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David Kempton: how my AIM tips are faring

Experienced private investor David Kempton explains how his AIM stock picks have performed so far, and reveals two more for 2017.

 
David Kempton: how my AIM tips are faring

The UK is currently the fastest growing major advanced economy, exceeding the US, the rest of Europe, Canada and Japan. What is going on?

It has certainly been an extraordinary and unpredictable year - and one that ends with a busy high street, buzzing pubs and restaurants and exports soaring to record highs - with sales outside the EU up 16% and October factory sales up 18% in comparison to last year.

Even Germany’s Lidl plans to invest £1.5 billion in the UK to build new stores, creating 5,000 jobs, adding to their astonishing 19,000 existing UK employees.

Worldwide it’s been a bull market, with rising employment and growth. Only Europe got left behind as a result of investor jitters ahead of elections in France, Holland and Germany. Moody’s predicts growth in 2017 pretty much everywhere - aside from Belarus and Syria.   

Nevertheless, you can't ignore the turmoil. Here in the UK, disruption still threatens the poor travellers on Southern Railways, forced to make major adjustments to their working lives. And now airports and airlines threaten to strike from 23 December, personally leaving me stranded with a very long journey home - but more importantly, those poor young families stuck at airports.

In my old industrial days we always considered that management get the unions they deserve. Does this still hold true?

Update:

On 19 September, I listed 15 AIM shares which after two years could mitigate IHT and could even avoid CGT and income tax if held in an ISA. I suggested that well chosen AIM stocks held in this way represent a very powerful tax planning initiative, used by the government to encourage investment into junior companies.

As we go through Christmas into 2017 here is a progress summary indicating the three-month move in each stock:

  • BCA Marketplace (BCA) has risen by 1% after remarketing mostly fleet vehicles on a massive scale. It has turnover of almost £1 billion, sparkling recent results showed 8% volume and 14% profit growth per vehicle. Chief executive Avril Palmer-Baunack runs a very efficient operation. This stock is a 'buy'.
  • Bioventix (BVXP) is up 14%. The biotech company, which focuses on developing antibodies for diagnostics and drug abuse testing, recently announced a 35% profit increase, with £5 million cash and a good dividend. This is rare for a biotech company. Bioventix is a 'buy'.
  • Burford Capital (BURF) has also experienced a 14% share price rise. It provides corporate finance for litigation lawyers and clients and has just bought their main competitor, making the company even more attractive. Over the six months to June, profits were up 135%. This stock is a 'buy'.
  • Cerillion (CER) is flat since September. It provides billing and customer relations management software, listing on the stock exchange this year. Cerillion projects strong growth in 2017. It might be worth waiting until after the 30 Jan annual general meeting to trade. I rate this stock as a 'hold'.
  • Conviviality (CVR) is down by 3%. It is a wholesaler of beers, wines, tobacco and groceries to retailers, representing the UK’s biggest franchised off-licence chain. It also completed good acquisitions last year. On a price-to-earnings (P/E) ratio of 9 and a good yield of 6%, it is well managed by chief executive Diana Hunter and looks far too cheap. This is a 'buy'.  
  • ECO Animal Health Care (EAH) has fallen by 2%. It provides animal health products worldwide, generating only 3% of revenues in the UK. With recent approvals to market its drugs, the strong growth should continue, but its P/E of 36 looks pretty strong - even with the £16 million of cash that it is holding. All of the directors sold some stock last month and it may be worth following them. There are better bargains around now. I rate this as a 'sell'.
  • EKF Diagnostics (EKF) has risen by 14% since September. The diagnostic equipment manufacturer projected profits ‘materially higher’ than its forecast back in November, even exceeding the October upgrades.  Directors have been buying this year, and the chairman, Christopher Mills, currently has 28% across the funds he manages. Hang on here, it looks interesting. This is a 'buy'.
  • IQE (IQE) is up by 32%. These are exciting times for this Welsh company, which designs and manufactures semiconductor wafers and photonics. It generates almost zero of its revenues in the UK revenue and there’s a 15% currency lift to the bottom line since June for starters. They have become a big holding of mine and I am very happy with that. This is a 'buy'.
  • Lok’n Store Group (LOK) has risen by 24%. Self storage is a growing sector in the UK. It is a well run company, growing strongly with solid property assets. It is valued significantly cheaper than its rivals, Safestore (SAFE) and Big Yellow (BYG).  A core holding, it offers the perfect combination of having an ambitious and able board that is driving growth, which provides the company with strong takeover potential. The stock is a 'buy'.
  • Serica Energy (SQZ) is flat since September. It is an oil and gas explorer and producer, with increasing cash flows from its North Sea field and prospects in offshore Namibia and Ireland. The company has a good potential cash flow and interesting prospects. I rate Serica Energy as a 'buy'.
  • Swallowfield (SW) is up by 2%. The company specialises in personal care and beauty products and has undergone somewhat of a turnaround. After the November AGM, brokers' forecasts indicate a rise in sales of 38%, profits up 345%, bringing the P/E back to 11. Swallowfield is now very well run and, with the recent acquisition, firing on all cylinders. The recent share price fall presents a buying opportunity, which I’ve just taken. This is a 'buy'.
  • XLMedia (XLM) is up by 5%. It provides digital publishing and marketing, on a P/E of 10, yielding nearly 6% with £24 million cash. It still looks far too cheap, held back by the unusual business model. I rate this stock as a 'buy'.

Of the stocks mentioned in September, I sold Morses Club at a small profit, Journey Group got profitably taken over and Arria was sold at my 20% stop loss, giving me neutral valuation across these three holdings that were sold. The stocks held here have generated an average 8% profit in three months, which is not bad given the AIM index is up by 2%. I’m actually making much more than that because after buying I follow a stock carefully and often buy more. I have bought IQE, Lok’n Store and Swallowfields three times and Burford twice, for example.

I have made strong purchases in my two picks for 2017, both early stage disruptive potentials, Purplebricks Group (PURP) and RedT Energy (RED). More on them to follow in January.

In conclusion, enjoy the current calm, 2017 will be a very bumpy ride; be aware, be very aware.

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.

6 comments so far. Why not have your say?

Micawber

Dec 21, 2016 at 09:28

Useful. My own selection* of AIM shares in a virtual pf is up 16.4% since setup on 20 July. They have to be held two years to be considered for IHT exemption. I think that provision indicates a wider stop loss than normal. What stop losses do you set, David?

* BREE CLIN GATC GTLY JHD LOK LTG MANX PIM PRSM RCN REDD RNWH RST RWS SMS SNX SOM VTU YOU

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RBNF

Dec 21, 2016 at 14:37

Good results David.

Better than me & includes a few IQE I should have stuck with longer.

Like BVXP but big buy/sell spread - 7% today

Only quibble is BCA my research indicates it is not an Aim stock

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sgjhaghsdg

Dec 22, 2016 at 11:25

My very boring and mostly passive pension pots (ones I don't contribute to) have seen rises of 19%-20% during 2016, but I recognise that the bulk of this is down to the drop in the value of sterling since the referendum.

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Ian Holmes

Dec 24, 2016 at 13:04

RBNF

BCA is certainly an AIM share

http://lt.hemscott.com/SSB/tiles/company-data/company-overview/company-summary.jsp?epic=BCA&market=LSE

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RBNF

Dec 24, 2016 at 14:05

Thanks Ian

I would certainly like it to be

As it doesn't appear in the AIM100 either in HL & digital listings (& it would be one of the largest components) I did some further research on LSE website & it is on the main market

http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary/GB00BP0S1

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RBNF

Dec 24, 2016 at 14:15

Further research indicates

There was an initial Aim listing under Haversham but a subsequent reverse takeover & relisting on the main board

Hemscott seems not to have updated their info

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