Five AIM shares to generate long-term growth for your ISA

From energy to banking to deliveries, here are some solid options for keeping more profits for yourself.

There have been some excellent performers on AIM during the past year and many share prices look to be up with short-term events. However, there are still companies that have significant growth potential over the next few years.

Here are five long-term buys where capital gains could be retained by purchasing them in an ISA.

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eEnergy (LSE: EAAS)

Current share price: 16.75p

Market capitalisation: £41.2 million

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Energy efficiency is a growing market, and there is potential for significant businesses to be built on the growing demand for these services. ‘Energy as a service’ provider eEnergy Group (LSE:EAAS) is still relatively small, but it has already been an impressive performer since joining AIM at the beginning of 2020 at 7.5p a share. The company is set to move into profit in the year to June 2021, and the profit is likely to rise significantly from then on. A ‘buy and build’ strategy is being followed by management.

The company’s eLight Light-as-a-Service (LaaS) model involves the installation of LED lighting for a client and then charging a fixed annual fee for five to seven years. This still represents a saving on standard lighting costs, and only ongoing electricity costs are paid after the contract comes to an end. A finance company provides the upfront cost and takes the credit risk. eEnergy expects to make a 30% gross margin on the total contract value.

Longer term, the growth will come from adding other services. The purchase of energy consultancy Beond has led to additional LaaS contracts and it will also help eEnergy move into other areas of the energy management and efficiency market. There are also other acquisitions being lined up.

N+1 Singer forecasts a 2020-1 pre-tax profit of £100,000, rising to £2.3 million in 2021-22 – generating £1.7 million of cash that year. The 2021-22 multiple is 21, falling to 15 the following year.

In reality, the company will probably be very different in 18 months. The focus is acquiring an established smart energy platform, moving into heating-as-a-service and scaling up the group through cross-selling opportunities.

DX Group (LSE: DX)

Current share price: 27.8p

Market capitalisation: £159.5 million

Three years ago, parcel and freight delivery company DX Group (LSE:DX.) was heavily loss-making and not an attractive investment opportunity. A new management team joined the business, and it has turned DX around.

Covid-19 led to improved demand for parcel delivery, but other parts of the group have not faired as well. Even so, interim revenues rose 7% to £182.7 million, while a loss was turned into a pre-tax profit of £3.8 million. That puts the company on course to make £8.7 million this year and £13.5 million next year – recently upgraded from £10.5 million.

There is still scope for further recovery and new depots are being opened. Low margin contracts have been ended. The freight business is winning market share and there will be additional efficiency improvements. This will improve margins.

The secure courier and exchange & mail businesses have proved tougher to improve. The secure courier operation has done relatively well, considering it lost the HM Passport Office contract. Better customer service has helped to win new contracts.

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Document Exchange sales and margins are falling, and the trend is likely to continue. Lawyers are the main customer base and the move to working from home has hit demand. Changes are planned to the service, but the knock-on effect of Covid-19 has delayed them.

A digital document exchange is being developed and will be included as part of the annual subscription for the overall service. Pre-9am deliveries will also be promised.

Directors have been consistently buying shares over the past year. There is even the possibility of the commencement of dividend payments next year. The prospective multiple is 20, falling to 16. DX is building up a track record of forecast upgrades.

ANGLE (LSE: AGL)

Current share price: 77p

Market capitalisation: £165.9 million

One of the knock-on effects of the rush to give approval for Covid-19 vaccines is that some other treatments and medical devices may have their approvals delayed. This is set to happen to ANGLE (LSE: AGL), which is trying to gain approval in the US for the Parsortix liquid biopsy cancer diagnostic test.

Concerns about a delay have hit the share price, but the delay should not be significant, and the eventual approval would provide a sharp increase in the value of the company.

The US Food and Drug Administration (FDA) has asked for additional information, which is no surprise. The De Novo submission relating to metastatic breast cancer has been running smoothly. The further studies asked for by the FDA can be completed by early May.

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Parsortix can capture circulating tumour cells (CTCs) in cancer patient blood obtained via a standard blood test.  The instrument uses a separation cassette that only captures cancer cells.

CTCs are shed into the bloodstream by primary cancer tumours and they can end up causing secondary cancers. They are difficult to isolate. ANGLE would be the first company to receive FDA Class II clearance for a device harvesting intact circulating tumour cells.

It appears that FDA clearance may not be achieved until the second half of 2021. Last year’s placing at 46p a share raised £19.6 million, and this helps to fund the clinical laboratories that will be opened in the first half to provide pharmaceutical services. Net cash should be more than £5 million at the end of 2021, so the balance sheet is strong enough to handle a short delay in FDA approval.

Further approvals for other cancers are likely to follow for Parsortix and these will broaden the potential market. The potential US market for Parsortix for breast cancer alone is estimated to be nearly $4 billion (£2.87 billion).

Seeing Machines (LSE: SEE)

Current share price: 9.9p

Market capitalisation: £370 million

Driving safety technology developer Seeing Machines (LSE: SEE) has been on AIM for nearly two decades and it is finally moving towards profitability.

Driver monitoring systems (DMS) will become a mass market due to regulatory changes, and Seeing Machines has the deals with automotive suppliers that should make it a major player in its niche.

Seeing Machines develops artificial intelligence (AI)-based computer vision technologies and many years of data and information has gone into the development – all additional data makes the AI better.

Vehicles are the major market, but there is also potential in the aerospace sector. Currently the revenues mostly come from fleet users retrofitting equipment. Getting their kit designed into new cars is going to be the big opportunity.

There have been delays to regulation, but DMS will be required to be designed into cars in Europe by the middle of this decade, and other regions are following suit.

Seeing Machines is working with a large proportion of the top car brands, but they rarely want the individual models to be mentioned until it suits them. It was recently announced that Seeing Machines software is in the Cadillac Escalade. There should be further announcements about cars using the company’s technology, and that will boost its profile.

Seeing Machines will continue to lose money for the next three years at least. There is cash in the bank, but that could run out next year. Another cash call is possible, although there should be plenty of additional contract announcements before that happens. The market capitalisation is high based on the short-term outlook, but if Seeing Machines can garner a market share of more than 30%, as has been suggested, then the valuation be much higher.

PCF Group (LSE: PCF)

Current share price: 24.5p

Market capitalisation: £61.3 million

In less than three years, finance provider PCF Group (LSE:PCF) has built up a significant deposit base of £342 million in its own bank. It took years to gain a banking licence and it provides steady, long-term funding for its car and small business lending activities.

The deposit base helped reduce dependence on outside funding last year but there was still a sharp slump in profit. Underlying pre-tax profit was £3.9 million, down from £8 million. That was down to an increase in the annual impairment charge from £2.2 million to £7.8 million. Management focused on increasing the quality of loans with 85% of new loans in the prime segment.

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Demand for car finance has been strong. Azule, which funds equipment for live events, is having a tough time, while cheap government-backed finance has hit demand for small business finance. Both these areas are likely to recover over the next two to three years.

This year pre-tax profit could recover to £6.8 million, and the following year it could jump to £9.4 million. That would put the shares on eight times prospective 2021-22 earnings with continued strong profit growth anticipated.

It is still early days for the bank, and it can grow significantly. While banks generally do not deserve a high rating – although they might like to claim that they do – PCF should be trading on a higher multiple because of those growth prospects.

Andrew Hore is a freelance contributor and not a direct employee of interactive investor.