The AIM market is known as the market for smaller companies and its home to nearly 1000 businesses. There are now hundreds of firms listed on the market with robust models and a history of supreme profitability, cash generation and attractive dividends. Many of these organisations have seen their share prices surge over the last few years and have outperformed larger but lower growth companies on the FTSE 100 Index.
While AIM continues to be a market for relatively early-stage businesses, it also attracts a growing number of highly profitable mature companies. AIM shares include renowned names such as ASOS, Nichols – owner of the Vimto brand – and Mulberry Group, the luxury fashion retailer. The market also includes other well-managed but less-known firms that have delivered year-on-year capital growth. CVS Group, the veterinary services provider, RWS Group, the specialist patent translator and James Halstead, the commercial flooring business, have been stewards of AIM portfolios for many years, producing excellent returns.
Society is often concerned about the liquidity risk of investing in AIM and the complexity in selling shares when the time arises. While AIM shares are less liquid than blue-chip stocks, unless portfolios are very large (£1m+) it should be possible to liquidate a well-diversified AIM portfolio efficiently, assuming normal market conditions.
Investing in AIM-quoted businesses for inheritance tax planning purposes gained in popularity following the ISA rule changes in 2013 which permitted ISAs to hold AIM stocks for the first time. The Government offered this new tax break on AIM stocks in an attempt to promote investment in developing businesses.
The following 3 stocks have been analysed as companies to watch in 2020:
1. Keyword Studios (LSE: KWS), delivers superior voice audio solutions to a wide array of clients including video game developers such as Electronic Arts (FIFA) and Activision Blizzard (Call of Duty). The global video-game streaming market is predicted to grow by 27% a year between 2018 and 2026, according to Zion Market Research, and in the UK alone it accounts for over half of the entertainment market. Analysts have predicted revenue in Keyword Studios to grow by approx. 12% this year and Berenberg reiterates buy with a target price of 1,600p.
2. Boohoo (LSE: BOO), the fast-fashion retailer Boohoo has plenty of drive right now. The label owns Boohoo, Pretty Little Thing, Karen Millen and Nasty Gal. The retailer recently posted a rise in full-year profit and revenue. In the year to 29 February 2020, pre-tax profit surged 54% to £92.2m on revenue of £1.2bn, up 44% on the previous year. Boohoo’s revenue rose 38% to £600.7m, while revenue at PrettyLittleThing was also up 38%, to £516.3m. Nasty Gal revenue surged 106% to £98.8m. While many other UK retailers are struggling due to shifting customer tastes and shopping habits, Boohoo is expanding at a prolific pace due to its reputation amongst fast-fashion-savvy, digitally-minded millennials. Heading in 2020, Boohoo continues to outperform its peers and Credit Suisse reiterates Boohoo to outperform with a target price of 390p.
3. Gamma Communications (LSE: GAMA) an under-the-radar communications business that has been generating significant growth in recent years. The technology-based firm is the provider of communications services to the business market. Gamma’s services include: Unified Communications, Inbound Call Control Services, Ethernet, Broadband, Wide Area Networks, and SIP Trunking, and are designed to meet the increasingly complex voice, data and mobility requirements of companies, through the exploitation of its intellectual property. Over the last three years, revenue has increased nearly 50%, while return on capital employed – a key measure of profitability – has averaged roughly 25%. Debt has remained low. Looking ahead, analysts predict the group to continue growing at a healthy pace, with revenue growth of around 9% forecast for this year. Barclays reiterates overweight with a target price of 1350p.
Please Note: This article is purely for informational purposes and reflects our thoughts on the stocks. None of the above should be construed as advice. As always, do your own research.