Two professional investors tell us where they’d put their money. Matt Tonge and Victoria Stevens of the Liontrust UK Smaller Companies Fund pick Aim-listed firms that will survive Brexit turmoil.
With Brexit looming, a key question for investors is the potential impact on smaller listed companies. If we leave without a deal, many that rely on our links with the EU will suffer short-term turbulence as we all get used to a new trading environment.
The problem of tariffs has already been largely offset by a weaker pound, but red tape and logistical problems could prompt some small caps’ customers to look elsewhere to ensure their supply chains remain uninterrupted.
In this environment, companies shielded from strong competition in their industries are likely to prove the most resilient. One of the most powerful barriers to entry for potential competitors, we believe, is intellectual property: patents, copyrights, trade secrets or know-how that competitors struggle to replicate.
All three of the following companies base their businesses on intellectual property, and their customers would struggle to replace them even if disrupted trade made them inclined to do so.
Protecting offshore wind farms
Since spotting a gap in the market in 2009, Tekmar Group (Aim: TGP) has become the world’s leading supplier of cable protection systems for the offshore wind market. Its patent-protected Teklink system has been installed in the harsh environments at the base of offshore wind turbines over 6,000 times since the company was founded – without a single failure to date. The technology replaces older systems that are unreliable, more difficult to install and more expensive. Tekmar has captured a dominant market share, and with the cost of producing offshore wind now roughly on a par with extracting fossil fuels, demand for this clean source of fuel is sure to keep growing.
Great British engineering is also on display at AB Dynamics (Aim: ABDP), which supplies the global motor industry with advanced testing systems. These comprise driving robots and guided soft targets, allowing car manufacturers to drive their cars around test tracks in a precise and repeatable manner, thus testing the performance of increasingly popular advanced driver-assistance systems.
AB Dynamics has little global competition. Moreover, Euro NCAP, a Brussels-based European transport industry body focusing on car safety, has begun using the company’s products in crash tests. This bodes well for broader industry adoption.
Profit from paper
Finally, we would look to paper manufacturer James Cropper (Aim: CRPR), based in Burneside, Cumbria. This company has applied skills honed over nearly 200 years of paper production – products include book bindings and digital photography paper – to high-performance non-woven materials, which is where their intellectual property comes in.
James Cropper’s technical fibre products division is a world leader in the production of non-woven “veils” – extremely light sheets of fibre that add specific performance qualities to composite materials, such as durability, strength or fire retardancy. The veils are used in a variety of applications, from hydrogen fuel cells to Lockheed Martin’s F35 fighter jets.