Pick of AIM by James Crux

AIM investors can profit by tapping into companies that are undergoing a positive transformation at opportune moments

Over the past month, two such companies have caught my eye, the first of which is global fire and rescue services specialist AssetCo, in the midst of a beneficial refocus under CEO John Shannon.
 
Having overhauled its strategy, AssetCo, a market-leading UK provider of fire and rescue-based front-line services with long-standing ties with the London Fire Brigade, is concentrating resources on its support services activities, having begun the disposal process for its specialist equipment business and already closed its low-margin vehicle assembly operations.
 
The benefits of AssetCo’s transformation were seen in recent record results for the year to March, showing profits on continuing business increased from £1.3 million to £12.1 million, significantly improved earnings of 8.9p, and a reduction in debt from £36 million to less than £19 million. Annual dividends were upped from 1.25p to 1.5p and investors can expect an interim dividend of not less than 1p, as other non-core assets are hived off.
 
AssetCo continues to cheer investors with blockbuster contracts both at home and abroad, among them a seven-year deal with the London Fire and Emergency Planning Authority to provide a 700-strong fire-fighter reserve ‘capability’ service to the London Fire Brigade.
 
Overseas, AssetCo has secured a £40 million deal to provide a fully outsourced fire service in Abu Dhabi and the wider United Arab Emirates (it is the only UK company providing a front-line emergency service to a foreign state).
 
I like AssetCo’s international growth potential and its ability to help cash-strapped local authorities meet government budget targets through more efficient service provision, as well as the fact that all of the group’s 2011 forecast revenue is contractually committed.
 
The shares, which had drifted down from 70p at the start of 2010 to 47p, before perking up to 57.25p in the wake of well-received finals, could reignite on additional contract wins, so fill your boots.
 
Profits in our time?
Now is also the time to take an educated punt on the eye-catching turnaround underway at foundries firm Chamberlin, which makes castings and other products employed across a reassuringly broad slew of sectors ranging from automotive and hydraulics to renewable energy and oil and gas.
 
Having undergone a thorough restructuring under enthusiastic CEO Tim Hair, drafted in at Chamberlin back in 2006, recovery is now firmly on track and new customers are being won.
 
OK, so annual numbers for a challenging year to March showed lower revenue of £28.5 million (2009: £39.9 million), some 40 per cent off pre-recession levels. And the company did report underlying pre-tax losses of £1.056 million.
 
However, I prefer to focus on the significant revival in fortunes seen in the second half (losses showed a 55 per cent improvement versus the first half), as demand turned up across all businesses and cost-cutting initiatives kicked on through. And the upturn in demand that revealed itself in the fourth quarter has continued into the current year.
 
Chamberlin, which will see the financial benefits of a significant new win for turbocharger castings now in production at its Walsall foundry, is ‘positive on prospects’ for a return to profitability this year – and a return to dividends should follow as market conditions improve. What’s more, management is now refocusing its efforts on the search for earnings-enhancing acquisitions.
 
Forecast to swing into the black to the tune of £500,000 pre-tax, producing earnings of 6.3p, Chamberlin shares, which have already risen from a 45.5p 52-week low to 71.5p, still sell for less than 12 times earnings. And given that the group boasts net assets of £7.9 million, the current £5.3 million market cap does not look overcooked. So long as profits do indeed return to pre-recession levels, I see significant medium-
to long-term upside.