AIM shares to qualify for the ISAS tax wrapper?

If the proposal to allow AIM shares to qualify for the ISAS tax wrapper goes ahead the market could become a magnet for poor quality companies hoping that investors will buy the shares for the tax breaks rather than the investment case. 

FT Money

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Last week …

… the FTSE100 increased by 1.6% to 6624, its highest level in 79 months. The FTSE 250 improved 1.5% and the AIM All Share was virtually unchanged at 718, a 0.56% increase but the index declined 2.7% over the last 12 months.  Good news from the US on earnings, some macro-economics and the continuing Fed Reserve’s liquidity stimulus is driving investor sentiment.


This week …

… on Wednesday the BOE’s report on Inflation will be the last one with Mervin King and could be upbeat. Also on Wednesday, Unemployment figures are reported and there is a little potential for an unpleasant surprise.  The Eurozone and Germany are likely to report flat GDP figures mid-week. Towards the end of the week will be new US inflation and Consumer confidence figures. While smaller cap investors wait for renewed institutional interest the mildly bullish trend seems set to continue.


Company Reports

Omega Diagnostics (ODX) – £15.23m at 17.75p

Substantial Opportunity

The broadly positive trading update has been followed by the granting of a US Patent for its HIV treatment. Omega, is a medical diagnostics company focused on allergy, food intolerance and infectious disease. The recent trading statement is ahead of the March year-end figures which are to be announced on the 1st July. The Statement anticipates revenue to be £11.26m, which is slightly ahead of last year but profits at £0.8m are lower for a P/E of 14x. The development of the allergy iSYS system has proved complex with “imprecision issues”  which are close to being resolved. The current timeline is for a 40-test menu to be available by the end of FY14, implying significant sales from H215. The strongest business was the consumer Food Detective kit at 27% growth to £1.25m. The newly patented HIV (CD4) test is designed for use in the developing world as it is easier and cheaper than lab tests. It needs no special equipment to run and could play a major future role in monitoring HIV-infected patients to test whether the infection has progressed to the point at which retroviral therapy is required. Omega Dx (Asia) has been fully operational since July 2012 with a full time team of 17 mainly in sales supported by a network of over 60 sub-stockists in 12 states covering all the main metropolitan cities in India. Sales growth could eventually become exciting. Forecasts for 2014 are for turnover of £12.2m for an EPS of 1.6p and a prospective P/E of 11x.


Grant funding and R&D tax relief cloud the cash-flow but at the interims, net debt was £0.4m after deducting long term borrowings of £0.4m.


Armour Group (AMR) – £4.61m at 4.57p

Turned Corner into a Barrier 

An improved six months to February was reported. While sales were down 11% to £16m, a PBT of £0.2m was made compared with a loss of £0.5m. This broadly based consumer electronics group within the home and in-car communications and entertainment markets was a former acquisitive growth stock which has been restructuring for two years. In Armour Home the most difficult product category remains the Alphason branded range of audio-visual furniture. Consumer demand has continued to fall with sales within this product category down by 52%.  Due to difficulties with the UK retail sales channel invested has been made in growing its international business where there was a 27% increase in sales. Sales at Armour Automotive declined 6% which is compensated for by improving margins and reducing costs.  Last September, the second generation of the iO branded in-vehicle music streaming and hands free solutions was launched. Profits are forecast for the August 2013 year-end which could increase to £0.45m for 2014 giving a prospective P/E of 13.2x.


Group net debt at £7.1m is £1.2m lower than a year ago but most solutions are likely to be significantly dilutive.


Avacta (AVCT) – £33.9m at 1.07p

Short Term Pain….

Interim revenues were lower and losses were higher. Avacta is a global provider of innovative diagnostic tools, consumables and reagents aimed at reducing the cost of human and animal healthcare.  Customers  seems to have been waiting for the newest version of the Optim diagnostic device as since the launch in 1st February there have been orders for 10 devices, compared with two in the first half  and there are 125 prospects in the pipe-line. Pre-sales marketing of the AX1 vet diagnostics device is generating good levels of interest. Vet revenues were flat in the first half. In the six months to January 2013, group revenues fell from £1.72m to £1.15m. The loss increased from £506 to £957k. No revenues are expected from the company’s antibody replacement technology for the next couple of years. Avacta have entered the  high growth protein microarrays market for high throughput drug/biomarker discovery and new applications for companion health diagnostics. These microarrays can be used to test whether an individual will benefit from particular drugs. Currently antibodies are used in this area but the Affimer arrays can be developed more quickly and cheaply than antibody arrays, as well as providing scope for a wider range of tests.  Initial sales may come from Affimer reagents. That still means a reduction in full year revenues to July 2013 are forecast from £3.9m to £3.3m and a loss of £1.6m.  Numis have been recently appointed as Broker.



There was a £2.13m cash outflow in the first half but the outflow should be lower in the second half assuming that the cash for the Optim orders comes in before the end of January 2014. Net cash was £2.06m at the end of January 2013.

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