Pick of AIM by Miles Nolan

The recent £43.8 million acquisition of AIM-listed catheter-to-stent manufacturer Clearstream by US giant C.R. Bard has provided shareholders with a decent exit. So who could be next?

Every day I sift through streams of RNS announcements, but last month one in particular caught my eye. Shares in healthcare investor MDY Healthcare almost quadrupled in value, on the news that it was to realise its investment in Medivance.

None other than C.R. Bard has agreed to pay $250 million for the Colorado-based leader in the emerging field of therapeutic temperature management. Its patented, FDA-approved Arctic Sun device helps deliver precise control over core body temperature after traumatic medical events. Thanks to strong demand for its products, it has enjoyed growth in 27 out of the past 29 quarters.

MDY has invested a total of $6 million (most recently $1 million in June 2009) for its 10.4 per cent holding. This, when completion takes places in the final quarter of 2011, will result in a payment of £12.5 million to £13.125 million.

For MDY, this equates to a windfall of 73p to 77p a share – not bad when compared with its lowly share price of 41p, which values the AIM counter at bang on £7 million.

Tidy profit
MDY has total debts of £1.65 million, so even after being repaid it should leave a tidy profit. Management is to set out a strategy for the use of the proceeds, but this is not the end of the story.

MDY also has one other investment – a 14.5 per cent stake in Stanmore. Founded in 1949, this is an orthopaedic business focused on saving and restoring the function of limbs and joints.

It was a UCL spin-out, and is on track to deliver sales of £7.5 million this year, fuelled by distribution to 15 countries.
MDY has completed a planned cost reduction exercise, which includes assigning its onerous office lease. In my opinion, the shares have further to run.

On the subject of maintaining body temperatures, another AIM minnow catches my eye.

Rotherham-based Inditherm joined the market in 2001 with some fanfare but has struggled to gain traction. Having recently divested itself of its original industrial activities, it is now focused on the medical sector.

Inditherm has spent the thick end of 11 years developing its Alpha mattress, which maintains the core body temperature at over 36ºC.

Nice work
It recently received a boost from NICE (the National Institute for Health and Clinical Excellence), as the body cited the benefits to the NHS of using its product.

Unfortunately, even with an annual cost saving estimated at £9,800 per operating theatre, the NHS is still proving slow to make decisions. Unflustered, Inditherm has been working hard to win new sales, driven by an increased medical distributor base overseas.

Results for the six months to June revealed a 10 per cent increase in sales to £817,000, as losses from continuing operations shrank over 40 per cent to £74,000 (2010: £124,000 loss).

Following a slow start to the year, the second and third quarters have shown encouraging growth. Indeed, order growth going into the second half is up a useful 30 per cent. When considering it has a net cash balance of £1.5 million, which is the same as its market value, the patented technology it owns is in for free.

With minimal cash burn, Inditherm should be able to get to profitability without returning to the market for further funds.

Broker Collins Stewart predicts break-even for 2012, on sales of £1.7 million, rising to £2 million and a pre-tax profit of £200,000 in 2013. At 3p, the risk/reward ratio is attractive. Either it gets into the black on its own or a large player such as C.R. Bard stumps up for the technology.