This year has been an “annus horribilis” for Aim-quoted companies. The FTSE Aim All-Share index has slumped by 31pc so far this year and has underperformed the FTSE 350 by 27 percentage points.
This should not surprise us though because the smaller companies generally found on Aim are more vulnerable when the economic outlook is challenging and have often lagged larger rivals in previous stock market declines.
Since this year’s extreme inflation and fast-paced interest rate rises were unforeseen by most observers, this column doubts whether today’s widespread doom-and-gloom predictions for next year will prove any more accurate. We therefore remain upbeat about the prospects for our Inheritance Tax Portfolio, even though we must expect plenty of short-term volatility.
Indeed, holdings such as Anpario offer attractive long-term capital growth potential. The company, a producer of natural animal feed additives, recently released first-half results that, while underwhelming, nevertheless highlighted its capacity to survive short-term challenges and capitalise on growth opportunities in the coming years.
In terms of disappointments, rising input costs were only partly offset by higher prices and their effect was magnified by time lags. This meant gross margins declined by eight percentage points to 42pc. Importantly, however, margins have improved in the early part of the second half of the year.
Inflation also caused financial difficulties for some of the company’s customers, which led to reduced demand for its products. And as China’s zero-Covid policy acted as a further drag on sales, the first half of the year proved to be tough.
But the company’s net cash position of around £13m suggests that it has the financial strength to overcome any further difficulties caused by a weak economic outlook. It also provides scope for it to make acquisitions while asset prices are low. The company has kept overhead cost rises to a minimum, while its broad geographic spread means it does not rely on any one region for all of its sales.
Over the long run, growing demand for meat products, especially in emerging markets, and a shift towards natural animal feed additives should catalyse Anpario’s financial performance.
Its shares are flat since their addition to our IHT Portfolio in June 2018. Despite their recent fall, they continue to trade on a relatively rich valuation of 21 times adjusted earnings. However, with a sound business model and the potential to take advantage of a global economic recovery, they remain a worthwhile holding. Hold.
Questor says: hold
Share price at close: 480p
Shares in the video games publisher Team17 have also fallen heavily this year, by 42pc, but they are still 54pc higher than when they were added to Questor’s IHT Portfolio in June 2019.
The company’s recent half-year results showed it was making solid progress in implementing its strategy. Sales increased by 33pc to reach a record level, while gross profits rose by 26pc.
Its StoryToys children’s app has increased its number of payable active subscribers from 130,000 to 250,000 over the past year and has further growth potential after the company entered a long-term partnership with Lego. It also made several acquisitions over the first half of the year and said it expected to deliver full-year performance weighted towards the second half on the basis of a healthy pipeline of new releases.
Clearly, weak consumer confidence and a cost-of-living crisis are unlikely to be conducive to growth for consumer-focused firms. This could mean further share price falls are unavoidable over the short run. But Team17’s net cash of £51m makes it well placed to weather short-term challenges and capitalise on an eventual economic recovery while providing scope for further acquisitions and investment over the coming months.
Trading at 19 times forecast earnings, Team17’s shares are by no means cheap. But its sound finances, buoyant pipeline of new releases and strong record of growth continue to earn it a place in our IHT Portfolio.
Questor says: hold
Share price at close: 436p
Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 6am.
Read Questor’s rules of investment before you follow our tips.