part of a growth manager’s armoury, Peter Hewitt, who steers CT Global Managed Portfolio Trust (CMPG), explains how he adopts a topdown approach to identify ideas.
‘I often start with examining big macro trends and filter that down to country level. If there is something of possible interest, I will then do some investigative work to identify if there are investment companies specialising in an area or sector that I am interested in.’
Vermeer’s Tim Gregory also looks at the macro as a starting point: ‘We read a lot – not just about companies, but about the wider world and the forces changing it. That gives us a macro view and helps us identify a range of themes with the power to generate strong tailwinds behind companies. These include, for example, AI, automation, aging populations and the challenge of transitioning to a low-carbon world.’
Odyssean Investment Trust’s (OIT) Ed Wielechowski has a similar starting point. ‘Firstly, we look to identify markets that will grow sustainably at levels above real GDP, driven by long term secular drivers,’ he says. ‘Within these markets we look to back companies with leading positions, as that leadership typically confers
WHAT IS THE RULE OF 40
The ‘rule of 40’ is a neat way to help measure the trade-off between growth and profits as a company matures. Originally dreamed up by venture capitalists to assess fast-growing software start-ups running up huge losses, it is today used by investment professionals the world over, and there’s no obvious reason why it cannot be applied to any ‘growth’ stock.
Crucially, it is simple to use, a filter any retail investor can apply.
The metric is based on the principle that a company’s combined revenue growth rate and operating profit margin should be at least 40%, and ideally better. So, a company with revenue growth of 30% and margins of 20% would beat the rule of 40 (scoring 50), while one with growth of 12% and margin of 23% would not (35).
It can be applied to lossmaking businesses by
subtracting the negative margin from the growth rate. So, two companies with 60% growth but margins of -12% and -25% would result in one that beats the rule and one that doesn’t, with respective scores of 48 and 35.
Measuring only a company’s latest fiscal results won’t tell you much, but applied over multiple years, the last five say, can be a useful way to track the progress of a fast-growing business as it expands, matures, and eventually, becomes more focused on profits, cash flow and shareholder returns.
Interestingly, a study by Morgan Stanley in 2023 found companies which had most frequently surpassed the rule of 40 hurdle (at least 10 times, on a quarterly basis) drove 56% of the outperformance of the Nasdaq, and 124% of the S&P 500 outperformance since 2018.
Tomasz Tunguz has said, ‘the rule of 40% might be a good filter for investors to identify outliers’, or relatively rare businesses capable of producing a sustainable mix of growth and profit into maturity.
‘The spirit of the R40 is a good one,’ Tunguz adds. It ‘establishes a relationship between the growth rate and burn rate of a business and defines a healthy operating zone for a growth stage business.’
The table shows some highprofile names which qualify under the rule of 40 – using data from SharePad on the average operating margin and revenue growth rate over five years. [SF]
Examples of growth stocks which qualify under the rule of 40
benefits of scale, reach and investment which can drive future growth at levels above the wider market.’
Along the same lines, Blue Whale Growth’s (BD6PG78) Stephen Yiu says: ‘With thousands of companies to choose from, narrowing down the options is crucial. This involves both positive and negative filtering. Companies operating in industries with significant structural tailwinds—such as AI and digital transformation—move to the forefront.
‘Conversely, businesses in declining industries or those facing political scrutiny are usually excluded. The next step is identifying potential “winners” within those promising industries. Key traits include operational moats, best-in-class products, high margins, and pricing power, which signal a company’s potential for sustained success.’
SORTING THE WHEAT FROM THE CHAFF
‘hidden gems’ – those companies that offer the best long term growth opportunities but which may not be well known or covered by the sell-side”
As Yiu observes, from a starting point of having identified winning themes, the work of identifying the right ways to play them begins. Odyssean’s Ed Wielechowski says: ‘Ultimately there are no shortcuts, and finding the best opportunities takes time and effort to sort the wheat from the chaff. We are sector focused, spending our time on areas richer in business models we like. Within these areas we bring to bear multiple decades of investment experience across the Odyssean team. By focusing on fewer areas and knowing them well, we believe we are able to better understand market dynamics, identifying likely winners; better able to develop a deeper understanding
of our own in-depth, detailed primary diligence on each new investment. We set high bars and only select what we view as the most attractive opportunities for our portfolios.’
Montanaro European Smaller Companies (MTE) manager George Cooke says: ‘With thousands of companies to choose from in the European small-cap universe, we believe you need two key ingredients if you are to regularly identify the “hidden gems” – those companies that offer the best long term growth opportunities but which may not be well known or covered by the sell-side.’
Cooke explains this encompasses a well-defined investment process and a large team – something
homework, thanks to our 16 in-house sector analysts, meaning we have the chance to unearth companies that other investors have missed altogether.’
Investment manager at Baillie Gifford US Growth (USA), Gary Robinson, says: ‘Research shows that a small group of exceptional growth companies drive a market’s return over five years and beyond.’
certain general characteristics which enhance their potential for achieving faster and more sustainable growth compared to their peers. These enterprises are characterised by their disruptive nature, innovation, and adaptability. They possess exceptional ambition and target significant opportunities relative to their size.
‘We also look for companies which we believe have a sustainable competitive advantage and a purposeful and effective company culture,’ Robinson adds. ‘Few companies possess these traits.’
According to Robinson, these companies exhibit A company could double in size in revenue terms just by buying a similar-sized business but if both are basket cases, and the acquirer has loaded up with debt to complete the deal, then shareholders are unlikely to enjoy any benefit.
Growth for its own sake is just as likely to destroy value as it is to create it. The growth stories which stand the test of time need to generate sustainable returns and cash, which they can then reinvest
James Cook, co-manager of popular trust JPMorgan Global Growth & Income (JGGI), says he looks for three key criteria. ‘Superior quality of earnings, faster earnings growth than the benchmark average (which is important because these companies have historically outperformed, especially in downturns); and normalised free cash flow yields similar to the market.’
Research
shows that a small
group
of
exceptional growth companies drive a market’s return over five years and beyond”
QUALITY GROWTH
in the business, as Stephen Tong, portfolio manager at Mid Wynd International (MWY), explains: ‘Our starting point is quality companies generating high returns on capital that are reinvesting in their business to drive future growth. We look for cash flow growth in particular, not necessarily sales growth, as this is what builds investor wealth over the long term.’
Gerrit Smit from Stonehage Fleming Global Best Ideas
As the late Charlie Munger reminded us, long-term investment opportunities boil down to the returns on invested capital that the business generates”
(BCLYMF3) says: ‘As the late Charlie Munger reminded us, long-term investment opportunities boil down to the returns on invested capital that the business generates.’
The manager of the small- and mid-cap focused trust from the Fundsmith stable – Smithson’s (SMIN) Simon Barnard – adds his perspective: ‘We use a range of sources including financial screens, corporate networks and relationships with the management teams of companies we already follow to look for smaller companies of very good quality with high margins, strong free cash flow and excellent returns on invested capital.’
ITWO GROWTH STOCKS TO BUY
Trustpilot (TRST) 284p
Market cap: £1.2 billion
n our view, Trustpilot (TRST) has a lot of the hallmarks of a long-run growth stock. With more of us buying stuff online, is it any wonder we are increasingly reaching out to fellow consumers for their seal of approval (or gripes) about products and services, and that’s great news for Trustpilot’s reviews platform.
The platform now hosts more than 300 million consumer reviews of products and services across hundreds of thousands of websites, according to half-year results in September 2024. Thousands of businesses now turn to Trustpilot for customer transparency and the underlying consumer data analytics it provides to clients, and its value to them is being proved by client retention rates of 101%.
Crucially, this creates valuable network benefits. The more consumers using the platform and sharing opinions, the richer the insights Trustpilot can offer clients. Done well, this creates a virtuous circle where consumers feel drawn to Trustpilot because it is where meaningful services are listed and reviewed, and the more consumers who use Trustpilot, the more businesses will feel they need to be on the platform.
That first-half revenue, bookings and ARR (annual recurring revenue) increased 18%, 16% and 16% respectively was highly encouraging news for investors, as were plans for a £20 million share buyback. This accounts for around 3% of the shares in issue, a clear demonstration of capital allocation discipline in the face of what the company believes is a discounted market valuation. It also reflects the company’s improving cash flow.
It’s been a virtual one-way street for the share price this year, rallying from 139p, a run which Shares predicted in a Great Ideas pitch at 161p in January 2024. Positive trading and repeated earnings upgrades by analysts will do that, and there’s no indication that the wheels are about to come off. In fact, quite the opposite. [SF]
The platform now hosts more than 300 million consumer reviews of products and services across hundreds of thousands of websites”
LWindward (WNWD:AIM) 120.5p
Market cap: £108.6 million
eading AI-based risk management SaaS (software-as-a-service) and data platform company Windward (WNWD:AIM) operates in the global shipping, energy and maritime logistics sectors.
It’s software suite and data platform allows customers to monitor, assess and predict trade vessel compliance with sanctions and track individual sea cargo in real time and predict estimated time of arrival and delays.
Windward floated on the AIM market in December 2021 at 155p per share and has grown revenue at a compound annual growth rate of 31% over the last six years and is expected to reach £36.3 million in 2024.
The company is one of the fastest-growing listed enterprise software providers in the UK according to analysts at Canaccord Genuity.
Its total addressable market is roughly $10 billion, reflecting low rates of digital transformation in the maritime industry. This provides a large and sustainable runway of growth for Windward.
Windward
The company’s unique solution automates due diligence and sanction compliance by leveraging third party data sources, big data analytics and predictive AI algorithms.
Windward’s blue-chip client list spans multiple
Windward revenue by geography
industries and includes Shell (SHEL), HSBC (HSBC), BP (BP.) and the Department for Homeland Security in the US.
The company is continually expanding the product offering for both the commercial and government markets, growing its total addressable market and moving the business into the broader compliance, security, and supply chain markets.
Nearly 100% of revenue is generated through subscriptions, a higher proportion than data platform peers such as RELX (RELX), providing a high-quality source of income.
Increasing global geopolitical tensions should act as a tailwind for the business over coming years. With the company expected to reach breakeven in 2024, the business looks well set to continue growing at a fast pace and generate shareholder returns. [MG]
Small World: a modest deal struck at a big premium and a new gaming services IPO
We begin proceedings with two takeover approaches, one successful, the other less so, for now at least.
First, Swiss bourse operator SIX agreed to buy UK junior marketplace Aquis Exchange (AQX:AIM) for 727p in cash, representing a 120% premium to the previous closing price of 330p.
SIX, which operates the Swiss and Spanish stock markets, called the deal ‘a compelling strategic opportunity which will complement its established growth strategy (and) strengthen its ability to serve customers in Switzerland, Spain and internationally with its reliable infrastructure services and seamless access to capital markets’.
Aquis, which was only launched in 2012, has grown from a start-up subscription-based exchange to a ‘challenger’ next-generation player with revenues growing nearly six-fold up to the end of last year and had just moved into profit.
Meanwhile, the proposed takeover of electronic connector maker TT Electronics (TTG) by industrial manufacturer Volex (VLX), in what Volex chair Lord Rothschild described as ‘a highly synergistic transaction which would create a scaled and diversified leader in the specialist electronics market’, failed to get off the ground.
The cash and shares offer valued TT shares at 135p each, a decent premium to their previous price but a far cry from their highs suggesting Volex’s bid was fairly opportunistic.
Unsurprisingly, TT rejected the offer, but if Volex believes in the two firms building ‘a platform for future organic and inorganic growth and significant value creation’, to quote Lord Rothschild again, investors can no doubt look forward to a revised offer in the coming weeks.
BEAR IN A CHINA SHOP
There was grim news from ceramic products specialist Churchill China (CHH:AIM), which blamed ‘subdued’ hospitality markets and the absence of a pre-Christmas ‘seasonal uplift’ for lowering its outlook.
Shares in the Stoke-on-Trent plate-maker crashed 20% on the news annual profits would be ‘materially below market expectations’, while future earnings were likely to be impacted by higher labour costs due to changes in the recent Budget.
Chair Robin Williams said the current macroeconomic uncertainty combined with ‘significant’ increases in the firm’s cost base created near term challenges, but he confident that its core strategy would ‘continue to deliver growth as markets improve’.
Also ruing its fortunes was PC component-maker Solid State (SOLI:AIM), which warned mid-month its performance for the current financial year would be ‘materially below current consensus expectations’ due to contract delays.
The shares closed down over a third on the day, having dropped more than half at one point, as spending on a ‘prominent’ defence order programme was paused pending completion of the government’s strategic review.
The firm said it was confident the delay was temporary and the order would come in after the end of March 2025, but the timing of the strategic review meant it was ‘uncertain whether these delays will also affect orders and deliveries originally expected in 2025/26’.
NEW FACES
There were a couple of new listings this month, the first being Selkirk (SELK:AIM), a special-purpose acquisition vehicle or SPAC, which placed shares at 2.4p each raising £7.5 million and giving the business a market value of £10 million.
Prior to listing, Selkirk was half-owned by UK investor Kelso (KLSO), whose stake has subsequently dropped to 18%, just ahead of Terry Leahy, the ex-boss of supermarket group Tesco (TESCO)
Selkirk’s mission, it seems, is to engineer a reverse takeover of a large company in the consumer, technology or media sector with an enterprise value of between £30 million and £1 billion.
Churchill China
Also joining the market this month is Singaporebased video game services company Winking Studios (WKS:AIM) after placing 52.7 million new shares at 15p each.
That raised a total of £7.9 million and gave the firm, which boasts the backing of Taiwanese computer hardware maker Acer (2353:TPE), a market cap of £66 million.
The company said it would use the cash raised to establish a stronger presence in Europe and North America, including through M&A (mergers and acquisitions).
GOODBYE, OR WE’LL MEET GAIN?
As these doors opened, however, two others closed with Atrato Onsite Energy (ROOF) and Miton UK MicroCap Trust (MINI) announcing they were calling it a day.
Atrato’s decision to sell up stemmed from the trust being subscale and its shares having suffered ‘a significant de-rating over the last year exacerbated by the higher interest rate environment’.
The board announced earlier this month it had
sold the entire portfolio of solar assets to a private equity consortium, which included a unit of US firm Brookfield Asset Management (BAM:NYSE), for just under £220 million, and would seek to distribute the proceeds to investors as soon as possible.
In the case of Miton MicroCap, considering the level of redemption requests received in October and a ‘challenging’ period of performance, the trust was ‘at a size which some investors consider to be too small from a liquidity perspective’ according to the board.
Combined with the ‘persistent, material discount to net asset value’ and limited options to grow, the board put forward proposals for a voluntary winding-up, but also left the door open for the trust to be rolled into another of Premier Miton’s open-ended funds, so this may not be the end of the road for investors.
By Ian Conway Deputy Editor
Chart: Shares magazine • Source: LSEG
Sponsored by Templeton
Apart from TSMC what drives the Taiwanese market?
Looking at the Taipei-listed stocks beyond the leading global chip maker
MSCI Taiwan – sector breakdown
There’s no doubt the world’s leading chip manufacturer TSMC (2330:TPE) dominates the Taiwanese market –unsurprising given it’s near trillion-dollar valuation.
However, while it has a more than 50% weighting in the MSCI Taiwan index there are some other interesting names.
Undoubtedly Taiwan is a tech-heavy market, with information technology enjoying a weighting of nearly 80%. This feeds into a higher valuation than other emerging markets with a forward price to earnings ratio of 17.2 times for MSCI Taiwan compared with 12.1 times for MSCI Emerging Markets. The top five constituents in the index are all tech business.
Number two is Hon Hai Precision Industry (2317:TPE), more commonly known as Foxconn, is a global leader in electronics contract manufacturing. It assembles products such as the iPhone and
Xbox games console for major brands like Apple (AAPL:NASDAQ) and Microsoft (MSFT:NASDAQ) and is now seeing significant demand for AI servers.
Like TSMC, the third largest listed Taiwanese company MediaTek (2454:TPE) also operates in the semiconductor space but focuses on the design and sale rather than the manufacture of chips.
At four on the list is Quanta Computer (2382:TPE) which makes notebook computers and other electronic hardware for companies including Dell Technologies (DELL:NYSE) and HP Inc (HPQ:NYSE).
Rounding of the quintet is Delta Electronics (2308:TPE) which makes power components for a list of global clients which includes Tesla (TSLA:NASDAQ).
This outlook is part of a series being sponsored by Templeton Emerging Markets Investment Trust. For more information on the trust, visit www.temit.co.uk
Sponsored by
Emerging markets: Trump victory, risk of US IRA repeal and tariffs, South Korea cuts rates
Three things the Templeton Emerging Markets Investment Trust team are thinking about today.
1.
Republicans win: The US presidential election outcome is a resounding vote in favour of the policies proposed by Donald Trump, the new president-elect. Voter concerns about inflation and immigration also played a role in his success. The implications of the election outcome for emerging markets (EMs), particularly China, are significant. The president-elect has proposed a 10% tariff on all imports, and tariffs potentially as high as 60% on Chinese imports.
2.
Battery packs and automobiles: There is a clear risk that the US Inflation Reduction Act (IRA) will be repealed, with negative implications for South Korean automobile and battery exporters. While US imports of electric vehicles are low, the battery packs used in domestically produced vehicles are mostly imported from Asia. Mexican auto imports into the United States are also at risk from higher tariffs. The Mexican and US auto-supply chains are closely linked, with the United States sourcing 25% of auto imports from the country. For investors, the impact of higher tariffs on US import prices— and in turn household purchasing power—is a clear concern.
3.
South Korean rate cuts: In South Korea, the central bank reduced interest rates for the first time since May 2020. The country also registered a third-quarter gross domestic product (GDP) growth of 0.1%, rebounding from a 0.2% contraction from the second quarter. Taiwanese equities bucked the trend and rose. Taipei-listed shares of the world’s largest contract chipmaker posted forecast-beating third-quarter earnings and a positive outlook.
Chetan Sehgal Singapore
First-time buyers risk being squeezed by Lifetime ISA limits
In some parts of the country the current thresholds look insufficient
First-time buyers hoping to use a Lifetime ISA to buy their first home could be squeezed out of buying a terraced house in more than 50 regions of the UK, new analysis from AJ Bell shows.
The government pays a 25% bonus, up to £1,000 a year, into each Lifetime ISA account, which can then be used to buy a first home. But the property cannot cost more than £450,000, with the limit remaining unchanged since the accounts were launched in 2017.
Because property prices have soared in that time, many wannabe first-time buyers now face being priced out of their area if they want to use the Lifetime ISA. AJ Bell analysis shows that aspiring homeowners could be frozen out of using a Lifetime ISA to buy a terraced house in 54 regions by the end of this parliament. Even a typical flat is projected to cost more than the £450,000 limit in five years in 17 regions, including many on the fringes of London.
The analysis, conducted by AJ Bell based on Land Registry data and OBR forecast house price increases, illustrates the dilemma faced by those saving for their first home. Savers unable to use their Lifetime ISA to buy a property face the prospect of incurring an early withdrawal charge if they close the account.
A PARTICULAR PROBLEM IN LONDON
While in many parts of the country a typical first home will cost far less than £450,000, large parts of London are already well over the threshold for a terraced house or a flat. Lifetime ISAs may not be designed to help people buy homes in Kensington or Fulham, but Watford and Welwyn surely shouldn’t be off limits.
Areas including Merton, Ealing and Barnet threaten to become too expensive for first-time buyers hoping to use the government-backed savings vehicle to even buy a flat. Across large swathes of the country first-time buyers looking to buy a home will be excluded from the scheme.
While smaller properties should fall under the threshold in most areas, a young family or a couple who rent but want to move to a semi-detached house with room to grow their family will find they’re excluded from using the government’s firsttime buyer savings plan in large parts of the UK. Increasing the maximum property value limit for using the account by a small amount each year would make a massive difference to so many individuals. The property valuation cap hasn’t changed since the Lifetime ISA launched seven years ago, even though property prices have subsequently moved higher across parts of the UK. It means account holders wanting to use the money are often left with a dilemma – buy a cheaper property than you really want, or close the account and face an early exit penalty.
While the savings can be held until age 60 and used for retirement, most first-time buyers will need to use the money in the account for their deposit, even if it means they’re forced to cash in their Lifetime ISA early and swallow the penalty.
DISCLAIMER: AJ Bell owns Shares magazine. The author (Laura Suter) and editor (Tom Sieber) of this article own shares in AJ Bell.
By Laura Suter AJ Bell Head of Personal Finance
Personal Finance: Lifetime ISA limits
Cost of average terrace house by region in 2029
Kensington and Chelsea
City of Westminster
Camden
Hammersmith and Fulham
Islington
Wandsworth
Richmond upon Thames
Hackney
Lambeth
Southwark
Haringey
Brent
Tower Hamlets
Ealing
Barnet
Merton
Lewisham
Waltham Forest
Elmbridge
Kingston upon Thames
Hounslow
Harrow
Greenwich
Redbridge
St Albans
Windsor and Maidenhead
Cambridge
Oxford
Enfield
Epsom and Ewell
Newham
Brighton and Hove
Bromley
Hertsmere
Epping Forest
Hillingdon
Three Rivers
Runnymede
Sutton
Tandridge
Winchester
Reigate and Banstead
Guildford
Waverley
Mole Valley
Havering
Watford
Dacorum
Bexley
Welwyn Hatfield
Spelthorne
Croydon
Woking
Sevenoaks
£2,513,205
£1,889,430
£1,500,162
£1,250,555
£1,242,583
£1,002,835
£959,036
£958,916
£879,642
£828,258
£773,845
£753,303
£737,382
£711,548
£545,802
£535,117
£534,529
£529,973
£528,655
£509,619
£506,741
£504,583
£502,112
£494,360
£488,821
£483,974
£482,212
£478,664
£477,149
£475,406
£474,881
£468,868
£467,481
£464,892
£464,444
£458,602
£458,277
£457,413
Regions where first-time buyers may not be able to use a Lifetime ISA
AJ Bell calculates an additional 18 regions of the UK would be out of reach for first-time buyers hoping to buy a typical terraced home in five years’ time at the end of this parliament if no action is taken. That’s in addition to the 36 areas where the average terrace already costs more than £450,000.
AJ Bell calculates flats in another six areas of the UK, including Brent and Southwark, could exceed the £450,000 maximum property value in five years’ time. That’s on top of the 11 regions where the average flat already costs more than that threshold.
This analysis is based on the average price of a terraced house or flat in August 2024 calculated by HM Land Registry and uprating the value each year using annual house price growth forecasts from the OBR.
WATCH RECENT PRESENTATIONS
Patria Private Equity (PPET)
Alan Gauld, Senior Investment Director
The Patria Private Equity Trust provides investors with exposure to leading private equity funds and private companies, mainly in Europe. It invests in private equity funds by making primary commitments and secondary purchases, and it makes “direct” investments into private companies via co-investments and single-asset secondaries.
Pulsar Helium (PLSR)
Tom Abraham James, Co Founder and CEO
Pulsar Helium is a dedicated helium exploration and development company listed on London’s AIM exchange, the TSXV and American Over the Counter exchange. Pulsar is at the forefront of a new industry, the production of helium without the co-production of hydrocarbons – focusing on deposits where helium is the primary economic driver
Time Finance (TIME)
Ed Rimmer, CEO & James Roberts, FD
The company’s purpose is to help businesses in the UK thrive and survive through the provision of flexible funding facilities. It offers a multi-product range for SMEs, concentrating on asset finance, commercial loans, and invoice finance. The company is focussed on being an ‘own-book’ lender, but it does retain the ability to broke-on deals where appropriate, enabling it to optimise business levels through market and economic cycles.
Will equities (ever) give in to rising bond yields?
Movements in fixed income could hold clues about the future trajectory of the stock market
The first Budget from a Labour Government in 14 years continues to stir heated debate and sceptics readily point to the increase in the yield in the UK’s 10-year gilt to a one-year high to support their case that chancellor Rachel Reeves is on the wrong track. It does not look great that yields are rising in the wake of August’s interest rate cut from the Bank of England, but 10-year government bond yields are rising in France and the US, too, and faster than they are here in the UK relative to local headline interest rates, to perhaps suggest there is a wider issue at work.
FIXED-INCOME FLAP
In principle, the price of benchmark government bonds should rise, and the yield should fall once a central bank cuts interest rates, especially if the monetary authorities give strong hints that further reductions in headline borrowing costs are on the way.
This is because the coupons on existing issue may look more attractive relative to the coupons that will come with newly issued paper, so investors will look to buy the bonds that are already available to lock in higher returns (at least in nominal terms). The price of existing benchmark bonds, such as those with a 10-year maturity, should rise and so
the yield should fall, since the coupon payments continue to come at their pre-set level at the preset time.
However, the opposite is currently happening. Chancellor Reeves is getting a lot of the blame here in the UK, especially as the 10-year gilt yield is as high as it was during the peak of autumn 2022’s Trussonomics panic.
However, the rate of ascent has been gentler, and the Bank of England base rate now is 4.75%, compared to 2.25% two years ago, so the comparison is not an entirely fair one. French OATs and American treasuries are also defying central banks.
Government benchmark bond yields are rising despite interest rate cuts
From an investment point of view, the wider uncertainty across sovereign debt markets is a potentially troubling sign, especially as stock markets remain buoyant and investment grade corporate debt markets offer what look like low spreads (premium yields) relative to government issue.
Sovereign fixed-income markets could be worried about inflation, ever-growing budget deficits (and thus ever-growing supply of government bonds) or even the US economy in particular proving more resilient than expected. All three could mean that central bank interest rates remain higher for longer, although for the moment equity markets are sticking to their preferred script of cooling inflation, a soft economic landing (or no more than modest progress) and interest rate cuts. It will be interesting to find out whether equity or bond markets are right, or whether the truth falls somewhere in the middle.
YIELD TO MATHEMATICS
Besides wider macroeconomic concerns, there is a more tangible reason why rising government bond yields could become a challenge for buoyant equity markets, at least in the US, where sentiment feels as bullish as ever.
This is because the yield on the 10-year treasury – the so-called ‘risk-free rate’ – is now equal to the earnings yield on the S&P 500.
The earnings yield is simply the inverse of the price to earnings ratio
If the PE is calculated
as price divided by earnings to give the valuation multiple, the earnings yield is earnings divided by price with the result expressed as a percentage and, in effect, it measures how much profit a company makes for every dollar (or pound or euro) invested in it.
According to consensus analysts’ estimates, the S&P 500 trades on 22.3 times forward earnings, equivalent to an earnings yield of 4.49%. The tenyear Treasury yield is 4.39%, so investors are being rewarded with just ten basis points of extra return for taking on equity risk.
The premium return from equities is thus at its narrowest point since the early 2000s, when the technology, media and telecoms (TMT) bubble was bursting. Bulls will counter by saying that episode only went pop when the 10-year yield outstripped the equity yield by more than two percentage points – and we are long way from that.
US
equities hit the buffers in
2000 when
the
earnings yield was
well
below the treasury yield
Source:LSEG Refinitiv data
Value-hunters may point to the different picture in the UK. A forward PE of 11 times for the FTSE
bubble only came to grief when the earnings yield premium over the gilt yield dipped below 2%. Again, we have some way to go before that point is reached, which is one possible explanation for the ongoing surge in takeover activity in the UK, as private equity and trade buyers snap up UK-listed companies.
04 DECEMBER 2024
NOVOTEL TOWER BRIDGE
LONDON EC3N 2NR
Registration and coffee: 17.15
Presentations: 17.55
During the event and afterwards over drinks, investors will have the chance to:
• Discover new investment opportunities
• Get to know the companies better
• Talk with the company directors and other investors
Sponsored by
COMPANIES PRESENTING
SELKIRK
Selkirk Group is a newly incorporated company established with the primary objective of acquiring a company or business which the Directors believe is undervalued
SHEPHERD NEAME
Shepherd Neame is Britain’s Oldest Brewer, based in Kent since 1698. The Company brews, markets and distributes its own beers to national and export customers under a range of highly successful brand names including Spitfire, Bishops Finger, Whitstable Bay and Bear Island.
STRIX GROUP
Strix Group manufactures and markets kettle controls for appliances. The company is engaged in the business of design, manufacture, and supply of kettle safety controls and other components and devices involving water heating and temperature control, steam management, and water filtration.
TARGET HEALTHCARE REIT
Target Healthcare REIT is the leading listed investor in UK care home real estate. We are a responsible investor in modern, ESG-compliant, purpose-built care homes which are commensurate with modern living and care standards.
When does the money purchase annual allowance apply?
How the reduced limit on pensions contributions benefiting from tax relief works
In a previous article you say that someone taking income from a defined benefit pension could still contribute to their SIPP up to the level of their earnings. Does this mean that the money purchase annual allowance of £10,000 applies only if you take taxable income from a defined contribution scheme and not from a defined benefit scheme? Similarly, if I have two defined contribution schemes and take taxable income from one scheme does the money purchase annual allowance then apply only to the scheme from which I drew taxable income or to both schemes?
Charles
Rachel Vahey, AJ Bell Head of Public Policy, says:
When pension freedoms were first introduced almost 10 years ago, pension savers were given the flexibility to take as much money out of their defined contribution pension pot as they wanted. But at the same time, the government was concerned people could simply take their money out of a pension and then reinvest it back, gaining tax relief and building up further 25% tax-free cash.
To reduce the opportunity to do this, HMRC tightened up the rules on recycling of tax-free cash, as well as introducing the MPAA (money purchase annual allowance).
As a reminder, the annual allowance, currently £60,000, is the maximum amount of pension savings that can be made each year (both by the individual and their employer) with the benefit
of tax relief. As well as that, an individual’s contribution (including the 20% tax relief paid by HMRC) cannot be more than 100% of their earnings in that tax year.
EXPLAINING THE MONEY PURCHASE ANNUAL ALLOWANCE
The MPAA is another allowance within the annual allowance. It restricts the contributions that can be paid into all your money purchase pensions – for example SIPPs - if you have started taking a flexible income. It reduces the limit from £60,000 to £10,000 each tax year and applies to your total contributions across all money purchase pensions –even if you only took one ‘flexible income’ payment from any one of them. Additionally, it is not possible to make use of any unused contribution allowance (known as carry forward) from previous tax years to increase this amount.
The MPAA is ‘triggered’ if you ‘flexibly access’ your money purchase pension pot. For example, if you take a taxable amount from your drawdown plan, or you exceed your income limit in capped drawdown or you buy a ‘flexible annuity’ that allows income to fall.
It wouldn’t be triggered if you took tax-free cash but no taxable income from your drawdown pot, or if you bought a ‘lifetime’ annuity, or if you took an income or a lump sum from a pension pot you had inherited from another person. Nor would the MPAA be triggered if you took taxable income from only a defined benefit scheme.
The MPAA only applies to all contributions to money purchase schemes made after the date it’s triggered. So, if you started to take a taxable
Ask Rachel: Your retirement questions answered
income half-way through the tax year then it would only apply to contributions paid into your SIPP after that date. (Although the total contributions for the year are still tested against the £60,000 annual allowance.)
If you also have a defined benefit scheme (this may also be referred to as a final salary or career average scheme) you can continue to build up benefits worth up to £60,000 a year in total (depending on how much you pay into your money purchase pension), plus any unused allowance from the previous tax years, across all your pensions without facing tax charges. But the amount that is contributed to all your money purchase pensions must not exceed £10,000 or you’ll have to pay tax charges.
The amount you can contribute to a defined benefit scheme in these circumstances is called an ‘Alternative Annual Allowance’.
HOW IT COULD WORK IN PRACTICE
A simple example may help to explain this. Sam takes his tax-free cash from his SIPP, as well as a taxable income of £18,000 a year. He carries on paying in £5,500 a year into his SIPP as well as being an active member of his defined benefit scheme. The amount he can build up in his defined benefit scheme is restricted to £54,500 for the tax year.
Working out this ‘Alternative Annual Allowance’ for a defined benefit scheme can be quite tricky, as you have to work out how much an increase to your defined benefit pension is worth in monetary terms. (Whereas it can be quite simple to see how much you are paying into a SIPP.)
So, if you have any questions it may be worth asking your employer and pension scheme administrator, or a regulated financial adviser, for some help.
WHO WE ARE
EDITOR: Tom Sieber @SharesMagTom
DEPUTY EDITOR: Ian Conway @SharesMagIan
NEWS EDITOR: Steven Frazer @SharesMagSteve
FUNDS AND INVESTMENT
TRUSTS EDITOR: James Crux @SharesMagJames
EDUCATION EDITOR: Martin Gamble @Chilligg
INVESTMENT WRITER: Sabuhi Gard @sharesmagsabuhi
CONTRIBUTORS: Dan Coatsworth
Danni Hewson
Laith Khalaf
Laura Suter
Rachel Vahey
Russ Mould
Shares magazine is published weekly every Thursday (50 times per year) by AJ Bell Media Limited, 49 Southwark Bridge Road, London, SE1 9HH. Company Registration No: 3733852.
All Shares material is copyright. Reproduction in whole or part is not permitted without written permission from the editor.
Shares publishes information and ideas which are of interest to investors. It does not provide advice in relation to investments or any other financial matters. Comments published in Shares must not be relied upon by readers when they make their investment decisions. Investors who require advice should consult a properly qualified independent adviser. Shares, its staff and AJ Bell Media Limited do not, under any circumstances, accept liability for losses suffered by readers as a result of their investment decisions.
Members of staff of Shares may hold shares in companies mentioned in the magazine. This could create a conflict of interests. Where such a conflict exists it will be disclosed. Shares adheres to a strict code of conduct for reporters, as set out below.
1. In keeping with the existing practice, reporters who intend to write about any securities, derivatives or positions with spread betting organisations that they have an interest in should first clear their writing with the editor. If the editor agrees that the
reporter can write about the interest, it should be disclosed to readers at the end of the story. Holdings by third parties including families, trusts, selfselect pension funds, self select ISAs and PEPs and nominee accounts are included in such interests.
2. Reporters will inform the editor on any occasion that they transact shares, derivatives or spread betting positions. This will overcome situations when the interests they are considering might conflict with reports by other writers in the magazine. This notification should be confirmed by e-mail.
3. Reporters are required to hold a full personal interest register. The whereabouts of this register should be revealed to the editor.
4. A reporter should not have made a transaction of shares, derivatives or spread betting positions for 30 days before the publication of an article that mentions such interest. Reporters who have an interest in a company they have written about should not transact the shares within 30 days after the on-sale date of the magazine.
and, as such, are written by the companies in question and reproduced in good faith.
Introduction
WWelcome to Spotlight, a bonus report which is distributed eight times a year alongside your digital copy of Shares.
It provides small caps with a platform to tell their stories in their own words.
The company profiles are written by the businesses themselves rather than by Shares journalists.
They pay a fee to get their message across to both existing shareholders and prospective investors.
These profiles are paidfor promotions and are not
independent comment. As such, they cannot be considered unbiased. Equally, you are getting the inside track from the people who should best know the company and its strategy.
Some of the firms profiled in Spotlight will appear at our webinars and in-person events where you get to hear from management first hand.
Click here for details of upcoming events and how to register for free tickets.
Previous issues of Spotlight are available on our website.
Members of staff may hold shares in some of the securities written about in this publication. This could create a conflict of interest. Where such a conflict exists, it will be disclosed. This publication contains information and ideas which are of interest to investors. It does not provide advice in relation to investments or any other financial matters. Comments in this publication must not be relied upon by readers when they make their investment decisions. Investors who require advice should consult a properly qualified independent adviser. This publication, its staff and AJ Bell Media do not, under any circumstances, accept liability for losses suffered by readers as a result of their investment decisions.
Discover the economic impact of AIM
Junior market continues to play an important role in supporting business growth
Despite an extended period of uncertainty, exacerbated by the COVID-19 pandemic, AIM continues to play an important role in supporting business growth and in doing so delivering notable economic value to the UK.
AIM is the LSE’s (London Stock Exchange) international market for smaller growing companies. It provides access to capital and ongoing finance to ambitious companies and in doing so plays an important role in supporting business growth, through enabling companies to access external finance so that they can make a step change in their development. In doing this, AIM provides a range of investor opportunities and continues to make an important contribution to the UK economy.
Since its inception in 1995, AIM has supported over 4,000 quoted companies.
AIM continues to welcome a broad range of companies incorporated overseas or with significant international operations, although the vast majority (83% of new admissions since 2015) of these companies have been UK incorporated.
Since its inception, AIM companies have raised £48 billion at admission and followed this with further
fundraising amounting to £87 billion. In the first 10 years of AIM, 54% of the money raised was through new admissions compared to an average of 19% in the last 10 years.
Since 2007, 75% of all funds have been raised through secondary issues (£72 billion of £95 billion), however, total money raised has fallen by 71% between 2020 and 2023.
The health of an economy is measured by its scale and its growth in terms of the goods and services it produces over a specific time period, at a national level this is measured in terms of GDP (Gross Domestic Product).
In 2023, AIM companies contributed £35.7 billion GVA (Gross Value Added) to UK GDP and directly supported more than 410,000 jobs. By comparison, the UK’s agriculture, forestry, and fishing sector contributed £19.2 billion; advertising and market research contributed £21.6 billion; the motion picture, video, TV programme
AIM new admission and money raised since 1995
and broadcasting sector contributed £21.8 billion; and the arts entertainment and recreation sector contributed £31 billion.
In addition, AIM companies made a significant corporation tax contribution of £5.4 billion to the Exchequer.
Over the last four years (pre- and post-Covid) the direct economic contribution made by AIM companies has grown by 6.6% from £33.5 billion although employment has fallen by 4.7%.
By way of context the UK employment rate (the number of working age population in work) fell from 76.1% in 2019 to 74.8% and changes in employee numbers were not uniform across all sectors with AIM companies in consumer, industrial and technology sectors actually growing.
In addition to this direct contribution, AIM companies support further economic activity through both their supply chains and the expenditure of employees in their local economies.
Through their supply chain expenditure, AIM companies support a further 212,800 jobs and £18.6 billion of GVA. This indirect impact includes a broad range of suppliers to AIM companies such as financial services (nominated advisers and stockbrokers), business
services (registrars, financial public relations, legal, tax, accounting, and audit) as well as wider goods and services.
Both those employed directly by AIM companies as well as those employees supported through the supply chain will spend their wages on goods and services supplied by UK businesses. These so-called induced effects generate further employment and GVA. The induced impact is estimated to support a further 155,778 jobs and a £13.6 billion GVA contribution to GDP.
Taken together, the overall economic impact is equivalent to £68 billion in GVA and over 778,000 jobs.
AIM has an important role to play in the funding continuum, by enabling companies to raise external finance. This is coupled with a further requirement to go through a number of processes as part of the preparation for IPO that enhance and strengthen the business’s operations, this includes working through processes that optimise business performance, financial disciplines that underpin public company reporting and the adoption of a recognised corporate governance code. Together these help to create more resilient and sustainable businesses.
Continued growth remains a key feature of AIM companies who not only deliver impressive growth immediately following IPO but who continue to deliver this year on year, in terms of increases in both revenue and employees.
The chart shows both the scale of revenue and employment growth following IPO as well as how this growth persists, with revenue growth above 40% year on year for the first three years and 17% for the fourth- and fifth-years following IPO.
This suggests that an AIM IPO does not just deliver immediate growth but rather enables companies to scale and grow the business over the longer term.
Significantly these companies also become more profitable with operating profit increasing to 35% and 41% in years 4 and 5 respectively. Average annual revenue, employee and operating profit growth by post-IPO year
THIS IS AN EXTRACT FROM A REPORT ‘ECONOMIC IMPACT OF AIM’ PRODUCED BY GRANT THORNTON UK LLP IN 2024
EnSilica goes from strength to strength after joining the AIM market two years ago
EnSilica (ENSI:AIM), the aim quoted fabless ASIC supplier has been listed on AIM since May 2022. Listing on AIM was a natural next step in putting the foundations in place to fund its evolution from a design consultancy to a fabless chipmaker. The company operate a ‘Fabless’ model which means we design and sell semiconductors but do not own the fabrication facilities used to manufacture the silicon wafers – which would obviously require billions of capital investment. This is a proven business model used by many semiconductor companies such as Qualcomm (QCOM:NASDAQ), Nvidia (NVDA:NASDAQ) and AMD (AMD:NASDAQ)
Since listing, EnSilica has performed strongly, securing twelve high-value additional supply contracts, alongside the recent chip design and supply contract win for Oriole Networks. The company’s current pipeline of supply revenues continues to grow, underpinning EnSilica’s future revenue base as current customer chips start generating recurring supply revenues, alongside delivering their associated cash generation.
EnSilica is focused on four key growth markets: satellite communications,
automotive, industrial, and healthcare, owning valuable IP positions across all these sectors. The recent Oriole Networks contract win further demonstrates the company’s versatility and our IP platform, encompassing both digital processing and analogue interfacing, including high frequency radio wave (known as millimetre waves or mmWaves), used in the equipment each user has to enable a broadband internet connection to lower earth orbit satellites.
Our mixed signal design experience, IP, and a track record of bringing chips to volume production made us the ASIC partner of choice for Oriole Networks as they set out to make the fastest
and most energy-efficient networks.
In terms of growth opportunities, EnSilica is well placed to secure additional contract momentum within the growing satellite communications market. The cost of satellite launches have reduced dramatically and enabled the low earth orbit satellite constellation market to grow quickly, with examples including the recent successes of Starlink and SpaceX. The company holds relevant differentiated IP and expertise, to be a key player in this market. As an example, we have been working with Texas based mobile satellite telecoms business AST Space Mobile (ASTS:NASDAQ), EnSilica have been developing
the chip for their satellite to deliver 10 times improved performance over their existing solution, AST can provide satellite broadband connection directly to an unmodified mobile phone using very large high performance satellites.
EnSilica also has particular focus in high volume ground based user terminals which require hundreds of mmWave and digital beamforming chip at a low cost and low power that positions the
company to address the emerging resilient satellite connectivity for automotive, public safety and residential applications.
The chips designed by EnSilica are manufactured to customer specifications and utilise our extensive IP portfolio enabling our team to deliver innovative solutions and maintain our competitive edge.
The company’s ‘Fabless’ business model will provide a recurring revenue base in
the medium term, and the diverse markets addressed has the potential to insulate the business from the current uncertain political and economic macro climate. The push towards the localisation of semiconductor supply chains has benefitted EnSilica and we continue to leverage our expertise and strategic partnerships to ensure a resilient supply for both current and potential customers.
Our business model is also secured by the short to medium term sales projections of the chips that are already in supply or are being designed. As these and other chips reach the supply stage, the company hopes to continue its track record of growth in revenues and to improve our return on ROCE (return on capital employed).
Ensilica
Investment Evolution uses technology to make loans fairer and more affordable
Investment Evolution Credit (IEC) presents a potential opportunity for investors interested in the evolving consumer finance sector, particularly in online subprime lending.
Founded by Paul Mathieson, a successful Australian entrepreneur and former investment banker, IEC is headquartered in London and listed on the Aquis Stock Exchange.
It focuses on offering unsecured personal loans between £2,000 and £10,000.
ENTERING THE UK
Since establishing a foundation in six states of the US in 2010, IEC is now positioning itself to expand into the UK market, pending authorisation from the FCA (Financial Conduct Authority).
It is also seeking possible UK acquisitions and looking to expand its US state coverage.
In the UK, tighter regulation has closed over 250 lenders, forcing half a million people into the hands of unregulated lenders reducing their access to credit and in the worst cases leading to their exploitation.
IEC in the UK aims to support these underserved borrowers in the UK by utilising fintech-driven solutions that provide compliant, fair, accessible,
affordable, and consumerfriendly lending options.
The IEC leadership team brings extensive expertise in finance and consumer lending, making them well-prepared for industry changes driven by regulatory, economic, and technological factors.
The IEC product offering, and strategy aligns perfectly with these new market conditions.
EXPERIENCED CEO
CEO Marc Howells, with nearly four decades in financial services, has experience from senior roles at CitiFinancial and Barclaycard, focusing on risk management, cost control, and revenue growth.
His skills in strategic partnerships, mergers, and acquisitions add significant value as IEC scales its UK presence.
Neil Patrick, non-executive
chairman, brings a history of success in consumer credit, having co-founded Firstplus Financial and Picture Financial.
His background in business planning, investment, and operational scaling will help guide IEC in capitalizing on market opportunities.
Bob Mennie, the CFO, contributes strong financial oversight and has worked with both FCA-regulated and publicly traded companies.
His experience in scaling high-growth firms supports IEC’s ambitions to expand while adhering to regulatory frameworks.
Glendys Aguilera, executive director and lending manager, brings operational experience from Mr Amazing Loans, IEC’s US -based subsidiary, and her background in compliance from Wells Fargo (WFC:NYSE) is essential as IEC seeks UK market entry.
TECHNOLOGY ADVICE
Dr Richard Leaver is advising the board on technology.
He’s a recognised expert in AI (artificial intelligence) and its applications across various industries.
Dr Leaver’s career combines technological innovation, investment management, and the commercialisation of innovative AI solutions.
Together, this team’s expertise spans consumer finance, regulatory compliance, technology, and strategic growth, establishing a solid foundation for IEC’s expansion.
The UK subprime consumer loans market is ready for change, driven by economic conditions, regulatory changes, and large pent-up demand for affordable lending options.
Rising living costs and economic pressures have left many consumers financially vulnerable, amplifying the need for accessible small loans.
Traditional banks often avoid lending to individuals with lower credit scores, leading many to turn to unregulated lenders that often come with inflated costs and create circles of debt.
MORE TRANSPARENCY NEEDED
These challenges highlight the demand for more transparent, fair, and innovative lending
solutions, particularly those that leverage technology to offer a smoother, customerfocused experience.
Consumer expectations are also shifting, with younger, tech-savvy borrowers demanding accessible, convenient, and fast loan services. Digital-first platforms that provide straightforward applications, fairer pricing, clearer terms, and faster loan processing times are essential.
IEC’s fintech-driven platform positions it well to meet these expectations and serve the subprime market effectively. Advances in AI and machine learning enable better credit risk assessments by analysing alternative data sources, such as utility payments and employment history. This approach can offer fairer rates by evaluating creditworthiness more accurately, helping IEC reach a broader market while reducing the cost of lending.
IEC’s transparent operational framework and adherence to rigorous accounting standards further strengthen its attractiveness as an investment.
The company’s policies for revenue recognition on loan interest and origination fees align with international accounting standards, demonstrating a commitment to sound financial management and solid regulatory compliance. Overall, IEC is well-positioned to capitalise on the rapidly evolving UK consumer finance market. The combination of a supply starved marketplace and IEC’s ability to deploy technology to deliver cheaper and fairer credit, make its UK market entry exceptionally well-timed.
The company’s scalable online lending model and experienced leadership team create a solid growth path, supported by a robust operational structure and a commitment to regulatory integrity. The UK also presents attractive acquisition opportunities.
As IEC continues to expand and enhance its digital capabilities, it represents a promising investment with substantial potential for returns in a high-demand market.
Exploring opportunities with Pantheon Infrastructure investment trust
It is approaching three years since the oversubscribed initial public offering of the Pantheon Infrastructure investment trust (PINT) on the LSE (London Stock Exchange).
The offering raised £400 million from investors seeking exposure to growth-oriented infrastructure assets.
PINT has since deployed those proceeds, along with the £80 million raised through a subsequent subscription share conversion. PINT now has a portfolio of 13 infrastructure companies in Europe and North America across a variety of subsectors including digital, power and utilities, and renewables and energy efficiency.
The company targets underlying enterprises engaged in the development and operation of physical infrastructure assets with strong defensive characteristics and sustainability credentials, focusing on sectors benefitting from long-term growth drivers and downside protection. This is achieved through a coinvestment model where the company invests directly in the equity of these companies, alongside leading private infrastructure fund managers.
Careful asset selection has enabled PINT to deliver recent returns ahead of its net asset value total return target of 8–10% per annum. Looking
ahead, Pantheon, the company’s investment manager, is optimistic about the company’s continued trajectory.
OPPORTUNITIES IN INFRASTRUCTURE
Infrastructure has emerged as an alternative asset class that combines a range of attractive characteristics for long term investors. Infrastructure assets provide an income generating alternative to traditional fixed income, backed by tangible assets that provide downside protection across market cycles. Underlying cash flows are typically supported by longterm contracts with robust counterparties or established regulatory frameworks. Many of PINT’s underlying investments share these characteristics. Within infrastructure, PINT focuses on investing in sectors benefiting from long
term secular tailwinds with significant growth potential. These include: digitisation, which supports digital infrastructure assets such as mobile towers, fibre and data centres, all of which have become modern day utility assets as data and connectivity become essential services; decarbonisation, which favours investment in renewables and energy efficiency in pursuit of emissions reductions; and deglobalisation, which focuses on opportunities emerging from geopolitical trends such as ‘re-shoring’ and ‘friendshoring’, where supply chains are re-routed to countries deemed to carry lower levels of economic and political risk.
CO-INVESTMENT FOCUS
PINT invests through a co-investment approach, alongside leading
The Geysers geothermal – Calpine
infrastructure fund managers in specific underlying companies. This form of direct investment enables the company to reduce costs by typically avoiding deal level management fees or carried interest. Investments are typically made in the form of a minority portion of the common equity of a company, with an expected ownership period of around 5–7 years before sale. Alignment is achieved through specific contractual provisions that enable PINT to exit investments alongside those fund managers that contribute the rest of the equity. Co-investments can be an attractive route to access private infrastructure for several reasons, including: access – there are fewer public market opportunities to directly access infrastructure companies; enhanced economics – the use of coinvestments can reduce the fee load of a portfolio; alignment – co-investments provide significant alignment with both the underlying company management and the fund managers
PINT invests alongside; portfolio construction and diversification – Pantheon can utilise co investments to tilt the portfolio composition towards specific sectors and to diversify
across sectors, geographies, stages, and fund managers; exposure to nascent sectors – co-investments can provide access to emerging sectors that may not be directly accessible through other investment products; and sponsor specialisation – co-investors have the ability to choose deals alongside specialised sponsors best placed to create value.
GENERATING LONG-TERM RETURNS
The company seeks to generate attractive risk adjusted total returns for shareholders over the longer term, through capital growth and a progressive dividend. The company targets a net asset value (NAV) total return per share of 8-10% per annum and currently a 4.2p per share dividend.
PORTFOLIO
At 30 June 2024, PINT’s aggregate portfolio of 13 assets was valued at £516 million. Notable investments include stakes in: Calpine, an independent North American power producer benefitting from growing power demand; CyrusOne, a global owner and developer of data centres with hyperscale counterparties benefitting from the emergence of AI; National Broadband Ireland, a developer of rural fibre in Ireland through
a public-private-partnership; and Zenobē, a specialist international provider of EV bus fleets and grid scale battery storage.
INVESTMENT MANAGER
PINT is managed by Pantheon, a leading global private markets specialist that provides a range of investment solutions spanning private equity, private credit, infrastructure, and real estate. Founded in 1982, the firm has discretionary assets under management of $67 billion and employs over 450 staff, including more than 125 investment professionals, across 12 global offices.
OUTLOOK
As demonstrated in PINT’s NAV performance since IPO, the company’s disciplined approach to asset selection has generated returns exceeding its targets. The company’s strong track record and the increased visibility of cash flows supported its decision to increase the target dividend for 2024 by 5%.
PINT expects infrastructure assets to provide muchneeded resilience in an ever-changing world, and Pantheon is well positioned to continue to execute on a highquality pipeline of potential investments. Along with recent legislative developments around cost disclosures for investment trusts, the company sees a positive outlook for investors.
Capenhurst battery facility – Zenobē
Selkirk hopes to buy undervalued or overlooked divisions within larger UK companies
Selkirk Group PLC is an AIMlisted (alternative investment market) acquisition company founded in 2024.
The company focuses on buying undervalued or overlooked divisions within larger UK companies in sectors such as consumer, technology, and digital media, where the team has strong expertise.
The company was cofounded by Kelso Group Holdings PLC (KLSO) and Belerion Capital.
Initially conceptualised by Kelso, the idea led to a joint venture with Belerion to leverage their combined expertise.
Selkirk aims to buy a single business from a larger parent company allowing parent companies to concentrate on core operations, monetise a portion of the division, and retain equity in the newly spun-off company.
FORMATION AND MARKET DEBUT
Selkirk debuted on the AIM market on 7 November 2024, with an experienced leadership team, including Iain McDonald of Belerion Capital as executive chairman, Angus Monro (former M&S, Matalan, and THG executive) as senior non-executive director, and Alan Bannatyne, former CFO of Robert Walters, as NED (non-executive director).
High-profile investors such as Sir Terry Leahy, former Tesco CEO, Oliver Hemsley, founder of Numis; Martin Bolland, co-founder of Alchemy Partners; David Speakman, founder of Travel Counsellors, Edward Woodward, former CEO of Manchester United and Nick Robinson – former CEO of Phoenix IT Plc; hold significant stakes, and Selkirk‘s advisory board includes Kelso’s founders: John Goold, Jamie Brooke, and Mark Kirkland.
The company raised £7.5 million in its IPO, at 2.4 pence per share, valuing Selkirk at £10 million.
Led by Zeus Capital Limited, the IPO saw a strong market response with a 25% share price increase on the first day and this premium has been maintained.
WHAT IS SELKIRK’S STRATEGY?
Selkirk’s strategy centres on creating value through spin-
Iain McDonaldExecutive Chair
Angus MonroNon-executive Director
Alan BannatyneNon-executive Director
offs, acquiring divisions from UK companies where financial markets are undervaluing their potential.
By establishing independence for these divisions, Selkirk enables them to achieve growth that may otherwise be limited within a larger corporate structure and for the re-focussed investment proposition to produce a higher multiple on those earnings.
While spin-offs are common in the US, with numerous successful examples, they are less so in the UK despite proven value-creating potential.
High-profile US cases—such as PayPal (PYPL:NASDAQ) from eBay (EBAY:NASDAQ), and Dow (DOW:NYSE), DuPont (DD:NYSE), and Corteva (CTVA:NYSE)—show that spin-offs can deliver strong standalone value.
Studies indicate that spinoffs often outperform market indices, with spun-off units generating an average 15-20% return within the first year, and parent companies also benefiting as they focus on remaining core businesses.
US examples underscore how spin-offs can create
substantial returns. Studies from Investopedia show that both parent companies and spun-off entities tend to outperform market averages over two years, as these examples illustrate:
eBay/PayPal: PayPal’s separation enabled it to grow as a digital payment leader, with its valuation growing from $45 billion to over $300 billion by 2024.
McGraw Hill/S&P Global: The spin-off of S&P Global allowed it to focus on financial data and analytics, achieving strong growth in valuation. Dow, DuPont, and Corteva: DowDuPont’s three-way split resulted in focused companies, leading to a combined valuation that exceeded the pre-split value.
In the UK, spin-offs are rare despite the success seen in the US markets.
According to McKinsey and the Financial Times, UK conglomerates often have divisions that are undervalued
Spin-offs create value in several ways: management focus and accountability: spin-offs allow divested entities to set specific goals rather than align with broader corporate priorities, fostering agility and growth driven by focused management.
Strategic clarity and market positioning: both the parent company and the new entity benefit from clearer market positioning, enabling investors to better understand their value propositions.
Investor appeal and valuation upside: spin-offs reveal hidden value, giving investors greater insight into each entity’s growth potential and risk profile.
Access to capital: as independent companies, spun-off units can raise funds more effectively, focusing resources solely on their own growth initiatives without competing with other divisions for parent company capital.
within their group structure, being perceived by investors as complex and unfocused.
This frequently results in sales of UK subsidiaries to overseas buyers, leading to immediate returns but limiting long-term shareholder upside.
Selkirk’s experienced team is positioned to capitalise on undervalued UK divisions.
By buying and focusing on a single asset, Selkirk can apply tailored strategies to enhance operational performance and market positioning.
Importantly, Selkirk’s model allows sellers to retain equity, with the option to take part of the consideration in Selkirk shares rather than cash, preserving long-term upside potential.
Selkirk’s structure also incentivises operational management teams through a private equity-style MIP (management incentive plan), which can be deployed for existing or new management to drive performance. This will be based purely on share price accretion (above a minimum hurdle) so is well aligned with shareholders.
Funds raised from the IPO will support due diligence, working capital, and the initial investment for the targeted acquisition.
Selkirk aims to complete its first acquisition within 18 months funded by a larger equity placement with institutional or trade partners and potentially new debt facilities.
How Touchstone transformed into the largest independent onshore oil & gas producer in Trinidad
Trinidad, with its rich geological history, is one of the largest oil and natural gas producers in the Caribbean.
Touchstone Exploration (TXP) is one company that has been reaping the benefits of the significant hydrocarbon reserves.
Established in 2010, Touchstone has over a decade long history of successfully operating in the onshore upstream oil and gas sector in Trinidad, establishing an unparalleled footprint on the island, as well as a unique knowledge of the geological composition and opportunities within the region.
Since then, the company has steadily grown its onshore presence, initially building a portfolio of low-risk legacy crude oil assets prior to successful exploration and development activities on the Ortoire field on the Eastern side of the island.
Whilst the prolific southern basin of Trinidad was instrumental in Touchstone’s early years, the focus for growth is now very much on that Ortoire block, where the company has multiple development and exploration targets across a land package totalling approximately 30,000 working interest acres.
It is the focus on this geological area of Trinidad
that has seen Touchstone transform over the last two years into the largest independent onshore oil and gas producer on the island, set to deliver further operational growth in years to come.
TRANSFORMATIONAL MOMENT
The initial discoveries on the Ortoire block, and the future development and exploration opportunities identified by the team, have completely reshaped Touchstone’s investment case and potential upside for investors.
Over the course of the past two years, the addition of the Coho-1 well and the discovery of the impressive Cascadura field have led to the
company’s production profile increasing materially.
Touchstone recently reported production of 6,223 BOE/D (barrels of oil equivalent per day) at its half year 2024 results, representing a 214% increase on the half year 2023 results.
The impact on the financial side of the business has also been material, with Touchstone reporting half year funds flow from operations of $10.1 million in 2024 compared to $800,000 in the prior year period.
The Cascadura field has been pivotal in this stepchange for Touchstone.
With a processing facility designed to accommodate for peak capacity of around 200
million cubic feet per day of natural gas, and 5,000 barrels of associated liquids per day, this world-class discovery is the largest onshore development in Trinidad in decades.
Since commencing production in 2023, Cascadura has reached several milestones that have had a significant impact on Touchstone’s production and finances.
In early November, the company announced initial production at the Cascadura C well pad on the eastern edge of the Ortoire block. By bringing two wells online, alongside the installation of a new natural gas separator, Touchstone is not only generating additional revenue, but it is also establishing a network of strategic infrastructure that is helping create efficiencies across operations.
A few days later, Touchstone announced positive test results at two wells, which further underscored the potential of the Cascadura field. The results not only provided a material increase in production, but also unlocked a new oil and natural gas play on the eastern side offering strong cash flow generating capabilities.
But the potential for Cascadura doesn’t stop there, and with most of the infrastructure now complete, Touchstone is well-positioned to execute its ‘drill to fill’ strategy to optimize and further enhance production, while benefitting from faster timelines between drilling to production.
DEVELOPMENT AND EXPLORATION POTENTIAL
From its current position, Touchstone has established a platform from which it can grow exponentially in the years ahead, with a clear fiveyear growth plan in place.
Given the recent success, this plan unsurprisingly starts on the Ortoire block, where the team has multiple development wells to drill at the Cascadura and Coho fields.
Multiple high- quality exploration targets have also been identified along the prolific Herrera fairway, with 21 key prospects providing the company with an exciting multi-year drilling programme to focus on.
At the same time, Touchstone continues to build up its land position for long term growth.
This year, the company successfully acquired the Cipero and Charuma blocks to the north of the Island,
following an onshore bid round conducted by the ministry of energy.
A new land package deal in Rio Claro followed, marking a vital extension of Touchstone’s exploration and development focus within the Herrera Formation fairway, and supporting long-term drilling and production, positioned adjacent to the Cascadura wells.
UNLOCKING THE NEXT PHASE OF GROWTH
With an abundance of organic growth opportunities, management is now focused on efficiently drilling wells to fill the capacity available to them on the island.
With the demand there from the Trinidad market, and the infrastructure to support gross processing capacity more than 32,000 BOE/D, Touchstone is on track to further drive production growth, profitability, and responsibility in the Trinidad energy industry.
Time Finance helping UK businesses thrive and survive
In a challenging economic environment, UK businesses face increasing difficulty accessing finance from traditional lenders, while contending with an inhibitive interest rate landscape, macroeconomic uncertainty, and poor domestic GDP growth. This is where Bath-based Time Finance (TIME) stands out.
For over twenty years it has lent UK-based SMEs (smallto-medium term enterprises) hundreds of millions of pounds, empowering tens of thousands of UK businesses. Specialising in flexible financing solutions for SMEs needing between £5,000 and £3.5 million, Time operates through two core lending divisions: asset finance, which funds essential equipment, and invoice finance, which supports cash flow management.
While very much focussed on being an own-book lender, Time can also broker deals when beneficial, ensuring adaptable support and optimised utilisation throughout economic cycles.
With a diverse network of supportive funders, including over £225 million in facilities, Time is well-equipped to continue its sustainable growth trajectory.
CORE PRODUCTS
Time has established a sweet spot whereby its flexibility, speed of service, personal approach and range of products set it apart from other lenders such as traditional and challenger banks and alternative finance platforms. Importantly, it diversifies risk by providing funding for SMEs across a diverse range of sectors.
ASSET FINANCE
Time lends against soft and hard assets, through brokers, suppliers, and manufacturers. Typically, deals range in value from £5,000 to £1 million, with the sweet spots being £15,000 to £25,000 soft assets and £75,000 - £150,000 for hard assets. Yields range between 9% and 19% and funding comes primarily from wholesale block funders, such as challenger banks and the Government backed British Business Bank.
INVOICE FINANCE
Disclosed and confidential invoice finance, via financial introducers and financial advisors.
Finance agreements can vary from £50,000 - £3.5 million, with the sweet spot being £250,000 - £1 million, yielding 10-20%.
Funding comes from a backto-back corporate banking facility. This is the fastest growing division with the highest margins.
Lending proposals originate through a variety of channels. These include finance brokers and other professional firms, equipment vendors, suppliers, and dealers, and direct from borrowers.
COMPELLING GROWTH OPPORTUNITY
Recent trading at Time has been strong – with 13 consecutive quarters of sustained lending book growth underpinning three upgraded earnings announcements in less than a year.
Importantly, its trading model continues to provide increasing profit and revenue growth in addition to strong visibility of future earnings.
With an unbroken 10-year plus history of profitability the company is positioned to increase market share and provide larger lending.
Importantly, the quality of the lending book is evident with strong financial controls keeping arrears stable in the
WHY INVEST IN TIME FINANCE?
Proven sustainable model: 13 consecutive quarters of consistent lending book growth highlights the resilience. Experienced leadership: over 150 years of senior management expertise in UK business lending.
Strong financial performance: excellent growth in pre-tax profit and earnings per share, supported by solid progress on its mediumterm strategy, focused on own-book growth and improved margins.
Diverse operations: by serving a wide range of sectors, Time diversifies its risk profile effectively.
Significant growth potential: With over £90 million in lending facility headroom, Time is wellpositioned for future expansion.
Robust financial controls: arrears continue to trend downward, demonstrating the strength and quality of the lending book.
CASE STUDY
Time recently packaged a £500,000 confidential invoice finance facility and a £130,000 asset finance facility to a fourth-generation family-owned bakery, known for their established local retail presence, who also run a growing wholesale division.
Its wholesale division, which provides the biggest opportunity for growth but also experienced cashflow issues.
They also needed to invest in new commercial equipment to maintain their expansion and fulfil order book demand.
The owners were already in talks with an alternative invoice finance provider, but Time’s ability to provide a multi-product solution, which solved both problems, meant that Time has able to secure the deal ahead of the competition. The facility has enabled the bakery to increase its output and expand its market footprint, demonstrating the transformative boost it can have for customers, and Time’s strength in the market.
broad 5% to 6% range, with net bad debt write offs at circa 1%, underpinning stability and mitigating downside.
Positive full year 2023/2024 annual results showed progress and growth as the gross book hit £200 million and pre-tax profit increased over 40% to £5.9 million.
Momentum continued into the first quarter of 2024/2025 with revenue increasing 20% year-on-year to £9.1 million (first quarter 2023/2024: £7.6 million).
Pre-tax profit rose 46% to £1.9 million (first quarter 2023/2024: £1.3 million) which represented a pre-tax profit margin improvement of 4 pence to 21%. Additionally, NTAV (net tangible asset value) surpassed £40 million at the end of August.
Importantly, the wider macro-economic environment suits Time.
For example, because it’s not a bank, and therefore does not have deposits, it is not impacted by the same net interest compression.
Instead, it benefits from lending being a more attractive
source of funding as interest rates fall.
Additionally, it still has over £90 million of headroom available from lenders which could comfortably support a 50% plus increase in book size to well over £300 million.
STRATEGIC EXECUTION
In 2021, Time laid out a fouryear growth plan to establish itself as a leading national SME funder. With goals to double its lending book, significantly increase profit levels, and to strengthen its balance sheet, Time has made considerable progress on all fronts. As it nears the conclusion of this strategy, Time plans to unveil its next growth phase, underpinned by strong fundamentals and market opportunities.
