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Summary
- AIM or Alternative Investment Market is one of the most successful growth markets of the world
- The index which started trading with just 10 stocks almost 25 years back, presently has a listing of over 850 stocks.
- Now there are many companies on AIM index who have been growing substantially and achieving scale, which have delivered handsome returns in recent times
Alternative Investment Market (AIM) is considered as London’s major small-cap market, helping smaller companies to raise capital from the stock markets, through a liberal listing process. One of the basic premises of stock investing is diversification and AIM platform provides a good opportunity for that, despite being a comparatively risky proposition as compared to the other broader markets. Unlike Footsie, the AIM-listed companies are major contributors to UK’s economy. These businesses have a wider coverage across multiple sectors.
The index which started trading with just 10 stocks almost 25 years back, presently has a listing of over 850 stocks. It is one of the most successful growth markets of the world, helping small growth companies to attract the funding required to sustain growth and expansion. Last year, the index had produced around two-thirds of European growth market funding. Now there are many companies on AIM index which have been growing substantially and achieving scale.
The AIM listed shares have delivered handsome returns in recent times. Let us put our lens through some of the businesses listed on the AIM segment of the LSE.
7digital Group Plc
7digital Group Plc (LON:7DIG) is London, the United Kingdom-based company that provides solutions to users for enhancing their experience of listening to music through digital platforms. The company strives to become a leader in B2B digital music space.
The company uses advanced technology with the increased use of storage in the cloud and virtualised applications, which helped in a seamless transition to remote working with security and no impact on clients’ service capabilities.
Recent contracts and renewals
- Company enters an alliance with fitness platform, Apex Rides Limited
- 7digital launched eMusicLive, a virtual concert and monetisation platform in association with eMusic
- Company’s Music Platform to offer audio-visual streaming service for jazz-influenced music, which would be a unique offering
- A global technology company signs contract with 7digital to access a world-wide music catalogue along with tracking and reporting services
- 7digital signed a contract with Triller Inc to provide its music platform for Power Social Music Video application.
- 7digital secured multi-service contract renewal with Universal Music Group
The Group has taken all the required measures to reduce costs and preserve cash to support financial and liquidity position. The Company started the financial year 2020 with positive momentum along with new contract wins, contract renewals and a strong pipeline. Due to the impact of Covid-19, the renewals and new contracts have shifted to the second half of the financial year 2020. The Company is well-positioned to optimise the business model and the Group’s position for long-term growth.
The shares of the company delivered a price return of 1,051.52 per cent on a YTD basis. Also, it delivered a price return of 927.03 per cent in the last 52-week period.
Frontier Developments Plc
Frontier Developments Plc (LON:FDEV) is a UK based software firm which is engaged in the business of developing video games and related applications. Frontier strives to gain market share by creating genre-leading games. Post-launch, the company enriches its products through additional content and community engagement.
(Source: Company’s filings, LSE)
The company’s gaming applications such as Planet Coaster, Jurassic World Evolution and Planet Zoo made significant revenue contributions during FY20. Despite the unprecedented crisis, the company delivered resilient trading performance; reported an operating profit (based on IFRS) of £16.6 million for 2020 (2019: £19.4 million). Despite the plunge in overall revenue of the company, the operating profit margin remained consistent in comparison to the previous year, at 22 per cent.
The company’s cash balances have risen by £10.4 million during the fiscal year 2020 to £45.8 million (2019: £35.3 million). After a decent performance in 2020, the sales across products have been consistent with expectations in 2021. The company is expecting the revenue to be in the range of £90 million to £95 million for 2021. The company is currently focussed on developing two major new multi-platform releases, which are to be released in the coming years.
The shares of the company delivered a price return of 114.29 per cent on a YTD basis. Also, it delivered a price return of 156.31 per cent in the last 52-week period.
Asos Plc
UK listed fashion retailer, ASOS Plc (LON:ASC) continued to deliver robust operational performance and year-on-year improvements in profitability. For FY20, revenue and profitability are expected to be significantly ahead of market expectations. Revenue is now projected to show a 17-19 per cent growth with profit before tax of £130-£150 million. The improvement is supported by stronger than anticipated underlying demand.
Although, the Group has shown resilience, flexibility, and creativity during the unprecedented crisis along with strong performance amid the tough economic and social backdrop, the decline in consumer confidence and cautious approach of consumers while spending can impact the profitability of the business in the near term.
The shares of the company delivered a price return of 48.42 per cent on a YTD basis. The shares of the company delivered a price return of 76.86 per cent in the last 52-week period.
GlobalData Plc
GlobalData Plc (LON:DATA) is a market data intelligence provider to various industries, financial institutions, government organizations and professional service firms. The Company intends to cater through long-term strategic partnerships through its “gold standard” offerings. A major chunk of its revenue comes from its subscription based services.
The company has delivered a resilient performance during the first half of 2020. Both the bottom-line performance, along with profitability margins, have improved during the period. The grouped has started 2020 with strong momentum, increased revenue visibility, decent margins, and cash conversion.
The overall Group revenue was marginally down by 2 per cent to £86.7 million during the first half of 2020. However, the subscription revenue grew by 7 per cent during the period (H1 2020) despite the challenges posed by the unprecedented crisis.
The company’s Operating profit margin has risen to 13 per cent during the first half of 2020 (H1 2019: 8 per cent).
While some of the industry giants were seen slashing dividends, GlobalData increased its interim dividend to 5.4 pence per share in the first half of 2020 (H1 2019: 5.0 pence).
Over the course of the three-year period (2016 - 2019), the company’s revenue surged from £100 million in 2016 to £178.20 million in 2019 at a CAGR (Compounded annual growth rate) of 21.24 per cent.
The shares of the company delivered a price return of 25.38 per cent on a YTD basis, while it has delivered a price return of 99.40 per cent in the last 52-week period.
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Gamma Communications Plc
Gamma Communications Plc (LON:GAMA) is an AIM listed technology-based provider of communication services in Western Europe.
(Source: Company’s filings, LSE)
Trading performance during the first half of 2020 stayed strong and the Company remains optimistic about future growth prospects. Unfazed by the onslaught of the coronavirus pandemic. The Company posted strong financial performance across all business divisions and key product categories during the first half of the financial year 2020.
The company posted revenue growth of 12 per cent during the first half of 2020. The company also declared a total dividend of 3.9 pence per share during H1 2020.
The shares of the company delivered a price return of 19.19 per cent on a YTD basis. Also, it delivered a price return of 41.67 per cent in the last 52-week period.
Comparative share price chart of 7DIG, FDEV, ASC, DATA, GAMA
(Source: EODHD/Others, Thomson Reuters)
Most of the investors are adding AIM shares to their watch list as these stocks help in making the portfolio multi-dimensional. Moreover, these stocks are much more affordable and can be bought in large quantities. These stocks have the potential to pack a punch above their weight and that is why portfolio managers tend to include these AIM listed businesses in their watchlist. However, it is imperative of investors to consult an expert or carry out a comprehensive research before taking exposure in AIM stocks, as they are risky to trade.
