Pick of AIM by James Crux

Unparalleled happenings on the markets remind us that no share price is entirely fail-safe. Yet your best bets are still cash-generative companies operating in non-cyclical sectors

Filtering through a slew of September results, two companies stood out to me. Defensive and motoring along nicely is Nationwide Accident Repair Services – valued at
£56.4 million at 130.5p.

Pursuing ‘twin-track’ organic and acquisitive growth in a consolidating car crash repair market, this business is largely immune from downturn since crashes occur no matter what the economic weather.

Nationwide was brought to market at 111p in 2006 by experienced CEO Michael Wilmshurst, who tells me Nationwide is the country’s biggest dedicated provider of crash repair and accident administration services to motor insurers and fleet operators from a band of bodyshops spanning England, Scotland and Wales.

Strong interims to June – profits up 14 per cent to £3.9 million on turnover up 16 per cent to £88 million, plus a 13 per cent dividend hike to 1.7p – were buoyed by new contract wins and extensions from the likes of Zenith, AXA and Norwich Union. This was also a handy period for the Network Services Division (which provides accident management services to insurers and fleet operators).

Also significant, according to Wilmshurst, is the growth of retail sales – tyres, exhausts, etc – from group bodyshops: ‘In the current cycle that we’re in, we think the retail side will be attractive. This is because, rather than buy a new car during a downturn, people tend to do up their old ones.’

Further bolstering the investment case is Nationwide’s balance sheet strength, with half-time net cash balances amounting to £4.6 million. ‘A good balance sheet helps you secure larger deals,’ says Wilmshurst, ‘and it means we can pay a dividend.’
On track for significantly improved full-year profits and earnings of £8.78 million and 14.1p respectively, Nationwide trades on a prospective multiple of less than ten times, which to my mind is far too low a rating.

Vindon offers visibility
While smaller companies come with risk, if you are after a growing business with defensive qualities and healthy earnings visibility, look no further than Vindon Healthcare – priced on AIM at £17.77 million on a 20p share price.

Making ‘environmental control’ products for the pharmaceutical, life sciences and food sectors, and providing an array of related services, the company has been on my radar for some time now.

Chaired by no-nonsense Liam Ferguson, its product range includes controlled environment testing chambers and blood banks, while services offered range from stability storage trials to the servicing of controlled environment testing chambers.
Aside from the fact that drug development spend shows resilience to the vagaries of the economic cycle, I like the fact that Vindon is the leader in this niche, and that the highly cash-generative company, which has commenced dividend payments, offers good levels of visibility.

Recent half-year figures impressed, with profits up 49 per cent to £828,000 on a 21 per cent top line advance to £2.55 million, reflecting a focus on higher-margin services. Moreover, Ferguson flagged up committed revenues on storage and services contracts amounting to £796,000 for the second half-year, with £1.1 million already in the bag for 2009.

Having moved into a new facility in Rochdale with double the manufacturing space and six times the storage capacity of its previous premises, I’m convinced Vindon is set fair for good growth. Ferguson informs me that Vindon is now better placed to obtain more regulatory approvals and widen the range of drugs it can store.

Based on City number crunchers’ 2008 forecasts – a rise in profits to £1.69 million (2007: £1.43 million) and in earnings to 1.36p (2007: 1.18p) – Vindon trades on a forward multiple of 14.7. Although not screamingly cheap, I think shares in this business are worth buying and stashing away.