Going for growth in a cold climate

‘Stay in growth companies’ was among the forceful conclusions of Paul Jourdan, head of Amati Global Investors – one of the key speakers at the Growth Company Investor Show – in an address entitled ‘Guns, gambling, gold and Armageddon’. Meanwhile, Close Asset Management fund manager Deryck Noble-Nesbitt, discussing ‘Investing on AIM’, maintained that ‘for the long-term investor, equity valuations are becoming compelling, relative to other asset classes’.

More than 1,150 investors, company chiefs and financial professionals flocked to the show, now in its seventh year, at the Barbican in the City of London. Organised by AIM-quoted Vitesse Media’s Growth Company Investor publication and presented by another Vitesse title, What Investment, the show attracted attendance from the investment community, small and medium-sized quoted companies and investors, who came to deliver and hear some surprisingly upbeat messages from the commercial coalface.

Exhibitors ranged from engineering group Chamberlin, a specialist in supplying technically demanding iron castings for major groups such as Siemens, JCB, Tata Steel, and innovative global e-learning software concern ILX Group to niche plastics exporter Plastics Capital, patent translator and intellectual property support company RWS Group and Ideagen, a diversified compliance software developer poised to move its shares from PLUS to AIM.

Among the many others displaying their wares were successfully acquisitive niche pharmaceutical group Alliance Pharma, PLUS-quoted diagnostic antibody provider bioventix, insurance claims management and consultancy specialist Resources in Insurance Group, PLUS newcomer IMC, prospector for gold, copper, lead and zinc in the Irish Republic, and the Quoted Company Alliance, which represents the interests of the UK’s small and mid-cap quoted companies.

‘Real gems’ in small-caps    
Paul Jourdan, who combines investment strategy with professional violin playing, spoke of the ‘real gems’ to be found among smaller quoted companies, as he outlined how to be ‘long-only in a financial crisis’. Gently deriding Europe’s attempts so far to tackle its menacing financial problems, he nonetheless suggested that gold, now more than $1,700 an ounce, had become a ‘very crowded’ market and ‘not a good thing to invest in now’, with cash also uncomfortably ‘crowded’ and ‘a very bad long-term investment’.

Deploying a blend of fundamental and technical analysis, with an eye for new highs and lows, and in particular for shares rising after bad news, Jourdan was bearish on energy, commodities and the euro and bullish on bonds and the US dollar.  Among specific companies, he highlighted takeover candidate and Peppa Pig producer Entertainment One, now 195p, as well as strongly performing scientific digital camera maker Andor Technology, 510p, internet dating concern Cupid, 207p, and mineral royalties recipient Anglo Pacific, 255.5p, while also commending Chinese orange grower Asian Citrus, now 258.8p, as ‘still an outstanding company’.

In considering AIM, Noble-Nesbitt suggested that investors could do worse than follow Sage of Omaha Warren Buffett’s advice to ‘be fearful when others are greedy and greedy when others are fearful’. Warning that smaller companies such as those listed on AIM should be considered ‘high risk and volatile’, he commended a selective approach to the junior market.

‘You can’t ignore the fact that in a liquidity crisis AIM equities may fall significantly further than large-cap equities,’ conceded Noble-Nesbitt, pointing out, however, that ‘on the flip side, this can present an excellent opportunity to investors who have retained liquid capital in extreme market conditions’.
Stressing the tax benefits that can attach to investing in certain AIM companies, he also noted that certain sectors, such as oil and gas and mining – with a combined 37 per cent of recent AIM value – have an unusually strong weighting in the market, while others, including media, health care equipment, industrial engineering, technology hardware and equipment, and construction and materials, account for less than 2 per cent each.  

Fresh perspectives
Another institutional investor, Adam McConkey, a director of Henderson Volantis Capital, pointed out the difference between ‘Perceptions and realities in UK small-caps’, while Allianz fund manager Andrew Neville argued for
‘The mid-cap opportunity’.

Of particular interest to professional and private investors alike, however, was ‘A time to slow?’, in which the redoubtable Gervais Williams, managing director of the £1.6 billion MAM Funds group, explained the merits of ‘slow finance’, as outlined in his new book of the same name. A veteran of the Throgmorton and Thornton investment management groups and former head of UK small companies at Gartmore, he warned that the frenetic switching from market to market around the world of recent years has not delivered value to investors but has instead created dangerously overvalued ‘bubble markets’, notably China and the ‘emerging’ economic powerhouses.

Williams’s view is that investors would be better served by a focus on companies much closer to home, capable of achieving organic growth in their own markets and paying dividends. Such an approach, taking an informed long view of companies for investment, with a minimum of churning and ‘leverage’, focuses on value investing and, of course, would do little to enrich the financiers and brokers for whom the volatility he deplores is meat and drink.             

Cyril Theret, chief executive officer of loss-making PLUS Markets Group, the AIM company that operates the PLUS-quoted stock market as well as competing platforms for some fully listed and AIM-quoted companies, spoke of PLUS as ‘the next-generation stock exchange’. Unfortunately, he made his rallying cry less than a fortnight before Middle East investment syndicate Amara Dhari, a significant PLUS Markets shareholder, called for the removal of its chairman, Giles Vardey, and the reinstatement as a director of former chief executive Simon Brickles.

Views from the front
Professional investors were by no means the only speakers imparting the benefits of their experience and insights at the show. Some of those running the businesses in which institutional and retail investors lodge their funds shared their thinking, too.

Tim Hair, chief executive officer of Chamberlin, described how his company turned £1.4 million losses into pre-tax profits of £333,000 in its last financial year, on turnover up 44 per cent to £40 million. He explained how the company was well placed to weather the recession and exploit a recovery in demand, thanks to the diversity of markets it serves, including hydraulics, mining, hazardous environments, power generation and construction equipment.

Direct exports account for some 35 per cent of Chamberlin’s output, to continental Europe, America and Asia, while another 35 per cent is ultimately exported by the company’s customers in the UK equipment-manufacturing sector.
Chamberlin, whose investment fans include none other than Gervais Williams’s Diverse Income Trust, says it is on the lookout for acquisitions after a first half-year’s trading that reflected ‘positive trading momentum’.

‘Transforming the way people learn’ was how Ken Scott, chief executive officer of ILX Group (27.5p), immodestly described his company’s mission. Reminding his audience that ILX, whose business he has been instrumental in reshaping, lifted pre-tax profits 88 per cent to £1.42 million in its last financial year on turnover up 9 per cent (with international revenue ahead 70 per cent), he stressed the company’s strategy of building on its position as a global market leader in the PRINCE2 project management qualification.

With PRINCE2-related sales surging in Australia, New Zealand and the Middle East, notably Oman, despite ‘challenging conditions in the UK’, ILX has also been developing products in other areas accredited by the Office of Government Commerce, part of the Treasury, notably programme and project sponsorship, project support and risk management. The company, which has refinanced and extended the term of its banking facilities, has been winning new e-learning and consultancy contracts and has recently made confident noises about current prospects.

Tips from the team
As well as organising the show, Growth Company Investor itself offered some of the latest investment ideas of its own team of commentators. Pointing out that he and his colleagues talk to more than 1,000 chief executive officers each year, editor Miles Nolan noted that the average performance of GCI recommendations was a gain of 26 per cent in 2009, followed by a 16 per cent improvement in 2010 and, so far this year, a gain of 25 per cent against AIM and 10 per cent against the FTSE 100 Share Index.

For his current equity favourite, Nolan chose AIM-quoted Kiotech International, now 91p, a maker of natural food additives poised for growth in a buoyant market following strategic acquisitions and a strengthening of management.
He also liked the look of broadcasting equipment concern Avesco, 131.5p, anticipating the Olympics effect, and fast-growing oil explorer Global Energy Development, at 100.5p.

Chamberlin found favour with Sara Williams, founder and executive chairman of Vitesse Media, who also pinpointed life assurance investor Chesnara, 195p, on yield grounds and RWS Holdings, 432p. Williams also singled out buoyant insurance broker Gable Holdings, now 23.8p, acquisitive employee outsourcing specialist Staffline Group, 236p, and industrial services and rental concern Northbridge, 100.5p.

Les Copeland, chief executive officer of Vitesse Media, suggested that bold investors should take a look at international marketing communications group Media Square, now a lowly 1.88p. He also urged the merits of Cello Group, 33.25p, provider of insight and strategic marketing for the pharmaceutical and other sectors, and international online market researcher YouGov, 47p.

Robert Tyerman, news editor of Growth Company Investor, highlighted the attractions of ANGLE, an investor in and commercialiser of technological innovations, 69.5p, with high hopes for its 90 per cent-owned US diagnostic venture, Parsortix, boasting a device for identifying and separating cancer cells in blood, and other investments besides. Corporate legal expenses insurer and consultant Abbey Protection found favour for its yield and long-term growth prospects and Avocet Mining, 238p, stood to gain from West African gold projects.

GCI specialist journalist Ben Jaglom also cast his net wide, commending Raven Russia, 54.25p, for its shrewd moves in the Russian property market under the canny guidance of sector veterans Glyn Hirsch and Anton Bilton and expounding on the merits of soya sauce maker China Food, 36p. India’s growth prospects led him to suggest acquisitive Infrastructure India, 61.25p, while he detected a route to share in the burgeoning success of ‘Kollywood’, Bollywood’s younger South Indian counterpart, via niche film maker and distributor Photon Kathaas, 28p.