UK Edition
The FTSE 100 index may have escaped the bear market that has struck Wall Street but we cannot say the same of London’s junior market: the FTSE Aim All-Share index has fallen by a third over the past year.
Painful though this is for existing holders of Aim shares, this column believes it is a time to be bold and seize the opportunity to buy quality Aim stocks caught up in the rout. After severe falls many are now trading at modest valuations.
One is Breedon, the aggregates company, whose shares are 41pc lower than a year ago. Chris Boxall, of Fundamental Asset Management, an Aim specialist, describes the sell-off in its shares as “inexplicable”.
“Think of all the money that’s going into HS2, the roads, all the Government’s big infrastructure plans,” he says. “Breedon is one of the big players and it has assets that cannot be replicated – transporting heavy building materials long distances is uneconomic, so having quarries with the right reserves in the right place is essential.”
He points out that there is no cost inflation as far as the actual aggregates are concerned as Breedon already owns them, while rises in transport and energy costs can be passed on in the current inflationary environment.
The stock has a free cash flow yield of 12pc and a dividend yield of 2.5pc. Also welcome is that the chairman has, via a holding company, a stake of almost 10pc.
Our second buy today is Impax Asset Management, whose shares have halved over the past year and have lost 63pc since a peak in December.
Impax, which manages the Impax Environmental Markets investment trust, a Questor pick, stands out from other asset managers as a pioneer in ethical investing, on which it focused long before it became fashionable.
“Its assets under management have gone from zero to £34.5bn,” Boxall says. “It has a great reputation and is very efficient – the amount of money managed per person is much higher than at rival companies.”
It has had long-term support from BNP Paribas, the French bank, which has a 13.8pc stake, and runs funds on its behalf. Ian Simm, the founder and chief executive, owns 7.2pc of the shares, which reassures this column that the company will be run in a prudent way focused on the long term.
“In a sell-off investment managers are always right at the heart of it,” Boxall adds. This is because a fall in the market reduces the amount of money they manage, which in turn hits their revenues because they are a percentage of the amount managed.
“Its shares still trade at a premium to those of rival fund managers but I would say it’s a better business. It’s a good performer in its niche,” he says.
The fall in its share price has pushed its yield to 3.7pc, so Impax has, rather unexpectedly, almost become a yield stock.
The third business we will add to our Inheritance Tax Portfolio today is Inspecs, the eyewear specialist. Questor tipped it two years ago for the wider readership but then sold in March to cement a 72pc gain. However, the shares have fallen by 30pc since then so are worth another look.
Robin Totterman, the chief executive, has done just that: he has spent £200,000 on shares in the company in the past two weeks or so and he and people connected with him now own 18.4pc of the business.
It’s also reassuring to see Lord MacLaurin, the former chairman of Tesco, on the board. Boxall says: “We know of only one listed competitor, an Italian company, in the lenses market.”
Questor says: buy
Tickers: BREE, IPX, SPEC
Share prices at close: 64.4p, 550p, 234p
Updates: Jet2, Gamma Communications
These two existing holdings in our IHT Portfolio have not escaped the pain experienced by the junior market: shares in Jet2, the airline, have fallen by 27.1pc over the past year and those in Gamma Communications by 46.9pc. Both remain in the black relative to our purchase prices, however.
Boxall says Jet2 “has done better than others – its customers like it and it has heaps of cash”, while Gamma Communications is “a fabulous business that trades on 15 times reliable earnings and has net cash”. Both are holds.
Questor says: hold
Tickers: JET2, GAMA
Share prices at close: 823.2p, £10.78
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