10 Companies to follow in 2024
TMS readers will not need reminding that 2023 has been another sobering year for small cap investors.
A few figures. At the end of Q3, the AIM index was down 11.6pc, as against the S&P 500 (up 18pc), the Nikkei 225 (up 28pc), the ASX 200 (up 5.3pc) and the TSX Venture (up 3.7pc). The market had seen just 11 new issues, down 80pc on the boom. year of 2021. Amounts raised at IPO were at 24-year lows, down 95pc on 2021. Secondary financings were at 19-year lows, down 75pc on 2021. Trading was at a seven year low, and the number of companies listed at a 20-year low, 768, down 53pc on 2007, when the market peaked.
Analysts point to several reinforcing factors. Persistent and high inflation and interest rates impacts cyclical smaller companies more. Pension funds and insurers have been reducing allocations to UK equities, including small caps. Fewer IPOs means less choice for stockpickers, options further reduced by increased M&A activity, which has removed some of the higher quality shares.
There has been ongoing political instability. Last year’s mini-budget meltdown impacted flows to UK gilts and equities. And overly pessimistic forecasts by the Bank of England have weighed on sentiment. Last November the Bank forecast a long and deep recession, and unemployment of 6.4pc by 2025. But though the economy has stuttered, it has continued to grow – recent figures show GDP is 2pc up on 2019 – and unemployment is just over 4pc. A risk-averse environment tends to hurt micro-caps the most.
It would be folly to predict with any confidence what 2024 might hold. But there is at least as much evidence that the next 12 months will offer a considerably better environment for small caps than more of the same. Expectations that inflation and interest rates will ease next year has driven the Vix index – which gauges market volatility – lower over the past few weeks, a historic indicator of better conditions for markets. The S&P has performed particularly strongly towards the end of the year.
For veteran Investors’ Chronicle small cap stockpicker Simon Thompson, 2024 may represent an ‘outstanding buying opportunity’. In a year-end interview with the magazine Mr Thompson points to exceptionally low valuations: many companies now have price/earnings ratios below 10, their lowest since the global financial crisis. Discounts on small-cap investment trusts are also at their widest since 2008: the average small-cap investment trust more or less doubled in value over the next three years, as they did after slowdowns in 2003 and 2016. ‘Every time the Numis Smaller Companies index has had a negative year, which it will this year,’ says Mr Thompson ‘it has enjoyed positive returns over the next three years.’ And reduced investor interest in AIM, and even less broker coverage than usual for micro-caps, offers opportunities for stockpickers prepared to do their research. With so many companies at such low valuations there are bargains out there, waiting to be found by the diligent.
Here we look at 10 companies from a variety of sectors that have performed in 2023, or which may be positioned for a better year ahead. Also look out for our roundups of oil and gas and mining small caps.
Audioboom
Audioboom (AIM:BOOM), once one of the small cap markets great success stories, may be positioned for a return to form next year, after a tough 18 months.
BOOM has established itself as a global leader in podcasting, its shows downloaded more than 135 million times each month by 38 million unique listeners across the world. The company is the fifth largest podcast publisher in the US market, third in Australia, second in New Zealand and fourth in Canada. It offers commercial, distribution, marketing and production services for a network of top tier podcast including the official Formula 1 podcasts ‘F1: Beyond the Grid’ and ‘F1 Nation’, ‘Casefile True Crime’ (US), ‘True Crime Obsessed’ (US), ‘The Tim Dillon Show’ (US), ‘No Such Thing As A Fish’ (UK) and ‘The Cycling Podcast’ (UK).
And yet BOOM’s share price has crumbled over the past 18 months, subsiding from a peak of 2,260p in spring 2022 to just under 300p today, taking its market cap to £48m. Markets in the company’s key territories began to weaken significantly in mid-2022 and have continued to struggle this year, pushing revenue down by a fifth year-on-year and leaving BOOM with an operating loss of $10.6m this summer.
BOOM says the economic downturn has obliged the smaller direct-to consumer companies that constitute a key section of the company’s customer base to slash advertising budgets. BOOM was also hit by the loss of the ‘Morbid’ true crime podcast, one of its most offerings, which had contributed $7.5m in sales.
The company’s Q3 trading update indicates the company may be turning the corner. Total revenue for the nine months to 30 September 2023 of $45.8m was down on the previous year, (2022: $57.1m), and it recorded a total adjusted EBITDA loss for the period of $1.7m. But it anticipates a strong start to Q4 2023 with revenue of at least $19m, the company’s highest revenue quarter since Q2 2022, representing a return to year-on-year growth on a quarterly basis (Q4 2022: $18.3m).
Traffic on BOOM’s platforms continues to grow, the company recording record average monthly downloads in Q3 2023 of 126.6 million, up 18pc on Q3 2022 (107.5 million downloads). Average Q3 brand advertiser count was 7,960, up 40pc on Q3 2022 (5,699 brands). The company is positioned to capture maximum available advertising demand with a record inventory of one billion ad impressions created for sale in October, up from 675 million year-on-year. In summary BOOM looks forward to ‘record revenue in 2024, with operational improvements (including the significant reduction in minimum guarantee obligations) delivering a return to strong adjusted EBITDA positivity.’ And the company remains debt-free, reporting group cash at 30 September 2023 of $3m (30 June 2023: $5.3m) with a further $1.8m available via an undrawn overdraft.
It’s unclear whether BOOM will ever scale the heights it reached early last year. But the company only needs to recover part of that value to reward investors in 2024: BOOM’s share price has been on upward curve again this month.
Harvest Minerals
The value of Harvest Minerals (AIM:HMI), selling fertiliser to the immense Brazilian market surged last year, rising from 4p to as high as 18p in the wake of supply shortages forced by the Ukraine war. But the company has come crashing back to earth this year as crop prices have fallen and energy prices risen. Is a better 2024 around the corner?
HMI produces KPFértil, a ‘direct application’ organic fertiliser requiring little processing or chemical alteration at its wholly owned fertiliser plant at Arapuá, in the state of Minas Gerais. The company also has exploration licences for a phosphate prospect at Mandacaru, and has plans for a potash project in the Sergipe Alagoas Basin, close to Brazil’s only producing potash mine at TaquariVassouras.
HMI has worked hard to establish presence over the past few years. In 2020 the company secured permits to expand Arapuá’s mining area to 78,894 square metres and its storage capacity to 30,000 tonnes, giving it the flexibility to begin to step up production to a targeted 400 kilo tonnes per year. It commissioned a new Arapuá facility powered by solar with a modular design allowing capacity to be increased as production is ramped up. And it won approval from Brazilian regulators to register KPFértil as a simple mineral fertiliser, a major breakthrough allowing HMI to reach larger customers.
HMI had begun to record significant sales growth in 2021, allowing it to move into profit. But sales really took off last year as sanctions against Russia and Belarus, which had supplied two-fifths of the world’s potash, a mineral rich in water-soluble potassium required for the production of food staples like corn, soy, rice and wheat, pushed up Brazilian prices by 185pc. By Q3 HMI had already exceeded its full year sales order target of 150,000 tonnes, recording a year-on-year increase of 106pc, and sales margins in the region of up to 60pc.
This year has been much rougher, demand and prices falling as famers have struggled with low crop prices and high energy bills. Interim results for H1 2023 record a loss after tax of $1,645,945 (2022: $883,556) and net cash outflow from operating activities of $2,634,226 (2022: $693,207). HMI sold 7,280 tonnes of its organic fertiliser, a 74pc decrease over the 28,104 tonnes sold the previous year.
The company’s Q3 2023 update reported orders to the end of September 2023 of 40,000 tonnes, setting a full year orders target of 70,000. HMI expected uncertain market conditions ‘to continue throughout 2023 and at least the early stages of 2024’. But the company insists its fundamentals remain sound, remaining ‘optimistic about the medium and long-term future, with megatrends such as a growing world population likely to accelerate the increased use of fertilisers’. It is well placed to benefit from increased focus on organic farming initiatives to reverse the loss of biodiversity and support Brazil’s climate change strategies and objectives.
HMI’s tough year has seen its price fall all the way to 0.7p, taking its market cap to £1.34m. But with an established and growing consumer base in the huge Brazilian market, the certification required to reach bigger clients secured, and an operating plant with capacity to handle rising demand, the company may be well placed to once again reap the benefit of an upswing in Brazil’s cyclical agricultural market – whenever that might come.
Hemogenyx Pharmaceuticals
Hemogenyx Pharmaceuticals (LSE:HEMO), a biopharmaceutical company pioneering new therapies and treatments for blood diseases, continues to seek permission from US regulators for Phase I clinical trials of its HEMO-CAR-T therapy, a groundbreaking treatment for acute myeloid leukaemia (AML) and severe autoimmune diseases like multiple sclerosis, aplastic anemia, and systemic lupus erythematosus.
Traditional treatments submit patients to tough conditioning processes using radiation that can have severe side effects, including damage to the heart or lungs, thyroid problems, fertility problems, bone damage, and the nurture of other cancers. Many who would benefit from effective treatments like bone marrow transfers are too weak to withstand these preparatory phases. HEMO is pioneering techniques that would facilitate much more accessible treatment, notably a proprietary HEMO-CAR-T immune therapy that uses a patient’s own ’T cells’, a type of immune cell, to recognise and kill cancer cells. Use of such cells would eliminate the need for chemotherapy or radiation and their toxic side effects.
The company is also developing a proprietary Chimeric Bait Receptor (CBR) platform technology, evolved in the course of HEMO’s cell cancer research, which uses synthetic biology and artificial intelligence to program immune cells to eliminate infectionssuch as SARS-CoV-2, Dengue, Ebola, Marburg, Zika and Chikungunya, by destroying the viruses that cause them.
After submitting an Investigational New Drug (IND) application to the FDA earlier this year HEMO received a notice from the FDA requesting further information from the company, obliging to put work on the product on clinical hold. Last month the company said it had completed a key requirement for resubmission of the IND, the re-manufacturing of an improved lentivirus (LVV) devoid of splice variants: spontaneous splicing during the manufacturing of LVV was the only reason for the clinical hold imposed by the FDA on the application. Before resubmission HELD will perform an additional process qualification run of the end-to-end process for the manufacture of HEMO-CAR-T cells using the new LVV. HEMO has also been busy raising money to tide it through the application process, with an $830,000 investment from Prevail Partners, a corporate investment fund investing in clinical stage therapeutics companies, and a £534,375 placing.
While seeking the green light from the FDA for HEMO-CAR-T, the company has continued developing its other major pipeline asset, the CDX antibody the company hopes will provide an alternative means of treating AML and of conditioning patients for bone marrow transplants. HEMO continues to explore ways to finance and further the pre-clinical and clinical testing of CDX, participating in ‘early-stage conversations with potential development partners.’
HEMO’s price hit a high of 13.4p in exceptional pandemic conditions three years ago, since when it has fallen back to just over 2p at the time of writing, taking the company’s market cap to £25.8m. Approval from the FDA for Phase I trials may help the company regain at least some of that value.
hVIVO
hVIVO (AIM: HVO), a biotech small cap specialising in vaccine and antiviral testing using ‘human challenge’ clinical trials, leapt ahead this year, its value increasing by more than 60pc as it recorded higher revenue and a bulging order book.
One of the biotech small caps brought to market by Cathal Friel, alongside Poolbeg Pharma (see below) and Amryt Pharma, HVO made headlines through the first months of the pandemic, working with the vaccines task force to organise the UK’s first Covid human challenge trial, in which volunteers were inoculated under controlled conditions with the virus to test its impact on the immunity system. The trial helped HVO develop an infection challenge model able to serve as a ‘plug and play’ platform for testing new Covid variants.
Covid is just one of the infectious diseases the company is working to combat. The pandemic highlighted the world’s chronic neglect of investment in fresh treatments for continually evolving respiratory and infectious diseases such as the common cold and influenza. HVO is working to establish itself as an indispensable partner to Big Pharma by rolling out a suite of human challenge trial services for diseases including Covid, Respiratory Syncytial Virus, influenza, asthma, human Rhinovirus hRV, and malaria.
HVO’s share price soared to vertiginous levels during the freakish conditions of the pandemic, before market gravity reasserted itself. But the company’s fundamentals have pushed its price higher through 2023. HVO’s interims for H1 told a strong story, first half revenue growth growing 52pc to £27.3m (H1 2022: £18m), EBITDA more than doubling to £5.2m (H1 2022: £2.3m), EBITDA margin increasing to 19.1pc (H1 2022: 12.6pc), net cash up to £31.3m (H1 2022: £15.9m), and the company’s contracted orderbook increasing to £78m (2022: £70m).
HVO’s orders, diversified across multiple clients, challenge agents and geographies, include the award of a €3.2m contract with a major pharmaceutical client to drug development consultancy arm, Venn Life Sciences, and the signing of a the company’s first challenge trial with a client from the Asia-Pacific region (a targeted growth area). A human metapneumovirus (hMPV) challenge model is under development, funded by an end-to-end human challenge service contract with a North American biopharmaceutical company. HVO also completed the manufacturing of Influenza H1N1 and Omicron human challenge viruses. Earlier this month HVO won a £16.8m full-service contract with a top five global pharmaceutical client to test its RSV antiviral drug candidate using the company’s RSV Human Challenge Study Model.
During 2023 the company’s human challenge trial model has proved itself in multiple scenarios: Pfizer’s ABRYSVO became one of the first RSV vaccines to receive FDA approval having received Breakthrough designation; Cidara received FDA Fast Track designation for its influenza antiviral candidate; and SAB Biotherapeutics received FDA Breakthrough and Fast Track designation for its influenza antiviral candidate. A Flu B challenge model is under development, funded by £13.1m manufacturing and characterisation contract with existing top five global pharmaceutical client.
HVO also announced a new state-of-the-art facility funded by clients requiring only ‘a nominal cash contribution by the Group’, due to open in H1 next year. The company believed that the ‘increasing number of trials, as well as the growing volunteer cohorts and expanding use cases, highlights that the human challenge market is experiencing a strong growth trend that we strongly believe will continue over the long term.’
The market seems to agree. Over the past 12 months the company’s price has increased from 12p to just over 20p, taking its market cap to £150m. With a flexible challenge test model continuing to secure new contracts for the treatment of an ever wider range of diseases everything seems to be in place for continued success in 2024.
Oxford Cannabinoid Technologies
Oxford Cannabinoid Technologies (LON:OCTP), developing prescription cannabinoid medicines, has continued to transition into a clinical-stage business this year, passing Phase I clinical trials for its flagship candidate treatment targeting neuropathic and visceral pain caused by nerve damage or disease, and submitting an application to trial a second lead candidate. The company has also broadened its platform, moving into oncology with the development of a potential ‘first in class’ immunotherapy agent for the treatment of solid tumours.
OCTP is focused on cannabinoid-based pharmaceuticals (rather than commercial medical cannabis products), prescription medicines that meet rigorous regulatory requirements. The reward would be market exclusivity for a suite of new treatments for chronic pain sufferers, a path followed by another UK-based cannabis biochemistry company, GW Pharmaceuticals, which was sold to US drugmaker Jazz Pharmaceuticals in a multi-billion deal. GW has earned more than half a billion dollars a year through sales of Epidiolex, a cannabis-derived treatment for childhood epilepsy, after taking the long road to US regulatory approval.
OCTP is researching medicines to relieve inflammatory and autoimmune disorders such as rheumatoid arthritis, systemic sclerosis, fibromyalgia and osteoarthritis, and debilitating neurological and neurodegenerative disorders including multiple sclerosis, Parkinson’s, Alzheimer’s, and epilepsy. Current treatments for the 1.5 billion people across the world suffering from chronic pain tend to be opioids and anti-inflammatory drugs: OCTP is developing treatments that would act more precisely, focusing on the body’s endocannabinoid system (ECS) that helps regulate physiological functions such as pain, mood, memory, sleep, appetite, and immunity.
Since listing in 2021 OCTP’s primary focus has been securing regulatory approval for its flagship drug candidate, OCT461201, which targets neuropathic and visceral pain caused by nerve damage or disease, and which the company’s current forecasts suggest could be commercialised within five years. OCTP’s research indicates that OCT461201 can reduce pain within models of chemotherapy-induced peripheral neuropathy and irritable bowel syndrome, markets that analysts estimate could be worth some $2.37bn in the next five years, and possibly more than $7bn once combined with other small fibre neuropathies. OCTP secured approval for and passed Phase I trials earlier this year, allowing the company to progress the treatment’s development.
OCTP is active on several other fronts, notably the progression of a second lead candidate, OCT130401, a drug-device combination that delivers phytocannabinoids (pCBs) to patients suffering from trigeminal neuralgia (TN) with a pressurised metered-dose inhaler. TN causes debilitating and excruciating pain, can take hold with unexpected speed, and is difficult to treat with conventional systemic medicines. OCTP’s proposed treatment sends pCBs to the lungs via inhalation using a simple pressurised metered dose inhaler (pMDI) similar to an asthma inhaler. The company says this alternative route of administration bypasses issues associated with oral delivery of cannabinoids such as onset time, poor bioavailability and high first-pass metabolism. The programme is now ready to enter Phase I clinical trials, subject to a fundraise.
Since going public OCTP has rapidly expanded the library of proprietary cannabinoid derivatives the company draws on for research. It initially held a library of 93 proprietary cannabinoid derivatives, soon supplemented through a license agreement with Canopy Growth Corporation opening access for their entire pharmaceutical cannabinoid derivative library, including 335 derivatives and intellectual property rights including 14 patent families and associated research data. The company continues to expand its library, which now includes some 500 proprietary compounds, through ongoing research.
OCTP also researches the potential of cannabinoids to alleviate cancer symptoms, and even treat their underlying causes, work which began to bear fruit this summer when the company confirmed it is expanding its research and development strategy into oncology, having identified a potential ‘first in class’ immunotherapy agent for the treatment of solid tumours. Analysis of the initial data showed ‘excellent drug-like potential in terms of in vitro potency and selectivity to target, as well as in vivo availability in blood’, implying ‘substantive potential for the development of a cannabinoid-based medicine that could be taken at home, as a tablet’. The programme is targeting a share of a market of therapies against solid tumours projected to be worth $532bn by 2032. OCTP will now focus on further in vitro and in vivo studies to highlight the full potential of its lead oncology candidate, undertaking a safety-pharmacology assessment before forwarding it for final candidate selection, ‘likely during 2024’. The company’s cancer research will be carried out using its existing cash resources. OCTP’s final results for the year ended 30 April 2023 reported reserves of approximately £2.3m at year-end (2022: £9.2m), which it expects to last until next April.
OCTP’s commitment to securing regulatory approval for its cannabis-based prescription treatments means this stock might best be considered as a longer term hold. As the example of GW Pharmaceuticals indicates, the commercial reward may be very great for investors prepared to stay the course through the regulatory and financial challenges the company will have to negotiate. OCTP has successfully passed all of the milestones it set itself on going public, and added new products to its range. Trading at 0.7p at the time of writing, with a market cap of £6.46m, OCTP may be well placed to progress in 2024.
Poolbeg Pharma
With multiple programmes moving through the trials process, rapidly evolving AI-led drugs discovery processes, and cash in hand, Poolbeg Pharma (AIM:POLB) is at a similar stage in its journey to another venture seeded by Cathal Friel’s Raglan Capital, Amyrt Pharma, sold earlier this year for $1.5bn. Those ambitions were confirmed last month with the appointment of senior executives who drove the Amryt deal to POLB’s leadership team.
POLB commercialises an extensive clinical data repository developed by another Raglan Capital enterprise, hVIVO, in the course of 20 years of challenge trials testing how the body’s immune system can be boosted to overcome viruses including SARS-CoV-2, influenza, RSV, and HRV.
POLB 001, currently the company’s flagship technology, is a ‘Phase II-ready p38 MAP Kinase inhibitor’ promising an effective treatment for inflammation suffered by patients with severe influenza, a condition triggering ‘cytokine storms’, violent whole-body responses to infection causing sudden cardiac events, tissue damage, pneumonia and sepsis. POLB 001 is designed to more directly target hyperinfammatory episodes than existing treatments.
The technology has passed Phase I trials confirming its safety for human use, and patents for both the European and US markets have been secured. A validated manufacturing process is also in place, giving the company the flexibility to produce POLB 001 as and when required for the development of diseases beyond influenza. Human challenge clinical trials, a major stepping stone towards Phase II trials, got underway last summer, have also been passed. POLB has continued to explore the potential of POLB 001 beyond severe influenza, strengthening the company’s position for partnering and out-licensing. A patent application for the use of POLB 001 as a treatment option for the cytokine side-effects that affect up to 95pc of cancer patients recieving CAR T cell therapy was submitted earlier this year, with efforts to move towards clinical trials in progress. A patent application for Japan was approved last month.
While progressing POLB 001 the company has advanced POLB 002, a novel, ‘first-in-class’ RNA-based immunotherapy for respiratory virus infections. It has secured an exclusive licence to the dual antiviral prophylactic and therapeutic candidate – at a late-pre-clinical development stage – targeting pan-respiratory virus infections, which could include influenza, Respiratory Syncytial Virus (RSV), covid and others.
POLB has also signed an Option Agreement with University College Dublin to licence POLB 003, MelioVac, a vaccine for melioidosis, an infectious disease commonly found in the soil and surface groundwater of tropical and subtropical regions. Also known as Whitmore’s disease, the infection – for which there is no approved vaccine – is widespread in south-east Asia, northern Australia and India, and is spreading to South America. A patent application for POLB 003 was submitted earlier this year, with POLB continuing to review partnering and non-dilutive funding opportunities.
POLB also continues to pioneer the use of AI technology in biotech, exploring its potential to identify new treatments more swiftly and accurately than classic ‘manual’ research procedures. Late last year the companyused AI analysis tools developed by research partner OneThree Biotech to facilitate the identification of new drug targets and treatments for RSV. Another deal, with CytoReason, allows analysis of influenza disease progression data derived from human challenge study samples. This summer POLB announced that the partnership had made significant progress, using AI processes to expedite the discovery of multiple novel drug targets for the treatment of influenza. Disease progression data from the influenza human challenge trials, together with CytoReason’s broad repositories of curated disease data, were analysed using CytoReason’s AI-led platform, identifying novel drug targets in just 15 months, circumventing a process that would have otherwise have taken years. Earlier this month POLB prioritised a number of RSV drug candidates through AI analysis.
POLB continues to pursue several other initiatives. The company leads an Oral Vaccine consortium, EncOVac, which has been awarded a €2.3m grant by the Irish Government’s Disruptive Technologies Innovation Fund to develop a Phase I clinical trial ready oral vaccine candidate. The company continues to work towards orally delivered metabolic disease treatments. It is preparing for the clinical trial of an ‘Oral GLP-1’ agonist proof-of-technology, which aims to determine that a Glucagon-like Peptide 1 receptor (GLP-1) agonist can be successfully delivered orally in humans POLB’s licensed technology. And a strategic collaboration agreement with ‘a Nasdaq listed biopharma company’ is developing an oral drug to treat a metabolic condition.
POLB retains a robust cash balance of £14.1m (as at 30 June 2023). The company’s share price is up nearly 50pc this year, to just over 9p at the time of writing, taking its market cap to £43.5m. With cash in hand, an evolving product programme, and a proven, ambitious management team, POLB seems well positioned for 2024.
S4 Capital
S4 Capital (LON:SFOR), the digital advertising, marketing and technology services company led by Sir Martin Sorrell, endured a challenging 2023 but remains positioned to take advantage of evolving industry trends.
The company, which employs more than 8,000 people, is building ‘a purely digital advertising and marketing services business, which disrupts analogue models by embracing content, data & digital media and technology services in an always-on 24-7 environment, for global, multinational, regional and local clients and for millennial-driven influencer brands.’ It is focused on digital media and transformation markets at the heart of developing trends ‘around Blockchain, the Metaverse, AI and Quantum computing, which facilitate visualisation and copywriting productivity, better targeted content and greater scale, more automated media planning and buying, and improved client and agency efficiency.’
SFOR had a mixed H1 2023 reflecting client caution regarding commitment to extended sales cycles in an uncertain economic environment. Like-for-like net revenue was expected to be down on the prior year, and net debt was expected to rise. Regarding the company’s three well defined practices, Content had a challenging first half, with like-for-like net revenue down slightly, which impacted margins significantly. Data&Digital Media saw modest like-for-like net revenue growth, and traded at reduced margins. Technology Services, however, continued to perform strongly, with growth rates in digital media and transformation remaining above those of traditional analogue markets.
SFOR’s ‘whopper’ strategy of building broad scaled relationships with leading enterprise clients continued to drive growth. Revenues from the company’s top 20 clients grew 8.9pc on a like-for-like basis in H1 2023 and the average size of its top 20 clients increased from £14.3m to £15.5m. Client conversion continued at scale, with like-for-like revenue growth from top 20 clients of 8.9pc and top 50 clients of 11.4pc. SFOR’s top 50 client cohort delivered similar revenue growth of 11.4pc on a like-for-like basis and their average size increased from £7.0m to £7.7m. Initial traction from the company’s AI initiatives with clients such as Nvidia, AWS and Adobe was ‘encouraging’. Over the longer term SFOR continued to expect its growth to outperform the wider market and operational EBITDA margins to return to historic levels of 20pc and above. Revenue growth was particularly strong in the US.
A Q3 Trading Update published last month reported continuing ‘challenging trading conditions’, with billings £450.3m down 7pc reported and 1.4pc like-for-like. Revenue was down 18.1pc reported to £245.9m, down 13.0% like-for-like. Q3 earnings reflected lower activity levels in Content and Data&Digital media, prompting the company to reduce headcount. But year-to-year growth from top clients continued, with like-for-like revenue growth up 2.9pc and at the top 50 up 4.6pc.
SFOR rapid rise may have been checked by tough economic conditions, but this ambitious company seems well positioned to take advantage of better times, continuing to record strong growth in the industry’s most technologically advanced sectors. The company’s price is down 70pc this year to 48p at the time of writing, taking its market cap to £283m. But it has stabilised in recent weeks, and may now be on the turn.
SEED Innovations
Managing a fund invested in an array of cannabinoid (CBD) ventures and other avant-garde growth stocks, Seed Innovations (AIM:SEED) has had a subdued year in difficult markets. But with divestments contributing to a cash pile of £7.1m the company is on the lookout for new investment opportunities.
SEED seeks to give retail stockpickers access to ‘growth opportunities that have significant potential and would normally be inaccessible to private investors.’ The company’s portfolio takes positions in a range of wellness industries but has a conviction stake in the future of the medical cannabis sector, with significant holdings in CBD and hemp-derived ventures in Europe, North America and Australia.
This year yielded evidence of the potential of SEED’s strategy, divestment of holdings in two investee companies realising premiums to original investment. The exit of 56pc of SEED’s position in Avextra AG, a German based, European vertically integrated medical cannabis company, realised €2.9m in cash, a 62pc return on investment. SEED remains a supportive shareholder, with a 3pc stake in the company, which this year successfully exported EU-GMP standardised cannabis extracts manufactured at its German facility to its distribution partner in Italy, increasing its European footprint and validating its extract focused business strategy. SEED also realised €5.8m from its stake in Leap Gaming, a developer and provider of 3D gaming technology and products with a focus on virtual sports and gambling. The first tranche of €3m was received on completion of the deal with the balance due next April. Following the deals SEED’s net asset value (as at 30 September 2023) was £14,611,908, equal to net assets of 6.87 pence per Ordinary Share – approximately 2.75 times the company’s current share price. The company went on to implement a share buy-back to increase net asset value and liquidity.
SEED’s most recent interim report, for the six months to 30 September 2023, offers a useful summary of its other principal holdings. The company has a 17.8pc stake in Juvenescence Ltd, a life sciences company developing therapies and consumer products to modify and support heathy aging focused on improving and extending human lifespans. It has an 8.1pc position in Clean Food Group Limited, a British based food Technology Company which aims to become the leading independent UK cultivated food business, developing a sustainable yeast technology that produces cultivated, sustainable alternatives to palm oil and soy protein, two ingredients in food and cosmetics with currently massive and still growing demand and negative environmental impact. SEED has a 3pc holding in Northern Leaf Ltd, focused on becoming a key player in the European medical cannabis supply chain, having already built a secure operational facility in Jersey. And, beyond the health sector, it has a 4.1pc stake in Inveniam Capital Partners, a private fintech company which built Inveniam.io, a powerful technology platform that utilises big data, AI and blockchain technology to provide surety of data and high-functioning use of that data in a distributed data ecosystem.
Following this year’s divestments SEED is on the lookout for new opportunities. The company says ‘Investments sought will be in sectors which have, or have the potential for, significant intellectual property, principally in the wellness and life sciences sectors (including biotech, longevity of life and pharmaceuticals) along with aligned technology sectors (including artificial intelligence and digital delivery).’ It will also ‘consider investments in established industries where the business is applying new technologies and/or ‘know-how’ to enhance its offering or taking established business models or products to new markets.’
The company’s share price has held up this year through tough market conditions, currently trading at 2p, taking the company’s market cap to £4.15m. Trading at an approximate 60% discount to net asset value SEED is one to consider for investors looking to build a position in an intriguing suite of otherwise inaccessible health and tech ventures.
Vinanz
Cryptocurrency newcomer Vinanz (AQSE:BTC) has soared in value as it has rapidly scaled up its Bitcoin mining capacity.
BTC joined the AQSE in April, raising a gross £755,000 to build a network of Bitcoin miners across North America. The company’s immediate ambition is to offer UK investors exposure to the currency as the date of its next ‘halving’ approaches. Bitcoin’s protocol specifies that only 21 million coins can be mined, with the rate at which new coins can be created decreasing by half after each new tranche of 210,000 blocks. Some 19 million coins have already been mined, and – in line with past halvings – the price is expected to rise sharply after the next adjustment, expected this coming April.
Bitcoin is up some 140pc over the past 12 months, standing at just over $33,000 at the time of writing, recouping the losses it sustained in the wake of the fallout following the failure of the Terra currency last May. The surge reflects anticipation for the next halving, and signs that – last year’s controversies notwithstanding – the coin has resumed its winding journey towards winning acceptance from the wider financial sector. Expectations are rising that the Securities and Exchange Commission (SEC) will reverse its long held opposition to the trading of spot ETFs holding Bitcoin, a big step towards the validation of Bitcoin as an established asset class, offering consumers a cheap and safe way to trade the token instead of buying it directly from unregulated crypto exchanges.
BTC has designed a low-cost growth model to take advantage of the coin’s gathering momentum. Rather than owning and running its own data centres, and risking the associated costs, the company pays fixed monthly fees to professional data centre companies charged with installing and maintaining Bitcoin ‘miners’, the powerful computers capable of performing the complex calculations through which new coins are generated.
BTC went public with 20 miners, but soon added another 100, and ramped up its operations further earlier last month, raising a gross £350,000 to acquire 250 additional machines, which will triple the size and power of its mining fleet, increasing its total processing rate to around 38 PH/s (one petahash produces one quadrillion hashes per second). The full expanded complement of 371 miners, when ultimately installed and spinning by year end, is expected to be capable of adding a new Bitcoin to BTC’s wallet about every 10 days or so, generating a wallet value of around $1m on today’s prices. CEO David Lenigas told StockBox earlier this month that the company is ‘aiming for about half of the current Bitcoin price as our breakeven’. BTC completed the acquisition of 170 of the miners earlier this month. Another deal, with software company Luxor Technology, will introduce software that will supercharge the company’s mining performance.
BTC’s volley of announcements underlines the company’s ambitions to boost production in the runup to the halving, and to continue to expand rapidly thereafter. In another StockBox interview Mr Lenigas said: ‘I’d like if we could get 10,000 miners spinning in North America by the end of 2024 – that’s my dream. When you look at some of the companies in North America that have got that – I think the biggest is like 33,000 miners – their market cap is phenomenally huge. But a lot of those really big mining companies are pretty much debt burdened and have a lot of leverage on their cash flow. We want to try and build our low-cost, debt-free model out as much as we can.’
BTC offers crypto investors access to the Bitcoin market without having to purchase the coins themselves. The company’s value has surged over the past few weeks from just under 3p to 8.5p at the time of writing, propelling its market cap to nearly £10m.
Westminster Group
Westminster Group (AIM:WSG), a specialist security and services group with a network of agents and offices in more than 50 countries, is looking ahead to important new anti-terrorist legislation positioning the company for recovery from a subdued 2023.
WSG’s principal activity is the design, supply and support of advanced technology security solutions encompassing a wide range of surveillance, detection, tracking and interception technologies for governments, military, non-governmental organisations (NGOs), air and seaports, critical infrastructure and major organisations and corporations worldwide. The company currently delivers products and services to 35 countries around the world.
WSG’s results have been low key so far this year, the economic slowdown impacting customers’ ability to fund new capital-intensive contracts. The company’s revenues for H1 2023 were £3.5m, down from £3.9m for the previous period. In addition to tough market conditions WSG had to weather an exceptional £234,000 impact from exchange rate losses and the termination of a port operation in Ghana, for which WSG received $500,000 compensation.
But cost control and an increase in high margin services sales allowed the company to report an increased gross profit of £2.2m (H1 2022: £2m) equating to a gross margin of 64pc (H1 2022: 51pc), and deliver a significant improvement in EBITDA loss to £98,000 (H1 2022: loss £648,000), ahead of budget for the half year. Its cash balance as at 30 June 2023 was: £0.1m (2022: £0.4m).
WSG secured some significant new contract wins through the year, including the sale of explosive detection systems to Saudi Arabia and security equipment to a leading French airport. West African airport operations continued growth seen in 2022, the company’s guarding business performed well, and services for clients such as the Historic Royal Palaces were expanded. The company was selected to provide security for the Echo of Superbloom display at the Tower of London, and its training businesses traded at record levels, securing various new contracts and continuing to provide services at one of the UK’s largest airports.
The company is well positioned to provide services relating to the Martyn’s Law (Protect Duty) legislation featured in this year’s King’s Speech, which will set out standards to protect patrons and the general public from terrorist attacks when in crowded spaces. The legislation evolved from a campaign by Figen Murray, the mother of Martyn Hett – one of the 22 victims of the 2017 Manchester Arena Bombings – who has since been lobbying for stronger security measures at venues and events to keep the public safe. If implemented Martyn’s Law will be the responsibility of Public Accessible Locations, places to which the public or any section of the public has access, on payment or otherwise, as of right or by virtue of express or implied permission. The Home Office estimates the legislation is relevant to 650,000 UK businesses, including hotels, pubs, clubs, bars and casinos, high streets, retail stores, shopping centres and markets, schools and universities, medical centres and hospitals, places of worship, government offices, job centres, transport hubs, parks, beaches, public squares and other open spaces. WSG products and services such as mass entry screening systems, explosives and narcotics detection, mass casualty kits, risk assessments and process, emergency planning and preparedness, and emergency scenario training, have enabled the company to secure several contracts ahead of the legislation coming into force.
It remains unclear when the legislation will be passed given the uncertain political environment that will prevail in the run-up to the next election. The Home Office website states that while the government remains ‘committed to introducing this important piece of legislation to Parliament … the pre-legislative scrutiny process provided us with important feedback which we have been carefully considering, particularly in relation to the requirements within the standard tier.’ In advance of the Bill’s introduction, ‘the Government has decided to launch a further public consultation on a revised approach to the standard tier … Once the consultation has concluded we will introduce the Bill as soon as parliamentary time allows.’
Prospective investors should keep an eye on the legislation’s passage, which could serve as a major value trigger for WSG, currently priced at 1.4p with a £4.66m market cap.
