The Investment Column: Dart could struggle to hold its own as fuel costs soar

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The Independent Online

One sure way to wind up some of the advisers who make their living from the Alternative Investment Market is to describe a company's move from the main list as a "move down" to AIM. They much prefer "move across" these days.

One sure way to wind up some of the advisers who make their living from the Alternative Investment Market is to describe a company's move from the main list as a "move down" to AIM. They much prefer "move across" these days.

Dart Group said yesterday it would be the latest in the steady flow of companies making that move. More than 40 per cent-owned by its chairman and founder Philip Meeson, Dart runs cargo planes, distributes fresh produce, and has set up Jet2, a low-cost airline in the North of England.

AIM is more appropriate for the "entrepreneurial style of the company", it said yesterday, and would be cheaper for the company and more tax-efficient for its shareholders. Yet the shares fell 11 per cent, a decline attributable mainly to news of the move.

In part, that reflects technicalities rather than the merits of AIM. Last year, Dart went into the FTSE AllShare index, making it a must-have for tracker funds and opening it up to new investors that may now be dumping the stock. There are also some private shareholders who have put the stock in tax-free savings wrappers who must sell out.

For those with a positive view on the outlook for Dart this creates an obvious buying opportunity. The outlook is not, however, unequivocally positive.

Yesterday's annual results beat broker forecasts but raised the possibility that profits will be flat for the next two years. Six of the company's 20 Boeing 737s have been converted to become Royal Mail planes by night and passenger aircraft by day, with the seats being rolled in every morning in an operation that takes just 40 minutes. This improves efficiency and there are benefits of scale from the routes being added by Jet2. But fuel costs have risen sharply over the past year and it is not clear how much of that can be passed on to Dart's customers.

Although the shares trade on just 11 times earnings, the dividend is not generous and it seems the stock will struggle to gain altitude.

Aim founder Athelney is still a bargain buy

Ten years ago on Saturday, 10 companies began trading on the brand new Alternative Investment Market. What happened to these founding 10? Most have been taken private or taken over. Old English Pub Co became part of Greene King and Country Gardens was bought by Wyevale Garden Centres, for example. Dawson, a newspaper wholesaler, and Lorien, a recruitment firm, are on the main list. But two remain: the investment company Athelney Trust and Formscan, a supplier of hardware and software for scanning and sorting documents.

Formscan has been to hell and halfway back over the decade. After a few years of strong profit growth, it became difficult to maintain margins for document scanning hardware, and then a disastrous software acquisition tied the company's management in unproductive knots for about five years. After spending millions buying it, developing it and marketing it, the software was abandoned in 2002. The group is only now back in profit.

The opportunities from here are more interesting, because US orders for its scanning technology are coming through and its "integrity" business - which ensures confidential documents, usually credit card bills, do not get mixed up - has got some government work up its sleeve.

Athelney has been much more successful. Its manager, Robin Boyle, is a seeker of long-term value investments. He has held Camellia, a plantations owner, and Mountview Estates, a specialist property firm, for the entire 10 years. Historical surveys suggest small caps outperform over the long run, but they are volatile. After being in fashion for the past two years, the outlook is less obviously rosy, but stock pickers such as Mr Boyle can still prosper. Athelney shares' 20 per cent discount to net asset value is unfair given the track record.

If we had to tip just one it would be Athelney, but Formscan looks a speculative recovery play and could pay dividends soon.

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