Companies: AI.    MGP   

I recently met two AIM-quoted ventures with massive growth to gun for in different outsourcing sectors. The wider market is discounting prospects at both ventures, presenting an opportunity investors should consider exploiting.

‘There’s a huge need for consolidation in the property services market, and my goal is to build up a European group,’ says David Williams, chairman of Mercury Group, which, he claims, has a ‘unique model, carefully considered by people who were born in this industry’.

Mercury was created after a collection of businesses (facilities management outfit Navitas Hemingway, property services play SMPA and project management business Telco Solutions) reversed into cash-shell Cater Barnard last year. This deal was swiftly followed by the acquisition of estate agent Smith Melzack Pepper Angliss, an outfit that is now the dominant division.

A winning hand

Several factors should see Mercury win out in the thriving property services game. Firstly, the emerging facilities management sector is huge and very fragmented. Secondly, Mercury focuses on managing large retail shopping centres (often called ‘static’ sites) where, provided you do the job right, profit margins are attractive. This market sub-sector alone is worth £1 billion per year.

The other alluring aspect of this venture is the calibre of its investors. These include renowned property entrepreneurs Paul Whight, Barry Owen, and Vincent Tchenguiz. Tchenquiz invested £2 million in Mercury during the summer for a 25.9 per cent stake, creating a tie-up with his property company Consensus Business Group. Consenus should offer plenty of work for Mercury across its colossal portfolio.

Williams assures me ‘there’s a huge number of family businesses in the UK [that Mercury could buy], and I also think there’s huge growth to go for in Europe’. For the year to September ‘06, analysts predict profits of £1 million and earnings of 0.78p, placing Mercury on a lowly multiple of 10.9. This reflects its agency bent but ignores the outsourcing prospects at Navitas Hemingway. I am a buyer on a long-term view.

Aero Inventory’s Asian growth promise

‘We want to double sales this year, with major growth coming from Asia’, enthuses Rupert Lewin, chief executive of Aero Inventory, the provider of online procurement services to the aerospace industry. These buoyant comments followed recent emphatic figures for the year to June showing profits and earnings up four-fold as sales more than doubled to £43.6 million.

The figures were the result of previously won contracts finally bearing fruit whilst the group also witnessed crucial contracts kick off with SR Technics UK and SR Technics Ireland. This year, the full benefits of a contract with GMF AeroAsia, the Indonesian state’s aerospace maintenance company, should really shine through, and Lewin also expects more work from Chinese aerospace maintenance and repair company TAECO and the Hong Kong Aircraft Engineering Company.

‘This is becoming a very large outsourcing market we’re in, with a huge profit opportunity,’ he adds. It hasn’t always been plain sailing for investors, but Aero Inventory looks to have reached critical mass. This year, investors can expect sales of at least £76.5 million, profits of £11.3 million and 46.5p of earnings – a dividend of 12.5p is on the cards. At 499p, after a great run, Aero Inventory trades on a prospective multiple of 10.7 times, and I still feel the shares could gather more altitude.