Pick of AIM by James Crux

Alongside qualities such as cash generation and earnings visibility, investors should buy businesses whose defences are bolstered by a diverse geographic footprint.

Offsetting weakness, if and when it occurs, in any one international market, such diversity also smoothes out currency swings and widens the new business net.

Cape of good hope
A case in point is the geographically diverse Cape – trading at 75.75p, down from 288.5p, on overcooked debt-related concerns.

Cape provides a slew of non-discretionary support services to the energy and natural resources sectors. It operates everywhere from the UK to the high-growth Middle East and Gulf and Far East and Pacific Rim regions (where 2007’s Australian acquisitions are bedding in well), as well as in the CIS, the Mediterranean region and even North Africa.

Operating profits powered ahead by 68 per cent to £65 million last year, during a period in which the net cash inflow from operations improved dramatically, from £6.9 million to £48.2 million.

This enabled a healthy net debt reduction from £189.2 million to £165.5 million.

Though downturn may affect certain markets, so far, sales and profits are growing across all regions and this diversity stands Cape in good stead.

City analysts have a pre-tax rise from £48.3 million to £54 million pencilled in for this year, giving earnings of 32.9p and placing Cape on a paltry prospective multiple of 2.3. The company deserves a significant rerating in my opinion.

KBC – one to have and hold
Similarly diverse is £18.8 million energy sector consultant KBC Advanced Technologies, whose geographic footprint spans the UK and US, Canada, Singapore, Russia, China, Japan and the Netherlands.

Eye-catching financials for 2008 showed sales up 38 per cent at almost £53 million and a 90 per cent plus surge in ‘underlying’ PBT to £5.7 million. Yes, this international operator has enjoyed a recent tailwind, with sterling having weakened, yet even at constant exchange rates KBC still enjoyed substantial sales and profits growth.

Cash was churned out for fun last year, with the year-end balances growing fourfold to £5.7 million, underpinning 80 per cent growth in the full year dividend to 1.35p.

I like KBC as a long-term play, since it is able to help clients maximise margins in tough times, then assist them with capital project-related work as they expand during boom times.

Growth is expected for 2009, albeit at a slower pace than last year. Analysts are looking for profits of £6.4 million and 7.5p of earnings (2008: 6.8p), placing KBC, whose shares have slipped from a year’s peak of 66.5p to 33p, on a paltry p/e of 4.4.

With a good bank of orders, KBC is worth buying.

Networkers’ wide overseas net
Worth a look on valuation grounds is cash-generative recruiter Networkers International, which has offices (including joint ventures) spanning five continents – its presence extends everywhere from China and the US to South Africa, Iran and Pakistan.

Though its UK permanent business is exposed to the slowdown, it has plenty of scope for growth within its global telecommunications operations, particularly in emerging markets, where there is a clamour for mobile phones and ‘convergence’ is fuelling growth.

In the doldrums at 7.25p, where its AIM price tag is a depressed £6.69 million, Networkers should shortly confirm 2008 profits of £5.6 million and earnings of 3.88p, placing the shares on a multiple of less than two times 2008 earnings. Given its AIM track record and international diversity, it should outperform peers. Consider filling your boots.