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David Kempton: 4 AIM stocks I'm buying for 2018

Our experienced private investor columnist reveals four stocks he has added to his successful AIM portfolio.

 
David Kempton: 4 AIM stocks I'm buying for 2018
 

The bull market runs on and could be the UK’s longest ever if it lasts until August.

But while this run may be long in the tooth, shares remain the only game in town, with interest rates worldwide trending upwards but cash at the bank brining negligible rewards, and bond yields still at historic lows despite the recent sell-off.

World growth is forecast at 3.7% for 2018, slightly above last year, which gives encouragement, while China has surprised on the upside with 6.9%.  

That said, the rise in technology stocks has a familiar bubble feel about it, with many of us still fearful of the awful dotcom crash of 2000. 

Is it different today? Certainly not; we will again see some massive long-term winners and big losers. But you lose your money only once, whilst the winners become multi baggers, some having multiplied 10 times already. 

It has never been so difficult to invest in a technology stock on even a three year view, when real ‘breakthrough’ developments can become redundant in that time frame.

Such a scenario creates wonderful investment opportunities but don’t fall asleep at the wheel. Run your profits and cut your losses fast. I (nearly) always cut losses at 20%, which does risk too fast an exit, but mostly stems more serious losses.

How my portfolio has fared

I listed my Alternative Investment Market (AIM) portfolio here in September 2016 and last summarized just over a year ago, so I should provide an update for the start of 2018.

In the year I have sold Arria (ARRAF.PK), BCA Marketplace (BCA),  Bioventix (BVXP), Cerillion (CER), ECO Animal Health (EAH), Journey Group, Lok’n Store (LOK) and Morses Club (MCLM).  Except Arria, where I cut and ran at a 22% loss, all were sold at a decent profit.

If you still hold them, there’s nothing wrong with any of them, I just thought they had done the job for me.

I have retained the following, and have included the share price gain since I first mentioned them in September.

Stock Type of company Share price gain (%)
Burford Capital (BURF) Legal financing fund 130
Conviviality (CVRC) Retail food group 60
EKF Diagnostics (EKF) Healthcare company 67
Serica (SQZ) Oil exploration and production 480
Swallowfield (SWL) Beauty products maker 37
Watkin Jones (WJG) Student property builder 83
XL Media (XLM) Internet marketing 128

 

These are all significant profits (average 140%) in the 15 months, but remarkably, I would still consider every one a ‘buy’ even at this level. 

Last January I picked my three stocks for 2017:

Purplebricks (PURP), an estate agent combining local professional property experts and online advertising for sales and lettings. I first mentioned it here in December 2016 and is now up 191%. 

It has £60 million of cash and forecast profits of £6.1 million in 2019, rising to £44 million in 2020. JPMorgan has forecast 85% annual market growth to 15% of the UK market by 2021, further enhanced by operations in US and Australia. There’s more to go for and still worth buying.

RedT Energy (RED), a developer of vanadium flow batteries for robust energy storage on and off grid. I also mentioned this stock in December 2016 and it is now flat on that price, having been up 50% in October. This is disappointing and the development and new order flow is taking much longer than I’d anticipated. Hang on for more news medium term.

Avingtrans (AVG), an acquisitive engineering components manufacturer for the nuclear, medical, energy and traffic management sectors with ambitious growth plans. The recent successful Hayward Tyler acquisition is winning significant new orders, leading their brokers to forecast a tripling of revenue and profits for May 2018, with continued strong growth. 

It was first mentioned here in January 2017 and is now up 17%, which is not that exciting, but the share price now lags the sector and there’s much more to come. I have set mine aside as a core holding and will buy more on any weakness.

My picks for 2018

For 2018 I have added the following to my AIM portfolio:

FairFX Group (FFX), a payment, foreign exchange company with a strong prepaid card business through cloud enabled banking platforms, now launching a multi currency bank account with a focus on the business sector. Turnover of £1.1 billion in 2017, an increase of 39% on 2016 and profits for the year are expected to beat market expectations. With forecast profits for 2018 giving a price-earnings (PE) ratio of 14, reducing to nine in 2019 for a 0.2 price-earnings to growth ratio, the shares look good value. The acquisition and growth aspirations could be very rewarding.

Ramsdens (RFXR), is not, as such, a high-tech company, but more of a modern pawnbroker with additional range of financial services.  Floated last year, September profits increased 60%, a growth rate expected to continue. On an historic 16 PE, with £13 million cash, the shares look attractive value for a company in a solid, established, but growing, market. The foreign exchange business with 500,000 retail customers contributes half gross profits, but with 127 stores and another 30 identified locations, clearly there are strong ambitions for strongly increasing market share.

Midwich (MIDW), provides audio visual solutions to a trade market in the UK, Europe and Australia. The company is well established with over 300 blue-chip customers. Last week it announced second-half results with strong growth in all sectors, now anticipating revenue up 18% to £470 million while the board forecasts pre-tax profits ‘comfortably’ ahead of expectations. Clearly an ambitious, well-run company with established customers in a growing market.

In June, I wrote of Bango (BGO), a mobile payments company enabling purchases to be charged to a cell phone account, seemingly ubiquitous in rural Africa, now growing in Japan with Amazon, Mexico with Netflix, Nigeria with Google, an expanding presence in Korea and now in the US.  

User spend doubled to £270 million last year and, although not yet in profit, running revenue now exceeds spending, including new investment in systems to process £5 billion sales per year. 

This week’s placing at a discounted 180p will raise £5 million for the acquisition of Audiens, which enables Bango to capitalize on the valuable data it generates through its existing operations and to enable the Bango platform to provide additional value to the rapidly-growing mobile advertising market. Digital advertising is now an astonishing 30% of the world advertising market, and growing very fast.

This is a classic developing technology stock with massive growth potential, but no profit yet in sight, so owning the stock is something of an act of faith. However, I’ve held them since mid 2016, showing me 350% profit, but considering the growth potential in the sector, it is still well worth buying into.

Rather than increase my Bango holding, I have bought Boku (BOKU), floated only two months ago. An agreement with EE, now the UK’s largest cell phone operator, to provide mobile phone billing support for purchases, is encouraging. 

With a market cap of £180 million, Boku is not for the faint hearted and is a classic early-stage technology stock, where I have belief in the sector.

21 comments so far. Why not have your say?

Carol Schwille

Jan 25, 2018 at 23:27

I It would be most useful if Mr Kempton would say which of his Aim stocks are qualifying for Inheritance tax exemption .ie BPR

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The Colonel

Jan 26, 2018 at 08:28

Yes a comprehensive list of Aim Stocks that qualify for Inheritance Tax Exemption would be most useful .

One other point I refuse to buy shares in Companies whose TV Advertising either annoys me or assumes that I am an idiot with the intellectual capacity of a 15 year old. The latest Purple Bricks advert with the Hysterical man giving a speech Grates and Annoys.

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Carol Schwille

Jan 26, 2018 at 08:50

I am not suggesting a comprehensive list, but just the ones Mr Kempton buys and sells.

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Carol Schwille

Jan 26, 2018 at 08:52

If anyone knows for sure about any of them regarding IHT qualifying relief pleasereply. It would help a lot of people. Thanks

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huudi

Jan 26, 2018 at 11:36

I'm behind the times, can somebody tell me what IHT relief is?

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lp

Jan 26, 2018 at 15:23

the two stocks I would agree with Mr Kempton on from his 2017 or 2018 picks are AVG and SWL where I believe there is lots of potential long term.

The rest I think are either too high priced now or have quite high risks to their business which make them not investable for me.

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Doubter

Jan 26, 2018 at 16:52

Re AIM Shares and IHT Relief -

The London Stock Exchange publish their "free" Guide - "A Guide to AIM Tax Benefits" available on line.

Hope this assists.

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DavidT

Jan 27, 2018 at 10:16

I have just looked at the Stock Exchange's guide to AIM which does indeed give info about Business Property Relief for IHT. It explains the criteria, but there is no list of qualifying companies. Does anyone have one? Obviously to be treated with caution, because things change. But a good place to start.

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Mark Stringer

Jan 27, 2018 at 11:21

The Colonel,

Don't know about the advertising of Purple Bricks, but I have been house hunting since April 2017 and avoid any properties that are listed with them.

My experience attempting to view three properties last year was one of not being able to get a viewing, neighbours actually showing you round when a viewing was obtained and being asked repeatedly to register as a buyer.

I assume they make their money on the front loading rather than on results.

Not a bad scam.

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Mark Stringer

Jan 27, 2018 at 11:21

I'd like to know at what point David Kempton sells the shares as well.

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PSBHOY

Jan 27, 2018 at 11:50

I'm already involved in REDT as I made a decision about Vanadium and VRFB technology around 3 years ago. However, I decided not to put all my eggs in one basket and therefore also invested in Bushveld Minerals (BMN) as they were intending to be involved in a fully integrated basis.

My REDT investment has done well, however Bushveld has been phenomenal and looks to be on the brink of really being transformational. Have a look at The Bushveld Perspective for more interesting reading. I suspect this one may become life changing.

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Nemesishp

Jan 27, 2018 at 12:01

Bushveld Minerals should be on your list, currently raking it in, by the end of 2018 production figures will be at 3680 tonnes PA and over 5000 tonnes by the end of 2019- aiming to supply 10% of the world Vandium and with Vanadium price just announced at a 8 year high whats not to like about this hidden Gem and yet it has a similar price at the moment to REDT who only make VRFB batteries?, serious rerate on the cards

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kevkan

Jan 27, 2018 at 15:06

I am surprised you are not focusing more on the renewable energy revolution that is unfolding, literally billions of dollars being invested. I note you have recommended Redt as a battery supplier but failed to pick up on Bushveld minerals/energy who once fully integrated (next 12 months) will become a world leader in both vanadium supply and battery manufacture. Please check out the link for an independent overview of this company https://www.thebushveldperspective.com/

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Jansy

Jan 27, 2018 at 17:53

Colonel and Mr Stringer (and others!)

I just sold my house and, coincidentally, bought another through Purplebricks. Apart from my buyer being a pain in the proverbial and delaying things no end they did exactly what they promised and I saved (assuming 1.25% as the conventional estate norm) approx £9500. Yes I had to do the viewings and some of the follow-up chasing solicitors but that's all, my local agent was constantly in touch throughout the process. If you can't get a viewing report it to the Company.

I also bought shares 18 months ago (unfortunately not enough of them!) and they have trebled so they must be doing something right.

BTW - before I retired I had the dubious pleasure of teaching CGT/IHT and I could never get a definitive list either. AIM securities can be a minefield partly because some may qualify now but not in the future and vice-versa. Also, some companies are considered "doubtful" so the safe way is "if in doubt, stay out" The LSE leaflet is a bit lengthy but it's here and may help, at least to tell you some to avoid - the keyword is that in order to qualify it should be a "trading" Company - https://www.londonstockexchange.com/companies-and-advisors/aim/publications/a-guide-to-aim-tax-benefits.pdf

If in doubt call your stockbroker!!

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DavidT

Jan 27, 2018 at 18:15

Jansy, Thanks. You have got about as far as I have and I was a stockbroker/investment analyst for 40 yrs. As you imply, financial and property cos are a no, but quite what a trading co is remains unclear. I suppose with IHT and my estate, it really will be somebody else's problem, if I get it wrong.

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Jansy

Jan 27, 2018 at 18:24

As you say, somebody else at least gets the problem, but I suppose it is at least a pleasant one!

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Mark Stringer

Jan 27, 2018 at 18:30

Jansy, Good for you, it worked. I assume no complicated chain though, that sadly is where the trad estate agent comes into their own.

However my experience as a prospective buyer in the S/.E is very different and two of those vendors changed agent after several months listed and then sold within weeks. I will add that they had moved out of the properties as work relocated them

Easy Property was even worse where the centralised number was London and I wasn't entirely certain that they even knew they were acting as agents for the vendor.

I have to assume also that the front loading is where the share price increase has come from.

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Jansy

Jan 27, 2018 at 18:49

Mark, you are quite right! The chain was 5 long and not especially complicated but I needed to talk to another agent (the one our seller was using) and he spent more time slagging off Purplebricks saying he couldn't contact them, they never return calls, etc than actually chasing up the rest of the chain. I asked at one point if he was scared of the competition!

You now have easy property and countless others all trying to copy Purplebricks' model but I think they may have left it too late. We tried Tepilo before who were worse than useless and had no follow up or progression at all.

My local PPB agent asked for feedback and I told him, great service but.......your advertising is painful.

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PSBHOY

Jan 27, 2018 at 19:28

Little point in having a comments box if only certain comments are printed

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RBNF

Feb 03, 2018 at 10:55

I have a number of AIM holdings held principally for IHT.

I use the Investors Champion Investors Chronicle) https://aimsearch.investorschampion.com/ & trust they have done the necessary work.

Three categories qualify , no qualify, unclear

It is a paid service £5- £10 a pop depending on how many searches you expect to do

Qualifying shares on Mr Kemptons list are

Avingtrans

Bango

Swallowfield

Midwich

XLM Media

Burford is a probable no

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anglo29

Mar 29, 2018 at 11:22

I notice one of the shares previously recommended is Conviviality. It's been announced today this Company has gone into administration. A few months ago this was one of the smaller companies that appeared to be the "darling" of fund managers, with many recommendations. I'm relieved I did not follow the advice to buy at the time.

Is this a case of an inadequate research job, or simply of fund managers "following the crowd"??

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