Two AIM-quoted ventures hoping to tap NHS and healthcare budgets should be on your radar – Zenith Hygiene and Intellego. Both possess great management teams, bumper margins and superior growth prospects

Earlier this year, when the shares were trading at 135.5p, I flagged up the attractions of the ambitious and acquisitive Zenith Hygiene, which floated following a £4.5 million funding at £1 in February.

I was pleased with the maiden preliminaries, which reaffirmed my faith in the strategy of no-nonsense chairman and chief executive Ringo Francis. Profits skipped almost three times higher to £1.5 million on sales of £24.5 million, gross margins spiked up from 46 per cent to 50 per cent, ahead of forecasts, and Francis declared a maiden payout of 2p.

He and astute finance director Richard Colwell have had a busy time on the acquisitions front, bolting on Quantum, MP Chemicals and the more recent Renaissance. All three look like savvy additions to the Zenith empire.

However, Lisburn-based SB Chemicals, bought in October 2004, looks the pick of the recently acquired bunch. ‘I said at the time SB Chemicals was an exceptionally good deal, and a cheap one at that,’ recounts Francis. ‘SB manufactures over 95 per cent of our liquid chemical cleaners and now produces over 125 product lines for us.’ Manufacturing has been brought in-house from third party suppliers, which has hoisted gross margins higher. Francis insists he can double capacity within the existing premises with little extra spend.

Zenith has consolidated its standing in the restaurant, pubs and leisure industries – new clients include Pret a Manger and Clapham House – and made early inroads into health and education. Francis is therefore bullish about Renaissance, which has set Zenith up for an assault on the growing NHS and healthcare markets. ‘We’ll look to consolidate our position in the restaurant market,’ Francis tells me, ‘but I see a big opportunity in healthcare and the NHS. Hospitals are stretched to capacity, and we are living longer and longer. These are what I call captive markets, and they aren’t dependent on the wider economy.’

This year, even before acquisitions in a fragmented market, investors should expect profits of £2.5 million on £33 million sales, giving earnings of 11.6p. Forecasts earnings growth of 40 per cent plus this year leaves the forward rating of 12.6 times looking more than palatable.

Arnett’s intelligent investment
Another chief executive with whom I’ve had a drink recently – and for whom the future is looking bright indeed – is the tech-savvy Edward Arnett, chief executive and 25.5 per cent shareholder of ‘rapid e-learning’ solutions play Intellego.

This Teddington-based business has bagged work with two NHS Trusts – St Mary’s and Kingston Hospital. In both cases, Intellego has provided e-learning solutions based upon its own XStream rapid e-learning ‘authoring tools’, which basically let clients’ own IT training teams tailor e-learning programmes for staff internally.

Work has also been won in other sectors with household names such as Cap Gemini, Xerox and Norwich Union, and Arnett was keen to herald the group’s superior margins. Half-time figures to September revealed losses of £180,000, in line with budget, but sales were over 80 per cent higher at £314,000 and gross margins were a fat 72.5 per cent as Arnett lifted the proportion of technical services delivered with products. Sporting over 100 customers across a swathe of sectors and with toes now dipped in the SAP training sphere, I think this minnow with a market price tag of £1.76 million could prove the old adage about small acorns growing into great oaks. Over the longer term of course.