We look at three more of AIM's leading lights.
Over the past week or so, I've been looking at some of the largest companies on AIM. Here we round off with a look at some more junior market heavyweights.
Valiant Petroleum
While the heyday of the small cap AIM listed oil and gas explorers seems to be behind us, it is still notably how many of them represent some of the leading companies on AIM.
Valiant Petroleum (LSE: VPP) is a North Sea focused oil company. This is not the sexiest of areas, due to the relatively lower chance of success with North Sea oil exploration, weather difficulties and higher production costs. However, I think that with Valiant, investors are getting a profitable and cash generative producer with some decent upside potential with an exploratory programme.
It also has some fields under development which should add to reserves if/when they get completed. In other words, the downside is limited but there is also good upside potential.
Investors may have shunned Valiant following a few drilling disappointments in 2009 and some technical and weather-related issues. Indeed, it lowered reserve estimates earlier in the year. In my view, these sort of events tend to be mean reverting -- particularly in companies that are profitable -- so a buying opportunity may have been created out of irrational fears.
Holders can look forward to an active drilling campaign in 2010, which has already had a notable success.
While we are talking about oil companies, three other AIM stocks are worthy of a passing mention.
Circle Oil (LSE: COP) has a collection of assets across the Middle East and North Africa. Circle Oil is an attractive company, but the stock suffers from a lack of liquidity and its bid/offer spread is usually wide. However, these conditions can create the ideal position for longer term retail investors to buy, as these types of companies usually fall below the institutional radar.
Gulfsands Petroleum (LSE: GPX) received a bid earlier in the year at 315p. Despite a disappointment with its first well result in a Tunisian field, the company still feels it has prospects there. Similarly, it has upside, albeit small, from further drilling in its core assets in Syria. The downside is limited by its existing production in Syria and the fact that the previous bid was at a higher level than the stock trades at now.
Hamworthy (LSE: HMY) is not an energy company per se, but the demand for its ship set systems is largely determined by developments in energy. Its revenues and margins are the very definition of the word 'lumpy'. They are governed by the cyclicality of ship building and fit out for LPG and LNG carriers. That said, if the global economy continues to improve, we could be set for another upgrade cycle.
Immunodiagnostic Systems
Immunodiagnostic Systems (LSE: IDH) is a superb company that is seeking to establish its proprietary diagnostic system in the States.
News flow has been positive, particularly with regard receiving FDA clearance for its IDS-iSYS immunoassay. While sales of the IDS-iSYS have been behind the company's plans, FDA clearance should see an acceleration.
Meanwhile, its Vitamin-D test has hit a sweet spot in terms of public awareness of the need to test or Vitamin D deficiency. There is some cautionary language in its recent results:
"In a fast-moving and competitive environment, we must keep our eyes open for both threat and opportunity. We are very aware that competition will become much more severe in the Vitamin D market in the relatively near future. Whilst the market will continue to grow at impressive rates for the next few years, some major players will enter and the dynamics will change."
I am wary here, particularly as it is trying to expand iSYS in the States on its own. As a small UK company, this is no mean feat. However, this should not detract from this company's execution and its Chairman, David Evans, has made a lot of money for investors over the last few years, both with Immunodiagnostic Systems and Epistem Holdings (LSE: EHP).
Nichols
The main business of Nichols (LSE: NICL) core operation is the berry flavoured soft drink Vimto, but it also has a wholesale operation.
Superficially, Vimto really should be a brand in decline, as sugary, coloured and carbonated drinks are not exactly growing in popularity. However, Nichols has introduced a new cherry flavoured option, which is driving sales growth.
Vimto (dilute & carbonate) is also incredibly popular during Ramadan in the Middle East. Indeed, international sales are growing strongly and make up nearly 22% of soft drink sales. Overall, revenue and profits grew strongly but I suspect increased marketing costs caused profit margins to narrow.
The wholesale business (this division is called Dispense) has had its problems recently:
"The soft drinks on dispense market was particularly affected by the performance of the licensed trade which was again significantly down in 2009 by circa 10% year on year. Whilst the rate of pub closures slowed during last year, the market continued to contract."
"We have now successfully scaled up our Dispense Operation, which has again outperformed the sector and significantly improved its year on year financial performance."
This division is cyclically exposed but only makes up 13% of operating profits and is the third-largest such operation in the UK.
I think that an acquirer of Nichols could leverage up the potential in the Vimto brand and its Middle Eastern popularity.
More top AIM stocks:
> Lee holds a position in Valiant Petroleum.
