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Aggressive Growth Portfolio IV – December 2009 (2707)

 

After the hectic activity seen last month, November proved to be a much quieter period for the portfolio.  Two of the companies within the portfolio, Plastics Capital and Renew Holdings, have announced results during the month and these are detailed in the News Update section.  There have also been some more minor announcements from companies in the portfolio, with Healthcare Locums signing an agreement to train staff in South Korea and Redhall Group announcing two significant contract wins.  The home credit and motor finance group S & U has also expanded its operations, making a small acquisition in the North East.  Further details of these are also given in News Update on page 3. 

It is pleasing to report that the portfolio has increased in value over the month once again.  Although the overall market remains strong, this is not always reflected by the portfolio, as many of the stocks which we feature are special situations or smaller companies.  However, over the last month, the portfolio has increased in value by 4.0% and this compares with increases in the FTSE 100 Share Index and FTSE All Share Index of 4.0% and 3.6% respectively.  Given the fact that we adopted a more negative stance last month by increasing our cash weighting, we believe that this is a more than reasonable performance.   

The star performer in the portfolio during the last month has without doubt been China Shoto.  We recommended shares in this Chinese battery manufacturer back in October when the shares stood at 173.5p and, by the time of last month’s issue, the share price had risen to 209p.  The last four-week period has seen the share price shoot up though as it has soared to 307.5p!!  The company has made no announcement during the month and it can only be assumed that investors have merely come to realise that the shares are very cheap.  News that the company was to be giving presentations to institutions at the end of November and beginning of December has probably also brought the company into the limelight.  Even after the latest run in the share price the shares do not look expensive as earnings per share are forecast to be 47p for the year to 31 December.  The shares remain a buy. 

During the month we received a dividend of £65 from S & U and we also received interest of £4.  This has taken our cash balance to over £9,300 and we have re-invested this in two of the main features this month, buying 5,000 shares in Ashley House and 50,000 shares in Cosalt.  Although this only leaves a relatively small cash balance, we are happy to retain most of the stocks in the portfolio for the time being, although we would expect to make some significant changes next month.

	PERFORMANCE	SUMMARY
	27 November 2009	30 October 2009	Gain/(Loss) %age
Portfolio Value	£67,703	£65,085	4.0
FTSE 100 Share Index	5245.7	5044.6	4.0
FTSE All Share	2676.8	2584.6	3.6

   

	Security	Buying Price (p)	Total Cost (£)	Current Price (p)	Value (£)	Stop-Loss Limit (p)
2,000	Healthcare Locums	128	2,598	264	5,280	120
16,200	Patsystems	19.75	3,248	23.25	3,767	15
6,000	Molins	37	2,253	53	3,180	30
10,750	Advanced Medical Solutions	28.5	3,110	27	2,903	22
8,000	Regenersis	46	3,735	47.5	3,800	32
9,125	Renew Holdings	36	3,334	37	3,376	27
6,875	Bango	46.5	3,245	45.5	3,128	37
36,500	Huveaux	8.75	3,242	7.75	2,829	6
6,000	Driver Group	58	3,532	51.5	3,090	45
2,000	China Shoto	173.5	3,522	307.5	6,150	140
10,000	Plastics Capital	32.5	3,298	43	4,300	25
725	S & U	487.5	3,587	480	3,480	400
1,800	Kentz	182.5	3,334	202.5	3,645	150
2,500	Lees Food	147.5	3,743	156.5	3,913	120
4,000	Redhall Group	126.5	5,136	141.5	5,660	110
50,000	Cosalt	8.625	4,377	8.625	4,313	6.0
5,000	Ashley House	82.5	4,187	82.5	4,125
£764	Cash	-	-	-	764	-
				TOTAL	£67,703

Start date: 1st January 2009 with £50,000.  Cash includes interest and dividends of £1390

ASHLEY HOUSE (ASH) – 82.5p

Recommendation – BUY 

With an excellent track record of earnings growth in recent years, it is somewhat surprising that shares in Ashley House languish just above their lowest level since stepping up to AIM almost three years ago.  The company was formerly on OFEX, which became PLUS Markets, and although trading performance has continually been impressive very few shareholders who have invested in recent years will be sitting on a paper profit.  The current valuation is supported by a strong forward pipeline of projects which should see continued growth.  The balance sheet is strong and this should mean that a progressive dividend policy is adopted moving forward.  Some heavyweight institutional investors are already on board and assuming that the business develops as anticipated in the medium term there should be renewed interest if the share price has not already taken off.
 

Having been established as far back as 1991, the company specialises in the design and construction of new medical centres and GP surgeries.  In 2004 it set up a property company, AH Medical Properties, to purchase properties.  Ashley House is still the asset manager and owns 7% of AH Medical Properties, which is listed on PLUS Markets. 

ACTIVITIES 

The company derives revenue from design and construction work and management services, with the former representing the greater proportion of revenue.  Activities can broadly be split into five areas; 

Primary Care Premises – Historically, the major activity has been the design and construction of medical property facilities that deliver NHS led Primary and Community Care.  The company offers an all in one professional design and construction service, which covers site finding through to feasibility assessment, design, planning, and construction under a ‘Design and Build’ contract. 

NHS LIFT – The Department of Health established the LIFT (Local Improvement Finance Trust) programme in 2001 and these are a series of long-term partnerships between the public and private sector.  The objective of the programme was to generate new, purpose-built primary and social care facilities and Ashley House is a private sector partner in 7 of the country’s NHS LIFT Companies.  Each NHS LIFT company is a public/private partnership made up of 60% private sector partner, 20% local PCT(s) and 20% Community Health Partnerships (part of the Department of Health).

 

Health Parks – These projects are anchored by a GP surgery with a range of additional ‘out of hospital’ services available.  These can include extended diagnostic services, a care home, assisted living units and dementia/special needs units.  These will be supported by a pharmacy, ancillary services such as opticians  and complementary health providers, whilst at the hub there may be a convenience store, café/restaurant, a fitness centre and even key worker accomodation.   

Clinical Services – This business offers strategy and general business expertise, advice on operational management and backroom efficiencies to GP consortia and other clinician groups.  

Asset and Estate Management - Some GPs can benefit from sale and leaseback arrangements. This allows them to either retain and develop existing premises or invest in new premises by releasing equity in their property and Ashley House can manage this though AH Medical Properties.  

FINANCIAL 

The latest results cover the year to 30 April 2009 and these revealed a 20% rise in revenue to £23.8m (2008: £19.8m), whilst pretax profit increased by 9% to £5.53m (2008: £5.07m).  However, earnings per share fell from 12.9p to 10.0p as a result of the dilutive nature of a placing in June 2008 to help fund the acquisition of Babcock & Brown LIFT franchises.  A final dividend of 4p per share was declared although no interim dividend had been paid (2008: 3.7p final, 6p total).  Net assets were £38.7m at the period end (2008: £13.4m) and there was a strong forward pipeline of £245m worth of projects due over the coming two years. 

In April 2009, the company placed 3.5m shares at 65p per share with Invesco Perpetual.  This raised £2.3m for general working capital purposes and to assist with growth plans.  The business is now well funded and although longer term shareholders have seen their stake diluted through placings in recent years, at least there is no issue with borrowings. 

OUTLOOK 

The main threat to the company’s progress and a key point which may explain why the share price remains subdued is the potential for NHS budgets to be constrained going forward.  This is a valid point and the company has acted to protect itself against potential cuts in NHS expenditure.  However, with a net cash position and standing on very modest multiple of earnings, there is room for earnings to come under pressure and the shares to still look cheap.  Even based on historical results the current valuation looks far from stretched. 

The strong pipeline of projects should ensure that growth continues for the foreseeable future.  At this stage uncertainty with regards to NHS spending over the longer term is seen as a threat, but the current pessimism could prove to be overdone. The nature of the business is potentially quite exciting and there should be a good chance that the shares will trade at a premium when investor confidence returns to smaller companies in general.  In the meantime holders can benefit from a healthy dividend payout and the shares should be bought.   

Share Price –82.5p                              Market Capitalisation - £45.9m

2008/09 Price Range – 159p – 67p                Next Results Due - January

Year Ending 30 April	Turnover (£m)	Pre-tax profit (£m)	Earnings per share  (p)	P/E Ratio	Net Dividend (p)	Net Yield (%)
2009	23.8	5.5	10.0	8.2	4.0	4.8
2010 (est)	40.0	8.0	12.5	6.6	6.0	7.3
2011 (est)	65.0	9.0	13.9	5.9	6.8	8.2

 
 

FT Sector: AIM

Address: The Priory, Stomp Road, Burnham, Buckinghamshire  SL1 7LW

Telephone: 01628 600340

Website: www.ashleyhouseplc.com

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