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Aiming for growth (FT Advisor)

by Julia Faurschou

 

 

Paul Parker, investment director at Canaccord Genuity Wealth Management, says of criteria to keep in mind when stock picking on Aim, “The company must be profitable today, though only about 40 per cent of Aim companies are. They need be cash-generative with a strong balance sheet showing net cash and little debt. They should pay a dividend, but only approximately 30 per cent of companies on Aim do so.”

The nature of many of the companies listed means investors need to be prepared to make a long-term investment and endure some fluctuations in value over that time. Looking into the profitability of the company and determining whether this could be maintained helps advisers tell their clients which companies are worthwhile.

There is potential for high growth with these smaller quoted companies. It is often best when the business fills a gap in a niche area of the market, either with very few competitors or a distinct advantage on others operating in that space.

Justin Waine, Aim portfolio manager at Puma Investments, says, “We look for three factors when choosing companies – quality, valuation, and growth. They need growth prospects and to generate good margins which they convert into cashflow. They should be conservatively managed with not much debt.

“By growth prospects we don’t mean trying to predict future trends, but companies we know will become a bit bigger over time, and where prices will increase in line with inflation.”

Other companies on Aim, however, could be more mature businesses that are looking to raise extra capital for an expansion, just like in a regular IPO on a larger market. These types of companies offer investors a demonstrable track record of their performance and values.

 

See the full article here on the FT Advisor website.