AIMprospector

write-ups on another five AIM companies

1000% profit opportunityThe AIM company with the potential to tenbag

Issue 4 June 2014

the AIM play on bank privatisations

penny stock that is on the up

successful retail rollout

free to private investors

Supported by

AIMprospector

2 www.aimprospector.co.uk

Welcome to AIMprospector, the monthly online magazine from Blackthorn Focus.If you are reading this on issuu.com then you should know that you are at least 24 hours late. To start reading AIM Prospector before anyone else,

register your email address at www.aimprospector.co.uk. This will ensure that you receive a link to a pdf of the publication first. Blackthorn Focus will not share your email address with any other organisation.

As always, AIM Prospector has five companies featured for readers this week, including one double-page top pick. This week’s Top Pick is a company that I believe could go on to increase in value by more than tenfold. Better still, this company is already profitable, has over 100 years of trading history and carries minimal debts. See page 5 for the details.

AIM Prospector appreciates the support of its commercial advertisers. Thanks again must go to Walbrook PR, the leading City smallcap public relations firm. A warm welcome to our new sponsor: Spreadex. I will declare at this point that I am personally a Spreadex customer of some seven years. I have used their service to profit from both rises and falls of shares and commodities. Quite uniquely in the industry, they also run a sportsbook, which I use every year for my Grand National bet. Spreadex has dedicated significant resources to helping clients profit from AIM shares tax free. I currently have two AIM share bets open with Spreadex and earlier this year made profits betting against the share price of another company. To learn more about their service, click here.

We have recently seen full-year results from Richoux Group, the restaurant roll-out that featured in the April edition of AIM Prospector. Thanks to new store openings, Richoux reported a 17% increase in turnover. In 2013, the company opened five new restaurants and currently trades from 18 sites. Richoux has firm plans to open another Dean’s Diner in July of this year and hope to open three or four sites in total this year. While that may feel like a rather slow roll-out, Richoux is very well financed with £4m of cash on the balance sheet.

Elsewhere, Goals Soccer Centres, the first ever Top Pick in AIM Prospector, confirmed that next year will see the company open a second site in the USA. This is very encouraging as the possibility of a sustained US roll-out was the motivation for Goals’ Top Pick selection in April’s AIM Prospector.

Don’t forget to register your email address

at www.aimprospector.co.uk.

“Enjoy this month’s magazine”David O’Hara, Editor, AIMprospector

ContentsBoohoo ............................p 4

Celtic ...............................p 5

Hardide plc .......................p 8

Prezzo ...............................p9

Share plc .......................p 10

next month ....................p 11

Contacttwitter: @aimprospector.co.uk

email: editor@aimprospector.co.uk

www.aimprospector.co.uk

Published by:Blackthorn Focus Limited

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AIMprospector

write-ups on another five AIM companies

1000% profit opportunityThe AIM company with the potential to tenbag

Issue 4 June 2014

the AIM play on bank privatisations

penny stock that is on the up

successful retail rollout

free to private investors

Supported by

AIMprospector

www.aimprospector.co.uk 3

walbrook pr has a strong reputation for working with smaller growth companies and has clients ranging from £5m mkt cap to £250m mkt cap covering a wide variety of sectors.

walbrook pr provides financial public relations and investor relations to small cap. and aim listed companies.

focussing on communicating to four key groups: 1. the financial media; 2. sell-side research analysts;3. private client brokers; and 4. private shareholders.

for further information please contact paul mcmanus

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T: +44 (0)20 7933 8780F: +44 (0)20 7933 8781www.walbrookpr.com

paul.mcmanus@walbrookpr.com

INVESTOR RELATIONS

AIMprospector

4 www.aimprospector.co.uk

such as bonds and treasuries means that

growth stocks like Boohoo have to work

even harder to deliver an acceptable

return. Unlike ASOS, Boohoo does

not have any significant early mover

advantage. Online fashion is more

competitive than it was a decade ago.

IPO investors in Boohoo could get jumpy

if they see the wider market turn.

The biggest risk is that Boohoo

fails to execute its expansion strategy

flawlessly. This would bring a reduction

in earnings forecasts and a big cut in

the company’s market rating. The result

would be a dramatic share price decline.

That said, Boohoo has been

incredibly successful so far and has

powerful consumer trends working in

its advantage.

After weighing all of this up, I have

decided that Boohoo shares are trading

at around twice the price they should

be. For this reason, I have opened a

short spread-bet with Spreadex, betting

that the Boohoo share price will fall.

The fever around smallcap IPOs has

broken. It could be a long way down for

several young AIM companies.

article by David O’Hara

and an operating profit of £9m.

The story behind the recent growth

has been Boohoo’s non-European

operations. In the twelve months

ending Feb 2011, Boohoo sales outside

of Europe totalled £0.5m. In the ten

months ending December 2013, total

sales to the same region hit £25.5m.

Between the same two periods, UK sales

increased from £22m to £58m and

European sales rose from £2m to £8m.

Boohoo’s IPO at 50p valued the

company at £560m. After soaring as

high as 85p on its first day of trading,

the shares lost ground as investor

appetite for high-growth internet story

stocks faltered.

Even at today’s reduced price, the

shares still trade on a very demanding

multiple. Boohoo is priced as though

it will replicate ASOS’ success. While

the ex-UK growth has been very

impressive, the majority of revenues

are still generated at home where

growth has been far less.

Boohoo is the kind of share that

can suffer in a market sell-off. Not only

will the company have to deliver a

perfect report card, wider stock-market

conditions must stay bullish.

I expect that global stock markets

may enter a period of correction as

the central banks begin tightening. An

increase in the yield on low-risk assets

Boohoo plc is an online-only designer, manufacturer and retailer of fashion for budget-conscious 14–35 year olds. The company listed at the height of AIM’s recent IPO frenzy. How fair is today’s share price? Founded in 2006 by rag-trade

executives Carol Kane and Mahmud

Kamani, Boohoo plc joined AIM on

March 14th of this year. The company

has around 500 employees, fulfilling

sales to over 100 countries.

Thanks to favourable comparisons

with AIM superstar ASOS, Boohoo shares

have attracted a strong market rating.

According to its own corporate

website, Boohoo’s plan is to exploit

the double-whammy of clothing sales’

continued migration to the internet

and the expected revival in the UK

fashion sector. The company plans to

use the IPO proceeds to turbo-charge

its growth by expanding into the USA,

Central Europe and Scandinavia.

Boohoo’s trading history has

further encouraged comparisons with

ASOS. After making revenues of £25m

and an operating profit of £0.2m

in 2011, Boohoo reported sales of

£67m for the year to Feb 2013, with

an operating profit of £3.3m. Even

more impressive, in the ten months

following, Boohoo made sales of £92m

Boohoo.Com (LON:BOO)

FOR

Enjoying fantastic growth

Consumers buying more fashion online

AGAINST

Demanding valuation

Kind of stock that market is turning against

Market cap £560m

Bid:offer 49.5p:50.0p

P/E (forecast) 49

Yield (forecast) 0

52week low:high 42p:85p

Is Boohoo a £280m Company With a £560m Price Tag?

Boohoo shares have attracted a

strong market rating

IPO at 50p valued the company

at £560m

risk is that Boohoo fails to execute

its expansion strategy flawlessly

AIMprospector TOPpick

www.aimprospector.co.uk 5

TOPpick: Could £70m Celtic FC become a £1bn football club? Once a giant of European football, Celtic is priced below much less substantial English clubs. If they could escape the Scottish Premier League, shares in Celtic plc would rocket. While in the past, the suggestion of

Celtic leaving the Scottish Premier

League for England has been dismissed

as soon as it is suggested, I envisage a

scenario whereby it could just happen.

Celtic FC are Britain’s first ever

European Champions. They are the

opponent of choice for many of the

world’s top clubs in friendly fixtures.

Their stadium is the second largest club

ground in the UK behind Manchester

United’s Old Trafford.

Celtic has a heritage and support that

exceeds even the likes of Chelsea and

Manchester City. Yet the market rating of

the shares suggests that the club is worth

not even half the asking price for Premier

League strugglers Aston Villa.

At first sight, that seems bonkers.

However, the disparity in television

revenues and financial rewards between

top flight football in England versus

Scotland is so vast that under the status

quo, the market is probably right.

Yet, there is the tantalising possibility

that if there were to be a shake-up in

the structure of the British game, Celtic

would swiftly move to a valuation closer

to Arsenal Football Club’s. At today’s

market prices, that would result in a

1,300% increase in Celtic’s valuation.

Any readers scoffing at this

possibility need to ask themselves just

how the English Premier League and

UEFA Champions League came to be in

their current form. Fed up of providing

nearly all of the entertainment but

receiving no more television money than

fourth tier flops, the Premier League was

formed when English football’s (then)

big five threatened to break away and

form their own competition. This led to

an exclusive TV deal for England’s top

flight clubs.

International club football has also

undergone signficant change. Previously

a straight two-leg cup competition,

the European Cup was converted to

a league system. This guaranteed a

number of games (thus revenues) for

the participants. However, the runners-

up and also-rans knew that they had

a similar level of box office appeal as

their domestic league champions. To

head-off any attempt at reconstituting

the European game, UEFA expanded the

Champions League further to include

some of the most successful teams from

the big leagues.

If Division One can break away

from the Football League, the

European Cup can become the

Champions League and the Champions

League can include teams that have

failed to win anything, could Celtic

join the Premier League? Five Welsh

teams are allowed to play in the the

English system, so why not Celtic?

that would result in a 1,300%

increase in Celtic’s valuation

five Welsh teams are allowed to

play in the English system, so why

not Celtic?

Celtic Football Club has an illustrious history image: NYC2TLV, Wikimedia Commons

AIMprospector TOPpick

6 www.aimprospector.co.uk

In the last ten years, Premier League

football clubs have been changing hands

at enormous prices. After all of Roman

Abramovich’s success with Chelsea

however, the top table now looks

dangerously crowded. Leeds United

famously went bust after they failed

to reach the Champions League. As the

top end becomes more competitive,

the possibility that big investors could

encounter frequent financial shortfalls

has increased. A canny business person

will be live to this risk. If another

Champions League place is not

forthcoming, pressure could build again

for a richer domestic television deal. The

agreement of Celtic plc could play a key

part in securing that.

The current domestic broadcast deal

sees rights split between BT and BSkyB.

BT currently has the smaller package

and is entitled to around one quarter of

all live broadcast games. BT’s decision

to bet the farm on sports resulted in a

deal price 70% higher than the one it

replaced. Even the boss of the Premier

League was surprised at how much the

rights sold for. The trouble is, history

has shown that only a monopolistic

provider (i.e. BSkyB) can make a

sustainable return from Premier League

football. If BT cannot make football

pay, the next TV deal that the Premier

League gets could be lower.

In the international markets, the

Premier League has to compete with

Spain and Germany, both of whom have

better clubs and are home to nearly all

the world’s very best players. Adding

Celtic to the Premier League would

introduce another ‘blue riband’ club. This

would result in a dramatic increase in

fixtures involving a blockbuster side and

games between those teams.

What would make such a deal more

likely is the current parlous state of the

Scottish Premier League. Since Rangers

have been absent, this has not been an

effective competition. This fact may

make it more likely that the necessary

regulators of the game would give their

assent to Celtic making the switch.

In the meantime, Celtic will have

to stay put. The plc will continue the

struggle to increase revenues and remain

reliant on the club discovering players

that can be sold for a multiple of their

purchase price.

The Celtic brand has global appeal

Celtic (LON:CCP)

FOR

Strong brand, heritage

Well-run operation

AGAINST

Revenues under pressure

No clear route to growth

Market cap £68m

Bid:offer 74p:74.5p

P/E (forecast) no forecast available

Yield (historic) 0

52week low:high 55p:80p

Premier League football clubs

have been changing hands at

enormous prices

only a monopolistic provider

(i.e. BSkyB) can make a

sustainable return from

Premier League football

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WE WIN THE SHOOTOUT

AIM_ProspectorJun14_Layout 1 14/05/2014 16:21 Page 1

AIMprospector

8 www.aimprospector.co.uk

marginal sales can have a significant

impact on profitability. What has really

excited the market is the possibility

that this GE deal will lead to further

sales of a similar scale. Development

and testing is “well-advanced” for

Hardide’s technology to be used on

other GE components. Management

has confirmed that such additional sales

would “significantly increase the overall

value of the Agreement.”

The most recent trading statement

from the company revealed how

trading in the first six months of

the company’s year was well ahead

of the same period last year. This

disappointing result for 2013 was

blamed on the inventory management

of one key customer in the oil and

gas sector. Investors are frequently

scared off companies whose trading

result is dependent on a small number

of external client decision makers.

Hardide appears to be wise to this

and has been trumpeting a significant

increase in new accounts.

While this is all very positive,

Hardide has not been successful in

recent years. In 2008, the company’s

shares were suspended and trading

was not restored until an emergency

After several years of disappointment,

shareholders in industrial tech outfit

Hardide may finally see some fast

progress.

Listed on AIM since 2005 and

with a market capitalisation today of

£25m, Hardide is a specialist chemicals

business, providing coatings for metal

parts. According to the company

website, Hardide technology can

increase the lifetime of critical metal

parts operating in “abrasive, erosive,

corrosive or chemically agressive

environments”.

The last set of results revealed

that for the full year ending

September 2013, Hardide made sales

of £2.4m and a loss before tax of

£0.9m. The company reported a cash

balance of £1.0m.

Shares in the company perked up

in March as it announced a “Strategic

Supply Agreement” with General Electric

(GE). Under the agreement, Hardide will

supply coatings for one component that

GE currently uses. In return, Hardide has

been promised approximately $1.3m

until February 2016.

While this may not sound like big

bucks to Hardide, it is important to note

that due to the nature of its business,

Penny share with a big bucks partnerIndustrial coatings company Hardide recently announced a significant deal with global blue-chip GE. The possibility of further sales to GE means Hardide is one to watch.

fundraising was concluded. In the

last five years, Hardide has reported

a net profit just once and this figure

was exceeded by losses in each of the

other four years.

Hardide is a great example of how

an AIM company gets to be a penny

share. It developed a technology but

failed to deliver returns to remotely

justify its share price. Very few AIM

companies have ever made it back

from being such a disappointment

without undergoing a significant

transformation in their business.

However, the net cash balance

and the prospect of further sales

to GE raise the exciting prospect of

significant share price rises.

Hardide (LON:HDD)

FOR

Proven technology

High margin business

AGAINST

Business remains unproven

Still reliant on few key customers

Market cap £23m

Bid:offer 2.0p:2.2p

P/E (forecast) no forecast available

Yield (historic) 0

52week low:high 0.8p:2.5p

marginal sales can have a

significant impact on profitability

Development and testing is

“well-advanced”

a significant increase in new

accounts

AIMprospector

www.aimprospector.co.uk 9

momentum can be extremely powerful

as success snowballs.

Prezzo’s net profit record shows this.

In 2009, the figure reported was £10.1m.

Four years later, net profit hit £18.5m.

The company first declared a

dividend for 2004. Since then, the

payout has never been cut and has

been increased seven times.

Earnings per share at Prezzo more

than doubled between 2008 and 2010.

Since then, profit growth has

slowed as sites have reached maturity.

In the last three years, annual sales

growth has averaged 16.7% a year.

Earnings per share in that time has

averaged 11.4% a year.

Now looks an appropriate time to

reappraise the group’s prospects. First,

you should note that Chimichanga is

being rolled out fast. Last year, this

chain numbered 28, twelve months

before there were just fifteen. While

there is little history of a Mexican

chain enjoying success in the UK,

this space is much less crowded than

Prezzo’s home turf (Zizzi, Pizza Express,

Strada) and management has been

Since listing, Prezzo has grown beyond the eponymous pizza restaurant chain. Today, Prezzo is a group of three restaurant brands: Prezzo, Chimichanga and Cleaver.Prezzo is one of AIM’s most successful

ever roll-outs. The company listed on

AIM in 2002. Its first financial results

showed sales for the half-year of £1.2m

and a portfolio of eight eateries. Recent

full year results showed sales of £167m

from a total of 238 trading restaurants.

At the last finals, the group

comprised 194 Prezzo, 37 Chimichanga

(Mexican) and four units operating

a new grill concept — ‘Cleaver’.

Management expects to open another

25-30 restaurants across all three

brands in 2014.

Prezzo’s success is no fluke. The

company is run by Chief Executive

Jonathan Kaye. Mr Kaye comes from

a dynasty of UK restauranteurs. His

father and uncle successfully rolled

out the Garfunkels and Deep Pan

Pizza chains in the 1980s. His cousins,

Adam and Samuel Kaye, built and sold

the ASK pizza chain to Pizza Express

in 2004. His uncle, Philip Kaye, today

owns 24% of the shares of another

AIM-quoted restaurant roll-out play —

Richoux Group.

Roll-outs work by taking the profits

from one successful site to pay for

a site in another location and so on.

Provided the concept is right and

sites are well-managed, the profit

making very confident noises about

Chimichanga.

The prospects for Cleaver are less

convincing. Nando’s has become the

de facto grilled chicken restaurant in

the UK. I am unsure how large the

opportunity for an upmarket grill is in

the UK. I also worry for margins in that

business as meat price inflation shows

no sign of slowing.

Double-digit earnings growth is

forecast for this year and next. That

puts the business on a 2015 P/E of

16.5. The forecast dividend means that

the shares trade on a prospective yield

of 0.2%. Although that stops Prezzo

shares being an attractive income play,

the momentum in the roll-out justifies

continued capital investment rather

than distribution.

The valuation assumes that

Jonathan Kaye’s success will continue.

With his track record, I’d be reluctant

to suggest otherwise.

Prezzo keeps piling on the pounds

Prezzo (LON:PRZ)

FOR

Successful market-leader

Growth potential remains

AGAINST

Competitive market

Strong valuation

Market cap £327m

Bid:offer 138.75p:142p

P/E (forecast) 18.3

Yield (forecast) 0.2%

52week low:high 100p:165p

Management expects to open

another 25-30 restaurants

profit momentum can be

extremely powerful

Chimichanga is being rolled out

fast

AIMprospector

10 www.aimprospector.co.uk

Management estimates that a 0.5%

increase in the base rate would boost

Share plc profits by £750k per annum.

The Royal Mail IPO, forthcoming sale

of TSB and the government disposal

of its stake in Lloyds will raise public

interest in share investment. If new

offerings are successful, a growing

number of new investors will be drawn

to share ownership. The size of a retail

broker’s addressable market could

realistically triple in the next five years.

thesharecentre’s award-winning offering

will likely be a significant beneficiary,

taking Share plc profits to record levels.

There can be few businesses on

AIM that are operating in such a

favourable environment. Although

the current valuation looks punchy,

the potential is very real. Short-term

market moves won’t change that and

may present an opportunity should

the shares take a step back.

Share plc profiting from industry changesTax changes, stock market conditions, industry dynamics and the interest rate environment mean that profits at Share plc are set to hit record levels.Share plc is the company behind

online stockbroker thesharecentre.

Headquartered in Aylesbury, Bucks,

thesharecentre has been operating since

1991. Share plc listed on AIM in 2008.

The first thing to understand

about Share plc is the dominance

of its founder, Executive Chairman,

Gavin Oldham. Mr Oldham’s family

concert party owns 76% of the

company’s shares.

When a small company has a

large management shareholding, any

appraisal requires special care. Mr

Oldham can control any aspect of the

company’s management and strategy.

He could even delist the company.

The current set up, with a new CEO

in place in the form of Richard Stone,

while Mr Oldham acts as Executive

Chairman is rather unusual. There can

be very few listed companies with

both an Executive Chairman and a

Chief Executive. However, with such a

large shareholding, no claim of ‘non-

executive’ or ‘independent’ status for

Mr Oldham would be credible.

Mr Oldham has ensured that

shareholders have been rewarded as

the company has grown.

In 2008, Share plc made revenues

of £12.0m and paid a dividend of

0.22p per share. By 2013, sales hit

£15.0m and the company declared a

dividend for the year of 0.52p.

A collection of tailwinds mean

that thesharecentre’s growth could

accelerate from here.

The UK’s private investor

community are, in aggregate, a

predictable bunch. They are frequently

drawn to trading the same large caps

(Lloyds, Vodafone) and have a strong

propensity toward AIM shares. This can

be seen in the ‘most traded’ statistics

from stockbrokers where AIM-quoted

shares such as Quindell Portfolio

and Gulf Keystone Petroleum can be

traded more than the blue-chips.

AIM stocks account for around

30% of all thesharecentre’s trades.

The recent change to allow trading

in AIM shares within ISAs has already

provided a significant increase in

trading volumes at thesharecentre. A

further boost will likely arrive when

the self-select ISA limit is increased to

£15,000 in July this year.

Interest received on customer

deposits will increase significantly

when the expected rate rises begin.

Share (LON:SHRE)

FOR

Excellent market opportunities

Strong brand

AGAINST

Rich valuation

Revenues dependent on market conditions

Market cap £61m

Bid:offer 42p:44p

P/E (forecast) 35

Yield (forecast) 1.2%

52week low:high 20p:53p

Mr Oldham can control any

aspect of the company’s

management and strategy

thesharecentre’s growth could

accelerate from hereincrease in the base rate would

boost Share plc profits by £750k

AIMprospector

www.aimprospector.co.uk 11

Next month:At the time of going to print there are a number of contenders for Top Pick. If you are lucky we might even feature the

AIM share whose share price our editor has bet will rise via Spreadex, or it may be an AIM-quoted company reporting

results in June.

With the market turning away from blue-sky tech stories, I am hopeful that the number of bargain investment

opportunities on AIM will start to increase. Remember, the summer months are frequently difficult times for smallcap

markets as investment managers take holidays and liquidity dries up.

Keeping watch on a large number of AIM companies can be important at times like these, even if they have

previously been considered too expensive to invest in. Summer smallcap sell-offs are common and can present great

opportunities.

Don’t forget to register your email address at www.aimprospector.co.uk to get your copy of this publication first. See

you in the next edition.

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