Will 2018 bring changes to the Inheritance Tax qualifying rules for AIM shares?

In this video with IG markets Chris Boxall, co-founder of specialist investment manager Fundamental Asset Management, comments on the rules governing the Inheritance Tax qualifying status of AIM companies.

Chris considers whether the Business Property rules have become too generous and which companies could be most at risk of losing their Inheritance Tax qualifying status.

Fundamental’s associated business Investor’s Champion provides a research tool to help identify qualifying AIM companies. You can access the research tool from the link here.


IG AIM portfolio update – December 2017

In this year-end video with IG markets Chris Boxall, co-founder of specialist investment manager Fundamental Asset Management, provides an update on the AIM portfolio created for IG Markets which continues to perform strongly.

Stocks discussed in this interview include Fulcrum Utility Services, Patisserie Holdings, XL Media, Character Group and Atlantis Resources. The portfolio delivered excellent returns in 2017, with a particularly strong performance from one of the companies discussed in the video here. Chris also offers his thoughts for 2018.


A tale of investment in AIM – a disastrous start becomes highly rewarding!

A recent meeting with the management of AIM quoted CVS Group (AIM:CVS) offered a useful reminder of the benefits of patient investing and staying the course. Hopefully the veterinary group will offer plenty more excitement over the coming years as it dominates the UK market and expands overseas.

We first invested in CVS Group at the time of its IPO in October 2007 at a price of 205p. The IPO saw selling shareholders place £92.6m value of shares with the market capitalisation on IPO approx. £105m. It should be remembered that 2007 was the year that AIM saw a flurry of IPOs with AIM reaching a peak of 1694 companies in the year.

There was no new money raised by CVS and the Group arrived on the market carrying £28m of net debt and a shareholders deficit of £1.5m. However cash generative and appealing the business model might appear, negative market sentiment was clearly not going to be good news for a business with a somewhat fragile balance sheet of this type!

When it joined AIM CVS was already one of the leading veterinary service providers in the UK, operating 45 veterinary practices (consisting of 128 individual surgeries) nationwide and three veterinary diagnostic laboratories. It was also the UK’s largest employer of vets with 271 employed, representing 2.2% of all vets estimated to be registered and practising in the UK.

The business was established in 1999 with financial backing from funds managed by Sovereign Capital Partners LLP with the objective of consolidating the fragmented UK veterinary services market. It had already completed acquisitions costing approximately £32.9m.

Turnover for the year ending June 2007 prior to admission was £38.9m and operating profit £2.9m.

Simon Innes had been appointed Chief Executive in 2004 and remains in the role to this day. Prior to CVS he was Chief Executive of Vision Express from 2000 to 2004, over which time he built the business up to £220m turnover and 205 practices. The growth strategy that was successful at Vision Express formed the model of that being implemented by CVS.

Notwithstanding the apparent defensive qualities of the veterinary sector CVS subsequently saw its share price tumble from 242p to a low of 79p, a near 70% sell-off. While we didn’t feel brave enough to whole heartedly commit further client funds we retained a position in the CVS for many of our clients and as things started to look more assured started buying again.

Fast forward 10 years to 2017 and CVS has just reported record results.

Group revenue for the year ending 30 June 2017 leapt 24.6% to £271.8m, with like-for-like sales growth for the Group of +6.3%. Of this The Veterinary Practices Division contributed the lion’s share, growing revenue 25% to £247.9m.

Operating profit rose 46.2% to £17.2m, cash generated from operations increased 10.8% to £37.2m and profit before tax increased 58.4% to £14.5m. Basic Earnings per share increased 59.5% to 18.5p.

CVS acquired 62 surgeries in the financial year and now own 432 surgeries in the UK and the Netherlands. In the UK the equine business has also expanded strongly.

The business is now managed across four divisions: Veterinary Practice, Laboratories, Crematoria and Animed Direct. The Veterinary Practice Division remains the core but all areas are performing well.

The development of their referrals business has been a key priority of late and in October 2015 they opened Lumbry Park in Hampshire, a 13,000 square foot state-of-the-art multi-disciplinary referral centre. This provides a full range of specialisms, using the most modern equipment including both a CT and an MRI scanner. Early teething problems have now been resolved and profitability is now around the corner for Lumbry.

The Group has its MiPet own brand range of products and dual language packaging (English and Dutch) has begun to be introduced so that they can also sell their own brand products in the Netherlands.

The Healthy Pet Club loyalty scheme saw over 53,000 pets added to the scheme increasing membership by 20.9% and bringing the total membership to 306,000. The scheme provides preventative medicine to their customers’ pets as well as a range of discounts and benefits. The Group gains from improved customer loyalty, the encouragement of clinical compliance, protecting revenue generated from drug sales, and bringing more customers into their surgeries. Monthly subscription revenue generated in the year increased to £32.5m (2016: £24.0m) and at the year end, the monthly run rate represented 13.4% (2016: 12.3%) of practice revenue.

CVS also now has 14 emergency out-of-hours sites thereby reducing reliance on third parties for the 24-hour cover that vets are required to provide.

The ten sites in the Netherlands are likely to be joined by others in the short term. This will provide a base from which to establish an integrated business in the Netherlands in a similar way to the UK; the Netherlands is 20% the size of the UK market.

The buying group was enhanced by the acquisition of VetShare and they have now negotiated additional annual rebates for members and sell own brand products to them. We anticipate plenty more gains from improved buying terms over the coming years.

The Group also launched its own MiPet Cover insurance in August 2017 with the initial plan to establish the product in their own practices before considering wider marketing.

A MiNurse Academy was launched in January 2015 and has now helped over 300 nurses learn specialised skills.

A vet graduate training scheme continues to grow and 375 graduates have gone through the scheme in the past three years. The scheme is designed to assist newly qualified vets make the challenging transition from university to day-to-day practice.

Other smaller divisions also performed well as the Group is able to benefit from a broader offering with all divisions serving the practices.

As you can gauge from the above, this business is really starting to dominate all aspects of the veterinary market in the UK.

With plenty more growth to go for in the UK, the Netherlands acquisition strategy in its infancy and ancillary activities such as Laboratories, Crematoria and Animed Direct really now starting to come through, the future looks very bright for CVS.

Those brave enough to have bought shares around the 79p level and held on until now will have enjoyed a 1700% return to date.

Investors in many high flying high growth companies such as ASOS or Amazon and Monster Beverage in the US will have similar stories to tell of multiple share price sell-offs before confidence sets in and the share price and valuation moves to another level. Thankfully CVS’ dip was relatively soon after IPO but no doubt there will be other psychological challenges ahead for investors.

Casting an eye back to the IPO and what went wrong in the early days on AIM, we remain wary that CVS doesn’t overdo the gearing. Net debt at June 2017 year end was £100m and there remained plenty of headroom following an agreed £37.5m increase to its existing credit facility. Thankfully the cost of debt is also considerably cheaper now than 10 years ago. Free cash flow of £23.8m highlights the attraction of the business model and evidently if they stopped acquiring there would be plenty of cash available to pay down debt in quick time.

We anticipate further equity raises to support the likely acquisitions in the UK and Netherlands.

Hopefully investors in CVS will continue to be rewarded for their patience!

If you are interested in investing in high growth companies or AIM shares for Inheritance Tax planning please contact Chris or Stephen at Fundamental Asset Management by visiting the link here.

Our associated research business Investor’s Champion has covered CVS Group since IPO – please visit the link here for their research



IG interview – AIM portfolio update

In the latest video with IG markets Chris Boxall, co-founder of AIM specialist investment manager Fundamental Asset Management, provides an update on the AIM portfolio created for IG  which has performed strongly since inception in September 2016. Stocks discussed include Bioventix, Flowtech Fluidpower, Smart Metering Systems and Watkin Jones. Chris highlights the key attractions of these exciting small caps and what to look for going forward.


IG AIM portfolio update – is AIM over valued?

In the latest video with IG markets Chris Boxall provides an update on the AIM portfolio discussing 4 top performers. Chris also offers valuation thoughts on AIM, including those on a high profile company that has seen its share price soar on recent news.  Stocks discussed include AB Dynamics, Fulcrum Utility Services, MartinCo, Purple Bricks Group, Watkin Jones, and XL Media


AIM’s big currency winners

Christopher Boxall, Manager of Fundamental Asset Management’s AIM portfolio service, has recently been featured in the Share Centre Blog and Yorkshire Post.

‘AIM’s big currency winners’ on the Share Centre Blog identifies four larger AIM companies with significant overseas earnings and predominantly UK based costs, who will be beneficiaries of Sterling’s current weakness. Click here to read this on the Share Centre Blog

An October 2016 Share Centre Blog post identifies former AIM underachievers that look set to blossom! This can be read here 

An article in the Yorkshire Post comments how Pension deficits are weighing on the shoulders of big business but are less of a concern for a large number of Yorkshire’s AIM companies. You read the article here 



Do we really know what we are investing in? Time to reconnect with our investments

The latest investment fund offering from a company called Source, whose web site prattles on about something called Smart Beta, only serves to highlight to us the growing disconnect between investors and their investments. An investment maxim, followed by most of the great investors, was to always ‘invest in what you know’. Unfortunately, in today’s jargon filled investment arena most private investors probably haven’t a clue what they have actually invested in, given the growing prevalence of some bizarre Exchange Traded Funds (‘ETFs’), Structured Products etc. Wouldn’t it be better for investors to have a better understanding of what they were investing in and connect once again with their investments?

Source is yet another provider of ETFs whose product range includes a vast number of collective investment schemes following a diverse number of passive strategies, across sectors, regions, indices, commodities, currencies etc. So rather than invest in something the average person could mildly understand, like a ‘well-known’ index, they invest in baskets of stocks, bonds, or good knows what, largely around some newly created passive index of their own making.

We are all for index investing, which was originally intended to mean passive funds based on leading stock market indices, but, in creating an ever growing number of index based strategies, the financial services industry has managed to complicate a previously simple concept; now that’s a change!

  • Do private client managers outperform?

While many funds are criticised for underperforming the benchmark indices, we believe that many private client portfolios investing in direct equities with much broader investment mandates consistently outperform. Furthermore, with a full knowledge of every stock they hold, clients know exactly how their performance has been achieved.

Direct investment in equities and bonds means private investors have a full understanding of what they are holding. The ease of investing globally also means that private investors can easily build a nicely balance portfolio that isn’t geographically constrained.

Investing in AIM quoted companies for inheritance tax planning purposes necessitates investors holding the shares directly and not via a fund vehicle. This way investors get to know all of their holdings rather than the top 10 holdings of some bland fund, which is usually the case.

It therefore seems foolish for private investors (of more mature years in particular), to gain exposure to this exciting and high performing investment arena via investment funds. In adopting a fund approach private investors would fail to benefit from the attractive inheritance tax breaks that are only available via direct investment. The less liquid nature of small and micro-cap companies also means that funds have much greater difficulty buying and selling in this arena. Investors would also miss out on being better connected with some enticing high growth companies, some of which could be the blue chips of the future!


We advocate investing in what you know and there are plenty of terrific little companies on AIM to know more about!



Flawless performance on AIM from this lovely business offers a great guide of what to look for from a micro-cap

A manufacturer of advanced testing systems to the global automotive industry has just delivered yet another set of fabulous results. While many seem intent on criticising AIM for its looser regulation (and ‘occasional’ problem case) this little business has delivered consistent excellence since arriving on AIM in 2013, with little fanfare I should add. It also highlights the potential to uncover some really brilliant businesses on the junior market if one undertakes proper research and displays a bit of patience. Our latest Blog covers this delightful Group’s journey from AIM Admission which serves as an excellent guide of what to look out for in the search for high performing micro-caps.

– Far from the madding crowd

With its headquarters in the delightful town of Bradford-on-Avon, Wiltshire, AB Dynamics (AIM:ABDP) is engaged in the design, manufacture and supply to the global automotive industry of advanced testing and measurement products for vehicle suspension, brakes and steering both in the laboratory and on the test track. Customers include the research and development divisions of some of the world’s leading vehicle manufacturers, including Ford, Toyota, Daimler, BMW, Volkswagen and Honda. At a time when the automotive industry is under intense scrutiny following the VW (and more recently Mitsubishi) emissions scandal, AB Dynamics excellent engineering offering is in increasing demand.

– Background

Operating subsidiary Anthony Best Dynamics Limited, was founded in 1982 by current Executive Chairman Anthony Best as a design consultancy in mechanical vibration and vehicle suspension to the automotive and wider engineering industry. In 1983, Andrew Middleton joined the Group and added expertise in noise consultancy to the Group’s service offering.

In the 1980s and 1990s, the Group was involved in a number of consultancy projects, including the design of the suspension of the McLaren F1 road car, an active suspension system for Jaguar and the development for Land Rover of a measurement and analytical system for end-of-line noise vibration and harshness called PLATO.


In the 1990s, as the UK automotive industry continued to decline, the Group shifted its focus away from consultancy towards the design and production of vehicle test equipment for automotive manufacturers and suppliers. This led to the design and manufacture of the Suspension Parameter Measurement Machine (SPMM), one of the Group’s key products. The SPMM measures the kinematic and compliance characteristics of vehicles by employing a method of moving the vehicle’s body in a manner that simulates the real motion of a vehicle on the road. This method also allows accurate measurements to be made of a vehicle’s inertial properties and centre of gravity.

Over the years the range of vehicle testing products was expanded to meet the growing demands of the industry. In 1998 it supplied its first steering robot for quantitative vehicle testing on the track and has, to date, supplied over 300 driving robot systems around the world. The Group was also a pioneer in using inertial GPS motion packs to control the path of a vehicle in 2003 and, in 2007, was one of the first manufacturers to sell a driverless system for testing vehicles on the track.


With founder and Executive Chairman Tony Best seeking to enhance the Group’s corporate profile and provide for some succession planning a listing on AIM was the preferred option. Despite his advanced years Tony remain very active in the business.

Tim Rogers joined the Group as Chief Executive in October 2012 in preparation for their launch onto public markets. Prior to joining ABDP Tim was CEO and Executive VP of Clean Diesel Technologies, Inc which specialised in vehicle emission reduction technology.

– AIM arrival

The Group arrived on AIM on 22nd May 2013 with a market capitalisation of a mere £14m having raised gross proceeds of only £2m (net) and with a flawless balance sheet. The founders and senior management also sold down a combined £2.5m on listing to offer a degree of liquidity. The market capitalisation has since grown to £84m, solely organically!

For the full year ending 31st August 2012 prior to arrival on AIM the Group reported revenue of £8.9m and pre-tax profit of £1.9m. Their most recent ‘half year’ results are now exceeding those numbers.

Not long after arrival on AIM came news of two significant contract wins and then a month or so later yet another significant contract win. By the time of the announcement of its maiden AIM results on 7th November 2013 covering the year to 31st August 2013 the share price had already more than doubled to 170p. This was supported by full year results which saw revenue up 37% to £12.2m and operating profit up 22% to £2.2m. Cash had also risen to £6.0m.

The only frustration during this time was uncertainty surrounding a new purpose built factory that they were hoping to build.

The good news continued throughout 2014 including a significant contract win for their Suspension Parameter Measurement Machine (“SPMM”) from China.

Having reassured on 10th September 2014 that results for the year ended 31 August 2014 were likely to be in line with market forecasts, by the end of that month they were saying that profits for the year were now likely to exceed market forecasts due to higher than anticipated profit on a number of contracts. There is nothing like under promising and over delivering!

The most recent full year results for year ending August 2015 saw revenue leap again by 19% to £16.52m and operating profit up a whopping 41% to £3.74m. Net cash at year end stood at an impressive £7.97m.

This week they announced tremendous interim results for the 6 months ending 29th February 2016 with profit before tax up 50% to £2.26m on revenues up 34% to 10.11m.

In summary, up to now this business has delivered all that could be asked of it. More importantly it displays everything one would want from a small high growth business on AIM.

– What to look for in a micro-cap

Senior management receive reasonable salaries, commensurate with the size of the business, and more importantly, have plenty of ‘skin in the game’, via direct equity holdings and some encouraging options; they are therefore well aligned with shareholders. Since listing, principal shareholder Anthony Best has taken the opportunity to dispose of further shares, supporting better liquidity, though still retains a material 37.5% stake in the business.

The group is growing the top line at a terrific rate, supported by internally generated cash and without the need to return to the market for further funding. Growth up to now has also been all organic. Operating margins are a very healthy 22%, cash flow highly positive and a return on equity of 23% is just what one should be looking for.

Newsflow has been regular, if not overwhelming, resulting in regular earnings upgrades.

The Group is debt free and the cash pile has grown to just over £10m. In isolation this looks excessive for a small business of its size, but that will soon be put to good use in supporting the development of the new facility.

It’s worth also noting how, ever since listing, ABDP has reported its results in a timely fashion. Full year results for the year to August 2015 were announced on 12th November and the most recent interims to 29th February 2016 were announced on 26th April 2016. We are always surprised why other AIM companies can’t deliver in this timescale.

– Strong demand for its products

The Group continues to enjoy strong demand for its products and services, with both its established and newly developed range of products driving growth in revenues. Key markets in China, Europe, Korea and Japan remain strong and they see continued spend on R&D by the global automotive industry, notably in the areas of active safety systems and improved vehicle dynamics, where the Group’s products are particularly suited.

Two additional manufacturing units came on line this year more than doubling total floor area to 23,551 ft². The Company also confirmed they were making good progress in the design and build of the new facility which is targeted for completion during 2017 which will bring UK operations together again under one roof and create the necessary headroom for future growth.

A collaboration agreement with Williams Advanced Engineering is currently for a novel Driver in Loop Simulator which will help their car customers develop safer and better cars by combining the driver with computational car modelling.

– Broker estimates lifted again

In response to the latest results the house broker lifted estimates for the financial year ending August 2016 to sales of £20.2m, pre-tax profit of £4.7m and earnings per share of 21.6p. At the current share price of 485p this puts the shares on a fairly punchy current year rating of 22x, although stripping out the cash pile brings that down to a more manageable 19x. Earnings are anticipated to grow to 24.6p in 2017 (PER 19.7x) and as they start to reap the benefits of the new facility, forecast to jump to 32p for the year ending August 2018.


There are bound to be a few speed bumps on the road to further success, which may rock the share price, but AB Dynamics has performed admirably up to now. The move to a larger facility in 2017, increased sales in Europe and Asia and the recent strategic alliance with Williams suggests a very exciting future for this specialist engineer.


Paul Scott’s Small Cap Snapshot – 24th March 2016

Results season is in full swing, so Paul is scrutinising the accounts of dozens of smaller companies each week. We offer below a few interesting stocks that caught his eye.

Paul Scott, the ‘UK’s most prolific small cap blogger’, provides research for Fundamental’s Small Cap Value Portfolio Service.


Laura Ashley (ALY) 24p

Results for the year ended 31 Jan 2016 were a tad disappointing, although delving into the detail revealed that the core UK retail business actually had quite a good year, with profits up. The fly in the ointment was Japan – a big earner for the overseas, franchised operations. Also a £1.3m loss was incurred from the insolvency of Laura Ashley’s Australian franchisee.


Despite this, the business remained remarkably cash generative, and has maintained a dividend payout (for the 5th year running) of 2.0p per share. That equates to a stonking yield of about 8%. Moreover, the business generated enough cash to finance this generous dividend, and it has a relatively strong balance sheet too.
So a very attractive proposition for income seekers. Mind you, we cannot be certain the big dividends will continue, as after all the payout is a policy decision by management. The dominant Malaysian shareholders are certainly not disadvantaging minority shareholders by paying such generous dividends -–long may it continue!


Focusrite (AIM:TUNE) 174p

I had not looked at this company before, but on an initial review a few days ago, I liked the look of it. This is another company with a dominant major shareholder. The company makes innovative electronic equipment for musicians. The organic growth since 2009 is highly impressive. The balance sheet is solid, with £6.2m in net cash.

Clarett Thunderbolt

The only thing I don’t like about this share is the price – at 174p the rating is quite high, at a PER of 18.5x August 2016 estimates. That said, sometimes you just have to pay up for quality. I’ll do some deeper research on this company over time. I find the research process is an ongoing thing – you get to know companies gradually, and build on your knowledge, rather than it being a one-off procedure.

Investor’s Champion has also covered Focusrite since IPO


Synety (AIM:SNTY) 82p

This is definitely not one for widows or orphans! Synety is a very speculative share, which has disappointed in the past – management over-optimism meant that they misjudged the amount of cash required, ending up doing a deeply discounted Placing at 90p last year.

However, the new Chairman, Peter Simmonds, seems to be having a very positive impact on strategy. He of course successfully built up DotDigital, so knows a thing or two about SaaS businesses.

I feel Synety has just reached a tipping point, where it is clearly now funded to breakeven, as set out in the recent results statement narrative. Organic top line growth is running at 103%, which together with cost cutting, means that cash burn has now reduced to approximately £200k per month, and falling. So it should reach breakeven in mid-2017, and has adequate cash + loan facilities, to get there.

Therefore I see potential for a step change in the way this company is valued. Once investors stop fretting about the cash running out, and instead begin to calculate the returns that 100% top line growth, combined with gross margins of nearly 80% can do to the bottom line, then it could get interesting.
That said, the company is not out of the woods yet. If current trends continue, and management sounded confident in a webinar this week, then there could be exciting upside here I think.


Eclectic Bar Group (AIM:BAR) 60p

Not really a sector that I want to invest in – nightclubs and bars often make very poor investments. However the interesting aspect here is that highly respected businessman Luke Johnson got involved last year, buying a stake personally, and becoming Exec. Chairman. Interim results this week show that the company is beginning to turn around, with a loss last year turning into a small profit this year.


So again a very speculative idea, but I like turnaround situations, and might possibly have a small dabble in this one. Although note that the share is horribly illiquid.


Disclosure: Paul holds personal long positions in Laura Ashley, and Synety.