Recipes for success at the Growth Company Show

Mealy-mouthed banks have confessed a continued reluctance to lend to small and medium-sized enterprises, but the attendance and discussions at the latest Growth Company Investor Show have demonstrated that an appetite for the star businesses of tomorrow is rekindling briskly.

More than 1,100 investors, investment experts, bankers, lawyers, accountants and company bosses came to the Barbican Exhibition Halls in the City of London on 29 September to swap ideas and meet a diverse array of growth company exhibitors. Among those attending were nearly 400 City professionals anxious to compare notes with each other at this popular annual event and to learn more about some of the ambitious companies and entrepreneurs exhibiting at the show.

These ranged from patent and technical translations specialist RWS Holdings and fellow AIM counter and fast-growing internet software specialist Forbidden Technologies to successful drug development backer Alliance Pharma and booming PLUS-quoted publisher Quercus. Visitors were enlightened, entertained and sometimes provoked by speakers including Schroders’ investment luminary Andy Brough, who addressed the question ‘13,000 UK small companies: is there a future?’, and Close Asset Management’s Derryck Noble-Nesbitt, who spoke on equity investing.

A ‘renaissance for small-caps’
Adam McConkey, new UK smaller companies chief at investment group Gartmore, brought words of cheer.

Conceding that professional investors had ‘exited the small-cap asset class every single year for quite some time’, he said that he now envisaged a ‘renaissance for small-caps’ over the coming two years, despite current ‘negativity’.

Fund managers had become ‘conditioned for bad news’, but this climate would change, suggested McConkey, who has replaced the celebrated Gervais Williams in his pivotal role. He reminded visitors how the small and medium-sized enterprise sector has had to pay for the blunders of the big companies.

He pointed out that smaller companies had not been able to access the complex financial instruments that helped create the credit crisis. That left them with few funding options, since they also had only limited access to the bond markets.

Another fund manager, Andrew Neville, manager of German insurance group Allianz’s RCM UK Mid Cap Fund, highlighted the potential benefits that the growth of the middle classes in emerging markets could bring to UK companies. One such concern was spread betting concern IG Group, which derived more than a third of earnings from outside the UK.

Guidance from the guru
The biggest crowd puller was keynote speaker Jim Slater, legendary financial guru and one-time pioneering asset-stripping investment boss, whose more recent coups have included ex-AIM star Galahad Gold. He urged his listeners to put 40 per cent of their funds in selected growth companies and 30 per cent in gold shares, while keeping 30 per cent in cash.

Slater’s nap selections among gold shares were those with rising production prospects, good management, a safe political arena and no price hedging arrangements, notably Norseman Gold, Centamin Egypt, Medusa Mining, Australia’s Focus Minerals and Spanish Mountain.

Elsewhere, he liked Premier Oil, a potential takeover target, and companies with low gearing, cash flow greater than earnings, a low price-to-earnings ratio relative to a high growth rate and price momentum, such as Andor Technology, Volex, Cape and Advanced Medical Solutions.

Lessons from the coalface
Among the corporate exhibitors was RWS Holdings (see Company Insider, page 19), Europe’s leading provider of intellectual property support services, which now says annual revenues will beat market expectations with an 8.5 per cent increase to around £60 million.  The AIM-quoted company achieved 13 to 14 per cent growth in its core patent translation business in the year to September, says chairman Andrew Brode, but a tough market for technical translation in Germany, combined with the weakness of the euro, held back overall growth somewhat.

With 70 per cent of its business driven by legislation, RWS has net cash of £17 million, a key factor for acquisitions.  Longer term, RWS sees China coming up fast as a major filer of patents and has 25 staff in Beijing.

Fellow exhibitor Quercus Publishing, riding high on the success of Swedish crime writer Stieg Larsson, has foreshadowed a half-year turnaround from £100,000 losses to £3.4 million operating profits. CEO Mark Smith highlights the company’s entry into the North American fiction market through a joint venture with Sterling Publishing, part of Barnes & Noble, the world’s largest bookseller. He looks forward to February’s launch of Love Virtually by best-selling German author Daniel Glattauer.

Also presenting was AIM-quoted mining minnow Red Rock Resources, steered by former City analyst Andrew Bell, who sees increasing gold production at strikingly high grades from projects in Colombia as well as exciting prospects in Kenya. He contemplates a PLUS-quoted float for a vehicle created to receive production royalties from Australia’s Mount Ida manganese mine.

In today’s climate of austerity and public spending cuts, it is clearly not going to be plain sailing for companies, advisers or investors. But the GCI Show provided lessons, ideas and examples of how to steer a profitable course.