New Issues Examined by Nick Britton

Amid signs of renewed activity, the past month has seen seven companies come to AIM, of which five raised money.

Although five of the seven newcomers to AIM in the past month are in the mining, investment and real estate sectors, the biggest placing was pulled off by Emis, a company selling software and services to the NHS.

Admittedly, only about half of Emis’s £50 million will be available to fuel the company’s growth; the remainder will go to pay off a loan from its founders. But, with a market capitalisation of £175 million at the issue price of 300p and a post-float uplift to 365p, the company is the largest to have gained admission to AIM so far this year. As a mature, dividend-paying business, it repays closer attention.

Chief executive Sean Riddell is eloquent on the efficacy of his software in ‘getting rid of paper flows and driving out costs’. The company has a strong position in its market, with 52 per cent of GP practices using its flagship product, Emis Web, to store and manage patient records.

But the opportunity that really excites him lies in what’s called ‘practice-based commissioning’, whereby groups of GP practices pool their resources and expertise as an alternative to referring patients to hospitals for expensive treatment. Being able to access patient records on a web-based system is the key to making this approach successful, says Riddell.

Promising the Earth
This is all well and good, but aren’t a lot of software companies targeting the NHS, promising the Holy Grail of reduced costs and improved care? ‘There are competitors in the marketplace, but you have to look at the number of patient records we already hold in our system,’ says Riddell. This amounts to 63 per cent of all ‘birth-to-grave’ patient records, according to Emis’s own estimate.

The argument is that this established advantage is crucial when selling to a large and complex organisation like the NHS, where new systems and providers can take years to gain a foothold.

Although Emis is making inroads into North America via Canada, the most compelling growth opportunity is still in the UK, according to Riddell.

That must be seen as a risk to the business due to the lively competition in the marketplace and the probability of government spending cuts, which will make it harder for the NHS to invest in new systems – even those that promise cost savings.

Nevertheless, house broker Evolution Securities is forecasting dividends of 11p this year and 12.1p for 2011, meaning Emis offers a respectable yield for a company whose growth potential is still significant.
 
Distant pay-off
Other new entrants to AIM hold out the prospect of a more distant pay-off. Iron ore explorer Bellzone Mining, which raised £33.6 million, aims to start production at the rate of 20 million tonnes a year in 2014 at its Kalia project in Guinea, rising to an annual 50 million tonnes in 2018.

The two-stage project will require capital expenditure of around £3 billion, which the company hopes to raise from potential purchasers of the mine’s future output.

Bellzone is valued at some £180 million, considerably more than the other three resource-focused concerns to join AIM in the past 30 days, Tanzania gold and nickel play Kibo Mining, Australia-listed Metminco and cash shell Q Resources, which intends to invest in mining assets in Africa and South America.

Finally, on the principle that the best time to invest in something is when everyone else wants to get rid of it, PLUS-quoted Japanese Turnaround Capital aims to pick up portfolios of consumer debt in the nation for substantial discounts.

The executive directors, veterans of Japan’s finance industry, are hoping to exploit recent legislation that makes holding that debt much less appealing: for example, the imposition of a maximum interest rate of 20 per cent on unsecured borrowing.

The company itself is tiny, so would have to raise substantial further funds to carry out its strategy, and with a minuscule free float, its shares are likely to be highly illiquid. One for the intrepid investor only.