AIMprospector

write-ups on five AIM-quoted companies

Worries and woesThe share that would stop me sleeping

Issue 7 September 2014

thriving retailer

successful niche defence supplier

low-profile, growing smallcap

free to private investors

cut-price income stock

AIMprospector

2 www.aimprospector.co.uk

Welcome to AIMprospector, the online magazine from Blackthorn Focus.If you are reading this on issuu.com then you are late. AIM Prospector is sent as a pdf to registered subscribers at least 24 hours before it goes public. If you have not already

signed up, you may do so at www.aimprospector.co.uk. Again, this month’s magazine features a recent IPO, retailer Bonmarché. The

company first came to AIM in November 2013. Since then, the company has

been one of AIM’s more successful introductions, with the shares today standing

nearly 25% ahead of their IPO price. Bonmarché is capitalising on several strong

retail trends, as demonstrated in recent results.

I am also very pleased to include a write-up on Rotala plc, the AIM-quoted

bus and coach operator. The company looks to be the kind of firm that typifies

AIM: a young, successful, niche operator that is inexpensively priced perhaps

because many fund managers consider it too small. Covering companies such as

Rotala is the raison d’être of AIM Prospector.

There is no Top Pick this month. Instead, I am featuring some research

undertaken on AIM-quoted CFD provider Plus500. Although the shares have

performed brilliantly since coming to the market in July last year, I just cannot

feel confident about the company.

Note that neither David O’Hara, or Blackthorn Focus is financially exposed to

the share price of any company featured in this edition of AIM Prospector. Such a

position would always be declared.

This month we welcome back sponsors Spreadex. The company is a provider

of financial spreadbetting services and is particularly proud of its offering across

a broad range of AIM shares. I have personally been a user of Spreadex for nearly

ten years and have made good use of their AIM service.

AIM Prospector welcomes back Mr Adam Hart. This month is the final

instalment of Adam’s ‘checklist for AIM companies’ in the Executive Insight

feature. Next month we expect to bring you the perspective of a highly regarded

UK smallcap fund manager. If you feel similarly qualified

to write such an article, please get in touch as AIM

Prospector continues to bring expert perspectives to

AIM executives.

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

Contents

Stockopedia ..................p3

Rotala ...........................p4

Plus500 .........................p5

Spreadex ...........................p7

Bonmarché ...................p8

Executive Insight ..........p9

Belvoir ........................p10

Cohort ........................p11

next month .................p12

Contacttwitter: @aimprospector

email: editor@aimprospector.co.uk

www.aimprospector.co.uk

Published by:Blackthorn Focus Limited

www.blackthornfocus.com

AIMprospector

write-ups on five AIM-quoted companies

Worries and woesThe share that would stop me sleeping

Issue 7 September 2014

thriving retailer

successful niche defence supplier

low-profile, growing smallcap

free to private investors

cut-price income stock

Supported by

AIMprospector

www.aimprospector.co.uk 3

Stockopedia is an online stock filtering and research community. I have been a customer of Stockopedia’s for several years and am happy to be able to tell AIM Prospector readers how I use the system to discover investment opportunities.

Last month I showed how Stockopedia screens can quickly deliver AIM investment ideas. My first screen simply returned a list of companies trading near a 12-month low. The second, gave a list of companies that have been rapidly increasing shareholder dividends.

Stockopedia does more than just AIM stocks. It is mid and large-cap shares where the system really comes into

its own. Here, there is considerable broker coverage, giving a richer source of recommendations and forecasts.

Blackthorn Focus, publishers of AIM Prospector, are happy to subscribe to Stockopedia and recommend the system to others. Here are two new screens I have prepared, examining UK large- cap shares.

The first is a screen for contrarian investors. This uses Stockopedia data to identify the FTSE 100 stocks that the broker community is least positive on. In the table below are five that I have selected. A higher consensus number indicates a less popular stock.

What is notable is how diverse this list is, containing shares drawn from across different sectors. David O’Hara, Editor of AIM Prospector, owns shares in Royal Bank of Scotland. Despite RBS’ unpopularity with analysts, they have been upgrading their earnings forecasts for the bank in recent months. Stockopedia shows that the consensus forecast for 2014 EPS has increased from 19.7p in April to almost 30p today.

Metals producer (primarily copper) Antofagasta will always be a geared play on global industry. The company’s share price frequently records large rises and falls in response to economic news from China. At this price, the shares are trading near a three year low. It is often best to take a view on the underlying commodity before investing in this sector.

Some large-cap companies currently out-of-favour with analysts

CompanyPrice (p)

Consensus Recommendation P/E

Yield (%)

WM Morrison Supermarkets (MRW)

184 3.4 12.3 7.1

Royal Bank of Scotland (RBS) 366 3.4 12.4 0.0

Smiths (SMIN) 1,319 3.4 15.7 3.0

Antofagasta (ANTO) 808 3.2 18.9 7.1

SSE (SSE) 1,506 3.2 15.1 5.8

My second screen, is more positive, looking for companies that have seen earnings forecasts increased significantly in the last three months. The intention here is to discover stocks that might be enjoying a tailwind: frequently brokers are too slow to cut forecasts and too slow to raise them.

Possibly of most interest here is fund manager MAN Group. The company was written off only recently as funds under management were in decline and its flagship fund underperformed. However, if things are picking up then this could be a good opportunity to get on board. Before things started to go wrong at MAN the company was making around twice the profit being forecast for 2014. There is also an attractive dividend on offer while you wait for the recovery (if it comes — reader’s voice).

Go-Ahead Group is a bus and train operator. The company owns a number of rail and bus franchises, such as Southeastern Trains, London Midland and Oxford Bus Company. Dividends at the company have been stuck at 81p since 2008. However, now that forecasts have reached 147p for the year, the possibility of dividend increases has returned.

It is a surprise to see Royal Dutch Shell pass this screen. In the absence of shocks, earnings forecasts at titan stocks are normally very steady. Unfortunately, the fast pick-up in profit expectations has been matched by a strong share price rise. While a large dividend yield remains, the bargain opportunity may have passed.

Unless you are planning on running a diverse, mechanical portfolio, a tool such as Stockopedia should never be the sole source of investment decisions. For investors that base their decisions on company fundamentals, it is an invaluable source of facts and investment ideas.

A selection of large-cap shares that have seen earnings upgraded in last three months.

Company Price (p)%3m EPS Upgrade Yield % P/E

Royal Bank of Scotland (RBS) 366 12.0 0.0 12.4

Berkeley (BKG) 2460 10.7 7.3 13

Go-Ahead (GOG) 2270 6.2 3.6 17.2

Man (EMG) 122 6.1 4.6 24

Royal Dutch Shell (RDSB) 2537 4.9 4.4 14.4

AIMprospectorThe annual subscription to Stockopedia is dwarfed by the gains I have made from shares that it has helped me to find and research. If you think that this comprehensive data product could help you, click here for more information.

by David O’Hara, Editor, AIM Prospector

advertisement feature

AIMprospector

4 www.aimprospector.co.uk

Debt has ranged between £17.9m

and £22.5m in the last five years.

Fixed assets have naturally risen

with the acquisitions, resulting in the

company’s book value increasing from

£11.5m in 2008 to £24.2m at the end

of 2013.

Rotala’s P&L has similarly done

well. Shareholders have enjoyed

significant advances in profitability

and dividends. Five years ago, Rotala

made a net profit of £1.2m on £35.7m

of sales. By 2013, net profit reached

£1.9m on sales of £53.3m.

The company declared its maiden

dividend in 2010, paying 0.9p per

share. This has been increased every

year since, hitting 1.6p for 2013.

Recent half-year results showed

impressive increases in profits,

shareholder dividends and assets. The

company has taken advantage of the

strong pound to hedge all fuel costs

for 2014 and 2015. There were some

negatives in the results however, with

the Chairman, John Gunn, expressing

concerns over pressures on local

authority budgets and their ability to

subsidise bus contracts.

Management made the promise

with interims that as free cash flows

Flights Hallmark was Rotala’s first

acquisition back in 2005. Flights runs

a fleet of high-spec coach vehicles

(see: vipcoach.co.uk). Airport air crew

and passenger transportation is a key

market for Flights, satisfied from its

Heathrow depot.

Rotala purchased Go West Midlands

in 2008, renaming the brand Diamond.

The company runs public transport bus

services in Lichfield, Worcestershire

and the West Midlands.

The Wessex brand is the second

largest provider of public transport

services in Bristol, Bath and South

Gloucestershire. Preston Bus was

acquired in 2011 and runs public

transport services in the city.

The company’s balance sheet

survived the acquisition trail well.

Rotala owns a group of bus companies, operating in various locations across the UK. The company was formed in 2005 and took an AIM quote the same year. Since then, Rotala has made several acquisitions and now comprises four companies: Flights Hallmark, Diamond, Wessex and Preston Bus.

Rotala (LON:ROL)

FOR

Predictable, diverse income stream

Successful

AGAINST

Vulnerable to policy change

Shares thinly traded

Market cap £20m

Bid:offer 57p:59p

P/E (forecast) 10.7

Yield (forecast) 3.1

52week low:high 46p:60p

Rotala: a little-known gem

balance sheet survived the

acquisition trail well

and underlying earnings improve, the

company will move progressively to a

level of payout such that dividends are

covered by earnings 2.5 times.

Hire purchase interest costs are

expected to fall to £3.4m for the year,

versus £4.5m in 2013. Management

confirmed with the interims that

acquisitions and a share buyback are

being actively considered.

With a modest market

capitalisation, Rotala could be just

the opportunity that private investors

frequently search for on AIM: a

successful, dividend paying company

that is off the radar screens of most

fund managers.

According to Stockopedia data,

Rotala is set for 12% EPS growth for

the full year, in-line with the number

achieved at the half-year stage. A

similar rate of increase is expected in

the dividend. More growth is forecast

for 2015.

book value increasing from

£11.5m in 2008 to £24.2m at the

end of 2013

acquisitions and a share buyback

are being actively considered

AIMprospector TOPpick

www.aimprospector.co.uk 5

Plus500: a stock with plenty of attention Plus500 is an Israel-based provider of financial Contract for Differences (CFDs). The company is regulated in the UK by the Financial Conduct Authority. Its service is then ‘passported’ throughout the EU, meaning that it can legally take customers from any EU nation.Plus500 first came came to the market

in July 2013 at around 115p. The

shares have recently changed hands

for more than 650p.

Shares in the company have

attracted considerable interest from

the UK’s private investor community.

Plus500 has become one of AIM’s fever

stocks, producing some large share

price moves as bulls and bears of the

stock thrash it out on bulletin boards.

When I first heard of Plus500, I will

admit that I didn’t get it. First, I am an

avid reader of the financial press and

bulletin boards but had never heard

them discussed as a service provider.

Second, the market that they entered

was already populated by dozens of

providers, including one 800-pound

gorilla, IG Markets. It seemed very

hopeful to expect a new entrant to

succeed in such a well-established

industry.

The bull case for Plus500 comes

from claims around its innovative

customer recruitment model and

low cost base. Financial statements

reported by the company have

shown industry outperformance in

both revenue growth and customer

acquisition. Plus500 runs an affiliate

programme whereby ordinary people

can get paid significant amounts to

recruit new customers.

The company makes much of

the strength of its mobile offering.

The android app has over 1 million

installs and enjoys an average rating

of 4.3 in Google Play. The app has

over 16,000 reviews and more

than 50,000 recommendations on

Google+. That’s a long way ahead of

IG, whose android app has an average

score of 4.0, less than half a million

installs, 1,213 reviews and just 2,637

recommends on Google+. It was

surprising that Plus500 received so

much more attention on Google Play

than its much larger, established and

recognised competitor.

AIM Prospector research of

some websites discussing Plus500

has brought further confusion. AIM

Prospector examined the website

www.plus500findings.com. The site

claims to be ‘informative’ and contains

a ‘Plus500 CFD Broker Review’. The

author writes about the services

offered by Plus500 and how the

business is regulated. The site itself

contains a number of advertisements

for Plus500. The URL in the banner

ad for Plus500 in the review contains

parameters that make me suspect that

the owner of the site is being paid

by Plus500 for click-throughs. Also,

reading the data that is transferred to

my browser when clicking ‘Open Real

Account’, the URLs requested contain

a number of parameters that again

make me think that there might be

a commercial arrangement between

Plus500 and the operators of the

plus500findings.com domain. The

review concludes: ‘I would definitely

recommend Plus500’. However, I

do not consider the review to be

independent, nor could I find anything

on plus500findings.com declaring a

commercial relationship with Plus500.

Of further concern is the identity of

the reviewer ‘Connor Bradshaw’.

Plus500 is keen at all times to

point out that it does not accept

US customers. The author writes: ‘I

got my $25 welcome bonus and then

funded $300 (minimum is $100) to

my live account. After a few weeks

later, I funded another $8,000 into my

account once I decided to really trade

with them.’ I could not find anything

on the plus500findings.com website

where it is made explicit that the

review author had actually placed

a trade with Plus500. So why is the

review being written?

The review site contains a link

to a Google+ profile for the claimed

author. Here, ‘Connor Bradshaw’

claims to be an Engineer working in

the UK. The site genesreunited.co.uk

records only three births of a ‘Connor

Bradshaw’ in England and Wales that

would now be of adult age. The oldest

of these is just 21. The review writer

claims to have been ‘trading the

market since 2011’, so they could be

the same person. The Google+ profile

claims that the author has ‘2 kids...

awesome wife’. That would be some

cracking on for a 21 year old. It is also

quite an un-British way to write about

one’s family.

A comment attributed to ‘Connor’

AIMprospector TOPpick

6 www.aimprospector.co.uk

and carrying the same photo as the

plus500findings.com site appears on

the website productivewriters.com.

Here, ‘Connor’ writes: ‘Competition is

very fierce nowadays. On freelancer.

com, the rates are very depressing.

The indian writers are willing to take

up $1.00/article for general articles.

How do we compete?’ The profile

on productivewriters.com gives

a twitter account for ‘Connor’ as

connorbradshaw0. The referenced

twitter account gives the user website

as plus500findings.com.

The image of Connor Bradshaw

on plus500findings.com, twitter and

Google+ is not Connor Bradshaw. It

is a library image of a man named

Victor Pilipko. He appears in short

internet film here. Who then, is Connor

Bradshaw? An engineer working in the

UK, or perhaps an American freelance

writer?

AIM Prospector has also been

examining reviews placed on

reviewcentre.com. On this site,

Plus500’s various domains appear

in each of the top five places in the

section dedicated to Stocks and Shares

providers. Weirder still is the huge

number of reviews that Plus500’s

services have attracted. A total of

2,559 reviews have been placed for

Plus500 across its .com, .co.uk, .de,

.nl and .fr domains. IG attracted a

total of just 139 reviews. Given that

IG’s reported revenues are around

five times those of Plus500’s, why

has IG attracted so few reviews by

comparison? The disparity is similar

when counting reviews for CMC

Markets and Capital Spreads (review

count of both is in-line with IG’s when

scaled for reported turnover). It is also

noteworthy how brief the Plus500

reviews are compared with the others.

The inter-quartile range figures in the

table suggest that a large number of

Plus500 reviews are very brief.

The quality of English used in the

Plus500 reviews is frequently poor. For

example, this review by ‘143Bowen’

states: ‘I found wonderful to trade with

plus500 which much user friendly and

easy understanding compared to the

other trading tool available.’

The broker review site

ForexPeaceArmy contains a large

number of negative reviews of

Plus500. There were some positive

counters to these reviews, such as

this from ‘Sean, Estonia’ ‘Plus 500, it’s

very dynamic, easy to use and it gives a

lot of bonus to the trader’. I’m unsure

how common ‘Sean’ is in Estonia.

More troubling is a review where

the author’s name is given as ‘Josh

Reclar, France’. This was apparently

modified by ForexPeaceArmy admins

to read ‘Josh Reclar, France, Paris

(Really Plus500’s offices in Israel)’.

The review rating was removed and

ForexPeaceArmy added: ‘This review

did not come from France. It came from

Israel, where Plus500 is located. It came

from the same location that a Plus500

employee emailed the FPA from.’ These

reviews were submitted in 2010 and

can be found here.

Another peculiarity with Plus500

is the way that the company is

regulated. Most of its operations take

place in Israel. The company uses a

regulated UK subsidiary to access the

EU market. However, there are far

fewer staff members authorised by

the FCA with Plus500 than any of its

UK peers. According to the Financial

Services Register, IG Markets has 71

approved persons working in their firm.

City Index has 26 such staff members.

Plus500 has just three. One of these

is a non-executive director i.e. not an

operational role. That seems odd.

To receive AIM Prospector 24 hours

before it goes public, register your

email address here.

Download our FREE app from the App Store now. Just search for ‘Spreadex’.

EARN TECH WHEN YOU TRADE

Open a Spreadex account and you can earnan iPad Air, PS4, Sony TV or a Toshiba laptop.

Stake either £400 on Wall Street or GBP/USD, or£800 on UK100 or EUR/USD. Opening and closingtrades count.

Click this ad to see the full terms and conditions.

Spread betting losses may exceed deposit

FINANCIAL SPREAD BETTING

Trade Up

AIM_Prospector26Jun14_Layout 1 26/06/2014 15:07 Page 1

Review count and word analysis of reviews at reviewcentre.com

Provider Review count Mean word count per review

Word count inter-quartile range

CMC Markets 46 140 81

IG 139 99 76

Capital Spreads 16 77 46

City Index 285 70 51

Plus500.co.uk 1191 45 40

Plus500.com 915 39 34

Plus500.de 231 40 35

Plus500.nl 175 44 36

Plus500.fr 47 37 38

AIMprospector

www.aimprospector.co.uk 7

NEW FEATUREDownload our FREE app from the App Store now. Just search for ‘Spreadex’.

EARN TECH WHEN YOU TRADE

Open a Spreadex account and you can earnan iPad Air, PS4, Sony TV or a Toshiba laptop.

Stake either £400 on Wall Street or GBP/USD, or£800 on UK100 or EUR/USD. Opening and closingtrades count.

Click this ad to see the full terms and conditions.

Spread betting losses may exceed deposit

FINANCIAL SPREAD BETTING

Trade Up

AIM_Prospector26Jun14_Layout 1 26/06/2014 15:07 Page 1

AIMprospector

8 www.aimprospector.co.uk

sales, to £11.6m, from total annual

sales of £195m. By comparison,

Debenhams makes around 15% of

its sales online. This suggests that

online still has some way to go at

Bonmarché.

The results included an impressive

margin improvement and a big rise in

earnings per share. The balance sheet

showed £43m of total liabilities and

£44m of current assets.

According to market data firm

Verdict, the UK’s 55+ female

demographic is growing at double

the rate of the female population on

average. Bonmarché is positioned in

a sweet-spot and is thriving like few

other listed retailers.

The most recent trading update

from the company, issued at the

end of July, showed a business that

is powering ahead. Total sales were

16.9% higher than in the same

quarter of last year. Like-for-like sales

(a measure that is adjusted for store

closures/openings) showed a punchy

13.4% increase. By comparison, Sports

Direct (one of the high street’s most

successful retailers of recent years)

reported like-for-like growth of ‘just’

10.5% last year.

Retailer Bonmarché came to AIM in November 2013. The company is a high-street and online fashion retailer, focused on serving women over fifty.Bonmarché was established in 1982

and today runs over 250 stores

across the UK from its Wakefield

headquarters. Its plus-size clothing

range and styles are targeted at older,

female shoppers.

The company is positioned at the

confluence of three themes: an ageing

population, a heavier population and

longer working lives.

The ‘multi-channel’ theme

features heavily in the company’s

communications with shareholders.

Alongside straight store sales, the

company also runs its ‘Bonus Club’

loyalty scheme. This has 1.8m active

members. The company also sells via

mail order, telephone, TV shopping and

direct in care homes to customers that

are unable to access shops.

The company’s target customer

is one of the fastest growing groups

online. Bonmarché has moved to

capitalise on this, with a website re-

platform and the appointment of a

new digital marketing agency.

Results for the year to March 2014

showed an 84% increase in online

Bonmarché: fashion for females over fifty

Forecasts are for the company

to deliver a net profit of £10.8m

by 2016. While that doesn’t make

the shares particularly inexpensive

against today’s market capitalisation,

Bonmarché is on a roll. Expectations

for 2015 EPS have been rising

steadily since March and analysts are

forecasting much larger dividends this

year and next.

The US experience shows how

much further the trend for plus-sized

consumers could go. Demographics

and the forced increase in retirement

ages will further expand Bonmarché’s

market. The company is well

capitalised and the strong pound will

help input costs. Few AIM companies

can have so much in their favour.

Bonmarche Holdings (LON:BON)

FOR

Favourable dynamics

Modest valuation

AGAINST

High street still weak

Must remain on-trend

Market cap £139m

Bid:offer 276p:280p

P/E (forecast) 14.2

Yield (forecast) 2.5

52week low:high 212p:302p

target customer is one of the

fastest growing groups online

a business that is powering ahead

Bonmarché is on a roll

AIMprospector

www.aimprospector.co.uk 9

In the last issue, I discussed how the

careful selection of advisors can help

an AIM company get maximum value

from its listing. Below, I examine

some other important factors that

can have a material effect on a

company’s share price.

If an AIM company cannot deliver

an interesting growth story to attract

investor attention it will be hard to

achieve share price momentum. If a

company repeatedly fails to deliver

growth, it is questionable whether it

should remain on the market at all.

Long-term growth is the key to

delivering share price performance.

But even some companies that are

delivering regular profit increases

fail to secure real investor interest. If

your company falls into that category,

a collection of actions might help

change this.

Setting sensible targets and

providing a regular news flow to the

market will generate investor interest

and trust that future growth can be

achieved. Even setbacks, which are

bound to occur, can have a minimal

effect on the share price if plenty of

warning is given and a full explanation

is provided. A last minute and badly

thought-out explanation can wreak

havoc and take years to repair!

There is little point in generating

newsflow and then not capitalising

on it by actively pursuing the press. A

good PR company should be able to

gather a roster of positive journalists

for even a small company where its

story is consistently good. Senior

management must then spend time

meeting with both existing and

potential investors — institutional

and private investor forums alike.

The availability of easily digestible

information on a company is also

key. A well thought out and readable

website is a great place to start,

but they are often not updated

for recent events. Regular public

statements over and above the

interim and annual reports are useful

to track changes, and hats off to

those AIM companies that publish

interim management statements

as they are not compulsory on

AIM. However, nothing beats a

comprehensive research report from

an independent research house or the

company’s own broker. Such research,

describing a company’s business and

opportunities, is an excellent basis for

assessing a company’s prospects.

Finally, research has shown that

those companies that are able to pay

a regular and rising dividend generate

significantly more investor interest

and are able to achieve positive share

price momentum more easily. Even a

relatively modest, but rising, dividend

should not be underestimated.

Too many companies, which

have the potential to shine, hide

themselves away. This is to their

own, and their investors’ detriment.

Although the above suggestions take

time, effort and cash, the resulting

change in perceptions can generate

significant rewards for investors. If

executed well, a significantly lower

cost of capital will be achieved should

a company raise finance in the future.

Adam Hart is Chairman of London

Bridge Capital. He enjoyed a long

career as a nominated adviser

acting for many AIM companies and

served on the Stock Exchange’s AIM

Advisory Group for over 14 years,

spending more than five years as

Chairman.

Executive Insight Executive Insight is a new AIM Prospector feature.

Each month, AIMprospector brings a collection of advice

and insight targeted at company directors. The second

contribution to this series comes from Mr Adam Hart.

Adam H

art, London Bridge Capital

AIMprospector

10 www.aimprospector.co.uk

existing franchisees, often with some

finance assistance from Belvoir, have

acquired competitors and brought

their portfolio under the Belvoir

umbrella. In July last year, Belvoir

announced additions to portfolios in

London, Ipswich and Telford. A similar

transaction took place in Hereford

earlier this summer.

In September 2013, Belvoir

launched a residential sales pilot,

utilising the traditional lettings offices.

There is a certain logic to this. A

lettings business’ clients will frequently

be looking for new properties (even

with tenants in situ) and may seek to

trim their own portfolio from time-

to-time. In March, Belvoir reported a

favourable response to this trial.

The most recent results from the

company (March’s finals) showed strong

progress across the board. Revenues

were 44% ahead of the previous year

and pre-tax profit was 16% higher. The

dividend was raised 17%.

With continued immigration to

the UK and the high price of home

ownership, private residential letting looks

set for long-term growth. While 15%

of all UK homes are rented today, some

government estimates are for this figure

to reach 20% within the next eight years.

Rental’s ability to grow with

the economy has attracted large,

long-term investors, such as Legal

& General, to the sector. In March

this year, L&G announced that it had

secured a portfolio of 4,000 units. AIM

Prospector has previously reported on

AIM-quoted Sigma Capital’s plans on a

similar scale in the North-West.

The quality of this income stream

is manifested in the dividends paid out

by Belvoir. The consensus is for Belvoir

to pay a 6.8p dividend for 2014,

equating to a very attractive yield.

Private residential renting is here

to stay. Belvoir looks a great way to

access this.

Belvoir Lettings PLC came to AIM in February 2012. The company is a franchisor of residential lettings businesses. Founded in 1995, Belvoir Lettings today has over 160 offices across the UK.The dynamics of the UK housing

market point toward strong long-term

growth from this sector.

Belvoir runs a residential lettings

franchise ‘Belvoir!’. Belvoir revenues

come from an initial franchise fee plus

service fees which are a percentage of

the franchisee’s monthly turnover. The

plc also provides its franchisees with

training and support. One example

is the Belvoir Lettings mobile app. A

mentoring service is also provided in

the early stage of operations. Tenants

contract with the franchisee directly,

not Belvoir, meaning that Belvoir only

carries reputational risk.

It is a business model that has

served shareholders well. In 2008,

Belvoir reported a net profit of £0.7m

from £3.4m of sales. By 2013, Belvoir

was delivering sales of £5.8m and a

net profit of £1.2m. The company paid

its maiden dividend in 2012, delivering

a 17% increase the following year.

Some of this growth has been

achieved through acquisition. Here,

Recent IPO with long-term prospects

Belvoir Lettings (LON:BLV)

FOR

Strong industry dynamics

Attractive yield

AGAINST

Interest rate rises could scare market

High P/E

Market cap £30m

Bid:offer 124p:130p

P/E (forecast) 19.6

Yield (forecast) 5.4

52week low:high 110p:195p

a business model that has served

shareholders well

strong progress across the board

consensus is for Belvoir to pay a

6.8p dividend

AIMprospector

www.aimprospector.co.uk 11

scheduled to deliver £25m of Cohort’s

year-end order book.

SCS is an advisory business. Their

principal customer is the MoD. Its key

expertise is what it terms ‘capability

integration’. In July 2013, the division

won a £4.1m contract with the MoD

to manage the integration of the

new F-35 into the Air Force. SCS is

responsible for around one eighth of

the year-end order book, making it the

smallest of the four divisions.

Cohort announced results for the

year to April 2014 at the end of July.

The group made sales of £71.6m, flat

on the previous year. Adjusted profit

before tax came in at £8.3m, up from

£7.5m. Total dividends for the year

were 20% ahead of the previous year.

This was the fifth time in six years that

Cohort has increased its dividend, with

one modest cut in that period.

The company’s balance sheet

strength is impressive. Current assets

were more than twice total liabilities,

leading to a ‘net funds’ position of

£16.3m.

MCL was purchased for a maximum

of £8m in July, two months after

Cohort’s year-end. The company is a

supplier of electronic communications

and surveillance technology. End uses

of MCL equipment include unmanned

aerial vehicles and submarines. The

deal is expected to be immediately

earnings enhancing.

Sensitive organisations such as

defence ministries take great care

over who they work with. Cohort

has brought together a collection of

companies that is successfully selling

to customers that are famously

reliable payers and work to long-term

goals. While contract delays and cuts

are always a risk, Cohort has a broad

range of services under its umbrella

and a commendable track record.

A double-digit dividend increase

is forecast for 2015. Strong sales

growth is expected this year and next.

According to Stockopedia, Cohort

shares are selling on a 2016 P/E of 11.4,

with the prospect of a 2.8% yield.

Cohort plc is a group of four technology companies, each centred on the defence industry. Cohort is dividend paying, with a strong balance sheet to support further acquisitions.From its headquarters near Reading,

Cohort made around £70m of sales

in the year to April 2014 and a profit

before tax of £8.3m.

The company’s four divisions are:

MASS, Marlborough Communications

(MCL), SCS and SEA.

Responsible for more than half of

the order book at year-end (£46.4m

of £82m), MASS is a technical

consultancy, primarily operating

around electronic warfare, secure

information systems and data

management. The company services

the full life cycle, from design through

to system integration, support and

training. There is a split in the value of

its services, with defence export work

being higher margin than education.

SEA delivers systems, software

and electronic engineering services

to government and industry. The

company’s biggest activity is servicing

the UK submarine flotilla. Here, SEA

might be contracted by a firm such

as Babcock to deliver the required

electronic units for a submarine’s

communications systems. SEA is

Cohort: a growth defence firm

Cohort (LON:CHRT)

FOR

High quality customers

Strong balance sheet

AGAINST

Valuation uncompelling

Acquisition integration risk

Market cap £82m

Bid:offer 193p:203p

P/E (forecast) 11.9

Yield (forecast) 2.5

52week low:high 160p:225p

principal customer is the MoD

fifth time in six years that Cohort

has increased its dividend

defence ministries take great care

over who they work with

AIMprospector

12 www.aimprospector.co.uk

Next month:In October’s edition, AIM Prospector will be covering five

more AIM shares.

Smallcap fund management requires a distinct set of skills

to large/midcap investing. Next month, we also hope to

bring Executive Insight from one of the UK’s most respected

smallcap fund managers.

If you are not already a subscriber to AIM Prospector, sign

up here: www.aimprospector.co.uk. Registered subscribers

receive the magazine as a pdf at least 24 hours before it goes

live to the public. Your details will

not be shared with any other organisation and there is no

spam.

AIM continues to excite, with a steady stream of companies

joining the junior market. Next month, AIM Prospector will

be covering a well-known company that has not long been

available to investors.

AIM survived the summer months well in 2014. There has,

however, been a stream of profit warnings recently, many

bemoaning the strong pound. Valuations appear finely

balanced.

AIMprospectordigging for dividends - panning for profits

Blackthorn Focus is a publications and events businessdedicated to the financial markets.

AIM Investor Focus is anAIM-dedicated investor and

media event exclusive to AIM-quoted companies.The event runs twice a year.

AIMprospector

Blackthorn Focus is proud to publish AIM Prospector.

A new onlinemagazine

AIMprospector

www.aimprospector.co.uk 1

AIMprospectorA Blackthorn Focus publication

www.aimprospector.co.uk