Three Aim stocks to provide both strong growth and tax relief
Each week, a professional investor tells us where he’d put his money. This week: Jonathan Moyes of Wealth Club picks three fast-growing technology stocks.
The Aim market is increasingly becoming the UK’s go-to destination for backing innovative, fast-growing public companies. More than a quarter of companies listed on the London Stock Exchange’s junior market operate in the technology, healthcare and biotech sectors, compared with just 11% for the main market. Many Aim constituents are also maturing into some of the UK’s most successful businesses. In 2015, just three companies had a market cap greater than £1bn. Today there are 30.
Many – but not all – Aim stocks also qualify for inheritance tax (IHT) relief. They can be held in an individual savings account (Isa) and so they could provide an IHT-efficient solution for the nearly six million Isa investors aged over 65 who hold a total of more than £305bn in Isas. Note that DIY investors building their own Aim IHT portfolios must be careful to monitor their investments, ensure they continue to qualify for IHT relief and keep meticulous records of when they bought them.
We have picked three of our favourite Aim stocks below. Each is a fast-growing technology-based business that may offer some value following the recent pullback in sentiment for growth stocks.
Ideagen: the growing global market in risk
Ideagen (Aim: IDEA) specialises in software that makes risk management and compliance tasks simpler and more effective. Enterprise governance, risk and compliance is a large and growing global market, estimated to be worth $36.1bn annually – and rising to $60.7bn by 2026.
This £800m market-cap business is highly cash generative and uses that cash to acquire smaller complementary software businesses, which it then introduces to its global distribution platform to accelerate growth. It has an ambitious goal of £200m in annual recurring revenues by April 2025. Total revenues have grown from £27.1m in 2017 to £65.6m in 2021. The latest first-half results saw a 33% rise in total revenues.
Kape Technologies: profiting from internet safety
Kape Technologies (Aim: KAPE) is a leading digital security software provider. It employs 750 people in ten locations across the globe and has a market cap of more than £1bn. This is a good example of a highly scalable, fast-growing technology business in a large and growing global market.
A recent trading update revealed 2021 was a record year, with revenues jumping 89% to $230.5m and gross profits expected to come in at roughly $77m, a 97% increase on the prior year. Two strategic acquisitions in 2021 are expected to help propel Kape’s revenues to more than $600m in 2022 and generate profits of more than $166m.
Next Fifteen: a blue-chip client list
Next Fifteen Communications (Aim: NFC) is a global marketing and communications group. It employs more than 2,000 people in 15 locations across the globe and has a market cap in excess of £1bn. Around half its revenues come from selling services to the technology sector, including clients such as Microsoft, Google, Meta and Amazon.
This blue-chip global client base and diverse mix of revenue streams provide some resiliency while giving it exposure to one of the fastest-growing segments of the global economy. A recent trading update for the nine months to October 2021 revealed broad-based growth, with revenues rising 38% compared with the same period the previous year.