Pick of AIM by James Crux

W ales-based agricultural sector consolidator Wynnstay ticks all of the above boxes. A former farmers’ co-op, founded way back in 1918, the business has a reassuring spread of activities spanning agricultural product supply and two specialist retail chains serving farmers and other rural dwellers and pet owners.

Now, despite tougher trading conditions, with reduced demand for feed and fertiliser reflecting industry trends, the company still delivered robust numbers for the year to October. Profits were maintained at £5.2 million on a lower top line of £215 million (2008: £234.6 million), and this consistent cash-generator upped the total dividend to 6.5p (2008: 6p) – that was good going.

Furthermore, enthusiastic boss Ken Greetham tells me the resolute performance reflected ‘our broad range of products and very loyal customer base’. He was particularly pleased by the recession-beating performance from the retail arm, where like-for-like sales and profits pushed north and a good expansion platform has been established.

Consolidation opportunities, he says, also abound in the core and diverse agricultural business (roughly 75 per cent of group sales), where long-term trends, chiefly the need to feed a mushrooming and hungry global population, are positive.

In my opinion, Wynnstay represents a solid long-term buy. Forecast to grow profits, earnings and dividends to £5.35 million, 26.7p and 7p respectively in 2010, its shares are selling for 9 times earnings and offer a yield of 3 per cent.

In addition, the valuation is underpinned by £39.5 million or 273p per share of net assets, leaving the present 244p price and sub-£36 million market cap looking decidedly ungenerous.

Swallowfield could fly
Even longer established – with origins in the 1800s – and another small cap counter with a committed band of long-term customers, is cosmetics and toiletries maker Swallowfield.

Formulating a hugely diverse product range (some 2,000 new products are developed per annum) which includes deodorants, men’s grooming products, colour cosmetics and tanning products for a nicely spread band of brands and retailers, Swallowfield is well placed to grow organically in excess of the market through investment in product manufacturing and development and by leveraging its ties with customers.

Somerset-based, the company has performed well through the recession, riding out recent customer de-stocking and growing its top line 10 per cent to more than £49 million in the year to last June, with operating profits maintained at £1.52 million.

Its shares have moved up from a 52-week low of 62.5p to 117.5p, valuing the business at just £300,000 more than the £13 million of net assets on the balance sheet.

City number crunchers are looking for earnings of 9.7p and a 5.9p dividend this year, placing the shares on a prospective p/e of 12.1, where they offer a yield of 5 per cent. Buy and lock away.

CareTech – still worth nurturing
Readers might also re-examine the rock-solid investment case at CareTech, a high-growth company with defensive credentials and a dependable and progressive dividend.

I like the fact this social care services specialist, which grew profits 45 per cent to £15.3 million in the year to September, provides services to the most vulnerable individuals under long-term arrangements with local authorities, meaning it benefits from excellent earnings visibility.

The shares, nurtured north from a 52-week nadir of 280p to 424p, are not dirt cheap on 13 and a bit times forecast EPS of 32p. But this is a proven business with much market share to go for. Moreover, CareTech’s freehold property portfolio alone was recently valued at £206 million, more than its £194 million AIM price tag. Fill your boots.