Pick of AIM by James Crux

I have been a consistent cheerleader for Education Development International, so I won’t labour its investment merits again here. Suffice to say my hunch is there is still more to come from this qualifications and assessment services star, whose shares have surged from the 40p mark at the start of the year to 111p on upbeat financials and a series of forecast upgrades.

June’s half-time figures to March kept the feelgood factor flowing, with amiable boss Nigel Snook announcing 33 per cent top line growth to almost £13 million and an operating profits advance to £3.95 million (2008: £924,000).

Full year profits were subsequently upgraded 16 per cent to £8.1 million, and with 11.2p of earnings shaded in by City analysts, EDI still sells for sub-ten times earnings. Throw in the fact this progressive dividend payer had £5.8 million cash (and gilts) in the coffers at the last count, and EDI sells itself.

AEC – growth prospects reinvigorated
Less well known, having yet to earn the highest of marks from investors since a late 2004 listing, is the Asian markets-focused AEC Education, with close working links to EDI, which holds a 10.64 per cent stake.

Via a licensing tie-up between the two, Singapore-based AEC acts as EDI’s partner out in Asia for EDI’s London Chamber of Commerce and Industry (LCCI) business qualifications.

And with operations spanning Malaysia, Vietnam, China and Sri Lanka, AEC, restructured and revitalised, now offers appetising growth through the provision of an array of educational programmes and exams into Asian markets, which represent true growth hot spots for internationally recognised qualifications.

Able to call upon the sector know-how of chairman Liam Swords, who spent his early career with study guides group Letts, the company has more recently fallen under the positive influence of significant shareholder David Ho, who took over in the CEO hot seat in 2007.

Accordingly, the company is beginning to earn marks from City followers, having raised £408,000 and reported record results for 2008. Pre-tax profits surged 166 per cent higher to £795,000 and earnings by 138 per cent to 3.1p, reflecting organic growth and one transformational acquisition.

I like the company’s cash-generative model (students pay upfront for courses) and its increasing revenue visibility, which stems from the growth in multi-year courses for professionals, as well as its improving margins.

Presently priced at 21.75p, down from an original AIM issue price of 40p, and trading on a historic earnings multiple of seven, AEC has good growth prospects and its shares represent an educated long-term bet.

Melorio – strong and sustainable growth
Last, but by no means least, is Melorio – with a £58 million AIM tag at 148p per share – the vocational training provider originally floated as a shell in 2007.

Following subsequent acquisitions and astute organic development, Melorio is poised for a period of strong and sustainable growth.

Again, I like the fundamentals of the story, which is based upon a focus on industries, such as construction and infrastructure, logistics and information and communications technology, that are sure to see strong ongoing demand for training and assessment, ensuring the group grows throughout the economic cycle. Consensus among the major political parties to ‘upskill’ the UK workforce also supports earnings visibility.

In May, chairman Hugh Aldous unveiled results for the year to March showing £9.8 million EBITA from a top line of £31.4 million.

For the current financial year, a pre-tax profits push to £12.5 million (2009: £8.8 million) and improved earnings of 22.1p (2009: 17.9p) look achievable. And despite rebounding from a 2008 low of 55.5p, the shares are trading for less than seven times forward earnings and represent a learned long-term investment.