Each week, a professional investor tells MoneyWeek where he’d put his money now. This week: Rahul Sharma, managing director, Neev Capital.
The government is making shares listed on the Alternative Investment Market (Aim) eligible for individual savings accounts (Isas) from August. This means investors will be able to hold smaller, potentially high-growth companies tax-efficiently.
Chosen carefully, the right smaller companies should grow faster than larger ones, clocking up large profits for investors who will be shielded from income and capital-gains tax. Many Aim stocks also qualify for business property relief, which in turn can mean they are exempt from inheritance tax.
But don’t let the tax breaks tempt you into buying just anything. Smaller companies come with more risk. There is no substitute for doing your homework. Hopefully, that should become easier as the increased focus on Aim drives more analyst research.
Here are three of my favourite Aim investment ideas. I believe these have both significant growth potential and the balance-sheet strength to ride out any volatility in their business.
M&C Saatchi (Aim: SAA) operates in the relatively mature advertising agency business, but has significant opportunities to gain market share. It is remarkably global for a firm of its size, and comes with a very experienced team. It is investing in online and digital initiatives in mature Western markets, while establishing a presence in emerging markets.
As a result it has consistently grown at least twice as fast as the sector in recent years. Despite stronger growth prospects, and a debt-free balance sheet (the best in the sector on a relative basis), it trades at discount to larger peers such as WPP, Omnicom and IPG.
Luxury goods maker Mulberry (Aim: MUL) has had its share of hiccups of late. After a tremendous run with several hit products, it has had three profit warnings in a row. Despite a healthy market for high-end goods, Mulberry has suffered from a relative lack of brand awareness among wealthy emerging-market shoppers.
The new CEO aims to deliver more aspirational products and to grow its presence in Asia. It risks losing some shoppers as it raises prices, but making its brand more exclusive is key to sustained growth. The move is timely, as affluent shoppers are increasingly seeking out small brands in order to stand apart from peers.
Blur Group (Aim: BLUR) aims to transform the ways in which businesses buy corporate services, such as marketing and accounting. It runs the Global Services Exchange, an online forum for buyers of corporate services to trade with sellers. This is a $2trn market where pricing is opaque. Obtaining and evaluating bids is labour-intensive. Any solution that delivers firms transparent pricing in a convenient manner has huge potential: doing this for consumers is what led to Amazon and eBay becoming household names.
Businesses seem to like Blur – 20% of business comes from returning clients, such as HSBC. Revenues have more than tripled in each of the past three years and in the past two years the number of briefs the Exchange is handling has risen tenfold and their value has tripled. Blur sees the potential for the Exchange to be transacting nearly $250m of business by 2020, with scope for more upside. Blur’s cut is a 20% fee, so its market capitalisation of $105m looks low in that context.