Five AIM share tips for 2024: beating the FTSE 100

Award-winning AIM writer Andrew Hore’s share tips have had a successful six months, returning more than the AIM market and the UK’s blue-chip index. Here’s what he thinks of his tips now.

12th July 2024 15:18

Andrew Hore from interactive investor

There has been a good performance by the 2024 AIM recommendations so far this year. One is being snapped up by a bidder and two others have also made gains. The other two are lower, but they can still make back those losses in the rest of the year. The overall performance is much better than that of AIM and the FTSE 100 index.

The portfolio has gained 12%, compared with 2.3% for AIM, and that does not include any dividends.

Invest with ii: Top UK Shares | Share Tips & Ideas | What is a Managed ISA?

Trident Royalties

49p

+36.1% (Based on bid price)

Mining royalties investor Trident Royalties (LSE:TRR) was attractive because management had built up an impressive portfolio of mining royalties, and this investment was about to pay off. Deterra Royalties also recognised this and launched a bid for the company.

The Trident Royalties board is recommending a 49p/share cash offer from Deterra Royalties that values Trident at £144 million. Apparently, some early investors who invested at 20p/share in 2020, were keen to liquidate their shareholding and that was taken into account when the board made its decision. It would be much more difficult to sell significant share stakes in the market.

Trident Royalties has been losing money, but the royalty portfolio is maturing, and it is set to move into profit, so this seems a well-timed bid. Deterra Royalties is taking advantage of a depressed share price. It is building up its own royalty portfolio and Trident’s 21 investments will provide additional geographic diversification and more exposure to battery and precious metals.

It is sad that Trident Royalties has been bought so early in its development, but the share price would not have reached the bid level in the short term.

Michelmersh Brick

100.5p

+12.9%

Michelmersh Brick Holdings (LSE:MBH) has been trading well despite poor construction market conditions in the UK and brick stocks rising due to weak demand. The niche nature of the company’s bricks and other products has helped it negotiate the downturn and continue to grow profit. The order book is recovering.

In 2023, revenues were 13% ahead at £77.3 million with organic growth of 1%. Prices were increased, but volumes fell by 10%. Underlying pre-tax profit improved from £12.5 million to £13.8 million. The full-year dividend was raised by 6% to 4.5p/share. The final dividend of 3p/share was paid in the first half.

Ley Hill Discretionary Trust, which has historically formed part of founder and former chief executive Martin Warner’s shareholding, cut its stake from 4.31% to 2.97%. Joint chief executive Frank Hanna has left to become boss of fellow AIM company Brickability Group Ordinary Shares (LSE:BRCK), a distributor of bricks. He owned 591,000 shares and it is not possible to be sure if he has sold any since leaving. Even so, the share price has held up.

There could be a small decline in pre-tax profit to £13.4 million this year. Net cash is expected to rise to £15 million by the end of 2024. The dividend could be edged up to 4.6p/share, providing a yield of 4.6%.

The Michelmersh Brick share price has held up well and the prospective multiple is less than 10. The cash pile is likely to rise steadily. Construction activity is set to recover, and Michelmersh Brick is in a good position to take advantage. Buy for recovery in the construction markets.

Restore

266p

+26.7%

Business support services provider Restore (LSE:RST) has continued its recovery and the share price is following suit. Records management, which will generate around 45% of revenues, remains a steady growth business and the other operations are making improving contributions.

Although records management volumes are currently flat, the strong market position and limited capacity means that Restore can put up its prices. Trading levels in areas such as technology appear to be improving.

In 2023, revenues dipped by nearly 1% to £277.1 million and pre-tax profit slid from £41 million to £30.3 million. The main decline in revenues was in digital and technology, plus the shredding business – which was hit by the falling paper price. The records management business grew by around 12% and that helped to offset the declines elsewhere. Cost cutting will help profit to improve.

Debt has been a concern to some investors. Net debt was £201 million at the end of 2023, and it could fall to £192 million by the end of this year. Cash generation should continue to enable the reduction of debt.

The AGM statement confirmed that Restore is on course for a 2024 pre-tax profit of £34 million, which means that the shares are trading on less than 15 and that could fall to 13 next year. Investors have also received a 3.35p/share dividend this year. The forecast yield is 2.1%.

Canaccord Genuity has set a share price target of 380p, with the records management business underpinning most of that figure. There is still plenty more recovery in the share price to come. Buy.

Oxford Metrics

97.5p

-6.7%

Interim figures from visualisation software developer Oxford Metrics (LSE:OMG) were solid and there was still net cash of £54.8 million at the end of March 2024. This provides a good base from which to grow the company.

There was a 10% increase in interim revenues to £23.5 million, with strong growth in engineering and life sciences. Entertainment revenues declined because video games clients are finding trading more difficult. This shows the benefits of having a broad customer base.

Changing product mix meant there was a small dip in gross margins to 68.7%. Increasing sales and marketing spending held back short-term profitability. Pre-tax profit fell 9% to £4 million, but that shortfall should be more than clawed back in the second half.

Last year’s smart sensing acquisition Industrial Vision Systems has been winning new contracts as part of the enlarged group. This provides some reassurance that management can spot attractive acquisition targets and spend the cash pile wisely. Smart sensing is an area where there are acquisition opportunities.

Markerless motion capture technology can further expand the market for Oxford Metrics. This technology is launching in 2024 and cornerstone customers have been secured. It should make a growing contribution over the next few years.

Oxford Metrics has already secured more than 90% of this year’s forecast revenues of £49.3 million, which would improve pre-tax profit from £6.5 million to £7.9 million.

Management has set a target of having £70 million of revenues by the end of the 2025-26 financial year. This can be achieved through a combination of acquisitions and organic growth. The prospective multiple of 19 reflects the cash pile, the markerless motion capture technology and the potential to make earnings enhancing acquisitions. Long-term buy.

Gateley

137p

-8.9%

Caution from the management of legal services provider Gateley (Holdings) (LSE:GTLY) led to a sharp fall in the share price in the first few weeks of the year. A recent update reassured investors that trading has not deteriorated, although Gateley is restarting staff bonuses and that led to a small downgrade. The bonus payment was £4.5 million and there was no bonus in the previous year. The bonus payment should help to retain staff at a time when it appears that trading should be improving.

Full-year revenues improved 6% to at least £172 million. Organic growth is estimated at 4%. That reflects a strong fourth quarter, with corporate business starting to recover due to M&A activity. Property and business services divisions also did well. Pre-tax profit is expected to decline from £25.1 million to £22.8 million after the bonus.

There was investment in hiring international litigation and class action teams, which has yet to generate significant income and that should change in the year to April 2025.

Net cash was £3.3 million at the end of April 2024 and the expected total dividend is 8.3p/share, down from 9.5p/share because of the reduction in earnings. A 3.3p/share interim dividend has been paid this year.

The results will be published on 16 July. The current pre-tax forecast for 2024-25 is £24.8 million and that could be adjusted following the results announcement. The shares are trading on less than 10 times earnings with the potential for further recovery in Gateley’s main markets. Undervalued.

2024 AIM recommendations

Company	Tip price (p)	Current share price (p)	% change
Gateley	153.5	137.0	-8.9
Michelmersh Brick	89.0	100.5	12.9
Oxford Metrics	104.5	97.5	-6.7
Restore	210.0	266.0	26.7
Trident Royalties	36.0	49.0	36.1
		Average	12.0
		AIM All Share	+2.3
		FTSE 100	+6.3

Source: SharePad. Prices on 11 July. Past performance is not a guide to future performance.

Andrew Hore is a freelance contributor and not a direct employee of interactive investor.

AIM stocks tend to be volatile high-risk/high-reward investments and are intended for people with an appropriate degree of equity trading knowledge and experience.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Disclosure

We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

Please note that our article on this investment should not be considered to be a regular publication.

Details of all recommendations issued by ii during the previous 12-month period can be found here.

ii adheres to a strict code of conduct. Contributors may hold shares or have other interests in companies included in these portfolios, which could create a conflict of interests. Contributors intending to write about any financial instruments in which they have an interest are required to disclose such interest to ii and in the article itself. ii will at all times consider whether such interest impairs the objectivity of the recommendation.

In addition, individuals involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles.

Get more news and expert articles direct to your inbox