If there has been a defining trend on AIM these past few years it has been the growth in the size of the companies listed. When Growth Company Investor conducted its annual Spotlight on AIM research earlier this year, we discovered three ventures valued at over £1 billion, 24 valued at more than £500 million and no fewer than 234 valued at over £100 million. The average company is now worth more than £50 million.

While all of this is to be welcomed – above all else it underlines AIM’s growing maturity – one unintended negative side effect has been to shift investor’s attention away from the many pioneering and inventive minnows.

In a bid to redress the balance, Growth Company Investor has trawled the lower echelons of the market in search of those that are unloved and/or undiscovered, but that may also be on the cusp of making a big splash in their respective sectors.

Mining for ideas
One of the most innovative outfits around is Imaginatik. Its product is not only very original in its own right, but it boasts an ability to enable clients to drill down into the collective genius of their human assets.

Founder CEO Mark Turrell has essentially developed software that captures ideas from employees, supply chains, customers and/or the general public in order that these ideas may be utilised commercially. It is, in effect, a digital version of the suggestion box, but with added functionality.

In the old pre-digital age, staff might have been asked to come up with cost-saving ideas, suggestions for new products, marketing ideas and so on, in return for recognition and rewards. But many of these ideas ended up on the shelf due to organisational inertia, internal politics or because of regulatory and legal issues.

Imaginatik cuts through all of this by enabling those in search of new ideas within a company to get direct access.

Proof of its utility as a growth tool is Imaginatik’s client list, which spans the global corporate pantheon: Yahoo, Pfizer, Nestlé, Nokia, and Coca-Cola are users. Turrell claims one client, multi-billion dollar pharma group Bristol-Myers Squibb, ‘added £200 million of value’ as a result of the 500 ideas generated by its network. Another, an unnamed chemical company, turned a suggestion from a truck driver into a £22.5 million revenue stream.

Since floating last December with a modest £1.5 million institutional placing at 7.5p, growth has been considerable. A trading statement in March indicated that sales for the year to March would show a rise of ‘nearly 80 per cent’ over the previous year to around £2.5 million, although losses were posted at the pre-tax line. ‘We’re just at a very early stage still,’ reminds Turrell, ‘and we expect to grow very quickly.’

Institutional shareholders (and canny investors) such as Artemis and Octopus agree, and are no doubt pleased by Turrell’s claim that the current pipeline is ‘six times larger than it was this time last year’. The shares, up 23 per cent already, could reward a speculative punt.

Totally ready
Totally is known to investors mostly as the print and online publisher of Jewish-focused newspapers. But it has some fiendishly clever proprietary technology that it is using to serve other markets.

For instance, the software it developed for the TotallyJewish.com website – the development of which held back the company’s financial performance in the past – handles a full-service dating micro-site, another for flat-sharing and another for jobs, as well as the general news and blogs that all website must have these days.

Totally has since applied its expertise and proprietary software to the Greek and Cypriot community in London (one of the biggest ethnic groups in the capital with more than 300,000 people) via a revenue-sharing partnership with London Greek Radio. Another partnership has been consummated with specialist foreign language recruiter TopLanguageJobs to create an online community portal for the expat population in the UK.

Its publishing business is stable and providing cash, but thanks to the expansion in internet use and Totally’s ability to widen its commercial net, growth is accelerating after a few years in the doldrums. A trading statement in January revealed that 2006 will show a ‘significant increase’ in sales, transforming the group from one that posted losses of £215,000 to one that should deliver a positive earnings figure (albeit before interest, tax, depreciation and amortisation).

Recently, an exciting revenue-sharing deal was inked with Richard Desmond’s Northern & Shell, the owner of the Daily Express and Daily Star newspapers and OK! magazine, to apply Totally’s knowledge and software to the websites of these three titles. This is a terrific endorsement from a major publishing house and to capitalise on its momentum Totally raised £500,000 at the end of March to focus on generating more partnerships.

Totally’s shares still remain a speculation for the brave, but this £3 million penny stock is beginning to shine.

Can 1.3 billion people be wrong?
Only three drug developers around the world have a product for the bowel disorder post-operative ileus (POI) and Phynova is one. It is also one of only a few to be developing a product to relieve symptoms of chronic hepatitis-C (HCV) as well as dengue fever (a potentially fatal tropical disease that affects 40 million people each year).

If that doesn’t excite, you might wish to contemplate the products in development that treat obesity, diabetes, respiratory infections, MRSA and cancer. By the end of this year, three of these products will be in clinical development. This is quite a pipeline of products for a company capitalised at £10.6 million.

Its HCV drug candidate is undergoing Phase IIa trials in five centres in the US. Putting a drug into Phase II is a significant step that has not been reflected in the company’s share price.

What may well be holding back the company’s rating is that its products are botanical and are associated with traditional Chinese medicine. Phynova’s strategy is in fact to use the time-honoured natural remedies as a jumping-off point into accepted clinical trials for the essential compounds contained within. Once the drugs’ capabilities have been proved in early clinical trials, it then aims to license out these candidates to other pharmaceutical companies, including those in emerging markets. A big break came indirectly in November when the US FDA approved the first ever botanic drug in the USA.

Phynova’s most advanced candidate, for HCV, may apparently be introduced to emerging markets before it is accepted in the US and talks are being held in Brazil and Russia already. If events pan out as management hopes, 2008 could see it emerge onto the market and 2009 could see the POI suppository available in China.

The company bought a 45 per cent stake in a Chinese plant-based drug development company that is pumping ever more new products into the pipeline. These drugs have been working in some form in China for hundreds of years and if any of them take off in the West, Phynova’s current valuation could soar.

As with any drug developer there are a lot of investment ifs and buts, and potential buyers of the stock have to weigh up the simple fact that the shares are now at 54p, having been as high as 132p last year.

A classic high-risk, high-reward situation is in play here.

Access all public areas
Driven by the creeping pervasiveness of regulation, compliance software and data management is a booming market. And one into which Access Intelligence has, eventually, plunged headfirst with its buy-and-build approach.

Since floating as a hot air shell in 2003 and not making much headway in the following few years, the company proceeded to make a series of acquisitions that have given it a lot of potential upside.

The first major purchase was of a data management software company, the second was of public sector compliance software provider Due North and the third was a supplier of Virtual Compliance Officer software to the retail financial services market.

Data management makes up the majority of revenues at the moment and provides robust recurring revenues. Chief executive Brendan Austin says this is a massive growth market with storage giant Maxell forecasting a 75 per cent annual increase in the amount of data that businesses and institutions need to back up in 2007.

The Due North compliance side has been making the more exciting moves recently, despite the sluggishness one might expect from the public sector it serves.

The Communities and Local Government Office is driving local authorities to cut back their spending on tendering for goods and services. Due North’s software does just that. Of the four regional Centres of Excellence (groups of local authorities) that have put out their contracts to tender, Due North has won the right to sell to three. And five more centres have still to come to market.

Of the three wins, the one in October 2006 was most crucial, being as it was with South East England region, consisting of 74 local authorities. Due North recently added the right to sell into the North West centre.

Contract wins have also been secured with a number of police and fire services and, lately, NHS trusts. Austin says this division ‘should perform even better this year’ and a pilot scheme with a large European NGO indicates further expansion possibilities.

With the Virtual Compliance Officer arm adding further promise of fast growth, house broker Blue Oar (previously Corporate Synergy) sees profits growing by 61 per cent to £900,000 this year with earnings of 0.55p, putting the shares on a prospective p/e of 12.9.

This is a diverse and exciting business, backed by excellent growth drivers. Its price could accelerate rapidly.