These three tiddlers sport low PEs, net cash and promising growth.
This year has been awful for most AIM investors. Here are the grim facts for 2011:
- The AIM index lost 27%;
- 549 AIM shares declined in value;
- The number of companies admitted to AIM was 86 -- the third-lowest in the market's history, and;
- The number of companies traded on AIM stands at 1,150, having fallen for the fourth year running.
But hiding among all the losses, profit warnings and delistings, opportunities to make money on the junior bourse still exist. Here are three cheapie tiddlers I've uncovered that might grab the attention of brave AIM investors:
1: Pressure Technologies -- 131p/£15m mkt cap
Pressure Technologies (LSE: PRES) designs and manufacturers heavy-duty gas cylinders, control valves and hydraulic pumps for the oil and gas sector. Like many AIM shares, Pressure suffered during 2011 -- in this case, the BP (LSE: BP) oil spill caused demand for the firm's offshore equipment to dry up.
Although annual results announced this month showed profits plunging from £3.5m to £0.7m, Pressure's dividend was held at 7.2p per share as management revealed it had seen a recent upturn in forecast projects and orders. The directors added the firm had maintained its "technical lead in engineering capability", and confirmed they did not foresee extra operating costs if sales did indeed revive.
Pressure's house broker reckons earnings per share could rebound to 14p for 2012 and towards 22p for 2013, which implies a potential P/E of 6. The current yield is 5.5%, while net tangible assets of 100p per share represents 76% of the share price and includes 25p per share of net cash. This insightful discussion provides further details.
2: Red24 -- 11p/£5m mkt cap
Red24 (LSE: REDT) offers what it calls 'risk management' services to large financial organisations. The risks Red manages aren't actually financial, but instead relate to the personal security and safety of staff and customers. Very impressively, this minnow has cut a deal with HSBC (LSE: HBSA) to promote its services.
Red has demonstrated notable organic growth during the last few years. Between 2008 and 2011, turnover almost doubled to more than £5m and losses were turned into profits approaching £1m. The latest dividend was lifted 33%, too. But recent management comments about "parts of the [group's] structure becoming strained" could be code for minor trouble ahead.
Still, the shares currently trade on a multiple of 7 times profits and offer a yield of 3.3%. The balance sheet carries more than £1m of net cash, too. Bonus points must also be awarded to the group's chief exec, whose CV includes a stint as a Lieutenant Colonel in the Army, time spent commanding a Paras battalion and collecting an MBE.
3: World Careers Network -- 105p/£8m mkt cap
World Careers Network (LSE: WOR) develops online recruitment software and the firm's website boasts of customers such as Standard Chartered (LSE: STAN) and Marks & Spencer (LSE: MKS). Reducing both the 'time to hire' and third-party agency fees are apparently among the benefits of using the system.
Admittedly, the banking crash did hurt WCN, with sales dropping by 20% between 2008 and 2010 and profits almost halving. But new clients, plus greater spending from existing clients, allowed revenues to rebound 29% and profits to double during 2011 -- leaving earnings to currently run at an all-time high. Throughout the ups and downs, I see the dividend was kept steady at 3.5p per share.
True, WCN has a mighty bid-offer spread (90p-120p) and a limited free float (the boss owns 70%). Yet despite the record results, the shares still trade at levels seen throughout 2008, 2009 and 2010, and value the group on a P/E of about 8-9 and yield of 3%. Furthermore, the accounts now carry £4m of net cash, which at the moment represents around half the market cap.
What now?
Now these may not be the very best opportunities on AIM right now, but it didn't take me too long to pinpoint this trio of ideas for possible further research. As I mentioned the other day, small caps have been thumped this year and I do feel the market now values many optimistic, cash-rich and dividend-paying tiddlers at somewhat depressed levels. As I say, opportunities to make money on the junior bourse still exist.
If you know of any attractive AIM small caps, suitable either for brave or not-so-brave investors, please tell me in the comment box below. I look forward to reading your suggestions.
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