december 2015 aim prospector

AIMprospector

Five AIM firms featured

Swim against the tideIs this AIM’s top contrarian stock?

Issue 15 December 2015

recruiter trading near a year low

top software provider

successful retailing rollout

dividend-paying marketer

Supported by

AIMprospector

2 www.aimprospector.co.uk

Welcome to AIMprospector, the online magazine from Blackthorn Focus, dedicated to AIM companies and their investors. This month’s AIM Prospector could not have happened without the support of City PR firm KTZ Communications.

KTZ Communications joins Walbrook PR in the list of industry sponsors of this

publication. For AIM Prospector to remain free to readers, more industry support is

essential.

AIM Prospector articles are conceived a long way ahead of publication and

naturally that affects the publication’s ability to respond to news and share price

changes. There are a collection of companies where recent price moves have made

the shares particularly interesting.

First is Juridica, the lawsuit investment company. Following some disappointing

recent outcomes, Juridica announced on November 18th that it would not be

making any further new investments and would set about returning cash to

shareholders as cases concluded. A 5 pence per share dividend was promised, to

be paid at the end of December. At the time of writing, the shares trade at around

45p. This is a strange situation where it appears, most simply, that management

have lost heart for the fight. Plenty of investors have headed for the exit, leaving

an interesting situation for anyone that has the confidence to place a value on the

shares and the patience to wait for cash to be returned.

Shares in Jarvis Securities have also been in decline recently. That’s surprising,

given the outlook for the business. First, its stockbroking division should be a

significant beneficiary of higher interest rates as the returns being made on

customer deposits increases. Second, there remains the government sales of Lloyds

and RBS still to come. This should be a bonanza for online stockbrokers such as

Jarvis. Admittedly, there is not a lot of liquidity in the shares but one would expect

that recent selling would make it easier for those on the buy side of the trade.

In September, recruitment software firm Dillistone warned of increased

competition in its markets and that product

investment would result in 2015 pre-tax profits being

behind the prior year. Nevertheless, a 4% dividend

increase was announced and management reaffirmed

their commitment to a progressive payout policy. At

the time of writing, the shares trade at 11.7 times

2014 earnings, with the prospect of a 5.3% dividend.

“Enjoy this AIM Prospector and good luck with your AIM endeavours.” David O’Hara, Editor, AIMprospector

ContentsWelcome .......................p2

Matchtech Group ..........p3

Top Pick: Northbridge Industrial Services .........p4

BrainJuicer ....................p6

Crawshaw ......................p7

First Derivatives ............p8

Contacttwitter: @aimprospectoremail: [email protected]

Published by:Blackthorn Focus Limitedwww.blackthornfocus.com

AIMprospector

Five AIM firms featured

Swim against the tideIs this AIM’s top contrarian stock?

Issue 15 December 2015

recruiter trading near a year low

top software provider

successful retailing rollout

dividend-paying marketer

Supported by

www.aimprospector.co.uk

mailto:[email protected]


www.blackthornfocus.com

AIMprospector

www.aimprospector.co.uk 3

stronger pricing. Networkers’ existing

international presence was also a

considerable attraction, assisting

Matchtech’s overseas ambitions.

Better still, Matchtech expects to

be able to remove £1.3m of duplicated

costs including management, property

and costs associated with maintaining

two stock market listings. Matchtech

expects to have extracted full

synergies by the end of the 2017 year

(July). Accompanying the acquisition

notice, Matchtech announced the

retirement of Chief Executive Adrian

Gunn, replaced by Executive Chairman

Brian Wilkinson.

The last balance sheet was skewed

by the Networkers International

acquisition, which resulted in a

£30m increase in debts to £33.6m.

This is little over twice the adjusted

EBITDA for the year, with most of

those adjustments relating to the

acquisition. The enlarged company

reported net cash inflow of £20.8m

for the year ending July 2015. Given

that the Networkers acquisition only

completed in April 2015, the expected

financial performance of the new

group suggests that the debt should

Recruitment consultants operate in a

competitive and cyclical marketplace.

Reliance on business confidence and

economic growth leads to most recruiters

living a feast or famine existence.

Matchtech’s niche appears to have

made the company less vulnerable

than its peers. That makes some sense,

as the tech demands of companies of

all sizes continues to grow.

Of all the recruitment companies

that have come and gone on AIM,

Matchtech is the one that I have

most confidence in. As ever, this is

evinced by dividend payments to

shareholders. After reporting a 14%

dividend hike for 2008, the payout was

maintained through the financial crisis

and recession. Matchtech traded each

year of this period profitably and the

dividend was covered throughout. The

payout at Matchtech has now been

increased every year since 2012.

In April 2015, Matchtech acquired

AIM-quoted telecoms and technology

recruiter Networkers International. This

deal enhanced Matchtech’s offering in

the telecoms space and also enhanced

group margins, thanks to Networkers’

Matchtech is a “specialist Engineering, IT and Telecoms recruitment agency”. The company has been quoted on AIM since October 2006.

Matchtech Group (LON:MTEC)

FOR

Modest valuation

Solid track record

AGAINST

Vulnerable sector

Acquisition needs integrating

Market cap £150m

Bid:offer 485p:500p

P/E (forecast) 10.2

Yield (forecast) 4.7%

52week low:high 484p:588p

Is it time to sign up shares in this recruiter?

not hold back the company’s growth,

dividend or valuation.

Since the year ended, Matchtech

has confirmed progress within its

infrastructure division and a stronger

position in the renewables sector.

Shares in Matchtech traded near

a two year low for the year before

the recent results announcement.

According to Stockopedia, a 30%

increase in earnings per share is forecast

for the full year ending July 2016,

assisted by a full year contribution from

Networkers International.

Matchtech’s quality has previously

carried the company through economic

disaster. While recently reported growth

from the business has been modest, the

P/E discount to both the market and

sector peers seems mean.

tech demands of companies of all

sizes continues to grow

payout was maintained through

the financial crisis and recession

net cash inflow of £20.8m

for the year


AIMprospector TOPpick


Is this former AIM star a recovery play?Northbridge is an equipment hire business. Customers include large energy users and the oil and gas sector. The first half loss and an indebted balance sheet recently pushed the stock to an all-time low.Shares in Northbridge trade at around

20% of their price just over a year

ago. Value has evaporated as earnings

have collapsed and management

have been forced to warn that the

company is in danger of breaching the

agreements that it has with its bank,

the ‘covenants’, that are essential to the

bank’s ongoing support.

It will take more than just a recovery

in oil and gas prices for Northbridge

shares to trade for over five pounds

again. Any recovery in energy markets

would have to feed through to

confidence among producers, sufficient

to push them into spending money

with Northbridge again. With investors

hurt so badly by the share price fall over

the last 12 months, any improvement

would have to be sustained for investor

confidence to return.

The likely covenant breach is

frightening. However, management

have given assurances that they expect

to successfully renegotiate covenants

and that the group is still delivering

positive cashflows.

The challenge for investors is to

weigh the probabilities. The answers

are probably best derived from current

trading, historical trading and the

balance sheet.

Northbridge Industrial Services

came to AIM in 2006 with the

shares priced at around 100p.

The announcement issued on

the first day of dealings summed

up directors’ ambitions for the

business. Management declared that

Northbridge “was incorporated for the purpose of acquiring companies that hire and sell specialist industrial equipment such as generators, load banks... Northbridge will seek to acquire specialist niche businesses that have the potential for expansion into complete outsourcing providers; capable of supplying a non-cyclical customer base

including utility companies, the public sector and the oil and gas industries.”

Northbridge immediately

announced the acquisition of

Crestchic, a manufacturer of electrical

load bank equipment. A load bank is

a special piece of electrical apparatus

that is used to test a generator or

backup power system. Another ten

acquisitions followed. The most

significant of these were the two

‘Tasman’ businesses. The first, Tasman

Oil Tools Pty, was acquired for a total

of A$16.9m in June 2010. Based in

Perth, Australia, Tasman Oil Tools

was described as a specialist “in the rental of equipment for the onshore

Northbridge’s equipment is used in heavy industry, frequently the oil and gas sector


AIMprospector TOPpick


hard. Tasman’s tool rental business

does not resemble a business that is

supplying ‘a non-cyclical customer

base’. Businesses have been sold for

a loss and the balance sheet is now

perilously stretched.

In the year before the acquisition

of Tasman, Northbridge made 19p

of EPS and a net profit of £1.6m. For

2014, Northbridge made a net profit

of £5.1m and EPS of 31p.

The last balance sheet showed

current assets plus property, plant and

equipment totalling £56.3m.

Directors appear confident that

Northbridge will ride out the cyclical

downturn. If Northbridge can get back

to delivering the kind of profitability it

enjoyed before the oil price collapse, I

would expect a share price of around

three pounds at a minimum.

Recovery in the oil and gas sector

feels a long way off but that is usually

the case with the best contrarian

investments.

Note that the earnings and

dividend forecasts may not yet reflect

the latest trading news.

and off-shore industry throughout Australia.” Northbridge followed this

up in September 2014 with the £13m

acquisition of the Tasman business in

New Zealand.

Before the oil price decline,

Northbridge’s strategy worked to

perfection. Between 2006 and 2014,

the dividend to shareholders increased

year-on-year, at an average rate of

15.2% per annum. The shares peaked

in September 2014 at a price of 600p.

The first sign that earnings were

at risk came with a trading statement

issued by the company in January

this year. Here, Northbridge warned

that although a sustained lower oil

price would likely harm trading, 2014

results were still anticipated in-line.

In following days, Northbridge spent

around £160k buying back shares in

the company at a price of just under

four pounds.

A fortnight later, Northbridge

warned that rental visibility in the oil

sector, via the Tasman business, was

‘noticeably lower’. Load bank business

Crestchic was performing better,

thanks to a customer base more

Load banks operate as the circuit load in a

generator test

focused on shipbuilding in SE Asia.

Nevertheless, management lowered

2015 profit expectations.

The April announcement of results

for the year ending in December saw

Northbridge warn again that revenue

visibility was down, particularly

within the Tasman business. However,

management continued to show

confidence, pushing through a 2.5%

dividend increase.

By the end of May, the situation

had worsened further, with Crestchic

operations in Singapore and Dubai

highlighted as having been severely

affected by the downturn. A sale of all

operations other than Crestchic and

Tasman was announced. Shareholders

were warned to expect a loss for

the first half of the year but that

Northbridge was expected to report a

profit for the full year.

A flurry of director purchases

followed in June this year, priced

between 216p and 180p.

September’s results announcement

for the first six months of the year

showed a pre-tax loss of £2m. The

interim dividend was cut from 2.2p

to 1.0p. Liabilities, minus cash and

receivables, amounted to £18.1m – a

significant increase from twelve months

previous, when that figure was £11.3m.

With the shares at an all-time

low, directors purchased more shares

in the company in the first week of

November. This announcement led to

a large share price rise.

After many years of success,

Northbridge management have fallen

Northbridge Industrial Services (LON:NBI)

FOR

Cyclical low

Longstanding market position

AGAINST

Balance sheet worries

Lack of earnings visibility

Market cap £16m

Bid:offer 86p:90p

P/E (forecast) 7.8



likely covenant breach is

frightening

any improvement would have to

be sustained

ten acquisitions followed


AIMprospector


the most frequently used decision

making process – the intuitive method

(a gut reaction) rather than the

more laborious calculating method

(considered judgement). BrainJuicer’s

analysis then delivers a numerical

appraisal of the concept/product.

Another product that BrainJuicer

sells to clients is ComMotion. Here,

BrainJuicer measures the emotional

response to an advertisement,

rather than attempt to measure its

effectiveness at persuasion or brand

linkage. This is achieved through what

it calls a ‘face trace’ technique, where

the reaction of the observer is studied

to evaluate the emotions provoked by

the campaign.

Despite the track record of success,

BrainJuicer shares trade close to their

lowest price since the beginning of

2014. Interim results, announced in

September, showed a 4% decline in

revenues and a 25% drop in earnings

per share. Management is currently

pursuing a shift “from a predominantly

BrainJuicer: facing up to new technologyBrainJuicer is a technical market research agency that joined AIM in December 2006. The company is a notable success. BrainJuicer is one of just 62 AIM shares

that have been increasing shareholder

dividends for the last five years. After

paying a total of 1.5p per share for

2008, BrainJuicer went on to increase

its dividend every following year, paying

shareholders 4.3p for 2014. Even better,

BrainJuicer has paid a collection of large

special dividends. A special dividend of

1.7p was paid in October 2008. This

was eclipsed by a 12p special dividend

in October 2013, followed by another

12p special dividend in May 2014.

In the last five years at BrainJuicer,

revenues have increased from £11.8m

to £24.6m. In that time, net profit

has grown from £1.2m to £2.9m.

Better still, this growth has been

delivered organically, and the company

has enjoyed a net cash position

throughout this time.

So what does BrainJuicer do?The company’s quirky animated

website describes its business as

“accelerating profitable brand growth”.

One example of BrainJuicer’s work

is described by the company as

Predictive Markets. This is a concept

testing methodology that taps into

BrainJuicer Group (LON:BJU)

FOR

Strong balance sheet

New products started well

AGAINST

New products unproven

Strong growth absent

Market cap £45m

Bid:offer 351p:360p

P/E (forecast) 15.0



observer is studied to evaluate

the emotions provoked

possibility of enhanced margins

enjoyed a net cash position

throughout

qualitative brand strategy service

to a more scalable and predictive

quantitative service.”

Encouragingly, BrainJuicer H1

results showed 7% revenue growth

from the core quantitative services.

While the quantitative services are

typically lower priced, they are also

more scalable, giving the possibility of

enhanced margins.

BrainJuicer is actively seeking out

acquisition opportunities and has

relocated its London office to a much

larger site. The current share price

rating demonstrates the market’s

confidence in BrainJuicer’s ability to

get back to earnings growth. While the

decline in qualitative work is affecting

profits, there are clear signs that the

predictive offering has momentum.


to have moved meat purchasing to

the supermarket twenty years ago.

The only other listed meat chain that

I recall was Dewhurst, which entered

administration in 2006.

It also appears from the balance

sheet that further fundraisings will be

required if management is to succeed

in expanding the chain to 200 stores.

Much of the forecast growth for

2016 will come from a full year’s

contribution from Gabbotts.

I’m reluctant to go against what

is already a successful format, led by

experienced retailers. Crawshaw is

proud of the fact that every one of

its stores trades profitably but the

valuation is extremely demanding and

could respond nastily to any setback.

Crawshaw is a meat retail business, retailing in Yorkshire, Derbyshire, Lincolnshire, Humberside and around Greater Manchester/Merseyside. Shares in Crawshaw Group have been traded on AIM since 2008 and today the company runs 39 shops. Management ambition is to reach 200 stores.

In the last five years, turnover

has increased 25% as Crawshaw

has successfully increased its store

portfolio. Net profit raced ahead in that

period, from £0.2m for 2010, to £0.9m

for the year ending January 2015.

Crawshaw began paying a dividend

of 0.2p for 2013, increasing each year

to reach 0.57p for 2015.

In July 2014, Crawshaw successfully

completed an £8.8m placing at 42p, an

approximate 25% discount to the share

price at the time. Around £4m of this was

used to purchase Gabbotts Farm, an 11

store butcher chain and meat mart in

the North West. Gabbotts was purchased

on a cash-free, debt-free basis and was

AIMprospector


forecast to become immediately earnings

enhancing for Crawshaw.

At the end of July 2015, the

Crawshaw balance sheet showed cash

of £6m, receivables of £1m and total

liabilities of £6m.

Two new stores were opened in

the first half of the financial year

(Crawshaw has a January year end).

Bolton and Worskop were added

and both reported trading ahead of

expectations. Management announced

that these new stores were trading

ahead of ‘base case’ profitability

assumptions for the group.

Like any roll out, profits are depressed

as new sites are opened. Crawshaw

addressed this effect with their last

results. The legacy business delivered a

14% increase in adjusted EBITDA and

adjusted earnings per share was 27%

ahead. Gross profit increased by 44%,

assisted by the acquisition of Gabbotts.

Impressively, management reported that

sales in the first seven weeks of H2 2016

showed a 6.7% like-for-like increase on

the same period last year.

Despite these positives, it is a

struggle to look at the shares and

regard them as anything other than

overpriced. My first area of concern is

the business itself. Other than niche

premium firms, the consumer seems

Butcher chain fattens up with successful roll out

cash of £6m, receivables of £1m

and total liabilities of £6m

6.7% like-for-like increase on the

same period last year

Crawshaw Group (LON:CRAW)

FOR

Proven format

Distinct offering

AGAINST

High valuation

Competitive environment

Market cap £73m

Bid:offer 91p:94p

P/E (forecast) 221.3



every one of its stores trades

profitably


AIMprospector


First Derivatives (LON:FDP)

FOR

Growing markets

Longstanding success

AGAINST

High valuation

Shares tightly held

Market cap £370m

Bid:offer 1,550p:1,575p

P/E (forecast) 35.2



For all of its scale and success, First Derivatives is perhaps the most under-acknowledged of all AIM companies.

Fintech winner keeps programming the profits

First Derivatives is a remarkable AIM

company. Headquartered in Newry,

it is one of just three Northern Irish

companies on the stock market.

That’s not where you might first look

for a successful provider of financial

software. Founder and Chief Executive

Brian Conlon owns 33.4% of the total

equity. Do not be frightened by Mr

Conlon’s control. Shareholders have

been well-rewarded by his leadership.

The dividend payout has been increased

every year since 2004, rising from 1.1p

for 2004 to 13.5p for 2015.

First Derivatives’ success is

primarily derived from financial

institutions’ increased desire to apply

computational procedures to their

business activities. This can range

from large scale data warehousing, to

algorithmic trading and trade analysis.

Of any AIM-quoted company, First

Derivatives is most worthy of the ‘Big

Data’ crown. First Derivatives has been

delivering without pumping out the

‘Big Data’ hype that less substantial

companies have engaged in.

First Derivatives reports its revenue

from two channels: consulting and

software. In the consulting side of the

revenue from two channels:

consulting and software

business, First Derivatives provides

technology expertise to financial

institutions on a contract basis. Due to

the lower barriers to entry, consulting

is more competitive and vulnerable to

any downturn. In the software side of

the business, First Derivatives develops

its own systems and products. In the

six months ending 31 August, First

Derivatives’ consulting revenues were

double those earned from software.

In recent months, First Derivatives

has moved into the digital marketing

industry, where its technology is used to

analyse large data volumes in real time.

A number of leading companies are

already signed up as pilot customers.

Most of First Derivatives’ software

revenues come from its ‘Delta’ stable

of products. Delta AlgoLab and Delta

Surveillance are two examples.

AlgoLab is used to test trading

algorithms, while Surveillance is used

by regulators to identify suspicious

trading patterns.

First Derivatives’ growth, assisted in

part by a series of modest acquisitions,

has seen revenues in the last five

years increase from £25.5m in 2010

to £83.2m for 2015. Further strong

growth is forecast this year and next.

The most recent interim results,

released in November, showed a 44%

increase in revenues, with adjusted

EPS rising by the same amount. The

dividend was increased by 52%.

First Derivatives looks well set

to grow at the rate expected for the

year ending February 2016. Although

the valuation currently reflects

much of the company’s success and

forecast growth, First Derivatives is

an established winner, occupying a

leading position in markets benefitting

from strong long-term growth drivers

such as regulation and automation.

technology is used to analyse

large data volumes in real time

dividend was increased by 52%


AIMprospector


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