Pick of AIM by James Crux

AIM has a long tail of very small companies, most of them drifting along and worth ducking. However, investors prepared to sift through the minnows can fish out the odd bargain

At last count some 333 AIM firms, a quarter of the market, were valued at below £5 million. These small fry represent high-risk investments, but there are counters on which diligent investors might place some of their chips.

Fitbug approaching fitness
Recently refinanced, shares in Fitbug (formerly the loss-making health and leisure investor ADDleisure) have slimmed from 20p to 7.25p this past year, valuing the business at £2.75 million.

ADDleisure put two of its cash-draining businesses into administration last year, in order to focus on Fitbug, which runs an online personal health and well-being coaching system, bringing together the internet and the ‘Bug’, a wearable device helping people get fitter within their daily routine, by tracking footsteps and calories burned.

Fitbug is starting to fly and should make a profit in the second half of this year. Managing director Paul Landau tells me the company is selling memberships for fitbug.com around the globe and the launch of a new US version of fitbug.com paves the way for multi-lingual and white-label sites.

Landau says ‘Fitbug Body’, the company’s weight management service aimed at Primary Care Trusts, which are investing in ways to tackle the obesity epidemic, is outperforming rival programmes. Moreover, early revenues are tumbling in from recent tie-ups, notably a partnership with points company Nectar, ‘a pretty big deal for us’, which launched a white label version of Fitbug.com in January.

With healthcare giant BUPA holding a significant stake, my hunch is Fitbug is more likely to fly than see its prospects get squashed.

Bet on Barker
Led by David Barker, an entrepreneur of boundless energy, consultancy company Strontium – itself worth a meagre £1.7 million – helps to develop smaller companies with high growth potential. Last year to June, it battened down the hatches and restructured to conserve its cash, offloading one subsidiary to management in order to focus on MiAD, a fast-growing, NHS-dedicated training and education business and The Learning Eye, a research, education and communications agency. Both are generating cash, are profitable and offer the prospect of greater returns.

‘We did a complete clean out last year,’ the no-nonsense Barker tells me, adding that Strontium still carved out a small £22,692 profit as the recession roared around it, closing the year with ‘adequate’ cash of £291,000.

Sensibly, acquisitions have been put on the back burner, but Barker still plans to utilise his network of contacts to source and transform small/medium sized companies and says Strontium can fill a current equity gap. ‘We sit between the angels and the turnaround specialists’, he states.

An investment in Strontium is a bet on Barker, but I believe him when he says ‘we are trying to build a long-term and sustainable business, one that will still be here in 20 years’. Strontium shares, at 13p, are worth buying and locking away.

APC: worth a recovery punt?
At Advanced Power Components (APC), the hard-hit components distributor, recovery could be on the cards.

In the year to August, APC lost £500,000, despite a 16 per cent, acquisitions-driven sales increase to £14.1 million, due to foreign exchange losses and restructuring costs. But having slashed costs, strengthened financial controls and put in place a foreign exchange hedging policy, APC is forecast to return to profit this year, with £200,000 looking likely on £13.1 million turnover.

Poor recent performers, having fallen from 15.5p to a 6.5p low last year on a series of profit warnings, APC shares, now 10p, value the business at a lowly £2.4 million. High-risk fare, the shares, which sell for ten times earnings, could reward a brave punt.