Small-cap share tips: Sturdy ACM

By This Is Money
Updated: 06:35 EDT, 8 January 2007

Our weekly review of the latest developments and hottest tips in the exciting world of the Alternative Investment Market is written by analysts at the UK's leading authority on fast-growing companies, Growth Company Investor.

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ACM – a sturdy income vessel

Noble & Company navigated tanker broker group ACM Shipping to market at the tail end of 2006 by way of a £7.6m placing, and recent interims to September provided no surprises, coming so swiftly after the Aim admission.

Highlights included turnover of £7.5m (£6.8m), and a rise in pre-tax profits to £1.17m (£433,000).

One of the most profitable ventures in the industry, ACM is a shipbroker with a focus on the global oil tanker market. The group arranges spot freight, time charter, and ship sale and purchase, broking to an international customer base, and Aim should help it capture a larger share of its chosen shipping markets.

Forecasts commissioned by the company from research house Edison suggest profits could swell significantly higher to £4.2m in the current year to March, from sales of £14.7m. The following year, investors might expect a move to £4.8m pre-tax from a top-line of £16.1m.

Earnings for 2007 and 2008 respectively are estimated at 16.85p and 19.4p, with income of 6p and 6.8p, placing ACM on modest forward multiples of 10.8 and 9.4, with very healthy yields well above 3% for the next two years at this highly cash-generative concern.

The shares, which have trekked north from the 162p issue price, have strong appeal given the group's impressive long-term trading history.

Share Price – 182.5p
Market Cap – £27.96m
Recommendation – Buy

Worthington wins European deal

Air conditioning star Worthington Nicholls has won its first European hotel contract, a deal worth around £236,000, with Grand City Hotels & Resorts for work at Amsterdam's Park Hotel.

Berlin-based Grand City Hotels & Resorts manages a variety of hotel brands throughout the Netherlands and Germany. 'To be successful in the European air conditioning market,' explained chief executive Mark Worthington, 'you need to have reference sites that showcase your ability. This contract gives Worthington Nicholls exactly that.'

Worthington Nicholls - the biggest independent installer of air conditioning, heating, ventilation and chilled water systems in the UK - boasts the likes of Hilton and Holiday Inn Hotels, as well as Arcadia and Debenhams, as clients and joined Aim in June, having raised £20m from institutions and VCTs at 50p.

This latest contract news follows a £6m November fundraising with institutions at 90p, with funds earmarked for acquisitions, and the subsequent acquisition of electrical contractor Lumenglow. Only last month, new hotel group contracts worth £2.3m were announced, further diversifying its client base.

Results for the year to September are slated for publication imminently, with analysts looking for adjusted pre-tax profits of £3.6m from £25m sales, giving 4.6p of earnings and a lofty-looking prospective price/earnings of 27.6, with the shares having raced north since float.

Nevertheless, Worthington Nicholls is a full support services group, rather than a subcontractor (with all the implications this has for margins), and has a savvy acquisitions strategy in place.

Share Price – 127p
Market Capitalisation – 92.6m
Recommendation – Buy

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Join the funds in Silverdell?

Chaired by astute Marwyn Capital mover and shaker David Williams, Silverdell reversed into Bow Lane Capital last July. Another consolidation vehicle from the Marwyn stable, Bow Lane's brief at float last April was to scout for deals in the fragmented environmental services sector.

Summer acquisition Silverdell looked a savvy first move, being a leading asbestos remediation business working for FTSE 100 ventures as well as central and local government.

Legislative changes within the industry and the Aim quote should help yield new customers and more sizeable work, since only the highest standards are accepted for the bigger, more complex asbestos projects.

Just before Christmas, the highly complementary acquisition of profitable asbestos and environmental consultancy Redhill Analysts was announced. Capped at £10m, this cash and shares deal turned the group into a rounded asbestos services provider well placed to further consolidate a sector growing at 25% per annum.

Maiden preliminary figures for the group, reflecting a short 27-week period from March 2006 to 30 September and including a mere ten-week turn from the Silverdell business, revealed sales of £6.05m and pre-tax profits of £93,000.

While it is early days, it is worth joining the likes of Williams (8.8%), and the astute F&C Asset Management (4.66%) on the shareholder list, with more exciting acquisitions sure to come.

Share Price – 125.5p
Market Capitalisation – £40.4m
Recommendation – Speculative buy

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