The 10 Best Companies on AIM Today

LONDON -- London's Alternative Investment Market is home to some of the U.K.'s most dynamic growth companies. However, it is also where you will find some very speculative, high-risk stocks.

One of the best ways to quickly identify AIM companies worthy of further research is by running investment screens. Statistical filters are an efficient way of separating the winners from the wannabes.

Many AIM shares have a small market capitalization, making them expensive to trade. I've set my filters to reject companies with a market capitalization less than 50 million pounds. Although these are successful companies, that does not mean they have been the best investments on AIM; my filters have screened out big winners like ASOS and Gulf Keystone Petroleum. While both of these companies have been great investments, neither pays a dividend.

Here are my criteria:

  • Market capitalization greater than 50 million pounds
  • Dividend increasing for three years or more
  • Sales increasing for three years or more
  • Sales, dividend, and earnings per share increasing over five years by more than 5% per annum on average
  • Forecast EPS growth of at least 5% over the next year

This demanding set of hurdles whittles AIM down to just 10 great companies.

Company

Price (pence)

EPS 5-Year CAGR*

DPS 5-Year CAGR

P/E (forecast)

Yield (forecast)

Market Cap (millions of pounds)

Abcam

404

45.3%

50%

24.5

1.7%

801

Mulberry

1267

44.3%

27.2%

24

0.7%

756

James Halstead (LSE: JHD.L  )

635

17.3%

18.5%

21.8

2.5%

656

Majestic Wine (LSE: MJW.L  )

455

10%

12.9%

15.9

3.8%

290

Nichols (LSE: NICL.L  )

782

17.1%

9.3%

19.5

2.2%

289

RWS Holdings

535

10.8%

16.4%

17.9

3.2%

226

Albemarle & Bond Holdings

289

21.5%

21.6%

9.8

4.4%

161

Brooks Macdonald

1180

39%

52.4%

16.4

1.8%

129

First Derivatives

473

16.1%

17.4%

11.8

2.5%

79

Portmeirion (LSE: PMP.L  )

494

17%

7%

10.8

4.1%

51

CAGR = Compound annual growth rate.

Four stood out in particular.

1. James Halstead
James Halstead is a specialist floor coverings business. The company supplies the floor materials required by hospitals, schools, factories, etc. Halstead Group's Polyflor division is supplier to some outstanding sites and venues around the world. For example, Polyflor can be found in the Melbourne Cricket Ground and staff areas of one the world's largest cruise liners, Princess of the Seas.

James Halstead, by one measure at least, is the most successful AIM-listed company of all. For the last 35 years, shareholders in James Halstead have been receiving larger dividends year in, year out. This record surpasses even the blue-chip members of the FTSE 100.

Looking forward, James Halstead is expected to deliver another two years of solid EPS and dividend growth. Earnings per share are forecast to increase 10.7% for 2012, to be followed by 6.9% the year after. The dividend is expected to rise similarly, increasing 9.8% for 2012 and 7% for 2013.

2. Majestic Wine
A company doesn't need to break new ground to be a big success. Majestic Wine has proved that good management and a twist on an old business model can still deliver.

Majestic Wine shareholders have cashed in on the roll-out of the "by the case" wine retail model. The company now operates 181 stores across the U.K. and three in Northern France. Management believes that the ultimate size of the store portfolio could top 330.

Alongside the stores, Majestic also runs a growing online business. In a fractured market, Majestic grew online sales 7.8% last year, meaning that 10% of all U.K. sales are now online. Majestic's brick-and-mortar presence provides free marketing for its Internet business -- something its online-only competitors cannot match.

Majestic currently trades on 15.9 times the consensus estimate for 2013. The dividend is expected to hit 17.2 pence per share -- more than twice the amount paid for 2007.

3. Nichols
Nichols owns a portfolio of soft-drink brands. The most significant of these is Vimto. Others include Panda and the U.K. rights to Sunkist.

Nichols can trace its roots back to 1908, when John Noel Nichols first created Vimto. For historical reasons, the fruit cordial is incredibly popular in the Middle East -- especially during the month of Ramadan -- and this remains a growing market for Nichols. Recent sales figures revealed 11% growth there last year. Africa is also a significant market for Nichols. Here, sales increased a remarkable 27% in the year.

Nichols has been increasing its dividend every year since 2005. Growth in earnings and dividend is expected to continue for the next two years. Analyst consensus is for 9% EPS growth for 2012, followed by a similar progression in 2013.

The company's success has driven Nichols' share price to an all-time high.

4. Portmeirion
In Spode and Royal Worcester, Portmeirion owns two of the world's most renowned ceramics brands. Portmeirion's combination of manufacturing skill and marquee brands has forged an incredibly strong business.

While the Diamond Jubilee provided a boost to sales that won't be repeated, North America is actually Portmeirion's largest market.

Portmeirion has not cut its dividend to shareholders since 1988. With its most recent results, the company reported a significant (and growing) net cash position. Although EPS fell sharply for 2008, the company has managed an average of 17% compound annual earnings growth rate over the last five years. By the same measure, the dividend has been increasing at a rate of 7% per annum.

The shares trade at 11.5 times last year's earnings and 10.8 times the 2012 forecast. With the dividend yield expected to reach 4.1%, Portmeirion looks like a quality company trading at a reasonable price.

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Further investment opportunities:

David does not own shares in any of the above companies. The Motley Fool owns shares of RWS Holdings. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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