Many companies that list on London’s junior AIM market are infant businesses with little in the way of trading histories. Most of them I consider to be sub-investment grade material.
However, some well-established firms also choose to float on AIM and these are often worth a second look. Media group Time Out (LSE: TMO), which was founded in 1968, and property company Watkin Jones (LSE: WJG), whose history goes back as far as 1791, have both joined the junior market this year.
Ambitious growth strategy
Time Out was floated at 150p a share in June, raising net funds of £59m after paying off debts of £25m. Management plans to continue the transformation of what was originally a traditional print brand into a global multi-platform media and e-commerce business.
It’s an ambitious and many-pronged growth strategy. It includes content distribution through magazines, online, mobile apps and mobile web, live events and the rollout of Time Out Market, a concept trialled in Lisbon that brings together a curated selection of a city’s best restaurants, food shops and culture under one roof.
Results and valuation
In its maiden half-year results as a listed company, announced today, Time Out reported pro forma group revenue of £16.6m — an increase of 16% (13% at constant currency) on the same period last year. Meanwhile, the operating loss was broadly the same at £7.3m.
The shares are little changed from yesterday’s closing price of 140p, which gives Time Out a market value of £182m. This represents 5.5 times annualised first-half sales, which strikes me as rather rich for a company with healthy, but unspectacular, mid-teens revenue growth.
Time Out’s multi-faceted growth strategy has potential, but appears far from straightforward to execute. And with the company being lossmaking and not intending to pay a dividend for the foreseeable future, I think this is a stock best watched for the time being.
All according to plan
Watkin Jones was floated at 100p a share in March. The company, which specialises in the development, construction and management of student accommodation, today released an on-track update on projects that have been completed ahead of the start of the 2016/17 academic year.
This continues the solid news issued by the company since the release of its maiden listed interim results in June. Those results saw revenue increase by 41% on the same period last year, with earnings (excluding the one-off flotation costs) increasing 87%. The board declared an interim dividend in line with the guidance it gave at flotation.
With everything going according to plan, the market has begun to warm to Watkin Jones. The shares have edged higher again today to 119.5p, giving the company a market value of £305m.
Undemanding valuation
I like Watkin Jones’ area of specialisation, its forward-sale business model and end-to-end service, all of which reduce risk and improve earnings and cash flow visibility. And I reckon the shares remain good value despite the rise since flotation.
A rating of 11.5 times annualised first-half earnings is undemanding, and falls to 9.9 based on the house broker forecast for the full year ending 30 September. Meanwhile, company guidance on the full-year dividend gives a nice yield of 3.3%.
I’m expecting earnings and dividend growth of at least 10% next year, which gives me further cause to rate the shares a buy.
