A word of warning – AIM is more lightly regulated than the main market and also contains some high-risk speculative stocks. Careful research is needed to find the hidden gems, but I’ve found it’s worth the effort. Here are seven AIM market stocks that I’d consider buying for my portfolio today.

Safer profits from property

My first choice is AIM property developer Watkin Jones (LSE: WJG). This company specialises in building student accommodation and apartment blocks, which it then sells to big rental landlords. New buildings are often pre-sold before they’re built, so the risk of losing money on completed projects is low.

The main fear I have is that this business could face much tougher competition in the future. Purpose-built rental accommodation is a growing market with some big money behind it. But Watkin Jones is an established player with a good reputation. I think it should continue to do well.

The shares have slumped recently, and this stock now offers one of the higher dividend yields on the AIM market, at around 3.9%. I think Watkin Jones looks good value at current levels.

A potential bargain

My second pick is tableware and home fragrance group Portmeirion (LSE: PMP). This business grew out of a gift shop in North Wales, but today owns brands including Spode, Royal Worcester and Wax Lyrical.

One potential concern for me is that if it continues to buy up other businesses, Portmeirion could lose focus on its core pottery business. This still generates the majority of profits.

However, Portmeirion’s latest results suggest to me that this isn’t a problem yet. The group’s 2021 profits were only slightly below 2019 levels and City analysts expect profits to hit record highs this year.

The shares currently trade on just eight times earnings and offer a 4% dividend yield. I’m tempted to buy at current levels.

Promising newcomer

Franchise Brands (LSE: FRAN) only floated on AIM in 2016 but is growing fast and looks promising to me. This group owns a range of franchised businesses, including drain specialist Metro Rod.

Management recent expanded into the US with the acquisition of Filta, which provides commercial kitchen maintenance services through a franchise network in the UK and US.

Franchise Brands’ shares aren’t cheap, on 21 times 2022 forecast earnings. If growth slows, then the shares could fall sharply. But progress so far has been good, in my view.

Annual profit has risen from under £2m in 2017 to more than £5m last year. Franchise Brands is one AIM growth stock I’d consider buying for my portfolio.

Nuclear specialist

I normally avoid buying shares in building contractors. But I think that Renew Holdings is a bit different. This business specialises in essential infrastructure such as rail, water and nuclear energy.

Most of these areas are heavily regulated. Unlike housing and commercial property, they do not usually suffer from cyclical booms and busts. I’m particularly interested in the exposure to nuclear energy, which I think could be a growth area as the UK moves away from coal and gas.

Renew has delivered steady growth in recent years, with profits rising from £12m in 2017 to more than £30m last year. So far, management has been able to manage material shortages and rising costs without any impact on trading, we’re told.

If these problems continue, I think it might become more difficult for the company to manage them. That could cause profits to fall below expectations.

However, I’d see this as a short-term issue that would affect many competitors equally, so I’m not too worried. For now, I think Renew Holdings looks an interesting opportunity for continued growth.

A cash-backed 6% yield

Bank note authentication and brand protection specialist Spectra Systems has one of the highest dividend yields on AIM, at 6.4%.

This tempting payout looks fairly safe, in my view. Spectra has no debt and generates plenty of cash each year, thanks to its 35% operating profit margin. I think the main reason these shares don’t trade much higher is that the company’s growth rate has been fairly slow in recent years.

Investors worry that demand for bank notes and Spectra’s services could fall in future years. But there’s no sign of that this year and I think new products such as a machine-readable plastic banknote material could support long-term demand.

This is a niche business, but as an income investor I’m tempted to add a few to my portfolio.

Pharma growth

Healthcare is one of the long-term growth themes in my portfolio. One less well-known company in this sector is Alliance Pharma (LSE: APH).

Alliance specialises in buying mature consumer healthcare products and improving their distribution and marketing. The firm’s share price has doubled over the last five years.

This business may not sound that exciting, but profit margins have averaged over 20% since 2016 and sales have nearly doubled over this period.

I think management is a key risk here – misjudged future acquisitions could hit profits and damage the group’s growth record.

For now, though, I remain bullish about this company. I’d be happy to tuck a few shares away for the next five years.

25% growth forecast at this stock

My final pick is currency exchange specialist Argentex (LSE: AGFX). This small-cap specialises in providing foreign exchange services to corporate and private clients.

The business is led by founder and CEO Harry Adams, who has a 12% shareholding in the business. I reckon this should mean his interests are well-aligned with those of shareholders.

Perhaps the biggest risk I can see is that this is a fast-growing, competitive market. Will Argentex end up as a long-term winner or an also-ran?

I don’t know, but broker forecasts suggest it could report 25% earnings growth this year. Based on these estimates, I think the shares look very cheap on eight times forecast earnings. This AIM stock is on my list as a potential buy.

The post 7 top AIM market shares to buy now appeared first on The Motley Fool UK.

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Top stocks for a growth focused Stocks & Shares ISA

Small-cap growth stocks have been out of favour, which I think presents opportunities for long-term investors. Cerillion (LSE: CER) strikes me as one potential top growth share for my ISA. Another top option, in my opinion, is Franchise Brands (LSE: FRAN).

Cerillion is a provider of billing, charging, and customer management systems. It was formed in 1999, so is an established company, giving me confidence that it has strong customer relationships and a service that is in demand.

It has shown strong sales and revenue growth. When it comes to the latter, revenue has gone from 8.5m in 2016 to £26.1m in 2021.

Another benefit of the strong financial performance of the group is that the dividend is growing strongly. It has gone from 4.5p in 2018 to 7.1p in 2021.

A current ratio (current assets minus current liabilities) over two indicates there is good balance sheet strength. That potentially protects the downside risk of investing in Cerillion. But, if technology stocks keep falling, Cerillion may just get pulled down along with other stocks.

All in all, Cerillion looks like a high growth stock trading at a reasonable price. The price-to-earnings growth (PEG) ratio, for example, is only 0.8. This indicates the shares are not expensive. That’s why I’m tempted to add the shares when I have next year’s ISA allowance.

Expensive – but worth it?

Franchise Brands is unsurprisingly a franchisor. It owns franchises across a B2B division comprised of Metro Rod, Metro Plumb, and Willow Pumps, and a B2C division that incorporates ChipsAway, Ovenclean, and Barking Mad. In November 2021, it acquired Azura Group, a franchise management software system developer that the group says represents an important step in its digital journey. It could both improve the operations of the group’s franchise businesses, and also be sold as a service to other businesses.

Franchise Brands has seen rapid revenue growth in recent years. It has gone from £4.5m in 2016 to £49m in 2020 (the latest full-year figures).

Like with Cerillion, the strong performance allows management to grow the dividend quickly.

The biggest pause for thought would be that the shares are not cheap. They trade on a P/E of 27, while earnings growth has been a bit volatile and actually declined in 2020, making the shares expensive on a PEG ratio basis. As with all franchisors, a perennial risk is that it falls out with major franchisees, as has been seen with Domino’s Pizza in recent years. 

Nonetheless, with management’s strong track record, good revenue growth, and the potential for big dividend increases, I like the share.

Cerillion and Franchise Brands are, in my opinion, two top UK shares to add share price growth and could therefore be ideal for my new Stocks & Shares ISA allowance. 

The post The top stocks for a growth-focused Stocks & Shares ISA appeared first on The Motley Fool UK.

Let’s take a look at these small-cap shares to see if I should buy them.

A top share under £5

The first of the shares I’m considering is Franchise Brands. I’ve held the stock for a number of years now, but I’m considering topping up my holding.

Franchise Brands is a group of businesses based on a franchise model. Its combined network consists of over 425 franchises across five brands. There is a business-to-business division comprising Metro Rod, Metro Plumb, and Willow Pumps. FRAN also has a business-to-consumer division that incorporates ChipsAway, Ovenclean, and Barking Mad.

I was first interested in Franchise Brands because of the management team. Stephen Hemsley is the executive chairman and co-founded the business in 2008. He was previously the non-executive chairman of Domino’s Pizza, and in his 21 years at the company, took it from a value of £25m to almost £1.5bn. As Domino’s Pizza is also a franchise model, it gives me confidence in owning shares of Franchise Brands.

Net profit is forecast to grow almost 33% this year. The shares are priced at 142.5p right now, and valued on a price-to-earnings (P/E) ratio of 26. This isn’t cheap, so there’s a risk that if growth doesn’t continue, the price could fall.

Otherwise, the business suffered during last year’s lockdowns, so there’s a risk that rising Covid cases could impact the business again.

But on balance, I think the shares are a buy for my portfolio.

The next opportunity

I’m also looking at the shares of ActiveOps. The company listed through an initial public offering (IPO) earlier this year, and the price is currently 186p. However, the shares have been quite volatile since listing.

The company offers two software platforms for businesses to improve their back-office operations. The first is ControliQ which is aimed at simplifying operations and increasing productivity. Next is WorkiQ, a platform that focuses on workforce analytics when employees are working in the office, or remotely.

The company released a trading update in October saying that the first six months of the year had been strong. Revenue grew an impressive 22%, but operating profit growth was even better than the board expected. Expansion continued across all target regions and sectors too.

ActiveOps may be considered risky as the company is still loss-making. It’s still investing in its staff, and on developing its technology platforms. Because of this, it’s not possible to value the shares with a P/E ratio. I think this has made the share price be quite volatile since listing. In fact, the shares fell almost 30% at one point since the IPO.

But I like the potential economics of this business model resulting from its software platforms. The shares are a buy for my portfolio.

The post 2 top shares I’d buy for under £5 appeared first on The Motley Fool UK.

David Barnes: Begbies Traynor

If you fear a second stock market crash or think the economy will struggle in the short term, I think a good hedge would be to invest in Begbies Traynor (LSE: BEG).

The insolvency and restructuring work specialist should see business demand surge as government support for companies is removed. The company is also a financial advisory and property services consultancy.

The firm has growing revenue and earnings per share, and uses acquisitions alongside organic growth to boost their financial strength.

Begbies Traynor trades at a fair price-to-earnings ratio of 16 and has a progressive 3% dividend that looks to be safely covered.

David Barnes has no position in Begbies Traynor.

Toby Aston: Anglo Pacific

Anglo Pacific Group (LSE:APF) is a global natural resources royalty and streaming company with a fantastic margins (52% profit last year). Its shares are down around 50% since last December, meaning the share price is a just 7 times earnings and at just 93% of book value. Management own around 7% of the shares which is encouraging.

It also pays a solid dividend yielding nearly 7%, which has doubled since 2016. This is all protected by a healthy dividend cover.  At 116p the shares are trading at low end of the 52 week range, despite analysts price target averaging 196p.

Toby Aston has no position in Anglo Pacific Group.

Royston Wild: Sylvania Platinum

Gold’s surge to record highs above $2,000 per ounce has dominated commodities-related chatter recently. But the yellow metal’s ascent due to rising safe-haven interest has dragged platinum group metals (or PGM) prices to significant highs as well.

Platinum has just struck multi-month peaks around $1,000 per ounce. And this has swept micro-cap stock Sylvania Platinum (LSE: SLP)’s share price to its highest since February. 

I’d buy the miner’s shares with the view that continued macroeconomic fears could drive their value even higher in the weeks and months to come. Sylvania’s low forward price-to-earnings (P/E) ratio of 11 times certainly leaves plenty of scope for additional share price gains.

Royston Wild does not own shares in Sylvania Platinum.

Tom Rodgers: Open Orphan

£96m market cap contract research firm Open Orphan (LSE: ORPH) is the world leader in testing vaccines and antivirals through its unique quarantine unit and on-site virology lab. 

Sales have been boosted by biotechs developing Covid-19 vaccines. But ORPH has large, long-term cash flow prospects far beyond coronavirus. 

A £4m contract with an unnamed global giant for a human challenge study into RSV is just the latest win. 2019 revenue was only £3.84m but that is expected to jump tenfold to £35m by 2021. 

Analysts think shares will more than double from today’s 14p price. 

I’m buying big. 

Tom Rodgers owns shares in Open Orphan.

Kirsteen Mackay: Trans-Siberian Gold 

Russian gold producer Trans-Siberian Gold (LSE:TSG) is a micro-cap stock that has caught my eye. With the price of gold ascending at an astounding rate, gold miners are reaping the benefits.  

Since the March market crash, the Trans-Siberian Gold share price has risen 165%. The £113m company has a price-to-earnings ratio of 14 and dividend yield close to 3%. It has maintained operations throughout the pandemic and delivered a positive set of results at the end of July. Its second quarter produced 46.9% higher average gold grades than its previous quarter. With the gold price continuing its ascent, I think the TSG share price will follow suit.  

Kirsteen does not own shares in Trans-Siberian Gold.

Matthew Dumigan: Jubilee Metals Group

Industry-leading metal recovery business Jubilee Metals Group (LSE: JLP) boasts an expanding multi-project portfolio with aims to increase both its geographical and commodity exposure. Operating in a rapidly expanding market, I think Jubilee is perfectly positioned to capitalise on increased demand for a reduction in the global footprint of mine tailings. 

Having become profitable for the first time this year, I’m impressed by the group’s recent financial performance. Moreover, as Jubilee continues to remain largely unnoticed by institutional investors (market cap: £115m), I think there’s a lucrative opportunity here for those willing to hold for the long term.

Matthew Dumigan has no position in Jubilee Metals Group.

Edward Sheldon: Keystone Law

My top micro-cap stock for August is Keystone Law (LSE: KEYS). It’s an innovative UK law firm that is disrupting the market by enabling lawyers to work from home or their own offices.

Keystone Law has grown at a rapid pace in recent years and I think it looks well-placed for growth in a post-Covid-19 world. I say this because its model is designed to service clients remotely.

KEYS isn’t the cheapest stock around. At the time of writing, its forward-looking P/E ratio using next year’s EPS forecast is about 36. However, I think this company deserves a premium valuation as it has a lot of potential for growth. 

Edward Sheldon owns shares in Keystone Law.

Rupert Hargreaves: Inspecs

Manufacturer of eyewear frames Inspecs (LSE: SPEC) is a unique business. The company is one of the few listed eyewear companies in the world, which gives it a defensive nature.

Indeed, the eyewear market is projected to expand at a compound annual rate of 8% for the next few years.  

Based on this growth, analysts reckon the company’s sales will double by 2021. This will leave the stock dealing at a forward P/E of 17.8.

The company’s double-digit profit margins and strong balance sheet also make it a prime dividend candidate.

Rupert Hargreaves does not own shares in Inspecs.

Rachael FitzGerald-Finch: Concurrent Technologies 

Shares in computer product manufacturer Concurrent Technologies (LSE: CNC) are growing nicely, like the company’s underlying financial fundamentals and investment metrics.

In fact, the share price is hovering around its 52-week high price point but is still trading on a price-to-earnings ratio of 22, below the industry average of 30. Given the competitive advantages of the firm, in the form of a growing an innovative product range, I am expecting further stock price growth.

I think Concurrent Technologies is a desirable micro-cap growth stock to hold as part of a balanced portfolio.

Rachael FitzGerald-Finch does not hold shares in Concurrent Technologies.

Anna Sokolidou: Ariana Resources

Ariana Resources (LSE:AAU), a small cap miner, explores silver and gold in Turkey.

Its shares have recently plunged a bit just like the two precious metals. In spite of the several months’ gold rally, the investors seem to be in a risk-on mode right now. However, I don’t really believe it will last for a long time. There are plenty of macroeconomic and geopolitical risks. So, in my view, gold and silver will rise in value pretty soon.

Although I consider small caps to be rather risky, their shares tend to surge more than their larger competitors’.   

Anna Sokolidou has no position in Ariana Resources.

Jonathan Smith: Mattioli Woods

Mattioli Woods (LSE: MTW) is a UK-based wealth manager. Financial performance through to the year end of May 31st was strong, with net inflows of around £200mn, despite the pandemic hampering the final few months. The firm has also been proactive with responding to the pandemic, taking on cost cutting measures with employee compensation, saving over £2.7mn in the process.

I’m also impressed with the drive and pro-activeness around growth aims. Only this month news broke of the successful acquisition of another wealth manager, Hurley Partners. This should aid long term growth via economies of scale.

Jonathan Smith does not own shares in Mattiolo Woods.

Kevin Godbold: Concurrent Technologies

Specialist designer and manufacturer of high-end, embedded computer boards for critical applications, Concurrent Technologies (LSE: CNC) had a ‘good’ coronavirus crisis. We last heard from the company in June. The directors said the order book is “strong” and the company maintained production through the lockdown.

The firm serves the military, aerospace, communications, industrial, transport and scientific sectors. It’s a good business, which shows in the robust multi-year record of rising cash flow and dividends suggesting the enterprise has defensive qualities. As we emerge from recession, I think the firm looks well placed to thrive. I’m backing the micro-cap stock for August and beyond.

Kevin Godbold owns shares in Concurrent Technologies.

G A Chester: Sylvania Platinum 

Sylvania Platinum (LSE: SLP) has built a record of strong operational performance in recent years. This is founded on its low-cost, low-risk extraction of platinum group metals (PGMs) from chrome tailings in the renowned PGM-rich Bushveld Igneous Complex in South Africa. 

The company’s strong operational performance has been matched by a sensible financial strategy. It’s debt-free. It’s strong cash flows fund capital expansion and process optimisation projects. And also support opportunistic share buybacks and shareholder dividends. 

Adding a single-digit earnings multiple to the strong management and focus on shareholder value makes Sylvania my top stock to buy right now. 

G A Chester has no position in Sylvania Platinum.

Roland Head: Somero Enterprises

I’ve been using this year’s market crash to buy shares in high-quality businesses trading at knockdown share prices. One micro-cap stock I think looks very attractive at the moment is Somero Enterprises (LSE: SOM).

This US business makes high-precision equipment for laying perfectly flat concrete floors, such as those required for ecommerce warehouses. The company went into the COVID-19 crash with a strong order book and reported net cash of $28m at the end of June.

Management say it’s too soon to give guidance on current market conditions. But Somero looks cheap to me on just eight times forecast earnings. I rate the shares as a buy.

Roland Head does not own shares in Somero Enterprises.

Andy Ross: Franchise Brands

Franchise Brands (LSE: FRAN) is a franchisor. Its franchises include consumer-facing ones such as ChipsAway and Ovenclean as well as business to business ones such as Metro Plumb and Willow Pumps.

I like that management are experienced operators. The executive chairman spent 21 years at Domino’s, which operates a franchise model. A number of the board and other senior management personnel also worked at Domino’s so know the industry well.

It’s an entrepreneurial company which has made acquisitions and retains talent within the business.

Franchisors can make good margins because it’s an asset light business model and I think that bodes well now and in the future.

Andy Ross does not own shares in Franchise Brands.

Paul Summers: Somero Enterprises

I think laser-guided equipment specialist Somero Enterprises (LSE: SOM) is a great buy for the long term. It’s the clear leader in a niche market and generates consistently high returns on capital employed.

Recent trading has been inevitably tough. However, Somero remains profitable and cash generative and would likely remain so even if revenues were to fall an additional 20%. It also has $28m in net cash to weather the coronavirus storm.

Those looking for a quick return probably won’t find it here. However, anyone intending to stick around for the next infrastructure boom could be richly rewarded. The shares look cheap at just 8 times forecast FY20 earnings.

Paul Summers owns shares in Somero Enterprises.

The post Top micro-cap stocks for August appeared first on The Motley Fool UK.

Demand for the takeaway titan’s services continues to rip higher, with legions of couch potatoes the world over hitting their digital devices in growing numbers to get a multitude of tasty treats delivered to their doors. Just Eat saw first-half sales soar 44% year-on-year, to £246.6m, a result that prompted it to hike its full-year sales guidance to £500m-£515m from £480m-£495m previously.

And Just Eat is ploughing vast sums into its marketing and technology, as well as engaging in M&A activity across the planet, to keep order clicks moving higher.

Current forecasts suggest that earnings expansion should decelerate from the skin-ripping rate of previous years. But broker estimates are still not to be scoffed at — the Square Mile consensus points to bottom-line growth of 38% and 37% in 2017 and 2018 respectively.

While a forward P/E ratio of 41.2 times may look toppy on paper, I do not believe investors should be deterred by this heavy reading. Indeed, a corresponding PEG readout of 1.1 suggests Just Eat is actually brilliantly priced relative to its predicted growth trajectory.

Brand power

The City is also pretty bullish on the earnings prospects of Franchise Brands (LSE: FRAN) right now.

In 2017 the Kidderminster firm is predicted to report a 13% earnings rise, and to follow this up with a 44% advance next year. And Franchise Brands’ solid earnings outlook was underlined by half-year results put out on Thursday.

The firm — whose franchise operations include Ovenclean professional cleaning services and Chips Away car repairs — announced that revenues detonated 247% during January-June, to £8.64m, a result that powered adjusted profit before tax and exceptional items 38% higher to just over £1m.

Lauding the results, chief executive Stephen Helmsley commented: “Our principal existing brands have delivered strong growth, and in a relatively short space of time we have created a high quality portfolio of businesses with significant critical mass in the franchising sector. 

“We are focused on maximising the earnings potential from all our brands, particularly with the recent acquisition of Metro Rod, where the medium-term upside potential is substantially better than our initial expectations, with the benefit of additional near term investment.” Franchise Brands snapped up drainage specialists Metro Rod back in April for £28.5m.

Despite these solid results, the investment community did not take too kindly to today’s release and sent the share price 10% lower to its cheapest since last November. But I would consider this to be a great buying opportunity.

With the company having invested huge sums into its infrastructure in recent times, I am convinced demand across its premier brands should continue to surge. And while the company’s forward P/E ratio of 23.3 times may look heady on paper, I reckon this should not deter share pickers given its ample growth opportunities.

The post Just Eat plc isn’t the only stock expected to deliver blockbuster growth appeared first on The Motley Fool UK.

However, there’s one small-cap growth stock that I’ve recently discovered that looks as if it could be one of the market’s best growth stocks.

The name of the company in question is Franchise Brands (LSE: FRAN), and over the past 12 months, shares in the group have risen by 112% excluding dividends as the market has started to realise the opportunity here.

Growth potential

Over the past two years, Fran’s growth has stagnated as management has struggled to drive growth organically, but this has now changed thanks to the £20m acquisition of Metro Rod, a leading provider of drain clearance and maintenance services. With Metro now part of the business, City analysts expect the company to report a pre-tax profit of £2.4m for 2017 with earnings per share growing 13% to 2.7p. Revenue for the year is set to leap from £5m to £25m.

And as Fran increases Metro’s offering, further growth is expected in the years ahead. For example, City analysts have pencilled-in earnings per share growth of 44% to 3.9p for 2018 on a pre-tax profit of £3.9m and revenue of £38m.

Robust balance sheet

Explosive earnings growth is complemented by the firm’s strong balance sheet. For the year to 31 December 2016, it generated £1.1m in cash from operations and ended the year with a cash balance of £3m. The Metro acquisition was funded with a £20m share placing as well as a £17m debt facility. In total, Metro cost Fran £28m indicating that after the buy closed, the company would be indebted to the tune of £5m. With pre-tax profits of £6.3m projected for the next two years, this debt appears sustainable.

Clear outlook

So earnings growth is explosive, the company’s balance sheet is strong, and management seems set on creating value for shareholders. But there is one problem, and that’s valuation.

At the time of writing shares in Fran are trading at a forward P/E of 34.6, which looks expensive even considering the earnings growth projected for 2017. Still, if the company can hit City targets for growth this year, next year the valuation will fall to more appropriate levels. 

Based on 2018 earnings estimates the shares are trading at a forward P/E multiple of 23.9 compared to projected earnings per share growth of 44%. On this basis, the shares trade at a PEG ratio of 0.5. A PEG ratio of 0.5 indicates that the stock in question offers growth at a reasonable price.

The bottom line 

Overall, this firm seems to have it all, and if the company can grow earnings as expected over the next two years, the shares still look cheap at current levels.

The post This rapidly growing growth stock looks too cheap to pass up appeared first on The Motley Fool UK.