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David Kempton: 4 AIM stocks I'm buying for 2018

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David Kempton: 4 AIM stocks I'm buying for 2018
 

The bull market runs on and could be the UK’s longest ever if it lasts until August.

But while this run may be long in the tooth, shares remain the only game in town, with interest rates worldwide trending upwards but cash at the bank brining negligible rewards, and bond yields still at historic lows despite the recent sell-off.

World growth is forecast at 3.7% for 2018, slightly above last year, which gives encouragement, while China has surprised on the upside with 6.9%.  

That said, the rise in technology stocks has a familiar bubble feel about it, with many of us still fearful of the awful dotcom crash of 2000. 

Is it different today? Certainly not; we will again see some massive long-term winners and big losers. But you lose your money only once, whilst the winners become multi baggers, some having multiplied 10 times already. 

It has never been so difficult to invest in a technology stock on even a three year view, when real ‘breakthrough’ developments can become redundant in that time frame.

Such a scenario creates wonderful investment opportunities but don’t fall asleep at the wheel. Run your profits and cut your losses fast. I (nearly) always cut losses at 20%, which does risk too fast an exit, but mostly stems more serious losses.

How my portfolio has fared

I listed my Alternative Investment Market (AIM) portfolio here in September 2016 and last summarized just over a year ago, so I should provide an update for the start of 2018.

In the year I have sold Arria (ARRAF.PK), BCA Marketplace (BCA),  Bioventix (BVXP), Cerillion (CER), ECO Animal Health (EAH), Journey Group, Lok’n Store (LOK) and Morses Club (MCLM).  Except Arria, where I cut and ran at a 22% loss, all were sold at a decent profit.

If you still hold them, there’s nothing wrong with any of them, I just thought they had done the job for me.

I have retained the following, and have included the share price gain since I first mentioned them in September.

Stock Type of company Share price gain (%)
Burford Capital (BURF) Legal financing fund 130
Conviviality (CVRC) Retail food group 60
EKF Diagnostics (EKF) Healthcare company 67
Serica (SQZ) Oil exploration and production 480
Swallowfield (SWL) Beauty products maker 37
Watkin Jones (WJG) Student property builder 83
XL Media (XLM) Internet marketing 128

 

These are all significant profits (average 140%) in the 15 months, but remarkably, I would still consider every one a ‘buy’ even at this level. 

Last January I picked my three stocks for 2017:

Purplebricks (PURP), an estate agent combining local professional property experts and online advertising for sales and lettings. I first mentioned it here in December 2016 and is now up 191%. 

It has £60 million of cash and forecast profits of £6.1 million in 2019, rising to £44 million in 2020. JPMorgan has forecast 85% annual market growth to 15% of the UK market by 2021, further enhanced by operations in US and Australia. There’s more to go for and still worth buying.

RedT Energy (RED), a developer of vanadium flow batteries for robust energy storage on and off grid. I also mentioned this stock in December 2016 and it is now flat on that price, having been up 50% in October. This is disappointing and the development and new order flow is taking much longer than I’d anticipated. Hang on for more news medium term.

Avingtrans (AVG), an acquisitive engineering components manufacturer for the nuclear, medical, energy and traffic management sectors with ambitious growth plans. The recent successful Hayward Tyler acquisition is winning significant new orders, leading their brokers to forecast a tripling of revenue and profits for May 2018, with continued strong growth. 

It was first mentioned here in January 2017 and is now up 17%, which is not that exciting, but the share price now lags the sector and there’s much more to come. I have set mine aside as a core holding and will buy more on any weakness.

My picks for 2018

For 2018 I have added the following to my AIM portfolio:

FairFX Group (FFX), a payment, foreign exchange company with a strong prepaid card business through cloud enabled banking platforms, now launching a multi currency bank account with a focus on the business sector. Turnover of £1.1 billion in 2017, an increase of 39% on 2016 and profits for the year are expected to beat market expectations. With forecast profits for 2018 giving a price-earnings (PE) ratio of 14, reducing to nine in 2019 for a 0.2 price-earnings to growth ratio, the shares look good value. The acquisition and growth aspirations could be very rewarding.

Ramsdens (RFXR), is not, as such, a high-tech company, but more of a modern pawnbroker with additional range of financial services.  Floated last year, September profits increased 60%, a growth rate expected to continue. On an historic 16 PE, with £13 million cash, the shares look attractive value for a company in a solid, established, but growing, market. The foreign exchange business with 500,000 retail customers contributes half gross profits, but with 127 stores and another 30 identified locations, clearly there are strong ambitions for strongly increasing market share.

Midwich (MIDW), provides audio visual solutions to a trade market in the UK, Europe and Australia. The company is well established with over 300 blue-chip customers. Last week it announced second-half results with strong growth in all sectors, now anticipating revenue up 18% to £470 million while the board forecasts pre-tax profits ‘comfortably’ ahead of expectations. Clearly an ambitious, well-run company with established customers in a growing market.

In June, I wrote of Bango (BGO), a mobile payments company enabling purchases to be charged to a cell phone account, seemingly ubiquitous in rural Africa, now growing in Japan with Amazon, Mexico with Netflix, Nigeria with Google, an expanding presence in Korea and now in the US.  

User spend doubled to £270 million last year and, although not yet in profit, running revenue now exceeds spending, including new investment in systems to process £5 billion sales per year. 

This week’s placing at a discounted 180p will raise £5 million for the acquisition of Audiens, which enables Bango to capitalize on the valuable data it generates through its existing operations and to enable the Bango platform to provide additional value to the rapidly-growing mobile advertising market. Digital advertising is now an astonishing 30% of the world advertising market, and growing very fast.

This is a classic developing technology stock with massive growth potential, but no profit yet in sight, so owning the stock is something of an act of faith. However, I’ve held them since mid 2016, showing me 350% profit, but considering the growth potential in the sector, it is still well worth buying into.

Rather than increase my Bango holding, I have bought Boku (BOKU), floated only two months ago. An agreement with EE, now the UK’s largest cell phone operator, to provide mobile phone billing support for purchases, is encouraging. 

With a market cap of £180 million, Boku is not for the faint hearted and is a classic early-stage technology stock, where I have belief in the sector.

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