Pick of AIM

I recently met Justin Drummond, chief executive of the somewhat unloved Media Corporation, which he has moved away from gambling advertising to internet publishing.

Looking decidedly under-valued at less than £14 million, Media Corp sports clients including AOL, American Express and Dell. It closed the year to September with bumper cash balances of £6.5 million following the sale of its Casino.co.uk site, which it built up from a mere domain name and sold for a £2.5 million profit.

The company is helping major advertisers shift their budgets to the web at a frightening pace and communicate with consumers in a highly targeted manner. It has a broad spread of publishing interests including TV listings site onthebox.com and gambling.com. Media Corp is continuing to pick up ‘premium’ domain name assets.

An eye on the game
Elsewhere, its advertisements network Eyeconomy, whose clients include the aforementioned corporate leviathans as well as Sky and World Wildlife Fund, reaches more than 30 million people in the UK every month and is thriving off the back of the inexorable shift of budgets from TV to online.

For September 2007 – results are out this month – pre-tax profits of £470,000 are forecast. This is a drop from £2.46 million in 2006 and reflects Media Corp’s repositioning. However, for the current year, strong profits growth to £910,000 looks on the cards, giving earnings of 0.28p and a current year price to earnings ratio of 18 times. I think that is very cheap considering the group’s cash balances, growth prospects in the digital space and ability to build and extract value from its online publishing assets. Key backers include New Star, Fidelity and Herald.

Punching above its weight
Cheltenham-based training company Pennant International boasts clients such as defence and aerospace giants BAE Systems, Airbus and the Ministry of Defence, which is particularly impressive given its rather minuscule £7.5 million market price tag.

Guided by enthusiastic chief executive Chris Snook, Pennant, whose origins are in training equipment provision to the RAF, celebrates its 50th anniversary in February. It joined AIM in 1998 and has traded profitably since 2002. With ‘wow factor’ technology, Pennant provides everything from virtual reality and physical training systems for fighter plane and helicopter pilots to training systems for maintenance and engineering staff.

Pennant also offers ‘information services’, including e-learning systems for the Department for Work and Pensions and Network Rail, a slew of handbooks and maintenance manuals, and even parts catalogues for Airbus’ A300 and A380 aircraft. Software services clients, including Thales and Eurocopter, add to its lustre.

September’s interim figures were buoyed by demand from Pennant’s client base and revealed a 14 per cent rise in revenue to £6.5 million, though a slower start to a major contract meant profits growth was a more modest seven per cent at £390,000.

For December 2007, WH Ireland’s Anne Margaret Crow forecasts a 34 per cent profits improvement to £830,000 from £13 million of sales, ahead of £890,000 from £13.7 million for next year. Based on earnings per share of 2.4p and 2.7p respectively and dividends of 0.7p and 0.8p, Pennant, now 24.25p, trades on forward multiples of only ten and nine times with a decent three per cent yield. Its valuation is underpinned by more than £5 million of net assets. In my experience, you’ll struggle to find many sub-£10 million businesses that pay a dividend and boast such strong ties with powerhouse clients.