Backing the proven winners

Already identified as best-in-class, the deserving winners of the recent Quoted Company Awards, presented by Growth Company Investor, are well worth backing. Oliver Haill reports

Held for the first time in the opulent surroundings of the Royal Courts of Justice in London, the recent annual Quoted Company Awards dinner, organised by Growth Company Investor and sponsored by accountant and business advisory group Grant Thornton, brought together the City’s great and good to celebrate the achievements of smaller quoted companies over a tough 2009.

The winning companies selected by the judging panel – which included, among its distinguished huddle of City experts, Grant Thornton partner Philip Secrett, Schroder’s gregarious fund manager Andy Brough and jocular Charles Stanley equities analyst Peter Ashworth – have universally delivered for their shareholders over the past 12 months, with their shares having soared on average by 284 per cent, and remain well worth a closer look.

While some of the sharpest share price rises arose from recovery or turnaround situations, the headline awards recognised sustained performance and lauded the achievements of two companies with unblemished recent track records.

Two inexorable risers
Chief Executive Officer of the Year went to Jonathan Milner, after the performance of his antibody manufacturer and retailer Abcam confirmed the view that this is a world-class business with a great corporate culture, strategic focus and excellent growth prospects. A quick view of the share price graph shows what dream shares these have been to hold – floated on AIM at 163p in 2005, they have surged to over £10 today. In fact, Milner could well have won this award in most of the previous years.

For those investors not already on board, there’s plenty to indicate they have yet to miss the boat. Abcam sells and manufactures antibodies, which are important tools for the life science research industry. The antibody market is worth around $2 billion annually and, having proved its defensive qualities over the past few years, is forecast to continue growing by at least 10 per cent per annum.

Abcam has grown its share of this market and built strong barriers to competition thanks to its unique online model, which trumps rivals by providing more information and more antibodies. At just over a 10 per cent market share there is potential for plenty more growth, especially as Milner plans to start selling proteins to this same customer base.

Dividend-paying Abcam, which unveils its interim results to December shortly, is forecast to generate sales of over £70 million over the full year, for £22 million profits and at least 45p of earnings. The shares thus command a premium rating, but should still deliver plenty of upside if the company maintains momentum.

Similarly, the unswerving performance of resources and waste sector support services star Hargreaves Services meant that founder and chief executive Gordon Banham was chosen by the panel as Entrepreneur of the Year. The Durham-headquartered company, whose shares have tripled in value from their 2005 float price of 243p to 741p, consistently hits its forecast numbers and is now expanding into Europe too.

The judges extolled the returns that Banham has delivered for investors and acknowledged Hargreaves’ ability to regularly increase profits – up 46.5 per cent to £26.2 million in the year to last May – as well as its plethora of great deals and product launches. Charles Stanley’s Ashworth recently upgraded his 2011 profit forecast by 13 per cent to £39.9 million, pencilling in earnings of 102.7p and a dividend of 13.8p per share. Hargreaves should continue to win new fans and its shares are a strong buy.

Terrific transaction
Operating in an out-of-favour sector, LSL Property Services has continued to outperform most of its listed property peers, and last year stole a march on its rivals by purchasing Halifax Estate Agencies Ltd (HEAL) from Lloyds for just £1. This transaction, described by one judge as ‘an absolute steal’, won the group and its CEO Simon Embley the Deal of the Year award and could prove to be the deal of the decade.

LSL beat trade and private equity competitors in the three rounds of tendering for HEAL, which brought 225 branches and £22 million of cash with it in return for the meagre outlay. Although Lloyds was assailed with criticism for what seemed like over-generous terms, the HEAL business was heavily loss-making and many more jobs would have been lost if it had been wound down.

Embley, who had the perfect CV for the deal, having effected the transformation of Norwich Union’s highly loss-making estate agency and surveying operations into the profitable business that became LSL, says, ‘It was a difficult decision still. Our business was in good shape and had made an £18 million operating profit in 2008, one of the worst housing markets ever. So, our investors had a good recovery play on their hands; if we’d screwed up this great opportunity they would not have been happy.’

Embley has set himself the target of cutting £45 million of operational costs out of the business, which if the top line remained flat, would produce £5 million of losses. The plan is also to grow HEAL’s income and protect against cyclicality at these new branches by adding residential lettings to its services.

A recent update indicated that 2009 results will be significantly ahead of expectations and full-year results are due to confirm this shortly. The shares, now priced at 251p, had fallen to less than a quarter of their 200p float price by late 2008 but have rebounded strongly since, and if housing transactions keep improving they should have
much further to go. Buy.

Nanoco’s warm reception
Newcomer Nanoco has enjoyed a warm welcome since it joined AIM last year, winning the IPO of the Year award for its reverse takeover by a listed cash shell and strong subsequent share performance.

The Manchester-based university spin-out makes energy-efficient fluorescent semiconductor nanoparticles called ‘quantum dots’ for use in lighting, LCD screens and solar panels. Although the market for these products has hitherto been constrained by their high price and use of the toxic metal cadmium, Nanoco has a patented method of producing them on a large scale at inexpensive levels without using cadmium.

Operating via partnerships with manufacturers, Nanoco has already signed deals with two Japanese electronics giants and is, says chairman Peter Rowley, ‘well down the development stage’ and ‘bumping up production facilities’. House broker Zeus Capital is forecasting revenue of £5.1 million this year and earnings before interest and tax of £421,000, with many expecting big things further forward. As such, the shares should offer plenty of excitement.

Reversal of fortune
Companies and entrepreneurs that have reversed their fortunes were similarly recognised by the awards, with the Turnaround of the Year gong given to technology and services provider Morse, following its thorough shake-up by chairman Kevin Loosemore and chief executive Mike Phillips.

After a previous decade-long acquisitive spree had dragged the company too far away from its core market and left a morass of operational ineptitude in its wake, Phillips was persuaded by former Cable & Wireless man Loosemore to join him as finance director in September 2008, with Morse veering dangerously close to breaking banking covenants. Analysts predicted total collapse and the shares slumped from around the 150p level to less than 10p.

The pair corrected a culture of lax cash collection, quickly moving the business into a net cash position. There has been much blood-letting, of course, with the headcount coming down from around 1,500 to less than 1,000, ‘including a fair chunk of senior management’.

Interim results to December unveiled last month showed the duo’s strategy paying off, with revenues stabilised, Morse growing in each location and losses on continuing business converted into pre-tax profits of £4.1 million. Although the market is still challenging, Phillips insists that the current structure will ‘provide growth but it’s not going to be stellar. So we see opportunities to add to what we have with acquisitions.’ For the year to this June, broker Investec foresees £9.7 million of annual profit and earnings of 5.7p, placing the 40p shares on a prospective p/e of seven, an undemanding valuation that leaves lots still to play for.

Roadside recovery
Car dealership Pendragon is another whose recovery was lauded by the awards judges. Its share price has accelerated sevenfold over the past 12 months. David Forsyth clinched the Finance Director of the Year award for his work in cutting costs and carrying out ‘debt reduction actions’ at the previously highly geared company.

Although Forsyth resigned in December after 12 years’ service, he is credited for Pendragon’s recent 2009 financials, which motored in ahead of forecasts, showing a reversal from significant losses to a £1.3 million profit before tax – net debt was pared by £41.9 million to £315.4 million. However, on broker Panmure’s forecasts, the 25p shares look fairly valued at just over 11 times December 2010 earnings.

Other recoveries the panel was keen to commend included those at power cord and cable maker Volex and Hightex, the maker of membrane roofs for the likes of Lord’s cricket ground and Wimbledon’s Centre Court. Much credit for Volex’s revival went to chairman Mike McTighe, who added vital know-how to an inexperienced board, instilled a crucial focus on cash generation and put in place ‘the people, systems and processes’ to get the company on a growth path. With the external market slowly improving, there should be more to come from the shares.

Over at AIM-quoted Hightex, non-executive director Charles Sebag-Montefiore was identified as a crucial factor in the introduction of a ‘more commercial approach’ that helped the Bavaria-based concern deliver a maiden profit at the interim stage. Through an excellent long-term pipeline, boosted by lately securing ?45.3 million of contracts for new stadia in Warsaw, Kiev and Vancouver, Hightex has visibility over most of its forecast 2010 revenues and beyond. With that in mind, even after price accretion of 280 per cent over the past 12 months, the shares should continue on their growth trajectory.