Pick of AIM by James Crux

Whisper it quietly, but burgeoning AIM order books now indicate real signs of economic revitalisation

‘We’re seeing the recovery coming through,’ says Alex Stewart, convivial CEO of Clyde Process Solutions, which provides pneumatic conveying and air filtration solutions (process-critical, low-energy and environmentally efficient)
to process-based industries such as food, cement, chemicals and ethanol.

Globally well spread, with business extending to North and South America, Europe and Asia, Clyde recently reported a £20.5 million year-end forward order book, which by April’s end had expanded to £21.8 million. Branching out into sub-sectors such as sugar and petrochemicals and making encouraging inroads into the economic powerhouses of India and China, there is every likelihood that order book will grow in the months ahead.

For a challenging year to February, Clyde delivered strong numbers, ahead of the forecasts of City number crunchers. While sales eased off from £82 million to £72.5 million, operating profits grew by 6 per cent to a record £6.7 million thanks to management’s earlier reshaping of the business in a move to preserve margins.

With net debt reduced to £16.3 million (2009: £18.9 million) and the business churning out £5.7 million of cash last year, Clyde has decided to resume dividend payments, proposing a 0.8p final payment for the year.

I view Clyde shares, trading on a miserly prospective p/e of 7.1 at 45.5p, as unfairly unloved, and given their return to the dividend trail, I am expecting a rerating.

Hope renewed?
Order book growth is also in evidence at engineering and construction play Renew Holdings, at which no-nonsense boss Brian May holds sway.

OK, so pre-tax profits for the half to March slipped back 30 per cent to £1.61 million as recession continued to bite in its markets. Furthermore, turnover reduced to £139 million (2009: £172 million).

However, Renew’s March 2010 order book stood at £289 million, a significant 31 per cent ahead of the £221 million total of a year before, and 43 per cent ahead of the year-end order book. Shifting its business towards higher-margin specialist engineering, Renew says 91 per cent of that order book pertains to higher-value specialist sector work, while £175 million extends beyond the current financial year, lending Renew decent earnings visibility.

Having taken its restructuring medicine over two years and held the half-time payout at 1p, and with its balance sheet not only debt free but boasting a reassuring £10.5 million in net cash, I view Renew as robust enough to return to profitable growth. Renew shares, which have dropped from their AIM peak of 120p to just 31.5p, pricing the business at less than £20 million, are swapping hands for only five times historic earnings (of 6.1p), offer a bumper 9.5 per cent yield and are worth picking up on recent weakness. Buy, then hold.

Building a backlog
Outperforming many a peer in the worst market conditions seen in generations is Archial, the £17 million architects and design concern.

CEO Chris Littlemore recently informed AIM investors that trading for the first four months of 2010 at Archial, which managed to deliver pre-exceptional pre-tax profits of £1.5 million for a torturous 2009, met management expectations. Moreover, Archial, with a diverse mix of projects in the UK, is successfully developing its international business (it recently established a presence in Toronto) and is seeing burgeoning levels of proposals in China and the United Arab Emirates.

Significantly, its pipeline of ‘future qualified opportunities’, mounting month-on-month since September, has now grown to an all-time high of £60 million, increased from £53 million at the end of March. In another positive, this probable book of work boasts a nice spread between international business and private and public sector projects in the UK.

Having come off their 10.75p 52-week peak, the 7.12p shares, while offering some risk, could reward bolder investors.