AIM share tips review 2024: my stocks beat the AIM market
Award-winning AIM writer Andrew Hore managed to generate a positive return from his five share tips, outperforming the wider index. Here’s how he did it.
27th December 2024 14:00
by Andrew Hore from interactive investor
Just like AIM itself, the performance of my five AIM recommendations for 2024 tailed off in the second half. However, that was mainly down to disappointing trading from Oxford Metrics (LSE:OMG), where the share price slumped in the final six months of the year. Locking in the gain for Trident Royalties, where a bid was announced and completed earlier in the year, helped the overall performance to remain positive.
The average rise of 1.8% is better than the FTSE AIM All Share index’s decline of 6.7%, and also better than the performance of the AIM 50, which is currently down 4.2%.
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The yield on the five shares during 2024 is more than 3%, compared with 2.1% for the AIM All Share and 2.6% for the AIM 50.
Here is a round-up of the companies.
Trident Royalties
36p
+36.1% (Based on bid price)
Mining royalties investor Trident Royalties (TRR) had already recommended the 49p/share cash offer from Deterra Royalties during the summer. That valued Trident Royalties at £144 million. An impressive portfolio of mining royalties had been built up and the benefits were set to come through over the next few years as it matures, but early investors wanted to cash in. The bid was at a level that the share price would have taken a while to reach if the company remained independent and it was an important gain for the portfolio.
Restore
245p
+16.7%
Business support services provider Restore (LSE:RST) has made good progress with its turnaround. The focus has been on higher margin work and profit is recovering faster than revenues, which will be flat in 2024.
The core records management division has inflation-linked pricing, and this provides a strong base for the group. There will also be benefits from consolidating storage sites, which provides £1 million of annualised savings. There are signs of improvement in the IT hardware investment cycle, where Microsoft is dropping Windows 10 support, and in the Datashred business. Scanning and office relocation operations remain weak.
Full-year pre-tax profit is set to improve from £30.3 million to more than £33 million. That could rise to around £38 million in 2025 on a modest improvement in revenues. That is despite a part-year effect of the £3 million annualised National Insurance and living wage cost rises. Net debt remains relatively high at £94 million, but cash generation could reduce that by more than £30 million over the next two years.
The forecast dividend is 5.6p/share, which is 1.3 times covered by forecast earnings. The shares are trading on a prospective 2025 multiple of 12 and the yield is 2.3%. There is more recovery to come and as debt reduces there could be potential for add-on acquisitions. The records management business underpins the current valuation.
Michelmersh Brick Holdings
102p
+14.6%
Bricks manufacturer Michelmersh Brick Holdings (LSE:MBH) was attractive because of its strong cash generation and potential to benefit from an upturn in housebuilding sector. The latter has not happened yet, but Michelmersh Brick is still in a good position. The spread of different customers in terms of construction sectors has helped and order intake is running ahead of capacity.
Profit did not hold up as well as expected this year. Revenues are set to decline from £77.3 million to £72.5 million and that is forecast to knock pre-tax profit from £13.8 million to £9.7 million. Net cash is expected to be £5 million at the end of 2024.
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Yet, the share price has still improved over the year. Michelmersh Brick has gained market share. It has inventory levels of around three months, enabling shutdowns at the Carlton and Floren plants for capital investment that will improve productivity. This will help to offset the National Insurance charge increase next year – which could be an annualised cost of £500,000.
Canaccord Genuity forecasts that pre-tax profit will bounce back to £13 million in 2025. Net cash could recover to £9 million after the capital spending. The dividend should continue to rise steadily and could be 5p/share by 2025 – that would be covered twice by forecast earnings. Interest rate reductions will help the business. The prospective multiple for 2025 is 10 and the forecast yield is 4.9%. There is further recovery potential.
Gateley
139p
-9.4%
A cautious statement from the management of legal services provider Gateley (Holdings) (LSE:GTLY) early in the year hit the share price, although solid trading since then has helped it clawback most of the decline. It remains lower than the start of the year, though.
Corporate remains a major contributor, and it depends on acquisition activity. Prior to the Budget there was additional sales interest, but this has probably subsided. Property is another important sector. If housebuilding targets are met, then this will boost business for Gateley. It could also benefit from property insurance claims due to extreme weather. The employment and business services divisions provide diversification of income.
At the start of the year, the 2023-24 pre-tax profit forecast was £26.6 million and that was downgraded early in the year. The outcome was £23 million, which was partly due to additional incentivisation payments to staff. Net cash was £3.8 million at the end of April 2024. A decision was made to get out of low margin employment business.
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Trading is in line with expectations following a weak first quarter. A pre-tax profit of £24.8 million is forecast for the year to April 2025. The following year will be hit by the full effect of the National Insurance rate increase, probably around £1.8 million/year, and £24.4 million is currently the pre-tax profit estimate. The outcome will depend on how much price rises can offset the additional costs, and the forecast does not assume any uplift in income.
There will be interims in January. The full-year dividend could be maintained at 9.5p/share, which is 1.4 times covered by forecast earnings. There could be a reduction next year.
The shares are trading on ten times forecast earnings and the yield is 6.8%. This is a solid investment with potential upside in earnings and the shares are attractive.
Oxford Metrics
53.4p
-48.9%
Visualisation and motion capture software developer Oxford Metrics (LSE:OMG) was hit by weaker demand in the entertainment sector. This knocked profitability in the year to September 2024. Revenues were 6% lower at £41.5 million, while underlying pre-tax profit halved to £3.7 million. The total dividend was raised from 2.75p/share to 3.25p/share even though it is not covered by earnings.
The attraction of Oxford Metrics was the cash pile following the sale of infrastructure asset services provider Yotta, and how it could be put to good use in making earnings enhancing acquisitions. Management has been careful in choosing targets and completing deals.
Industrial Visions Systems was acquired for £8.1 million in cash and shares in November 2023, which was early in the financial year. This further diversified the customer base into machine learning for automated quality control.
The only acquisition in 2024 is The Sempre Group, a measurement technology business, which will eventually cost up to £5.5 million. The Gloucester-based company helps clients improve productivity and efficiency through high precision metrology and fits well with Industrial Vision Systems. In 2023, Sempre made a pre-tax profit of £700,000 on revenues of £6.5 million and the performance is improving this year.
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Net cash was £50.7 million at the end of September 2024, although £5 million was subsequently spent on acquiring The Sempre Group. There are also share buybacks of up to £6 million planned.
Oxford Metrics continues to invest in research and development of new products. The video games sector is struggling because many new games have not generated the hoped for income. The film and TV sector is also tough. The 2024-25 pre-tax profit forecast of £3.9 million is cautious because of the weak entertainment demand. A rise to £4.9 million is anticipated next year.
The attraction of Oxford Metrics remains the same, with the acquisitions already making the group less dependent on the entertainment sector. Cash covers around two-thirds of the market, and the company is cash generative. The shares are very attractive at this depressed level.
Andrew Hore is a freelance contributor and not a direct employee of interactive investor.
AIM stocks tend to be volatile high-risk/high-reward investments and are intended for people with an appropriate degree of equity trading knowledge and experience.
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