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My top 2 UK penny stocks to buy in August

British Pennies on a Pound Note
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Compared to the big stocks on the FTSE 100, penny stocks can often be more risky. Despite this, the opportunity for growth is usually greater, and as such, they can be useful as part of a balanced portfolio. Here are two that I’d buy in August. 

A recent IPO

Belluscura (LSE: BELL) listed via AIM at the end of May, raising around £15m in the process. This money will be used to support the roll-out of the company’s flagship product, a portable oxygen concentrator.  This oxygen concentrator is significantly lighter than others on the market, and also more affordable. In March this year, it obtained FDA clearance.

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Although the commercial launch of the product is not expected until the end of 2021, the company hopes that there will be significant demand. This is because around 250m people suffer from chronic obstructive pulmonary disease and have breathing difficulties. Further, the global respiratory care devices market is expected to reach $28.6bn by 2024, growing by over $1.7bn a year. The pandemic has increased this demand. Therefore, if Belluscura’s innovative device can satisfy some of this demand, the company should be able to generate big profits. This is the reason why I’d buy this penny stock, currently priced at 70p.

Sounds good? Yes, but there are risks I have to consider. For example, the business is in its very early stages of development and is still pre-revenue. This means that the investment is highly speculative, and there are a number of factors that could have a negative effect on the Belluscura share price. Demand for its products may be lower than expected, which would hinder the company’s ability to make a profit. Moreover, additional financing may be required in connection with the commercialisation of its oxygen concentrator. Any additional share issuance would lead to share dilution, and likely cause the share price to fall.

A penny stock for not much longer?

Unlike Belluscura, Airtel Africa (LSE: AAF) is a much more established company, operating in 14 different African countries. The firm provides both telecommunications and mobile money services and listed on the LSE in 2019. Since then, I have been impressed with the way that the FTSE 250 stock has grown profits and expanded its presence in Africa (I already hold some shares). Its recent trading update illustrates this growth perfectly.

In the Q1 update, Airtel Africa reported growth across the whole of the business. For example, operating profits were $352m, up nearly 70% from the year before. The customer base also grew by 8.4% to over 120m people. The Airtel Africa share price has risen over 10% since, but I believe that there is further to go. 

Despite these positives, there is the risk of a third wave of coronavirus in many of these African countries. This is especially true due to the low vaccination levels in these countries. Further lockdowns could be the result and this is likely to have an adverse effect on Airtel Africa’s revenues and the share price. Accordingly, despite its growth potential, there are factors which could severely restrict this.

Yet I feel confident about its future and with recent share price rises, I feel Airtel Africa may not remain a penny stock for much longer. I may add more shares to my portfolio soon.

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Stuart Blair owns shares in Airtel Africa Plc. The Motley Fool UK has recommended Airtel Africa Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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