Three small Aim stocks with big tax-free potential
A professional investor tells us where he’d put his money. This week: Jonathan Moyes of high net-worth investment service Wealth Club picks three of his top Aim stocks
In August 2013 a rule change enabled investors to hold shares listed on Aim, the London Stock Exchange’s market for smaller, fast-growing companies, in their Individual Savings Accounts (Isas) for the first time. Since many Aim stocks also qualify for inheritance tax (IHT) relief, the new rule gave investors the opportunity to construct an IHT-free Aim Isa.
Building an Aim portfolio is not for everyone. Aside from having to monitor your investments, you also need to ensure they continue to qualify for IHT relief and keep meticulous records of when you bought them. A popular no-hassle solution is to choose a ready-made, professionally managed Aim Isa. We like those run by Octopus, Blankstone Sington and Puma. But some investors will be inclined to do their own research and stock-picking. Here are three of our favourites to consider.
Opening the door to recovery
Epwin Group (Aim: EPWN) is one of the UK’s largest manufacturers of PVC windows, doors and roof systems, selling mainly to the UK construction industry. Like similar companies, it has suffered from the economic slowdown and the deterioration in investors’ sentiment over the last three years, which has affected its valuation. Now, however, with the general election out of the way and the direction of travel on Brexit established, Epwin’s prospects should brighten. A recovery in both consumer and corporate spending could push its valuation and earnings higher. In the meantime, the company generates decent returns on capital (a key gauge of profitability) and is cash flow-generative. Further points in its favour are low debt and an attractive 5% dividend.
Aim’s first law firm
Gateley Holdings (Aim: GTLY) was the first commercial law firm to list on the market in 2015. Since then, performance has been strong, with revenue growing by 14% a year and topping £100m for the first time in 2019. The group is now the UK’s most active corporate legal adviser, acting for all ten of the UK’s largest housebuilders and five of the six largest banks. Partners hold more than 50% of the shares and the business is run conservatively, focusing on the long-term with a strong balance sheet and free cash generation. The shares currently yield over 4%, but there’s also potential for long-term capital growth.
Engineering profits since 1786
Renew Holdings (Aim: RNWH) is a Leeds-based essential engineering-services company focused on the energy, environment and infrastructure markets. The company has a colourful history going back to 1786 and it listed on Aim in 2001. The company has more than doubled its profits over the last five years through organic growth and acquisitions of complementary businesses. It recently announced a strong set of results, including a 23% increase in operating profit to £38.3m for the year to September 2019, on revenues of £600.6m, and a 15% rise in the dividend to 11.5p a share, the eighth consecutive year of increases in the dividend. With a market cap of £395m and only £10m of net debt on the balance sheet, this is an attractively valued business given its growth profile.