Tuesday tips round-up: Aim, Melrose Industries, Petra Diamonds

8th Oct 2013 07:24

In the third quarter the number of companies joining the Alternative Investment Market (Aim) was higher than the number leaving for the first time in two years. Somewhat surpirisngly as well, the list of companies who have recently floated on it reads like a laundry list of sectors which have furnished investors with big losses in the past. It is too early to be bullish about Aim. In the second quarter 43 companies left its ranks while only 34 joined. As well, the recent popularity of AIM offerings is partly explained by changes to tax rules that have made the market even more attractive to private investors. To be had particularly in account, investors tend to be beguiled by the latest sector fads, which leaves them vulnerable to sharp drops when those fade. The Aim All-share index has lost about 2 per cent since its inception in 1996. The Numis Smaller Companies Index - referenced to the bottom 10th of the main market, has gained about 8 per cent per annum. Tax breaks and investment fads can only go so far, the Financial Times Lex column warns. News on Melrose Industries' latest disposal broke just as the company was briefing on its latest purchase, the smart meter-maker Elster bought in August last year. Elster, under its ownership, had seen the fastest improvement in the company's history, the company said. Significantly, operating margin targets for the firm have been achieved a couple years ahead of what was expected. Simply put, the company´s strategy of buying undervalued or poorly run engineering businesses, turning them around and selling them again seems to be working. Of more interest is the progress in selling its $1bn Crosby Group lifting business, with several firms - including private equity giant KKR - interested. The sale, and other recent disposals, will trigger another return to shareholders of perhaps 50p a share. Melrose is already looking at its next big acquisition. The shares are a favourite of this column. Unchanged at 296.5p, they sell on a pricey 17 times this year's earnings but still look like good value in the long term, The Times´s Tempus says. Petra Diamonds confounded doubters with first-quarter production figures that suggest output may be running about 10% ahead of the company's own guidance of three million carats for the present year to the end of June. This is despite the effects of industrial action at some of its South African mines. A note from Panmure Gordon suggests that Petra is the best pure diamond play on the London market. The shares look fully valued, though, Tempus thinks. Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.