The Investment Column: Snap up Torex Retail as it aims to grow into a global software giant

Will Griffin zinc or swim? Back this miner to continue its successful run - Spark shares offer good potential for the long term
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The AIM market is an ideal home for company managements pursuing a "buy and build" strategy for their business, and it can be a profitable strategy for investors, too.

The AIM market is an ideal home for company managements pursuing a "buy and build" strategy for their business, and it can be a profitable strategy for investors, too.

Mighty companies can be assembled through a string of ever-larger acquisitions (Sir Martin Sorrell's WPP is the best UK example). And AIM's relaxed rules on deal-doing, which require shareholder approval only for takeovers that more than double the size of a company, means managers can cut down on the paperwork and the advisers' fees.

Torex Retail is one of the most ambitious currently on AIM, having done three acquisitions in the past month, including two in a week. It ought to be well worth following.

It is a software company, whose products link store tills with head office to give retailers vital information on customers' shopping habits. It plans to consolidate the still-fragmented UK market, expand its operations in Continental Europe and has now built a bridgehead into the US, with the aim of creating a global software giant selling a wide range of technology to retailers. Chris Moore, the chief executive, wants this to be a £1bn company, no less, in five years.

It may be a moot point whether the value of the whole will be greater than its parts would have been separately. But for the Torex Retail shareholder, as long as acquisitions are quickly earnings-enhancing, as recent deals have been, the gains will be real.

The company's biggest acquisition, of the quoted XN Checkout, has proved less immediately appealing than the others. The synergies are very small, it takes Torex into the more competitive pubs and hospitality sector, and Mr Moore's chairmanship of XN has raised eyebrows. Yet a charm offensive of investors this week appears to be calming nerves.

The first worry is over the US, of which management has little or no experience yet. But its first acquisition, Retail Store Systems, has a good pedigree and will help with the learning experience. The second worry is whether a consumer slowdown will force retailers to put the brakes on technology investment, but Torex can see relatively far ahead and is bullish.

We tipped the shares at 53.5p last September and, on 14 times this year's earnings, they are a buy still.

Will Griffin zinc or swim? Back this miner to continue its successful run

You know all the potential risks with natural resources companies on AIM. The oil or minerals hinted at by early seismic studies may not actually be there, or it may not be possible to profitably extract them. The emerging markets in which these companies operate can be unstable, so the political risks are high. The costs of exploring are high, too, so companies often have to come back to shareholders for more funds. And there is the risk that commodities prices will fall, making once attractive mines uncommercial and sending mining stocks out of fashion.

At least with Griffin Mining, unlike some of AIM's more famous explorers, you don't have the additional worry of a management prone to hype or worse. Over seven years, Griffin has done what it said it would, concentrating its efforts on a site five hours' drive from Beijing, proving up the reserves of zinc that appeared to be there and investing in a new mine which begins production today. It is a wholesome story, and one which has rewarded investors with a share price rise each time progress is proved.

And from here? The zinc price looks set to remain high because of a supply shortage, and the site has unexploited extra potential. It could be making earnings of 5p per share next year and the stock, at 32.5p, is a speculative buy.

Spark shares offer good potential for the long term

There is something about "incubators" which makes them irresistible to the stock market's wilder speculators. All the hope, all the promise of a new technology venture, but several times over, inside a company set up to invest in and nurture start-ups.

IP2IPO, which is spinning out early-stage medical companies, has one of AIM's largest and most gravity-defying market capitalisations, for example. But cast your mind back five years and it was NewMedia Spark which attracted the hype.

Spark still exists. It had annual figures out yesterday and we got to see what remains of its 60 investments from that era. About a dozen of them are still active, and in the year just gone it actually sold one business for real money. Pricerunner, a website comparing shop prices on popular goods, fetched $36m (£20m), four times the investment put in and making a £3m profit for Spark.

Unfortunately, that profit was all but whittled away by write-downs of other investments. However, the net asset value of the portfolio was up from 11.5p in March 2004 to 12.8p. Businesses including Mergermarket (a finance industry database company) and Footfall (whose technology counts shoppers, and which is up for sale) are among four businesses that have started to generate real earnings. There could be a further uplift in future years from businesses involved in downloads to mobile phones.

For the time being, Spark's best investment is its own shares, since at 10p they sit at a discount to assets. They are probably worth a punt between now and winter, when the company plans to begin investing in start-ups again.

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