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David Kempton: 5 new stocks for my AIM portfolio

Experienced investor reflects on markets and adjusts portfolio of Alternative Investment Market shares after 34% gain since September.

 

Last September I wrote about the inheritance tax (IHT) advantages of a portfolio of qualifying Alternative Investment Market (AIM) stocks with a further update in December. Here is how I got on.

My AIM stock portfolio:

Arria (NLG) – sold at my declared 20% stop loss.
BCA Marketplace (BCA) – sold at 1% loss.
Bioventix (BVXP) – a biotech with a real P/E and yield. Up 46%. Buy.
Burford Capital (BURF) – legal financing fund. Up 56%. Buy. 
Cerillion (CER) – billing software provider up 5%. Hold.
Conviviality (CVRC) – wholesale drinks retailer up 30%. Buy. 
ECO Animal Health (EAH) – animal medicines. Sold after a 3% loss.
EKF Diagnostics (EKF) – healthcare. Up 43%. Buy.
IQE (IQE) – semiconductor manufacturer. Up 112%. Hold. 
Journey Group (JNYJ) – airline caterer taken over. 
Lok’nStore Group (LOK) – storage company. Up 22%. Hold.
Morses Club (MCLM) – loan agency. Sold after 8% gain.
Serica Energy (SQZ) – North Sea oil producer. Up 113%.
Swallowfield (SWL) – beauty products maker. Up 33%. Buy.
Watkin Jones (WJG) – student property developer. Up 41%. Buy. 
XLMedia (XLM) – internet marketer up 25%. Buy.

With identical initial investment in each, the total return is 34% over seven months including the Arria stop-loss sale.

(In a previous piece I had suggested Atlas Mara (ATMA), which proved a dog. I was correctly criticised for ‘conveniently’ not mentioning again, which was unintentional and I apologise, but I had sold at my constantly mentioned 20% stop-loss and hoped others might have done the same.)

New purchases

I have replaced the five sales with the following recent purchases:

Amerisur Resources (AMER) – oil exploration and production in Colombia and Paraguay. I’ve held and sold this stock before but have just bought back since it looks ludicrously cheap. Now producing 5,000 barrels of oil per day, 7,000 by year end and 20,000 by 2019, with an operating cost reducing to $15 per barrel and sitting on $40 million cash. Revenue for 2018 forecast at $136 million for $50 million pre-tax profit and P/E (price-to-earnings ratio) of 9.

Bacanora Minerals (BCN) – a lithium carbonate miner in Mexico. Knowing the competent board and good quality institutional investors with 40%, I’ve been watching. I bought the stock following last week’s announcement of a partnership with Japan’s Hanwa Co, one of the largest battery chemicals traders in Asia, taking 100% of current production, whilst buying 10% of the equity. Not only does this give BCN an assured revenue stream to build on, but also validates their battery grade lithium.

Hutchison China Meditech (HCM) – an innovative Hong Kong-based biopharmaceutical company aiming to be a global leader in targeted therapies and oncology. Normally this would be a bit blue-sky for me but I was attracted by the prescription drug service and strong growing demand for their coronary drug, such that revenues increased to £148 million which could show a solid profit were it not for spending on new drug development R&D, although a £50 million contribution from two powerful Chinese joint ventures mitigate this. Five brokers follow the stock and all mark it a 'strong buy'.

M P Evans (MPE) – a palm oil producer in Indonesia which sold some peripheral interests last year and could dispose of property assets in Malaysia too if necessary. That leaves it focused entirely on palm production where they are expanding their plantation hectarage significantly to deliver strong crop growth. Now with £8 million cash, earnings per share are projected to grow 75% in 2017 for a low PEG (price-earnings-growth ratio) of 0.2. A bid last year by Malaysian palm oil company KLK at 740p was rejected strongly by the board. If they bid again, they’ll certainly need to make a £10/11 offer now.

Sirius Minerals (SXX) – developer of the world's largest quality deposit of polyhalite in north Yorkshire. The mineral is a rich source of potassium and is a vital ingredient in fertiliser. Possibly the most enigmatic quoted company in the UK, with a market value of over £1 billion, with no revenues yet in sight, cash of £261 million, burning at £23 million in 2016 reducing to £12 million losses in 2017/18. It might seem hard to make a case to buy, but actively traded daily and considered by two brokers a ‘strong buy’, target price 60p – equivalent to a £2.5 billion valuation.

Having just moved from AIM to the main market, Sirius is sadly now no use for IHT planning. Perhaps there’s some comfort in knowing that construction is on track with the mine projected to open in 2021, then potentially a massive operation; the shares should rise steadily over the next four years. Lock them away and watch with interest.

I’ve bought these five stocks, but do your own research and stay alert for the essential 20% stop-loss protection.

David Kempton is non-executive chairman of Hawksmoor Investment Management. He is an experienced investor, proprietor of Kempton Holdings and a non-executive director of a number of quoted and private companies. He may have an interest in any of the investments which he writes about.

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9 comments so far. Why not have your say?

Kevin S

Apr 19, 2017 at 19:28

one aspect of AIM shares & IHT is the 2 year rule. If you buy a share & hold for one year & then sell do you have to immediately buy another or if you wait does the 2 year clock start again ?

report this

Mark Beale

Apr 20, 2017 at 03:48

i understand that if you sell a holding you have 3 years to reinvest the proceeds

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Ian Holmes

Apr 20, 2017 at 05:07

Kevin S:

Mark B is absolutely right, but Mark didn't mention whether the "clock starts ticking" again.

Basically, no. However, any realised gains when you sell, if re-invested in AIM do restart the clock for the gain. So initial investment of £1,000, sold at (say) £1,500 if re-invested will start the clock ticking on the £500 as soon as it is re-invested. The £1,000 can be re-invested at any point in the 3-year period and the clock doesn't re-start on that. Let the 3 year period lapse and you're back to square 1.

Reliefs are available for losses - but it's too protracted to explain here (Check the LSE document for this:

http://www.londonstockexchange.com/companies-and-advisors/aim/publications/a-guide-to-aim-tax-benefits.pdf

Also, beware, not all AIM shares qualify. Here is a couple of articles. one from the Share Centre (not recent but still relevant) and the other from Shares Magazine which should help you understand and research potential investments.

https://www.share.com/blog/2014/may/guide-qualifying-aim-companies-inheritance-tax-planning/

https://www.sharesmagazine.co.uk/article/avoid-inheritance-tax-with-aim-stocks

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mikest

Apr 20, 2017 at 09:20

Whilst the 43% exports to EU seems right, the Economist gave a 16% combined EU imports figure last July. Have EU imports really halved in that time?

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kokko llookko

Apr 22, 2017 at 00:36

http://mayaclix.com/?r=Doffy register and click :)

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Mark Stringer

Apr 23, 2017 at 10:47

I'd like to know how reliable these economic figures are. Are they as reliable as our guesstimated GDP or skewed basket of goods data?

We do know that we import more than we export, that is a given, but The Economist is an EU pr machine with openly self declared anti Brexit and pro EU mandate in its journalism.

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Scout

Apr 27, 2017 at 17:38

I understand that not all AIM stocks qualify for inheritance planning and the two year rule. Does anyone know how to obtain a list of those that do.

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Ian Holmes

Apr 28, 2017 at 03:33

Hi Scout!

I have tried to find one, but my research tells me there is no such list! Additionally, a company's qualification can change whole or in part at any time. This is based on the exceptions (e.g. property providing income which is not wholly associated with the business).

Read the "Businesses that do not qualify" section in my previous comment:

https://www.share.com/blog/2014/may/guide-qualifying-aim-companies-inheritance-tax-planning/

I have been told also to check with the company as they should know. Unfortunately when I have enquired (five occasions) the companies tells me to ask a tax expert!

So I think you can only do your own research. According to the above link, there are potentially 92 companies that do not or only partially qualify.

Investor's Champion at the following website offers a screening service - for a fee. (Scroll to the bottom of the webpage)

http://www.investorschampion.com/aim-for-iht

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Scout

May 04, 2017 at 16:54

Thanks for that Ian.

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