Giving a council flat a lick of paint is never going to be the most profitable business, and yet some of the most successful growth stories on the London Stock Exchange's junior market, AIM, over the past few years involve companies doing precisely this sort of work. Exeter-based Connaught has just been crowned AIM company of the year after saying it has grown to have £1bn of maintenance work and facilities management contracts on its order books.
Connaught has moved its focus increasingly to the social housing market, attracted by the billions put behind the Government's "decent homes standard" initiative, which has recently been extended to 2016 and which is encouraging councils and housing associations to modernise run-down properties. The initiative has been another booster to the private sector, which has increasingly been able to persuade authorities to outsource the routine maintenance and repair business, and other services such as gas safety checks.
Connaught has pulled out of the corporate and office fit-out markets, but does still do repair and cleaning work for small businesses. So it is a slightly broader business than Mears, one of the other stars of this sector. But there are plenty of similarities. Both have charismatic leaders: in Connaught's case Mark Tincknell, son of the founder, and Bob Holt at Mears. Both have also strengthened their management with new operational directors this year to reflect the growing business.
The main difference is the price of their shares, with Connaught valued at about 17 times earnings for calendar 2004, compared to 22 for Mears. The explanation? Connaught may well have won best company last week, but Mears walked away with the award for best communications.
Life sciences floats
Two life sciences companies are floating on AIM today. Allergy Therapeutics, which we highlighted here in June, has succeeded in raising the £15m it needs to kick-start major trials of its newest vaccines. These are cures for allergies and asthma triggered by dust mites and hayfever which, the company believes, require fewer injections than treatments currently on the market. It placed new shares at 73p apiece, giving the company an opening market value of £46m.
Also trading today is Sareum, which might just be the earliest-stage drug company on the market. It was formed a little over a year ago by the team from Millennium Pharmaceuticals, after the Nasdaq drugs giant closed down its UK operations. Sareum hopes to find new medicines by using its skills in three-dimensional modelling of the microscopic proteins in the human body. To fund the work, it has raised £2m with a placing of shares at 2p. Zyzygy, the investment group which last week made a bid for Ofex, has a 20 per cent stake, worth £1.4m.
Surfing the zeitgeist
While most dot.com era incubators - set up to invest in, advise and float off potentially exciting new companies - struggled to survive when sentiment switched so dramatically against the tech sector, one incubator was in the happy position of being able to surf not one, but two stock market zeitgeists. CyberChina, which came to AIM in 2001, quickly dropped the Cyber to reflect the end of its dot.com investment ambitions. Now called CYC, its shares have soared back above their placing price as investors salivate over all things Chinese. It floated its first investee company, a tiny intellectual property group called Sinovation, on Ofex earlier this year, valuing its stake at £55,000. Its second dish has proved more popular: a company making packing machines for the drug industry, China Wonder, the first Chinese company to join AIM, started trading earlier this month, and CYC's stake is now worth £1.4m. The hope is that a third dish will prove tastiest of all. CYC is currently subjecting a much bigger company, one making catalysts for oil refineries, to the rigours of accounting standards and Western corporate governance before an AIM float pencilled in perhaps as early as next month. If that comes off, it ought to justify CYC's current hopeful market value of £10.4m.
Felix shares fall
We mentioned Felix here last month, a company whose backers include the celebrities Angus Deayton and David Baddiel and which is trying to raise £5m to fund a national roll-out of its pub games machines. We pointed out the lukewarm City reaction to the fund raising while the shares were trading at 52.5p. Now they have fallen to 31.5p, and the word is that the fund raising could be done as low as 25p. A final decision should come this week.
The management at Diploma, distributor of hi-tech components and laboratory supplies to the drug industry, has had an upbeat meeting with private client brokers in recent days, we hear. The past couple of years have seen the most sustained period of successful share price performance for Diploma since it listed in 1960, after a shake-up that left it concentrating on much higher margin business. The brokers came away particularly impressed by the July acquisition of Somagen, a Canadian company supplying instruments and consumables for blood and tissue tests in hospital labs.
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