Of the 1,100 companies on London's junior market, these are the 10 most successful.
London's Alternative Investment Market is home to some of the UK's most dynamic growth companies. However, it is also where you will find some very speculative high-risk stocks.
One of the best ways to quickly identify AIM companies worthy of further research is by running investment screens. Statistical filters are a very efficient way of splitting the winners from the wannabes.
Many AIM shares have a small market captalisation, making them expensive to trade. I've set my filters to reject companies with a market capitalisation less than £50m. Although these are successful companies, that does not mean that they have been the best investments on AIM; my filters have screened out big winners like ASOS (LSE: ASC) and Gulf Keystone Petroleum (LSE: GKP). While both these companies have been great investments, neither pays a dividend.
My qualification criteria are:
- market capitalisation greater than £50m,
- dividend increasing for three years or more,
- sales increasing for three years or more,
- sales, dividend and earnings per share (eps) must have increased over five years by > 5% per annum on average,
- the company must be forecast to grow EPS by at least 5% over the next year.
This demanding set of hurdles whittles AIM down to just 10 great companies.
|Company||Price (p)||EPS five-year CAGR* %||DPS five-year CAGR %||P/E (forecast)||Yield (forecast, %)||Market cap (£m)|
|Abcam (LSE: ABC)||404||45.3||50.0||24.5||1.7||801|
|Mulberry (LSE: MUL)||1267||44.3||27.2||24.0||0.7||756|
|James Halstead (LSE: JHD)||635||17.3||18.5||21.8||2.5||656|
|Majestic Wine (LSE: MJW)||455||10.0||12.9||15.9||3.8||290|
|Nichols (LSE: NICL)||782||17.1||9.3||19.5||2.2||289|
|RWS Holdings (LSE: RWS)||535||10.8||16.4||17.9||3.2||226|
|Albemarle & Bond Holdings (LSE: ABM)||289||21.5||21.6||9.8||4.4||161|
|Brooks Macdonald (LSE: BRK)||1180||39.0||52.4||16.4||1.8||129|
|First Derivatives (LSE: FDP)||473||16.1||17.4||11.8||2.5||79|
|Portmeirion (LSE: PMP)||494||17.0||7.0||10.8||4.1||51|
* Compound Annual Growth Rate
Four stood out in particular.
1) James Halstead
James Halstead is a specialist floor coverings business. The company supplies the floor materials required by hospitals, schools, factories, etc. Halstead Group's Polyflor division is supplier to some outstanding sites and venues around the world. For example, Polyflor can be found in the Melbourne Cricket Ground and staff areas of the world's largest cruise liner, Princess of the Seas.
James Halstead, by one measure at least, is the most successful AIM-listed company of all. For the last 35 years, shareholders in James Halstead have been receiving larger dividends year-in, year-out. This record surpasses even the blue-chip members of the FTSE100 (UKX).
Looking forward, James Halstead is expected to deliver another two years of solid eps and dividend growth. Earnings per share is forecast to increase 10.7% for 2012, to be followed by 6.9% the year after. The dividend is expected to rise similarly, increasing 9.8% for 2012 and 7.0% for 2013.
2) Majestic Wine
A company doesn't need to break new ground to be a big success. Majestic Wine has proved that good management and a twist on an old business model can still deliver.
Majestic Wine shareholders have cashed in on the roll-out of the 'by the case' wine retail model. The company now operates 181 stores across the UK and three in Northern France. Management believe that the ultimate size of the store portfolio could top 330.
Alongside the stores, Majestic also runs a growing online business. In a fractured market, Majestic grew online sales 7.8% last year, meaning 10% of all UK sales are now online. Majestic's bricks-and-mortar presence provides free marketing for its internet business, something its online-only competitors cannot match.
Majestic currently trades on 15.9 times the consensus estimate for 2013. The dividend is expected to hit 17.2p per share, more than twice the amount paid for 2007.
Nichols owns a portfolio of soft drink brands. The most significant of these is Vimto. Others include Panda and the UK rights to Sunkist.
Nichols can trace its roots back to 1908 when John Noel Nichols first created Vimto. For historical reasons, the carbonated/still fruit cordial is incredibly popular in the Middle East, especially during the month of Ramadan, and this remains a growing market for Nichols. Recent sales figures revealed 11% growth there last year.
Africa is also a significant market for Nichols. Here, sales increased a remarkable 27% in the year.
Nichols has been increasing its dividend every year since 2005. Growth in earnings and dividend is expected to continue to the next two years. Analyst consensus is for 9.0% eps growth for 2012, followed by similar progression in 2013.
The company's success has driven Nichols' share price to an all-time high.
In Spode and Royal Worcester, Portmeirion owns two of the world's most renowned ceramics brands. Portmeirion's combination of manufacturing skill and marquee brands has forged an incredibly strong business.
Portmeirion has not cut its dividend to shareholders since 1988. With its most recent results, the company reported a significant (and growing) net cash position.
While the Diamond Jubilee provided a boost to sales that won't be repeated, North America is actually Portmeirion's largest market.
Although eps fell sharply for 2008, Portmeirion has managed an average of 17% compound annual earnings growth rate over the last five years. By the same measure, the dividend has been increasing at a rate of 7% per annum.
The shares trade at 11.5 times last year's earnings and 10.8 times the 2012 forecast. With the dividend yield expected to reach 4.1%, Portmeirion looks like a quality company trading at a reasonable price.
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> David does not own shares in any of the above companies.