One of our Aim stocks has lost 50pc of its value. Here is why we are hold­ing on to it

Gama Avi­a­tion needs to sharpen up its act but the busi­ness still has a lot of po­ten­tial

The Daily Telegraph - Business - - Business - Richard Evans

LON­DON’S ju­nior mar­ket, Aim, from which we choose the hold­ings for our In­her­i­tance Tax Port­fo­lio, is not for the faint-hearted – the tax breaks are there to com­pen­sate for the risks in­volved in buy­ing young, grow­ing com­pa­nies – but even so we did not ex­pect one of our picks to lose half of its value. But shares in Gama Avi­a­tion have fallen by

46.8pc since we added them to Questor’s IHT Port­fo­lio in Jan­uary. They lost al­most 18pc last week af­ter the firm said in a trad­ing up­date that full-year prof­its would be about $3m (£2.3m) less than pre­vi­ously ex­pected.

We asked Nick Hawthorn of Down­ing, whose hold­ing of Gama prompted our orig­i­nal tip, for his re­ac­tion.

He said his firm had not sold any of its shares but de­scribed the trad­ing up­date as “very dis­ap­point­ing”. He said in­vestors’ ex­pec­ta­tions had been poorly man­aged af­ter Gama raised £48m from share­hold­ers in March. Hawthorn at­trib­uted the prof­its warn­ing to in­creased ex­pen­di­ture in pur­suit of growth that had yet to pro­duce re­turns. He said the firm’s de­ci­sion to pur­sue or­ganic growth, rather than ac­qui­si­tions, in its Amer­i­can op­er­a­tions would be slower to achieve re­sults but progress was be­ing made and re­turns on in­vest­ment would be bet­ter in the long run.

“We be­lieve the busi­ness has at­trac­tive at­tributes such as vis­i­bil­ity on man­age­ment fees and main­te­nance con­tracts and global scale, which brings a com­pet­i­tive ad­van­tage and bar­ri­ers to en­try,” he added. “We think there are also po­ten­tial mar­gin im­prove­ments avail­able across the busi­ness.”

He pointed out that var­i­ous ex­cep­tional costs should fall away over the com­ing months, which should re­sult in “cleaner” fi­nan­cial re­sults.

A new fi­nance direc­tor should pro­vide “fur­ther fi­nan­cial rigour” and en­able the com­pany to im­prove fore­cast­ing and the set­ting of “achiev­able ex­pec­ta­tions”, Hawthorn said.

For the mo­ment we will hold on.

Up­date: Michelmersh

There has been bet­ter news from an­other hold­ing, Michelmersh, the brick maker that also joined our IHT

Port­fo­lio in Jan­uary, although we are cur­rently sit­ting on a pa­per loss of 3.4pc.

In its in­terim re­sults pub­lished in Septem­ber, the com­pany said turnover had risen by 43pc to £23.1m, prof­its be­fore tax in­creased by 57pc to £3.8m on an “un­der­ly­ing” ba­sis and the div­i­dend would rise by 51pc to 1.06p per share.

Martin Warner, the com­pany’s chair­man, said: “With a ro­bust or­der book for the rest of this year and into next year, and the mar­ket de­mand for bricks re­main­ing strong, the out­look is pos­i­tive and we are con­fi­dent in meet­ing our full-year tar­gets.” Hold.

In­come Port­fo­lio up­date: Dairy Crest

Sharp move­ments in a share price nor­mally come on the day of a re­sults an­nounce­ment. But in Dairy Crest’s case the shares barely moved on Wed­nes­day fol­low­ing pub­li­ca­tion of its in­terim fig­ures, whereas they had lost 6.1pc six days pre­vi­ously with­out any news from the com­pany.

That de­cline fol­lowed re­lease of a note from In­vestec, the bro­ker, which trimmed about 2pc from its profit fore­casts for Dairy Crest. How­ever, in its re­sults state­ment the com­pany said its ex­pec­ta­tions for the full year were un­changed. None­the­less, the shares are still 6.3pc be­low where they were be­fore In­vestec pub­lished its note.

Sales rose over the half to Sept 30 by 2pc to £224.9m, while “ad­justed” prof­its be­fore tax rose by 13pc to £22.7m (the re­ported fig­ure fell sharply be­cause of one-off fac­tors last time).

Mark Allen, the chief ex­ec­u­tive, said the com­pany was pur­su­ing “a num­ber of op­por­tu­ni­ties” to take its key Cathe­dral City cheese prod­uct “into new in­ter­na­tional mar­kets as well as deepen its pen­e­tra­tion into ex­ist­ing do­mes­tic channels”.

He added: “In­no­va­tion con­tin­ues to shape the busi­ness and we un­der­stand the im­por­tance of stay­ing ahead of the mar­ket and en­sur­ing we are meet­ing con­sumers’ needs.”

Of most sig­nif­i­cance to our In­come Port­fo­lio is that the in­terim div­i­dend was in­creased by 2pc to 6.4p per share.

Read Questor’s rules of in­vest­ment be­fore you fol­low our tips: tele­graph.co.uk/go/questor­rules;twit­ter.com/DTquestor

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