Each week, a professional investor tells MoneyWeek where he’d put his money now. This week: Mike Prentis, BlackRock Smaller Companies Trust plc.
Our investment approach involves finding and investing in companies that have the potential to become much larger over the medium term. Our core holdings include companies such as Senior, Dunelm and Restaurant Group. We supplement these with smaller firms that could in time become core holdings.
Below are several of our holdings that combine strong management, relatively predictable revenues, good growth prospects and sensible valuation; all are Aim-listed.
CVS Group (Aim: CVSG) owns more than 250 veterinary surgeries in Britain and provides a range of services to pet owners, including care, health products and pet cremation. It has also been buying independent vets’ practices.
Recent interim results for the six months to 31 December 2013 showed revenue up 18% and earnings per share (EPS) up 22%. CVS is achieving good like-for-like sales
growth and this looks set to continue.
CVS Group focuses on improving the operational performance of underperforming practices and on building strong customer relationships through the success of its Healthy Pet Club, out of hours services, and online sales, including its own MiPet range of products.
Current year earnings forecasts do not look overly demanding and put the shares at 305p on 16.2 times earnings. That’s not a high rating for a steady business that should continue to grow its earnings.
Advanced Medical Solutions (Aim: AMS) develops and manufactures a range of advanced wound care and wound closure products.
These are sold throughout the developed world, either by its own sales force or through partners. The company’s best-known product, LiquiBand, offers significant benefits over conventional ways of closing wounds following trauma and surgical incisions: it is easy to use, sets faster, is strong and secure, and cost effective.
LiquiBand is the UK’s number one accident and emergency wound closure product. Sales are growing well in other countries, such as America, and the potential for use in operating rooms is substantial.
Revenues rose 13% and pre-tax profits were up 12% last year. At 125p, the shares trade at 21 times current year forecast earnings. That’s not cheap, but the company shows real promise.
Northbridge Industrial Services (Aim: NBI) manufactures, sells and rents loadbanks and transformers mainly used by oil and gas, shipping and power companies. Loadbanks are used to commission, test and service all types of power sources, especially in critical applications.
Results for the year to 31 December 2013 showed revenues up 22%, with organic revenues up 18%, and EPS up 20%, despite the depreciation of the Australian dollar, which has been a headwind to earnings.
Northbridge is seeing a slight swing back towards rental of its loadbanks, which command high margin revenue. Rental involves lower initial profits than outright sale, but does generate more predictable profits over the medium term. Utilisation of the rental fleet is very high, and Northbridge is stepping up manufacturing to meet strong demand.
Management is confident about the company’s prospects, especially in Asia Pacific and the Middle East. Northbridge is capitalised at only about £80m. It trades on a prospective earnings multiple of 14, which looks attractive, given the medium-term growth prospects.