These former AIM underachievers look set to blossom! - The Share Centre

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Christopher Boxall

These former AIM underachievers look set to blossom!

Written by: Christopher Boxall on October 12th 2016

Category: Investments, Shares

With many AIM companies having reporting dates of either 30th June or 31st December, the last few weeks of September saw many announcements from AIM.


While AIM’s star performers continued to impress, we were drawn to results from a couple of former underachievers, whose valuations still look relatively compelling at current levels. 


Swallowfield (AIM:SWL) is a market leader in the development, formulation, and supply of personal care and beauty products and has well and truly been reborn over the past few years. The arrival of Soros Fund Management LLC on the shareholder register is yet another sign of its growing appeal to a broader investor base.

Results for the 52 weeks ending 25 June 2016, announced on 20th September, showed revenue up 10.1% at £54.5m and adjusted operating profit up 79% to £1.79m. Profit before tax and exceptional items more than doubled to adjusted £1.63m (2015: £0.81m) with earnings per share up 91% to an adjusted 12.6p. While these numbers are encouraging they don’t reflect what has really captured our interest!

Swallowfield of today comprises two complementary businesses. The core of the business remains the development, formulation, and supply of personal care and beauty products for customers which include many of the world's leading brands. Alongside this core business, and the bit that excites us, is the increase of the Group’s own brand products which they control from formulation through to distribution. During the year internally developed Bagsy and MR. brands were launched into Debenhams and Boots respectively. They also completed the integration of The Real Shaving Company (which was acquired in 2015) and expansion of its product range.

The big news for Swallowfield came at the end of June 2016 (so no impact on results) when they announced the acquisition of The Brand Architekts which was supported by a fund raise of £8.6m. This rapidly accelerates Swallowfield owned brands portfolio and adds a proven, experienced London-based brand management team to the Group.

Unlike Swallowfield, Brand Architekts doesn’t manufacture but owns and manages a portfolio of mid-premium beauty and personal care brands that are sold in major UK high street retailers and through export. For the financial year to January 2016 it generated revenues of £10.7m, EBITDA of £2.0m and pretax profit of £2.0m – fantastic numbers!

The total consideration of £11m includes a 12 month performance based earn out of £1.85m with the acquisition immediately earnings accretive.

We aren’t keen on the proliferation of management speak and jargon in the results statement (‘Creating for Tomorrow’ …‘Delivering for Today’……‘drive’ and ‘build’ product categories etc) but that’s just us! As it grows its own brand business, Swallowfield is starting to look an interesting long term proposition. Although the shares have risen over 80% over the past few months, at the current price of 287p they trade at an unremarkable 13.8x adjusted estimates of 20.7p for the year ending June 2017 with earnings set to leap over 60% from 2016. The market capitalisation remains a modest £48m and the forecast full year dividend of 5.2p equates to a yield of 1.8%.


AIM-listed construction software specialist Elecosoft plc (AIM: ELCO) had a near death experience as the formerly named Eleco, a provider of Building Systems and Software to the construction industry. Since the dark days of 2013, when the share price fell as low as 7.38p (currently 27p), the group has been reborn. The latest interim results highlight tremendous progress for the £20m market cap business.

Having sold off its pre-cast concrete and building products businesses, as its new name suggests, Elecosoft is now purely a specialist international provider of software and related services. The Group addresses the architectural, engineering, construction and digital marketing industries from centres of excellence in the UK, Sweden, Germany and the US. Its software programs cover project management, construction site management, estimating, timber engineering, 3D design and visualisation, and cloud based digital marketing solutions.

Interim results for the six months ended 30 June 2016 saw revenue rise 10% to £8.8m, of which 47% was from recurring maintenance and support revenue. Operating profit before former Directors termination payments was up 25% to £710,000 and pre-tax profit was up 14% to £557,000.

The all-important cash generated from operating was up 20% to £1,439,000 and the Group had moved into a net cash position of £302,000. This is markedly different to their net debt of £1.5m only a year earlier. There was even a welcome return of the dividend.

The Group’s Powerproject® software is currently being used on the new football stadium for Tottenham Hotspur, the BBC Television Centre and the redevelopment of Chelsea Barracks as well as on other major construction projects. They also received a significant order for Powerproject® from a Top 100 US main construction contractor.

Broker forecasts for the full year ending December 2016 are for sales of £17.2m, adjusted pre-tax profit of £1.4m and eps pf 1.3p, with the full year dividend 0.3p. While the current year earnings multiple of 20x may look quite full, there appears to be plenty to go for and lots of delightful recurring revenue. The attraction of the business is also highlighted by excellent cash generation with annualised Free Cash Flow forecast to be approx. £1m suggesting a FCF yield of 5% at the current valuation.

It’s certainly been a fascinating turnaround!

Christopher Boxall is the Manager of Fundamental Asset Management’s AIM portfolio service (, which may hold shares in companies mentioned in this article. These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.

Tags: AIM, swallowfield, brand architekts, elecosoft

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