Our five 2020 AIM share tips make a big profit and beat the market

Our award-winning AIM writer reviews this year's tips and names the share that’s up 130%.

Despite a mixed performance from our five AIM recommendations for 2020, the excellent performance of Ilika (LSE:IKA) has ensured that the overall portfolio value of the five companies has risen by one-fifth. This compares with declines in both AIM and the Main Market over the same period. 

Of course, there is a long time to go until the end of the year and things can change. The laggards still have time to recover and there could be further to go for the others, although Ilika has already had a strong run.

Ilika (IKA)

% change: +129.6

Battery technology developer Ilika is the star performer so far this year with the share price more than doubling and reaching new highs for 2020. There appears to be a huge market for the company’s thin-film miniature Stereax solid state batteries and Ilika is putting in place the capacity to satisfy this demand. 

Production from the pilot plant did stop for a few weeks due to the Covid-19 lockdown, but it is up and running again. The limited capacity is still holding the business back. There were initial revenues from product sales in the year to April 2020.

Investment has started in outsourced production of Stereax wafers and this will eventually provide a 70 times increase in production capacity. There is demand from medtech, environmental, rail and asset tagging companies for the batteries. The technology continues to be improved and production costs will reduce. 

Earlier this year, Ilika raised £15.1 million at 40p a share. That means it has a strong balance sheet with plenty of cash to invest in tooling for the outsourced manufacturing of Stereax. Net cash was £14.8 million at the end of April 2020. Capital investment is required, but there should still be around £9 million left next April. 

This year’s revenues are unlikely to grow by much, so the reduction in loss will be small. The important thing will be how quickly revenues can come through when the new outsourced manufacturing begins during 2021. 

Longer-term, there is additional growth potential from the Goliath battery that could be used in electric vehicles and home appliances. 

Positive news concerning the progress towards the commencement of outsourced manufacturing is likely to be the main trigger for any share price movements in the second half. Short-term, there may not be much more to go for in the share price. Longer-term, there is significant upside. 

Boku (BOKU) 

% change: +7.5

Digital payments and fraud prevention services provider Boku (LSE:BOKU) has been a beneficiary of the Covid-19 lockdown with consumers spending more time online, as well as spending more money.

In the first five months of 2020, total payment volumes were one-third ahead at $2.6 billion. 9.2 million people made their first payment through Boku during the period. Boku continues to add merchants around the world and growth will continue for many years. 

Boku acquired Fortumo Holdings for an enterprise value of $41 million. This includes a cash payment of $37.6 million. Boku raised £20.1 million at 85p a share to help finance the acquisition, which fits well with the rest of the business.

Estonia-based Fortumo is a similar direct carrier billing business, but it focuses on smaller companies, whereas the Boku customer base is focused on major names such as Apple, Sony and Spotify. 

In 2019, Fortumo made EBITDA of $2.3 million on revenues of $7.2 million. EBITDA and revenues have both grown year-on-year in the first quarter. The deal is immediately earnings enhancing and there are potential cost savings. 

Identity verification services is the one part of the business that is likely to be negatively affected by the lockdown. It has taken longer to move this business into profit than was initially expected. Profitability will probably be delayed for a bit longer. New deals and customers need to be signed up and these have been more difficult to secure in lockdown.

Boku is still growing its overall profit, though. Earnings per share are set to rise from 1.2 cents to 2.1 cents this year, while a full contribution from Fortumo should boost them to 3.1 cents next year. That is still a prospective 2022 multiple of 36, but this is warranted by the longer-term growth potential. Net cash is expected to be around $15 million at the end of the year and it could double next year. Still attractive. 

CentralNic (CNIC) 

% change: +22.9

Internet domain name registry and services provider CentralNic (LSE:CNIC) has also been doing well with little in the way of negatives from Covid-19. On top of this, the acquisitions of the past couple of years are providing greater scale and improved profitability. 

In the past couple of years there has been a swing away from profit being supplemented by one-off sales to it being dominated by recurring revenues. Last year, recurring revenues were 92% of the total of $109.2 million.

The first quarter has been strong with an initial contribution from Team Internet. Revenues are expected to nearly double to $202.5 million this year. This growth is partly down to the four acquisitions made in 2019, but there is also organic growth. 

The previously expected dividend has been put on hold, but that is not a surprise given the current uncertainty. Net debt was $76 million at the end of the year, which is predominantly the company’s bonds quoted on the Oslo Stock Exchange. The company converts all its profit into cash so the debt will reduce significantly over the next few years before any further acquisitions – which are likely. 

Earnings per share are expected to grow to 6.87 cents a share in 2020. The shares are trading on 16 times prospective 2020 earnings, reducing to 12 the following year. That does not reflect the strong recurring revenue base and further acquisitions could reduce the multiple. Undervalued. 

Alumasc (ALU)

% change: -24.1

Building products supplier Alumasc (LSE:ALU) traded in line with expectations in the first quarter, with maintained revenues, but the second quarter was tougher. The closure of builders’ merchants and construction sites hit demand. This is offsetting the £2 million of cost savings that is showing through this year. 

Most of the company’s operations reopened by the end of April, but demand levels remain difficult to forecast. The roofing business remained open during the whole period. 

There were £16.6 million of additional bank facilities available at the end of April. Capital spending has been suspended and pension contributions are being deferred. The dividend was cancelled.
There has been good news. Alumasc has won contracts in the Middle East and Asia worth £4 million. They are for drainage products at major development projects. The products will be delivered over two years.

Directors have been buying shares as the price recovers from its low point. Alumasc has enough cash available to see it through the next few months while demand recovers. The dividend is no longer an attraction, but it could be reinstated in the next year. There is plenty of medium-term recovery potential. 

Northbridge Industrial Services (NBI)

% change: -32.7

Covid-19 and the collapse of the oil price have combined to make it a difficult year for Northbridge Industrial Services (LSE:NBI). The loadbanks and oil and gas tools renter and suppler still expects to breakeven in the first half, though. 

Prior to Covid-19 the recovery was progressing well. In 2019, revenues were one-quarter ahead at £33.6 million and there was a small pre-tax profit – even after a higher loss from joint ventures.
Revenues grew in the first quarter of 2020 but were 13% lower year-on-year in April and May.

Underlying demand appears to remain strong, particularly for Crestchic loadbanks, where deliveries have been delayed. Rental business weakened as sites were temporarily closed. Costs were reduced by £500,000 in the second quarter.

Net debt was £6.4 million at the end of 2019 and cash generation helped the figure to reduce to £2.4 million by the end of March 2020. New bank facilities and a capital repayment holiday have subsequently been secured, while the convertible loan note payment date extended to July 2022. However, the latter was in return for reducing the conversion price from 125p a share to 90p a share, while the interest rate increases from 8% to 10%. 

Operational gearing means that there is a good chance of a bounce back in rental performance and share price in the second half. 

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