Over five years, the share price is up 60% at 830p, but that conceals wild gyrations between a low of 198p and a high of 2,076p. And if you think you’ve seen some big swings before, this one suffered a 58% slump over the course of a week in February after warning that 2019 profits were set to come in “materially lower” than expectations.

The price slid further, but since April’s low, it’s more than doubled, and the stock was one of the FTSE’s biggest climbers on Tuesday after a Q3 trading update revealed a “strong improvement in quarterly performance … with good revenue growth and a strong increase in EBITDA.”

Cheap shares?

Analysts had been predicting a 65% crash in EPS, though that would put the shares on a P/E of only eight. A prospective dividend yield of 6.4% would still be around 1.9 times covered. In the light of the firm’s extreme volatility, I won’t even consider 2020 forecasts, but on the face of it, such a low valuation makes the shares look tempting.

But a couple of things count against Plus500 for me. One is that it’s a perpetual favourite with shorters, who were right about the big crash earlier this year. The other is that I see profits from high-risk activities like CFDs and similar as being potentially very volatile, and I much prefer predictable earnings.

It’s not for me, and I’d say you need nerves of steel to even think about it.

Investment

A handful of Tuesday’s biggest morning risers were in the investment services business, with Allied Minds (LSE: ALM) picking up 4% in early trading. There’s no specific news, but I suspect the diminishing chances of a no-deal Brexit coupled with growing prospects for an early election are providing a bit of confidence to financial investors in general.

Allied Minds was a Neil Woodford pick, and that curse really hasn’t helped as the share price is down 75% over the past two years. Allied invests in technology start-ups, so the attraction for Woodford was clear — though as he was making his own decisions over start-ups too, perhaps it was an early warning of his over-reliance on such assets?

Cheap now?

But what about now, after the share price slump? What price would be good to get aboard? Well, Allied pretty much messed up its early investing, but it has been trying to pull itself around. The focus of the firm’s interim report, released in September, was on the amount it’s been investing. And it’s growing, with Allied having put $24.3m into its portfolio companies during 2019, with $15.3m of that coming after June’s halfway date.

Co-CEOs Joseph Pignato and Michael Turner stressed the firm’s strategy of “focusing exclusively on supporting our existing portfolio companies” while reducing expenses, but is that enough to make the shares a buy?

Allied Minds is loss-making at the moment, so there’s no real way to put a valuation on the shares. So you really have to decide based on the companies the firm has put its faith in. But picking good startups is a perilous endeavour, as Neil Woodford discovered. I’m steering clear, but there are some great growth stocks out there…

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The company is trying to turn itself around, but it’s not been easy. Allied invests in early-stage tech and biotech businesses, two markets where it notoriously difficult to pick winners. 

However, management is hoping that 2019 will be the year that the group’s portfolio starts to yield results. In a trading update today, CEO Jill Smith reports that three of the firm’s largest investments, Spin Memory, HawkEye 360, and Federated Wireless are “on track to deliver commercial revenue in 2019.“

The CEO also set out to reassure investors that the business is well-funded for the foreseeable future, reporting Allied “had a cash balance at 31 December 2018 estimated at $50m.” Smith goes on to note that this figure includes additional capital contributions to SciFluor and Precision Biopsy, which were both supported by Woodford Investment Management.

Time to buy? 

Today’s update shows that Allied is trying to put its mistakes behind it, but I’m not a buyer at the current level. 

I’ve always been sceptical about Allied’s potential because I know how difficult it is to pick successful startups. So far, the company hasn’t proved to investors it can succeed where so many other funds have failed. For this reason, I’m staying away. 

On the other hand, I would happily invest my money in another Neil Woodford favourite, Burford Captial (LSE: BUR). 

Booming market 

Unlike Allied, Burford has an impressive track record of creating wealth for its shareholders. Investors who bought the stock five years ago have seen the value of their funds grow by 74% per annum. 

It doesn’t look as if the business is planning to slow down anytime soon. The booming market for litigation finance is proving to be a fertile environment for Burford to grow and expand. 

According to a recent survey of nearly 500 lawyers around the world conducted by the firm, 70% of respondents who don’t already use litigation finance say they’re likely to do so in the next two years. Meanwhile, just under two-thirds of interviewees cited Burford as the best provider of litigation finance in the field. 

All types of investors are trying to get in on the litigation finance market, where returns tend to be significantly higher than other asset classes. Back in December, Burford announced it had secured funding for $1.6bn in new litigation investments. A sovereign wealth fund and new private investment fund made up the bulk of these contributions, with the company’s cash filling in the rest. 

City analysts believe the company’s earnings per share could grow 21% by the end of 2019. That puts the stock on a forward P/E ratio of 16.5 and gives a PEG ratio of 0.5, which implies the shares offer growth at a reasonable price. That’s a valuation I think is worth snapping up today.

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According to the group, the funding will help HawkEye cover the “build and launch costs of the company’s first commercial satellite cluster and for general commercial purposes.” 

The HawkEye follow-on round is just the latest investment for Allied Minds. Earlier this year the company also made two new investments in TableUp and Orbital Sidekick, a software provider to the restaurant industry and analytics firm respectively. 

These new ventures seem to be part of management’s plan to turn Allied’s performance around. Last year the group crashed out of the FTSE 250 after revealing pre-tax losses of $58.2m on revenues of $2m during the first six months of 2017. These losses followed the $146.6m writedown on the value of seven of its portfolio businesses and a £64m cash call. 

Poor record 

Allied Minds is a venture capital business. The group invests in early-stage businesses, mainly in the tech and MedTech space, hoping to generate a huge profit when these firms reach maturity and are bought out or list via an IPO. 

Unfortunately, Allied’s track record of investing is poor. So far, there have been no windfall profits from IPOs or business sales. 

With this being the case, even though Neil Woodford continues to support the business, I’m staying away. There are many other companies out there with a better record of producing returns for investors, such as Burford Capital (LSE: BUR). 

Industry leader 

Burford is one of Woodford’s top five holdings in his flagship Equity Income fund, and it is easy to see why. A few years ago, litigation finance, which Burford provides, was virtually unheard of as an asset class. However today, the litigation finance industry is booming and Burford is leading the market. 

Litigation finance is an exciting asset class. Financers help fund the cost of legal action in return for a share in any award made by the court. These returns can be enormous. For example, a few months ago Burford told shareholders that, at the conclusion of one legal dispute between a Spanish company and the government of Argentina, it had generated a return on investment of more than 700% over seven years. Institutional investors are queuing up for this kind of exposure. 

That said, while returns can be higher, it requires experience to be able to navigate the industry successfully. Burford has this experience, which is why growth has exploded over the past five years. 

Net profit more than doubled to $265m year-on-year for the 12 months to the end of December last year. In 2012, for the year as a whole, Burford’s net profit was just $17m. 

With growth exploding, I’m excited about Burford’s future. I believe both the demand and supply of litigation finance will only grow and Burford is in a prime position to continue to profit from surging investor demand. 

Shares in the company are currently trading at a forward P/E of 19, which is slightly higher than the companies I’d usually invest in, but I believe the multiple is appropriate for a business that has grown EPS at a rate of 70% per annum for the past five years.

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It’s tempting to forget it, as you’ll soon have a shiny new £20,000 allowance to use up for 2018-19. But even a £1,000 addition that doesn’t happen now could lose you £5,700 from your retirement pot in 30 years’ time based on a 6% per year total return — and more than £10,000 if you hit 8%.

I’ll assume you already have a solid set of blue-chip stocks in your ISA from this year and previous years, and I’ll suggest two slightly riskier stocks for you to consider for a small allocation of cash.

Sun and sand

It’s a cold March, and after our late mini-Winter, you might well be thinking of a beach holiday to blow away the blues. Millions will be having similar thoughts, and I like the idea of a holiday company that specialises in getting you exactly where its name suggests — On The Beach (LSE: OTB).

Rather than searching dozens of generalised online offerings and pondering which have the best beaches, the safest swimming, the easiest access… On The Beach just offers short-haul beach holidays. 

The firm’s latest update in February told us that business has continued strongly into 2018 with strong revenue growth, and that it’s enjoying “strong bookings growth for summer 2018 departures.”

I like companies that focus and try to be the best in a specific field, and it seems investors do too. On The Beach shares have more than doubled since flotation in 2015, although they might look like they’re a bit highly priced now with forward P/E multiples of more than 20.

But the firm is only just starting its international expansion, with its newer sites in Sweden and Norway already showing strong growth and Denmark about to be launched. I think On The Beach could easily turn into one of tomorrow’s cash cows.

Blue sky

Now for a slightly riskier one, Allied Minds (LSE: ALM), which ace UK investor Neil Woodford holds in his LF Woodford Equity Income Fund. But before I tell you why it might be a good candidate for you, let me offer you a reason to steer clear.

Allied Minds invests in early-stage technology businesses, hoping to find the next generation of rising stars, but so far it hasn’t been doing so well at it and it’s lost money for its investors. Despite a multi-bagging early rise after coming to market in 2014, Allied Minds shares have since been in a slump and are now down 40% overall — and as it’s been making a loss all along, there have been no dividends to compensate.

But the next online startup, or successful biotechnology star, could already be sitting in its portfolio — I looked at the exciting possibilities for subsidiary SciFluor Life Sciences back in December, after reviewing promising results from its candidate treatment for age-related macular degeneration.

The company has now ditched a few of its earlier lame ducks and has secured some significant new funding. I reckon it’s a worthwhile, if speculative, punt — but only a small one. Who knows, the next Facebook could still be out there.

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According to the update, the group is now embarking on a strategy to increase its long-term viability, spending an extra £45m this year on growing the business by investing in 65 more roadside vans, to cut its reliance on third-party garages for callouts, expand its fledgling insurance division and convince more customer to take up its telematics technology, which enables customers to detect a problem before it happens.

To fund this expansion, the company has cut its dividend from 9p per share to 2p and now expects profit for the year to 31 January 2019 to be £335m-£345m, compared to the year ending 31 January 2018 of £390m-£395m. Following this dividend cut, shares in AA now support a yield of just 2.2%, down from around 9% before today’s statement. 

Further pain ahead

Unfortunately, I believe that it may not be long before the company has to cut its payout altogether. You see, ever since its IPO, AA has been haunted by its high amount of leverage, acquired during its time under private equity ownership. In total, the group has more than £2.7bn in net debt. When compared to profit forecasts, this colossal debt mountain looks terrifying, and it’s difficult to see how the business will ever be able to settle its obligations. 

With profits falling, it’s only going to become harder for management to invest in the business, return cash to shareholders and pay down debt. For this reason, no matter how cheap shares in AA become, I’m going to avoid it at all costs, or at least until it can get its debt under control. 

Struggling to produce returns

Another Neil Woodford stock I’m avoiding is Allied Minds (LSE: ALM). It invests in early-stage tech businesses, a risky and unpredictable strategy and one that the company is struggling to make work. Indeed, since its IPO in 2014, rather than creating value for shareholders, the firm has done nothing but destroy shareholder value with the stock falling from an IPO price of 190p to 143p today. 

Last year, shortly after new chief executive Jill Smith took the helm, the company announced a $146m writedown on the value of seven of its portfolio business, only a few months after asking shareholders for an additional £64m to fund new investments. 

Considering Allied’s record then, it might be wise for investors to stay away from the business. That being said, investing in early-stage companies is risky but rewarding if you get it right. Even though Allied has failed to generate any value for shareholders over the past few years, the next Facebook could be sitting in its portfolio today, and the returns from such an investment would be enough to wipe out years of losses. 

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Mr Woodford holds it in his LF Woodford Equity Income Fund but hasn’t had a great deal of success with it so far. At 140p, the shares have lost 80% of their value since their peak in April 2015 — but he holds them in a well-diversified portfolio with a long-term vision.

On Monday, Allied Minds shareholders got some favourable news, with its SciFluor Life Sciences subsidiary announcing good results for its SF0166 candidate for the treatment of ‘wet’ age-related macular degeneration.

Headlines announced “improvements in vision along with significant decreases in central retinal thickness and fluid levels reported” in nine out of the 42 patients in the study, and “demonstrated safety with no drug-related serious adverse events.” It might sound obvious, but those two outcomes — it works, and it’s safe — can be remarkably hard to achieve.

Age-related macular degeneration can be seriously debilitating for its sufferers, so this has got to be seen as a positive step forSciFluor and for Allied Minds.

Wider technology

Looking at the bigger picture, Allied Minds — which is involved in technology and communication developments as well as life sciences — is starting to attract the funding it will need if it is to get as far as making a profit. A number of big investors took part in a funding round for subsidiary Federated Wireless in September which raised $42m.

There are no forecasts for profits on the horizon just yet, but today’s Allied Minds looks a significantly more attractive prospect after the decision to dump some of its subsidiaries earlier in the year. A bit speculative, but there could be great potential here.

Safety in size

Neil Woodford offsets risk by investing in established companies in similar sectors to his smaller investments — as well as the financial sector (including firms investing in technology), he holds a sizeable chunk of AstraZeneca (LSE: AZN).

And AstraZeneca had some welcome news the same day too, after the FDA in the US accepted a supplemental New Drug Application for the company’s cancer drug Tagrisso relating to the treatment of metastatic non-small cell lung cancer. The submission is based on the results of an earlier Phase III trial which showed significantly improved progression-free survival in patients with advanced metastases, and it comes after the European Medicines Agency had accepted a similar application.

It’s early days for the new development, but Tagrisso is already an approved drug for specific cancers in more than 60 countries, including the lucrative markets of the US, EU, China and Japan.

I’d buy now

Looking at the bigger picture for AstraZeneca, we’re still not back into forecast earnings growth territory yet, and the downturn that was driven by the expiry of some key patents a few years ago is lasting longer than many of us thought. 

But Q3 results make me think this year could turn out better than expected, with reported EPS for the first nine months looking flat overall (+3% at actual exchange rates, -4% at CER), with a fall in the underlying figure of between 4% and 7%.

Operating profit seems to be turning around nicely, and the predicted dividend looks reliable with a yield of 4.4%. I still see AstraZeneca as a dependable long-term investment.

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What’s notable about this deal is that some of the key telecoms players in the US participated. Charter Communications, American Tower, ARRIS International, Singapore’s sovereign wealth fund, Allied Minds and Woodford Investment Management all contributed to help the business move forward. 

As well as the fundraising news, Federated Wireless also announced that it is beginning to deploy its technology, starting with the industry’s first commercially available Spectrum Controller. Management is conducting testing and field trials for this device, which allows “cable operators and others to access the wireless market on economic terms, without the need to own spectrum outright.” These trials will hopefully result in FCC certification by the first quarter of 2018. 

If successful, this technology could be highly valuable, as buying spectrum outright can cost operators billions of dollars. And it looks as if the biggest players in the market realise the opportunity here. American Tower, for example, is a leading operator of wireless and broadcast communications real estate with 148,000 sites in its portfolio. 

I believe that this deal could also signal a turnaround in Allied’s fortunes. 

Improving outlook

Shares in Allied have lost around two-thirds of their value this year as the company has struggled to convince shareholders that it’s a worthwhile investment.

In April, the shares lost 20% in a single day after the intellectual property group announced that seven of its subsidiaries would be sold or wound down as part of a £118m writedown. Then, during August, the company reported a loss of £54m for the six months to June 30 as revenues ticked higher from $1.3m to $2m. 

These losses wouldn’t be so bad if the company had a track record of success. However, during its history, Allied has failed to realise a profit for investors on any of its investments. With this being the case, it’s no surprise the share are down by 74% from the 2015 high of 724p. 

Still, private equity investing is a high risk, high reward business. Most companies fail, but the ones that succeed usually make up for them. 

Has the company turned a corner? 

I think that Federated Wireless’s progress is a sign to investors that there’s still value in Allied’s portfolio. If the company can get FCC approval during the first half of next year, it could be the first company in Allied’s portfolio to yield results. 

If Federated succeeds, patient investors could be well rewarded, yet even though Allied looks to be moving forward, this isn’t a stock for low-risk investors. Indeed, if Federated’s trials fail, investors will have to accept further losses.

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The tech start-up specialist found itself on the defensive again in Thursday business after its half-year financials failed to stoke investor appetite. It was 2% lower on the day and remains a big casualty in 2017 — Allied Minds has shed exactly two-thirds of its value in the year to date.

On the plus side it saw revenues rising to $2m during January-June, up from $1.3m a year earlier. But this could not prevent losses widening during the period.

The intellectual property play chalked up a loss of $58.2m, worsening from the $52.2m loss in the corresponding 2016 period. And a whopping $44.6m loss was attributable to Allied Minds itself rather than its portfolio companies.

The business saw selling, general and administrative expenses jump by $5.4m in the first half, to $31.2m, while net cash and investments dropped to $177m from $226.1m a year earlier.

It ploughed $22.4m into its portfolio companies in the six months to June, it said.

Plenty of questions to be answered

Sour investor appetite for Allied Minds worsened in April after it announced a huge restructuring plan to jump-start its flagging fortunes, measures that have prompted it to withdraw funding at seven of its subsidiaries. The shake-up would also see the business likely endure an eye-watering $146.6m writedown, it advised.

Back then the company commented that “capital and management resources unlocked from this process will be diverted to other companies and opportunities in the portfolio where there is greatest potential for value creation.”

Allied Minds said that the move would divert more attention to its “more advanced subsidiaries and most promising early stage companies, and on scaling our origination platform to take full advantage of opportunities across our network of research institutions and corporate partnerships.”

These measures will take some time to bed in, naturally. But in the meantime, City brokers expect the company to endure further losses — losses of 38.9 US cents per share in 2017, and predicted to worsen to 42 cents in the following year.

Allied Minds has a poor track record of generating returns from its investments, and I remain unconvinced that its spring shake-up will put the company on the right path. And with the departure of long-time chief executive Chris Silva adding further uncertainty to the picture, I reckon risk-averse investors should shop around.

Get on the right page

I reckon those seeking reliable earnings growth should look past the Woodford favourite and lock gazes with Pagegroup (LSE: PAGE) instead.

The Addlestone business saw revenues detonate 16.9% during January-June, to £673.1m, or 7.7% on a constant currencies basis. And this propelled pre-tax profit 21.4% higher to £56.9m. While the company said that “challenging market conditions continued in some of our larger markets, including Brazil, Singapore and the UK,” strength elsewhere kept the top line chugging northwards.

The number crunchers share my bullish viewpoint, and predict bottom-line rises of 13% and 7% in 2017 and 2018 alone.

Sure, these projections leave the Pagegroup dealing on a forward P/E ratio of 18.9 times, peeking above the broadly-considered value watermark of 15 times. But I reckon the great growth potential afforded by its pan-global presence makes the company worthy of this slight premium.

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Broken model

Former chief executive Richard Ames resigned in February 2016 following the third profit warning in five months while chairman Roger Canham resigned today with immediate effect after Phoenix Asset Management Partners, of whom he is a director, launched a mandatory 32.375p a share offer for the shares in the model train set maker it doesn’t already own, valuing it at £27.4m. Hornby has been concentrating on streamlining costs and stabilising its existing brands, and although it scrapped its dividend again today it claims to have now completed the first stage of its turnaround plan.

Picking up steam

The headline numbers don’t look great, with revenue falling from £55.8m in 2016 to £47.4m, while the underlying loss before tax widened from £5.7m to £6.3m. However, the direction of travel looks more positive, with the reported loss before tax falling from £13.5m to £9.5m. Hornby incurred exceptional items of £3.3m, but that was down from £7.9m in 2016.

On 31 March, net cash stood at £1.5m, a big improvement on last year’s £7.2m. Hornby has been streamlining its operating model, reducing costs, supporting key UK brands, improving cash generation and focusing on profitable products to build margins, which now stand at 40%. City analysts say management can turn this year’s underlying loss into a pre-tax profit of £500,000 in the year to 31 March 2018. However, revenue growth looks minimal, and right now Hornby looks like a slow train coming.

Minds games

Intellectual property firm Allied Minds (LSE: ALM) has also been through a tough time, its share price down 51% over the past year, and 75% over two years. Its shares fell off a cliff in April after it announced a $146m writedown on the value of seven of its subsidiaries, which it is now looking to sell, transfer or liquidate.

There is nothing wrong with closing down struggling subsidiaries to focus on the successes but investors felt aggrieved having being asked to pump in £64m in fresh equity just three months earlier. Top fund manager Neil Woodford, who owns 30% of the university and government technology commercialisation specialist, forked out £15m and is publicly standing by his controversial pick, but others are rightly more wary.

Scary stuff

You don’t need me to tell you that private equity is a risky business and you might agree with chief executive Jill Smith’s view that these “necessary” measures place Allied Minds in a stronger position to deliver returns to shareholders through accelerated commercialisation, monetisation and portfolio growth. 

This could be a brave recovery play. Woodford certainly hopes so, but Allied Minds looks far too risky for me. It looks on course to deliver its fifth consecutive year of pre-tax losses at around £92m in the calendar year 2017, with a forecast rise to £96.71m in 2018. Obviously, the company is focused on investing in assets right now, the problem is that delivery has been non-existent. Neil Woodford is a far braver man than I am.

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Allied Minds, which is a favourite of star fund manager Neil Woodford, made this announcement after a review by its interim CEO Jill Smith. The company believes that by pulling out of these seven early-stage businesses today, it can re-consolidate its efforts and focus on other firms that are more likely to yield substantial results. 

However, critics believe Allied has decided to take this course of action to make life easier for management. One set of City analysts noted last week that by writing off the value of some struggling businesses, it would be easier for management to improve the value of the remaining portfolio from a lower base. 

Timing is suspect 

Not only are the motives of Allied’s decision to write down the value of its assets questionable, but the timing of the announcement is also suspect. 

Indeed, only three months ago in December, the company tapped investors for £64m in fresh equity to invest in its businesses and technology. Neil Woodford contributed £15m as part of this capital raise. The $147m (£120m) writedown means investors have seen all of their additional investment obliterated. 

And it is possible management could have seen this coming. Jill Smith became Allied’s interim chief executive last month after co-founder Chris Silva stepped away from the business. The company has been criticised in the past by the activist New York hedge fund Kerrisdale Capital for not actually creating any value for investors since it was formed in 2006. 

Time to sell? 

Neil Woodford, who owns around 30% of Allied Minds, remains optimistic about the company’s future despite yesterday’s slump. But personally, I’m not convinced. 

Private equity is a risky business, and for every billion-pound idea, there are thousands of failures. So it makes sense for a venture capital company to have as many opportunities as possible available to it, which is the opposite of the course Allied Minds has decided to take.

What’s more, Kerrisdale Capital has a valid argument about Allied’s track record of success. In the past decade, the company has not sold any portfolio companies and has not taken a single one public. Further, of the five companies Allied formed in 2006, four failed completely, and the fifth remains stuck in R&D mode. 

Current operating figures are no better. Even though the company has agreements with 34 federal research institutions, for the half-year to June 2016, it reported revenues of just £1.3m and a net loss of $52.2m.

So overall, even though Neil Woodford remains a supporter of Allied, the company’s poor track record and lack of progress put me off the business.

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